Insurer Didn’t Show Exclusion Applicability

By Don R. Sampen, published, Chicago Daily Law Bulletin
[December 12, 2017]

The 1st District Appellate Court, reversing the trial court, recently held that an insurer, relying on an exclusion to additional insured coverage, failed to affirmatively establish applicability of the exclusion, and therefore owed a duty to defend the additional insured.

The insurer in Hastings Mutual Insurance Co. v. Blinderman Construction Co., 2017 IL App (1st) 162234 (Oct. 24), was represented by Mulherin, Rehfeldt & Varchetto of Wheaton. Cremer, Spina, Shaughnessy, Jansen & Siegert represented the additional insured, Blinderman Construction.

Blinderman served as general contractor on a project in Chicago. It subcontracted the electrical work to JM Polcurr Inc. in Westchester. One of Polcurr’s employees, Robert Woods, suffered a severe injury on the job, and his estate brought suit against Blinderman.

Hastings Mutual Insurance Co. issued a liability policy to Polcurr, on which Blinderman was an additional insured. The policy language, however, excluded coverage for the additional insured for “liability arising out of the sole negligence of the additional insured.”

The complaint against Blinderman alleged various acts of negligence by Blinderman but was silent about any conduct of Polcurr. Blinderman, nonetheless, tendered its defense to Hastings. Blinderman also filed a third-party action against Polcurr, alleging that it committed various acts of negligence.

Hastings brought the instant declaratory action, claiming that it had no duty to defend Blinderman. The parties filed cross-motions for summary judgment, with Blinderman supporting its position with its third-party complaint and depositions of two Polcurr employees.

Relying on the lack of allegations concerning Polcurr’s negligence in the underlying complaint, the trial court found that the exclusion for liability arising from Blinderman’s sole negligence applied and held for Hastings. Blinderman filed this appeal.

Analysis

In an opinion by Justice P. Scott Neville Jr., the 1st District reversed. Neville initially observed that an insurer has the burden of establishing the applicability of any exclusion. He also cited to Pekin Insurance Co. v. Centex Homes, 2017 IL App (1st) 153601, for the proposition that the fact that an injured employee’s complaint does not include allegations against the employer cannot be construed as establishing a lack of negligence by the employer.

Rather, the lack of such allegations may be simply the result of a lack of expectation of recovery by the employee against the employer. Thus, their absence does not meet the insurer’s burden of establishing applicability of an exclusion.

Hastings relied on Pekin Insurance Co. v. Roszak/ADC LLC, 401 Ill.App.3d 1055 (2010), in support of its position. According to Hastings, Roszak stands for the proposition that in the absence of allegations in the underlying complaint suggesting that the subcontractor acted negligently in causing its employee’s injury, the subcontractor’s insurer had no duty to defend the general contractor as additional insured.

Neville, however, distinguished Roszak on the ground that the court there was relying on language in the additional insured’s insuring agreement, which provided coverage only with respect to liability incurred as a result of some negligence of the named insured subcontractor.

Because the limiting language appeared in the coverage grant, not an exclusion, according to Neville, the burden there was on the additional insured to prove the language did not apply. Here, by contrast, the burden was on Hastings to establish applicability of the exclusion.

Neville also noted Blinderman’s argument that the trial court erred in not taking its third-party complaint against Polcurr into account. That pleading would be relevant, however, only if Blinderman bore the burden of proving that Polcurr’s conduct may have contributed to the injury. Because it had no such burden, Neville found it unnecessary to address Blinderman’s argument further.

The court therefore held that Hastings had not met its burden of proving Polcurr’s lack of negligence, as required by the policy exclusion, and it reversed the judgment in favor of Hastings and held for Blinderman.

Key point

An insurer’s burden of establishing applicability of an exclusion to coverage for an additional insured based on the additional insured’s sole negligence, is not met by the absence of allegations in the underlying complaint concerning the negligence of the named insured, but the absence of such allegations may be relevant if the limiting provision is contained in the insuring agreement.