Scottsdale Insurance Company v. Columbia Insurance Group, Inc
972 F.3d 915
7th Cir.2020Background
- Eduardo Guzman, an employee of TDH Mechanical, fell ~22 feet through an unguarded second‑floor opening while performing HVAC work at a Rockwell Properties construction site and suffered serious injuries.
- TDH had a Columbia Insurance commercial general liability policy (Apr 2016–Apr 2017) with an endorsement to name parties as additional insureds for liability "arising out of" TDH’s ongoing operations.
- TDH contracted to name Rockwell (owner) and Prairie (construction manager) as additional insureds; a Certificate of Liability Insurance listed them as additional insureds.
- Guzman sued Rockwell and Prairie (not TDH); several defendants filed third‑party complaints against TDH alleging various acts of negligence.
- Scottsdale (Rockwell’s insurer) defended Rockwell/Prairie and sued Columbia for a declaratory judgment that Columbia must defend/indemnify and reimburse defense costs; the district court granted judgment on the pleadings ordering Columbia to defend and reimburse past defense costs.
- The Seventh Circuit affirmed, holding Columbia owes a duty to defend Rockwell and Prairie (indemnity left for later determination).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Columbia owes a duty to defend Rockwell and Prairie as additional insureds under the endorsement limiting coverage to liability "arising out of" TDH's ongoing operations | Underlying complaint alleges failure to supervise/monitor subcontractors and allowing unsafe practices; that liability may arise out of TDH’s work, so Columbia must defend | Underlying complaint does not allege facts that potentially bring the claim within Columbia’s policy; the "arising out of" limitation bars coverage | Duty to defend exists: the underlying allegations potentially fall within the endorsement because liability may arise in part from TDH’s ongoing operations |
| Whether courts may consider third‑party complaints to assess duty to defend | Third‑party complaints (filed by other defendants) show TDH might be at fault and thus reinforce potential coverage | Columbia urged ignoring them (argued rule against deciding underlying issues or that some are self‑serving) | Court may consider the third‑party complaints here; they further establish a possibility of TDH fault and do not require resolving underlying merits |
| Whether National Fire (no duty where complaint doesn't implicate subcontractor) controls | Scottsdale: National Fire is distinguishable on facts and policy language | Columbia: National Fire supports refusing to defend absent allegations against the subcontractor | Court distinguished National Fire (different policy language, different underlying allegations, and third‑party complaints not filed by the purported additional insured) and declined to apply it |
Key Cases Cited
- Outboard Marine Corp. v. Liberty Mut. Ins. Co., 607 N.E.2d 1204 (Ill. 1992) (insurer's duty to defend is broader than duty to indemnify)
- General Agents Ins. Co. of Am. v. Midwest Sporting Goods Co., 828 N.E.2d 1092 (Ill. 2005) (insurer must defend if underlying complaint alleges facts within or potentially within coverage)
- Pekin Ins. Co. v. Wilson, 930 N.E.2d 1011 (Ill. 2010) (permitting consideration of extrinsic evidence in duty‑to‑defend analysis in some circumstances)
- National Fire Ins. of Hartford v. Walsh Constr. Co., 909 N.E.2d 285 (Ill. App. Ct. 2009) (interpreting additional‑insured limitation and declining to consider self‑serving third‑party complaint)
- Lagestee‑Mulder, Inc. v. Consol. Ins. Co., 682 F.3d 1054 (7th Cir. 2012) (duty‑to‑defend standard under Illinois law)
- Centex Homes v. Pekin Ins. Co., 72 N.E.3d 831 (Ill. App. Ct. 2017) (coverage determination should avoid deciding significant underlying issues; courts may sometimes look beyond the complaint)