Pekin Ins. Co. v. Equilon Enters. LLC

• Citation: 980 N.E.2d 1139
• Decision Date: 09 November 2012
• Docket Number: Docket No. 1–11–1529.
• Parties: PEKIN INSURANCE COMPANY, Plaintiff–Appellant, v. EQUILON ENTERPRISES LLC, d/b/a Shell Oil Products US; Shell Oil Company; and Waldemar Zablocki, Defendants–Appellees.
• Court: United States Appellate Court of Illinois

980 N.E.2d 1139

PEKIN INSURANCE COMPANY, Plaintiff–Appellant,

v.EQUILON ENTERPRISES LLC, d/b/a Shell Oil Products US; Shell Oil Company; and Waldemar Zablocki, Defendants–Appellees.

Docket No. 1–11–1529.

Appellate Court of Illinois, First District, Sixth Division.

Nov. 9, 2012.

Robert Marc Chemers and Richard M. Burgland, both of Pretzel & Stouffer, Chtrd., of Chicago, for appellant.

Kevin B. Duckworth, Russell K. Scott, and Samuel Henderson, all of Greensfelder, Hemker & Gale, P.C., of St. Louis, Missouri, for appellees.

Justice GARCIA delivered the judgment of the court, with opinion.

¶ 1 In this declaratory action arising out of a personal injury suit, the circuit court denied plaintiff Pekin Insurance Co.'s motion for summary judgment on the question of duty to defend and, instead, granted judgment as a matter of law to defendants Equilon Enterprises, d/b/a Shell Oil Products US, and Shell Oil Company (collectively Shell), as additional insureds under the policy. Waldemar Zablocki filed suit for injuries he sustained while lighting a cigarette behind a gas station operated by Summit Shell (Summit), d/ b/a Mary's Station II, Inc. The complaint alleged that Shell and Summit were directly liable for Zablocki's injuries after an explosion occurred while fuel was being delivered to the station. Shell tendered the Zablocki action to Pekin for defense. In its motion for summary judgment, Pekin argued that an endorsement to the policy limited coverage to Shell for "negligence in the granting of a franchise" and a second endorsement limited coverage "to liability arising out of [Summit's] operations * * * [or its] premises." According to Pekin, the Zablocki action did not allege negligence in the granting of the franchise or vicarious liability against Shell, which foreclosed a finding that Pekin owed a duty to defend. On de novo review, we conclude the two endorsements to the Pekin policy when read together are ambiguous. Based on the unclear endorsements, in particular the endorsement that purported to limit coverage to vicarious liability, Pekin has not demonstrated that the allegations of the underlying complaint do not bring the case potentially within the policy's coverage. We affirm the circuit court's judgment that Pekin has a duty to defend Shell.

¶ 2 BACKGROUND

¶ 3 Waldemar Zablocki was injured in an explosion at the gas station operated by Summit. In his personal injury lawsuit, Zablocki alleged the explosion occurred when he lit a cigarette behind the gas station while a truck delivered gasoline to the underground tanks of the station. In addition to Summit and Shell, Zablocki sued A.D. Connor, Inc., the party delivering the gasoline at the time of the explosion, which has no role in this appeal. The Shell defendants, Equilon Enterprises and Shell Oil Company, are subsidiaries of the Royal Dutch Shell Company. Summit signed certain franchise agreements with Shell, which imposed a duty on Summit to name Shell as an additional insured under Summit's liability policy.

¶ 4 Zablocki's complaint, filed September 1, 2009, alleged the following. On September 4, 2007, Zablocki stopped at Summit to purchase grocery items. Simultaneously, an employee of A.D. Connor was transferring fuel from its transport truck to underground fuel tanks at the station. This filling process released flammable gasoline vapors into the air. Immediately upon exiting the store, Zablocki walked into a public alley behind the station to smoke a cigarette. When he attempted to light the cigarette, the small flame ignited the vapors, causing an explosion that injured Zablocki.

¶ 5 Zablocki alleged in his complaint that Summit and Shell "alternatively or simultaneously owned and/or operated" the filling station. Count I alleged negligence against Summit. Counts II and III alleged negligence against the Shell companies separately, each of which he claimed "owned, operated and controlled the premises." The alleged acts of negligence against each defendant were identical. We set them out in full.

"Notwithstanding said duty as aforesaid, the defendant was guilty of one or more of the following negligent and careless acts:

A) Failed to ventilate the accumulated fumes through the use of [a] system to disperse the fumes into the air to a level which would not provide a risk of explosion to those on or about the premise grounds.

B) Continued to use appliances, conduit fixtures, pipes or vents for the dispersion of gas fumes, although it knew or, in the exercise of reasonable care should have known that they were in disrepair and not effective in dispersing said fumes.

C) Failed to post warning signs that there was a risk that said fumes could accumulate in the areas in which plaintiff was on or about the premises.

D) Failed to inspect and test the area where plaintiff was on or about the premises to determine the existence of the fumes that accumulated to explosive or combustive levels."

¶ 6 In its complaint for declaratory judgment, filed on January 21, 2010, Pekin claimed its insurance policy extended coverage to Shell for negligence in the granting of a franchise and to claims of vicarious liability. The Zablocki complaint did not allege that the Shell defendants were vicariously liable for Zablocki's injuries; nor did the complaint allege any fault by Shell in granting a franchise to Summit.

¶ 7 On June 14, 2007, Summit procured the Pekin policy as the named insured with an effective date of July 1, 2007. In accordance with certain franchise agreements, Summit listed Shell as "additional insured" to the Pekin policy. Under the "Optional Coverage" of the policy's "Businessowners Supplemental Declarations," there are two entries for the additional insured, each of which modifies the "Who is an Insured" clause of the policy. The first is listed as "Additional Ins–Grantors of Fran," with the premium listed for the coverage. The second is listed as "Additional Insured–Flat Charge," which lists a separate premium for the coverage. The first endorsement provides, "The person or organization shown in the schedule [is an insured], but only with respect to their liability as grantor of a franchise to you." The second endorsement amends the policy to reflect the following.

"WHO IS AN INSURED (Section C) is amended to include as an insured the person or organization shown in the Schedule as an insured but only with respect to liability arising out of your operations and premises owned by or rented by you."

¶ 8 After hearing argument on Pekin's motion for summary judgment in its declaratory action, with a written response by Shell, with certain franchise agreements between Summit and Shell attached, the circuit court denied summary judgment to Pekin. Instead, on oral motion from Shell, the court granted judgment as a matter of law to Shell, holding that Pekin had a duty to defend. The court reasoned that "the allegations of simultaneous ownership, being incorporated into all applicable counts, triggered Pekin's duty to defend [the Shell defendants] as additional insureds." Pekin timely appealed.

¶ 9 ANALYSIS

¶ 10 Pekin asserts the circuit court erred as a matter of law in granting judgment to Shell because its duty to Shell as an additional insured under the policy was not triggered by the Zablocki action. Pekin claims the policy covers actions that allege negligence in the granting of the franchise by Shell under the first endorsement. Additionally, Pekin argues the second endorsement of July 1, 2007, affords coverage only for vicarious liability based on the "arising out of" language, which the Zablocki action did not allege as the basis for his claims against Shell. As an evidentiary issue, Pekin argues that the agreements Summit and Shell signed, which Shell attached to its response to Pekin's motion for summary judgment, are impermissible parole evidence, which renders them inadmissible on the issue of duty to defend as the insurance contract is not ambiguous. Pekin asserts that our review of whether a duty to defend has been triggered should be limited to the comparison of the allegations in Zablocki's complaint to the provisions of the Pekin policy.

¶ 11 Summary Judgment Review

¶ 12 "The same standard for the grant of summary judgment applies in a case involving a duty to defend claim: ‘Summary judgment is appropriate when there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law.’ " American Family Mutual Insurance Co. v. Fisher Development, Inc., 391 Ill.App.3d 521, 525, 330 Ill.Dec. 561, 909 N.E.2d 274 (2009) (quoting Virginia Surety Co. v. Northern Insurance Co. of New York, 224 Ill.2d 550, 556, 310 Ill.Dec. 338, 866 N.E.2d 149 (2007) ). Our review is de novo. Id.

¶ 13 Duty to Defend

¶ 14 To determine whether an insurer has a duty to defend an action against an insured, generally, we compare the allegations of the underlying complaint to the relevant portions of the insurance policy. Fisher Development, 391 Ill.App.3d at 525, 330 Ill.Dec. 561, 909 N.E.2d 274. "If the complaint alleges facts that fall within or potentially within the coverage of the policy, ‘the insurer is obligated to defend its insured even if the allegations are groundless, false, or fraudulent.’ " Id. (quoting United States Fidelity & Guaranty Co. v. Wilkin Insulation Co., 144 Ill.2d 64, 73, 161 Ill.Dec. 280, 578 N.E.2d 926 (1991) ). Where the insurer rejects a tender of defense based on a provision that it contends excludes coverage, we review the applicability of that provision to ensure it is " ‘clear and free from doubt’ that the policy's exclusion prevents coverage." Id. (quoting Atlantic Mutual Insurance Co. v. American Academy of Orthopaedic Surgeons, 315 Ill.App.3d 552, 560, 248 Ill.Dec. 342, 734 N.E.2d 50 (2000) ).

¶ 15 "Grantor of a Franchise" Provision

¶ 16 We first address Pekin's argument that coverage under the policy for Shell as the "additional insured" is limited to actions alleging "the Shell companies were negligent in granting...