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Owners Ins. Co. v. Seamless Gutter Corp.

2011 IL App (1st) 82924 (Ill. App., 2011)

Words & Phrases

Duty To Defend: Additional Insured

Trial Judge

Martin Agran

Appellate Judge



No duty to defend additional insured based on employee exclusion.

Fact Summary

In Owners Insurance Co. v. Seamless Gutter Corp., the appellate court was presented with a host of issues, including certificates of insurance and their relationship to insurance policies, the use of extrinsic evidence to determine whether there exists a duty to defend, estoppel, and waiver.  Its opinion is instructive in each of these areas and is particularly interesting in light of the fact that it was shaped, in part, by the Supreme Court’s supervisory order instructing the court to be mindful of certain Illinois precedent.

Westfield was a general contractor and Seamless was a subcontractor on a construction site in Illinois.  A contract between the two required Seamless to pay for and maintain commercial general liability insurance naming Westfield as an additional insured.  As required by the contract, Seamless’ insurance agent issued a certificate of insurance to Westfield, but made no reference to Westfield as an additional insured on the certificate.

Owners Insurance Company (“Owners”) issued a commercial general liability policy of insurance to Seamless as the named insured.  The policy excluded bodily injury to “an employee of the insured arising out of and in the course of employment by the insured.”  Auto-Owners Insurance Company (“Auto-Owners”) issued a commercial umbrella insurance policy to Seamless also including the same employee exclusion and naming as additional insureds:

Any person, organization, trustee or estate with respect to which you are obligated by virtue of a written contract to provide insurance such as is afforded by this policy, but only with respect to operations by or on behalf of, or to facilities of or used by you.

Westfield was eventually dissolved, and Cambridge acquired Westfield’s assets, including the construction site.  Cambridge was added as an additional insured to the Owners policy issued to Seamless.

An employee of Cambridge, Gulbrandsen, filed a personal injury suit against Westfield and Seamless for an injury that occurred at the construction site during the policy period.  The complaint contained no allegation that Gulbrandsen was an employee of either Westfield or Seamless.  In an affirmative defense, however, Seamless alleged that Gulbrandsen was the job superintendent for Westfield and was in the course of his employment when he was injured.  Seamless filed a third-party complaint against Cambridge, seeking contribution in the event it was found liable to Gulbrandsen.  Westfield and Cambridge tendered their defenses to Owners, which Owners declined.

Shortly before the Gulbrandsen suit was settled, Owners and Auto-Owners filed a declaratory judgment complaint against Westfield and Cambridge, alleging that Westfield’s rights, if any, were determined by the terms of the Owners policy, not the certificate of insurance and that it had no duty to defend Cambridge under the policy exclusion for bodily injuries suffered by an employee.  Westfield and Cambridge maintained that the insurers were estopped from denying coverage because their declaratory judgment complaint was untimely.  They also argued that the insurers had waived the right to contest Westfield’s status as an additional insured because, prior to the filing of the complaint, Owners had never asserted that Westfield was not an additional insured, but rather had denied coverage only on the basis of the employee exclusion.  Finally, Westfield and Cambridge argued that Auto-Owners had a duty to defend Westfield under the “written contract” provision.  On summary judgment, the trial court held that Owners and Auto-Owners were obligated to defend and indemnify Westfield and Cambridge and that the insurers were estopped from raising coverage defenses.

On appeal, the appellate court affirmed that Owners had a duty to defend Cambridge and that questions of fact existed as to whether Owners and Auto-Owners had a duty to defend Westfield.  However, the Supreme Court issued a supervisory order directing the appellate court to vacate the order and reconsider the determination that Owners owed a duty to Cambridge in light of Pekin Insurance Co. v. Wilson, 237 Ill. 2d 446 (2010).  Upon reconsideration, the appellate court determined that the insurers did not have a duty to defend Cambridge.  It also “revisited” the issue of whether the insurers had a duty to defend Westfield and held that Westfield was not an insured under either of the policies.

In its analysis on reconsideration, the appellate court first considered whether Westfield was an additional insured.  It looked to the certificate of insurance issued to Westfield, as well as the policies, and concluded that, while the construction contract required that Westfield be named as an additional insured, the certificate of insurance did not list Westfield as one.  This should have alerted Westfield that there was question as to its status as an additional insured, requiring it to review the policy and bring the discrepancy to Seamless’ or Owners’ attention.  Also, because the certificate of insurance expressly disclaimed any coverage other than that contained in the insurance policy, Owners had no duty to defend Westfield under the Owners policy.

The court also held that Auto-Owners did not have a duty to defend Westfield despite the “written contract” provision of the Auto-Owners policy because, according to that provision, Westfield would be an insured under the policy if the construction contract required umbrella coverage, which it did not.

As for Cambridge, which was named as an additional insured under the Owners policy, the court held that Gulbrandsen was an employee of Cambridge and in the course of his employment with Cambridge at the time of the accident giving rise to the underlying suit.  Therefore, coverage was excluded under the employee exclusion of the Owners policy.  The appellate court made such a determination specifically in light of Pekin v. Wilson, as referenced in the Supreme Court’s supervisory opinion.  In Pekin v. Wilson, the court noted that, while the “general rule” is that courts look solely to the allegations of the complaint in determining whether there is a duty to defend, the Supreme Court has recognized that courts may look beyond the complaint at other evidence, including third-party complaints.  Considering all of the evidence in the record, including third-party complaints and affirmative defenses, the court held that there was no question of fact that Gulbrandsen was an employee in the course of his employment with Cambridge at the time of the accident, and therefore, there was no potential for coverage for Cambridge under the Owners policy.

As for Westfield and Cambridge’s estoppel argument, the court held that the “estoppel doctrine applies only where the insurer has breached its duty to defend,” and because the court had determined that the insurers had no duty to defend, the estoppel doctrine did not apply to bar the policy defenses.

Finally, Westfield and Cambridge also argued that the insurers waived their right to raise any policy defenses that were not raised in their denial of coverage.  However, the court rejected this argument, stating that “insureds must show that they relied to their detriment upon the insurer’s failure to assert a particular defense.” Because the evidence did not establish that the defendants were prejudiced by the insurers’ failure to raise certain policy defense in their denial of coverage letters, that argument was rejected.