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Unambiguous contract must be interpreted as written



When two insurers dispute who is obliged to defend and compensate the insured in a bodily injury process, they both paid half of the settlement and agreed to resolve their differences later in a declaratory relief action – an action of absolute good faith.

IN Old Republic Insurance Company v. The Young Men’s Christian Association a / k / a YMCA Of Metropolitan Chicago and Riverport Insurance Company2022 IL App (1st) 210294-U, No. 1-21-0294, Court of Appeals of Illinois, First District, Fifth Division (May 27, 2022), the Court of Appeal resolved the dispute after the trial court ruled in favor of the Old Republic.

BACKGROUND

Old Republic Insurance Company (Old Republic), filed a declaratory judgment against the Young Men’s Christian Association of the Metropolitan Chicago (YMCA) and the Riverport Insurance Company (Riverport). The district court granted a summary judgment in favor of the Old Republic. The YMCA and Riverport appealed.

In September 2012, YMCA hired Air Comfort Corporation (Air Comfort) as a contractor to perform routine plumbing maintenance at YMCA’s facilities in Chicagoland. On September 17, 2012, the YMCA and Air Comfort entered into a “Master Agreement between Owner and Contractor” (Master Agreement). The main agreement was drawn up by the YMCA’s representative. The main agreement stipulated: Section 6 of the main agreement required that Air Comfort obtain a commercial liability insurance and that the YMCA be specified as an additional insured on the insurance.

On May 13, 2013, an Air Comfort employee, Joseph Dale, sustained injuries while working on the upgrade project at the Indian Boundary facility. Mr Dale filed a complaint of negligence against the YMCA, claiming that the YMCA had failed to inspect and safely maintain the ventilation pit and grille at its Indian Boundary facility, resulting in his injuries.

The YMCA provided a defense and indemnity for Mr. Dale’s lawsuit against Air Comfort’s insurance company, Old Republic. Old Republic denied coverage.

The declaratory relief process sought an explanation that Old Republic is not liable “no obligation to defend, indemnify or otherwise provide additional insured coverage to the YMCA” under Old Republic’s insurance with Air Comfort for losses incurred in connection with Mr. Dale’s lawsuit. Old Republic’s policy required additional insured persons or organizations to be included in a written agreement or contract.

The complaint stated: “There is no written agreement requiring Air Comfort to name the YMCA as an additional insured on its *** policy with respect to work performed by Air Comfort at the Indian Boundary YMCA in accordance with any such agreement.”

While the declaration was pending, Dale settled his $ 700,000 lawsuit against the YMCA. In turn, the YMCA and Riverport entered into a separate agreement with the Old Republic, entitled “Settlement Agreement and Release.” The settlement agreement and the release provided that the YMCA and Riverport would pay half of Mr. Dale’s settlement amount ($ 350,000) and Old Republic would pay the other half ($ 350,000).

The parties agreed that the solution of Mr. Dale’s lawsuit “does not in any way resolve the issues to be considered” in the declaratory judgment, which the settlement agreement and release referred to as the “coverage process.” In accordance with the Settlement Agreement and the release, the parties agreed to:

“[I]In the coverage process, a legal decision is made that the Old Republic owes the YMCA additional insured coverage under the Old Republic Policy to the YMCA for [Mr.] Dale Trial, then the Old Republic will pay the YMCA and [Riverport] $ 350,000 plus attorney’s fees and expenses like YMCA and [Riverport] in defending [Mr.] Dale trial. ” Likewise, the settlement agreement and the release provided that the YMCA and [Riverport] will pay Old Republic $ 350,000 plus $ 197,000 for a total payment of $ 547,000. This would replace the Old Republic for the $ 350,000 paid to [Mr.] Dale plus the waiver of workers’ compensation $ 197,000. “

The district court upheld Old Republic’s claim for summary judgment and rejected the YMCA’s and Riverport’s claim. In this judgment, the Court stated: “This Court finds that there is no real question of substantive facts [t]as there is no record of which YMCA will be extra insured for the specific location. “

ANALYSIS

A summary judgment was issued by the district court in this case, on the grounds that the Indian border survey did not require Air Comfort to add YMCA as an additional insured to its insurance, and Old Republic therefore has no obligation to provide coverage to YMCA for Mr. Dale’s trial.

Importantly, the YMCA and Riverport do not claim that the Indian border declaration on work is ambiguous. The Court of Appeal concluded that the Indian Boundary Statement of Work is an unambiguous contract, as the language is clear and the general meaning is easy to establish. The Indian job description does not state, anywhere or in any way, that the parties intended Air Comfort to add the YMCA as an additional insured on its insurance with Old Republic. In fact, the word “insurance” is not even mentioned in the Indian working class.

The Court of Appeal concluded that the Indian border Statement of Work makes refer to a contract entitled “MASTER SERVICES AGREEMENT DATED 11 FEBRUARY, 2013,” and “Standard From [sic] of agreement between owner and contractor, dated 11 February 2013. “But, as the district court pointed out, there is no such contract document. The YMCA and Riverport also do not claim to be able to produce that document. And they give no other explanation regarding the discrepancies in the description of the referenced , non-existent contract document.

Rather, the YMCA and Riverport asked the court to look at the main agreement and the Irving Park agreement to show the parties’ intentions with the Indian work border. However, if a contract is unambiguous on its front, external evidence may not be used to interpret it.

Mr. Dale’s lawsuit arose from the work agreed in the Indian Boundary Statement of Work between Air Comfort and the YMCA for the upgrade project at the Indian Boundary facility. The Indian job description is a clear and unambiguous contract that does not refer to any other existing contract document; there is no reason for the court to look at another contract.

Consequently, the Court of Appeal concluded that there is no real question of material fact that the Indian border survey did not require Air Comfort to add the YMCA as an additional insured on its insurance, and Old Republic is therefore not obliged to provide insurance coverage to the YMCA for Mr. Dale’s trial. The district court therefore duly granted a summary judgment in favor of Old Republic in the declaratory judgment.

The two insurance companies did the right thing for their insured, the YMCA. The lawyer for the YMCA, who signed the various contracts between Y and Air Comfort, made a mistake when he drafted a contract that contained a non-existent contract and failed – for the project where Mr. Dale was injured – to demand that Air Comfort make the Y another insured. The two insurers, even if they did not agree, acted in absolute good faith against their insured and resolved their disagreements without subjecting the insured to damages.


(c) 2022 Barry Zalma & ClaimSchool, Inc.

Barry Zalma, Esq., CFE, now limits his internship to the position of insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He practiced law in California for more than 44 years as a lawyer for insurance coverage and claims management and more than 54 years in the insurance industry. He is available at http://www.zalma.com and zalma@zalma.com.

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