The judges of the Seventh Circuit found the additional insured on a CGL policy was only entitled to coverage up until the date the underlying suit was settled. The case is United Fire & Cas. Co. v. Prate Roofing & Installations, LLC, 7 F.4th 573 (7th Cir. 2021). 

A roofing company based in Tennessee, All Seasons Roofing, Inc., was hired to inspect the roofs on two warehouses in Illinois. All Seasons found hail damage but could not repair the roof itself because it was not licensed in Illinois. All Seasons then entered a contract with Prate Roofing & Installations, LLC, an Illinois-licensed company, to serve as the general contractor for the repairs with All Seasons working as a subcontractor. In accordance with that contract, All Seasons purchased a CGL policy from United Fire & Casualty Company and named Prate as an additional insured. 

One day, an employee from a third, non-party company died after falling through an unprotected skylight at one of the warehouses. Though his estate's remedies against his direct employer were limited to workers compensation, the estate was able to pursue wrongful death claims against Prate, All Seasons, the company that owned the warehouses, and the company that managed the warehouses. The estate's complaint alleged that "Prate … by and through its agents, servants and employees, was then and there guilty of one or more of the following careless and negligent acts and/or omissions…." (emphasis added). 

Prate sought coverage from United Fire as an additional insured on the All Seasons policy. United Fire denied Prate's claim and sought a separate declaratory judgment that it was not obligated to provide a defense. Prate then sought and received coverage from its own CGL carrier and filed a motion opposing United Fire's declaratory judgment suit. The trial court sided with Prate, stating the action was too speculative because the underlying case to determine liability had not yet been resolved. Therefore, it was unknown whether Prate could be held liable for All Seasons' actions. The court ruled in favor of Prate, and United Fire appealed. 

Duty of Defense

The judges pointed out that an insurer's duty to defend is based not on whether the insured will be liable for damages, but whether the insured could be liable for damages. The judges took a closer look at the complaint to determine whether there was a possibility of Prate being held liable for the actions or omissions of All Seasons. The underlying suit alleged that "Prate … by and through its agents … was then and there guilty of one or more of the following careless and negligent acts…" preceding the workers's death. (emphasis added). The complaint had also stated that Prate had "individually and through its agents…participated in coordinating the work being done" on the construction site. (emphasis added). The phrase "by and through its agents" indicated that the estate wanted to hold Prate accountable for the actions or inactions of its agent, All Seasons. 

The court looked at two Illinois cases, Pekin Insurance Co. v. Centex Homes, 72 N.E.3d 831 (Ill. App. 2017) and Pekin Ins. Co. v. Lexington Station, LLC, 84 N.E.3d 554 (Ill. App. 2017), that had been decided on similar grounds to those at issue. Both insureds in the earlier cases were "additional insureds" seeking coverage for vicarious liability based on the conduct of their agents. Both decisions had been resolved in favor of coverage for the respective insureds. 

With these cases in mind, the court compared the estate's complaint to the policy in question to determine the likelihood of Prate being held vicariously liable for All Seasons' conduct. The complaint had been written in broad terms to encompass Prate's independent culpability and its vicarious liability for the actions or omissions of its agents, such as All Seasons. As the court put it, "nothing in the estate's allegations made it impossible for Prate Roofing to be held liable for actions or omissions of All Seasons and/or All Seasons' agents." United Fire, on the other hand, denounced the Centex Homes and Lexington Station decisions as antithetical to Illinois law and disclaimed the duty to defend as broader than the duty to indemnify. That very principle, the judges pointed out, was the cornerstone of determining whether an insurer's duty of defense had been triggered. 

Based on these arguments, the court ruled that United Fire was obligated to defend Prate. 

Extent of Liability 

However, during the litigation between United Fire and Prate, United Fire negotiated a settlement with All Seasons and the decedent's estate. This settlement resolved the estate's claims against All Seasons and threw a metaphorical curveball to the court in this case. 

The settlement released All Seasons from its liability to the estate. Since All Seasons was no longer liable to the decedent's estate, there was no possibility that Prate could be held vicariously liable for All Seasons' actions. Therefore, since Prate could no longer be held liable for All Seasons, it was no longer entitled to a defense from United Fire. The remaining litigation against Prate for its direct negligence was the responsibility of Prate's CGL carrier. 

Conclusion

The court therefore affirmed the summary judgment in favor of Prate, with the modification that Prate was only entitled to coverage from United Fire up to the date that the settlement between All Seasons, United Fire, and the decedent's estate had become effective. 

Editor's Note: As this case shows, determining the coverage owed to an additional insured can be a tricky question. United Fire claimed Prate and All Seasons were a contractor and independent contractor, which meant no liability could be imputed to Prate for All Seasons' conduct; therefore, United Fire was not obligated to defend Prate. However, as the courts both pointed out, the duty to defend is based on the potential for the insured's liability, not whether the insured will be held liable. While the duty to defend is always broader than the duty to indemnify, there must be the chance of coverage in order for the duty to defend to come into play. Since the decedent's estate had made allegations that could have held Prate liable for All Seasons' actions, United Fire was obligated to defend Prate in the suit.  

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