National American Insurance v. Artisan & Truckers Casualty Co.
2015 U.S. App. LEXIS 13724
7th Cir.2015Background
- On Aug. 23, 2010 a tractor-trailer owned by Michael Barengolts and driven (apparently) by Viktor Barengolts rear-ended Gustavo and Maria Bernal; Bernals sued alleging multiple theories and defendants (Unlimited Carrier, Viktor, Eduard Gaidishev, and Michael).
- The Bernals’ complaint pleaded four counts alleging the driver was an agent of Unlimited Carrier and four counts alleging vicarious liability with the driver as an agent of Michael Barengolts; counts 5–8 also alleged Unlimited Carrier exercised “authority and control.”
- Artisan insured Viktor (named insured) and Michael (additional insured) and insured the listed tractor, but denied a defense based on a Contingent Liability Endorsement (CLE) excluding coverage when an insured auto is being used for or on behalf of another organization (Artisan asserted Unlimited Carrier was that organization because its placard was on the tractor).
- NAICO (insurer for Unlimited Carrier) defended Viktor and Michael under a reservation of rights, settled the underlying suit for approximately $98,750 to the Bernals and $50,000 assignment to NAICO, and then sued Artisan to recover defense/indemnity costs (NAICO obtained assignments from Viktor and Michael).
- The district court granted summary judgment for NAICO, holding Artisan had a duty to defend and was estopped from asserting policy defenses because Artisan repeatedly refused to defend and never sought declaratory relief or defended under reservation of rights; Seventh Circuit affirmed.
Issues
| Issue | Plaintiff's Argument (NAICO) | Defendant's Argument (Artisan) | Held |
|---|---|---|---|
| 1. Did Artisan have a duty to defend Viktor and Michael? | Counts 5–8 named Michael (an insured) as principal and thus alleged a theory potentially within Artisan’s policy coverage, triggering a duty to defend. | The CLE excluded coverage because the tractor was used for or on behalf of Unlimited Carrier (placard/authority and control), so no duty to defend. | Yes. The complaint alleged theories potentially within coverage (vicarious liability to Michael); duty to defend is determined by pleadings, so Artisan had to defend. |
| 2. Does allegation that Unlimited Carrier exercised “authority and control” negate coverage at the duty-to-defend stage? | Such allegations do not eliminate the possibility of coverage; placard/authority allegations may bear on indemnity but not on the threshold duty to defend. | Authority/control language shows Unlimited Carrier (placard) was ultimately liable, so exclusion applies. | Rejected. The CLE excludes use "for or on behalf of" an organization, not mere allegations of authority/control; duty to defend remains based on pleading possibilities. |
| 3. Is placard (logo) or federal placard liability exclusive and dispositive of coverage? | Plaintiffs may sue the placarded carrier, but state-law vicarious-liability claims against owners/lessors remain available; placard liability is not exclusive and does not control the duty to defend. | Placard liability identifies the ultimately responsible carrier; insurance should follow ultimate liability. | Placard liability is not exclusive; it may affect indemnity but does not negate the insurer’s duty to defend based on pleaded claims. |
| 4. Is Artisan estopped from asserting policy defenses after refusing to defend? | Yes—Artisan repeatedly refused to defend and neither reserved rights nor sought declaratory relief, so it is estopped from raising coverage defenses and must reimburse NAICO. | Artisan argued the CLE meant no duty to defend so estoppel should not apply. | Yes. Under Illinois law, failure to defend or seek declaratory relief leads to estoppel; Artisan is estopped and must reimburse NAICO. |
Key Cases Cited
- Menard, Inc. v. Country Preferred Ins. Co., 992 N.E.2d 643 (Ill. App. Ct.) (duty to defend exists when underlying complaint alleges facts potentially within coverage)
- Md. Cas. Co. v. Peppers, 355 N.E.2d 24 (Ill.) (insurer must defend if complaint includes at least one theory within coverage despite other noncovered theories)
- State Farm Fire & Cas. Co. v. Perez, 899 N.E.2d 1231 (Ill.) (ambiguities in insurance policies and underlying pleadings construed against insurer)
- Taco Bell Corp. v. Cont’l Cas. Co., 388 F.3d 1069 (7th Cir.) (duty to defend determined by allegations of the complaint, not proof)
- Outboard Marine Corp. v. Liberty Mut. Ins. Co., 607 N.E.2d 1204 (Ill.) (duty to indemnify arises only after liability is established)
- Peterson Sand & Gravel v. Md. Cas. Co., 881 F. Supp. 309 (N.D. Ill.) (insurers deny coverage at their peril when underlying claims potentially fall within policy)
- Mt. Hawley Ins. Co. v. Certain Underwriters at Lloyd’s, 19 N.E.3d 106 (Ill. App. Ct.) (insurer cannot simply refuse to defend an insured without risking estoppel)