An Illinois appellate court ruled that an additional insured is not entitled to coverage when the underlying complaint makes no allegations against the primary insured for which the additional insured could be held vicariously liable. The case is Pekin Ins. Co. v. Illinois Cement Co., LLC, 51 N.E.3d 812 (Ill. App. Ct. 2016).
Illinois Cement Company (ICC) hired Perino Plumbing & Heating (Perino) to provide and install a trash pump and PVC line at a commercial property owned by ICC. The contract between ICC and Perino required Perino to obtain insurance and also included a clause that stated Perino would "indemnify and hold [ICC] harmless from and against any loss, liability, damage or expense whatsoever" based on Perino's action or inaction in carrying out the contract. Perino thereafter purchased a CGL policy from Pekin that included an endorsement naming ICC as an additional insured.
One day, water began overflowing from a tanker owned by ICC while Perino employees were on the job. Michael Hanson, a Perino employee, was carrying a pump when he slipped in the overflowed water and suffered injuries. Hanson sued ICC as the property owner for negligent failure to maintain the premises "in a reasonably safe condition" (the underlying complaint). However, Hanson's complaint alleged negligence only against ICC, not Perino.
ICC then filed suit against Perino for breach based on Perino's alleged failure "to take steps to indemnify ICC in" Hanson's underlying negligence action. ICC also asserted Perino caused or contributed to Hanson's injuries based on Perino's alleged negligence in performing its duties under the agreement with ICC.
Pekin denied ICC's claim for a defense because the underlying complaint alleged direct negligence against ICC, not Perino, and the policy issued to Perino only covered ICC if the company was vicariously liable for Perino's actions. Pekin later filed for declaratory judgment against ICC, Perino, and Hanson, seeking judgment that it did not owe a defense to ICC because the additional insured endorsement on the policy Pekin issued to Perino "specifically excluded coverage for the direct negligence of the additional insured (ICC)." ICC pointed out that its case against Perino had alleged vicarious liability to be considered in the underlying suit. The trial court refused to consider ICC's filing and ruled in favor of Pekin. ICC appealed.
In the appellate court, ICC argued the trial court had ruled incorrectly because Hanson's complaint had alleged vicarious liability against Perino. They also claimed the lower court had improperly ignored their own complaint against Perino that alleged vicarious liability. Pekin argued the opposite: The underlying complaint did not allege vicarious liability against ICC, and the lower court was required to ignore ICC's complaint against Perino based on Pekin Insurance Co. v. United Contractors Midwest, Inc., 997 N.E.2d 235 (Ill. App. Ct. 2013), an earlier Illinois case similar to the present case.
The appellate judges first analyzed the additional insured endorsement in Perino's insurance policy. The endorsement provided that Pekin would cover ICC only when ICC was found vicariously liable for bodily injury or property damage caused by Perino. However, the policy also explicitly stated that ICC would have no coverage from Pekin for bodily injury or property damage occasioned by ICC's own acts or omissions.
Since the policy stated Pekin would only defend and indemnify ICC if it was found vicariously liable for Perino's acts or omissions, the court shifted its focus to whether or not the underlying complaint alleged vicarious liability against ICC. The judges looked to the United Contractors case cited by Pekin for guidance. In that case, a policy issued to a construction company named the project's general contractor as an additional insured. However, when an injured company employee sued the contractor for negligence and made no allegations against his employer, the contractor could not add vicarious liability to the case by filing a third-party complaint for vicarious liability against the construction company.
The same principle applied to the facts in this case. Hanson's underlying complaint had alleged negligence directly against ICC for not maintaining a safe work environment. He had made no allegations against Perino for which ICC could be held liable. Just as the trial court had done, the appellate court "refused to consider ICC's self-serving, third-party complaint to create a duty for Pekin to defend ICC based on a theory of vicarious liability."
The award of summary judgment in favor of Pekin was affirmed.
Editor's Note: Vicarious liability applies when one party can be held liable for the actions of another. Parents are often held vicariously liable for acts of minor children, since minor children cannot be held legally liable on their own. Employers may be held vicariously liable for their employees if the actions of employees are deemed negligent or harmful. In this case, there was no negligence or other claim made against Perino for which ICC could be held vicariously liable.
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