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Vicarious liability: Must insurer pay?

Vicarious liability: Must insurer pay?

June 26
08:11 2018

Vicarious liability: Must insurer pay?

Johnson-Downs Construction, Inc., entered into a contract with Art’s Landscaping, Inc., in which Art’s would perform work on the construction of an addition to the Riverside Hospital in Kankakee. The contract stated that Art’s was required to name Johnson-Downs as an additional insured on its commercial general liability policy with Pekin Insurance Company.

In October 2011, Jeff Barnett, an Art’s employee, was injured while driving a front-end loader at the site and sued Johnson-Downs for negligence and premises liability. At the time, Johnson-Downs was the only named defendant. Cincinnati Insurance Company, Johnson-Downs’s insurer, tendered the complaint to Pekin for a defense and indemnification. Since May 2013, Pekin had defended Johnson-Downs under its reservation of rights.

Pekin filed a declaratory judgment action claiming it did not have a duty to defend Johnson-Downs as an additional insured under Art’s’ policy. Johnson-Downs filed a motion to stay the action pending the resolution of the underlying case, which the trial court granted.

In March 2014, Johnson-Downs filed a third-party complaint against Art’s, alleging that Art’s was negligent and as a result liable for Barnett’s injuries. In April 2016, Pekin sought a declaratory judgment claiming that (1) Johnson-Downs did not have any rights under the certificate of insurance, (2) Johnson-Downs failed to bring a claim in which Pekin had a duty to defend, and (3) Pekin was entitled to recovery for defense costs. Johnson-Downs filed a response and motion to stay the declaratory judgment pending resolution of the underlying case. In its motion to stay, Johnson-Downs alleged that count II of Pekin’s declaratory judgment would result in the trial court determining an issue of ultimate fact in violation of the Peppers doctrine.

In July 2016, Barnett filed an amended complaint breaking the construction negligence claim into two separate counts: direct construction negligence and vicarious construction negligence. In Johnson-Downs’s reply to the motion to stay, it requested that the court consider Barnett’s amended complaint and Johnson-Downs’s third-party complaint when ruling on the motion. In September 2016, the trial court granted the motion to stay the declaratory judgment pending resolution of the underlying claim. Pekin appealed.

On appeal, Pekin argued that the trial court abused its discretion when it granted Johnson-Downs’s motion to stay because the declaratory judgment did not involve a determination of ultimate fact in the underlying case.

In Johnson-Downs’s motion to stay, it requested that the court stay Pekin’s declaratory judgment action because Pekin’s count II allegation presented an issue of ultimate fact critical to the underlying case. Count II claimed that Pekin did not owe a duty to defend Johnson-Downs because the policy stated that an additional insured is covered only for vicarious liability claims and the underlying complaint lacks such allegations. The court granted Johnson-Downs’s motion to stay.

Assuming that the trial court’s ruling was based on the argument presented by Johnson-Downs in its motion to stay, the appellate court said the trial court could make a determination of whether the complaint contained any allegations of vicarious liability that Pekin had a duty to defend by comparing the complaint to the policy language. This, the court said, could be decided without examining the extent of Johnson-Downs’s supervisory control over Art’s’ alleged negligent acts and ultimately determining whether Johnson-Downs was, in fact, vicariously liable. Thus the appellate court found that the trial court abused its discretion in granting the motion to stay and the declaratory judgment action could proceed to resolution prior to the conclusion of the underlying suit. The court reversed the trial court’s decision and remanded the case for a hearing on and resolution of the declaratory judgment action.

Pekin next argued that Barnett’s amended complaint was a transparent attempt to plead into coverage and therefore should not be considered in the trial court’s determination. Johnson-Downs alleged that Illinois law did not prohibit a pleading that potentially triggers coverage when the facts support a cause of action. The court agreed with Johnson-Downs.  The court noted that the amended complaint alleged that failure by Art’s to maintain equipment and working conditions resulted in Barnett’s injuries and that Johnson-Downs, as the general contractor, exercised control over Art’s such that Johnson-Downs was liable for negligent acts and omissions of Art’s. The Pekin policy covered claims of vicarious liability imputed to Johnson-Downs as a proximate result of acts or omissions by Art’s in its performance for Johnson-Downs. The court believed that the factual allegations in the amended complaint stated a vicarious liability claim that fell within the coverage of the policy. The court instructed the trial court that it could consider Barnett’s amended complaint in its determination of duty to defend.

The judgment of the trial court was reversed and remanded with directions.

Pekin Insurance Company vs. Johnson-Downs Construction, Inc.-Appellate Court of Illinois, Third District-July 6, 2017-Appeal No. 3-16-0601.

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