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Alliance Syndicate, Inc. v. Parsec

December 19, 2000


The opinion of the court was delivered by: Justice McBRIDE

Appeal from the Circuit Court of Cook County Honorable Albert Green, Judge Presiding.

Following an accident in which Henry Smith was injured while working in a railyard, Smith brought suit against a number of entities, including Parsec, Inc. (Parsec). Smith later entered into a $2.5 million settlement with Parsec and Parsec as indemnitor of CSX Corporation (CSX). During the pendency of Smith's suit (the underlying case), plaintiff Alliance Syndicate, Inc. (Alliance) brought a declaratory judgment action against its insured, defendant Parsec, Inc. (Parsec), seeking a declaration as to Alliance's obligation to defend or indemnify Parsec in the Smith suit under a general liability insurance policy. Parsec filed a counterclaim against Alliance and various other defendants, including third-party defendant the Illinois Insurance Exchange (IIE). Alliance and the IIE filed motions for summary judgment on various counts in Parsec's third amended counterclaim. Following a hearing, the circuit court entered summary judgment in favor of Alliance and IIE and against Parsec. Parsec now appeals. *fn1

Parsec and the Baltimore & Ohio Railroad Company (the predecessor- in-interest to CSX) entered into an agreement (the Parsec/CSX agreement) under which Parsec was to load and unload freight containers at various rail yards. Under the terms of the Parsec/CSX agreement, Parsec was:

"(a) To indemnify, protect, defend and save harmless [CSX] from and against all loss, damages, costs and expenses, including attorneys' fees, claims, demands and causes of action on account of -

(i) injury to or death of all persons (including, but not limited to, employees of [Parsec and CSX]), and loss of or damage to any property ***, caused by or resulting in any manner from any acts, omissions or negligence of [Parsec] or any of [Parsec's] officers, agents or employees, in performing or failing to perform any of the services or duties on the part of [Parsec] to be performed under this Agreement.

(b) In the performance of the work hereunder, [Parsec] shall comply with all applicable federal and state laws and regulations with reference to Employers' Liability and Workmen's Compensation insurance, and when requested by [CSX] shall furnish proof of such compliance and shall indemnify, protect, defend and hold harmless [CSX] from and against any and all loss, damages, costs and expenses, including attorneys' fees, claims, demands and causes of action of whatsoever nature, due to the violation of such laws or regulations by [Parsec], or resulting from any claim of subrogation provided in such laws or regulations, or otherwise."

The Parsec/CSX agreement also required Parsec to provide general liability insurance coverage "in an amount of not less than $2,000,000 per occurrence for bodily injury and property damage liability," and required that such insurance name CSX as an additional insured.

Parsec, as part of the Budco Group, retained an entity known as Marsh & McLennan as its agent for the purpose of obtaining general liability insurance coverage for its various business entities, including the coverage required under the Parsec/CSX contract. Marsh & McLennan was aware that Parsec was required to name the various railroads where it performed services as additional insureds under any policy issued. Marsh & McLennan retained Burns & Wilcox, an insurance broker/wholesaler, to obtain coverage for Budco. A copy of the Parsec/CSX agreement was included in the submission to Burns & Wilcox as an example of a typical contract entered into by Parsec. Burns & Wilcox contacted the Illinois Insurance Exchange (IIE), a statutorily-created central processing facility for the placement of insurance risks with various separate member entities known as syndicates. Burns & Wilcox then allegedly forwarded to various syndicate members of the IIE the application and supporting materials from Parsec via Marsh. The Alliance Syndicate (Alliance) submitted a quotation for the primary general liability coverage of $1 million. Burns & Wilcox forwarded the proposal to Marsh & McLennan. Budco Group accepted the Alliance proposal and a policy was issued. The policy, as issued, was in effect from May 4, 1987, to May 4, 1988, and did not name CSX or any other railroads where Parsec performed work as additional insureds. The Classic Syndicate (Classic) provided a quotation for the excess coverage of $1 million. That quotation was also accepted by the Budco Group.

The policy between Parsec and Alliance was written through the IIE. However, the policy specified in Schedule A that the IIE was not a party to the insurance contract and had no liability thereunder. The excess general liability policy between Parsec and Classic was obtained through the same channels and contained the same IIE liability disclaimer.

Under the Parsec/CSX agreement, Parsec was an independent contractor and was to supply all personnel and equipment to perform the contracted for loading and unloading operations. Transpersonnel, Inc., in turn, had an agreement with Parsec to provide temporary workers. On August 12, 1987, Henry Smith, who had been hired by Transpersonnel approximately seven days earlier, was seriously injured in a rail yard accident when he was run over by a vehicle known as a spotting tractor. A spotting tractor is a large vehicle used for moving and placing containers on and off of rail cars.

At the time of his accident, Smith was directly employed by, and received his paychecks from, Transpersonnel. However, he was under the exclusive supervision and control of Parsec when he was injured at the railyard. The spotting tractor that caused his injuries was owned by Parsec and was operated by a Parsec employee. Although the accident happened at a rail yard owned by CSX Railroad, no CSX personnel were present when the accident occurred.

Following the accident, Smith proceeded to file suit against Parsec alleging, inter alia, careless and negligent acts and/or omissions and wilful misconduct on the part of Parsec. After Smith filed the underlying case against Parsec, Parsec, with the acquiescence of Alliance, retained counsel for its defense. Alliance then informed Parsec that if Smith were found to be a Parsec employee, Alliance believed an exclusion in the policy for bodily injury to employees of Parsec would apply and the policy would not provide any coverage to Parsec for liability assessed against it. Alliance stated that it was thus providing a defense under a reservation of rights.

Other defendants, including CSX, were later added to the underlying Smith case. The amended complaint in the Smith case sought recovery from CSX for negligence under the Federal Employer's Liability Act (FELA). 45 U.S.C. § 51 et seq. (1986). The complaint alleged that CSX had committed a number of careless and negligent acts and/or omissions, including, among other things, failing to provide a safe workplace, failing to correct conditions which caused the existence of an unsafe workplace, permitting an unsafe yard tractor vehicle to be started, and failing to warn plaintiff and others of the condition of the yard tractor.

After the accident, Smith also filed a worker's compensation claim against Transpersonnel and workers' compensation payments were subsequently made. Alliance, after learning that Parsec had instructed its attorneys to abandon a defense alleging that Smith was a Parsec employee and his sole remedy was thus under the Workers' Compensation statute, renounced its duty to defend or indemnify Parsec. Parsec did eventually move for summary judgment in the underlying case, contending that Smith was a Parsec employee and that his sole remedy was through the Workers' Compensation Statute. Parsec's motion was denied.

Alliance filed this declaratory judgment action against Parsec, alleging that the employee exclusion in the policy applied. CSX, which had been named as a party in the Alliance action, filed a counterclaim for declaratory judgment against Parsec, contending that under the Parsec/CSX agreement, Parsec was obliged to indemnify CSX in the underlying case and was obliged to have provided CSX with liability insurance that would have covered CSX in the underlying case. In an exchange of correspondence, Alliance declined the tender of defense of CSX because Alliance did not find CSX to be a named or an additional insured under the Alliance policy. Alliance did, however, state that it would defend Parsec with regard to the CSX counterclaim. Parsec then, apparently without consulting Alliance, accepted the CSX tender, agreeing to indemnify CSX in the underlying suit. Parsec and CSX then brought a separate declaratory action against ...

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