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United States Fidelity and Guaranty Co. v. Shorenstein Realty Services

March 25, 2010

UNITED STATES FIDELITY AND GUARANTY COMPANY, PLAINTIFF,
v.
SHORENSTEIN REALTY SERVICES, L.P.; SHORENSTEIN MANAGEMENT, INC.; SHORENSTEIN COMPANY, LLC; SRI MICHIGAN VENTURE, LLC; SRI MICHIGAN AVENUE MANAGEMENT, INC.; 175 EAST DELAWARE PLACE HOMEOWNERS ASSOCIATION; AND NATIONAL UNION FIRE INSURANCE OF PITTSBURGH, PA, DEFENDANTS.
NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA; SRI MICHIGAN AVENUE VENTURE, LLC; SHORENSTEIN REALTY SERVICES, L.P.; SHORENSTEIN MANAGEMENT, INC.; SRI MICHIGAN AVENUE MANAGEMENT, INC.; AND SHORENSTEIN COMPANY, LLC, DEFENDANTS/COUNTER-PLAINTIFFS,
v.
UNITED STATES FIDELITY AND GUARANTY COMPANY, PLAINTIFF/COUNTER-DEFENDANT.
NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA; SRI MICHIGAN AVENUE VENTURE, LLC; SHORENSTEIN REALTY SERVICES, L.P.; SHORENSTEIN MANAGEMENT, INC.; SRI MICHIGAN AVENUE MANAGEMENT, INC.; AND SHORENSTEIN COMPANY, LLC, DEFENDANT/THIRD PARTY PLAINTIFFS,
v.
AMERICAN MOTORISTS INSURANCE COMPANY, THIRD PARTY DEFENDANT.



The opinion of the court was delivered by: Elaine E. Bucklo United States District Judge

MEMORANDUM OPINION AND ORDER

This is a declaratory judgment action arising in connection with an accident that occurred during a restoration effort known as the "Curtain Wall Project" ("the project") at Chicago's John Hancock Center (the "Hancock Center"). On March 9, 2002, a scaffolding fell from outside the forty-second floor of the Hancock Center, killing or injuring several individuals on the street below. Multiple lawsuits were filed in Illinois state court seeking to hold various parties responsible for the accident. Among the parties sued were Shorenstein Realty Services, LP ("Shorenstein")*fn1 and 175 East Delaware Place Homeowner's Association ("the Homeowner's Association"), two of the entities that own, operate, and control the Hancock Center.

Shorenstein and the Homeowner's Association were named as additional insureds on policies issued by United States Fidelity and Guaranty Company ("USF&G"). When they approached USF&G seeking a defense, however, USF&G refused. As a result, Shorenstein was represented in the underlying litigation by National Union Fire Insurance Company of Pittsburgh, PA ("National Union"), and the Homeowner's Association was represented by Mt. Hawley Insurance Company ("Mt. Hawley"). Shorenstein was also named as an additional insured on a separate policy issued by American Motorists Insurance Company ("AMICO"). Shorenstein tendered its defense to AMICO; like USF&G, however, AMICO refused.

The underlying suits were eventually consolidated and settled. National Union paid roughly 7.7 million toward the settlement; Mt. Hawley claims that it contributed $1 million.*fn2 USF&G filed this action seeking a declaration that Shorenstein and the Homeowner's Association are not covered under their respective USF&G policies, and that USF&G has no duty to indemnify National Union and Mt. Hawley for the amounts they spent in settling the underlying suits. In turn, National Union and Mt. Hawley have filed counterclaims against USF&G, asserting that Shorenstein and the Homeowner's Association are covered under the USF&G policies. In addition, National Union filed a third-party complaint against AMICO, arguing that Shorenstein was entitled to coverage under AMICO's policy, and that National Union is entitled to equitable subrogation from AMICO.

All of the opposing parties have filed cross-motions for summary judgment against one another. In particular, currently before me are cross-motions for summary judgment between: (1) USF&G and National Union; (2) USF&G and Mt. Hawley; and (3) National Union and AMICO.*fn3 For the reasons discussed below, I grant National Union's motion for summary judgment and deny USF&G's cross-motion; I grant USF&G's motion and deny Mt. Hawley's cross-motion; and I grant National Unions's motion and deny AMICO's cross-motion.

I. Legal Standard

Summary judgment is appropriate where the record shows that "there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(c). A genuine issue for trial exists "if the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). All facts must be construed in the light most favorable to the non-movant, and all justifiable inferences must be drawn in the non-movant's favor. Id. at 255. "When ruling on cross-motions for summary judgment, the court evaluates each party's motion separately and on its own merits, resolving factual uncertainties and drawing all reasonable inferences against the party whose motion is under consideration." Taylor Chrysler Dodge, Inc. v. Universal Underwriters Ins. Co., No. 08 C 4522, 2009 WL 3187234, at *3 (N.D. Ill. Sept. 30 2009); see also Mote v. Aetna Life Ins. Co., 502 F.3d 601, 606 (7th Cir. 2007). "Under Illinois law, the interpretation of an insurance policy is a question of law that is properly decided by way of summary judgment." Twenhafel v. State Auto Prop. & Cas. Ins. Co., 581 F.3d 625, 628 (7th Cir. 2009) (quotation marks omitted); see also DeSaga v. West Bend Mut. Ins. Co., 910 N.E.2d 159, 163 (Ill. App. Ct. 2009).*fn4

II. Discussion

A. Interpretation of Insurance Policies Under Illinois Law

The facts at issue in each of the motions for summary judgment are largely undisputed. The parties' arguments for summary judgment turn almost entirely on legal questions concerning the proper interpretation of the relevant insurance policies. The Illinois Court of Appeals recently provided a compendious summary of the guiding principles to be followed in interpreting insurance policies under Illinois law:

When interpreting an insurance policy or any other contract, the primary goal is to give effect to the intent of the parties as expressed in the agreement. If the terms of an insurance policy are clear and unambiguous, they must be given their plain and ordinary meaning and enforced as written, unless to do so would violate public policy. Insurance policies are to be liberally construed in favor of the insured, and in favor of coverage. Any ambiguity that exists in the language of a policy must be resolved against the insurer, since the insurer drafted the policy. In addition, any provision in a policy that limits or excludes coverage must be construed liberally in favor of the insured and against the insurer.

DeSaga, 910 N.E.2d at 163-64 (citations omitted).

With this framework in view, I now turn to the parties' cross-motions for summary judgment. The insurance policies at issue in each of the motions are largely the same. As a result, similar questions and arguments are presented in each of the motions. Nevertheless, I consider each of the disputes separately in what follows.

B. USF&G & National Union

I first examine the cross-motions for summary judgment between USF&G and National Union. In 2002, Shorenstein and the Homeowner's Association hired Eckland Consultants, Inc. ("Eckland"), an architectural and engineering firm, to oversee the Curtain Wall restoration project at the Hancock Center. The parties' agreement required Eckland to obtain an insurance policy that named Shorenstein and the Homeowner's Association as additional insureds under the policy. Eckland obtained such a policy from USF&G ("the USF&G Policy"). The dispute between USF&G and National Union centers on a provision of the USF&G Policy that excludes coverage for professional services. In relevant part, the provision states:

2. Exclusions Applicable to the Liability Coverage

This insurance does not apply to:

1. Professional Services. "Bodily injury," "property damage," "personal injury" or "advertising injury" due to rendering or failing to render any professional services by or on behalf of any insured. Professional services includes:

(1) Legal, accounting, advertising, real estate, travel, consulting or architectural services;

(2) Preparing, approving, or failing to prepare or approve maps, drawings, opinions, reports, surveys, change orders, designs or specifications;

(3) Supervisory, claim, investigation adjustment, appraisal, survey, audit, inspection or engineering services.

USF&G Policy, USF&G L.R. 56.1 Stmt., Ex. A (Doc. 163-1) at 6.

In addition to the professional services exclusion, the USF&G Policy was subject to two important endorsements: a "Broadened Endorsement" and a "Blanket Endorsement." Among other things, the Broadened Endorsement provides:

E. Additional Insured Exclusions

1. In addition to the other exclusions applicable to COVERAGES A., B., and C., the insurance provided to an Additional Insured does not apply to:

b. "Bodily injury," "property damage," "personal injury," or "advertising injury" which is not caused in whole or in part by the negligent acts or omissions of any Named Insured, or the negligent acts or omissions of anyone directly or indirectly employed by a Named Insured or for whose acts a Named Insured may be liable.

Broadened Endorsement, National Union L.R. 56.1 Stmt., Ex. C-2 (Doc. 166). In relevant part, the Blanket Endorsement states:

1. If:

(a) you are required to add another person or organization as an insured under this policy in a written construction contract or agreement which is in effect during the period of this policy; and

(b) a certificate of insurance has been issued listing that person as an ADDITIONAL INSURED, the WHO IS AN INSURED (SECTION II) is amended to include that person or organization as an insured (referred to below as an ADDITIONAL INSURED).

2. In addition to the other exclusions applicable to COVERAGES A., B., AND C., the insurance provided to an ADDITIONAL INSURED does not apply to:

b. "Bodily injury," "property damage," "personal injury," or "advertising injury" arising out of an architect's, engineer's or surveyor's rendering or failure to render any professional services for you, for the ADDITIONAL INSURED, or for others, including:

(l) The preparing, approving, or failure to prepare or approve maps, drawings, opinions, reports, surveys, change orders, designs or specifications; or

(2) Supervisory, inspection, or engineering services.

c. "Bodily injury," "property damage," "personal injury," or "advertising injury" which i s n o t caused in whole or in part by the negligent acts or omissions of any Named Insured, or the negligent acts or omissions of anyone directly or indirectly employed by a Named Insured or for whose acts a Named Insured may be liable.

Blanket Endorsement, National Union L.R. 56.1 Stmt., Ex. C-1 (Doc. 166).

Following the Hancock Center accident, USF&G refused Shorenstein's claim that the USF&G Policy required USF&G to provide it with a defense in the underlying lawsuits, citing the Policy's professional services exclusion. Specifically, USF&G maintained that since the accident arose from Eckland's performance of professional services, the USF&G Policy afforded Shorenstein no coverage in connection with the resulting lawsuits. In their cross-motions for summary judgment, USF&G and National Union join issue over three questions: (1) whether Shorenstein, as an additional insured, is subject to the USF&G Policy's professional services exclusion; (2) whether, assuming arguendo that Shorenstein is subject to the exclusion, the provision is applied based on Eckland's performance of professional services or on Shorenstein's own performance of professional services; and (3) whether, assuming arguendo that the exclusion is applied based on Eckland's performance of professional services, the USF&G Policy necessarily leaves Shorenstein without coverage for the underlying suits.

While I am not convinced by National Union's arguments with respect to the first and third issues, I am persuaded by its argument concerning the second, and I accordingly conclude that ...


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