Illinois Construction Law Blog : Illinois Construction Lawyer & Attorney : Foran Glennon Palandech & Ponzi Law Firm : Chicago IL

We take a lot of joy in writing about these coverage cases when we see them because they are turning out to be a patchwork of distinctions and guidelines that can allow you the ability to interpret some language in your own policies.

Today’s case is Mota Construction Co. v. Westfield Insurance Co. (1^st Dist. Doc. No. 1-07-3208). The case involves a suit brought by a worker of a Mota subcontractor for injury on the job. The worker sued Mota, the GC on the project, and another subcontractor, GM Sloan, for injuries the worker alleges happened during his painting and drywall work on a project when he tripped over some material at the site.

The complaint alleged that Mota was negligent as a GC for not maintaining a safe worksite, that Mota was also negligent because it retained control over the site had a duty to properly supervise the work and not let injuries happen, and that GM Sloan was negligent because it failed to maintain a safe work site during its work on the project.

Westfield was the carrier for GM Sloan. The policy that GM Sloan had which Mota was named an additional insured on had a provision in the additional insured endorsement that stated:

“This endorsement provides no coverage to the additional insured [Mota] for liability arising out of the claimed negligence of the additional insured [Mota], other than that which may be imputed to the additional insured by virtue of the conduct of the named insured [GM Sloan].”

16 months after learning of the claim, Westfield denied coverage and argued that the claims made against Mota by the injured worker were not for claims that could be imputed to GM Sloan, but alleged Mota’s own negligence. The trial court agreed and Mota was forced to look to the policy of the injured worker’s employer for coverage. Mota appealed.

The appellate disagreed and held that because the complaint contained a count that alleged that Mota maintained control over the manner and means of the work of the subcontractors (including GM Sloan) and contained allegations of negligence against GM Sloan, there was a possibility that GM Sloan’s negligence would be imputed to Mota and thus, there was a duty to defend on the part of Westfield.

The court went on to state that imputed liability was implied by the allegations that a GC maintains control over the sub’s work because it means that a GC could be held vicariously liable for harm to third-parties caused by a sub’s negligence – which is vicarious liability imputed to the GC. The court distinguished this from the direct liability alleged in a case where the GC failed to properly inspect, manage, and supervise a jobsite… but when these direct negligence allegations are combined with allegations against as sub in a different count, the possibility of imputed liability exists.

The court also distinguished the policy clause in this case from one which included the word “solely” in a different case where the policy granted coverage to the additional insured for liability arising “solely” out of the claimed negligence of the additional insured.

Additionally, for those keeping track, the court also found that in any event, the 16 month delay in brining the claim against Mota meant that Westfield had waived its ability to assert its policy defenses. So time was against Westfield as well. The appellate court reversed the ruling by the trial court and sent the case back to the trial court to determine the appropriate relief for Mota now that a different insurance company had been defending it.

Pay attention to the policy language of your subs, look out for the magic word “solely” in an additional insured endorsement, and definitely consult with someone to make sure the policy you’re getting from your sub is what you’re contracting for.

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We've warned before about the recent dangers of relying on a certificate of insurance as proof of your coverage as an additional insured. In the United Underwriters article, we wrote about the exclusionary language contained in a certificate insurance and its interpretation. In the recent case of Nautilus Insurance Co. v. Mona Fabrication et al., we again find the issue of a policy's interpretation regarding additional insured coverage.

In Nautilus, the court was confronted with the issue of whether or not a party not named as an additional insured in an endorsement could nonetheless be included as an additional insured where the endorsement also stated that additional insureds are those “as required by written contract and per certificate of insurance as approved and on file with the company” and a contract existed requiring the company be named as an additional insured but no certificate of insurance was on file with the insurance company.

Mona, along with the Muslim Community Center and others were sued in a personal injury action that occurred during construction on the Muslim Community Center. The Muslim Community Center along with others tendered to Mona's insurance company and the insurance company filed a declaratory judgment action seeking a ruling that it did not owe Muslim Community Center and others coverage or defense.

In assessing the policy language cited above, the court found that where there was no evidence that both an insurance certificate was on file with the insurance company and Mona was required to name the Muslim Community Center as an additional insured by contract, therefore the policy precluded coverage for the Muslim Community Center.

As we said before it's likely that the best policy is to make sure you're named in the endorsement. However, if the endorsement requires something as simple as contractual language stating that you should be named as an additional insured along with making sure a certificate is on file with the company, you should also ensure that a certificate is on file with the company and make sure your contractual language is sufficient.

It is becoming increasingly rare that an insurance certificate is found to be proof that one is actually covered as an additional insured under a policy.  With a small amount of due diligence, this problem can be alleviated.

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Answer: When your contract obligates you to do so.

We’ve all seen the terms in our contracts, this one is particular to leases:

INSURANCE. (a) Tenant shall, at its sole cost and expense, maintain at all times with responsible insurance carriers acceptable to Landlord licensed to do business in the State of Illinois, insurance covering the premises for the mutual benefit of Landlord and Tenant as follows:

*** (v) Comprehensive General Liability Insurance, with such limits as may be reasonably requested by Landlord from time to time, but not less than a $5,000,000.00excess liability for bodily injury and property damage;

*** (c) All insurance policies shall name Landlord *** [and others] as additional insureds, as their respective interests may appear. Landlord may, by written notice to Tenant, designate other parties as additional insureds. All such insurance shall provide that:

(i) The coverage provided includes the premises;

***(iii) All losses shall be payable notwithstanding any act or negligence of Tenant or Landlord or the occupation or use of the premises for purposes more hazardous than permitted by terms of such policy.

That last part is important. In Illinois, most agreements to indemnify someone for their own negligence are void as a matter of public policy, however, agreeing to obtain insurance to cover someone’s negligence is not void. In fact, it creates an enforceable contract and if you fail to obtain it, even by way of your insurance company providing a policy that excludes it, you’ve breached the lease (or any contract with such a provision for that matter) and can be held liable for the damages that result from failing to obtain the insurance.

In Clarendon America Insurance Co. v. Prime Group Realty, Inc. (1^st Dist., Doc. No. 1-08-0791 & 1985 cons.) that’s exactly what happened. The facts are that Prime Group was the lessor to an entity named Ala Carte Entertainment that ran a restaurant on the property. The lease between the two included the provision above as well as multiple provisions stating that Ala Carte was not indemnifying Prime Group for Prime’s own negligence (something caused by Prime).

A worker was injured fixing HVAC units on the roof of the building. Fixing the HVAC saw Ala Carte’s responsibility, maintaining the rest of the roof was Prime’s. After the worker sued Prime, Prime sued Ala Carte and tendered the defense of the claim to Clarendon, with whom Ala Carte had the policy that was required under the INSURANCE clause. Clarendon filed a declaratory action to have a court find that it had no duty to indemnify Prime and later agreed to defend Prime under a reservation. Prime then sued Ala Carte for breaching its contract because there was a clause in the Clarendon policy to Ala Carte that read:

Policy Change No. 8 Endorsement

If liability for injury or damage is imposed or sought to be imposed on the additional insured because of: (a) Its own acts or omissions, this insurance does not apply.

The circuit court found in favor of Ala Carte and Prime appealed. On appeal, the appellate court found that the anti-indemnity provisions of the contract (those stating that Ala Carte was not to indemnify Prime for Prime’s negligence) did not contradict the insurance provisions because Illinois law has found that you can contract to get insurance for your negligence acts even if you could not be indemnified by a party for them.

Importantly, the court also held that the Endorsement’s negation of coverage for Prime was a breach of the contract provision between Prime and Ala Carte and remanded the case for a hearing on the damages resulting from that breach.

Make sure you read the contract language and either insert or remove this language depending upon your needs… and always read the policy once you get it to make sure it is in compliance with such a provision. A little double-checking in the beginning could have saved everyone this headache later on.

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The situation is common… You’ve decided to build, there’s a building on the site and you need to tear it down and excavate in order to construct your project. You get a policy for the work, but you’re not performing it – you’ve hired a contractor who’s hired a sub to do the tear-down and excavation. Something goes wrong during the excavation and the building next to your site is damaged, or collapses… sometimes beyond repair.

You are sued, and beyond looking to your contractor and the subs for indemnification and possible coverage under their policies, you figure, “no sweat, I’ve got my own policy,” so you tender the complaint to your own carrier expecting coverage under a policy that you’ve paid for… but your insurance company says “sorry, you’re not covered here… take a look at the exclusions.”

They point you to a standard comprehensive general liability policy (CGL) exclusion that continually has varying application:

EXCLUSION - CONTRACTORS AND SUBCONTRACTORS

The following exclusion is added to Paragraph 2. Exclusions of SECTION I - COVERAGE A - BODILY INJURY AND PROPERTY DAMAGE LIABILITY, COVERAGE B - PERSONAL AND ADVERTISING INJURY LIABILITY and COVERAGE C - MEDICAL PAYMENTS:

This insurance does not apply to "bodily injury", "property damage", "personal and advertising injury" or medical payments arising out of operations performed for you by contractors or subcontractors you hire or your acts or omissions in connection with your general supervision of such operations.

Your carrier feels so right about the determination that they file suit seeking a declaration that there is no coverage under your policy, a court agrees… and just like that, you’re back to hoping that your contract with your GC has an indemnity provision and requires that someone name you as an additional insured.

The recent, Seventh Circuit case of Nautilus Ins. Co. v. 1452-4 N. Milwaukee Ave. LLC, has done a good job in both analyzing this matter and making it understandable for owners who find themselves in this predicament. 

The situation in Nautilus is that described above. The owner/developer was sued under multiple theories including negligence and liability under the Adjacent Landowner Excavation Protection Act (740 ILCS 140/0.01 et seq.) after the work of its GC/subs caused damage to building next door that required the demolition of the neighboring building.  A copy of the original complaint filed by the insurance company with the policies attached is here.

Here’s what was at the spot:

Here’s what it looked like after it was demolished:

View Larger Map

The insurance company moved for a determination that there was no coverage under the policy based on the Contractors and Subcontractors exclusion (along with another exclusion – which was not terribly relevant to the appeal). The district court found that there was coverage and the company appealed - on appeal the court held that the exclusion applied and there was no coverage given that the policy’s exclusion was clear and that all the theories for recovery advanced against the owner were directly caused by the work of the GC/subs… to which the exclusion applied.

The theories of liability directly attributed to the damage cause by the GC/subs made for an easy determination under the policy language, but the owner raised an interesting argument with respect to the statutory claim:  it was the failure of the owner to give the required notice to neighboring owners under the act that gave rise to liability under the statute… so the statutory claim should be covered because liability under it was directly caused by the owner.

The court said that the statutory claim against the owner was also not covered because it sought “recovery for the same loss as all the other claims – the property damage arising out of the faulty excavation performed by [the owner’s] contractors and subcontractor – and coverage for that property damage is excluded by the contractor-subcontractor exclusion.”

In normal situations there would be other opportunities for coverage or indemnification by contract. An owner would likely have included the indemnity provision in its contract with its GC as well as a provision requiring indemnity or that it be named as an additional insured on the GC/subs policies.  

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Once someone files suit or makes a claim against you, just how long do you have to tender it to your insurance company… and how does that tender have to happen?

This issue is addressed in West American Insurance Co. v. Yorkville National Bank (Doc. No. 3-07-0104, 3^rd Dist.). While the case involves matters relative to coverage for defamation suit, the principals are ones we should be aware of.

The policy involved in this case had a notice provision that you are likely to see in many policies:

"If a claim is made or ‘suit’ is brought against any insured, you must:

(1) Immediately record the specifics of the claim or ‘suit’ and the date received; and

(2) Notify us as soon as practicable.

You must see to it that we receive written notice of the claim or ‘suit’ as soon as practicable."

Although the defendants in the action had known that a suit had been filed against them on September 24, 2001, and although they had allegedly had conversations about the suit with their insurance broker, they waited until January 19, 2004 – over 27 months – to tender written notice of the suit to their insurer. The case had been ongoing for over two years and was set to go to trial in March of 2004.

They were likely a bit surprised when their insurer filed an action against them seeking a court’s declaration that the insurer had no duty to defend or indemnify their insured given the 27 month lack of notice. The insureds argued to the trial court that the conversations should be enough to trigger coverage, and the trial court agreed. The insurer appealed and the appellate court found that the conversations didn’t matter.

Where the contract was specific in requiring written notice, the decision by the trial court that the conversations were enough effectively read the “written notice” requirement out of the agreement… and that’s not correct. 

The appellate court reversed and found that failure to provide written notice for 27 months was a breach of the policy and therefore, the insureds were not entitled to coverage.

Coverage they would probably otherwise have had if they just sent the written notice when they were informed about the suit. Don’t forget to follow the letter of the contracts. Insurance is a necessity and it's there to protect you, but you need to make sure you’re upholding your end of the agreement if you expect that protection.

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It’s not always true that there’s no point to beating a dead horse… The horse might have insurance.

In this recent action (link goes to the complaint) filed by the University of Chicago Medical Center against HLM Design, Inc. (N.D. IL, Case No. 2009 cv 730)  The University is suing HLM for breaching its contract for the design of the UofC’s Comer Children’s Hospital. The allegations are that HLM’s designs “failed to include important elements, failed to incorporate value engineering opportunities that would have saved UCMC money, and were inconsistent with applicable codes and regulations.”

The problem is that HLM filed for Bankruptcy in 2004.  HLM was purchased by Heery International at auction. The University had to go to the bankruptcy court in North Carolina where HLM filed in order to get permission to sue HLM in the hopes that HLM’s insurance carrier would have the money to satisfy the damages (in excess of 2 Million according to the complaint) allegedly caused by HLM’s breach of contract.

Oddly, the way the complaint reads, you can tell that the problems HLM was having in fulfilling their end of the deal were the result of the impending bankruptcy, and yet the University alleges that it didn’t learn of the bankruptcy until “well after the filing.”

We will continue to keep you posted as this case develops. It’s going to be interesting to see the if the University can get from the insurance carrier what it cannot obtain from HLM.

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As we’ve said before, making sure your covered under some policy of insurance requires a bit of attention to the details in your contract and the details in the policy language. Our last installment regarding this issue involved the ability of a certificate of insurance to stand alone as evidence of coverage.

In this installment, the opinion in United States Fidelity and Guaranty v. Shorenstein provides an additional bit of policy language to be aware of.

The plaintiff, an insurance company, sought a declaration that it had no duty to defend and indemnify the defendants to a lawsuit under a policy issued to a non-party for an accident at a construction site involving a scaffolding collapse in 2002. The entities seeking indemnification and defense owned the building and had entered into a construction contract with a non-party to the underlying suits in 2000 and the insurance coverage required by that agreement lasted into the time of the accident.

The construction contract required the construction company to name the defendants as additional insureds on its policy. The policy also included language stating that if someone was to be added to a policy as an additional insured by another written contract (i.e. the construction contract) then if a certificate of insurance had been issued naming that person, the person would be an additional insured.

The plaintiff argued that because a certificate of insurance had not issued until after the time of the accident, coverage did not exist where the existence of the certificate was expressly required by the language of the policy. The court found otherwise.

The court held that where the construction company and the defendants had specifically contracted for additional insured coverage, and the certificates had all the limiting language we saw in our previous entry on this topic, the interpretation that there was no coverage until the certificate issued would limit the term of the coverage to something other than the entire year it provided for. Reasoning that the certificate could not change the terms of the coverage given the clauses printed on the certificate specifically disclaiming that it modified any contract, the court in essence found that the date of the certificates issuance was a nullity, despite the language requiring that a certificate be issued in the actual policy.

Again, don’t just rely on the certificates. No matter what your position under the certificate, it’s becoming unlikely that they will afford you relief or protection apart from the policy and your contract.

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Any discussion of your project is going to involve insurance.  Whether you’re naming someone as an additional insured or being named as one is a part of every construction project.  Making sure that you get what you want is not as easy as you might think.  And the recent case of United Stationers Supply Co. v. Zurich American Ins. Co. et al, (Illinois, Doc. No. 1-07-2779) is proof that you need to pay attention to what you’ve contracted for and what you’ve received as proof that those obligations have been fulfilled.

In this case, the plaintiff sought a declaration from the court that the insurance company for its general contractor was required to defend and indemnify it after an employee of the company was injured while working on a construction project to replace a roof at the plaintiff’s plant.  The injured worker alleged he was supervised and managed by the general contractor and injured while using the general contractor’s equipment.  The employee had sued the general contractor and the general in turn had sued the plant owner (the plaintiff in this action) for contribution.  The plaintiff requested that the insurance company that supplied a commercial general liability policy to the general contractor defend and indemnify the plaintiff in the underlying injury action and the insurance company denied that it had any obligation to do so.  The parties filed an action seeking a declaration that their version of the obligations of the insurance company was the correct one and the lower court found that the insurance company had no duty to defend or indemnify the plaintiff.

The reasons for that lack of duty are important to anyone entering a contract related to a construction project.  The general contractor and the plaintiff had entered into a contract which had terms that required the general contractor to obtain specific types of insurance, i.e. Workmen’s Compensation, Contractual Liability Insurance, Automobile Liability Insurance, and Hazardous Materials Insurance.  Nowhere in the contract was the general contractor required to obtain Commercial General Liability insurance.  In fact, the contract only required that the general obtain Contractual Liability Insurance with the requirement that it be endorsed to cover the indemnity agreement (a standard indemnity agreement) between the parties which required the general to indemnify the plaintiff.  The contract also required that the general contractor furnish a certificate of insurance that named the plaintiff as an additional insured and did not require or specify which type of insurance the plaintiff was to be named as an additional insured.

The manner in which the First District made its findings is attributable to the vague nature of the contract.  As is usually the case, that ambiguity provides a learning point.

With regard to the fact that the plaintiff was named on the certificate of insurance for the CGL policy, but not on the actual endorsement to the policy or required by contract to be named as an additional insured for the policy, the court pointed out something you will likely see on all your certificates.  Take a look at this sample certificate, particularly the language in the upper right hand corner:

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.

The court looked to that language and applied it to the coverage in this matter finding that the certificate did not alter the coverage and that the specific language put the plaintiff on notice that coverage is governed by the terms of the insurance policy and not the certificate.  Remember, the certificate isn’t the policy and the endorsement needs to be clear.

Second, the court found that none of the contractual language implied that the plaintiff would be added as an additional insured to the CGL policy. 

With this reasoning in mind the court found:

Based on the foregoing, we find as a matter of law that United Stationers is not an additional insured under the CGL policy because: (1) United Stationers is not specifically listed as an additional insured in the policy; (2) the construction contract requiring D.C. Taylor to purchase insurance on behalf of United Stationers did not specifically require the purchase of a commercial general liability policy; (3) there is no evidence of intent by the parties that United Stationers was to be added as an additional insured; and (4) the disclaimer language in the certificate of insurance put United Stationers on notice that the CGL policy language governed coverage of additional insureds.

Because the contract was not clear, and the certificate disclaimed any change to liability, the plaintiff was not covered under the policy.

As a side note, this is a small difference between the new ConsensusDocs and the AIA 201 – 2007 general conditions.  The ConsensusDocs 200 uses specific names for the types of policies required by the contract, i.e. CGL, Employer’s Liability, Business Automobile Liability, and does not require that the parties name anyone as an additional insured, but offers the option of selecting additional insured coverage in Section 10.5.  The AIA 201 identifies the types of claims against which the contractor should have coverage (Section 11.1.1) and requires that the owner be named in the commercial liability coverage as a default (Section 11.1.4).  Both contracts require that certificates be furnished to the owner, but under the present case, a certificate may not be enough.

The lessons are simple for a company looking to ensure legally binding coverage on their construction project in Illinois, there are two lessons from this case:

1)       Contracts should mandate that every type of insurance required is named in the contract, including terms like “commercial general liability” or others describing the coverage needed with specificity.

2)      Request that you be named on the endorsement and get a copy of the endorsement or make sure it has language sufficiently broad enough to include you as someone who has required the insured to name them as an additional insured – not just requesting a certificate of insurance.

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