Vivify Constr., LLC v. Nautilus Ins. Co.

2017 IL App (1st) 170192

94 N.E.3d 281

VIVIFY CONSTRUCTION, LLC, Plaintiff and Counterdefendant–Appellant,

v.NAUTILUS INSURANCE CO., Defendant and Counterplaintiff–Appellee.

No. 1–17–0192

Appellate Court of Illinois, First District, THIRD DIVISION.

January 24, 2018

Jeffrey A. Siderius and Nicholas S. Graber, of Cray Huber Horstman Heil & VanAusdal LLC, of Chicago, for appellant.

Joshua G. Vincent, Dana A. Rice, and Adam P. Joffe, of Hinshaw & Culbertson LLP, of Chicago, for appellee.

OPINION

JUSTICE LAVIN delivered the judgment of the court, with opinion.

¶ 1 This appeal arises from the trial court's order entered against Vivify Construction, LLC (Vivify), and in favor of Nautilus Insurance Co. (Nautilus) with respect to the parties' cross-motions for judgment on the pleadings. The court found Nautilus had no duty to defend Vivify in the underlying action filed by an employee of its subcontractor, Victoria Metal Processor, Inc. (Victoria), which had procured insurance coverage with Nautilus on Vivify's behalf. Specifically, the court found that the Nautilus policy excluded bodily injury to Victoria's employees. On appeal, Vivify asserts that the trial court failed to give effect to the insurance policy's separation of insureds provision and failed to consider the subcontract between Vivify and Victoria in interpreting the policy. We affirm the trial court's judgment.

¶ 2 I. Background

¶ 3 On May 18, 2015, construction worker Pablo Vieyra sustained injuries when he fell from a second story scaffold. Although he was employed by Victoria, Vivify was the general contractor in charge of the construction project. Vieyra filed a negligence action solely against Vivify, alleging that it failed to properly supervise work at the job site (case No. 2015 L 6001). In turn, Vivify filed a third-party complaint against Victoria in that action, alleging that Victoria's negligence led to Vieyra's injury.

¶ 4 Vivify and Victoria had executed a written agreement the year before (subcontract). The subcontract required Victoria to indemnify Vivify against claims of bodily injury resulting from Victoria's work under the subcontract. Additionally, the subcontract required Victoria to procure insurance on Vivify's behalf:

"[Victoria] shall cause the commercial liability coverage required by the Subcontract Documents to include: (1) [Vivify] * * * as [an] additional insured[ ] for claims caused in whole or in part by [Victoria's] negligent acts or omissions during [Victoria's] operations; and (2) [Vivify] as an additional insured for claims caused in whole or in part by [Victoria's] negligent acts or omissions during [Victoria's] completed operations."

To that end, Victoria added Vivify as an insured under Victoria's commercial general liability policy with Nautilus.

¶ 5 Under the policy, an "additional insured" included the following:

"any person or organization when [Victoria] and such person or organization have agreed in writing in a contract * * * that such person or organization be added as an additional insured on [Victoria's] policy. Such * * * organization is an additional insured only with respect to liability for ‘bodily injury’ * * * caused, in whole or part, by your acts or omissions, or the acts or omissions of those acting on your behalf:

1. In performing ongoing operations for the additional insured:

* * *

But only for:

1. The limits of insurance specified in such written contract or agreement, but in no event for limits of insurance in excess of the applicable limits of insurance of this policy; and

2. ‘Occurences' or coverages not otherwise excluded in the policy to which this endorsement applies." (Emphasis added.)

¶ 6 The policy addressed coverage for bodily injury:

"We will pay those sums that the insured becomes legally obligated to pay as damages because of ‘bodily injury’ or ‘property damage’ to which this insurance applies. We will have the right and duty to defend the insured against any ‘suit’ seeking those damages. However, we will have no duty to defend the insured against any ‘suit’ seeking damages for ‘bodily injury’ or ‘property damage’ to which this insurance does not apply."

Furthermore, the body of the policy originally excluded coverage for certain bodily injury to "[a]n ‘employee’ of the insured," but that exclusion was replaced by an endorsement (employee exclusion) titled "Exclusion-Injury to Employees, Contractors, Volunteers and Other Workers." The top of the endorsement warned, "THIS ENDORSEMENT CHANGES THE POLICY. PLEASE READ IT CAREFULLY."

¶ 7 The employee exclusion stated as follows:

"This insurance does not apply to:

* * *

e. Injury to Employees, Contractors, Volunteers and Other Workers

‘Bodily injury’ to

(1) ‘Employees', ‘leased workers', ‘temporary workers', ‘volunteer workers', statutory ‘employees', casual workers, seasonal workers, contractors, subcontractors, or independent contractors of any insured ; or

(2) Any insured's contractors', subcontractors' , or independent contractors' ‘employees' , ‘leased workers', ‘temporary workers' ‘volunteer workers', statutory ‘employees', casual workers, seasonal workers, contractors, subcontractors or independent contractors

arising out of and in the course of:

(a) Employment by any insured; or

(b) Directly or indirectly performing duties related to the conduct of any insured's business ; * * *

This exclusion applies:

(1) Regardless of where the:

(a) Services are performed; or

(b) ‘Bodily injury’ occurs; and

(2) Whether any insured may be liable as an employer or in any other capacity; and

(3) To any obligation to share damages with or repay someone else who must pay damages because of the injury." (Emphases added.)

The foot of the endorsement states, "All other terms and conditions of this policy remain unchanged."

¶ 8 The policy's other terms included a separation of insureds provision:

"Except with respect to the Limits of Insurance and any rights or duties specifically assigned in this Coverage Part to the first Named Insured, this insurance applies

a. As if each Named Insured were the only Named Insured; and

b. Separately to each insured against whom claim is made or ‘suit’ is brought."

¶ 9 C. This Action

¶ 10 Vivify tendered its defense of Vieyra's action to Nautilus, which declined to defend Vivify. Nautilus took the position that the employee exclusion applied to Vieyra's action because Vieyra was an employee of Victoria. As a result, Vivify filed this action seeking a declaration that Nautilus had a duty to defend it against the Vieyra action (case no. 16 CH 05650). Nautilus then filed a counterclaim seeking a declaration that it did not have a duty to defend Vivify.

¶ 11 The parties filed cross-motions for judgment on the pleadings ( 735 ILCS 5/2–615 (West 2016) ). Nautilus argued that the employee exclusion precluded coverage for bodily injuries to employees of "any insured." Because Vieyra was the employee of Victoria, an insured, the policy did not provide a defense to Vivify, notwithstanding that Vieyra was not Vivify's employee. Nautilus argued the broad language of the exclusion showed that the separation of insureds provision was not intended to provide coverage in this instance. In contrast, Vivify maintained that the separation of insureds provision required that Vieyra's status as an employee of Victoria not preclude coverage of Vivify.

¶ 12 The trial court entered judgment in favor of Nautilus, finding no duty to defend due to the employee exclusion. The court found that while the first subsection of the employee exclusion did not apply because Vieyra was not an employee of Vivify, the second subsection of the employer exclusion was significantly broader, excluding bodily injury to the employees of an insured entity's subcontractors. Giving the language its plain and ordinary meaning, the court found that claims for bodily injuries to employees of Vivify's subcontractors, including Victoria, were excluded. Because Vieyra was Victoria's employee, Nautilus was not required to defend Vivify. In reaching this determination, the court found the separation of insureds provision did not change the result. Vivify now appeals.

¶ 13 II. ANALYSIS

¶ 14 On appeal, Vivify asserts that the trial court erroneously entered judgment on the pleadings in favor of Nautilus. Vivify contends that the court misinterpreted the insurance policy by failing to give effect to the separation of insureds provision and by failing to consider the subcontract between Victoria and Vivify.

¶ 15 A motion under section 2–615 of the Code of Civil Procedure tests the pleadings' sufficiency by requiring the court to determine whether a complaint entitles the claimant to relief. Pekin Insurance Co. v. Allstate Insurance Co. , 329 Ill.App.3d 46, 49, 263 Ill.Dec. 451, 768 N.E.2d 211 (2002). The court must determine whether the pleadings present a factual issue or whether the dispute can be resolved as a legal matter. Id. We review judgments on the pleadings de novo . Mount Vernon Fire Insurance Co. v. Heaven's Little Hands Day Care , 343 Ill.App.3d 309, 314, 277 Ill.Dec. 366, 795 N.E.2d 1034 (2003).

¶ 16 An insurer's duty to defend an insured is broader than the duty to indemnify. Pekin Insurance Co. v. Wilson , 237 Ill.2d 446, 456, 341 Ill.Dec. 497, 930 N.E.2d 1011 (2010). An insured has the initial burden of demonstrating that a claim falls within an insurance policy's coverage; once satisfied, the burden shifts to the insurer, which must prove that a limitation applies. Addison Insurance Co. v. Fay , 232 Ill.2d 446, 453–54, 328 Ill.Dec. 858, 905 N.E.2d 747 (2009). More specifically, an insurer has the burden of demonstrating that an exclusion precludes the insurer's duty to defend. Phusion Projects, Inc. v. Selective Insurance Co. of South Carolina , 2015 IL App (1st) 150172, ¶ 46, 399 Ill.Dec. 690, 46 N.E.3d 1190. To satisfy that burden, it must be free and clear from doubt that the policy's exclusion precludes coverage. Pekin Insurance Co. v. Equilon Enterprises, LLC , 2012 IL App (1st) 111529, ¶ 14, 366...