Insurer’s Overall Knowledge Brings Duty

June 30, 2017 / Writing and Speaking

By Don R. Sampen, published, Chicago Daily Law Bulletin
[June 27, 2017]

The 1st District Appellate Court recently held that an insurer had a duty to defend an additional insured based on information available to it and reflected in its claim file along with allegations in the underlying lawsuit and other documentation.

The insurer in Pekin Insurance Co. v. AAA-1 Masonry & Tuckpointing Inc., 2017 IL App (1st) 160200 (May 19, 2017), was represented by Pretzel & Stouffer Chtd. Goldberg Segalla represented the additional insured, AAA-1 Masonry & Tuckpointing Inc..

AAA, a construction contractor, entered into a subcontract with Alpha 1 Construction Inc., for construction services. Under the subcontract, Alpha agreed to name AAA as an additional insured on its commercial general liability policy.

The subcontract further provided that Alpha was an independent contractor, that Alpha was to maintain full control over its workers and that the work was to be performed solely by Alpha.

Pekin issued a liability policy to Alpha with a blanket additional insured endorsement. The endorsement also provided that additional insureds were covered only for vicarious liability based on the named insured’s ongoing operations and it excluded liability in any way attributable to the claimed negligence of the additional insured.

An employee of Alpha, Emil Piekutowski, was injured on the job and brought suit against AAA, among others. The complaint alleged that the defendants were responsible for coordinating work, had authority to stop the work and were negligent in various ways, resulting in his injury. Alpha was not named a party.

One of the other defendants in the underlying case, however, Chicago Scaffolding Inc. brought a third-party action against Alpha. The scaffolding company’s third-party complaint alleged that Piekutowski was injured while using scaffolding equipment provided by AAA and that Alpha was negligent in supervising Piekutowski.

AAA’s general liability insurer, Scottsdale Insurance Co., tendered AAA’s defense in the underlying suit to Pekin. Pekin denied coverage on the ground that it did not believe its duty to defend AAA was triggered because AAA was not alleged to have been responsible for damages stemming from Alpha’s acts or omissions, but rather was sued for its own negligence.

Pekin then brought this declaratory action seeking a determination of its obligations. AAA counterclaimed seeking a declaration that Pekin had a duty to defend it in the underlying suit. Scottsdale intervened, agreeing with AAA and seeking reimbursement of defense costs in connection with its defense of AAA.

Upon cross-motions for summary judgment, Scottsdale submitted various documentation. It included Chicago Scaffolding’s third-party complaint alleging Alpha’s negligence in connection with the use of AAA’s scaffolding equipment, and a note from Pekin’s claim file commenting on the circumstances of Piekutowski’s injury. The note indicated that the injury took place during a hoisting operation involving the use of the scaffolding.

The trial court granted Scottsdale’s motion for summary judgment and denied Pekin’s. Pekin took this appeal.


In an opinion by Justice Shelvin L. Hall, the 1st District affirmed. Hall observed that in a declaratory judgment action, an insurer’s contractual duty to defend is ordinarily determined on the basis of the allegations in the underlying complaint.

She further stated, however, that a court is not limited to consideration of those allegations. Thus, it is proper for the court to consider the insurer’s knowledge of true, but unpleaded, information that, when taken together with the allegations in the complaint, indicate that the claim is within or potentially within the policy coverage.

The only time such evidence should not be permitted is when it tends to determine an issue crucial to the determination of the underlying lawsuit.

In this case, Hall said that Pekin’s claim file note constituted the kind of facts that should be considered. Pekin contended otherwise, arguing that the note did not state or suggest that Alpha was negligent.

Hall rejected the argument, saying that the issue was not whether it suggests that Alpha was negligent, but whether the note, when taken together with the underlying allegations, indicate that the claim is potentially within policy coverage.

In particular, she found that when Piekutowki’s allegations against the named defendants were read in conjunction with the claim note and the terms of the subcontract, they created the possibility that AAA could be found liable for Piekutowski’s injuries based on Alpha’s careless or negligent operation of the scaffolding.

Thus, Hall concluded that Pekin’s duty to defend AAA under the additional insured endorsement was triggered.

She further held that the unpleaded facts found in the claim note did not determine any issue crucial to the underlying lawsuit. The court therefore affirmed the summary judgment in favor of Pekin’s duty to defend.

Key point

An insurer’s knowledge of true, but unpleaded, information may be taken into account when determining the insurer’s duty to defend an additional insured.

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