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Cas. Ins. Co. v. Northbrook Prop. & Cas.





Appeal from the Circuit Court of Cook County; the Hon. James C. Murray, Judge, presiding.


Plaintiff, Casualty Insurance Company (Casualty), appeals from a summary judgment granted in favor of Schal Associates, Inc. (Schal), and Northbrook Property & Casualty Insurance Company (Northbrook), in a declaratory judgment action, whereby Casualty was found obligated to defend Schal and reimburse Northbrook for settlement and defense costs incurred on behalf of Schal in an underlying personal injury action.

Schal was the construction manager for the owner in the construction of a multistory office building known as 200 West Madison Plaza in Chicago. All of the above-ground concrete work was subcontracted by Schal to Mid-American Concrete Company (Mid-American). Michael Krkljus (Krkljus) was an employee of Mid-American and performed services as a laborer at the site.

Mid-American obtained a general liability policy from Casualty. An endorsement was added naming Schal an "additional insured." There is no dispute that the policy was in effect on June 8, 1981, and pertained to work performed at the Madison Plaza building.

On June 8, 1981, Krkljus was injured while performing work for Mid-American on the construction site when a cable from a crane dislodged from its mooring and struck him. The crane was owned by American Bridge, a division of the United States Steel Corporation. Krkljus then brought suit to recover for his injuries against Schal and others, alleging that the defendants violated the Structural Work Act (Ill. Rev. Stat. 1985, ch. 48, par. 60).

Schal was insured by Northbrook under a general liability policy that provides, in part, that the policy "shall apply only as excess insurance over any other valid and collectible insurance which would apply in the absence of this policy, except it shall not apply as excess over any policy written as specific excess." Northbrook tendered the defense of Schal in the Krkljus action to Casualty on September 15, 1982. On October 13, 1982, Casualty refused to defend Schal on the basis that there was no coverage afforded to Schal under the additional-insured endorsement. Northbrook then assumed the defense of Schal in the action by Krkljus.

On July 6, 1983, Casualty instituted a declaratory judgment action against Northbrook, Schal, and Krkljus, seeking a declaration that the Casualty policy did not afford coverage to Schal in the action brought by Krkljus. Northbrook and Schal answered and filed a counterclaim requesting a declaration that Schal was entitled to a defense, and ultimately indemnity, from Casualty. Northbrook alleged that Casualty was estopped from raising any coverage defenses because of its wrongful refusal to defend Schal. Finally, Northbrook and Schal requested a declaration that Casualty was liable for all costs incurred by Northbrook in defending Schal in the suit by Krkljus.

The suit by Krkljus was settled during the pendency of the declaratory action with a $5,000 contribution from Schal paid by Northbrook. On July 10, 1985, the court entered its final order, which declared that Casualty must reimburse Northbrook and Schal $5,000 as the reasonable amount for which Schal's liability was settled in the action by Krkljus and that Casualty must reimburse Northbrook and Schal for all reasonable costs and defense fees incurred in the defense of Schal from the time of the tender until settlement. Casualty appeals.


• 1 The question presented is whether Schal was entitled to a defense by virtue of being an additional insured under the policy issued by Casualty to Mid-American. The policy provides that Schal is an additional insured "but only with respect to liability arising out of operations performed for the additional insured by the named insured" at the construction site. Thus, in order to establish the obligation to defend under the policy, Northbrook and Schal need only show that Schal's potential liability to Krkljus arises from operations performed at the construction site for Schal by Mid-American.

It is well established that an insured's potential liability, for purposes of defense and indemnity coverage, is measured by the allegations of the underlying complaint. (Conway v. Country Casualty Insurance Co. (1982), 92 Ill.2d 388, 393, 442 N.E.2d 245.) A liability insurer is obligated to defend an action brought against a putative insured if the complaint sets forth allegations that bring the claim within or potentially within the coverage of the insurance policy. (Maryland Casualty Co. v. Peppers (1976), 64 Ill.2d 187, 355 N.E.2d 24; Aetna Casualty & Surety Co. v. Coronet Insurance Co. (1976), 44 Ill. App.3d 744, 358 N.E.2d 914.) Moreover, the complaint must be liberally construed and all doubts resolved in favor of the insured. (Sentry Insurance Co. v. S & L Home Heating Co. (1980), 91 Ill. App.3d 687, 689, 414 N.E.2d 1218.) The insurer is required to defend any claim under the pleadings which might possibly fall within the scope of the policy coverage. La Rotunda v. Royal Globe Insurance Co. (1980), 87 Ill. App.3d 446, 451, 408 N.E.2d 928, appeal denied (1980), 81 Ill.2d 602.

This court has previously construed the "but only liability arising out of" language as it relates to an additional insured. (Maryland Casualty Co. v. Chicago & North Western Transportation Co. (1984), 126 Ill. App.3d 150, 153, 466 N.E.2d 1091.) At issue in Maryland was whether Maryland Casualty Company owed Chicago & North Western a duty to defend in an action brought against it by an employee of its lessee, Demos News, Inc., that had leased a portion of its Chicago passenger terminal.

Maryland insured Demos News under a general liability policy that named Chicago & North Western as an additional insured "but only with respect to liability arising out of the ownership, maintenance or use of that part of the premises designated below leased to the named insured." (126 Ill. App.3d 150, 153.) The Demos News employee was injured when she was attacked in nonleased portions of the terminal as she was about to begin work. The employee sued Chicago & North Western for negligence. Chicago & North Western tendered the defense to Maryland Casualty. This court held that Chicago & North Western was entitled to a defense as an additional insured. "The phrase `arising out of' is both broad and vague, and must be liberally construed in favor of the insured; accordingly, `but for' causation, not necessarily proximate causation, satisfies this language. [Citations.] `Arising out of' has been held to mean `originating from,' `having its origin in,' `growing out of' and `flowing from.' [Citation.]" (126 Ill. App.3d 150, 154.) This court concluded that "the instant injuries appear to have arisen from the operation and use of the leased premises, since they would not have been sustained `but for' the victim's employment on those premises. * * * The policy * * * must be construed to cover any risks attendant upon her presence there resulting from C&NW's negligence and thereby activates Maryland's duty to defend C&NW." 126 Ill. App.3d 150, 155.

Although Casualty accepts the pronouncement of this court in Maryland, it urges us to follow Consolidation Coal Co. v. Liberty Mutual Insurance Co. (W.D. Pa. 1976), 406 F. Supp. 1292. In Consolidation Coal the additional-insured endorsement provided that Consolidation Coal was an additional insured, "but only with respect to acts or omissions of the named insured in connection with the named insured's operations at the applicable location designated." (Emphasis added.) (406 F. Supp. 1291, 1296.) Thus, the language "acts or omissions of the named insured," which is not present in the case before us, specifically limits the extent that Consolidation Coal was to be an additional insured to those situations where the named insured's negligence caused Consolidation Coal to suffer liability. Based on this qualifying language, the court held that Consolidation Coal was an additional insured under the policy only ...

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