Allegations in Third-Party Complaint May Trigger Duty to Defend

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Although a personal injury complaint filed by a subcontractor’s employee alleged direct negligence only against the additional insured contractor, the vicarious liability coverage afforded the additional insured was potentially triggered by allegations in third-party complaints asserting that the named insured subcontractor was negligent.  As a result, an appellate court held in Illinois Emcasco Ins. Co. v. Waukegan Steel Sales, 2013 Ill. App. LEXIS 624 (Ill. Ct. App. Sept. 13, 2013), that the insurer had a duty to defend the additional insured under the policy’s vicarious liability coverage which expressly excluded coverage for the additional insured’s own negligence.

Waukegan Steel Sales, Inc. was hired to perform work on a high school construction project, and hired I-MAXX Metalworks, Inc. as a subcontractor.  John Walls, an employee of I-MAXX, was injured on the construction site and filed a personal injury suit alleging that Waukegan failed to properly manage, operate and maintain the premises.  Wall also sued two other companies involved in the project, both of which filed third-party complaints against I-MAXX alleging that its negligence contributed to Wall’s injuries.

Waukegan sought coverage as an additional insured under a policy issued to I-MAXX, which covered Waukegan for injuries caused by I-MAXX’s acts, but not for Waukegan’s own acts.  Emcasco sought a judicial declaration that it had no duty to defend Waukegan because the underlying lawsuit alleged direct negligence by Waukegan.

The trial court found that the third-party complaints created the potential that Waukegan could be held vicariously liable for I-MAXX’s conduct, and Emcasco appealed.

The appellate court acknowledged that the allegations of Wall’s complaint against Waukegan did not fall within the policy’s additional insured coverage for vicarious liability; however, the court held it was permissible to use the third-party complaints to determine Emcasco’s liability under the policy.  The court found that Wall’s complaint, read in conjunction with the third-party complaints, demonstrated the potential that Waukegan would be held vicariously liable for I-MAXX’s sole liability.  Accordingly, Emcasco had a duty to defend Waukegan.