Joint Venture Not A Factor In Coverage
February 10, 2009
The 1st District Appellate Court recently held that evidence concerning a joint venture, pursuant to which an insured provided services, was ''extrinsic evidence'' and could not be taken into account in determining whether a commercial general liability policy provided coverage for negligence allegations against the insured, which had been sued individually and not in a joint venture capacity. Clarendon America Ins. Co. v. BGK Security Services Inc., 2008 WL 5382331 (Dec. 19, 2008).
The insured, BGK, was represented by the Shannon Law Group of Woodridge. Stellato & Schwartz Ltd., of Chicago, represented the insurer, Clarendon.
In June of 2002, BGK entered into a joint venture agreement with Aargus Security Systems Inc., to provide security services for a building owed by Cook County at 69 W. Washington St. In early 2003, Clarendon issued a CGL policy to BGK with BGK shown on the declarations page as the named insured. The declarations page further indicated that the ''named insured'' was a corporation.
Pursuant to the insuring agreement of the policy, Clarendon agreed to pay the amounts that ''the insured'' became legally obligated to pay as damages because of, among other things, bodily injury. The ''Who Is An Insured'' section of the policy indicated that ''insureds'' for corporations included the entity's officers and directors.
The ''insureds'' were also defined to include any organization newly acquired by the named insured ''other than a partnership, joint venture or limited liability company.'' In addition, the policy stated that no person is an insured ''with respect to the conduct of any current or past … joint venture … that is not shown as a Named Insured in the Declarations.''
In October of 2003, a fire occurred at the 69 W. Washington building, resulting in 22 lawsuits being filed for injuries and deaths. The complaints were consolidated in the Cook County Circuit Court. BGK and Aargus both were named as defendants or third party defendants. Each complaint, however, apparently named BGK and Aargus in their individual capacities and failed to include their joint venture as a party.
BGK tendered its defense of the underlying lawsuits to Clarendon, which subsequently filed a declaratory judgment action seeking a determination that it had no duty to defend. Clarendon claimed that BGK had undertaken the work at 69 W. Washington as part of a joint venture and not as an insured under the policy.
The parties filed cross motions for summary judgment, and in July 2007 the trial court granted BGK's motion, finding in favor of a duty to defend, and denied that of Clarendon. Clarendon took this appeal.
In an opinion by Justice Margaret Stanton McBride, the 1st District affirmed. She began her analysis by noting the major contentions of the parties. Clarendon claimed that the existence of the joint venture should have been considered by the trial court, in which case no coverage would be provided because the policy effectively excluded coverage for BGK's joint ventures. BGK claimed, on the other hand, that it was entitled to a defense because the underlying complaints had been brought against it in its individual capacity, not as a joint venturer.
McBride observed that none of the complaints named BGK as a defendant in its capacity as a joint venturer, and that it was only when evidence extrinsic to the allegations of the complaints is considered that BGK's status as insured came into question.
Clarendon acknowledged that an insurer's duty to defend generally flows from the allegations of the underlying complaint, but argued that a court in a declaratory judgment proceeding may nevertheless look to extrinsic evidence beyond in the allegations of the underlying complaint. McBride agreed that this was true, but noted further that consideration of extrinsic evidence is not proper when it impacts upon an issue crucial to the insured's liability in the underlying case.
She further said that the allegations against BGK here were not based on BGK's obligations under the contract with Aargus but, instead, claim that BGK itself had a duty to exercise due care and negligently failed to do so. Under these circumstances, McBride reasoned, considering BGK's joint venture status could impact BGK's liability in the underlying litigation, for a determination in the coverage action that a joint venture existed could make each entity responsible for the other's conduct.
McBride therefore concluded that the court in the declaratory judgment action could not look beyond the allegations in the underlying complaints to determine the duty to defend.
Even if it could, said McBride, the provision of the policy relied on by Clarendon to negate BGK's status as an insured was ambiguous in any event. She pointed specifically to the provision that excluded coverage for the conduct of a joint venture if not identified in the declarations, which she found could not exclude coverage under circumstances in which the named insured, and not the joint venture, was named in the underlying complaint.
Clarendon attempted to rely on out-of-state cases in support of its interpretation, but McBride said that not only were the cases not binding, but also none of them involved a duty to defend in which the insured was named in the underlying litigation and the insurer was seeking to deny coverage based on extrinsic evidence of a joint venture.
Based on this reasoning, the 1st District affirmed the trial court decision finding in favor of a duty to defend.
