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07/13/87 Reliance Insurance Company v. Nick J. Giannini

July 13, 1987





511 N.E.2d 755, 158 Ill. App. 3d 657, 110 Ill. Dec. 578 1987.IL.982

Appeal from the Circuit Court of Cook County; the Hon. Thomas J. O'Brien, Judge, presiding.


PRESIDING JUSTICE QUINLAN delivered the opinion of the court. BUCKLEY and O'CONNOR, JJ., concur.


This is a declaratory judgment action in which Reliance Insurance Co. (Reliance) appeals from the decision of the circuit court of Cook County granting summary judgment to intervenors-appellees Higgins Asphalt Co., Inc. (Higgins), and Wight Consulting Engineers, Inc., and George Wight (collectively Wight). The intervenors claimed that Reliance was obligated to provide coverage concerning their underlying claim for contribution against Reliance's insured, Nick J. Giannini (Giannini), and on Higgins' claim against Giannini for its breach of contract to procure insurance. Reliance now has filed this interlocutory appeal pursuant to Supreme Court Rule 308 (87 Ill. 2d R. 308) and seeks to vacate the orders of summary judgment that found it did owe coverage and that Reliance had a duty to defend Giannini in the underlying third-party actions. Giannini is not a party before the court in this appeal.

Higgins was the general contractor and Wight was the structural engineer at a construction site in Lake Zurich, Illinois. In October of 1979, Higgins entered into an oral agreement with Reliance's insured, Giannini, to perform certain sewer excavation work at the Lake Zurich site. On February 28, 1980, one of the sewer trenches collapsed, killing two of Giannini's employees and injuring a third. Giannini was out of State at the time of the accident but testified at his deposition, parts of which were submitted in support of the motion for summary judgment, that he flew back the next day and executed the written contract herein with Higgins. However, the written contract was dated February 26, 1980.

At the time of the accident Giannini was covered against workers' compensation claims by a Liberty Mutual Insurance policy which insured individual claims up to $100,000. The company also had coverage through Reliance on a comprehensive general liability policy with claim limits of $500,000. However, the subcontract with Higgins required Giannini to provide certificates that it was covered in the amount of $500,000 for workers' compensation claims and $1 million for comprehensive general liability claims. In addition, under the contract the comprehensive general liability policy was required to have a hold harmless agreement on behalf of the contractor Higgins. The subcontractor Giannini was required to hold Higgins harmless under the following provision:

"The Subcontractor shall save and hold harmless, the Contractor from and against all liability, claims and demands of whatsoever kind or nature arising out of or connected with the performance of work by the Subcontractor, or in behalf of the Contractor, whether such injury, death, loss or damage shall have been occasioned by negligence of the Subcontractor, or a subcontractor of the Subcontractor of the Contractor, or their employees; or otherwise. The Subcontractor will defend at his own expense any actions based thereon and shall pay all charges and all costs and other expenses arising therefrom."

A separate lawsuit is presently pending between Higgins and Giannini to determine the obligation of the parties under the alleged terms and conditions of the subcontract agreement.

The injured employee and the administrators of the estates of the deceased employees previously filed a suit against Higgins and Wight on the basis of negligence and Structural Work Act violations. Higgins filed a third-party suit against Giannini on theories of contribution, breach of contract to procure insurance, written indemnity, and implied indemnity. The trial court dismissed the indemnity counts. Wight then filed a third-party claim against Giannini seeking contribution. Giannini tendered its defense to Reliance, which filed this declaratory judgment action against Giannini alleging that no coverage existed and that it had no duty to defend in the third-party action because of the policy exclusions therein.

Thereafter, Higgins and Wight effected settlement in the underlying personal injury and wrongful death actions and intervened here in Reliance's declaratory judgment action. Cross-motions for summary judgment were filed and the trial court granted Higgins' and Wight's motions and denied Reliance's motion. Reliance filed a motion for reconsideration which the trial court denied in its entirety on August 7, 1986. Reliance, as stated previously, has now appealed from the granting of Higgins' and Wight's motions for summary judgment and the finding of coverage and a duty to defend under the comprehensive liability policy. The issues before this court are whether the employee exclusion in the CGL applies to third-party contribution claims, whether the insured's failure to procure insurance in the amounts specified in the subcontract is a covered occurrence within the incidental contract provisions of the CGL, and whether the subcontract was an existing incidental contract at the time of the accident to trigger the CGL obligation.

The first issue presented, whether a CGL containing an employee exclusion relieves the carrier of any duty to defend or indemnify when a third party brings a contribution action against the insured employer, was recently decided by this court in Midland Insurance Co. v. Bell Fuels, Inc. (1987), 159 Ill. App. 3d 780. The Midland case was decided after the trial court here had granted summary judgment to the intervenors and after Reliance had filed its appeal. The trial court, finding no Illinois law on point, had relied on Insurance Company of North America v. Dayton Tool & Die Works, Inc. (1982), 57 N.Y. 2d 489, 443 N.E.2d 457, 457 N.Y.S.2d 209, in its ruling on the cross-motions for summary judgment. However, this court in Midland expressly rejected both the holding and the reasoning of Dayton Tool.

In Midland, James Howard was injured in the course of his employment while driving a vehicle leased by Genway Ford to his employer, Bell Fuels. Howard filed a personal injury claim against Ford, which in turn filed a third-party contribution action against Bell and then settled with Howard. Bell tendered its defense to Midland, which filed a declaratory judgment action against Bell claiming that it had no duty to defend under these circumstances because of the employee exclusion provision in the policy. Bell then filed a counterclaim against Midland in the declaratory judgment suit, alleging that Midland should be estopped to deny coverage because of its wrongful refusal to defend in the third-party contribution ...

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