United States District Court, N.D. Illinois, Eastern Division
MEMORANDUM OPINION AND ORDER
MATTHEW F. KENNELLY UNITED STATES DISTRICT JUDGE
On
December 26, 2013, Patrick O'Reilly was killed and Adam
Ruprecht was injured in an incident that took place on a
construction worksite in Vernon Hills, Illinois. In 2014,
Ruprecht and Daniel O'Reilly, the administrator of
Patrick O'Reilly's estate, each sued Deerfield
Construction Co., the general contractor, and P.S.
Demolition, a subcontractor, alleging negligence. The two
cases were consolidated. Deerfield filed third-party
complaints for contribution against P.S. Demolition.
The
complaint in the O'Reilly suit alleged that Patrick
O'Reilly was not employed by P.S. Demolition. P.S.'s
liability insurer, Seneca Specialty Insurance Co., filed
declaratory judgment suit in state court alleging that it had
no liability on either lawsuit. Seneca ultimately prevailed
based on an exclusion in the insurance policy for injuries to
employees or temporary workers of the insured. StarNet, which
had issued a "worker's compensation and employers
liability" insurance policy to P.S. and which had been
named as a defendant in Seneca's lawsuit, counterclaimed
seeking a declaration of non-coverage for the O'Reilly
suit on the ground that the policy covered only actions by
P.S.'s employees. Alternatively, StarNet contended that
any coverage for the O'Reilly suit would be limited by an
exclusion in the StarNet policy barring coverage for that
portion of the insured employer's exposure above the
so-called "Kotecki cap," a point to which
the Court will return shortly. StarNet obtained a declaratory
judgment that it had no duty to defend P.S. in the
O'Reilly case because its policy did not provide coverage
absent an allegation that the claim arose from an injury to
an employee of P.S.
In
February 2019, the O'Reilly estate and Ruprecht settled
their suits against Deerfield Construction. As part of the
settlements, Deerfield and its insurance carrier Westfield
Insurance Co. assigned to the O'Reilly estate and
Ruprecht their contribution rights against P.S. Demolition.
Earlier, the state court had entered an order limiting any
judgment against P.S. to its insurance coverage (this is said
to be the result of a bankruptcy in which P.S. was
adjudicated to have no assets). In late February 2019,
StarNet-which had essentially stepped into P.S.'s shoes
for this purpose-entered into a stipulation with Ruprecht and
the O'Reilly estate. Their stipulation included agreement
to, among other things, the following:
• Patrick O'Reilly and Adam Ruprecht were employees
of P.S. at the time of the incident;
• Deerfield and Westfield had assigned their
contribution rights against P.S. to the O'Reilly estate
and Ruprecht;
• A $1 million judgment would be entered against P.S.,
which admitted liability, except for StarNet's coverage
defenses;
• This judgment reflected P.S.'s pro rata share of
the liability to the O'Reilly estate and Ruprecht; and
• If the O'Reilly estate and Ruprecht prevailed in a
declaratory judgment action, then StarNet would pay them $1
million.
StarNet
then filed this lawsuit against the O'Reilly estate and
Ruprecht, seeking a declaratory judgment that it has no
liability to them in excess of P.S.'s liability under
worker's compensation law. The Court has jurisdiction
based on diversity of citizenship. StarNet has moved for
judgment on the pleadings on count 1 of its
complaint.[1]
Discussion
The
dispute before the Court involves the following terms in the
insurance policy that StarNet issued to P.S. Demolition:
PART TWO
EMPLOYERS LIABILITY ...