StarNet Insurance Company v. Adam Ruprecht, 3 F.4th 342

Background

P.S. Demolition subcontracted to Deerfield and promised to indemnify and hold Deerfield harmless for bodily-injury claims arising from P.S.’s work; that indemnity waived the Kotecki cap on employer contribution liability.
A demolition accident killed Patrick O’Reilly and injured Adam Ruprecht; both sued Deerfield and P.S. Demolition; Deerfield sought contribution from P.S.
Illinois law (Kotecki) normally limits an employer’s contribution liability to workers’ compensation benefits, but a contractual waiver removes that limit.
Deerfield settled with the injured parties and assigned its contribution claim against P.S. Demolition to them; P.S. lacked assets, so recovery depended on its insurer, StarNet.
StarNet’s employers‑liability policy excludes “liability assumed under a contract, including any agreement to waive your right to limit your liability for contribution to the amount of benefits payable under the Workers Compensation Act,” but excepts warranties that work will be done in a workmanlike manner.
StarNet sought declaratory judgment that the exclusion bars coverage for liability exceeding the Kotecki cap; the district court granted judgment on the pleadings for StarNet, and the Seventh Circuit affirmed.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether StarNet’s policy exclusion bars coverage for P.S. Demolition’s liability arising from its contractual waiver of the Kotecki cap (i.e., contribution liability)	The injured parties (as assignees) say the exclusion does not apply because their claim turns on P.S.’s negligent, unworkmanlike performance, which falls within the policy’s warranty exception.	StarNet says the excess liability stems from P.S.’s contractual assumption (the indemnity/waiver) and so is expressly excluded.	Held for StarNet: excess contribution liability is liability assumed by contract and excluded.
Whether the policy’s exception for a warranty that work be done in a workmanlike manner covers the assigned contribution claim	Plaintiffs contend proof of negligence required overlap with a breach of the workmanlike‑performance warranty, so the exception applies to trigger coverage.	StarNet counters that breach‑of‑warranty is a distinct contract claim and the assigned claim is solely for contribution in tort, not a warranty claim; plaintiffs did not receive assignment of any warranty claim.	Held for StarNet: the warranty exception does not apply because plaintiffs pursue only Deerfield’s contribution (tort) claim and were not assigned any breach‑of‑warranty claim.
Whether any ambiguity in the warranty exception defeats the exclusion	Plaintiffs suggested ambiguity that could be construed for coverage.	StarNet argued plaintiffs waived that argument below; policy language is plain.	Held for StarNet: ambiguity argument was not preserved; plain policy language controls.

Key Cases Cited

Kotecki v. Cyclops Welding Corp., 585 N.E.2d 1023 (Ill. 1991) (limits employer contribution exposure to workers’ compensation benefits absent contractual waiver)
Virginia Sur. Co. v. Northern Ins. Co. of N.Y., 866 N.E.2d 149 (Ill. 2007) (collects authorities recognizing parties may contractually waive Kotecki cap)
Western Cas. & Sur. Co. v. Brochu, 475 N.E.2d 872 (Ill. 1985) (insurance exclusion for assumed contractual liability does not bar claims for breach of an implied workmanship warranty)
Doyle v. Rhodes, 461 N.E.2d 382 (Ill. 1984) (workers’ compensation defense does not preclude third‑party contribution claims)
Sheldon Livestock Co. v. Western Engine Co., 301 N.E.2d 485 (Ill. App. Ct. 1973) (workmanlike‑performance warranty equates in many respects to ordinary standard of care; distinct contract cause of action)
Economy Fuse & Mfg. Co. v. Raymond Concrete Pile Co., 111 F.2d 875 (7th Cir. 1940) (Illinois recognizes an implied warranty of reasonable workmanship)
Scottsdale Ins. Co. v. Columbia Ins. Grp., Inc., 972 F.3d 915 (7th Cir. 2020) (standard of review for judgment on the pleadings is de novo)