September 2015 Case Notes & Comments

"I don't want to tell you how much insurance I carry
with the Prudential, but all I can say is: when I go, they go too." ~ Jack Benny

MONTHLY QUIZ: General Contractor (GC) subcontracts roofing work to Subcontractor, with a contractual requirement that Subcontractor maintain liability insurance on a primary basis and name GC as an additional insured.  The policy covers the GC "only with respect to vicarious liability for 'bodily injury' or 'property damage' imputed from [Subcontractor] to the Additional Insured." Subcontractor's Employee falls while working on the project and sustains serious injuries. Employee sues GC (but not Subcontractor), alleging negligence and premises liability due to GC's failure to enforce safety standards and failure to stop unsafe work on the project. GC tenders its defense to Subcontractor's Insurer, who declines the tender and files suit, seeking a declaration that Insurer has no duty to defend GC against Employee's personal injury action. On cross-motions for judgment, the Trial Court grants judgment in favor of Insurer, finding that the additional insured endorsement of the CGL policy only covers bodily injury for which the additional insured is vicariously liable. Since the Complaint does not allege negligent acts by Subcontractor, the Trial Court finds, the face of the Complaint presents no theory of vicarious liability, and Insurer therefore has no duty to defend GC. On appeal, GC contends that the Trial Court erred in finding that Insurer owed no duty to defend it. Was the Trial Court Right? Could Subcontractor's Insurer owe GC a defense where the policy provides coverage to GC only with respect to the vicarious liability of Subcontractor and the Subcontractor has not been sued? You be the Judge. (Answer below.)

cyber LIABILITY - TELEPHONE CONSUMER PROTECTION ACT - NO COVERAGE FOR UNSOLICITED TEXT MESSAGES: Insured (a cosmetic surgeon) purchased a policy of professional liability insurance, which included a cyber claims endorsement. Under the endorsement, Insurer agreed to reimburse protected parties for costs they became legally obligated to pay as a result of a "Privacy Wrongful Act," defined as the breach of a statute "associated with the control and use of personally identifiable ... information." Plaintiff filed a lawsuit against Insured, alleging that Insured had acquired a spa's customer list and used it to send unsolicited text message advertisements for Botox treatments, in violation of the Telephone Consumer Protection Act ("TCPA"). Insurer sought a declaration that it did not owe a duty to defend the TCPA claim because it was not based on a privacy wrongful act. Insurer argued that the TCPA was not associated with the control and use of personally identifiable information. The Circuit Court agreed with Insurer, and entered judgment on the pleadings. On review, the Appellate Court affirmed the lower court's judgment, observing that the TCPA is focused on calls and text messages and is not connected to the use of personally identifiable information in service of the calls. Comparing the allegations in the underlying complaint to the policy language, the alleged violation of the TCPA was not covered as a "privacy wrongful act" because the TCPA is not associated with the control and use of personally identifiable financial, credit or medical information. Therefore, the lawsuit's allegations did not even potentially fall within the coverage of the policy, and Insurer did not have a duty to defend or indemnify Insured in the lawsuit.  Doctors Direct Ins., Inc. v. Bochenek, 2015 IL App (1st) 142919 (Aug. 3, 2015).

Plaintiff was injured when he slipped on oil while working on a bridge construction project. Plaintiff's Employer had contracted with Municipality to perform sandblasting and painting on the bridge. The City had also contracted with Engineering Consultant, which, in turn, subcontracted with Subconsultant (also an engineer). Plaintiff filed a negligence lawsuit against Municipality (alleging negligence and a violation the Restatement (Second) of Torts § 343, which describes a landowner's duties to use due care as a possessor of land), as well as Consultant and Subconsultant (alleging negligent control, supervision, and coordination of the project). After discovery, all three defendants filed motions for summary judgment, which were granted, and an appeal followed. The Appellate Court upheld the lower court's finding that Municipality was immune from liability for its discretionary decisions under the Tort Immunity Act, which provides that local government entities and their employees are immune for acts of employees who hold "either a position involving the determination of policy or a position involving the exercise of discretion," and actually engage in both the determination of policy and the exercise of discretion when performing the act from which the plaintiff's injury resulted. Since the contract authorized Municipality's representative to "reject or require modification of any proposed or previously approved order of procedure, method, structure or equipment," the City's supervision of Plaintiff's Employer was discretionary, and the City was immune from liability. As to Consultant and Subconsultant, the Appellate Court observed that since they did not entrust any work to Employer, they could not be liable for retaining control over that work. Furthermore, Municipality's contract with Consultant did not impose a duty to supervise Employer in the manner in which Plaintiff did his work, and neither Consultant nor Subconsultant voluntarily assumed such a duty. Cabrera v. ESI Consultants, Ltd., 2015 IL App (1st) 140933 (Sept. 18, 2015).  

UIM POLICY'S "REASONABLE BELIEF" EXCLUSION FOUND TO VIOLATE PUBLIC POLICY: Insured-Driver, who was operating his vehicle without a valid license, was involved in a hit-and-run accident in which his Passenger was injured. Passenger filed an uninsured motorist claim under Driver's automobile liability insurance policy with Insurer. In response, Insurer filed a declaratory action alleging that it had no duty to indemnify Passenger because she was excluded from coverage under the policy's "reasonable belief" exclusion, which states that the policy does not apply to a loss, "If the driver used the covered vehicle without a reasonable belief that he was entitled to do so."  The Circuit Court entered summary judgment for Insurer finding that, as a matter of law, an Insured-Driver who does not possess a valid license cannot have a reasonable belief that they are entitled to drive. Passenger appealed and argued that a driver reasonable belief exclusion, applied to passengers, was unenforceable and void against Illinois public policy because it excluded uninsured motorist coverage to permissive passengers. Noting the reality of " 'driving dirty' and its relationship to Illinois' public policy to protect innocent passengers injured by at-fault uninsured" drivers, the Appellate Court agreed with Passenger. The Appellate Court held that the driver reasonable belief exclusion violated public policy as applied against Passenger because the exclusion allowed Insurer to deny coverage to a category of otherwise protected insureds (permissive passengers), based on a "broad exclusion" applicable only to a different category of insureds (drivers) under the policy. Safe Auto Ins. Co. v. Fry, 2015 IL App (1st) 141713 (Sept. 22, 2015). 

ANSWER TO QUIZ: The Trial Court was wrong.  Since the complaint alleges violations of safety standards and failure to stop unsafe work, the Appellate Court found it at least possible that GC could be found vicariously liable for Subcontractor's failure to ensure compliance with safety regulations. Accordingly, the Appellate Court ruled that Insurer owed GC a duty to defend under the additional insured endorsement of the CGL policy. While the face of the complaint alleged that GC failed to properly supervise Subcontractor, that allegation necessarily implied that Subcontractor was the party that failed to comply with safety regulations, leading to Employee's accident. Accordingly, the allegations of the complaint did not preclude the possibility that GC could be found liable solely as a result of the acts or omissions of Subcontractor. Pekin Ins. Co. v. CSR Roofing Contractors, Inc., 2015 IL App (1st) 142473.