Joe Panfil v. Nautilus Insurance Company
2015 U.S. App. LEXIS 14621
7th Cir.2015Background
- Castro-Cortes, employee of Astro Insulation (JRJ subcontractor), fell on JRJ property during insulation work.
- Castro-Cortes sues JRJ for personal injury in Illinois state court; JRJ seeks defense from Nautilus under Nautilus Commercial General Liability policy.
- Policy named Panfil and Michelon as insureds, not JRJ; Nautilus initially denies defense citing Contractor-Subcontracted Work Endorsement and Employee Exclusion.
- District court rewrites policy to include JRJ as insured; court finds Nautilus breached the duty to defend and is estopped from raising policy defenses.
- Nautilus appeals; issue centers on whether underlying complaint potentially falls within policy coverage given endorsements and exclusions.
- Illinois law governs interpretation; the policy must be liberally construed in favor of the insured, and ambiguities favor coverage.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Did Nautilus have a duty to defend JRJ? | Castro-Cortes’s complaint potentially falls within policy coverage. | Under Employee Exclusion and Contractor-Subcontracted Work Endorsement, no coverage for subcontractor work. | Yes; Nautilus had a duty to defend. |
| Do the Contractor-Subcontracted Work Endorsement and Employee Exclusion create ambiguity about coverage? | Language together is ambiguous and favors coverage for JRJ. | Exclusions clearly deny coverage; any ambiguity supports insurer but here supports non-coverage. | Ambiguity exists; the policy is construed in favor of coverage for JRJ. |
| If ambiguous, how should the ambiguities be resolved under Illinois law? | Ambiguities resolve to coverage since drafter could have drafted more clearly. | Ambiguities should be resolved against the insured or in favor of insurer depending on language. | Ambiguities resolved in favor of JRJ; insurer bears duty to defend. |
Key Cases Cited
- Murphy v. Urso, 430 N.E.2d 1079 (Ill. 1981) (duty to defend estoppel when no declaratory action pursued)
- Emp’rs Ins. of Wausau v. Ehlco Liquidating Trust, 708 N.E.2d 1122 (Ill. 1999) (estoppel applies when insurer breaches defense duty)
- Lyerla v. AMCO Ins. Co., 536 F.3d 684 (7th Cir. 2008) (insurer must defend if underlying complaint potentially within coverage)
- Gen. Agents Ins. Co. of Am., Inc. v. Midwest Sporting Goods Co., 828 N.E.2d 1092 (Ill. 2005) (determines potential coverage under broad insurer duties)
- U.S. Fid. & Guar. Co. v. Wilkin Insulation Co., 578 N.E.2d 926 (Ill. 1991) (liberal construction in favor of insured; ambiguity resolved for coverage)
- Outboard Marine Corp. v. Liberty Mut. Ins. Co., 607 N.E.2d 1204 (Ill. 1992) (policy interpreted as a whole; drafter's intent considered)
- Travelers Ins. Cos. v. Penda Corp., 974 F.2d 823 (7th Cir. 1992) (duty to defend exists when underlying complaint could be covered)
- Brochu v. Bar, 475 N.E.2d 876 (Ill. 1985) (exception to exclusion not always preserving coverage; context matters)
- Cherrington v. Erie Ins. Prop. & Cas. Co., 745 S.E.2d 508 (W. Va. 2013) (ambiguity resolved in favor of coverage when language unclear)
- Stoneridge Dev. Co. v. Essex Ins. Co., 888 N.E.2d 633 (Ill. App. Ct. 2008) (exception to exclusion can preserve coverage; interpretation matters)