145 F. Supp. 3d 780
N.D. Ill.2015Background
- Essex Insurance issued a commercial policy to RHO Chemical and the Rolihs that included an endorsement excluding coverage for injuries "arising out of... any injury sustained by any contractor... or any employee... of same."
- On April 27, 2012, Milan Stavinoha (a roofer employed by P&P) was injured while repairing a roof at premises owned/controlled by RHO/GSI/the Rolihs; Stavinoha later recovered workers’ compensation benefits from P&P.
- Stavinoha sued RHO, GSI, and the Rolihs in Illinois state court for negligence; RHO/Rolihs filed a third-party complaint seeking contribution from P&P and admitted an oral contract with P&P to repair the roof.
- Essex issued a reservation-of-rights letter declining to concede coverage under the contractor-employee exclusion, agreed to participate in defense under reservation, and later allowed insureds to retain independent counsel at Essex’s expense after a coverage dispute was raised.
- Essex sued for declaratory judgment in federal court seeking a ruling that the exclusion applied (no duty to defend/indemnify); cross-motions for summary judgment followed.
Issues
| Issue | Plaintiff's Argument (Essex) | Defendant's Argument (RHO/Rolihs) | Held |
|---|---|---|---|
| Whether Paragraph 7 exclusion is ambiguous | Exclusion is clear and unambiguous; ordinary meaning controls | Paragraph 7 is vague (draftsmanship) and undefined term "contractor" renders it ambiguous | Court: Unambiguous — plain meaning of "contractor" and text controls; not ambiguous |
| Whether exclusion applies to Stavinoha’s injury | Exclusion applies because Stavinoha was a contractor’s employee (P&P) performing repairs; policy excludes such injuries | Exclusion does not apply because no separate injury arose from contractor’s injury and/or Stavinoha/P&P were not "contractors" of insureds | Court: Exclusion applies — defendants admitted an oral contract with P&P; Stavinoha was contractor’s employee so exclusion covers the claim |
| Whether Essex’s reservation of rights created a material conflict requiring independent counsel | Reservation properly disclosed the policy defense and potential conflict; Essex offered independent counsel at its expense when conflict asserted | Essex denied any conflict and failed to adequately warn, prejudicing insureds; estoppel prevents denial | Court: No actionable conflict or prejudice; reservation identified the defense and potential conflict, and Essex later permitted independent counsel — no estoppel |
| Whether Essex has duty to defend/indemnify | No duty to defend or indemnify given the applicable exclusion | Duty exists because any ambiguity must be resolved for insureds in underlying complaint | Court: No duty to defend or indemnify — exclusion unambiguous and applicable |
Key Cases Cited
- Westfield Ins. Co. v. Vandenberg, 796 F.3d 773 (7th Cir. 2015) (insurance policies are contracts interpreted by ordinary meanings)
- Panfil v. Nautilus Ins. Co., 799 F.3d 716 (7th Cir. 2015) (insurer need not defend where there is clearly no coverage; exclusions must be clear and free from doubt)
- Celotex Corp. v. Catrett, 477 U.S. 317 (U.S. 1986) (summary judgment standard)
- Ace Am. Ins. Co. v. RC2 Corp., 600 F.3d 763 (7th Cir. 2010) (policy terms with established legal meaning are not ambiguous)
- Crum & Forster M’ngrs. Corp. v. Resolution Trust Corp., 156 Ill.2d 384 (Ill. 1993) (primary function of court is to ascertain parties’ intent from agreement)
- Essex Ins. Co. v. Mondone, 106 A.D.3d 1045 (N.Y. App. Div. 2013) (construing same Essex exclusion and holding it excluded coverage)