United States Fire Insurance Co. v. Aetna Life & Casualty

SIXTH DIVISION
August 29, 1997





No. 1-96-4178

UNITED STATES FIRE INSURANCE ) Appeal from the
COMPANY, ) Circuit Court of
) Cook County
Plaintiff-Appellant and )
Counterdefendant, )
)
v. )
)
AETNA LIFE AND CASUALTY, a )
corporation, PERINI CORPORATION, )
UNIVERSITY OF CHICAGO, a not for )
profit corporation, and )
HOWARD STARTZ, )
) Honorable
Defendants-Appellees and ) Albert Green,
Counterplaintiffs. ) Judge Presiding.

PRESIDING JUSTICE GREIMAN delivered the opinion of the
court:
This appeal concerns consolidated declaratory judgment
actions in which two insurance companies dispute which one has
the duty to defend in an underlying personal injury action. The
trial court entered summary judgment against plaintiff United
States Fire Insurance Company (USFI).
On appeal, USFI asserts that it had no duty to defend under
the circumstances of this action and, even if a duty to defend
existed, defendant Aetna Life & Casualty (Aetna) shares a
concurrent duty to defend based on the "other insurance" clauses
and endorsements in the two relevant policies.
For all the reasons that follow, we affirm the trial court's
orders, finding that USFI had a sole duty to defend.
In brief, an employee of a subcontractor on a construction
project sustained injuries. This appeal concerns what insurance
coverage is available to the general contractor and the owner of
the construction project in the underlying lawsuit filed by the
subcontractor's employee.
A construction project was initiated at Argonne National
Laboratories (Argonne). Defendant University of Chicago
(University) was the designated owner and operator of the Argonne
project, and defendant Perini Corporation (Perini) was the
general contractor. Gateway Construction Company (Gateway) was a
subcontractor on the project, and defendant Howard Startz
(Startz) was an employee of Gateway.
Aetna issued an insurance policy to Perini, the general
contractor. Perini entered into a subcontract agreement with
Gateway.
Pursuant to the subcontract between Gateway and Perini,
Gateway, as the subcontractor, had to "procure and maintain in
force, on all its operations, insurance in accordance with
attached Exhibit B [certificate of insurance], with Contractor
[Perini] and Owner [the University] as additional insureds." The
subcontract designates the University as the owner and operator
of Argonne. Gateway obtained insurance from USFI.
USFI's policy named Gateway as the insured. An endorsement
to this policy modified the commercial general liability coverage
to include:
"Any person or organization required by written
contract to be named as additional insured, and for whom
operations are being performed by or on behalf of the named
insured.
* * *
Who is an insured (section II) is amended to include as
an insured the person or organization shown in the schedule,
but only with respect to acts or omissions of the named
insured in connection with the named insured's operations at
the applicable location designated."
As required by the contract between Gateway and Perini, Gateway
also secured a certificate of insurance describing the USFI
policy as including Perini and the University as additional
insureds:
"Perini Building Co., Inc., The University of Chicago
and the United States Government are added as additional
insureds for GL [general liability] claims to the extent
such claims are caused by the actions/omissions of Gateway
Const. Co., Inc. or its employees."
Startz filed a complaint in the circuit court of Cook County
alleging that he sustained personal injuries while employed by
Gateway and naming Perini, the University and Argonne as
defendants (case No. 95 L 02585) (the Startz action). Gateway
was not named as a defendant. Startz alleged that he was injured
when he tripped on a conduit protruding from a concrete slab
while moving rebars. Startz alleged actions under the Structural
Work Act (740 ILCS 150/1 et seq. (West 1992)) and in negligence.
Perini tendered the defense of the Startz action to Aetna
based on the insuring agreement of Aetna that named the
University as an additional insured under the policy. In turn,
Aetna, Perini, the University and Argonne tendered the defense of
the Startz action to USFI based on the provisions for additional
insureds under the USFI insurance policy issued to Gateway.
On September 1, 1995, USFI filed a complaint for declaratory
judgment (case No. 95 CH 008457). USFI contended that Perini,
the University and Argonne are not insureds or additional
insureds under USFI's policy; that USFI does not owe a duty to
defend or indemnify Perini, the University and Argonne; and that
the Startz complaint does not allege any acts or omissions on the
part of Gateway regarding the accident involving Startz.
On September 7, 1995, Perini filed a complaint for
declaratory judgment (case No. 95 CH 008613). Perini contended
that USFI has a duty to defend and indemnify Perini in the Startz
lawsuit based upon Perini's status as an additional insured on
Gateway's general liability policy. Perini also alleged that
USFI must reimburse Perini for all defense costs Perini incurs in
connection with the defense of the Startz action.
On October 25, 1995, the two declaratory judgment actions
were consolidated. Thereafter, the parties filed cross-motions
for summary judgment.
On January 9, 1996, the trial court granted the motion of
defendants (Perini and the University) and denied the cross-
motion of USFI. In its order, the trial court also found that
USFI "has a duty to defend Perini Corporation and University of
Chicago as operator of the Argonne National Laboratories in the
Startz lawsuit (95 L 2585) as additional insureds under Gateway
Construction Company's U. S. Fire Policy No. 541-025524-8." The
order further stated that plaintiff's "declaratory judgment
action remains pending, along with the counterclaim filed by
Perini Corporation." USFI's motion to reconsider was denied on
March 7, 1996.
On June 28, 1996, USFI filed a second motion for summary
judgment asserting that the "other insurance" clauses in the two
insuring agreements by USFI and Aetna require both insurers to
share the defense costs of the Startz lawsuit. On the same day
(June 28, 1996), Perini and the University filed a motion for
summary judgment contending that USFI has the sole primary duty
to defend and indemnify them in connection with the Startz
litigation and that the Aetna policy is excess over the limits of
USFI and does not apply until the limits of USFI's policy are
exhausted.
On September 16, 1996, the trial court ruled on these June
1996 cross-motions for summary judgment. The trial court granted
summary judgment in favor of Perini and the University and denied
the cross-motion of USFI. The trial court found that USFI "has
the sole primary duty to defend and indemnify Perini and the
University of Chicago as operator of the Argonne National
Laboratories in connection with the Startz lawsuit (95 L 2585)"
and "that Perini's Aetna policy is excess over [USFI's] policy
and Aetna does not have any obligation to share defense costs and
indemnity with [USFI] and shall not apply in any respect until
such time as the limits of [USFI's] policy have been exhausted."
The trial court also found that USFI "must reimburse Aetna for
all defense costs Aetna has incurred in connection with the
defense of the Startz lawsuit (95 L 2585)." USFI filed a
petition for rehearing on the matters determined in the order of
September 16, 1996.
On October 30, 1996, in response to USFI's petition to
vacate or modify the order of September 16, the trial court
modified the September 16 order "to eliminate any determination
of any duty to indemnify" and specifically reserved "ruling with
respect to the issue of the duty to indemnify." The trial court
ruled that the September 16 order "shall only determine the
duties to defend of the parties." In addition, the trial court
further modified the September 16 order, as amended in this
order, "to add that there is no just reason to delay enforcement
or appeal."
On appeal, USFI challenges the three trial court orders of
January 9, 1996, September 16, 1996, and October 30, 1996.
Perini and the University have responded in this appeal and are
hereinafter referred to as defendants.
As a threshold matter, defendants assert that this court
lacks jurisdiction to review the trial court's order of January
9, 1996, and argue that the order was purely interlocutory.
Thus, according to defendants, this court cannot consider the
issue adjudicated in that order, i.e., USFI has a duty to defend.
Defendants' argument is misplaced. There is no dispute that
the subsequent orders (September 16, 1996, and October 30, 1996)
are appealable and that USFI specified all three orders (January
9, September 16, and October 30) in its notice of appeal. "[A]n
appeal from a final judgment draws into issue all prior nonfinal
orders which produced the final judgment." Dowell v. Bitner, 273
Ill. App. 3d 681, 688 (1995). Even where an order is not
specified in a notice of appeal, such order is subject to review
"where that order was a step in the procedural progression to the
specified order." Dowell, 273 Ill. App. 3d at 688-89, citing
Burtell v. First Charter Service Corp., 76 Ill. 2d 427, 435
(1979). The issue of USFI's duty to defend is an integral and
interrelated matter addressed in the two subsequent orders, and
we have jurisdiction to hear all matters raised in this appeal.
See Waters v. Reingold, 278 Ill. App. 3d 647, 651-58 (1996).
Moreover, in our review of a summary judgment order, we must
consider all the facts, circumstances and law related to the
case. Emerson Electric Co. v. Aetna Casualty & Surety Co., 281
Ill. App. 3d 1080, 1083 (1996). Accordingly, we have
jurisdiction to consider the January 9, 1996 order.
First, USFI asserts that it has no duty to defend defendants
in the Startz action based on the plain language in the
endorsement and the allegations in the Startz complaint. USFI
argues that, under the explicit terms of the endorsement,
defendants are additional insureds only where the claim arises
out of Gateway's operations and Gateway's acts or omissions and
the Startz complaint is bereft of any facts at all relating to
Gateway's acts, omissions or operations.
Defendants contend that the facts asserted in the Startz
action raise, at a minimum, the potential that Gateway's acts or
omissions caused Startz's injuries, thus triggering, as a matter
of law, USFI's broad duty to defend additional insureds under the
USFI policy.
Our review of rulings on a motion for summary judgment is de
novo. Outboard Marine Corp. v. Liberty Mutual Insurance Co., 154 Ill. 2d 90, 102 (1992). Summary judgment is proper where there
are no genuine issues of material fact and the moving party is
entitled to judgment as a matter of law. Outboard Marine, 154 Ill. 2d at 102.
The principles of insurance construction are well
established. The extent of an insurer's duty to defend is
determined by a comparison of the terms of the insurance policy
and the allegations of the underlying complaint. Lapham-Hickey
Steel Corp. v. Protection Mutual Insurance Co., 166 Ill. 2d 520,
532 (1995), citing United States Fidelity & Guaranty Co. v.
Wilkin Insulation Co., 144 Ill. 2d 64, 72 (1991). "If the facts
alleged in the underlying complaint fall within or even
potentially within policy coverage, the insurer has a duty to
defend its insured against the complaint." (Emphasis added.)
Lapham-Hickey, 166 Ill. 2d at 532 (without a complaint, there is
no suit to defend); National Union Fire Insurance Co. v. Glenview
Park District, 158 Ill. 2d 116 (1994) (insurer has a duty to
defend the additional insured).
The law accords the insured most favorable and liberal
construction of exclusionary insurance provisions and the
underlying complaint. Insurance "provisions that limit or
exclude coverage are to be construed liberally in favor of the
insured and 'most strongly against the insurer.'" Glenview Park
District, 158 Ill. 2d at 122, quoting Squire v. Economy Fire &
Casualty Co., 69 Ill. 2d 167, 179 (1977). "Moreover, the
complaint must be liberally construed, and all doubts resolved in
favor of the insured." Casualty Insurance Co. v. Northbrook
Property & Casualty Insurance Co., 150 Ill. App. 3d 472, 475
(1986). "The insurer is required to defend any claim under the
pleadings which might possibly fall within the scope of the
policy coverage." (Emphasis added.) Casualty Insurance Co., 150
Ill. App. 3d at 475.
Two cases to which defendants direct our attention are
particularly instructive and persuasive in supporting a duty to
defend on the part of USFI, the subcontractor's insurer in the
present case: J.A. Jones Construction Co. v. Hartford Fire
Insurance Co., 269 Ill. App. 3d 148 (1995), and Glenview Park
District, 158 Ill. 2d 116.
In J.A. Jones, plaintiff J. A. Jones Construction Company
was the general contractor for a construction project and Jones
entered into a subcontract with PPG Industries, Inc. Defendant
Hartford Fire Insurance Company provided insurance to the
subcontractor, and the insurance policy named the general
contractor as an additional insured. One of the subcontractor's
employees (John McGovern) was injured while working at the
construction site and sued the general contractor for negligence.
In his complaint, the injured employee did NOT allege that the
subcontractor was negligent. The subcontractor's insurer
(Hartford) was held to have a duty to defend in the lawsuit filed
by the subcontractor's employee even though the complaint did not
allege that the subcontractor was negligent. The additional
insured endorsement provided:
"WHO IS AN INSURED (Section II) is amended to include as an
insured any person or organization with whom you have
agreed, because of a written contract or agreement, to
provide insurance such as is afforded under this policy, but
only with respect to your operations, 'your work' or
facilities owned or used by you." (Emphasis added.) J.A.
Jones, 269 Ill. App. 3d at 150.
This court rejected the argument by the subcontractor's insurer
that the endorsement limited coverage to injuries attributable to
the subcontractor's negligence. This court noted that there was
no dispute that the subcontractor's employee, when injured, was
an employee of the subcontractor performing work the
subcontractor had contracted to do. J.A. Jones, 269 Ill. App. 3d
at 150.
In Glenview Park District, the supreme court addressed an
exclusion in an insurance endorsement for "'damages arising out
of the negligence' of the additional insured" and held that the
insurer had a duty to defend. Glenview, 158 Ill. 2d at 118.
Glenview Park District (Glenview) entered into a contract with
National Decorating Services (NDS) for NDS to paint portions of
an ice center. NDS had a policy with the plaintiff insurer
(National Fire Insurance). The policy included Glenview as an
additional insured and an endorsement that excluded coverage for
"damages arising out of negligence of the Additional Insured
[Glenview]." An employee of NDS was injured on the job and filed
a complaint against Glenview under both the Structural Work Act
and common law negligence. The insurer refused to defend
Glenview in the injured worker's action based on the exclusion in
the endorsement. The supreme court found that the term
"negligence" in the exclusion clause did not encompass actions
based on alleged violations of the Structural Work Act and,
therefore, the insurer of NDS had a duty to defend the additional
insured, Glenview, with respect to the allegations of Structural
Work Act violations. In turn, the supreme court held that since
the insurer had a duty to defend Glenview for the Structural Work
Act claim, the insurer also became obligated to defend Glenview
on the remaining counts of the underlying complaint. The supreme
court observed that "exclusionary provisions such as that found
in the instant cause are to be construed narrowly rather than
broadly." Glenview Park District, 158 Ill. 2d at 123.
USFI directs our attention to three distinguishable cases:
Consolidation Coal Co. v. Liberty Mutual Insurance Co., 406 F. Supp. 1292 (W.D. Pa. 1976), Casualty Insurance Co. v. Northbrook
Property & Casualty Insurance Co., 150 Ill. App. 3d 472 (1986),
and Village of Hoffman Estates v. Cincinnati Insurance Co., 283
Ill. App. 3d 1011 (1996). All three cases are unpersuasive.
In 1986, a federal district court in Pennsylvania concluded
that the phrase "but only with respect to the acts or omissions"
used in an endorsement was ambiguous. Consolidation Coal, 406 F. Supp. at 1295. Employing the rules of contract construction and
analogizing to prior case law, the federal court determined that
"[i]t is reasonable to conclude that the most appropriate
construction of the subject phrase is that Consolidation [the
shipper] was to be an additional insured under the [named
insured's (the carrier's)] policy only when the negligent acts or
omissions of [the carrier] directly caused [the shipper's] loss."
Consolidation Coal, 406 F. Supp. at 1299. From this
interpretation, the court found that the shipper (a coal
company), which had been named as an additional insured on a
policy issued to a carrier (a trucking company), was not entitled
to coverage under the carrier's policy in a lawsuit filed by an
employee of the carrier who was injured and sustained damages
when his truck was struck by a railroad car owned by the shipper.
The court construed the endorsement to provide that the shipper
was to be an additional insured under the carrier's policy only
when the negligent acts or omissions of the carrier directly
caused the shipper's loss.
Contrary to the finding in Consolidation Coal, as conceded
by USFI, Illinois law holds that the phrase "acts or omissions"
is not ambiguous. Hoffman Estates, 283 Ill. App. 3d 1011; see
Kaspar v. Clinton-Jackson Corp., 118 Ill. App. 2d 364 (1969).
Accordingly, since the phrase is devoid of any ambiguity, we must
apply its plain and ordinary meaning. Furthermore, a federal
district court in Pennsylvania recently criticized Consolidation
Coal in Maryland Casualty Co. v. Regis Insurance Co., No. 96-CV-
1790 (E.D. Dist. Pa. April 4, 1997), because (1) it relied on
indemnity, not duty to defend, cases to interpret "act or
omission"; (2) the plain and ordinary meaning of "act or
omission" is not "negligence" and yet the court in Consolidation
Coal inserted the word "negligent" into the policy language; and
(3) other cases have interpreted identical language and did not
find that such language limited coverage.
The remaining two cases on which USFI relies are easily
distinguishable. The Casualty Insurance Co. decision found
Consolidation Coal inapplicable (Casualty Insurance Co., 150 Ill.
App. 3d at 476) and the decision in Hoffman Estates rested on
substantially different language (Hoffman Estates, 283 Ill. App.
3d at 1014 (based on the term "solely" in the endorsement, the
insurer had no duty to defend).
In the present case, USFI's policy named Gateway as the
insured. In an endorsement to this policy, defendants were
additional insureds "but only with respect to acts or omissions
of the named insured [Gateway] in connection with the named
insured's operations at the applicable location designated
[Argonne]." (Emphasis added.)
Startz was injured at the Argonne jobsite when he tripped on
conduit protruding from a concrete slab. The Startz complaint
alleges causes of action under the Structural Work Act and common
law negligence. Gateway was not named as a defendant. However,
the complaint alleges that, at the time of the accident: (1)
Startz "was employed by Gateway" on the Argonne premises in the
furtherance of the Argonne project; (2) "the duties and
responsibilities of [Startz] required that he work on and about
the aforesaid conduit protruding from [a] concrete slab"; and (3)
Startz "was working on and about the aforesaid conduit protruding
from [a] concrete slab when [he] tripped on conduit protruding
from [the] concrete slab while moving re-bars [sic], thereby
proximately causing injuries to [him]."
A comparison of the allegations in the complaint and the
endorsement raises the potential for coverage and, in turn, a
potential for coverage is all that is necessary to trigger USFI's
duty to defend. When injured, Startz was an employee of Gateway
(the named insured), was performing tasks required of him {"in
connection with the named insured's operations"), and was working
at the Argonne construction project ("at the applicable location
designated"). Defendants' alleged liability to Startz
potentially could have arisen from an act or omission on the part
of Gateway, whether or not the act or omission rises to the level
of negligence. Such a possibility is sufficient to trigger the
duty to defend on the part of Gateway's insurer (USFI) under the
additional insured endorsement.
Second, USFI asserts that both it and Aetna, the insurer of
the general contractor, Perini, are primary insurers and together
they have a concurrent duty to defend based on the "other
insurance" clauses of the two policies. USFI maintains that
Aetna's excess endorsement is not applicable because the USFI
policy is not "valid and collectible." USFI argues (1) that its
policy is not "valid and collectible" unless and until it is
determined that defendants are actually (not just potentially)
additional insureds; (2) that the "acts or omissions" language
serves as an exclusion to render USFI's policy uncollectible; and
(3) because indemnity may not be available from USFI for
liabilities incurred by defendants in the Startz action and to
apply Aetna's excess clause in the first place, USFI's policy
must be found to be valid and collectible. Under this reasoning,
USFI urges that Aetna's excess endorsement should be read out of
the policy and, thus, both Aetna and USFI are primary policies
with identical "other insurance" clauses.
Defendants contend USFI reads the operative policy
provisions incorrectly. First, defendants maintain that Aetna's
special amendatory endorsement in the Aetna policy renders
coverage by Aetna excess only, over and above the USFI policy for
purposes of the Startz lawsuit. Second, defendants maintain that
USFI's policy constitutes a policy of "valid and collectible"
insurance because the potential for indemnification is still very
much a possibility in this case and the fact that the allegations
of the Startz complaint fall potentially within the scope of the
USFI policy is sufficient, in and of itself, to force USFI to
shoulder both the sole, primary responsibility to defend and to
pay for that defense. We agree with defendants.
Aetna's, but not USFI's, policy includes the following
amendatory endorsement prefaced by the declaration "this
endorsement changes the policy:"
"It is agreed that the insurance afforded by this
policy is excess of coverage afforded to the insured under
valid and collectible policies purchased by other
organizations, to which the insured on this policy has been
added as an additional insured."
USFI's argument regarding "valid and collectible" as to this
excess endorsement was rejected in Northbrook Property & Casualty
Insurance Co. v. United States Fidelity & Guaranty Co., 150 Ill.
App. 3d 479 (1986). In Northbrook Property, USF&G issued an
insurance policy to two subcontractors (Mid-American and
Mayfair), including an additional insured endorsement for the
construction manager (Schal). Northbrook issued an insurance
policy to the construction manager, including an excess
endorsement. Two lawsuits were later filed by two employees of
the subcontractors. USF&G argued that Northbrook had an equal or
concurrent obligation to defend the construction manager in the
defense of the underlying lawsuits. The court stated as follows:
"USF&G argues that the words 'other valid and collectible
insurance' in Northbrook's excess endorsement renders [sic]
the determination of whether Northbrook's policy is excess
'premature' because, until judgment is rendered in the
underlying actions, it cannot be determined whether the
policies issued by USF&G are 'valid and collectible.' We
disagree.
*** The terms 'valid and collectible' are directed to
an insurance policy which is legal and valid, as
distinguished from one which was procured by fraud or cannot
be collected due to insolvency of the company. [Citations.]
The date of the accident is the relevant date to consider in
determining whether a policy is 'valid and collectible' for
purposes of establishing an insurer's duty to defend. The
date judgment is entered in the underlying suit, although it
may impact on the determination of an insurer's duty to
indemnify, is irrelevant to the inquiry as to the duty to
defend." (Emphasis in original.) Northbrook Property, 150
Ill. App. 3d at 483.
Thus, USF&G had the primary, sole duty to defend. Likewise, we
reject USFI's argument and hold that USFI had a primary, sole
duty to defend.
USFI's reliance on the decision in Home Insurance Co. v.
Liberty Mutual Insurance Co., 266 Ill. App. 3d 1049 (1994), is
misplaced. This court in Home Insurance had to determine whether
a certain endorsement was an escape clause or excess clause.
Home Insurance, 266 Ill. App. 3d at 1052 ("[t]he principal
argument *** [is] whether endorsement 21 is an 'escape' clause or
'excess' clause"). After noting the difference between the two
types of clauses, this court found the relevant provision to be
an escape, not an excess, clause. Based on the holding that the
subject provision operated as an escape clause, the two insurers
were both primary carriers. In contrast, the operative
amendatory endorsement in the present case is clearly an excess
provision.
The terms of the policies at issue and the law are
straightforward. Defendants were included as additional insureds
in USFI's policy, albeit under the restrictions stated in the
"acts or omissions" clause. Where defendants were added as an
additional insured under other valid and collectible policies,
Aetna's policy provided excess coverage pursuant to its
amendatory endorsement. For purposes of the duty to defend, the
terms "valid and collectible" concern the legality and validity
of an insurance policy, not the ultimate judgment rendered in the
underlying actions at some future, unknown date. Northbrook
Property, 150 Ill. App. 3d at 483. "'[W]hen one policy is
primary and the other is excess, only the primary insurer need
defend claims below the limits of the primary policy.'" Home
Insurance, 266 Ill. App. 3d at 1056, quoting Western Casualty &
Surety Co. v. Western World Insurance Co., 769 F.2d 381, 385 (7th
Cir. 1985).
For all the foregoing reasons, we affirm the trial court's
orders, finding that USFI had a duty to defend and that USFI had
the sole, primary duty to defend in the Startz action.
Affirmed.
ZWICK and QUINN, JJ., concur.