Vicarious Liability Triggers Defense Duty
The 1st District Appellate Court recently held that an insurer had a duty to defend an additional insured who was entitled under the policy to coverage solely for vicarious liability, even though the underlying complaint against the additional insured included no allegation of vicarious liability.
The insurer was represented by Pretzel & Stouffer Chtd. Cray, Huber, Horstman, Heil & VanAusdal LLC represented the additional insured. The case is Pekin Insurance Co. v. CSR Roofing Contractors Inc., 2015 IL App (1st) 142473 (Sept. 21, 2015).
CSR Roofing Contractors was the general roofing contractor for a construction project in Lisle. It hired subcontractor Zamastil Exteriors to perform a portion of the work pursuant to a master subcontract agreement.
That agreement required Zamastil to procure additional insured coverage for CSR that was not limited to vicarious liability. The agreement also provided – as turned out to be relevant here – that both CSR and Zamastil were responsible for complying with all federal safety regulations.
Zamastil obtained commercial general liability coverage from Pekin Insurance, which issued a policy containing a blanket additional insured endorsement that extended coverage to CSR. The language of the endorsement, however, expressly limited coverage to the additional insured’s vicarious liability.
A Zamastil employee, Jordan Lake, subsequently brought suit against CSR for injuries he received at the jobsite. His complaint was limited to claims of direct negligence by CSR. Among the claims, however, were that CSR itself failed to comply with Occupational Safety and Health Administration regulations and that CSR allowed its subcontractors to not be competent in complying with OSHA regulations.
CSR tendered the defense to Pekin, which denied coverage on the ground that its policy limited coverage for CSR to claims of vicarious liability, and the complaint contained no such claims. Pekin also filed this declaratory action.
Following cross-motions for judgment on the pleadings and summary judgment, the trial court found in favor of Pekin, determining that it owed no duty to defend. CSR took this appeal.
No Agreement Ambiguity
In an opinion by Justice Laura Liu, the 1st District reversed. She first addressed CSR’s argument that the limitation on additional insured coverage in the policy had to be considered, and found ambiguous, in light of the requirements of the MSA, which stated that coverage was not to be limited to coverage for vicarious liability.
She rejected that argument, observing that the policy limitation itself was not ambiguous and that the MSA could not be used to read an ambiguity into the insurance contract. She distinguished cases such as Pekin Insurance Co. v. Pulte Home Corp., 404 Ill.App.3d 336 (2010), that contained language suggesting that an underlying subcontract contract could be used to determine whether a duty to defend had been triggered by a complaint.
Those cases, Liu wrote, did not authorize the use of the contract to render otherwise clear language in an insurance policy ambiguous.
Liu also rejected CSR’s argument that the Pekin blanket additional insured endorsement, which extended coverage to persons the insured agreed “in a written contract” to be added as an additional insured, incorporated the master subcontract agreement by reference into the policy. Pekin’s policy referred only generically to Zamastil’s contracting obligations and did not demonstrate an intention to incorporate the agreement for purposes of determining the terms of coverage.
Potential Vicarious Liability
On the other hand, Liu agreed with CSR that the agreement, which CSR had attached as an exhibit to its counterclaim, could be considered in determining whether the underlying complaint potentially alleged vicarious liability against CSR. She initially observed that while the complaint on its face asserted a theory of direct liability against CSR, it contained several allegations suggesting that CSR could be subject to vicarious liability.
In particular, Lake’s complaint alleged that he did not have appropriate safety devices in the performance of his work, in violation of OSHA regulations. It further alleged that CSR allowed incompetent subcontractors on the job, apparently referring to Zamastil.
At their core, Liu wrote, the complaint does not preclude the possibility that CSR could be found liable solely as a result of the acts or omissions of Zamastil. In addition, given the allegations of the lack of adequate safety equipment in violation of OSHA rules, liability could exist as a result of the negligence by both CSR and Zamastil.
Based on these allegations, Liu determined that it was at least possible for CSR to be found vicariously liable for Zamastil’s failure to ensure compliance with OSHA regulations. She therefore concluded that Pekin owed CSR a duty to defend under the additional insured endorsement of the CGL policy.
Accordingly, the 1st District held that the trial court erred in granting judgment for Pekin.
According to this court, if coverage exists only for an additional insured’s vicarious liability, and the complaint against the additional insured does not expressly allege vicarious liability, an insurer may nevertheless have a duty to defend where a potential exists for the additional insured to incur vicarious liability.