Illinois Appellate Court Finds That Insurer is Obligated to Defend for Vicarious Liability Even Though the Complaint Does Not Allege

This case was brought as a declaratory judgment action filed by the plaintiff, Pekin Insurance Co., seeking a declaration that it owed the defendant Lexington Station LLC no duty to defend it in a personal injury lawsuit filed by Marcos Botello against Lexington.

Pekin had issued a commercial general liability (CGL) policy to ACC Inc. The defendant, Marcos Botello, was injured during the effective policy period while working as an employee of ACC on a development project owned by Lexington. Botello filed a personal injury lawsuit against Lexington. Lexington in turn tendered the defense of the case to Pekin, which refused to tender and then filed this declaratory judgment action. Pekin argued that it had no duty to defend Lexington as an additional insured under the policy issued to ACC.

Westfield Insurance Co., as Lexington’s own CGL insurer, intervened in the declaratory action and argued, along with Lexington, that Pekin did owe a duty to defendant. The circuit court denied Pekin’s motion for summary judgment and granted Lexington and Westfield’s cross-motion for judgment on the pleadings, finding that Pekin had a duty to defend Lexington. Pekin appealed.  It argued that the court’s entry of judgment in favor of Lexington and Westfield was in error because (1) Botello’s complaint did not contain allegations that created a potential for a claim of vicarious liability against Lexington; and (2) the circuit court improperly considered a third-party complaint in coming to its conclusion.

The Illinois Appellate Court affirmed the judgment of the trial judge that Pekin had a duty to defend Lexington.

The background of the case is that in September 2014, Lexington as the “Owner,” entered into a contract with ACC, as the Contractor (ACC construction agreement) for carpentry services in connection with the development of property in Morton Grove, Ill. The ACC construction agreement was attached to the complaint for declaratory judgment that provided that ACC was an independent contractor and required ACC to “perform a for all” of the contract work.  The ACC construction agreement defined that contract work to include a broad scope of carpentry work on the Morton Grove development.

The contract provided that ACC was an independent contractor, in that it was responsible for all work and safety on the job.  In addition, the contract required ACC to procure insurance coverage with Lexington as an additional insured. ACC obtained a commercial general liability policy from Pekin having a blanket additional insured endorsement providing coverage solely for vicarious liability.

Botello, an ACC employee, was injured on the job.  In his lawsuit against Lexington, he alleged that Lexington had authority to stop ACC’s work and certain other limited authority, that it inspected the work, that it improperly managed the premises through agents, and that it failed to supervise the work being done.

Lexington filed a third-party complaint against ACC, alleging ACC’s negligent acts or the cause of Botello’s injuries, and it sought contribution.

In the opinion written by Justice Mary L. Mikva, the Illinois Appellate Court for the 1st District found guidance from the case of Pekin Insurance Co. v. Centex Homes, 2017 IL App (1st) 153601. In that case, there was a similarity in that it involved an additional insured.  The court held that for an insurer to have a duty to defend, the underlying complaint must give rise to a potential for holding the named insured liable for negligence, and for holding the additional insured vicariously liable for that negligence.

In this case, it is alleged that Botello was injured when working on a ladder without proper safety measures in place.  While the complaint did not allege who was responsible for the safety measures, the Lexington/ACC contract placed responsibility on ACC.  Considering the contract together with the complaint, Justice Mikva said that a potential existed for finding ACC negligent.

In addition, it was said that Botello had no reason to sue ACC, his own employer, and to allege that it was negligent.  As in the case of Pekin Insurance Co. v. Wilson, 237 Ill.2d 446 (2010), the court stated that it was allowed to look beyond the allegations of the complaint and to take into account the terms of the construction contract.

Justice Mikva then turned to evaluate whether the underlying complaint contained allegations that could support Lexington’s potential vicarious liability.  As in Centex, the appeals panel observed that whether a contractor could be directly liable, vicariously liable, or not liable at all, depended on the amount of control the contractor exercised over its subcontractors.

The appellate court concluded that the possibility of Lexington’s vicarious liability for ACC’s negligence brought this action within the broad duty of Pekin’s duty to defend. Accordingly, it affirmed the decision of the trial court in favor of Lexington.

An additional insured having coverage limited to vicarious liability may be entitled to a defense by the additional insurer even though the underlying complaint contains no allegations of negligence by the named insured or vicarious liability of the additional insured. Further it was concluded that allegations in an underlying complaint that the additional insured has control of operations and is liable for the actions of its agents, provided a sufficient basis to impose a defense obligation on an insurer providing vicarious liability coverage for the additional insured.

Lastly, the court in this case stated that even if a subcontractor is deemed an independent contractor by contract, the facts may demonstrate that the self-contractor acted as an agent of the subcontractor. These were the key points that were earmarked by the Illinois Appellate Court in its decision.

Pekin Insurance Company v. Lexington Station, LLC and Marcos Botello, 2017 IL App (1st) 163284 (Aug. 14, 2017).

Kreisman Law Offices has been handling work injury lawsuits, construction work injury lawsuits, traumatic brain injury cases and forklift accident lawsuits for individuals, families and the loved ones who have been injured, harmed or killed by the negligence of another for more than 40 years, in and around Chicago, Cook County and its surrounding areas, including Oak Forest, Chicago Ridge, Burbank, Summit, LaGrange Park, Westchester, Berkeley, Maywood, Elmwood Park, Schiller Park, Chicago (Lakeview, Lakewood Balmoral, Pulaski Park, Chinatown, Bronzeville, Armour Square, Lincoln Park, Lithuanian Plaza, Little Italy, Old Town Triangle, Sauganash, Sheffield, Roscoe Village, Jackson Park Highlands, UIC, Wrigleyville, Koreatown, Diversey Harbor, DePaul University Area, Beverly), Geneva, Glencoe, Joliet and Lockport, Ill.

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