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Virginia Surety Company, Inc. v. Northern Insurance Co.

January 19, 2007

VIRGINIA SURETY COMPANY, INC., APPELLANT,
v.
NORTHERN INSURANCE COMPANY OF NEW YORK ET AL., APPELLEES.



The opinion of the court was delivered by: Justice Fitzgerald

Chief Justice Thomas and Justices Freeman, Kilbride, Garman, Karmeier, and Burke concurred in the judgment and opinion.

OPINION

The plaintiff, Virginia Surety Company, Inc. (Virginia Surety), challenges the appellate court's decision to affirm the Will County circuit court's summary judgment order in favor of defendant, Northern Insurance Company of New York (Northern). The issue is Northern's liability to its insured, De Graf Concrete Construction, Inc. (De Graf), under a commercial general liability (CGL) policy for a single-count third-party contribution action brought against De Graf. For the following reasons, we affirm the judgment of the appellate court.

BACKGROUND

Two contracts are central to this case: a construction subcontract between general contractor Capital Construction Group, Inc. (Capital), and its subcontractor De Graf, and a CGL policy purchased by De Graf from Northern. Under the construction subcontract between Capital and De Graf, De Graf was to perform cement masonry work at a job site in Addison, Illinois. The contract also required De Graf employees to work on the job site. The construction subcontract included the following provision:

"To the fullest extent permitted by law, the Subcontractor WAIVES ANY RIGHT OF CONTRIBUTION AGAINST AND shall indemnify and hold harmless the Owner, Contractor, Architect, Architect's consultants, and agents and employees of any of them from and against claims, damages, losses, and expenses, including but not limited to attorneys fees, arising out of or resulting from performance of the Subcontractor's Work under this Subcontract, provided that such claim, damage, loss or expense is attributable to bodily injury, sickness, disease or death or to injury to or destruction of tangible property (other than the Work itself) including loss of use therefrom, WHICH IS caused in whole or in party by negligent acts or omissions of the Subcontractor, the Subcontractor's subcontractors, anyone directly or indirectly employed by them or anyone for whose acts they may be liable, regardless of whether or not such claim, loss, or expense is caused in part by a party indemnified hereunder." De Graf obtained a CGL policy from defendant Northern. The Northern CGL policy generally excludes coverage for bodily injuries to De Graf's employees. However, under an exception to this exclusion, Northern would pay sums for "liability assumed by the insured under an 'insured contract.' " The policy defines this "insured contract" as "That part of any other contract or agreement pertaining to your business (including an indemnification of a municipality in connection with work performed for a municipality) under which you assume the tort liability of another party to pay for 'bodily injury' or 'property damage' to a third person or organization. Tort liability means a liability that would be imposed by law in the absence of any contract or agreement."

On June 4, 1997, a De Graf employee, James Smith, was injured while working at the job site. Smith filed a workers' compensation claim against De Graf. In addition, Smith filed a complaint in the circuit court against Capital, alleging that Capital's negligence contributed to his injury. Capital thereafter filed a third-party complaint for contribution against De Graf. Capital's sole request for relief was for contribution. De Graf tendered the third-party complaint to Virginia Surety, from whom De Graf had purchased a "Worker's Compensation and Employer's Liability" policy. De Graf also tendered the third-party complaint to Northern under its CGL policy. Virginia Surety accepted the tender and defended De Graf against the third-party complaint, the outcome of which is not present in the record. Northern refused to defend or indemnify De Graf.

Virginia Surety then filed a complaint for declaratory judgment (735 ILCS 5/2--701 (West 2000)) against Northern*fn1 in the circuit court of Will County. Virginia Surety outlined the provisions from the subcontract and the Northern policy described above. The complaint alleged that the subcontract between De Graf and Capital is an "insured contract" within the meaning of the Northern policy of insurance. In its prayer for relief, Virginia Surety sought a declaration that Northern was obligated to defend and indemnify De Graf under the CGL policy. Virginia Surety also sought an award of damages for amounts previously paid to defend and indemnify De Graf. Northern filed an answer and a counterclaim for declaratory judgment against Virginia Surety. It sought a declaration that it did not owe a duty to defend or indemnify De Graf as to the third-party action under its CGL policy. Eventually, the parties filed cross-motions for summary judgment. The circuit court held that the subcontract between De Graf and Capital was not an "insured contract" under the policy, and that Northern did not have an obligation to defend or indemnify De Graf. The circuit court therefore granted Northern's motion for summary judgment and denied Virginia Surety's motion for summary judgment.

The appellate court affirmed. 362 Ill. App. 3d 571. The appellate court first noted the parties' arguments reflected the split in the appellate districts regarding whether a subcontract as listed above can be considered an "insured contract." 362 Ill. App. 3d at 574. The appellate court distinguished those cases, however, because Capital's complaint only sought contribution under "Illinois Contribution Among Joint Tortfeasors Act" and requested contribution against De Graf in the event that judgment was entered in favor of James Smith against Capital in the original action. 362 Ill. App. 3d at 573. The appellate court stated, "unlike the third-party plaintiffs in Hankins, Royal and Mulligan, Capital did not file a claim for indemnification against De Graf." 362 Ill. App. 3d at 574. The court noted the difference between claims for contribution and claims for indemnity:

" 'There is an important distinction between contribution, which distributes the loss among the tortfeasors by requiring each to pay his proportionate share, and indemnity, which shifts the entire loss from one tortfeasor who has been compelled to pay it to the shoulders of another who should bear it instead.' " 362 Ill. App. 3d at 574, quoting W. Prosser, Torts, §51, at 310 (4th ed. 1971).

The court noted, "An 'insured contract' exception to an employer's liability exclusion only applies when one contracting party agrees to indemnify the other contracting party from and against the other party's own negligence." 362 Ill. App. 3d at 574. For the exception to apply, De Graf must have " 'assume[d] the tort liability of another party to pay for "bodily injury." ' Thus, the 'insured contract' issue is joined only when indemnification is sought." 362 Ill. App. 3d at 574. Since Capital did not seek indemnification, the court found that Northern did not have a duty to defend De Graf and affirmed the circuit court. 362 Ill. App. 3d at 574-75. We granted Virginia Surety's petition for leave to appeal. 177 Ill. 2d R. 315(a).

ANALYSIS

Summary judgment is appropriate when there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. Outboard Marine Corp. v. Liberty Mutual Insurance Co., 154 Ill. 2d 90, 102 (1992); 735 ILCS 5/2--1005(c)) (West 2002). A circuit court's entry of summary judgment is subject to de novo review (General Agents Insurance Co. of America, Inc. v. Midwest Sporting Goods Co., 215 Ill. 2d 146, 153 (2005)), and the construction of an insurance policy, which presents a question of law, is likewise reviewed de novo (Central Illinois Light Co. v. Home Insurance Co., 213 Ill. 2d 141, 153 (2004)). Similarly, an indemnity agreement is a contract and is subject to contract interpretation rules. See Mountbatten Surety Co. v. Szabo Contracting, Inc., 349 Ill. App. 3d 857, 868 (2004). The cardinal rule is to give effect to the parties' intent, which is to be discerned from the contract language. Central Illinois Light Co., 213 Ill. 2d at 153. If the contract language is unambiguous, it should be given its plain and ordinary meaning. Central Illinois Light Co., 213 Ill. 2d at 153.

In Illinois, an employer's liability for an injury to its employee may come in several forms. The employer's exposure to pay benefits to an injured employee pursuant to the Illinois Workers' Compensation Act (820 ILCS 305/1 et seq. (West 2000)) is the most common. The Act provides a schedule for identifying the compensation for specific injuries and generally places financial limits on the employer's liability. See 820 ILCS 305/7, 8 (West 2000). The employer gives up its common law defenses to the employee's claim, such ...


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