Appeal from the Circuit Court of Lake County. No. 99--L--554 Honorable Charles F. Scott, Judge, Presiding.
The opinion of the court was delivered by: Justice O'malley
Plaintiff, Michael Nicholas, Inc., appeals the circuit court's order dismissing its complaint against defendant, Royal Insurance Company of America (Royal). Plaintiff contends that the court erred in determining that Royal had no duty to defend or indemnify it in an underlying action filed by Kimball Hill, Inc.
Plaintiff was a subcontractor at Willoughby Farms, a subdivision Kimball Hill was developing. On June 4, 1993, an employee of plaintiff, Anthony Bauer, was injured while working at Willoughby Farms. Bauer sued Kimball Hill alleging violations of the Structural Work Act (740 ILCS 150/0.01 et seq. (1994) (repealed by Pub. Act 89--2, §5, eff. February 14, 1995)) and negligence. Kimball Hill, in turn, sued plaintiff, alleging that plaintiff's negligence or wilful and wanton conduct caused Bauer's injuries. Kimball Hill sought either complete indemnification or contribution based on its contract with plaintiff.
Plaintiff tendered defense of the action to Royal. Royal refused to provide a defense, citing the "employee exclusion" in the policy. Plaintiff requested Royal to reconsider, asserting that the exception for insured contracts applied, but Royal again rejected the tender of defense.
Plaintiff then sued Royal, seeking a declaratory judgment that the policy required Royal to defend and indemnify plaintiff in the underlying suit. Plaintiff alleged that it had incurred $18,000 in attorney fees and costs defending the underlying action. It eventually settled the underlying action for $165,000.
The trial court granted Royal's motion to dismiss the complaint, finding that the exclusion for employee injuries applied. Relying on Hankins v. Pekin Insurance Co., 305 Ill. App. 3d 1088 (1999), the court concluded that plaintiff's contract with Kimball Hill was not an "insured contract" so as to bring it within the exception in the policy for such contracts. Plaintiff filed a timely notice of appeal.
Paragraph 13 of the contract between plaintiff and Kimball Hill, which refers to plaintiff as "S-C," provides as follows:
" 'S-C' shall indemnify and hold harmless the Owner [Kimball Hill] and all of its agents and employees from and against all claims, damages, losses and expenses *** attributable to bodily injury, sickness, disease, death, or to injury to or destruction of tangible property caused in whole or in part by any negligent act or omission or [sic] 'S-C' ***."
Plaintiff purchased a general comprehensive liability policy from Royal. The issue in this case turns on the interplay between two coverage exclusions and an exception that applies to both exclusions. Exclusion e provides:
(1) An employee of the insured arising out and in the course of employment by the insured; or
(2) The spouse, child, parent, brother or sister of that employee as a ...