American Country Insurance v. Kraemer Bros.

Annotate this Case
FOURTH DIVISION
August 06, 1998





No. 1-97-0032

AMERICAN COUNTRY INSURANCE COMPANY, ) APPEAL FROM THE
an Illinois corporation, ) CIRCUIT COURT OF
, ) COOK COUNTY
Plaintiff-Appellant, )
)
v. ) No. 95 CH 10940
)
KRAEMER BROTHERS, INC., a Foreign )
Corporation, UNITED STATES FIDELITY & )
GUARANTY, a Foreign Corporation, AND ) HONORABLE
ROBERT G. COZZI, ) JOHN K. MADDEN,
) JUDGE PRESIDING.
Defendants-Appellees. )

JUSTICE McNAMARA delivered the opinion of the court:

Plaintiff, American Country Insurance Co. (American
Country), brought this action against defendants, Kraemer
Brothers Construction Co. (Kraemer) and United States Fidelity
and Guarantee Co. (USF&G), seeking a declaratory judgment that it
had no duty to defend or indemnify Kraemer, its additional
insured under a commercial general liability insurance policy
issued to D.H. Johnson Construction Co. (D.H. Johnson), with
respect to a personal injury lawsuit brought by an employee of
D.H. Johnson to recover for injuries suffered in a construction
accident. Plaintiff filed a motion for summary judgment and
defendants filed a cross-motion for summary judgment. After
hearing argument on the motions, the trial court entered summary
judgment in favor of defendants and against plaintiff. Plaintiff
appeals. The relevant facts are as follows.
Kraemer agreed to act as general contractor for the
construction of a hotel in Elgin, Illinois (the project).
Kraemer entered into a subcontract with D.H. Johnson for the
performance of masonry work on the project. Pursuant to the
terms of the subcontract, D.H. Johnson was required to have
Kraemer named as an additional insured on its commercial general
liability insurance policy.
From November 30, 1993, to November 30, 1994, D.H. Johnson
was the named insured on a commercial general liability policy
(CGL), No. CMP 0003503 00, issued by plaintiff, American Country.
Plaintiff had authorized the South Suburban Insurance Agency
(South Suburban) to issue certificates adding entities as
additional insureds on the CGL. South Suburban issued a
certificate to Kraemer on December 20, 1993, naming Kraemer as an
additional insured on D.H. Johnson's CGL policy. The certificate
contained no policy number but, rather, the term "binder."
Kraemer received the certificate on December 26, 1993. The CGL
policy was not actually written until January 21, 1994. Kraemer
was also the named insured on a separate CGL policy issued by
USF&G.
On March 1, 1995, a complaint was filed by Robert Cozzi, an
employee of D.H. Johnson working at the project, alleging that he
was injured on January 7, 1994, when he slipped and fell on an
unnatural accumulation of snow and ice (the Cozzi lawsuit). He
alleged that Kraemer was negligent in its maintenance and
supervision of the project. He did not name D.H. Johnson as a
defendant in the suit.
Kraemer filed a third-party complaint for contribution
against D.H. Johnson on April 30, 1996, alleging that D.H.
Johnson was negligent in its maintenance and supervision of the
project and thereby contributed to Cozzi's injuries.
After being served with the Cozzi lawsuit, Kraemer tendered
its defense to plaintiff. Kraemer informed plaintiff that
Kraemer had put its own general liability insurer, USF&G, on
notice of the suit, but had instructed USF&G not to engage in its
defense or indemnification regarding the Cozzi lawsuit. Kraemer
notified plaintiff that it had, pursuant to Institute of London
Underwriters v. Hartford Fire Insurance Co., 234 Ill. App. 3d 70,
599 N.E.2d 1311 (1992), elected that plaintiff was to exclusively
defend and indemnify Kraemer. Plaintiff rejected tender of
Kraemer's defense and on November 13, 1995, filed a complaint for
declaratory judgment.
Plaintiff filed a motion for summary judgment on May 20,
1996, arguing that it had no duty to defend Kraemer in the Cozzi
lawsuit based on three separate endorsements to the policy. The
first endorsement provides:
"1. 'Who is an Insured' is amended to include as
an Insured the person or organization shown in the
schedule as an Additional Insured. The coverage
afforded to the Additional Insured is solely limited to
liability specifically resulting from the conduct of
the Named Insured which may be imputed to the
Additional Insured.
*********************************************
3. This endorsement provides no coverage to the
Additional Insured for liability arising out of the
claimed negligence of the Additional Insured, other
than which may be imputed to the Additional Insured by
virtue of the conduct of the Named Insured."
Plaintiff argued that because the Cozzi lawsuit did not name D.H.
Johnson as a defendant or accuse D.H. Johnson of any misconduct
that might be "imputed" to Kraemer, the Cozzi lawsuit failed to
allege facts bringing Kraemer within the potential scope of
coverage.
The second endorsement relied on by plaintiff added the
following to the "Duties In The Event of Occurrence, Claim or
Suit" paragraph:
"(5) Promptly give notice of an 'occurrence', an
offense which may result in a claim, a claim which is
made or a 'suit', to any other insurer which has
available insurance for a loss we cover under Coverages
A or B of this coverage part.
(6) Promptly tender the defense of any claim made
or 'suit' to any other insurer which also has available
insurance for a loss which we cover under Coverages A
or B of this coverage part."
Plaintiff argued that because Kraemer did not tender the defense
of the Cozzi lawsuit to USF&G, Kraemer breached the cooperation
clause of the CGL policy, relieving plaintiff of any duty to
defend or indemnify.
The third endorsement relied on by plaintiff provides:
"B. Notwithstanding any other provisions herein
contained, this policy shall apply as excess only,
over any other valid and collectible insurance which
would apply in the absence of this policy."
The USF&G policy, on the other hand, provides that it is primary.
Plaintiff argued that reading these provisions together, the
American Country policy affords excess coverage only and the
USF&G policy affords primary coverage. Therefore, plaintiff had
no duty to defend pursuant to the following provision of the
American Country policy:
"When this insurance is excess, we will have no
duty under Coverage A or B to defend any claim or
'suit' that any other insurer has a duty to defend."
Defendants filed a cross-motion for summary judgment
arguing that the aforesaid endorsements could not be asserted by
plaintiff because they were not in existence at the time of the
accident and were never communicated to Kraemer. The accident
occurred on January 7, 1993, but the policy was not written until
January 21, 1993, two weeks after the accident. The defendants
also argued that the imputed negligence endorsement could not be
asserted because Kraemer had filed a third-party complaint
against D.H. Johnson and because to allow plaintiff to assert
this endorsement would make the coverage illusory. Finally,
defendants argued that the endorsement requiring the additional
insured to tender it's defense to other insurance carriers is in
direct contravention of Illinois public policy and should not be
enforced.
Plaintiff responded first by noting that the certificate of
insurance states in large bold print:
"THIS CERTIFICATE IS ISSUED AS A MATTER OF INFORMATION
ONLY AND CONFERS NO RIGHTS UPON THE CERTIFICATE HOLDER.
THIS CERTIFICATE DOES NOT AMEND, EXTEND OR ALTER THE
COVERAGE AFFORDED BY THE POLICIES BELOW."
It further states:
"COVERAGES
THIS IS TO CERTIFY THAT THE POLICIES OF INSURANCE
LISTED BELOW HAVE BEEN ISSUED TO THE INSURED NAMED
ABOVE FOR THE POLICY PERIOD INDICATED. NOTWITHSTANDING
ANY REQUIREMENT, TERM OR CONDITION OF ANY CONTRACT OR
OTHER DOCUMENT WITH RESPECT TO WHICH THIS CERTIFICATE
MAY BE ISSUED OR MAY PERTAIN, THE INSURANCE AFFORDED BY
THE POLICIES DESCRIBED HEREIN IS SUBJECT TO ALL THE
TERMS, EXCLUSIONS AND CONDITIONS OF SUCH POLICIES.
LIMITS SHOWN MAY HAVE BEEN REDUCED BY PAID CLAIMS."
Therefore, plaintiff argued, defendants must look to the policy
to determine coverage rights and cannot claim coverage under the
binder. Plaintiff further responded that the duty to defend is
governed exclusively by the allegations in the injured parties'
complaint, making the third-party complaint filed by Kraemer
irrelevant. Furthermore, plaintiff argued that the third-party
complaint filed by Kraemer was merely a ploy to enhance
defendants' coverage case. Finally, plaintiff responded that
there is no clearly delineated public policy against the
endorsement requiring tender of the Cozzi lawsuit to USF&G.
The trial court entered summary judgment in favor of the
defendants, finding that plaintiff had a duty to defend
Kraemer.[fn1] Plaintiff's motion for reconsideration was denied
and this appeal followed.
On appeal plaintiff contends that the trial court erred in
finding that plaintiff had a duty to defend Kraemer in the Cozzi
lawsuit because: (1) an insured who receives a certificate of
insurance certifying that the policy has issued is bound by the
terms of the policy despite the fact that the loss occurs before
the policy declarations are completed; (2) Kraemer has forfeited
any right to a defense by failing to tender the defense of the
underlying suit to USF&G as required by the provisions of
plaintiff's CGL policy; and (3) American has no duty to defend
Kraemer under a policy covering negligence of D.H. Johnson
imputed to Kraemer, where the only allegations of negligence
against D.H. Johnson appear in a third-party complaint filed by
Kraemer.
We first note that summary judgment is properly granted if
the pleadings, depositions, and admissions on file, together with
any affidavits, show there is no genuine issue of material fact
and that the moving party is entitled to judgment as a matter of
law. State Farm Mutual Automobile Insurance Co. v. Collins, 258
Ill. App. 3d 1, 629 N.E.2d 762 (1994). Our review of an order
granting summary judgment is de novo. Village of Hoffman Estates
v. Cincinnati Insurance Co., 283 Ill. App. 3d 1011, 670 N.E.2d 874 (1996).
Plaintiff first contends that because Kraemer received a
certificate of insurance, it is bound by the terms of the policy,
despite the fact that the loss occurred before the policy
declarations were completed. Specifically, plaintiff contends
that Kraemer cannot rely on the certificate to ascertain the
extent of coverage. Kraemer contends that the plaintiff cannot
assert the exclusions in the policy to deny coverage because the
plaintiff issued a certificate of insurance promising broad
general liability coverage, and the policy terms, exclusions and
conditions were unwritten and undisclosed at the time of the
loss.
The decision in Pekin Insurance Co. v. American Country
Insurance Co., 213 Ill. App. 3d 543, 572 N.E.2d 1112 (1991), is
instructive on this issue. In that case a general contractor was
named an additional insured on a commercial general liability
policy procured by a subcontractor. The certificate of insurance
issued to the general contractor by the insurer indicated that it
was a commercial general liability policy but specified no
exclusions, terms or conditions of the policy. The certificate
also included a disclaimer stating that it "is issued as a matter
of information only" and that "the insurance afforded by the
policies described herein is subject to all of the terms,
exclusions, and conditions of such policies." 213 Ill. App. 3d at
544. The general contractor never received a copy of the policy.
An employee of the subcontractor who was injured while doing
roofing work filed a complaint against the general contractor.
The insurer refused to defend the action, citing an exclusion in
the policy for injuries arising from roofing work. The general
contractor contended that because the exclusions, terms and
conditions of the policy conflicted with the plain meaning of the
certificate and plaintiffs were not provided with a copy of the
policy, the broad general liability coverage provided by the
certificate should prevail.
The court disagreed, holding that the disclaimers clearly
showed that the certificate was not part of the policy and that
the certificate holder had to look to the policy to determine the
extent of coverage. The certificate only served to inform the
general contractor that it had the same coverage as the
subcontractor. The court held that the terms of the policy
prevailed and the defendant had no duty to defend.
The presence or absence of such a disclaimer on the
certificate of insurance determines whether an insured may rest
its coverage case on representations made in the certificate. If
the certificate does not include a disclaimer, the insured may
rely on representations made in the certificate. See John Bader
Lumber Co. v. Employers Insurance, 110 Ill. App. 3d 247, 441 N.E.2d 1306 (1982); International Amphitheatre Co. v. Vanguard
Underwriters Insurance Co., 177 Ill. App. 3d 555, 532 N.E.2d 493
(1988). If the certificate includes a disclaimer, the insured
may not rely on representations made in the certificate but must
look to the policy itself to determine the scope of coverage.
See Pekin Insurance Co. v. American Country Insurance Co., 213
Ill. App. 3d 543, 572 N.E.2d 1112 (1991); Lezak & Levy Wholesale
Meats, Inc. v. Illinois Employers Insurance Co., 121 Ill. App. 3d
954, 460 N.E.2d 475 (1984).
The certificate issued to Kraemer in this case contained a
disclaimer identical to the one in Pekin Insurance Co.. Kraemer
was on notice that it had to look to the policy to determine the
extent of coverage and any exclusions, yet the record indicates
that Kraemer did not even request a copy of the policy. The
certificate of insurance clearly provided that it was not part of
the policy and that the insured had to look to the policy to
ascertain the extent of coverage. Therefore, Kraemer is bound by
the exclusions and conditions of the policy.
Plaintiff next contends that the trial court erred in
finding that the policy provision requiring that Kraemer tender
defense of the suit to any other insurer with applicable
insurance violated public policy. Specifically, plaintiff
contends that the tender provision does not violate public policy
and that Kraemer breached the cooperation clause of the policy by
failing to tender the defense of the Cozzi lawsuit to USF&G,
thereby forfeiting any right to a defense.
While there is no precise definition of public policy, it
has been held that public policy is to be found in the
constitution, in statutes and in judicial decisions. American
Federation of State, County & Municipal Employees v. State, 124 Ill. 2d 246, 529 N.E.2d 534 (1988).
American Country's policy contained the following provision:

"Promptly tender the defense of any claim
made or 'suit' to any other insurer which
also has available insurance for a loss which
we cover under Coverage A or B of this
coverage part."

This clause was not contained in the policy at issue in the case
of Institute of London Underwriters v. Hartford Fire Insurance
Co., 234 Ill. App. 3d 70, 599 N.E.2d 1311 (1992), where it was
held that the insured had the right to choose both or only one of
its insurers to defend the action. In the case sub judice, the
insurance policy required the insured to promptly tender the
defense to any other insurer with available insurance. The USF&G
policy is available insurance to which Kraemer refused to tender
its defense. Kraemer clearly breached the terms of the American
Country policy and is not entitled to a defense or indemnity.
The Illinois Department of Insurance accepted American
Country's additional insured and notice and tender to other
insurers endorsements. The court in Kirk v. Financial Security
Life Insurance Co., 75 Ill. 2d 367, 376, 389 N.E.2d 144 (1978),
held that approval of insurance policies by the Illinois
Department of Insurance, "although not conclusive upon the
courts, is however, entitled to great weight as against the
contention that such a provision is against public policy." We
agree. Since there is no established public policy for this
clause, we believe that the provision in the policy requiring
Kraemer to tender its defense is entitled to great weight and is
not against any public policy.
The court in Institute of London Underwriters v. Hartford
Fire Insurance Co., 234 Ill. App. 3d 70, 599 N.E.2d 1311 (1992),
held that based on the insurance policy, the insured was free to
choose which insurer would defend the claim. The policy in
London Underwriters did not contain a policy provision requiring
the insured to tender its defense to another insurer. The
insurance policy before us is different from the policy before
the court in London Underwriters.
There is no established public policy regarding a provision
in an insurance policy that specifically limits an insured's
freedom to select which insurer will defend. Insurance policies
vary; some policies require that certain conditions occur before
coverage arises. Those provisions have not been held to be
against public policy.
The analysis made by the court in Braye v. Archer-Daniels-
Midland Co., 175 Ill. 2d 201, 676 N.E.2d 1295 (1997), is
instructive. At issue in that case was whether an employer could
enter into a valid and enforceable contractual agreement to waive
the Kotecki v. Cyclops Welding Corp., 146 Ill. 2d 155, 585 N.E.2d 1023 (1991), limitation on the employer's contribution liability.
The court held that an employer could waive that limitation. The
court in Braye pointed out:
"As a general principle of contract law,
statutes and laws in existence at the time a
contract is executed are considered part of
the contract. Larned v. First Chicago Corp.,
264 Ill. App. 3d 697 (1994). It is presumed
that parties contract with knowledge of the
existing law. Monroe Dearborn Ltd.
Partnership v. Board of Education, 271 Ill.
App. 3d 457 (1995). Additionally, we
recognize that a construction of a contract
which renders the agreement enforceable
rather than void is preferred." Braye, 175 Ill. 2d at 217, 676 N.E.2d at 1303.
In the case sub judice, at the time of the contract there
were no Illinois statutes or insurance regulations that
prohibited a construction contractor from entering into an
insurance contract that limited his choice as to which insurer
would defend the contractor. Also, there were no Illinois cases
that ruled that one could not contract to limit an insured's
choice of insurers to defend.
Crucial to the decision in Braye was the principle:
"The laws and the public policy of the
state permit and require freedom of
contracting between competent parties.
Electrical Contractors' Ass'n v. A.S.
Schulman Electric Co., 391 Ill. 333 (1945),
citing Zeigler v. Illinois Trust & Savings
Bank, 245 Ill. 180 (1910)." Braye, 175 Ill. 2d at 215, 676 N.E.2d at 1303.
We hold that the law and the public policy of this state
permitted the insured construction contractors to limit the
choice as to which insurer would defend. American Country's
insurance policy provision requiring Kraemer to tender the
defense to another available insurer was a valid enforceable
provision. The contractors and American Country were competent
parties to this insurance policy, and they had the freedom to
enter into this insurance contract. We believe that the
construction of this insurance policy as being enforceable rather
than void is preferred.
Another issue in this case is whether American Country had a
duty to defend Kraemer, an additional insured, under an insurance
policy covering negligence of the named insured imputed to the
additional insured where the only allegations of negligence
against the named insured appear in a third-party complaint filed
by the additional insured. The complaint in the underlying
lawsuit did not name D.H. Johnson as a defendant nor allege any
negligence against D.J. Johnson that could be imputed to Kraemer.
In view of our holding that Kraemer breached a provision of
the policy and is not entitled to a defense, it is not necessary
to address this issue. Nevertheless, we find that the
allegations in the complaint and third-party complaint are not
within the scope of coverage. The pleadings allege only the
negligence of Kraemer, and the policy provides coverage if
liability is imputed to Kraemer because of the negligence of D.H.
Johnson. Village of Hoffman Estates v. Cincinnati Insurance Co.,
283 Ill. App. 3d 1011, 670 N.E.2d 874 (1996). Also, if the claim
is brought by an employee of the subcontractor, as was done in
this case, the negligence cannot be imputed to the general
contractor. Apostal v. Oliveri Construction Co., 287 Ill. App.
3d 675, 678 N.E.2d 756 (1997).
Kraemer alleges that its coverage was illusory because it is
difficult to imagine any factual scenario wherein Kraemer could
be held vicariously liable for a subcontractor's acts or
omissions at the jobsite. However, the imputed negligence
coverage in the policy includes claims based in strict liability
where the general contractor is held to have a duty that it
cannot delegate to someone else. Restatement (Second) of Torts,
sections 416 through 429 (1965).
Illinois courts do impose strict liability. In the case of
St. Paul Fire & Marine Insurance Co. v. Frankart, 45 Ill. App. 3d
29, 33-34, 358 N.E.2d 720, 722-23 (1976), strict liability was
applied to someone carrying on an activity that could be carried
on lawfully only under a franchise granted by a public authority.
Strict liability is also imposed in cases where there are
inherently dangerous activities. Clark v. City of Chicago, 88
Ill. App. 3d 760, 764, 410 N.E.2d 1025, 1029 (1980). Just
because there are fewer strict liability claims than negligence
claims does not make the coverage illusory. There is real
coverage for strict liability claims.
We find that the American Country policy provision
obligating the insured to tender the defense of the suit to any
other insurer with available insurance was valid and because
Kraemer breached this provision it is not entitled to defense or
indemnity.
The summary judgment entered against American Country is
reversed and vacated. Summary judgment is entered in favor of
American Country.
Reversed.
CERDA, P.J., and SOUTH, J., concur.
[fn1] The trial court held that the issue of
indemnification was not ripe and would be addressed at a later
time.


Some case metadata and case summaries were written with the help of AI, which can produce inaccuracies. You should read the full case before relying on it for legal research purposes.

This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.