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American Alternative Insurance Corp. v. Metro Paramedic Services, Inc.

United States District Court, N.D. Illinois, Eastern Division

December 12, 2014


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[Copyrighted Material Omitted]

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For American Alternative Insurance Corporation, Plaintiff: Robert Marc Chemers, LEAD ATTORNEY, Pretzel & Stouffer, Chtd., Chicago, IL; Peter George Syregelas, Pretzel & Stouffer, Chartered, Chicago, IL.

For Metro Paramedic Services, Inc., an Illinois corporation, Defendant, Counter Claimant, Counter Defendant: Steven Michael Hartmann, LEAD ATTORNEY, Rachel Elisabeth Anne Atterberry, Freeborn & Peters, Chicago, IL.

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John J. Tharp, Jr., United States District Judge.

In this insurance coverage dispute, the plaintiff, American Alternative Insurance Corporation (" AAIC" ) claims it owes no duty to defend or indemnify defendant Metro Paramedic Services, Inc. (" Metro" ) in connection with a now-settled lawsuit against Metro and Antioch Rescue Squad (" ARS" ) for sexual harassment and related torts. Metro argues that AAIC is bound to cover Metro and is in breach of contract for failing to do so. AAIC and Metro each move for judgment on the pleadings regarding AAIC's duty to defend, and for the reasons explained below, AAIC's motion is denied and Metro's cross-motion is granted.


In the underlying lawsuit, plaintiffs Volling, Banser, and Soulak (the " claimants" ) sued Metro and ARS for sexual harassment and discrimination, negligent supervision and retention, assault and battery, and retaliation they experienced while serving on the Antioch Rescue Squad as joint employees of ARS and Metro. ARS had an insurance policy with AAIC that covered its defense costs in the Volling suit, but AAIC refused to defend Metro, denying that Metro was covered by ARS's insurance policy with AAIC. Metro's arguments for coverage depend on it being either an " insured" or " additional insured" under the AAIC policy.

The Policy

The applicable liability insurance policy became effective December 31, 2007, for one year and was renewed for each of the next three years. See Compl. Ex. A-D, Dkt. ## 1-1-1-4. As relevant to this dispute, the policy consists of a Management Liability (ML) Coverage Form and a General Liability (GL) Coverage Form. There is also a Commercial Umbrella Liability Insurance policy that extends excess coverage, see Compl. Ex. F--I, Dkt. ## 1-5-1-8, but the parties agree that claims for excess coverage are subject to the same terms, conditions, definitions, and exclusions as the primary policy. Therefore, references in this opinion are to " the policy." Only the provisions relevant to the coverage arguments in this case are excerpted below.

A. What is Covered

The ML Coverage Form provides coverage for monetary damages incurred by the insured " arising out of an 'employment practices' offense . . . or other 'wrongful act' to which this insurance applies." ML Liability Coverage Form, Section I-A-1, Dkt. # 1-2 at 35.

Section VII of the ML Liability Coverage Form contains the following definitions:

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" Employment practices" means an actual or alleged improper employment related practice, policy, act or omission involving an actual, prospective, or former volunteer or employee, including . . . (g) Failure to adopt adequate workplace or employment-related policies and procedures; (h) Harassment, including 'sexual harassment.'
* * * * *
" Wrongful act" means any actual or alleged error, act, omission, misstatement, misleading statement, neglect or breaches or duty committed by you or on behalf of you in the performance of your operations, including misfeasance, malfeasance, or nonfeasance in the discharge of duties, individually or collectively that results directly but unexpectedly and unintentionally in damages to others.

Id. at Section VII-2, 7, 16, Dkt. # 1-2 at 46-47.

The GL Liability Coverage Form provides coverage for damages because of " bodily injury" that is caused by an " occurrence." An " occurrence" is " an accident, including continuous or repeated exposure to substantially the same general harmful conditions." GL Liabiliy Coverage Form at Section V.16, Dkt. # 1-2 at 29. " Bodily injury" is defined as " bodily injury, sickness, or disease sustained by a person, including death resulting from any of these at any time."

B. Who is Covered

Section III.2.d of the ML Coverage Form is a Blanket Additional Insured provision extending coverage to " [a]ny person or organization liable for [ARS's] " 'employment practices' offenses, offenses arising out of the 'administration' of [ARS's] 'employee benefit plans,' or other 'wrongful acts committed or alleged to have been committed by [ARS]."

Section II.2.f of the GL coverage form contains a Blanket Additional Insured provision with respect to its coverage for " bodily injury" and " property damage" ; an additional insured is defined there as " any person or organization required to be an additional insured under an 'insured contract' if agreed to by [ARS] prior to the 'bodily injury' [or] 'property damage'...but only with respect to liability arising from [ARS's] premises or operations."

The ML Coverage Form, at Section III.I.b, also defines an insured to include the members and partners in " a partnership or joint venture" with ARS. The GL Coverage Form does the same at Section II.1.b. The policy does not define " partnership" or " joint venture."

C. Limitations and Exclusions

Both the GL Coverage Form and the ML Coverage Form exclude coverage for " sexual abuse." " Sexual Abuse" is defined as: " any actual, attempted, or alleged sexual conduct by a person, or by persons acting in concert, which causes injury. 'Sexual abuse' includes sexual molestation, sexual assault, sexual exploitation, or sexual injury, but does not include 'sexual ...

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