Argued April 12, 2013
Appeals from the United States District Court for the Northern District of Illinois, Eastern Division. No. 09 c 7452, Joan B. Gottschall, Judge.
Before Bauer, Posner, and Flaum, Circuit Judges.
Posner, Circuit Judge
In this diversity suit governed by Illinois law, an insurance company seeks a declaratory judgment that it has no duty to defend any of the four defendant companies listed in the caption (Prince, Paszko, Chicago Masonry, and Forest) against Robert Rybaltowski's personal injury suit against those companies. The district court granted summary judgment in favor of Atlantic on the ground that Rybaltowski was a contractor and that therefore the insurance policy excludes coverage of the companies' liability to him.
Atlantic issued the insurance policy to only one of the companies, Paszko (against which a default judgment was entered both in the personal injury suit and in this suit, which is why it isn't an appellant). The three other defendant companies, however, argued in the district court that the policy covers them as well, as additional insureds. See National Union Fire Ins. Co. v. American Motorists Ins. Co., 707 F.3d 797, 800-01 (7th Cir. 2013) (Illinois law). The district judge, agreeing with Atlantic that Rybaltowski's suit was within the exclusion, found it unnecessary to decide whether the companies were additional insureds. The parties do not mention the issue in this court, but it may become critical if we remand.
The defendant companies worked on the construction of an apartment building at 4929 Forest Avenue in Downers Grove, Illinois. The building was completed in 2009; the accident giving rise to this suit occurred during construction in 2007. Rybaltowski was an employee of a waterproofing company named Raincoat Solutions, which had submitted a bid to Prince, the general contractor, to perform caulking (sealing joints or gaps). Raincoat would thus be a subcontractor of Prince if Prince accepted its bid. Prince accepted it—subject, however, to approving in advance the color of the caulking material that Raincoat would use and satisfying itself, also in advance, that the caulker was competent to do the work. So Raincoat's boss brought Rybaltowski to the project site to demonstrate how he would do the caulking. Raincoat did not expect to be paid for the demonstration, which involved caulking a few windows. After the demonstration but before Rybaltowski left the site, a beam supporting masonry equipment fell on him, causing injuries for which he sought redress in the tort suit. A half hour or so after the accident Raincoat and Prince signed the subcontract.
The insurance policy that Atlantic had issued to Paszko was a Commercial General Liability Insurance policy. Atlantic's version of the policy contained an exclusion, captioned "Injury to Employees, Contractors and Employees of Contractors, " from coverage for " 'bodily injury' to any 'contractor' arising out of or in the course of the rendering or performing services of any kind or nature whatsoever by such 'contractor' for which any insured may become liable in any capacity." The exclusion stated that " 'contractor' shall include but is not limited to any independent contractor or subcontractor of any insured, any general contractor, any developer, any property owner, any independent contractor or subcontractor of any general contractor, any independent contractor or subcontractor of any developer, any independent contractor or subcontractor of any property owner, and any and all persons working for and or providing services and or materials of any kind for these persons or entities mentioned herein." So if when Rybaltowski was injured his employer, Raincoat, either was a subcontractor or was providing services of any kind to a contractor (namely Prince), within the meaning of the exclusion, Rybaltowski was a "contractor" as well, because he was working for Raincoat. Incidentally, Raincoat, not having been joined as a defendant in Rybaltowski's tort suit, does not claim to be an additional insured under Atlantic's policy.
The exclusion is poorly drafted. The term "contractor" is exemplified rather than clearly defined. The wording of the exclusion leaves uncertain whether Raincoat was a contractor simply because companies that engage in construction are called "contractors, " or whether it did not become a "contractor" until it signed a contract with Prince or until it provided materials or services other than the demonstration of caulking, or whether the demonstration itself was a service provided by a contractor. The complaint in Rybaltowski's tort suit refers to Raincoat as a "contractor, " but this has no significance for the interpretation of Atlantic's policy, to which Rybaltowski was a stranger. See Pekin Ins. Co. v. Wilson, 930 N.E.2d 1011, 1019 (Ill. 2010). The facts alleged in a complaint against an insured, charging a tort or other wrong, are critical to determining the insurer's duty to defend, id. at 1017, but the tort plaintiff has no authority to interpret the insurance contract. That's a matter for the court. Id. at 1016.
If Raincoat was "providing services . . . of any kind" to Prince (we assume that "of any kind" modifies services as well as materials, a plausible reading to which neither party takes exception) when the accident occurred, Rybaltowski, who "work[ed]" for and provided services to Raincoat, was also a "contractor, " and so the accident is not covered. Although the policy does not define the critical term "providing services . . . of any kind, " one possible interpretation would involve comparing Raincoat to a theatrical employment agency. Suppose the producer of a play asks an agency to send 20 actors to him to audition for five parts. The producer wants that many auditioners in order to increase the likelihood of being able to hire five outstanding actors. There is a sense in which all 20, including the rejects, are "providing services" to the producer; they are facilitating his picking the best by providing a range of possibilities. Rybaltowski was auditioning by doing a free demonstration of caulking.
The intended meaning of "providing services" could be narrower, however; and courts interpret an ambiguous term in an insurance contract in favor of the insured. The reason is that "insureds want insurance against the vagaries of interpretation, " Great West Casualty Co. v. Mayorga, 342 F.3d 816, 818 (7th Cir. 2003); see also Stone Container Corp. v. Hartford Steam Boiler Inspection & Ins. Co., 165 F.3d 1157, 1161-62 (7th Cir. 1999), as well as against the risks clearly stated in the policy—especially since an insured has no realistic possibility of negotiating clarification of ambiguous policy language. Outboard Marine Corp. v. Liberty Mutual Ins. Co., 607 N.E.2d 1204, 1207 (Ill. 1992); see also Payless Shoesource, Inc. v. Travelers Cos., Inc., 585 F.3d 1366, 1372-73 (10th Cir. 2009); Bosecker v. Westfield Ins. Co., 724 N.E.2d 241, 244 (Ind. 2000).
Ignoring the other defendant companies, to simplify analysis, we ask first whether the exclusion of coverage for injuries to "contractors" as understood by Atlantic to exclude coverage for liability to Rybaltowski would so limit Prince's coverage (assuming Prince is covered as an additional insured) as to make it implausible that anyone would want such a policy. That would be a reason to doubt Atlantic's interpretation.
Not that the interpretation would make the coverage provided by Atlantic's policy (whether to Paszko, the original purchaser of the policy, or to Prince or other contractors or subcontractors who claim to be covered by it) illusory. See American Country Ins. Co. v. Cline, 722 N.E.2d 755, 761-62 (Ill.App. 1999); American Country Ins. Co. v. Kraemer Bros., Inc., 699 N.E.2d 1056, 1062 (Ill.App. 1998). The exclusion would still be inapplicable to a passerby, deliveryman, building inspector, police officer, garbage collector, or other person who might be injured at a construction site without being involved in the construction at the site. True, the vast majority of persons at such a site—and the persons most likely to be injured there—are construction workers, employed by contractors or subcontractors and thus "contractors" themselves within the meaning of the exclusion. But Prince did not need Atlantic's policy in order to protect itself against liability to those workers. It had bought its own Commercial General Liability policy, and its policy contains no contractor exclusion. Probably Prince seeks coverage under Atlantic's policy rather than under its own only because its primary insurer might raise Prince's premiums should Prince require that insurer to defend or indemnify it. See National Union Fire Ins. Co. v. American Motorists Ins. Co., supra, 707 F.3d at 802.
Prince could have obtained still more coverage by requiring each of its subcontractors to make it an additional insured under a policy that insured the subcontractor against liability to the subcontractor's employees. Because workers' compensation law protects a subcontractor from a tort suit by his own employees, though not the general contractor from a tort suit by those employees, the general contractor would be requiring the subcontractor to carry a form of insurance—insurance against tort liability to the subcontractor's own employees—that the subcontractor would not need or want. Still, such insurance often is required by construction contractors. 4 Philip L. Bruner and Patrick J. O'Connor, Jr., Bruner and O'Connor on Construction Law § 11:44, p. 67 (2012 Supp.); see, e.g., National Fire Ins. v. Walsh Construction Co., 909 N.E.2d 285, 287-88 (Ill.App. 2009). Or Prince could have required indemnification by its ...