Don’t Let The Door Hit You on the Way Out: Insurer Loses Coverage Suit Involving Injuries Sustained By Fitting Room Door

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In Selective Insurance Co. of South Carolina v. Target Corporation, No. 16-1669, 2016 U.S. App. LEXIS 23370 (7th Cir. Dec. 29, 2016), the Seventh Circuit affirmed an Illinois district court’s decision finding coverage for an additional insured after parsing through the language of two contractual agreements.

The coverage dispute arose when a customer shopping at a Target store was injured after a fitting room door came off and fell on her in December 2011. The customer filed suit against Target, alleging it was negligent for failing to maintain and repair the fitting room door and failing to warn her that the fitting room door was in an unreasonably dangerous and hazardous condition. Target then filed a third-party complaint seeking contribution and indemnification from Harbor Industries, Inc., which Target had contracted with to supply the fitting rooms. Target and Harbor ultimately settled with Ms. Brown.

Target tendered its defense of the lawsuit to Selective Insurance Company, asserting it was an additional insured on the policy issued by Selective to Harbor. Significantly, the additional insured endorsement limited coverage to Target for liability caused in whole or in part by Harbor’s products. About a year after the lawsuit was filed, Selective initiated a declaratory judgment action against Target.

Notably, Target and Harbor had entered into two contracts. First, Target and Harbor had executed a Supplier Agreement in April 2001, which stated that it shall be deemed incorporated into all agreements relating to the purchase of non-retail goods and services from Harbor to Target. In addition, the Supplier Agreement required Harbor to maintain commercial general liability insurance under which Target was to be designated an additional insured. The parties admitted the Supplier Agreement was not terminated. Second, Target and Harbor entered into a Program Agreement in April 2009 for Harbor to supply fitting rooms to Target, and it expressly incorporated the terms and conditions of the Supplier Agreement. The Program Agreement stated it was to end on July 1, 2010 unless otherwise terminated.

Upon cross-motions for summary judgment, the Illinois federal district court ruled that Selective had the duty to defend and indemnify Target as an additional insured. Selective subsequently appealed.

On appeal, the parties disputed whether Target was an additional insured in light of the interaction between potentially conflicting language of the Supplier Agreement and Program Agreement. Notably, the policy required a “written contract” in order for Target to be considered an additional insured. In particular, Selective argued that the Program Agreement, which terminated in July 2010, was to control if there was a conflict with the Supplier Agreement. By contrast, Target contended the Supplier Agreement was broad and that it had not been terminated. The Seventh Circuit agreed with Target since it recognized that the Supplier Agreement was broad and governed the overarching relationship between Target and Harbor. In addition, it was clear from its language that the Supplier Agreement was not intended to terminate when specific program agreements ended. Accordingly, the Supplier Agreement was an effective contract that required Harbor to designate Target as an additional insured at the time of the injury in question.

Further, the Seventh Circuit determined Selective had the duty to defend Target as an additional insured because the underlying complaint could be interpreted to mean the bodily injury suffered by the customer was caused in whole or in part by Harbor’s products. It is also worth noting that even if the allegations in the complaint were insufficient, the Seventh Circuit stated the allegations in the third-party complaint filed by Target against Harbor were sufficient to trigger coverage.

This decision provides guidance in the additional insured arena where courts are often called upon to navigate complex contractual relationships. However, the Seventh Circuit’s decision to consider Target’s third-party complaint should certainly raise eyebrows, as many Illinois courts would have deemed such a pleading self-serving and, therefore, inadmissible for the purposes of determining whether Target, a putative additional insured, was entitled to coverage. Yet, the Seventh Circuit curiously did not address this consideration. Time will tell if this view is adopted by other Illinois courts or if it will remain an outlier.