Construction, Insurance, Publications

Case Law Overview: In Construction Site Insurance Coverage Dispute, Silence on Subcontractor’s Potential Negligence Sufficient to Create Duty to Defend

April 30, 2019

Overview: The general contractor for a construction project at a corporate office site hired a subcontractor to work on escalators at the construction project. The subcontract agreement required that the subcontractor name the general contractor and the owner of the corporate office as additional insureds under its insurance policy. Subsequently, an employee of the subcontractor was injured on the job, and sued the general contractor, as well as the owner of the corporate office. The general contractor tendered the claim to the subcontractor’s insurance carrier, but the subcontractor’s insurance carrier denied coverage.

In response to the denial of coverage, the general contractor filed a complaint for declaratory judgment, arguing that the subcontractor’s insurance carrier was obligated to defend and indemnify the general contractor as an additional insured. The general contractor included the subcontractor as a defendant, arguing that they may have breached the subcontract agreement by failing to purchase adequate insurance. The subcontractor and its insurance company proceeded to file a motion for judgment on the pleadings, arguing that the general contractor was not owed a defense because there was nothing in the underlying complaint against the general contractor that alleged any negligent act or omission by the subcontractor. The general contractor then filed a response in which it argued that the employee’s bodily injuries were caused in whole or in part by his employment and therefore in whole or in part by the acts and omissions of his employer, the subcontractor. The trial court granted defendants’ motion for judgment on the pleadings and later denied the general contractor’s motion to reconsider.

Outcome: On appeal, the Fourth District Appellate Court concluded that the defendants were not entitled to judgment on the pleadings because, “the allegations in the underlying complaint must be read within the context of the Workers’ Compensation Act, meaning that silence in an underlying complaint as to an employer’s possible negligence must be understood as the possible result of tort immunity for employers.”  The subcontractor’s insurer does have a duty to defend the general contractor because there is the potential that subcontractor's acts or omissions caused the employee's injuries. The silence in underlying complaint as to subcontractor's possible negligence is not a basis for the insurer to refuse to defend the general contractor.

Implications: The Fourth District followed the First District’s decisions in Pekin Ins. Co. v. Centex Homes, 2017 IL App (1st) 153601 and Hastings Mutual Ins. Co. v. Blinderman Constr. Co., 2017 IL App (1st) 162234, expanding an insurer’s duty to defend an additional insured. Where the underlying plaintiff is an employee of the named insured, the mere fact that the named insured is not a party to the underlying case, and no allegations of negligent conduct are made against the named insured, does not preclude the possibility that the named insured’s acts or omissions caused the employee’s injuries in whole or in part. This is because the Illinois Workers’ Compensation Act precludes the employee from recovering in tort directly from its employer, so there is no reason for the employee to detail the employer’s potential negligence in the employee’s complaint against a different party. Thus, under the “caused in whole or in part” language typical in a Blanket Additional Insured endorsement, the subcontractor’s insurer should have a duty to defend the general contractor where its employee is injured and files suit against the general contractor, assuming that all other conditions of qualifying as an additional insured are met.

To view the complete appellate ruling, click here.

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