Pekin Insurance Company v. Centex Homes
72 N.E.3d 831
| Ill. App. Ct. | 2017Background
- Pekin issued a CGL policy to McGreal (9/30/09–9/30/10) with an additional-insured endorsement covering parties McGreal agreed in a written contract to add as additional insureds, but only for vicarious liability imputed from McGreal.
- Centex Homes (Owner) contracted with McGreal; the contract required McGreal to add Centex Homes and Centex Real Estate Corporation as additional insureds. Centex Real Estate signed as managing partner for Centex Homes.
- Worker Scott Nowak (McGreal employee) sued Centex Homes and Centex Real Estate for injuries allegedly caused while working on a balloon wall; McGreal (the employer) was not a defendant in the underlying suit.
- Pekin refused Centex’s tender, filed a declaratory judgment seeking a ruling that Centex Homes and Centex Real Estate were not additional insureds and that Pekin had no duty to defend because the underlying complaint alleged direct (not vicarious) liability.
- Trial court: held Centex Homes is an additional insured, Centex Real Estate is not, and Pekin had no duty to defend Centex Homes. Appellate court affirmed additional-insured ruling for Centex Homes but reversed on the duty-to-defend issue.
Issues
| Issue | Plaintiff's Argument (Pekin) | Defendant's Argument (Centex) | Held |
|---|---|---|---|
| Whether Centex Real Estate is an additional insured | Centex Real Estate did not contract directly with McGreal; it signed only as agent/manager and thus is not a party to the written contract required by the endorsement | Centex Real Estate is a signatory/partner and thus part of the same organization entitled to additional-insured status | Centex Real Estate is not an additional insured; it signed as agent for Centex Homes, so only Centex Homes had the written contract with McGreal |
| Whether Centex Homes is an additional insured | The contract required issuance of purchase orders before work was authorized, so no purchase order = no effective contract for the work that caused the injury | The written contract itself obligated McGreal to add Centex Homes as an additional insured; performance and the contract language make the agreement effective without a specific purchase order | Centex Homes is an additional insured under the Pekin policy; the purchase order provision did not render the contract ineffective absent a PO |
| Whether Pekin owes a duty to defend Centex Homes given the endorsement’s vicarious-liability limitation | The Nowak complaint alleges direct negligence by Centex Homes, not vicarious liability for McGreal, so Pekin has no duty to defend the additional insured | The complaint alleges facts that could support negligence by McGreal and boilerplate allegations of control by Centex Homes, creating a potential basis for vicarious liability and thus a duty to defend | Held: Pekin has a duty to defend Centex Homes because the underlying complaint potentially alleges negligence by McGreal and potential vicarious liability of Centex Homes; insurer must defend if any theory potentially falls within coverage |
Key Cases Cited
- Virginia Surety Co. v. Northern Insurance Co. of New York, 224 Ill. 2d 550 (establishes summary judgment standard in insurance coverage context)
- Outboard Marine Corp. v. Liberty Mutual Insurance Co., 154 Ill. 2d 90 (insurer’s duty to defend is broader than duty to indemnify)
- General Agents Insurance Co. of America v. Midwest Sporting Goods Co., 215 Ill. 2d 146 (compare underlying complaint to policy language; insurer must defend if complaint potentially within coverage)
- Valley Forge Insurance Co. v. Swiderski Electronics, Inc., 223 Ill. 2d 352 (if any theory in complaint potentially within coverage, duty to defend arises)
- U.S. Fidelity & Guaranty Co. v. Wilkin Insulation Co., 144 Ill. 2d 64 (multiple theories of liability: duty to defend if at least one falls within coverage)
- Pekin Insurance Co. v. Wilson, 237 Ill. 2d 446 (allows consideration of written contracts when assessing duty to defend additional insureds)
- Carney v. Union Pacific R.R. Co., 2016 IL 118984 (Restatement §414 addresses direct liability; vicarious liability arises under agency law when control reaches operative-detail level)
- Ramara, Inc. v. Westfield Insurance Co., 814 F.3d 660 (3d Cir.) (underlying complaint should be read recognizing that employer may be negligent even if not named due to workers’ compensation immunity)