Policy Precludes Third-Party Coverage Bid

The 3rd District Appellate Court recently held that an additional insured under a liability policy could not establish its right to coverage by relying on allegations contained in its third-party complaint against the named insured.

The insurer in Pekin Insurance Co. v. Illinois Cement Co., LLC, 2016 IL App (3d) 140469 (March 29, 2016), was represented by Pretzel & Stouffer Chtd. Herbolsheimer, Henson, Duncan, Gift, Eiten & Hintz P.C. in LaSalle represented the additional insured, Illinois Cement Co.

Illinois Cement hired Perino Plumbing & Heating Inc. to provide labor and materials to install a trash pump on Illinois Cement’s property. Prior to performing the work, Perino procured liability coverage from Pekin containing a blanket additional insured endorsement extending coverage to parties with whom Perino had a written contact to include as an additional insured.

The existence of such a contract became an issue in the case. The parties nonetheless stipulated that, for purposes of the appeal, Illinois Cement was an additional insured on Pekin’s policy issued to Perino. The coverage provided to the additional insured, however, was limited to any vicarious liability that the additional insured might incur. The endorsement disclaimed coverage for the additional insured’s own negligence.

An employee of Perino, Michael Hanson, became injured on the job and brought suit against Illinois Cement. Hanson’s complaint alleged that Illinois Cement was negligent in a variety of ways that led to his injury. The complaint said nothing about Perino.

Illinois Cement tendered to Pekin, which denied coverage on the ground that Hanson’s complaint alleged only direct negligence by Illinois Cement and did not allege any negligence by Perino that could give rise to Illinois Cement’s vicarious liability. Thereafter, Illinois Cement filed a third-party complaint against Perino, which alleged, among other things, that Perino committed various acts of negligence in connection with Hanson’s injury.

Pekin then brought this declaratory action seeking a determination of its rights and obligations with respect to Illinois Cement. Upon Pekin’s motion for summary judgment, the trial court found that it had no coverage obligation; ICC brought this appeal.

Analysis

In an opinion by Justice Vicki R. Wright, the 3rd District affirmed. She observed initially that Illinois applies an “eight corners” analysis in determining whether an insurer has a duty to defend and whether the case falls potentially within coverage.

That analysis involves comparing the four corners of the insurance policy to the four corners of the underlying complaint, including any third-party complaints, although she said there are limitations on third-party complaints.

Before addressing those limitations, Wright took up Illinois Cement’s argument that a certificate of insurance attached to Perino’s policy identified Illinois Cement as an additional insured. She agreed that it did, but that the language of the certificate stated that the coverage provided was subject to the terms and conditions of the Pekin policy. The certificate, therefore, did not confer any rights to Illinois Cement separate or additional to those of the policy itself.

Wright then confirmed that Hansen’s complaint alleged only the direct negligence of Illinois Cement as the basis for its liability, which negligence was excluded from coverage under the policy. Illinois Cement’s third-party complaint alleged the negligence of Perino, which could have provided a basis for Illinois Cement’s vicarious liability. Consideration of those allegations, however, was limited by the 3rd District’s decision in Pekin Insurance C. v. United Contractors Midwest Inc., 2013 IL App (3d) 120803.

In that case, the court found an absence of allegations in the underlying complaint of negligence by a named insured, that could have given rise to an inference of the additional insured’s vicarious liability. The court also found that the trial court should not consider the self-serving facts set out in the additional insured’s third-party complaint against the named insured as a basis for a finding that the insurer had a duty to defend the additional insured based on vicarious liability.

Wright found that the language of Pekin’s additional insured endorsement in the instant case, limiting coverage for additional insureds to vicarious liability, was identical to the policy language in United Contractors. In light of these analogous circumstances, Wright said that the trial court, as dictated by United Contractors, properly refused to consider Illinois Cement’s self-serving third-party complaint to create a duty for Pekin to defend Illinois Cement.

The court, therefore, affirmed summary judgment in favor of Pekin.

Key Point

Where coverage for an additional insured is limited to vicarious liability, and the allegations of the underlying complaint against such insured involve only direct negligence, a court may not rely upon the allegations of the additional insured’s third-party complaint against the named insured in determining whether the insurer has a duty to defend.