Liability Carrier Had No Duty to Defend the GC

Thursday, October 10, 2013 | 1

The Illinois Appellate Court ruled a subcontractor’s liability carrier had no duty to defend the general contractor from a negligence claim brought by the subcontractor’s injured employee alleging the general contractor alone was directly negligent.

We feel the Appellate Court correctly applied the plain language of the policy to the facts alleged in the original underlying complaint — and not to additional facts in the general contractor’s third-party complaint — to hold there was no duty to defend where there were no allegations of vicarious liability. Any other result would allow a party seeking coverage to plead additional “self-serving” facts in a third-party complaint for the sole purpose of obtaining coverage.      
 
By way of background, in November 2009, R. A. Cullinan & Son, Inc. (“Cullinan”) became the general contractor of a construction project for the Illinois Department of Transportation in Peoria, Ill. Cullinan entered into a subcontract agreement with Durdel & Sons Tree Service & Landscaping, Inc. (“Durdel”) to clear trees and logs at the work site. In June 2010, one of Durdel’s employees, Charles Hill Jr., was injured when the equipment he was operating struck a live overhead power line.
 
In May 2011, Hill filed a two-count negligence complaint in Peoria County against Cullinan and another defendant, alleging both defendants were directly negligent in supervising, maintaining, and/or providing warnings regarding the live overhead power lines near the work site. Of note, Hill’s complaint did not contain any allegations that his employer, Durdel, was negligent in any manner. In April 2012 — nearly a year after the original complaint was filed — Cullinan filed a third-party complaint alleging Durdel was solely negligent for Hill’s injuries. Cullinan then contacted Durdel’s liability carrier, Pekin Insurance Company, Inc. (“Pekin”), claiming it had a duty to defend Cullinan as an additional insured under Durdel’s policy. Pekin refused to represent Cullinan, claiming Durdel’s policy did not cover Cullinan when the complaint alleged Cullinan was directly negligent for Hill’s injuries and not vicariously liable for Durdel’s negligent actions. Pekin sought declaratory relief, asking the court to find Pekin had no duty to defend Cullinan. However, the trial court ruled against Pekin and held it did, in fact, have a duty to defend Cullinan under the terms of the policy.
 
In Pekin Insurance Co. v. United Contractor Midwest, 2013 IL App (3d) 120803 (Sept. 18, 2013), the Illinois Appellate Court, 3rd District, reversed and remanded the trial court’s ruling. The Appellate Court first looked to the plain language of the insurance policy and noted it only provided coverage for vicarious liability proximately resulting from Durdel’s “ongoing operations performed for that Additional Insured during the Policy Period.” In interpreting this provision, the court noted the general rule that a person who employs an independent contractor is not vicariously liable for the acts or omissions of an independent contractor except under very specific circumstances where the general contractor retains control over the independent contractor’s work.
 
Next, the Appellate Court looked to the underlying allegations of Hill’s negligence complaint to determine whether it alleged sufficient facts that the injuries occurred during Durdel’s “ongoing operations performed for that Additional Insured during the Policy Period.” In doing so, the Court noted the complaint did not allege any facts identifying a negligent act performed by Durdel which resulted from the directives of the general contractor. Instead, the court noted the complaint alleged Cullinan, acting alone, negligently failed to supervise and warn Hill of the dangers posed by the live overhead power lines on the work site. Accordingly, the Court held that the failure to specify a negligent act committed by Durdel not only failed to trigger coverage to an additional insured in Durdel’s insurance policy, but also defeated a theory of vicarious liability.
 
Of note, the court further declined to consider Cullinan’s “potentially self-serving, third-party complaint” for allegations of Durdel’s negligence, as such a complaint filed after declaratory relief was sought could be used “to supply the missing allegations from the original complaint in an attempt to gain coverage as the additional insured under the policy.”
 
As noted above, we feel this is the correct result. The allegations of the original underlying complaint contained no facts that would trigger coverage as an additional insured under the theory of vicarious liability. Simply stated, if the insurance policy does not cover an additional insured’s direct negligence, then there is no duty to defend in an action alleging the additional insured was directly negligent. Moreover, an additional insured should not be able to plead additional “self-serving” facts as an end-around to obtain coverage.
 
Chris St. Peter is a general liability and employment practices liability law specialist for Keefe, Campbell, Biery & Associates in Chicago. This column was reprinted with the firm's permission from its weekly client newsletter.