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Tiffiny Decorating Co. v. Gen. Acc. Fire & Life

JUNE 13, 1973.

TIFFINY DECORATING COMPANY, PLAINTIFF-APPELLEE,

v.

GENERAL ACCIDENT FIRE AND LIFE ASSURANCE CORPORATION, LIMITED, DEFENDANT-APPELLANT.



APPEAL from the Circuit Court of Cook County; the Hon. EDWARD J. EGAN, Judge, presiding.

MR. JUSTICE JOHNSON DELIVERED THE OPINION OF THE COURT:

Plaintiff filed a declaratory judgment action against the defendant, by which plaintiff sought a declaration that it was covered under a combined comprehensive liability policy issued by defendant for the subject matter of a third party action brought against it by Filmore Construction Company, and that the defendant should have undertaken the defense of the third party action for plaintiff under that policy. Plaintiff also sought judgment in the amount of the attorney's fees which it paid to protect itself from any potential liability over and above the insurance coverage of $100,000 provided under a workman's compensation and employer's liability policy issued by defendant and under which defendant defended the third party action for plaintiff. Both parties waived trial by jury and the case was submitted to the court on a stipulation of facts. The circuit court of Cook County entered judgment in favor of the plaintiff and the defendant appeals.

Filmore Construction Company subcontracted certain painting and decorating jobs to Tiffiny on March 19, 1966, and told Tiffiny that because scaffolding was going to be used, it required a Certificate of Insurance for scaffolding, to be issued before Tiffiny could start. Tiffiny said it had such insurance, and requested defendant's issuance of a Certificate of Insurance to Filmore. On January 19, 1966, defendant issued to Tiffiny its combined comprehensive liability policy, limited to $250,000, and also its workman's compensation and employer's liability policy, limited to $100,000. The policies were to run until January 19, 1967. On March 18, 1966, defendant issued a Certificate of Insurance to Filmore, and Tiffiny started work.

On November 15, 1966, while Tiffiny was still working as subcontractor to Filmore at Accurate Threaded Fasteners, 3550 West Pratt, Lincolnwood, one of Tiffiny's employees, Alexander M. Hair, while in the course of his employment, fell from a scaffold and was injured. Hair filed a personal injury suit under the Structural Work Act of Illinois, naming Filmore, the owner, and an architect as defendants. Filmore filed a third party complaint against Tiffiny seeking indemnity based on two theories: The active-passive theory, and breach of implied obligation to perform its work in a good, safe and workmanlike manner.

When Tiffiny was served, it tendered its defense to defendant herein. Defendant accepted the defense under the workman's compensation and employer's liability policy, but stated that because the policy was only for $100,000 and the suit was for $200,000, defendant would only indemnify up to $100,000. Defendant refused to accept the defense under the combined comprehensive liability policy. Tiffiny then retained the law firm of Ruttenberg and Ruttenberg after defendant refused to accept liability under the combined comprehensive liability policy.

• 1 There is a line of cases in Illinois which holds generally that an insurer is bound to defend its insured when the allegations of the injury complaint bring the claim potentially within the coverage of the policy; or, in other words, the injury complaint must show on its face that there is no coverage before an insurance carrier can safely refuse to defend. Wheeler v. Aetna Casualty and Surety Co., (1st Dist.) No. 57607, May Term, 1973; Sims v. Illinois Nat. Casualty Co. of Springfield, 43 Ill. App.2d 184, 193 N.E.2d 123 (3rd Dist., 1963); McFadyen v. North River Insurance Co., 62 Ill. App.2d 164, 209 N.E.2d 833 (2nd Dist., 1965).

• 2 By its unjustified refusal to defend an action against the insured, a liability insurer becomes subject to the following new and positive obligations: (1) liability for the amount of the judgment rendered against the insured or of the settlement made by him; (2) liability for the expenses incurred by the insured in defending the suit; (3) liability for any additional damage traceable to its refusal to defend. 43 Ill. App.2d 184, 193 N.E.2d 123 (3rd Dist., 1963).

On August 27, 1970, the personal injury suit brought by Hair against Filmore was settled. The defendant insurance company (General Accident) paid the entire settlement. The suit by Hair and the third party complaint by Filmore against Tiffiny were both dismissed.

This suit by Tiffiny is for $1,260, the amount of the attorney's fees billed to the plaintiff, Tiffiny, by the firm of Ruttenberg and Ruttenberg.

The issue presented for review is whether the combined comprehensive liability policy issued by defendant to plaintiff, affords coverage to plaintiff for the indemnity action filed against it by Filmore. Defendant contends the policy provided no coverage because plaintiff did not by contract assume the liability of Filmore. The pertinent portions of the policy provided:

"Coverage B — Bodily Injury Liability — Except Automobile To pay on behalf of insured all sums which the insured shall become legally obligated to pay or the liability of others assumed by him under contract for damages, including damages for care and loss of services because of bodily injury, sickness or disease, including death at any time resulting therefrom sustained by any person or persons."

By the terms of exclusion (g), the policy does not apply:

"Under Coverage B, except with respect to liability of others assumed by the insured, under contract, to bodily injury to or sickness, disease or death of any employee of the insured arising out of and in the course of his employment by the insured."

Defendant argues that under Coverage B, two risks are incurred: (1) those which the insured shall become legally obligated to pay because of bodily injury, and (2) the liability of others assumed by it under contract for damages because of bodily injury. Exclusion (g) says that the coverage under B does not apply if the bodily injury is to an employee of the insured unless the insured assumed by contract the liability of others for such bodily injury to an employee. Defendant claims that the third party action by Filmore retains the characteristics of plaintiff's suit against Filmore and constitutes a suit to recover for bodily injury to an employee of the insured. Thus, under exclusion (g), the first risk covered by B does not apply, nor does the second risk because plaintiff did not assume the liability of Filmore under contract. The liability of plaintiff to Filmore is not founded ...


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