Pekin Insurance Company v. Johnson-Downs Construction Inc.
2017 IL App (3d) 160601
| Ill. App. Ct. | 2017Background
- Johnson-Downs (general contractor) required Art’s Landscaping (subcontractor) to name it as an additional insured under Art’s Pekin commercial general liability policy; the endorsement limited additional-insured coverage to vicarious liability imputed from Art’s for ongoing operations during the policy period.
- In 2011 Art’s employee Jeff Barnett was injured at the jobsite and sued Johnson-Downs for construction negligence; Cincinnati (Johnson-Downs’s insurer) tendered defense to Pekin, and Pekin defended under a reservation of rights.
- Johnson-Downs later filed a third-party complaint against Art’s alleging Art’s negligence; Pekin filed a declaratory-judgment action seeking a ruling that it had no duty to defend Johnson-Downs (arguing the policy only covers vicarious claims and the underlying complaint lacked vicarious allegations).
- Johnson-Downs moved to stay the declaratory action pending resolution of the underlying tort suit, invoking the Peppers doctrine (to avoid determination of ultimate facts in a coverage action).
- Barnett amended his complaint to separate direct negligence and vicarious negligence counts; the trial court granted the stay. Pekin appealed the stay and contested which pleadings the coverage court may consider.
Issues
| Issue | Plaintiff's Argument (Pekin) | Defendant's Argument (Johnson-Downs) | Held |
|---|---|---|---|
| Whether the trial court abused discretion by staying the declaratory action | Stay not warranted because coverage question does not require deciding ultimate facts from the tort case | Stay required under Peppers because count II would force determination of ultimate facts about vicarious liability | Reversed: stay was an abuse of discretion because the duty-to-defend inquiry can compare pleadings to policy language without resolving ultimate facts |
| Whether the court may consider Johnson-Downs’s third-party complaint when assessing duty to defend | Third-party complaint is self-serving by a putative additional insured and should not be considered | Third-party complaint is relevant evidence of allegations against Art’s | Court must not consider Johnson-Downs’s third-party complaint (putative additional insured cannot bolster coverage with its own pleading) |
| Whether Barnett’s amended complaint (adding vicarious-liability count) may be considered | Amended complaint is a sham pleading to plead into coverage and should be ignored | Amended complaint pleads plausible facts supporting vicarious liability and is permitted | Court may consider Barnett’s amended complaint; it is not a transparent attempt to plead into coverage |
| Scope of duty-to-defend review (pleadings/evidence the insurer may examine) | Court should be limited and avoid resolving ultimate facts; may look beyond complaint only in limited circumstances | Coverage determination may include relevant pleadings that legitimately allege covered theories | Court may decide duty to defend now by comparing pleadings to policy language but must avoid resolving underlying ultimate facts; third-party complaint excluded, Barnett’s amended complaint may be considered |
Key Cases Cited
- Maryland Casualty Co. v. Peppers, 64 Ill. 2d 187 (Ill. 1976) (precludes coverage determinations that decide ultimate facts controlling the underlying litigation)
- Pekin Insurance Co. v. Wilson, 237 Ill. 2d 446 (Ill. 2010) (court may in limited circumstances look beyond the underlying complaint to determine duty to defend)
- TIG Insurance Co. v. Canel, 389 Ill. App. 3d 366 (Ill. App. 2009) (treats certain pre-policy knowledge questions as ultimate facts affecting coverage)
- Metropolitan Property & Casualty Insurance Co. v. Pittington, 362 Ill. App. 3d 220 (Ill. App. 2005) (distinguishes issues that are not ultimate facts where underlying theory is negligence)
- American Economy Insurance Co. v. DePaul University, 383 Ill. App. 3d 172 (Ill. App. 2008) (putative additional insured may not rely on its own third-party complaint to bootstrap coverage)
- National Fire Insurance of Hartford v. Walsh Construction Co., 392 Ill. App. 3d 312 (Ill. App. 2009) (similar rule precluding use of a putative additional insured’s third-party complaint to create coverage)
- American Family Mutual Insurance Co. v. Guzik, 406 Ill. App. 3d 245 (Ill. App. 2010) (identifies when a pleading is a transparent attempt to plead into coverage)
- Pekin Insurance Co. v. Dial, 355 Ill. App. 3d 516 (Ill. App. 2005) (example of pleading impermissibly pleading into coverage where facts show intentional conduct)