Viking Const. Man. v. Liberty Mut. Ins.
| Decision Date | 24 May 2005 |
| Docket Number | No. 1-03-3152.,1-03-3152. |
| Citation | 831 N.E.2d 1 |
| Parties | VIKING CONSTRUCTION MANAGEMENT, INC. and Continental Casualty Company, Plaintiffs-Appellees, v. LIBERTY MUTUAL INSURANCE COMPANY, Defendant-Appellant. |
| Court | Illinois Supreme Court |
Velcich, of counsel), Chicago, for Appellant.
Fisher, Kanaris, P.C. (Jon B. Masini, Scott A. Ruksakiati, of counsel), Chicago, for Appellees.
Defendant Liberty Mutual Insurance Company (Liberty Mutual) appeals from an order of the circuit court entering summary judgment in favor of Viking Construction Management, Inc. (Viking)1 in Viking's declaratory judgment action, declaring that Liberty Mutual owed a duty to defend and indemnify Viking in an underlying lawsuit filed by the Woodland Community School District (Woodland). On appeal, Liberty Mutual contends that the trial court erred in granting summary judgment in favor of Viking because: (1) a breach of contract claim, such as Woodland's, is not covered by its insurance policy; (2) the Woodland complaint failed to allege an "occurrence" covered under the policy; (3) the "your work" policy exclusion bars coverage; (4) Liberty Mutual is not barred, under the estoppel doctrine, from asserting coverage and defense issues; and (5) Liberty Mutual had no duty to indemnify Viking because its policy limits had been exhausted. For the reasons set forth below, we reverse.
On June 8, 1995, Woodland contracted with Viking to provide construction management services with respect to the design and construction of a new middle school. Pursuant to this agreement, Viking was responsible for, inter alia, determining whether construction was proceeding in accordance with contract documents, guarding Woodland against defects and deficiencies in work, managing the quality program, apprising Woodland of practices that were potentially libelous to Woodland due to safety or other concerns, noting all activities of an unusual or significant nature, reporting to Woodland if it observed activities or situations that were unsafe, and observing the quality of work.
On January 26, 1996, Woodland retained Frederick Quinn as the general contractor, who was required to procure a commercial general liability (CGL) insurance policy naming Viking as an additional insured. Quinn did so through Nationwide Insurance Company (Nationwide). On March 26, Quinn hired Crouch-Walker as the masonry subcontractor. Pursuant to their contract, Crouch-Walker was required to obtain insurance, naming Viking as an additional insured. In this regard, Crouch-Walker obtained a CGL policy in the amount of $1 million from Liberty Mutual as well as an excess policy in the amount of $10 million. Viking was named as an additional insured under both.
The CGL policy contained the following general coverage provision:
"SECTION I—COVERAGES
* * *
a. We will pay those sums that the insured becomes legally obligated to pay as damages because of `bodily injury' or `property damage' to which this insurance applies.
* * *
(2) Our right and duty to defend end when we have used up the applicable limit of insurance in the payment of judgments or settlements under Coverages A or B or medical expenses under Coverage C."
The policy applied to "property damage" only if it was "caused by an `occurrence.'" Section I also set forth numerous exclusions. However, with the exception of exclusion (a),2 the exclusions were not applicable to additional insureds, like Viking, pursuant to an endorsement attached to the policy and discussed below.
Section II of the policy defines "WHO IS AN INSURED" and was amended by several endorsements. One, entitled "Additional Insured—Owners, Lessees or Contractors (Form A)," under which Viking was added as an additional insured, provides:
This endorsement provided that exclusions (b), (j), (k), (l), and (n) under Section I, Coverages, did not apply to the additional insureds. However, this endorsement included several exclusions relative to additional insureds, none of which are relevant here. Section V defined various terms used in the policy. "Occurrence" "means an accident, including continuous or repeated exposure to substantially the same general harmful conditions." "Property damage" means "[p]hysical injury to tangible property, including all resulting loss of use of that property."
On October 10, 1996, during the course of construction, portions of a masonry wall collapsed due to inadequate temporary bracing, installed by Crouch-Walker, causing property damage and injuring one of the construction workers. On October 6, 1997, the construction worker, Anita Kratz, filed a personal injury lawsuit against Woodland, Viking, Quinn, and Crouch-Walker (Kratz lawsuit). On August 14, 1998, Woodland filed a lawsuit against Viking (Woodland lawsuit) claiming damages for the repair and replacement of damaged property as a result of the wall collapse. Specifically, Woodland alleged, in its general allegations, that "On October 11, 1996, the north portion of the `E' section of the Woodland Middle School Project collapsed under normal, foreseeable, and expected conditions due to a lack of required bracing and/or construction defects." Woodland then alleged, "[a]s a result of the aforementioned collapse, plaintiff sustained damages * * *, representing the fair and reasonable cost to repair and replace the damaged section of the building." Woodland then set forth count I, the sole count of its complaint, for breach of contract, identifying the following ways in which Viking breached its duties under the contract: failing to warn Woodland of the potential collapse of the wall; failing to warn of the improper bracing; failing to inform Woodland that the construction of section E was not proceeding in compliance with the contract documents; failing to report unsafe conditions; failing to inform of acts or construction practices libelous to Woodland due to safety concerns; and failing to perform its services in a workmanlike manner. Woodland then alleged, "[a]s a direct, proximate and foreseeable result of defendant Viking's breach of contract, plaintiff sustained damages including, without limitation, the cost to repair and replace the damaged portion of the subject middle school building."
On February 10, 1999, Viking tendered defense of the Kratz litigation to Liberty Mutual, which it accepted. On March 3, Viking tendered defense of the Woodland litigation to Liberty Mutual. In July, Viking tendered defense of the Woodland litigation to Nationwide under Quinn's policy. On July 12, Liberty Mutual denied tender of the defense and coverage to Viking in the Woodland lawsuit and, on December 2, Nationwide did the same. On December 7, Kratz settled her lawsuit with Liberty Mutual on behalf of Viking and Crouch-Walker for $966,409.56. On December 13, Viking and its insurance carrier settled the Woodland lawsuit for $600,000.
On October 10, 2000, Viking filed a 13-count declaratory action against Liberty Mutual, Nationwide, and Quinn, with counts I to IV being against Liberty Mutual. In count I, Viking alleged that Liberty Mutual owed it a duty to defend because the Woodland lawsuit sought property damages as a result of the wall collapse. In count II, Viking alleged that Liberty Mutual owed Viking a duty to indemnify. In count III, Viking alleged a cause of action for unjust enrichment and, in count IV, alleged a claims of equitable estoppel against Liberty Mutual. Viking's claims against Liberty Mutual were premised upon the CGL policy only.
On April 13, 2001, Nationwide filed a cross-claim against Quinn and Liberty Mutual and then, on August 23, it filed a motion for summary judgment. On December 21, Viking filed a motion for summary judgment against Liberty Mutual.
On April 8, 2002, Liberty Mutual filed its response to Viking's motion for summary judgment, arguing that a claim for breach of contract was not covered under the CGL policy, the policy limits had been exhausted, and it did not act in bad faith in refusing to defend Viking. On May 14, Viking filed its reply in support of its motion for summary judgment against Liberty Mutual, relying principally on Prisco Serena Sturm Architects, Ltd. v. Liberty Mutual Insurance Co., 126 F.3d 886 (7th Cir.1997) (Prisco).
On June 26, the trial court granted summary judgment in favor of Viking and against Liberty Mutual, finding that Liberty Mutual owed a duty to defend to Viking, that it breached its duty, and that it was estopped from asserting its $100,000 policy limits. However, the trial court did not find that it could say Liberty Mutual's refusal to defend Viking was "vexatious and unreasonable." Ultimately, the court found Liberty Mutual responsible for the $600,000 settlement. With respect to Nationwide's motion for summary judgment against Viking, the court denied this motion, finding there was insufficient evidence to determine whether Viking was an additional insured under the policy.
On July 16, Liberty Mutual filed a motion to reconsider, arguing that the trial court's ruling that estoppel was applicable was erroneous because it was against Illinois law, it cannot be required to pay in excess of its policy limits without a finding of bad faith, and the trial court failed to address the fact that the Woodland complaint alleged only a claim for breach of contract, nor how a potential for coverage existed. On ...
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