Starnet Ins. Co. v. Ruprecht, No. 20-1192
| Court | United States Courts of Appeals. United States Court of Appeals (7th Circuit) |
| Writing for the Court | Rovner, Circuit Judge. |
| Citation | 3 F.4th 342 |
| Decision Date | 28 June 2021 |
| Docket Number | No. 20-1192 |
| Parties | STARNET INSURANCE COMPANY, Plaintiff-Appellee, v. Adam RUPRECHT and Daniel O'Reilly, as Independent Administrator of the Estate of Patrick O'Reilly, Deceased, as Assignees of Deerfield Construction Co., Inc., and Westfield Insurance Company, Defendants-Appellants. |
3 F.4th 342
STARNET INSURANCE COMPANY, Plaintiff-Appellee,
v.
Adam RUPRECHT and Daniel O'Reilly, as Independent Administrator of the Estate of Patrick O'Reilly, Deceased, as Assignees of Deerfield Construction Co., Inc., and Westfield Insurance Company, Defendants-Appellants.
No. 20-1192
United States Court of Appeals, Seventh Circuit.
Argued December 2, 2020
Decided June 28, 2021
Terry A. Fox, Attorney, Christopher Louis Gallinari, Attorney, Flaherty & Youngerman, P.C., Chicago, IL, for Plaintiff-Appellee.
Sean M. Houlihan, Attorney, Power Rogers LLP, Chicago, IL, for Defendants-Appellants.
Before Easterbrook, Ripple, and Rovner, Circuit Judges.
Rovner, Circuit Judge.
StarNet Insurance Company filed suit in diversity seeking a declaratory judgment specifying that the terms of a workers’ compensation and employers liability policy it issued to P.S. Demolition, Inc. obligate it to pay nothing more for a workplace injury than the amounts that Illinois workers’ compensation law requires P.S. Demolition to pay its injured employees. The district court entered judgment on the pleadings in favor of StarNet. StarNet Ins. Co. v. Ruprecht , 2019 WL 6877599 (N.D. Ill. Dec. 17, 2019). We affirm. Our reasoning tracks that of the district court.
I.
This insurance coverage dispute arises out of a construction accident. Deerfield Construction Co. was the general contractor on a project to convert a defunct Ruby Tuesday restaurant at a Vernon Hills, Illinois shopping mall into a Maggiano's Little Italy restaurant. P.S. Demolition, Inc. had a subcontract with Deerfield to demolish the façade of the restaurant. In the demolition subcontract, P.S. Demolition agreed that it would provide all labor, material, equipment, and other things necessary to fulfill its obligations in a workmanlike manner, including taking all necessary safety precautions. P.S. Demolition also agreed to indemnify and hold Deerfield harmless from all claims, including a claim for bodily injury caused in whole or in part by P.S. Demolition, even if Deerfield itself might have caused or contributed to the injury.
On December 26, 2013, P.S. Demolition employees Patrick O'Reilly and Adam Ruprecht were engaged in demolition work at the site when an unsecured piece of capstone fell from the building, killing O'Reilly and injuring Ruprecht. Ruprecht and O'Reilly’s estate each filed personal injury lawsuits in Illinois state court, which were later consolidated, against Deerfield as the general contractor and P.S. Demolition as the subcontractor, charging them with construction negligence. Deerfield in turn filed a counter-complaint against P.S. Demolition which, as amended, included a claim for contribution. See 740 Ill. Comp. Stat. § 100/2(a) ; Doyle v. Rhodes , 101 Ill.2d 1, 77 Ill.Dec. 759, 461 N.E.2d 382, 385–87 (1984) (although workers’ compensation statute will foreclose suit against employer by injured employee if raised as affirmative defense, third party who shares liability for injury may nonetheless seek contribution from employer).
The Illinois Workers’ Compensation Act sets forth a schedule to determine compensation for specific workplace injuries and imposes corresponding limits on an employer's liability for such injuries. In this case, the Act limited P.S. Demolition's liability to O'Reilly’s estate to the sum of $5,993.91 and its liability to Ruprecht to the sum of $25,229.15. By virtue of the Illinois Supreme Court's decision in Kotecki v. Cyclops Welding Corp. , 146 Ill.2d 155, 166 Ill.Dec. 1, 585 N.E.2d 1023 (1991), those same limits would ordinarily apply when a third party to the employment relationship like Deerfield sues an employer in contribution for its pro rata share of common liability for a workplace injury. This is known as the " Kotecki cap."
An employer can enter into an agreement to waive the Kotecki cap, however.
See Virginia Sur. Co. v. Northern Ins. Co. of N.Y. , 224 Ill.2d 550, 310 Ill.Dec. 338, 866 N.E.2d 149, 155 (2007) (collecting cases). The state court held that P.S. Demolition had done just this when it agreed to indemnify Deerfield and hold it harmless for any injuries arising from P.S. Demolition's work. Thus, Deerfield was free to seek contribution from P.S. Demolition for the latter's full pro rata share of liability for the injuries to O'Reilly and Ruprecht, notwithstanding the Kotecki cap.
After a bankruptcy court determined in a Chapter 7 proceeding that P.S. Demolition had no assets, the state court determined in the consolidated personal injury suits that P.S. Demolition's liability would be limited to its available insurance coverage.
In February 2019, as the personal injury suits were proceeding to trial, Deerfield (along with its insurer, Westfield Insurance Company, which we may ignore for present purposes) settled with Ruprecht and the O'Reilly estate for a sum substantially in excess of $75,000 plus an assignment to them of Deerfield's contribution claim against P.S. Demolition.
StarNet was P.S. Demolition's employer liability insurer at the time of the accident. In the wake of the settlement with Deerfield, StarNet, stepping into its insured's shoes, entered into a stipulated settlement with Ruprecht and the O'Reilly estate. Among other things, the parties stipulated that (1) Ruprecht and O'Reilly were P.S. Demolition's employees at the time of the accident; (2) P.S. Demolition admitted liability in the underlying action and agreed to entry of a judgment against it in the amount of $1 million; (3) this judgment reflected P.S. Demolition's pro rata share of the tort liability to Ruprecht and the O'Reilly estate; (4) StarNet reserved its defenses to insurance coverage for the accident that injured Ruprecht and O'Reilly; and (5) in the event that Ruprecht and the O'Reilly estate prevailed against StarNet in a declaratory judgment action as to coverage for the accident, StarNet would pay them a total of $1 million.
Ruprecht and the O'Reilly estate proceeded to dismiss their negligence claims against P.S. Demolition. This resolved the underlying personal injury suits.
Part Two of the workers’ compensation and employers liability policy that StarNet issued to P.S. Demolition provides that StarNet will pay all sums that P.S. Demolition is legally obligated to pay because of bodily injury suffered by its employees. Those sums include damages for which P.S. Demolition is liable to a third party to indemnify that party for any damages that the third party is required to pay as a result of an injury to P.S. Demolition's employee. At first blush, then, the StarNet policy potentially would cover the damages that P.S. Demolition owes directly to its injured employee as well as any amounts for which it is liable in contribution or indemnification to a third party (like Deerfield) based on the same injuries.
However, the StarNet policy also contains an...
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