StarNet Insurance Co. v. Ruprecht

          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 ...