American Alternative Insurance v. Metro Paramedic Services, Inc.
75 F. Supp. 3d 833
N.D. Ill.2014Background
- AAIC insured Antioch Rescue Squad (ARS) under a policy with Management Liability (ML) and General Liability (GL) forms; Metro Paramedic Services provided personnel to and jointly operated the Rescue Squad with ARS.
- Claimants sued ARS and Metro for sexual harassment, assault and battery, negligent supervision/retention, discrimination, and retaliation (the Volling litigation); Metro tendered defense to AAIC and AAIC refused.
- Policy: ML covers employment-practices injuries and "wrongful acts"; GL covers bodily injury from an "occurrence." Policy includes (1) a blanket additional-insured clause for persons "liable for [ARS]’s employment practices or wrongful acts" and (2) an "insured" definition that includes partners or members of a "partnership or joint venture" with ARS. Sexual-abuse is excluded but the policy separately defines and preserves "sexual harassment."
- Metro argued it was covered either as an additional insured (liable for ARS) or as an insured (joint venturer/partner with ARS); AAIC argued Metro was not covered and that intentional misconduct/sexual-abuse exclusions barred coverage.
- The court resolved cross-motions for judgment on the pleadings under Illinois law and held AAIC breached its duty to defend Metro; indemnity claims were reserved for later adjudication.
Issues
| Issue | AAIC's Argument | Metro's Argument | Held |
|---|---|---|---|
| Whether Metro is an "additional insured" under the ML blanket provision (liable for ARS’s employment-practices/wrongful acts) | Insurer: Metro is not covered as an additional insured because the underlying complaint does not allege Metro’s liability is derivative or that Metro is liable for ARS’s acts | Metro: The complaint sought to hold it liable for ARS’s employment-practices/wrongful acts, so the blanket additional-insured clause applies | Denied — Metro is not an additional insured under the blanket clause because the complaint alleges Metro’s direct liability, not derivative liability for ARS’s misconduct |
| Whether Metro is an "insured" as a partner or joint venturer with ARS under policy definitions | Insurer: The complaint does not necessarily allege a joint venture under Illinois law; Metro’s contracts disclaim a joint venture | Metro: Complaint repeatedly alleges joint operation/joint employment of the Rescue Squad, so it is potentially a joint venturer and thus an insured | Held for Metro — allegations of joint operation/employment potentially establish joint venture status; doubt resolved for insured; duty to defend triggered |
| Whether the underlying allegations arguably fall within policy coverage (employment practices, wrongful acts, bodily injury) | Insurer: Some claims implicate intentional conduct; wrongful-acts coverage requires damages that were unexpected/unintentional; sexual-abuse exclusion may apply | Metro: Complaint alleges sexual harassment, negligent supervision/retention (ML wrongful acts/employment practices) and battery (GL bodily injury) | Held for Metro — complaint alleges employment-practices injuries, wrongful acts (negligent supervision/retention), and bodily injury (battery); AAIC forfeited contest on employment-practices and bodily-injury coverage and did not adequately rebut wrongful-acts coverage |
| Whether the sexual-abuse exclusion bars coverage | Insurer: Exclusion for sexual abuse applies to alleged sexual misconduct | Metro: Many allegations fit the policy’s separate definition of "sexual harassment," which the exclusion excludes from "sexual abuse" | Held for Metro — the complaint primarily alleges "sexual harassment" as defined in the policy (which is not within the sexual-abuse exclusion); exclusion does not bar coverage for the employment-practices and negligence claims |
Key Cases Cited
- Pekin Ins. Co. v. Wilson, 237 Ill.2d 446 (Illinois 2010) (insurer’s duty to defend is triggered if complaint alleges facts that fall within or potentially within coverage)
- Koloms v. American States Ins. Co., 177 Ill.2d 473 (Illinois 1997) (insurance-policy construction follows plain meaning; ambiguities construed against insurer)
- Schuchman v. State Auto Prop. & Cas. Ins. Co., 733 F.3d 231 (7th Cir. 2013) (insurance-policy interpretation and ambiguity rules)
- Employers Ins. of Wausau v. Ehlco Liquidating Trust, 186 Ill.2d 127 (Illinois 1999) (doubt on duty-to-defend resolved in insured’s favor)
- Outboard Marine Corp. v. Liberty Mutual Ins. Co., 154 Ill.2d 90 (Illinois 1992) (duty to indemnify arises when insured’s liability to third party is determined)
- Valley Forge Ins. Co. v. Swiderski Electronics, Inc., 223 Ill.2d 352 (Illinois 2006) (plain, ordinary, and popular meaning applied to undefined policy terms)