When the insurer allows us to unilaterally select additional insureds, it has no right to complain
Watch the full video at https://rumble.com/v1hfbxj-insurer-must-defend-entities-chosen-by-insured.html and at https://youtu.be/A9cI4isj01Y
An insurer, by drawing up a perpetual endorsement which enabled its insured, by entering into agreements under which the insurer would be obliged to provide a defense to persons unknown to the insurer and which did not require its insured to obtain the insurer’s approval of the agreements or require its insured to disclose the identity of third parties or require the named insured to name those parties as additional insureds. The insurer assumed the responsibility to provide defense for certain unknown and unnamed third party beneficiaries.
IN Westfield Insurance Company v. Walsh/K-Five Jv (I-14-4208); Walsh/K-Five Jv (I-14-4209); Walsh Construction Company Ii, Llc/K-Five Construction Company Jv, a joint venture; Walsh Construction Company II, Llc; K-Five Construction Corporation; Arch Insurance Company; and Royce Brown, Defendants, Walsh/K-Five JV (I-14-4208), Walsh/K-Five JV (I-14-4209), Walsh Construction Company II, LLC/K-Five Construction Company JV, a Joint Venture, Walsh Construction Company II, LLC and K-Five Construction Corporation, 2022 IL App (1st) 210802-U, No. 1-21-0802, Court of Appeals of Illinois, First District, Third Division (August 17, 2022) forced the insurer to live up to its covenants.
Westfield Insurance Company (Westfield) filed a declaratory judgment seeking an order that it was not obligated to defend or indemnify defendants in an underlying personal injury lawsuit that occurred at a construction site where Walsh and K-Five operated a joint venture. In the underlying lawsuit, Royce Brown (Brown), an employee of VMR Contractors, Inc. (VMR), a subcontractor on the construction site, injured himself while carrying rebar.
The trial court found that Westfield had a duty to defend each and denied Westfield’s motion to avoid its duty to defend.
Walsh entered into two joint venture agreements with K-Five to bid on two separate contracts from the Illinois State Toll Highway Authority, involving pavement widening and bridge reconstruction work on the Jane Addams Memorial Tollway. Further, the Joint Venture, Walsh (if K-Five was the insured on the policy) and K-Five (if Walsh was the insured on the policy) were required to be listed as additional insureds on the commercial general liability policy “for claims arising out of the performance of the work of the named insured.
The Westfield Policy
In light of VMR’s obligations under the subcontracts, it obtained insurance from Westfield containing commercial general liability insurance for a term of one year. In the general liability declarations, VMR was listed as the named insured. Section II of the Commercial General Liability coverage form was titled “Who is an Insured” provided that: “Any organization that you newly acquire or form, other than a partnership, joint venture, or corporation, and in which you retain ownership or a majority interest, will qualify itself as a named insured if there is no other similar policy available to that organization” subject to three specified conditions.
The underlying personal injury process
After VMR obtained its commercial general liability insurance, work began on the Jane Addams Memorial Tollway construction project. In September 2015, Brown worked as an ironworker on the construction project for VMR. While manually carrying rebar from a designated shakeout area, Brown injured himself. In August 2017, Brown filed a three-count complaint alleging negligence against Walsh, K-Five and Joint Venture for the injuries he sustained while wearing the rebar.
Westfield argued that K-Five and the Joint Venture could not be considered additional insureds under VMR’s policy with Westfield because there was no written agreement requiring VMR to add either K-Five or the Joint Venture to the policy as additional insureds. In addition, Westfield argued that even if K-Five or the Joint Venture could be considered additional insureds, the joint venture’s exclusion in the policy negated this coverage. Finally, Westfield argued that the joint venture exclusion also applied to Walsh, denying its potential coverage. As such, Westfield held that it had no duty to defend Walsh, K-Five, or the Joint Venture, and the circuit court’s various rulings must be reversed.
Coverage according to the insurance
The prescient words that the Illinois Court of Appeals pronounced in LaGrange Memorial Hospital v. St. Paul Insurance Co.317 Ill.App.3d 863, 870 (2000), discussing the position insurers place themselves in when they undertake to defend unknown third parties with whom named insureds have written agreements to add as additional insureds:
By formulating this language, [the insurer] acknowledged and accepted that its insured would enter into contracts under which [the insurer] would be required to provide a defense ***. [The insurer] did not require that its insured get [the insurer’s] approval of the agreements or require its insured to disclose the identity of the third party or require that [named insured] name these parties as additional insureds. [The insurer] thus assumed the responsibility of providing defense to certain unknown and unnamed third party beneficiaries.
That is what happened in this case. Because the plain language of the Contractors Endorsement provides that the endorsement does not apply to “any person or organization covered as an additional insured on any other endorsement now or hereafter attached,” the joint venture’s exclusion therein did not deny coverage to Walsh, K-Five or the Joint Venture; as additional insured according to additional insured.
The Court of Appeals affirmed the circuit court’s rulings granting defendant Walsh Construction Company II, LLC’s motion for partial judgment on the pleadings, granting defendants Walsh/K-Five JV (I-14-4208), Walsh/K-Five JV ( I-14-4209), Walsh Construction Company II, LLC/K-Five Construction Company JV and K-Five Construction Corporation’s motions for partial summary judgment and denied plaintiff Westfield Insurance Company’s motions for summary judgment where the plaintiff owed a duty to the defendant.
Insurers who give away their policy to others have learned that the decision was expensive. In this case, the insurer gave the insured the right to do all that it agreed with additional insured. In doing so, Westfield gave up its right to underwrite its obligation to insure and found itself insuring several people it had no idea about when it issued the policy it insured. Cases like this should cause insurance companies to reconsider whether they have sufficient premiums to cover the risk they allow their named insureds to incur by contracting with others.
(c) 2022 Barry Zalma & ClaimSchool, Inc.
Barry Zalma, Esq., CFE, now limits his practice to serving as an insurance consultant specializing in insurance coverage, insurance claims management, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He practiced law in California for more than 44 years as an insurance coverage and claims attorney and more than 54 years in the insurance industry. He can be reached at http://www.zalma.com and email@example.com.
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