Insurer Loses Effort to Prove Joint Venture Excludes One Party

September 29, 2016 / Writing and Speaking

By Don R. Sampen, Published, Chicago Daily Law Bulletin [September 20, 2016]

The 7th U.S. Circuit Court of Appeals, construing Illinois law, recently held that an ambulance company’s liability policy provided coverage for an alleged joint venturer as a named insured, and that the coverage extended to claims for sexual harassment despite an exclusion for “sexual abuse.”

The insurer in American Alternative Insurance Corp. v. Metro Paramedic Services Inc., 2016 U.S. App. Lexis 12794 (July 12, 2016), was represented by Pretzel & Stouffer Chtd. Freeborn & Peters LLP represented the ambulance company, Metro.

Female employees of Metro and another ambulance company, Antioch Rescue Squad, brought suit against the two companies, claiming various forms of sexual harassment and related conduct by employees and board members of the two companies. The conduct consisted of various forms of touching, quid pro quo sexual demands and other unprofessional activities of a sexual nature.

The complaint also alleged that Metro and Antioch were a partnership or joint venture, in that they were staffed and operated together, made use of one another’s uniforms and gear and the like. The underlying claims were eventually settled or resolved by way of an offer of judgment.

Antioch was issued a liability insurance policy by AAIC, which provided Antioch a defense and covered its settlements. AAIC, however, refused to defend or indemnify Metro, taking the position that Metro was not an insured.

In denying coverage for Metro, AAIC also relied in part on a sexual abuse exclusion in its policy. In addition, it relied on a clause limiting coverage for “unexpected and unintentional” harm to others.

AAIC thus brought this coverage action to determine its obligations to Metro under the policy. The U.S. District Court granted summary judgment in favor of Metro, and AAIC took this appeal.


In an opinion by Chief Judge Diane P. Wood, the 7th Circuit affirmed. She initially addressed whether Metro qualified as an insured under the policy. She pointed to the “Who Is An Insured” section of the policy, which defined an insured as including “a partnership or joint venture.” Based on that language and the allegations of the underlying complaint, Wood said it was “hard to resist the conclusion” that Metro was a named insured.

AAIC nonetheless advanced several arguments to the contrary. One was that Metro was not identified in the declarations section of the policy as a named insured. But Wood said that point was waived because Metro never raised it in the district court.

It further argued that Antioch was not organized as a joint venture or partnership but was actually a dissolved company. Wood said that point likewise had not been raised below and was waived. It lacked merit in any event, because the underlying complaint alleged sufficient facts to establish the two companies as joint venturers, and that was sufficient.

A third argument was that the allegations in the underlying complaint did not plead all the elements of a joint venture relationship under Illinois common law. Wood said that the parties probably intended the terms “partnership” and “joint venture” to be taken in a generic sense, and that under the dictionary definition of “joint venture,” the allegations were sufficient.

Finally, AAIC argued that by attaching the Metro-Antioch service contracts to Metro’s pleading in the coverage action, Metro disabled itself from contending that it was in a joint venture with Antioch. The reason was that those contracts disclaimed that the two companies were in a joint venture relationship.

Wood countered, however, that the contract language did not deal with the substance of the parties’ relationship. Moreover, even if the parties did not intend a joint venture relationship as between themselves, that did not mean they were not in such a relationship vis-à-vis third parties. Metro, therefore, had coverage as a named insured.

Two last points AAIC raised went to the language of its policy excluding coverage for expected or intentional harm, and the exclusion for sexual abuse. As to the former, Wood said that the underlying complaint made a number of negligence allegations, including negligent supervision and retention. As to the latter, she noted that the exclusion for sexual abuse expressly did not apply to sexual harassment, and much of the conduct alleged fell within the scope of that term.

The court, therefore, affirmed in favor of Metro, finding that the acts alleged were covered by the policy.

Key points

  • Absent evidence otherwise, coverage for someone in a “joint venture” relationship will be construed in accordance with the generic sense of that term, for which a court may seek guidance from a dictionary definition.
  • An exclusion for “sexual abuse” that expressly has an exception to “sexual harassment” will not apply to the latter form of conduct even though it overlaps with the former.
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