UNITED Constr. ENT. CO. of ST. LOUIS INC. v. American CONTRACTORS Ins. GROUP INC.

UNITED CONSTRUCTION ENT. CO. OF ST. LOUIS, INC., and AMERISURE, INC., Plaintiffs,

v.AMERICAN CONTRACTORS INSURANCE GROUP, INC., Defendant.

NO.10-CV-81-WDS

UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF ILLINOIS

Dated: March 31, 2011

MEMORANDUM AND ORDER

STIEHL, District Judge:

Before the Court is plaintiffs' motion for summary judgment (Doc. 23), to which defendant has filed a response (Doc. 29) and plaintiffs a reply (Doc. 33). Also before the Court is defendant's cross-motion for summary judgment (Doc. 28), to which plaintiffs have filed a response (Doc. 34) and defendant a reply (Doc. 35).

I. BACKGROUND

This action stems from two contracts: a construction subcontract between general contractor United Construction Ent. Co. of St. Louis, Inc. ("United") and subcontractor Builder's Bloc Contracting Co., Inc. ("Builder's Bloc") and a commercial general liability ("CGL") insurance policy purchased by Builder's Bloc from defendant American Contractors Insurance Company Risk Retention Group ("ACIG").¹ Plaintiffs United and Amerisure Inc. and defendant ACIG filed cross-motions for summary judgment requesting this Court to determine their rights and obligations under the CGL policy as that policy pertains to claims alleged against plaintiff United in a related case, Builder's Bloc Contracting Co. v. United Construction Ent. Co. of St. Louis, Inc., currently pending in the Circuit Court of the Twentieth Judicial Circuit, Monroe County, Illinois, 09-L-23.

Under the subcontract between plaintiff United and Builder's Bloc, Builder's Bloc was to construct a staircase at a jobsite, in Waterloo, Illinois. The subcontract provided that Builder's Bloc would provide the labor and equipment required to construct the staircase according to design documents furnished to plaintiff United and given to Builder's Bloc. The subcontract specified that Builder's Bloc was not providing any design services as part of its work and did not assume any risk in respect to defects, deficiencies, errors, and/or omissions contained within the design documents.

Pursuant to the subcontract, Builder's Bloc obtained a CGL policy from defendant ACIG and named plaintiff United as an additional insured. The CGL policy provided that additional insureds, like plaintiff United, would receive coverage under limited circumstances. After construction was complete, the staircase built by Builder's Bloc based on the design documents provided by plaintiff United collapsed. David Lavely ("Lavely") and others were injured. Lavely asserted a claim against Builder's Bloc for its purported negligence in building the staircase. Builder's Bloc and ACIG settled Lavely's claim in full for the sum of $500,000. Builder's Bloc paid $250,000, the amount of its deductible pursuant to the terms of the Policy.

Following the settlement, Builder's Bloc sued plaintiff United, as well as the architect and structural engineer who worked on the staircase project, seeking contribution in an amount corresponding to their share of liability for Lavely's injuries. Builder's Bloc alleges that plaintiff United engaged in negligent acts related to the inadequate and incomplete design of the staircase.

Plaintiffs United and Amerisure, Inc. filed their original complaint in the Circuit Court of the Twentieth Judicial Circuit, Monroe County, Illinois, 09-MR-58, seeking a declaratory judgment against defendant ACIG. Defendant ACIG removed the case to this Court pursuant to 28 U.S.C. § 1332.

In their respective motions, plaintiffs and defendant seek summary judgment on the issue of whether defendant ACIG has a duty to defend plaintiffs for the allegations contained in Builder's Bloc's underlying complaint against plaintiff United. Plaintiffs allege that because plaintiff United is named as an additional insured under the CGL policy purchased by Builder's Bloc, defendant ACIG has a duty to defend plaintiff United in the pending litigation. Defendant ACIG alleges that the underlying lawsuit filed against plaintiff United by Builder's Bloc seeks recovery from plaintiff United for liability caused by plaintiff United's independent, negligent actions or omissions and not for vicarious liability caused by acts or omissions of Builder's Bloc.

Under the terms of the CGL policy, plaintiff United is not an additional insured and thus defendant ACIG asserts it does not have a duty to defend plaintiff United in the pending litigation with Builder's Bloc. Specifically, defendant ACIG alleges that Builder's Bloc is seeking contribution from plaintiff United for the staircase design documents furnished to Builder's Bloc by United.

II. ANALYSIS

A. Choice of Law Issue

A federal district court sitting in diversity looks to the conflict-of-laws rules in the state jurisdiction in which it sits in order to choose the substantive law applicable to the case. Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496 (1941); Auto-Owners Ins. Co. v. Websolv Computing, Inc., 580 F.3d 543, 547 (7th Cir. 2009). Where an insurance policy does not contain an express choice of law provision, Illinois choice of law rules determine the applicable law. Westchester Fire Ins. Co. v. G. Heileman Brewing Co., 747 N.E.2d 955, 961 (Ill. App. Ct. 2001). In Illinois, a choice of law determination is only required where a difference in the applicable state laws will make a difference in the outcome. Townsend v. Sears, Roebuck & Co., 879 N.E.2d 893, 898 (Ill. 2007).

Under both Illinois and Missouri laws, the interpretation of an insurance contract is a question of law that may be addressed in a motion for summary judgment. Nichols v. Certain Underwriters at Lloyd's London, 771 N.E.2d 595, 599 (Ill. App. Ct. 2002); D.R. Sherry Constr., Ltd. v. Am. Fam. Mut. Ins. Co., 316 S.W.3d 899, 902 (Mo. 2010). An insurer's duty to defend is broader than its duty to indemnify. Country Mut. Ins. Co. v. Carr, 867 N.E.2d 1157, 1160 (Ill. App. Ct. 2007); McCormack Baron Mgmt. Servs., Inc. v. Am. Guarantee & Liability Ins. Co., 989 S.W.2d 168, 170 (Mo. 1999). Also, under Illinois and Missouri laws, where the facts alleged in the underlying complaint give rise to a claim potentially within the policy's coverage, the insurer has a duty to defend. Pekin Ins. Co. v. Wilson, 930 N.E.2d 1011, 1016(Ill. 2010); McCormack Baron, 989 S.W.2d at 170. If the facts alleged in the complaint give rise to a claim within-or potentially within-the policy's coverage, the insurer has a duty to defend. Pekin Ins. Co., 930 N.E.2d at 1016-17; Am. Sts. Ins. Co. v. Herman C. Kemper Const. Co., 71 S.W.3d 232, 236 (Mo. Ct. App. 2002). The trial court may look beyond the underlying complaint to the underlying contract so long as the court does not determine an issue critical to the underlying action. Pekin Ins. Co., 930 N.E.2d at 1020; see also Union Pac. R.R. Co. v. Am. Fam. Mut. Ins. Co., 2987 S.W.2d 340, 345 (Mo. Ct. App. 1998). Therefore, because the outcome would be the same under Illinois or Missouri law, this issue is properly resolved under Illinois law. See Townsend, 987 N.E.2d at 983.

B. Summary Judgment Standard

A district court will grant summary judgment "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(c). Summary judgment should only be granted where there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. Highlands Ins. Co. v. Lewis Rail Serv. Co., 10 F.3d 1247, 1249 (7th Cir. 1993). A genuine issue of material fact exists if based on the evidence, a reasonable jury could return a verdict for the nonmoving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).

In insurance coverage cases, where the parties file cross-motions for summary judgment, the parties acknowledge that no material questions of fact exist, and thus, only an issue of law regarding the interpretation of the policy is present. Am. Fam. Mut. Ins. Co. v. Fisher Dev., Inc., 909 N.E.2d 274, 278 (Ill. App.Ct.2009). The court evaluates each party's motion separately and on its own merits. U.S. Fidelity & Guarantee Co. v. Shorenstein Realty Serv., L.P., 700 F. Supp. 2d 1003, 1005 (N.D. Ill. 2010) (citing Taylor Chrysler Dodge, Inc. v. Universal Underwriters Ins. Co., No. 08 C 4522, 2009 U.S. Dist. LEXIS 91187, 2009 WL 3187234, at *3 (N.D. Ill. Sept. 30, 2009).

C. Duty to Defend

When determining the scope of coverage within an insurance policy, the "court looks to the policy as a whole, the risk undertaken, the subject matter and the purpose of the contract." Fisher Dev., Inc., 909 N.E.2d at 278 (citing Outboard Marine Corp. v. Liberty Mut. Ins. Co., 607 N.E.2d 1204 (Ill. 1992). The court seeks to "give effect to the parties' intent, which is to be discerned from the contract language." Virginia Surety Co. v. Northern Ins., 866 N.E.2d 149,

153,(Ill. 2007) (citing Central Illinois Light Co. v. Home Insurance Co., 821 N.E.2d 206, 290 (2004). Where the contract language is unambiguous, it should be given its plain and ordinary meaning. Virginia Surety Co., 866 N.E.2d at 153. If, however, the contract language is ambiguous, the terms will be construed in favor of the insured and against the insurer. Fisher Dev., Inc., 909 N.E.2d at 279.

Whether an ambiguity exists is a question of law. Cent. Ill. Pub. Serv. Co. v. Am. Empire Surplus Lines Ins. Co., 642 N.E.2d 723, 726(Ill. App. Ct. 1994). Language is ambiguous where it is susceptible to reasonable, alternate interpretations. Valley Forge Ins. Co. v. Swiderski Elecs., Inc., 860 N.E.2d 307, 314 (Ill. 2006); Smith v. Neumann, 682 N.E.2d 1245, 1250 (Ill. App. Ct. 1997). However, an ambiguity does not merely arise because the parties suggest creative interpretations of policy language. Valley Forge Ins. Co., 860 N.E.2d at 314; Smith, 682...