In Pekin Ins. Co. v. Skender Constr. Co., 2013 IL App. (1st) 123532-U (Ill. App. Ct. Dec. 27, 2013) (Unpublished), the Illinois Appellate Court recently affirmed a trial court’s finding that an insurer waived a coverage defense when it waited to first assert that defense in its summary judgment motion. As a result of the waiver, Pekin Insurance Company (“Pekin”) had a duty to defend Skender Construction Company (“Skender”) because Skender was an additional insured under the policy. The Pekin decision serves as a useful reminder that insurers should not wait to assert coverage defenses or risk waiving those defenses.
Pekin arises out of an action by an individual who was injured at a construction site operated by Skender. The individual fell into a trench dug by Everest Excavating, Inc. (“Everest”), a subcontractor at the site. The individual sued both Everest and Skender. Skender eventually tendered its defense to Pekin, which had issued a policy to Everest, and asserted that Pekin had a duty to defend Skender because it was an additional insured under the policy.
In its denial letter to Skender, Pekin did not assert the coverage defense that Skender was not an additional insured under the policy. Pekin eventually filed a complaint for declaratory judgment but did not include a count asserting that Skender was not an additional insured. Pekin first raised the coverage defense in its motion for summary judgment. Skender argued that Pekin waived the coverage defense because Pekin had only raised it in its summary judgment motion. The trial court agreed, granted summary judgment in favor of Skender, and found that Pekin had a duty to defend Skender. Pekin appealed.
In affirming the trial court’s decision, the appellate court focused on Pekin’s omission of the coverage defense from both its initial denial letter and its complaint for declaratory judgment. The court held that Pekin’s actions were inconsistent with Pekin’s assertion of the additional insured defense in its summary judgment motion. Therefore, Pekin had waived consideration of the issue.
The Pekin decision provides helpful insight regarding how an insurer may avoid waiving coverage defenses. An insurer’s denial letter should include all known defenses, along with cautionary language reserving all rights under the applicable law and policy and advising that the letter should not be construed as waiver or estoppel of any other possible coverage defenses. The insurer also should supplement its denial as it discovers new coverage defenses. Finally, if the matter is in litigation, the insurer should add coverage defenses as soon as they are discovered, either as a count to the complaint or as an affirmative defense, whichever is applicable.