Third-Party Complaints and the Duty to Defend – Another Decision Cementing Existing Precedent

In Pekin Insurance Company v. Illinois Cement Company, LLC, the Illinois Appellate Court again addressed the important issue of when third-party complaints can be used in evaluating an insurer’s duty to defend. Due to the circumstances surrounding the third-party complaint in question, the Appellate Court held that it was self-serving and could not be used to show that a putative additional insured was vicariously liable for the acts of the insured.

The facts underlying the coverage dispute involve an action brought by Michael Hanson and his wife against Illinois Cement Company, LLC (ICC), a commercial property owner, for injuries Mr. Hanson sustained while working on the installation of a trash pump when he slipped and fell on a stairway. Mr. Hanson was an employee of Perino Plumbing & Heating, Inc. at the time of his injuries. The Hanson’s first amended complaint alleged that ICC acted negligently when it failed to maintain the premises in a reasonably safe condition for Mr. Hanson and others. In particular, the first amended complaint alleged that the ICC negligently allowed the stairs to remain in a slippery and unsafe condition.

After the underlying lawsuit was filed, ICC sought coverage as an additional insured under a policy issued by Pekin Insurance Company to Perino. Notably, the Pekin policy contained an additional insured endorsement that afforded coverage to additional insureds if they were being held vicariously liable for the conduct of the named insured (Perino). In addition, a certificate of liability insurance which Perino as the named insured and ICC as the additional insured. However, the language of the certificate contained a disclaimer that the words of the certificate did not extend the coverage present in the policy.

Approximately six months after the underlying lawsuit was filed, ICC filed a negligence complaint against Perino seeking indemnification and contribution. In addition, ICC’s third-party complaint alleged that Perino committed one or more negligent acts or omissions which caused or contributed to cause Mr. Hanson’s injuries. A few weeks later, Pekin initiated a declaratory judgment action seeking a finding that it did not have the duty to defend ICC in relation to the underlying lawsuit because, in pertinent part, the certificate of insurance did not confer rights to ICC beyond the policy, itself, and the underlying lawsuit only contained allegations of direct negligence against the additional insured. After initially denying Pekin’s motion for summary judgment, the trial court reconsidered and determined that Pekin did not have a duty to defend. The trial court’s about-face was primarily driven by a recent Illinois Appellate Court decision, Pekin Ins. Co. v. United Contractors Midwest, 2013 IL App (3d) 120803, 997 N.E.2d 235, which determined that self-serving third-party complaints could not considered in evaluating an insurer’s duty to defend.

On appeal, ICC contended that the underlying complaint contained sufficient facts to determine that ICC could be derivatively liable for Perino’s actions and that the trial court erred in not considering ICC’s third-party complaint in evaluating the duty to defend. Upon analyzing the allegations in the first amended complaint, the Appellate Court determined that it only claimed direct negligence against ICC. In addition, the Appellate Court agreed with the trial court in refusing to consider the allegations of ICC’s unduly self-serving third-party complaint. In other words, the Appellate Court upheld the United Contractors and similar precedent which strongly disfavor putative additional insureds from using third-party complaints to remedy the deficiencies in their coverage position.

This decision further solidifies increasingly well-settled Illinois precedent that third-party complaints filed by additional insureds are not cognizable with respect to evaluating the duty to defend.