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Mt. Hawley Insurance Co. v. Certain Underwriters at Lloyd's

Court of Appeals of Illinois, First District, Second Division

September 9, 2014

MT. HAWLEY INSURANCE COMPANY, Plaintiff-Appellee,
v.
CERTAIN UNDERWRITERS AT LLOYD'S, LONDON, Defendant-Appellant
v.
(Western World Insurance Company; 311 Lincolnway Properties, LLC; 311 Builders, Inc.; G.L. Schmitz and Company; C& M Interior Demolition; and Toji Engineering, Ltd., Defendants)

Appeal from the Circuit Court of Cook County. No. 12 CH 13946. Honorable David B. Atkins, Judge Presiding.

SYLLABUS

In an action arising from a dispute over the insurance coverage for personal injuries suffered in an accident at a construction site, the trial court properly entered summary judgment in favor of the insurer of the owner of the property involved and the general contractor on the project, who were named as defendants in the underlying action, and against the insurer that issued a policy to a subcontractor naming the owner and general contractor as additional insureds, notwithstanding defendant insurer's contention that under the vicarious liability doctrine, liability could not be imposed on defendant insurer for the additional insureds when the insured subcontractor was found not liable and was awarded summary judgment in the underlying negligence action, since the vicarious liability defense raised by defendant insurer was a " policy defense" that defendant could not raise after it wrongfully denied their tender of defense by failing to defend the underlying suit under a reservation of rights or seeking a declaratory judgment that there was no coverage, and defendant had a duty to indemnify the additional insureds for the amount they paid in the underlying personal injury suit.

For Appellants: Neal R. Novak, Esq., Colleen M. Costelo, Esq., of counsel, Novak Law Offices, of Chicago.

For Appellee: Michael J. Duffy, Elizabeth M. McGarry, of counsel, Tressler LLP, of Chicago.

JUSTICE LIU delivered the judgment of the court, with opinion. Justices Harris and Pierce concurred in the judgment and opinion.

OPINION

LIU, JUSTICE.

Page 107

[¶1] This appeal involves an insurance coverage dispute between plaintiff, Mt. Hawley Insurance Company (Mt. Hawley), and defendant, Certain Underwriters at Lloyd's London (Underwriters). Mt. Hawley brought a declaratory judgment action against Underwriters, seeking a declaration that Underwriters owed a duty to defend and indemnify certain parties named as defendants in a personal injury suit, as additional insureds under a commercial general liability (CGL) policy issued by Underwriters. Cross-motions for summary judgment were subsequently filed by the parties. The circuit court entered summary judgment in favor of Mt. Hawley, finding that, as a matter of law, Underwriters was estopped from raising a policy defense to coverage after it refused to defend its additional insureds under a reservation of rights or to seek a declaratory judgment on coverage. On appeal, Underwriters argues that the circuit court erred in its ruling, because under the vicarious liability doctrine, liability cannot be imposed on Underwriters for its additional insureds, where the named insured was found not liable and awarded summary judgment in the underlying negligence suit. Underwriters also contends that its vicarious liability defense is not a " policy defense" for purposes of the estoppel doctrine in this case. For the following reasons, we affirm.

Page 108

[*P2] BACKGROUND

[¶3] A. The Parties

[¶4] 311 Lincolnway Properties, LLC (311 Lincolnway), and 311 Builders, Inc. (311 Builders) (collectively, the 311 Entities), were defendants in a personal injury lawsuit brought by Gregory Hillesheim, following an accident at the site of a construction project. 311 Lincolnway is the owner of the property, and 311 Builders was the general contractor of the construction project.

[¶5] Toji Engineering, Ltd. (Toji), was a subcontractor hired by 311 Builders to perform work on the project.

[¶6] Underwriters is an insurer that provided coverage to Toji, as the named insured, under the CGL policy (the Policy) at issue in this case. The 311 Entities are named as " additional insureds" in the Policy.

[¶7] Mt. Hawley is an insurer that provided coverage to the 311 Entities as its named insureds under a separate CGL policy.

[¶8] B. The Policy

[¶9] Underwriters issued the Policy to Toji, as the named insured, for the period of May 18, 2007, to May 18, 2008. The Policy contained an additional insured endorsement, which provided for the inclusion of coverage for the 311 Entities under the Policy. The relevant portion of the endorsement stated:

" A. Section II -- Who Is An Insured is amended to included as an additional insured the person(s) or organization(s) shown in the Schedule, but only with respect to liability for 'bodily injury,' 'property damage' or 'personal and advertising injury' caused, in whole or in part, by:
1. Your acts or omissions; or
2. The acts or omissions of those acting on your behalf; in the performance of your ongoing operations for the additional insured(s) at the ...

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