Is an insurer's equitable contribution right not foreclosed by the insured's target tender?

Posted on January 27, 2010 by Doug Allen

 The Second District recently addressed this inquiry in American States Insurance Co. v. CFM Construction Co.  CFM Construction (CFM) was a general contractor which entered into subcontract agreements with NF Construction and International Decorators on a certain project. Under each of its subcontract agreements, CFM required NF Construction and International Decorators to name CFM as an additional insured on their respective general liability policies. NF Construction was insured by American States Insurance Company (American States), and International Decorators was insured by Michigan Mutual Insurance Company (Michigan Mutual). 

 

During the construction, Francisco Flores, an employee of International Decorators, was injured when he fell from a scaffold. Mr. Flores filed two separate lawsuits to be compensated for his alleged injuries. One lawsuit was against CFM and the other named NF Construction as the defendant. Both lawsuits claimed that the defendants negligently managed, supervised, and controlled the construction site.

 

The two lawsuits were consolidated, and CFM tendered its defense to Michigan Mutual. In turn, Michigan Mutual sought contribution for the defense of CFM from American States. However, American States denied the requested for contribution and filed a declaratory judgment action seeking a declaration that it had no duty to contribute to the costs of defending CFM in the Flores lawsuit. 

 

On cross-motions for summary judgment, the trial court ruled against American States, and American States filed its appeal. On appeal, the Second District Appellate Court held that American States owed a duty to defend CFM as an additional insured.

In the interim, the underlying Flores lawsuit was settled. Michigan Mutual paid $700,000 in the settlement, but American States only agreed to pay $200,000 on behalf of NF Construction and refused to contribute to the settlement on behalf of CFM.

 

On remand from the original appeal, American States filed a second amended complaint seeking a declaration that it had no duty to indemnify CFM. Michigan Mutual filed its counter-complaint seeking reimbursement for half of the $700,000 it paid to settle the Flores claims on behalf of CFM. Furthermore, Michigan Mutual sought attorney fees and prejudgment interest from American States. Again, on cross-motions for summary judgment, the trial court granted Michigan Mutual its requested relief, except for the attorney fees and interest.

 

American States again filed its appeal. In the appeal, American States argued that equitable contribution does not apply because the policies insured completely different risks. Generally, when an insurer has paid the entire loss, the doctrine of equitable contribution allows it to be reimbursed by other insurers that share the same liability as the insurer seeking contribution. This doctrine applies only where concurrent insurance policies insure the same entities and the same risks. The Second District Appellate Court held that equitable contribution applied as both policies insured the same risks.   

 

Nonetheless, the decision is puzzling as it fails to explain why CFM’s tender to Michigan Mutual did not foreclose Michigan Mutual from seeking equitable contribution from American States. See Kajima Construction Co. v. St. Paul Fire & Marine Ins. Co., 227 Ill.2d 102, 108, 879 N.E. 2d 305 (2007) (when an insured has knowingly chosen to forego one insurer’s assistance by instructing that insurer not to involve itself in the litigation, the targeted insurer has the sole responsibility to defend and indemnify the insured and is foreclosed from seeking equitable contribution from the other insurer that was not selected by the insured). 

Perhaps CFM’s tender to Michigan Mutual did not state that it was deselecting all other insurance and demanding that Michigan Mutual accept its tender on a primary and non-contributory basis. However, the American States Ins. Co. v. CFM Construction Co. opinion provides no explanation as to why CFM’s tender to Michigan Mutual did not foreclose it from seeking equitable contribution as explained by the Illinois Supreme Court in Kajima.

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Diaz v. Legat Architects, Inc., et al.

Posted on January 5, 2010 by Garrett Kern

In Diaz v. Legat Architects, et al.,  Nos. 1-08-3622 & 1-08-3635 consolidated, the plaintiffs, Jose Diaz and Maria Diaz, filed a complaint against defendant Boller Construction Company, Inc. (Boller), for personal injuries and loss of consortium. Mr. Diaz was injured when scaffolding he was working on collapsed.  Boller filed a third-party complaint against Mr. Diaz’s employer, Larmco Construction Company (Larmco), seeking contribution pursuant to the Joint Tortfeasor Contribution Act.  The jury returned a verdict for the plaintiffs and against Boller. The jury also returned a verdict for Boller and against Larmco. After reducing the award by the percentage of Mr. Diaz’s negligence, the jury awarded Mr. Diaz $1,246,875 on his negligence claim and Mrs. Diaz $50,000 on her loss of consortium action.

Following the filing of post-trial motions, the trial court ordered a remittitur of the jury award based on improper admission into evidence of future medical costs, reducing the personal injury recovery to $1,076,770.06. Further, the trial court granted Larmco’s Motion to Dismiss Boller’s contribution action (presumably based on Briseno, however, it is not specifically stated in the opinion). 

On appeal, Boller contended that it was entitled to a directed verdict or a judgment n.o.v. because plaintiffs had failed to show evidence of its liability pursuant to Section 414 of the Restatement (Second) of Torts. The jury had found Boller to be directly liable stemming from its failure to exercise supervisory control. The First District found that plaintiffs had established a prima facie case that Boller had retained sufficient control over project safety to incur legal responsibility for Mr. Diaz’s injuries. Specifically, the First District focused on the contract between Boller and the owner (which made Boller responsible for all construction means and methods), the testimony of Boller’s own retained safety expert to the effect that Boller was responsible for preventing injuries on the project and was required to maintain and supervise all of the safety precautions and programs in performance of its contract and the conduct of Boller’s superintendent in asserting his authority on site, having stopped excavation work on two prior occasions. 

Boller argued further that it could not be found directly liable because it had no notice of the dangerous condition, a precondition to direct liability under Section 414. Boller’s argument was that its superintendent was not familiar with the scaffolding utilized by Larmco and, therefore, could not be found to have actual or constructive knowledge of any safety hazard associated with the scaffolding. The First District disagreed, citing the contract requirement that Boller provide a competent superintendent. 

Further, it ruled that Boller was entitled to pursue its contribution action against Larmco for the amount of Boller’s liability not covered by the insurance provided to Boller by Larmco and that the trial court’s granting of remittitur was in error as to Mr. Diaz’s future medical expenses. The Court did not address Boller’s liability under Section 343 of the Restatement (Second) of Torts or plaintiff’s argument that the trial court erred in denying their motion to adjudicate the workers’ compensation lien. 

While this case appears to be another arrow in the plaintiff bar’s quiver against general contractors and construction managers, it should be pointed out that Boller’s contract with the owner in this case made it responsible not only for safety, but for all construction means and methods. 

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