785 F. Supp. 2d 722
N.D. Ill.2011Background
- ADM contracted with IBM Co. to perform window cleaning for ADM on June 6, 2002, with IBM obtaining insurance naming ADM as an additional insured under TBIC’s CGL policy (Oct 1, 2002–Oct 1, 2003, $1,000,000 occurrence limit).
- An IBM employee, Gonzalez, injured himself while cleaning ADM’s premises on April 10, 2003, leading to a Gonzalez litigation against ADM (filed March 3, 2005).
- ADM tendered defense of the Gonzalez litigation to TBIC on June 23, 2005; TBIC accepted but rescinded defense on July 11, 2005.
- ADM settled the Gonzalez litigation for $150,000 in October 2008 and incurred about $197,648 in attorney’s fees.
- ADM filed a Cook County complaint against TBIC on January 6, 2010 seeking declaratory judgment, damages, and penalties; TBIC removed to federal court on March 9, 2010.
- TBIC counterclaimed for a declaratory judgment that it had no duty to defend ADM because of the policy’s exclusions, while ADM asserted several defenses including severability, ambiguity, estoppel, and illusory policy arguments.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether severability modifies the employer's liability exclusion. | Severability liberalizes exclusions; ADM was not IBM’s employer, so exclusion should not bar ADM. | Severability does not limit cross-liability exclusion; exclusion applies to any insured and bars ADM. | Severability modifies employer's liability exclusion but not cross liability exclusion. |
| Whether the cross liability exclusion bars coverage for ADM in the Gonzalez litigation. | Severability renders cross liability exclusion ineffective against ADM. | Cross liability exclusion unambiguously bars coverage for any insured’s employee; severability has no effect. | Cross liability exclusion bars coverage for ADM; severability does not affect it. |
| Whether the severability clause should limit the application of the cross liability exclusion. | Severability should limit all exclusions to IBM Co. only. | Severability cannot limit an exclusion written to bar coverage for any insured. | Severability does not modify cross liability exclusion; remains applicable to any insured. |
| Whether the policy is illusory due to exclusions. | If exclusion removes all coverage, policy is illusory. | Other coverages remain; policy not illusory. | Policy not illusory; exclusions do not eliminate all coverage. |
| Whether TBIC is estopped from raising exclusions. | Because TBIC defended initially, it cannot later rely on exclusions. | No duty to defend exists; estoppel does not apply. | TBIC is not estopped; no potential for coverage under policy. |
Key Cases Cited
- Globe Indem. Co. v. United States Steel Corp., 327 N.E.2d 321 (Ill. 1979) (severability affects employer's liability exclusion but not cross liability exclusion in the context of an Illinois policy)
- Atchison, Topeka and Santa Fe Ry. Co. v. St. Paul Surplus Lines Ins. Co., 767 N.E.2d 827 (Ill. App. Ct. 1st Dist. 2002) (severability can limit exclusions in certain contexts)
- Cook v. Country Mut. Ins. Co., 466 N.E.2d 587 (Ill. App. Ct. 3d Dist. 1984) (severability and employer's liability exclusions interplay)
- St. Katherine Ins. Co., Ltd. v. Ins. Co. of N. Am., Inc., 11 F.3d 707 (7th Cir. 1993) (severability interpretation in multi-insured policies)
- Thøele v. Aetna Cas. & Sur. Co., 39 F.3d 724 (7th Cir. 1994) (business pursuits exclusion discussions relevant to severability)