Tanns v. Ben A. Borenstein & Co.

Annotate this Case

No. 1-95-4086

GAIL TANNS, ) APPEAL FROM THE
) CIRCUIT COURT OF
Plaintiff, ) COOK COUNTY
)
v. )
)
BEN A. BORENSTEIN and COMPANY, ) No. 90 L 14998
)
Defendant )
)
(BEN A. BORENSTEIN and COMPANY, )
Third-Party Plaintiff-Appellant; ) THE HONORABLE
ARCADIA PRODUCTS, INC., ) KATHY M. FLANAGAN
Third-Party Defendant-Appellee). ) JUDGE PRESIDING.

MODIFIED UPON DENIAL OF REHEARING

PRESIDING JUSTICE COUSINS delivered the opinion of the

court:

Ben A. Borenstein & Co. (BABCO), a general contractor, filed
suit against a subcontractor, Arcadia Products (Arcadia), for
breach of contract arising out of Arcadia's insurance carrier's
refusal to defend BABCO in an underlying negligence action. The
underlying suit was brought by Gail Tanns, who was allegedly
injured as a result of tripping over construction debris on a
sidewalk adjacent to the project that is the subject of the
subcontract between BABCO and Arcadia. BABCO and Arcadia filed
motions for summary judgment with respect to the breach of
contract claim. The trial court granted Arcadia's motion and
denied BABCO's motion for summary judgment. On appeal, BABCO
contends that: (1) the agreement to purchase insurance was
enforceable; and (2) Arcadia breached the agreement to purchase
insurance.

BACKGROUND
On March 2, 1989, Arcadia and BABCO entered into a
subcontract agreement (Agreement) for the construction of a high-
rise apartment building at 1250 North Dearborn Street. The
Agreement contained a provision requiring that Arcadia indemnify
BABCO for claims arising out of BABCO's negligence. The same
provision required Arcadia to procure and maintain insurance at
its own expense and to name BABCO as an additional insured.
BABCO reserved the right to determine whether the terms of the
policy were satisfactory.
The insurance policy was to provide coverage for worker's
compensation, comprehensive automobile liability insurance and
comprehensive general liability insurance, including contractual
liability insurance. Arcadia procured the required insurance at
its own expense, naming BABCO as an additional insured, and
BABCO did not indicate that the terms of the policy were
unsatisfactory.
On April 6, 1990, plaintiff, Gail Tanns, was walking on
Dearborn Street in the area where BABCO was constructing the
apartment building and allegedly sustained injuries when she fell
on the pedestrian passageway. Tanns filed a complaint against
BABCO, alleging that BABCO's negligence was the proximate cause
of her injuries. BABCO filed a third-party complaint against 18
subcontractors employed at the construction site, alleging
various claims and seeking contribution. Seventeen of the
eighteen subcontractors settled with BABCO. Arcadia did not
reach a settlement agreement.
After being sued by Tanns, BABCO tendered its defense to
Arcadia's insurance carrier. This tender was denied. BABCO filed
a complaint against Arcadia for breach of contract for failing to
procure insurance that covered BABCO for its own negligence.
Both parties moved for summary judgment. The trial court denied
BABCO's motion for summary judgment on the breach of contract
issue, but granted Arcadia's motion for summary judgment on the
breach of contract issue. BABCO appeals.
We affirm.
ANALYSIS
I
BABCO contends that the agreement to purchase insurance was
enforceable. Arcadia argues that the agreement to purchase
insurance was void and, therefore, unenforceable. At issue in
this case is section 1 of "An Act in relation to indemnify in
certain contracts" (the Act) (Ill. Rev. Stat. 1989, ch. 29, par.
61). At the time of Tanns' injury, the Act provided:
"With respect to contracts or agreements, either public
or private, for the construction, alteration, repair or
maintenance of a building [or] structure, *** every
covenant, promise or agreement to indemnify or hold harmless
another person from that person's own negligence is void as
against public policy and wholly unenforceable." Ill. Rev.
Stat. 1989, ch. 29, par. 61.
The Act also stated in section 3 that it did "not apply to
construction bonds or insurance contracts or agreements." Ill.
Rev. Stat. 1989, ch. 29, par. 63.
Our supreme court has stated that section 3 (now 740 ILCS
35/3 (West 1992)) serves to protect the construction worker and
the general public from suffering construction-related injuries
by encouraging accident-prevention measures. Capua v. W.E.
O'Neil Construction Co., 67 Ill. 2d 255, 260, 367 N.E.2d 669
(1977). The statute voids, as against public policy,
indemnification provisions in construction contracts relieving a
person from liability for his own negligence. Bosio v. Branigar
Organization, Inc., 154 Ill. App. 3d 611, 613, 504 N.E.2d 996
(1987). We note that insurance and indemnification are two
distinct notions. A promise to obtain and pay for insurance is
conceptually different from a promise to personally indemnify,
thus assuming the responsibility for any damage or injury.
Lehman v. IBP, Inc., 265 Ill. App. 3d 117, 121, 639 N.E.2d 152
(1994).
In the instant case, paragraph 11 of the subcontract
agreement between BABCO and Arcadia states:
"11. The Subcontractor hereby assumes entire responsibility
and liability for any and all damage or injury of any kind
or nature whatsoever *** to all persons, whether employees
of the Subcontractor or otherwise, and to all property,
caused by, resulting from, arising out of or occurring in
connection with the execution of the Work, and if any claims
for such damage or injury *** be made or asserted, whether
or not such claims are based upon BABCO's alleged active or
passive negligence[,]*** the Subcontractor agrees to
indemnify and save harmless BABCO *** against any and all
such claims *** and the Subcontractor agrees to and does
hereby assume, on behalf of BABCO, *** the defense of any
action at law or in equity which may be brought against
BABCO ***."
We believe that the above provision unequivocally provides for
indemnity of BABCO's own negligence and, therefore, violates the
Act. Thus, Arcadia had no duty to indemnify BABCO for its own
negligence under the Agreement. GTE North, Inc. v. Henkels &
McCoy, Inc., 245 Ill. App. 3d 322, 612 N.E.2d 1375 (1993).
However, appellate courts have consistently held that,
although a party may not insure its obligations under a void
indemnity agreement, provisions that require the indemnitor to
provide liability insurance for the indemnitee, making the
indemnitee an insured under the policy, are valid. See Jokich v.
Union Oil Co., 214 Ill. App. 3d 906, 574 N.E.2d 214 (1991); St.
John v. City of Naperville, 155 Ill. App. 3d 919, 508 N.E.2d 1128
(1987); Bosio v. Branigar Organization, Inc., 154 Ill. App. 3d
611, 506 N.E.2d 996; Zettel v. Paschen Contractors, Inc., 100
Ill. App. 3d 614, 427 N.E.2d 189 (1981); Jandrisits v. Village of
River Grove, 283 Ill. App. 3d 152, 160, 669 N.E.2d 1166 (1996);
Transcontinental Insurance Co. v. National Union Fire Insurance
Co., 278 Ill. App. 3d 357, 367, 662 N.E.2d 500 (1996).
The duty to defend is much broader than the duty to
indemnify. Western Casualty & Surety Co. v. Adams County, 179
Ill. App. 3d 752, 756, 534 N.E.2d 1066 (1989). In determining
whether an insurer has a duty to defend its insured, the court
must look to the allegations of the underlying complaint and
compare these allegations to the relevant coverage provisions of
the insurance policy. Bonnie Owen Realty, Inc. v. Cincinnati
Insurance Co., 283 Ill. App. 3d 812, 816, 670 N.E.2d 1182 (1996).
If the underlying complaint alleges facts within or potentially
within the policy's coverage provisions, the insurer has a duty
to defend even if the allegations are groundless, false or
fraudulent. Monticello Insurance Co. v. Wil-Freds Construction,
Inc., 277 Ill. App. 3d 697, 701-02, 661 N.E.2d 441 (1996). Any
doubts about coverage are to be resolved in the insured's favor.
Bonnie Owen Realty, 283 Ill. App. 3d at 816.
In the instant case, the subcontract between BABCO and
Arcadia stated that Arcadia would obtain insurance to cover:
"Comprehensive general liability insurance including
contractual liability insurance, broad form property damage,
completed operations, independent contractors, personal
injury (employee exclusion deleted), and XCU exclusions
deleted, with BABCO, owner and architect to be named as
additional insured thereunder, with the following minimum
limits ***."
BABCO argues that the insurance clause is valid because it is not
inextricably tied to the void indemnity provision and the
insurance clause is within the statutory exemption for insurance
contracts from the otherwise void indemnity agreement. BABCO
relies on several cases to support its argument. BABCO first
relies on Juretic v. USX Corp., 232 Ill. App. 3d 131, 596 N.E.2d 810 (1992). In Juretic, the court found a valid agreement to
obtain insurance in language that required the contractor to
obtain insurance coverage "insuring *** Contractor's and Owner's
liability to pay for any bodily injuries" and "for any and all
loss, damage and injury to the property of any and all persons in
any manner caused by *** Contractor's performance of the work."
Juretic, 232 Ill. App. 3d at 133. The court reasoned that this
language covered "matters other than the obligations under the
void indemnity provision" because it required the owner to be
named as an additional insured on the insurance obtained.
Juretic, 232 Ill. App. 3d at 135.
BABCO also relies on Lehman v. IBP, Inc., 265 Ill. App. 3d
117, 639 N.E.2d 132 (1994). In Lehman, the court held that the
insurance and indemnity provisions in that case did not violate
the Act because the provisions did not require indemnification
for the owner's own negligent or intentional acts. Instead, the
provisions protected the owner from the contractor's conduct,
and, therefore, the provisions did not "touch on the public
policy concerns underlying the Act." Lehman, 265 Ill. App. 3d at
121. The court concluded that the insurance requirement fell
within the insurance exception to the Act and was not
inextricably tied to an illegal indemnity clause. Lehman, 265
Ill. App. 3d at 123.
Arcadia asserts that the insurance agreement is void and
unenforceable because it is inextricably tied to a void indemnity
agreement. Arcadia relies on Shaheed v. Chicago Transit
Authority, 137 Ill. App. 3d 352, 484 N.E.2d 542 (1985), to
support its assertion. In Shaheed, a subcontractor had agreed to
indemnify a contractor from its own negligence. The
subcontractor had also agreed to maintain insurance "insuring all
the Subcontractor[']s indemnity obligations under [the]
agreement." Shaheed, 137 Ill. App. 3d at 363. The court held
that this agreement was unenforceable because it was an agreement
to obtain insurance against a void agreement to indemnify.
Shaheed, 137 Ill. App. 3d at 365.
Arcadia also relies on GTE North, 245 Ill. App. 3d 322, 612 N.E.2d 1375. In GTE North, the court held that the indemnity
provision was void under the Act because it indemnified the
contractor for its own negligence. The court also held that the
contractor's agreement to insure its obligations to provide
indemnification was also void because this agreement was
inextricably tied to the void indemnity provision. The court
based its holding that the contract did not contain an agreement
to obtain insurance for the owner on the fact that, in cases in
which courts have found such agreements, the contracts have
expressly required that the promisee be named an insured on the
policy or be directly covered by the policy. GTE North, 245 Ill.
App. 3d at 326, citing Jokich v. Union Oil Co., 214 Ill. App. 3d
906, 574 N.E.2d 214 (1991); St. John v. City of Naperville, 155
Ill. App. 2d 919, 508 N.E.2d 1128; Bosio v. Branigar
Organization, Inc., 154 Ill. App. 3d 611, 506 N.E.2d 996; Zettel
v. Paschen Contractors, Inc., 100 Ill. App. 3d 614, 427 N.E.2d 189 (1981). In GTE North, there was no such express requirement
in the language of the contract. Likewise, in Transcontinental
Insurance Co., 278 Ill. App. 3d 357, 662 N.E.2d 500, the court
held that the parties did not have an agreement to obtain
insurance other than the void agreement by the subcontractor to
insure its obligations under the indemnity provision. Relying on
GTE North, the Transcontinental court also held that the
insurance provision was void because there was no express
requirement in the contract that the contractor be named as an
insured under the subcontractor's insurance policy or that the
insurance the subcontractor furnished cover the contractor's, as
opposed to only the subcontractor's, liability.
Transcontinental, 278 Ill. App. 3d at 365.
We agree with BABCO that the subcontract agreement contained
a valid agreement to obtain insurance. Here, unlike in GTE North
and Transcontinental, there was express language in the contract
that required Arcadia to provide insurance for BABCO. Also,
unlike in Shaheed, the insurance provision in the instant case is
not inextricably tied to the void indemnity clause because it
covers matters other than the obligations under the void
indemnity provision. Therefore, the insurance provision is
enforceable under the subcontract agreement.
II
BABCO also contends that Arcadia breached the agreement to
purchase insurance when Arcadia obtained insurance that named
BABCO as an additional insured but excluded coverage for
occurrences arising from BABCO's negligence.
The insurance policy at issue provides, in relevant part:
"1. Who is an insured (Section II) is amended to include as
an insured the person or organization (called 'additional
insured') shown in the Schedule but only with respect to
liability arising out of:
A. 'Your work' for the additional insured(s) at the
location designated above, or;
B. Acts or omissions of the additional insured(s) in
connection with their general supervision of 'your work' at
the location shown in the schedules.
With respect to the insurance afforded these additional
insureds, the following additional provisions apply:
B. Additional Exclusions. This insurance does not apply
to:
* * *
(3) 'Bodily injury' of [sic] 'property damage' arising out
of any act or omission of the additional insured(s) or any
of their employees, other than the general supervision of
wok [sic] performed for the additional insured(s) by you."
Arcadia argues that it did not breach the agreement to
purchase insurance as a result of the insurance policy
provisions. We agree.
BABCO contends that under the facts of this case and in the
context of Illinois case law, the parties contemplated that
Arcadia's insurance would defend BABCO against Gail Tanns's
complaint naming BABCO as sole defendant. BABCO argues that the
parties so contemplated pursuant to Briseno v. Chicago Union
Station Co., 197 Ill. App. 3d 902 (1990); Monical v. State Farm
Insurance Co., 211 Ill. App. 3d 215 (1991), and Vaughn v.
Commonwealth Edison Co., 259 Ill. App. 3d 304 (1994).
Specifically, BABCO argues that it was the intent of the parties
that Arcadia's general liability carrier would participate in the
defense of BABCO such as presented in the underlying litigation.
However, BABCO's contention is not supported by the record
in this case. The record in this case establishes that the
parties did intend that Arcadia would obtain insurance that named
BABCO as an additional insured. Further, the record establishes
that BABCO was named as an additional insured on the
comprehensive insurance coverage obtained by Arcadia. However,
under the policy, Arcadia was not required to defend BABCO where
BABCO was solely negligent. In our view, the record establishes
that the parties never agreed that Arcadia would have a duty to
have BABCO insured for injuries caused solely by BABCO's
negligence.
We note BABCO's reliance on Briseno, Monical and Vaughn to
support its contention. However, we have examined these cases and
find the facts of each of the cases to be inapposite. Although
not an issue in Briseno, we note in Briseno that a pertinent
"Rider 'C' Insurance Liability Addendum" excluded liability
caused solely by the negligence of the indemnities by providing
in part:
"7(d) the Contractor agrees to indemnify and save harmless
the Indemnitees against loss and expense by reason of claims
or of the liability imposed by law upon the Indemnitees for
damages because of bodily injuries *** unless such injury is
caused solely by the negligence of the Indemnities."
(Emphasis added.) Briseno, 197 Ill. App. 3d at 905.
The facts in Briseno are unrelated to the facts in the
instant case. In Briseno, National Wrecking Company (NWC),
pursuant to contract, purchased comprehensive insurance with
Bituminous Insurance Company that named Chicago Union Station
Company (Chicago Union) as an additional insured. Joseph Briseno
was a NWC employee who was killed while working at the old Union
Station. His estate sued Chicago Union and others. Chicago Union
and Briseno entered into a settlement agreement in the amount of
$875,000 which was covered by the Bituminous insurance policy.
Chicago Union, through Bituminous, filed a third-party action
against NWC seeking to shift part of the loss from Bituminous to
NWC. The trial court granted summary judgment in favor of NWC and
the judgment of the trial court was affirmed on appeal. Briseno,
197 Ill. App. 3d at 907.
BABCO also relies on Vaughn, 259 Ill. App. 3d 304. However,
the facts in Vaughn are also distinguishable. In Vaughn, the
contract between the parties provided in separate paragraphs that
the third-party defendant (Hunter) would indemnify the third-
party plaintiff (Edison) and that Hunter would obtain insurance
for Edison. The court stated that, even though the indemnity
clause itself was void, its inclusion in the contract was
evidence of the parties' intent, and, therefore, the court could
not say that the parties intended to look solely to the insurance
provided by Hunter and accept the decision of the insurer to
cover the claim or not as binding upon both parties. However,
the court held that there was a genuine issue of material fact
regarding whether the insurance provided by Hunter would cover
the claim against Edison because it was not clear from the record
that the insurance company had agreed to pay any amount that
might be owed to the plaintiff in the underlying action. Vaughn,
259 Ill. App. 3d at 306.
Unlike Vaughn, here, the insurance provision excluded
coverage of claims against BABCO when BABCO was solely negligent.
Moreover, in our view, the exclusionary provisions in the instant
case are clear, definite, and explicit. See Bonnie Owen Realty,
283 Ill. App. 3d at 817.
Finally, we disagree with BABCO's contention that Arcadia
breached the agreement where the additional insurance obtained
excluded coverage arising solely from BABCO's negligence. Rather,
we hold in the instant case that the insurance purchased by
Arcadia and the certificate of insurance furnished to BABCO was
in compliance with the contract between the parties.
We also note that the record in this case establishes that
Arcadia stated in its motion for summary judgment that the
insurance Arcadia procured naming BABCO as an additional insured
was presented to BABCO and BABCO did not indicate that the terms
of the policy were unsatisfactory. In response to Arcadia's
motion, BABCO agreed with the statement of facts set forth in
Arcadia's motion.
For the reasons cited herein, the judgment of the circuit
court of Cook County is affirmed.
Affirmed.

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