Appeals Court Gives Expansive Treatment to ‘Insured’ as Used in Policy Exclusion

The 1st District Appellate Court recently held that the term “insured” in an auto exclusion for a commercial general liability policy should be given expansive treatment.

As a result, even if an individual falls within a category of “insured” to which the exclusion would not apply, the exclusion may still be effective if that same individual also falls within a category to which the exclusion would apply.

The case is Erie Insurance Exchange v. Aral Construction Corp., et al., 2022 IL App (1st) 210628 (Dec. 27). The insurer, Erie, was represented by Hinkhouse Williams Walsh LLP of Chicago. Klevatt & Associates LLC of Chicago represented the claimant filing suit against the insured, Dragana Petrovic.

Arunas Alasevicius was the sole owner and officer of his carpentry company, Aral Construction. Aral had commercial general liability coverage under a policy issued by Erie. The policy covered the company and, among others, its employees and executive officers.

In addition, Alasevicius was personally insured by State Farm Insurance, which provided coverage for a truck Alasevicius owned in his personal capacity.

In 2017, while driving his truck to check on the delivery of materials for his business, Alasevicius became involved in a traffic accident with Petrovic. She filed suit against him in 2018, and he notified State Farm. Months later in 2019, Petrovic amended her complaint to add Aral, his company, as a defendant.

At that point, Alasevicius notified Erie of the claim. In response, Erie filed the instant declaratory action seeking a determination that it owed no coverage due to late notice and also based on the auto exclusion in its CGL policy issued to Aral. That exclusion barred coverage for injuries arising out of the use of any auto owned or operated by “any insured.”

On cross-motions for summary judgment, the trial court entered judgment for Erie based on the auto exclusion and found it unnecessary to address the late notice issue. Petrovic took this appeal.

Analysis

In an opinion by Justice James Fitzgerald Smith, the 1st District affirmed. He observed that Petrovic’s argument for coverage was based on Erie policy’s definition of “insured” as used in the auto exclusion.

Specifically, the definition set forth various categories of persons that would qualify as insureds. They included “your ‘executive officers’ … with respect to their duties as your officers” and, in a separate category, “your ‘employees,’ other than … your ‘executive officers’ … but only for acts within the scope of their employment….”

Petrovic argued that “executive officers” and “employees” — given the “other than” language in the definition — were two mutually exclusive categories of insureds. Because Alasevicius was an executive officer of the company, moreover, she contended Erie had the obligation to prove he was performing executive duties at the time of the accident, which he was not.

Smith disagreed. He wrote that the definitions of categories of insureds within the Erie policy were expansive rather than restrictive. In addition, Alasevicius ran his carpentry business as both its sole executive and employee. Thus, the exclusion applied regardless of whether he was performing in his capacity as the president of Aral or as an employee at the time of the accident.

Smith also noted that, in the trial court, Petrovic had admitted Alasevicius was an employee, which was all the more reason why the auto exclusion, as applicable to employees, excluded coverage.

The 1st District therefore affirmed in favor of Erie.

Key Point

The definition of “insured” in a standard CGL policy should be interpreted expansively, even when determining who is an “insured” to whom an exclusion applies. Thus, if an individual falls within the definition of an “insured” to which an exclusion applies, the exclusion will continue to apply even if the individual also falls within the definition of an “insured” to which the exclusion would not apply.