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Liberty Mutual Fire Insurance Company v. Woodfield Mall

December 17, 2010


Appeal from the Circuit Court ) of Cook County 07 CH 08457 Honorable Sophia H. Hall, Judge Presiding.

The opinion of the court was delivered by: Justice McBRIDE

JUSTICE McBRIDE delivered the opinion of the court: Nina Swanson, of McHenry, Illinois, filed a wrongful death and survival action against the owners and managers of a large suburban shopping mall near Chicago, alleging their negligence in 2004 killed her husband Mark Swanson. Mark Swanson was a heating and air conditioning equipment technician dispatched to the mall by his employer, Carrier Corporation, to service the air conditioning equipment for one of the mall's tenants. Mark Swanson left the tenant's space, went into "an interior corridor" of the mall where he accessed the equipment on the roof, and as he was climbing back inside the building, he fell to the concrete floor 10-feet below, allegedly due to an inordinate 28-inch gap between the roof hatch and the top rung of an affixed ladder. Nina Swanson sued the mall, but not its tenant. The mall, however, tendered the complaint to the tenant's commercial general liability insurer, which determined it had no duty to defend the mall and then prevailed on crossmotions for summary judgment in this declaratory judgment action. On appeal, the mall contends the trial court made multiple errors in its choice-of-law analysis, should have found the injuries arose from the tenant's "work" or "premises" which entitled the mall to additional insured coverage, should have recognized the lease contractually entitled the mall to primary insured coverage, and should have determined the insurer waived policy defenses.

The following undisputed facts are relevant to those arguments. The tenant's commercial general liability insurance policy for the one-year term beginning February 1, 2004, was issued by plaintiff insurer Liberty Mutual Fire Insurance Company, a Massachusetts corporation with a principal place of business in Massachusetts (Liberty Mutual). The named insureds include Luxottica U.S. Holdings Corporation, which is a Delaware corporation, a subsidiary of an Italian company, and the parent corporation of at least 33 United States corporations (Luxottica). Luxottica has a mailing address in Port Washington, New York. Luxottica's various subsidiaries were also listed on the written policy as named insureds and included the mall's tenant, LensCrafters, Inc., which was an Ohio corporation headquartered near Cincinnati in Mason, Ohio (LensCrafters). LensCrafters operates an extensive, nationwide chain of hundreds of retail eyeglass stores and in 1986 began leasing retail space from the mall defendants at Woodfield Mall in Schaumburg, Illinois. The insurance policy did not list the addresses of the individual LensCrafters stores; however, under the heading "Classifications and Locations," the coverage encompassed "All Operations of the Named Insured." None of the mall defendants was listed as a named insured in the policy declarations or appeared on the policy's "Named Insured Endorsement" page or any where else in the contract. The mall defendants, meaning the four defendants named in Swanson's negligence action, were Woodfield Mall, L.L.C., a foreign corporation which owns the mall in Schaumburg; Woodfield Associates, L.L.C., an Illinois corporation; The Taubman Company, L.L.C., a foreign corporation which manages the mall; and Taub-Co Management, Inc., another foreign corporation.

A "General Amendatory Endorsement" to the policy stated in relevant part:

"L. AMENDMENT -- BLANKET ADDITIONAL INSURED SECTION II - WHO IS AN INSURED is amended to include as an insured any person, organization, state or other political subdivision, trustee or estate for whom you have agreed in writing to provide liability insurance. But:

The insurance provided by this amendment:

1. Applies only to 'personal injury' or 'property damage' arising out of (a) 'your work' or (b) premises or other property owned by or rented to you[.]"

The policy specified, "the words 'you' and 'your' refer to the Named Insured shown in the Declarations, and any other person or organization qualifying as a Named Insured under this policy." Section 11.01 of LensCrafters' lease required it to name the owners and managers of Woodfield Mall as additional insureds on its comprehensive liability policy "with respect to the leased premises and the operations of Tenant and any subtenants of Tenant in, on or about the leased premises" and that "the coverage evidenced thereby shall be primary and non-contributing with respect to any policies carried by [the owners and managers of the mall], and that any coverage carried by [the owners and managers] shall be excess insurance." Thus, when the lease and policy are read together, the mall defendants are additional insureds on LensCrafters' policy, but only for personal injury or property damage arising out of LensCrafters' premises and operations at Woodfield Mall.

The preamble and section 1.01 of the lease defined the "Leased Premises" as "Store Number 330, situated on the upper level of Building 'D', having an irregular shape and consisting of approximately 5,561 square feet." A letter agreement that was simultaneously executed with the lease described the "'leased premises' " as "space *** in the Shopping Center to be known as Woodfield Mall." (Emphasis added.) The lease was modified in 1996 to extend the rental period for an additional 10 years through November 30, 2006, and the renewal stated the original lease was "for a retail business to be operated under the trade name 'LENSCRAFTERS,' covering premises identified as Store No. 'D-330', in the regional retail development commonly known as WOODFIELD MALL." (Emphasis added.) Also relevant is section 1.01 of the original lease, which specified:

"(b) The exterior walls and the roof of the leased premises and the area beneath said premises are not demised hereunder, and the use thereof, together with the right to locate, both vertically and horizontally, install, maintain, use, repair and replace pipes, utility lines, ducts, conduits, flues, refrigerant lines, drains, sprinkler mains and valves, access panels, wires and structural elements leading through the leased premises serving other parts of the Shopping Center, is hereby reserved unto Landlord. Landlord reserves an easement above Tenant's finished ceiling to the roof, or to the bottom of the floor deck above the leased premises, for general access purposes and in connection with the exercise of Landlord's other rights under this Lease."

The preamble and section 7.01 of the lease limited the tenant's "Permitted Use" and "Use of Premises" to "The retail sale of eyeglasses, contact lenses, solutions and all optical accessories related to the retail optical business; in addition, the on-premises professional optometric eye examination business and the on-premises manufacturing of prescription eyeglass lenses and contact lenses."

The lease also addressed the operation and maintenance of the shopping center's common areas. Section 8.02 defined the " 'common areas' " to include "stairs ***not contained within any leased premises" and "service and fire and exit corridors." In section 8.01, the landlord "agree[d] to cause to be operated and maintained *** all common areas within the Shopping Center" and specified that the "manner in which such areas and facilities shall be operated and maintained *** shall be at the sole discretion of Landlord." In section 10.01, the landlord agreed to "keep and maintain the roof (including the structural integrity thereof), foundation and exterior surfaces of the exterior walls of the building in which the leased premises are located *** in good order, condition and repair."

In section 10.02, LensCrafters agreed to "keep and maintain in first class appearance *** and in good order, condition and repair as determined by Landlord *** the leased premises and every part thereof and any and all appurtenances thereto wherever located but exclusively serving the leased premises, including, but without limitation, *** ventilation, heating and air conditioning and electrical systems (whether or not located in the leased premises but exclusively serving the leased premises), sprinkler systems, walls, floors and ceilings." Beginning in 2004, LensCrafters entered into a three-year HVAC preventive maintenance and repair service contract with Carrier Corporation which encompassed LensCrafters numerous retail outlets. In accordance with this contract, the LensCrafters store in Woodfield Mall contacted Carrier Corporation when the air conditioning in its lab stopped working and Carrier Corporation sent its employee Mark Swanson to investigate and fix the problem.

Also relevant is that in section 11.03 of the lease, LensCrafters agreed to indemnify the mall defendants and "save them harmless (except for loss or damage resulting solely from the negligence of Landlord or breach of this Lease by Landlord) from and against any and all claims."

After Liberty Mutual was notified of Mark Swanson's accident and untimely death, it sent a letter to the mall defendants in 2005 stating "we cannot determine at this time whether there is a potential of coverage [for the mall defendants] under the policy" and "will be continuing our investigation into this claim under a reservation of rights." The letter summarized what occurred at the shopping center and set out the portions of the General Amendatory Endorsement (quoted above) which indicated when additional insured status would occur and that the scope of coverage was expressly limited to " 'personal injury' or 'property damage' arising out of (a) "[the named insured's] work or (b) premises or other property owned by or rented to [the named insured]." The insurance company's letter continued:

"The lease between the Mall and LensCrafters requires LensCrafters to provide additional insured status to the Mall. As a result, the Mall is an insured but only with respect to liability arising out of the premises leased to LensCrafters.

We cannot determine from the information we currently have whether the Mall's liability arose from the premises leased to LensCrafters. We will be conducting further investigation into that issue."

The letter concluded with reservation-of-rights language: "While we have attempted to address all of the coverage issues related to this claim, Liberty Mutual reserves all rights under applicable law and the policy. This letter should not be construed as a waiver or estoppel of any possible coverage defenses afforded by the policy or applicable law." A nearly identical letter sent on November 13, 2006, will be set out below in conjunction with one of the mall's arguments for reversal. In that letter, Liberty Mutual agreed to provide a defense. However, on March 26, 2007, it filed this action seeking a declaration of no duty to defend or indemnify and alleging in part that Ohio law would govern any dispute about the parties' rights and obligations. The mall defendants counterclaimed.

Discovery in this coverage action included deposing Sebastian DiBella, an account executive employed by the insurance brokerage and consulting firm BWD Group, L.L.C. (BWD), located in Jericho, New York. DiBella indicated BWD had been handling Luxottica's insurance coverage for about 15 years and that he helped the company evaluate its needs and negotiate the coverage terms and cost of the insurance policy at issue. DiBella's primary contacts at Luxottica were Jim Bettner, who was their director of risk management, and Bettner's boss, Greg Muntel. DiBella made recommendations to Muntel and Bettner and those gentlemen made the decisions. DiBella acknowledged that Luxottica's address in Port Washington, New York, appeared on the declarations page of the insurance policy, but explained that Liberty Mutual sent the proposed policy directly to BWD, BWD reviewed it, and then DiBella personally delivered it to Muntel and Bettner during a meeting at the Luxottica office in Mason, Ohio. After the meeting, DiBella negotiated additional terms with Liberty Mutual's employees Terry Schell, who was an account executive in Cincinnati, Ohio, and/or Joanne Venuti, who was a national accounts underwriter in Boston, and then Liberty Mutual bound the coverage.

DiBella's deposition transcript was one of the documents considered by the trial court in the summary judgment proceedings. As we stated above, Liberty Mutual prevailed on the cross-motions for summary judgment and this appeal by the mall followed.

Summary judgment is properly granted where the pleadings, deposition transcripts, and admissions on file, together with any affidavits and exhibits, when viewed in the light most favorable to the nonmoving party, indicate that there is no genuine issue of material fact and that the moving party is entitled to judgment as a matter of law. 735 ILCS 5/2-1005(c)) (West 2006). Summary judgment is a drastic means of disposing of litigation, but is an appropriate measure in cases meeting these criteria. Crum & Forster Managers Corp. v. Resolution Trust Corp., 156 Ill. 2d 384, 390-91, 620 N.E.2d 1073, 1077 (1993). Appeals from the entry of summary judgment are addressed de novo by this court. Crum & Forster, 156 Ill. 2d at 390, 620 N.E.2d at 1077.

The mall's first specific argument is that the trial court erred in determining Ohio rather than Illinois or New York had the "most significant contacts" with the insurance policy and would control the interpretation of the parties' rights and obligations under the contract. Often insurance policies contain express choice-of-law provisions, but when a policy is silent, its provisions are governed by the substantive law of (1) the location of the subject matter, (2) the domicile of the insured or of the insurer, (3) the place of the last act to give rise to an enforceable contract, (4) the place of performance, or (5) any other place bearing a rational relationship to the contract. Lapham-Hickey Steel Corp. v. Protection Mutual Insurance Co., 166 Ill. 2d 520, 526-27, 655 N.E.2d 842, 845 (1995). These factors do not have equal significance and are to be weighed according to the issue involved. Emerson Electric Co. v. Aetna Casualty & Surety Co., 319 Ill. App. 3d 218, 232, 743 N.E.2d 628, 640 (2001). At least some of the factors in a choice-of-law analysis "will point in different directions in all but the simplest case." Restatement (Second) of Conflict of Laws §6, Comment c, at 12 (1971). "Hence, any rule of choice of law, like any other common law rule, represents an accommodation of conflicting values." Restatement (Second) of Conflict of Laws §6, Comment c, at 12 (1971). A choice-of-law analysis should consider the contracting parties' justified expectations, yield certain, predictable, and uniform results, and avoid inconsistent interpretations of the same insurance contract. Emerson Electric, 319 Ill. App. 3d at 232, 743 N.E.2d at 640.

The mall argues the location of the contract's subject matter is the insured risk in Illinois and this fact should be given extra emphasis. The mall relies on Diamond State Insurance Co. v. Chester-Jensen Co., 243 Ill. App. 3d 471, 488-89, 611 N.E.2d 1083, 1095 (1993), and Society of Mount Carmel v. National Ben Franklin Insurance Co. of Illinois, 268 Ill. App. 3d 655, 664, 643 N.E.2d 1280, 1287 (1994), in which the courts construed the state where liability arose to be the location of the insured risk and worthy of greater weight than any other single contact under consideration. The courts noted parenthetically that under this approach, a policy which insured risks located in "several" or "different" states would be treated as separate policies each insuring a separate risk. Diamond State, 243 Ill. App. 3d at 489, 611 N.E.2d at 1095; Society of Mount Carmel, 268 Ill. App. 3d at 665, 643 N.E.2d at 1287. We consider these cases distinguishable, in that the risks insured there appear to be limited to a few tangible products or to a few specific locations that were itemized in the policy, while the insured risk in this case is the operations and premises of a national chain store with retail locations too numerous to be listed in the insurance policy. Moreover, the courts' parenthetical remarks in Diamond State and Society of Mount Carmel were based on a passage from the Restatement (Second) of Conflict of Laws, which indicates:

"A special problem is presented by multiple risk policies which insure against risks located in several states. A single policy may, for example, insure dwelling houses located in states X, Y and Z. These states may require that any fire insurance policy on buildings situated within their territory shall be in a special statutory form. If so, the single policy will usually incorporate the special statutory forms of the several states involved. Presumably, the courts would be inclined to treat such a case, at least with respect to most issues, as if it involved three policies, each insuring an individual risk." (Emphasis added.) Restatement (Second) of Conflict of Laws §193, Comment f, at 613-14 (1971).

Diamond State, 243 Ill. App. 3d at 488-89, 611 N.E.2d at 1095 (discussing Restatement (Second) of Conflict of Laws, section 193); Society of Mount Carmel, 268 Ill. App. 3d at 665, 643 N.E.2d at 1287 (same). We do not consider the commentators' reasoning or admitted mere presumption about a policy insuring as few as three single-family homes to be relevant to the current commercial general liability policy insuring all the locations of a major, nationwide retail chain. Accordingly, we decline to follow Diamond State, 243 Ill. App. 3d at 488-89, 611 N.E.2d at 1095, or Society of Mount Carmel, 268 Ill. App. 3d at 665, 643 N.E.2d at 1287, and give undue weight to the location of the insured risk in Illinois.

Instead, the more pertinent analysis appears in Lapham-Hickey Steel, a subsequent supreme court case concerning a policy broadly covering "all risks of physical loss or damage" at a steel company's facilities in six different states. Lapham-Hickey Steel, 166 Ill. 2d at 523, 655 N.E.2d at 843. Although its Minnesota facility was listed in the policy and was the site of the environmental contamination at issue, the court determined the location of the insured risk in the midwestern state was entitled to little weight because the broad policy covered risks in multiple states and the contract expressed a choice of law in only two, limited instances. Lapham-Hickey Steel, 166 Ill. 2d at 527, 655 N.E.2d at 845. On the other side of the scale were the facts that the policy was delivered in Illinois by an Illinois brokerage to an Illinois corporation licensed to do business in Illinois. Lapham-Hickey Steel, 166 ...

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