California Court Holds Food Truck Constitutes Mobile Equipment

In American States Insurance Company v. Travelers Property Casualty Company of America, 2014 Cal. App. LEXIS 74 (January 27, 2014), California’s Second Appellate District had occasion to consider whether a food truck constituted mobile equipment under a general liability policy.

The underlying injury in American States involved a food truck that collided with another truck.  At the time, one of the food truck workers was standing in the back of the truck, nearby the on-board deep fryer.  The worker was burned by oil that splashed out of the deep fryer as a result of the collision.  The worker was standing at the rear of the truck while it was moving because a non-employee guest was occupying the truck’s passenger seat at the time.  All three persons brought suit against the company (“Royal”) that leased the truck to the food truck operator (“Gomez”).

At the time of the accident, Royal was insured under a primary and excess auto liability policy issued by American States Insurance Company (“American States”).  Royal also had primary and excess general liability coverage through Travelers.  American States agreed to defend Royal, but Travelers declined.  The underlying matter proceeded to binding arbitration, and Royal was found 40% liability based on a theory of products liability; namely, its defective deep fryer. A stipulated judgment against Royal for $2,428.577.34 was entered into based on the arbitration award.

American States subsequently brought an action against Travelers, and Travelers cross-complained back against American States, each seeking to establish coverage for Royal under the other’s policy.  Each filed motions for summary judgment, with the trial court granting Traveler’s motion, finding that the truck was an “auto” and not “mobile equipment,” and not within the exception to the Traveler’s policy’s auto exclusion.

The appellate court looked at that part of the Traveler’s policy’s definition of “mobile equipment” that included vehicles “maintained primarily for purposes other than transportation of persons or cargo.”  The appellate court concluded that under a plain reading of the Traveler’s policy, the food truck was “mobile equipment” as its primary purpose was to serve as a mobile kitchen and not to transport persons or cargo.  The court also noted that the omission of a food truck from the list of special use vehicles with permanently attached equipment considered “autos” under the definition of “mobile equipment,” supported this finding.  The court further concluded that coverage was unavailable under the American States’ policy as a result of a “completed operations” exclusion. 

Florida Court Holds Insurer Not Estopped From Denying Pre-Tender Costs

In its recent decision in Embroidme.Com, Inc. v. Travelers Prop. Cas. Co. of Am., 2014 U.S. Dist. LEXIS 7715 (S.D. Fla. Jan. 23, 2014), the United States District Court for the Southern District of Florida had occasion to consider an insurer’s obligation to reimburse its insured for pre-tender defense costs under Florida law, and whether its disclaimer of such costs is governed by Florida Claims Administration Statute, Fla. Stat. § 627.426(2).

Travelers insured Embroidme.com under a general liability policy with web site injury protection.  Embroidme.com was named as a defendant in an underlying copyright infringement lawsuit in April 2010.  On June 28, 2010, Embroidme.com retained counsel to defend it in the lawsuit.  Embroidme.com, however, did not tender the matter to Travelers until October 2011.  Travelers subsequently agreed to provide its insured with a defense, but disclaimed any coverage obligation with respect to Embroidme.com’s pre-tender defense costs.  Embroidme.com challenged Travelers’ disclaimer of coverage on the basis that the policy did not expressly bar coverage for pre-tender costs and that Travelers’ disclaimer of coverage for such amounts was untimely and thus in violation of Florida Claims Administration Statute, § 627.426(2).

Florida Claims Administration Statute, § 627.426(2) states, in relevant part, that an insurer is estopped from denying coverage unless “(a) Within 30 days after the liability insurer knew or should have known of the coverage defense, written notice of reservation of rights to assert a coverage defense is given to the named insured by registered or certified mail sent to the last known address of the insured or by hand delivery.”  The statute also discusses the insurer’s obligation to disclaim coverage or provide an insured with a defense within sixty (60) days of filing of suit.  For the purpose of the statute, a “coverage defense” is defined as “a defense to coverage that otherwise exists.”

In considering the statute, the court found that Traveler’s coverage correspondence to Embroidme.com was late under the statute: its initial reservation of rights letter was issued forty-two (42) days after Embroidme.com’s initial tender, and Travelers did not actually retain counsel until another ninety-one (91) days later.  Thus, reasoned the court, if coverage for pre-tender defense costs could be considered a “coverage defense” for the purpose of the statute, then Travelers’ failure to issue its letters in a timely fashion would result in an estoppel of its right with respect to this defense.

The court nevertheless concluded that the pre-tender defense issue was not a “coverage defense,” but instead a policy condition.  In particular, the policy precluded the insured from “voluntarily assuming any obligation or incurring any expense without Travelers' consent.”  Thus, reasoned the court, “under the plain language of the Policy there is no coverage for the defense costs incurred without Travelers' knowledge and not at Travelers' request.”  This was not a “coverage defense,” but instead a precondition to coverage not subject to statutory estoppel under § 627.426(2).  As such, the court held in Travelers’ favor, concluding that its denial of coverage for pre-tender defense costs was appropriate and that Travelers’ delay in issuing coverage correspondence did not result in statutory estoppel.

Texas Supreme Court Holds Exclusion Inapplicable to Construction Defect Claim

In its recent decision in Ewing Constr. Co. v. Amerisure Ins. Co., 2014 Tex. LEXIS 39 (Tex. Feb. 27, 2013), the Supreme Court of Texas addressed certified questions from the United States Court of Appeals for the Fifth Circuit regarding the scope of the Contractual Liability exclusion in the context of a construction defect claim.  The court was asked to determine whether a general contractor that enters into a contract agreeing to perform its work in a good and workmanlike manner “assumes liability” for damages arising out of the contractor’s defective work, thereby triggering the Contractual Liability exclusion.

Ewing Construction Company (“Ewing”) entered into a contract with Tuluso-Midway Independent School district (“TMISD”) to serve as the general contractor for a construction project at a school in Corpus Christi, Texas. Among other things, Ewing was to renovate and build additions to a tennis court, which Ewing did through its subcontractors.  The contract required Ewing to perform that work in a “good and workmanlike manner.”  Not long after construction was complete, cracking and flaking problems began and TMISD filed suit against Ewing asserting claims for breach of contract and negligence.

Amerisure Insurance Company issued a commercial general liability policy to Ewing for the time period at issue.  Ewing tendered its defense of the TMISD suit to Amerisure, which it denied based on the Contractual Liability exclusion. The Contractual Liability exclusion of the Policy stated in relevant part:

2.   Exclusions

      This insurance does not apply to:

                                    …

b.   Contractual Liability

“bodily injury” or “property damage” for which the insured is obligated to pay damages by reason of the assumption of liability in a contract or agreement. This exclusion does not apply to liability for damages:

(1) That the insured would have in the absence of the contract or agreement; or

(2) Assumed in a contract or agreement that is an “insured contract”

Ewing filed suit against Amerisure in the U.S. District Court for the Southern District of Texas, seeking a declaration that Amerisure breached its duties to defend and indemnify Ewing for any damages awarded to TMISD. Amerisure counterclaimed, seeking a declaration that it owed Ewing neither a duty to defend nor a duty to indemnify. Although Amerisure conceded that Ewing established coverage under the policy’s insuring agreements, it took the position that policy exclusions, in particular the Contractual Liability exclusion, precluded coverage and negated its duties to defend and indemnify.

The district court relied on Gilbert Texas Constr. Co. v. Underwriters at Lloyd’s London, 327 S.W.3d 118 (Tex. 2010) in holding that no coverage was owed under the policy. The district court determined that Gilbert stood for the proposition that the Contractual Liability exclusion applies when an insured enters into a contract and assumes liability for its own performance under that contract. The district court concluded that TMISD’s pleadings established that pursuant to the contract between TMISD and Ewing, Ewing agreed to be liable for failing to perform under the contract if the work was deficient. The district court therefore concluded that the Contractual Liability exclusion applied to preclude coverage.

On appeal, the Fifth Circuit initially affirmed the district court’s judgment on the duty to defend, but later vacated and remanded the case with respect to the duty to indemnify to await the results of the underlying suit. Ewing petitioned for rehearing. The Fifth Circuit withdrew its opinion and certified two questions to the Supreme Court of Texas:

1.   Does a general contractor that enters into a contract in which it agrees to perform its construction work in a good an workmanlike manner, without more specific provisions enlarging this obligation, “assume liability” for damages arising out of the contractor’s defective work so as to trigger the Contractual Liability Exclusion.

2.   If the answer to question one is “Yes” and the contractual liability exclusion is triggered, do the allegations in the underlying lawsuit alleging that the contractor violated its common law duty to perform the contract in a careful workmanlike, and non-negligent manner fall within the exception to the contractual liability exclusion for “liability that would exist in the absence of contract.”

The Texas Supreme Court carefully examined Gilbert and concluded that “assumption of liability” in the context of the exclusion meant that the insured had assumed a liability for damages that exceeded the liability it would have under general law. The Court defined “good and workmanlike” and “negligence” as having the same substantive meaning. The Court acknowledged that Ewing had a common law duty to perform its contract with skill and care.  Reasoning that the claims asserted by TMISD did not seek recovery for damages that exceeded the liability Ewing would have under general law, the Court concluded that the exclusion did not apply to preclude coverage.

The Court also rejected the notion that its holding would have the effect of transforming CGL policies into performance bonds. The Court observed that because the policy contained other exclusions that may apply to bar coverage in a case for breach of contract due to faulty workmanship, its ruling was consistent with the view that CGL policies are not performance bonds.

California Court Addresses Additional Insured’s Reasonable Expectations

In its recent decision in Transport Insurance Company v. Superior Court of Los Angeles County, No. B249470, slip op. (2nd Dist. Cal. Jan. 13, 2014), the California Court of Appeal for the Second District had occasion to consider whether the reasonable expectations of coverage of an insured under an excess or umbrella general liability policy is relevant to whether it is entitled to a defense.

Transport Insurance Company (“TIC”) issued a commercial excess and umbrella liability insurance policy to Vulcan Materials Company (“Vulcan”), under which R.R. Street & Co., Inc. (“Street”) was named as an additional insured.  The TIC policy agreed to defend the insured if “the limits of liability of the underlying insurance are exhausted … .” The underlying action alleged that Vulcan manufactured perchloroethylene (“PCE”) which was sold by Street to dry cleaners, and ultimately resulted environmental contamination.

TIC had previously sought a declaratory order in a related case, Legacy Vulcan Corp. v. Superior Court (2010) 185 Cal.App.4th 677, that “underlying insurance” referred to all primary policies issued to Vulcan as opposed to only those listed in the TIC policy’s Schedule of Underlying Insurance.  The court in that related case concluded that the term “underlying insurance” as used in the TIC policy was ambiguous, and therefore had to be interpreted to mean only those policies specifically identified in the Schedule.  Central to the court’s reasoning was Vulcan’s reasonable expectations to coverage. 

TIC subsequently brought suit against Street and Vulcan’s primary general liability insurer, National Union Fire Insurance Company of Pittsburgh, Pennsylvania (“National Union”), seeking a declaration regarding its duty to defend Street, as an additional insured, in various underlying actions.  National Union and Street moved for summary judgment, arguing that TIC was collaterally estopped by the related decision from arguing that “underlying insurance” referred to anything other than the policies identified in the Schedule of Underlying Insurance. The trial court granted the summary judgment motion, and a petition for writ of mandate followed.

TIC argued that the trial court erred when it based its ruling on Vulcan’s “objectively reasonable expectations of coverage” and not those of Street, the party seeking coverage.  The Court of Appeals agreed, holding that since it was Street - the additional insured – ratherVulcan – the policy’s named insured – that was seeking coverage, Vulcan’s reasonable expectations were not relevant.  The appellate court agreed that since the issue of Street’s reasonable expectations were not addressed in the earlier decision, the earlier decision did not collaterally estop TIC from making its arguments concerning underlying insurance. 

Texas Court Holds Suit Under D&O Policy Not Ripe for Declaratory Judgment

In its recent decision in American Construction Benefits Group, LLC v. Zurich Am. Ins. Co., 2014 U.S. Dist. LEXIS 5147 (N.D. Tex. Jan. 15, 2014), the United States District Court for the Northern District of Texas had occasion to consider whether a D&O insurer’s coverage obligations were triggered by a threatened, but not yet filed, derivative action lawsuit.

Zurich insured ACBG under a directors and officers policy. ACBG procured reinsurance for its member company, J.D. Abrams, L.P., through a third company.  While negotiating a renewal of the reinsurance, ACBG’s president agreed to an exclusion for a specific medical procedure that had been performed on a child of an Abrams employee.  The reinsurer subsequently denied coverage for the $1.2 million in costs associated with the procedure.  ACBG later sought coverage for this amount from Zurich, claiming that its president committed a wrongful act when it agreed to the exclusion in the reinsurance contract.  While Zurich acknowledged ACBG’s claim, it never formally asserted a coverage position. 

ACBG members later filed a declaratory judgment action against Zurich.  Zurich, in turn, moved to dismiss the complaint, asserting that the suit was premature since no claim had yet been asserted against ACBG that could trigger Zurich’s duties to defend or indemnify.  In response, ACBG members acknowledged that while no derivative suit had yet been filed, they were contemplating one and it therefore was imminent.

The court observed that the existence of an underlying pleading is a prerequisite under Texas’ “eight corner rule” for determining a duty to defend.   As such, and because ACBG’s members had not yet filed their allegedly imminent derivative action, the court determined that the duty to defend question was not ripe for judicial consideration.  The court ruled similarly with respect to Zurich’s potential duty to indemnify, noting that under Texas law, an insured cannot obtain a ruling on a duty to indemnify absent a judgment or settlement of an active litigation.  In passing, the court noted that:

ACBG's complaint is devoid of any allegation that it will be harmed if this court withholds declaratory relief. Because there is no underlying suit, ACBG faces no immediate risk that it will be forced to contribute to a settlement agreement or face a bad-faith suit. And ACBG does not allege that its members have threatened to sue unless ACBG relinquishes its rights.

The court also rejected ACBG’s claim against Zurich for violation of Texas’ claims handling statute based on Zurich’s failure to promptly affirm or deny coverage.  Because there was no underlying suit that could trigger Zurich’s duty to defend or indemnify, explained the court, it necessarily followed that it could not be held to have improperly delayed its decision with respect to such duties.

Texas Court Predicts Accrual Date for Prompt Payment of Claims Act

In its recent decision in Cox Operating v. St. Paul Surplus Lines Ins. Co., 2014 U.S. Dist. LEXIS 3140 (S.D. Tex. Jan. 10, 2014), the United States District Court for the Southern District of Texas had occasion to consider when the statutory interest penalty begins accruing for the purpose of Texas’ Prompt Payment of Claims Act (“TPPCA”) TEX. INS. CODE § 542.051, et seq.

St. Paul was the excess pollution liability insurer of Cox, and was found to have breached its coverage obligations following a lengthy jury trial.  Among other things, the jury determined that St. Paul violated the TPPCA by not requesting information from Cox in a timely fashion.  Following the jury verdict, the court assessed a statutory penalty against St. Paul for its violation of the TPPCA, running from October 16, 2006, which the court determined was seventy-five (75) days after July 31, 2006, the date on which the jury concluded that St. Paul was provided with all of the information necessary to make payment on Cox’s claim.  On motion for reconsideration, Cox argued that the statutory penalty should have begun running from an earlier date.  Specifically, Cox argued that the statutory penalty should have begun running from November 17, 2005, which is the date on which the jury determined that St. Paul was in violation of § 542.055 of the Texas Insurance Law, concerning an insurer’s duty to acknowledge and investigate a claim.  Thus, Cox argued that statutory interest period should run from the date that St. Paul breached its duty to investigate rather than the date that it breached its duty to pay.

The court acknowledged that there was little “definitive guidance” on the issue, observing that neither Texas’ Supreme Court nor the Fifth Circuit had considered the accrual date for statutory penalty interest under the TPPCA.  The court nevertheless found guidance from the statutory scheme itself.  § 542.055 states that within fifteen (15) days for admitted insurers, or thirty (30) days for surplus lines insurers such as St. Paul:

… the insurer shall: (1) acknowledge receipt of the claim; (2) commence any investigation of the claim; and (3) request from the claimant all items, statements, and forms that the insurer reasonably believes, at that time, will be required from the claimant.

Further, § 542.058 states that:

… if an insurer, after receiving all items, statements, and forms reasonably requested and required under Section 542.055 delays payment of the claim for more than 60 days, then the "insurer shall pay damages and other items as provided by Section 542.060.

§ 542.060, in turn, sets forth the statutory penalty interest rate at 18% per year.

In considering these statutory provisions in connection with Cox’s insurance claim, the court observed that Cox provided its initial proof of loss on October 17, 2005, but that St. Paul failed to request information from Cox pursuant to § 542.055 within the thirty-day period.  As such, St. Paul was deemed for the purposes of the accrual date of the statutory interest period to have signaled to Cox as October 17, 2005 “it [had] all the information that it reasonably believes will be required from the insured.”  The court so concluded notwithstanding the fact that St. Paul did not actually have all information necessary to evaluate Cox’s claim and that this information was not, in reality, provided for another year:

While St. Paul may not have been in a position to evaluate the claim on December 16, 2005, that resulted from its failure to meet its claim handling deadline [under § 542.055]. St. Paul cannot avoid statutory penalty interest when it was St. Paul's failure to commence an investigation and request documents that hindered the process under the TPPCA. Under Section 542.058, St. Paul was given 60 days to pay the claim after requesting all information needed from the insured. However, because St. Paul failed to meet its initial obligation to request all items, statements, and forms from Cox in a timely manner after notice of the claim, it relinquished its ability to do so under that statute …

The court, therefore, determined that the proper accrual date for the sixty-day payment window under § 542.058 was October 17, 2005, meaning that payment was due on December 16, 2005, and that interest should be calculated from that date.

New York Court Holds UST Sublimit Applicable to Underlying Loss

In its recent decision in Two Farms, Inc. v. Greenwich Ins. Co., 2014 U.S. Dist. LEXIS 1629 (S.D.N.Y. Jan. 7, 2014), the United States District Court for the Southern District of New York had occasion to consider the whether the phrase “underground storage tank(s) and associated piping” as used in a pollution liability policy was ambiguous.

Greenwich insured Two Farms under a Pollution and Remediation Legal Liability Policy with limits of liability of $5 million per pollution condition. The policy contained an exclusion applicable to claims “based upon or arising out of the existence of any underground storage tank(s) and associated piping.”  The exclusion, however, had an exception for tanks identified in an “Underground Storage Tank(s) and Associated Piping Schedule, if any.”  The Two Farms policy, in fact, contained such a schedule as an endorsement which identified the underground storage tank (“UST”) and piping at the insured’s facility.  Notably, the policy also contained an endorsement titled “Dedicated UST Sublimit Endorsement,” which set forth a sublimit of liability of $1 million applicable to loss or remediation costs applicable to “all Underground Storage Tanks and Associated Piping scheduled to [the] Policy.”

During the policy period, Greenwich discovered that thousands of gallons of gasoline had been discharged into the soils of its facility.  It was later determined that the source of the leak was a defective “O-Ring,” which is a component of a pump that drew gas from the insured UST.  The gas leaked into a containment sump, but ultimately was discharged directly into the ground.  The remediation costs associated with the leak were alleged to exceed $5 million.  Greenwich paid $1 million toward the loss, asserting that this was the maximum recovery permitted under the policy as a result of the UST sublimit. 

While Two Farms agreed that the phrase “underground storage tanks and associated piping” as used in the exclusion and exception to the exclusion was unambiguous, it contended that the phrase as used in the sublimit endorsement was ambiguous since it could have two meanings.  Specifically, Two Farms argued that

… the term "underground storage tanks and associated piping" can refer either to underground storage tanks and associated piping alone, or to underground storage tanks, associated piping, and other equipment that comprises the UST system. Two Farms therefore argues that the term "underground storage tanks and associated piping" is ambiguous as used in the UST Sublimit, and concludes that this ambiguity must be construed against Greenwich, the insurer.

Two Farms argued that because the sublimit endorsement was ambiguous, the $1 million sublimit set forth therein should not apply to the underlying loss.  Rather, it claimed entitlement to remediation cost coverage up to the policy’s $5 million limit of liability.

While the loss occurred in Maryland, the court applied New York law in light of the policy’s express New York choice of law provision.  The court agreed that under New York law regarding the phrase “arising out of,” the UST exclusion applied to the underlying loss since the discharge of gasoline would not have happened but for the existence of a UST and its associated piping.  As the court explained, “[t]he equipment that caused the Discharge would be entirely unnecessary if Two Farms did not have the underground storage tank and associated piping to which that equipment was attached.”  The court further agreed, however, that because the UST was scheduled in the Underground Storage Tank(s) and Associated Piping Schedule, the exception to the exclusion applied.   In so concluding, the court found no ambiguity in the phrase “underground storage tank and associated piping,” finding the phrase to have a “definite and precise meaning.”  As such, the court rejected Two Farms argument that this phrase could be ambiguous when used in the sublimit endorsement, explaining:

The term "underground storage tanks and associated piping" must be interpreted broadly in order to effectuate the parties' intent that Two Farms receive coverage for losses incurred because of the Discharge; namely, losses that result from defects in the UST system. This interpretation of the term "underground storage tanks and associated piping" is appropriately applied across provisions of the Policy because "a word used by the parties in one sense will be given the same meaning throughout the contract in the absence of countervailing reasons," and no countervailing reasons are apparent in this case.

Notably, the court found no indication that the parties intended the phrase “underground storage tanks and associated piping” to have different meanings in different sections of the policy.  It therefore concluded that Two Farm’s arguments concerning ambiguity unduly strained the policy language beyond its reasonable and ordinary meaning.  While the court found the language plain and unambiguous, it noted in passing that extrinsic evidence, including testimony of the insured’s broker, supported the conclusion that the sublimit was intended to apply to all USTs on the schedule.

Seventh Circuit Addresses Coverage Under Workers’ Comp Policy

In its recent decision in YKK USA, Inc., v. Safety Nat’l Cas. Corp., 727 F.3d 782 (7th. Cir. 2013), the United States Court of Appeals for the Seventh Circuit had occasion to consider whether an employee’s common law claim for negligence against its employer qualified as a claim under “Employers’ Liability Laws” in order to satisfy an excess workers’ compensation policy’s insuring agreement.

TKK USA was named as a defendant in an underlying suit alleging negligence brought on behalf of a former employee who became ill and eventually died from mesothelioma. TKK gave timely notice of the lawsuit to its excess workers’ compensation carrier, Safety National. TKK retained primary responsibility for defending, settling, or paying claims up to $275,000 per occurrence. TKK incurred more than $400,000 in legal fees before it settled with the plaintiff in the underlying suit. Safety National denied coverage to TKK, taking the position that the claim of negligence in the underlying suit was not brought under “Workers’ Compensation or Employers’ Liability Laws,” but instead was a common law claim not covered under its policy.

The Safety National policy covered excess “Loss” sustained by TKK. The policy provided:

“Loss”—shall mean actual payments legally made by the EMPLOYER to Employees and their dependents in satisfaction of: (a) statutory benefits, (b) settlements of suits and claims, and (c) awards and judgments. “Loss” shall also include Claim Expenses, paid by the EMPLOYERS, as defined in Paragraph (2) of this section.”

“Claim Expenses” were central to the Court’s determination, and was defined as:

Interest upon awards and judgments and the reasonable costs of investigation, adjustment, defense, and appeal…of claims, suits or other proceedings brought against the EMPLOYER under the Workers’ Compensation or Employers’ Liability Laws [of Illinois] … for bodily injury or occupational disease … even though such claims, suits, proceedings or demands are wholly groundless, false, or fraudulent … .

The Safety National policy did not define the phrase “Workers’ Compensation or Employers’ Liability Laws”. Also relevant to the issue before the Court was the Illinois Workers’ Occupational Disease Act (“ODA”), a statute that provides the exclusive remedy for employees who contract workplace diseases (or suffered workplace injury), but bars common law claims. The ODA thus provided a complete defense for the common law negligence claims by the plaintiff.  For reasons unknown, TKK failed to assert the affirmative defense in response to the claim.

Safety National argued that because the ODA provided the only form of recovery for the claims in the underlying lawsuit, and the lawsuit did not request relief under the ODA, the costs of defending and settling the lawsuit did not qualify as a “Loss sustained by the EMPLOYER because of liability imposed on upon the EMPLOYER by the Workers’ Compensation or Employers’ Liability Laws” of Illinois. TKK countered that the underlying claims for loss fit within the coverage grant for claims under “Workers’ Compensation or Employers’ Liability Laws.” TKK argued further that the fact that it had an affirmative defense available did not have an effect on coverage under the Safety National policy because the policy provided coverage for “claims, suits, proceedings or demands” that were “wholly groundless, false, or fraudulent.”

Thus, whether a common law claim for negligence fell within the meaning of “Employers’ Liability Laws” was central to the Court’s analysis. The Seventh Circuit recognized that the ODA did not cover all potential common law claims. Because of these gaps, the Court concluded that “Employers’ Liability Laws” should not be restricted solely to statutory claims under the ODA. The Court noted also that to interpret the policy term “Employers’ Liability Laws” so that it only applied to statutes was too narrow of a construction absent language in the policy suggesting that the definition was intended to be limited in such a way. Therefore, the Court affirmed the determinations of the district court, holding that “Employers’ Liability Laws” was broad enough to include claims brought under common law, even “groundless claims” for which the employer appeared to have an affirmative defense.

Illinois Court Holds Auto Exclusion Applicable To Underlying Loss

In its recent decision in Cincinnati Ins. Co. v. William F. Braun Milk Hauling, Inc., 2013 U.S. Dist. LEXIS 150665 (S.D. Ill. Oct. 21, 2013), the United States District Court for the Southern District of Illinois had occasion to consider whether there was coverage under a commercial general liability policy for injuries that arose out of the use of an auto.

Cincinnati’s insured, Braun Milk, was a freight shipping and trucking company. One of its trucks was involved in an automobile accident that caused a fuel spill. Braun Milk was ordered by the Environmental Protection Agency to clean the spill, so it hired a contractor, which in turn subcontracted another company to handle those duties.

Braun Milk was sued by an employee of the subcontractor, Amy Fasig, in an underlying suit for its alleged negligence that resulted in Fasig’s left arm being amputated. Stephen Braun, an employee of Braun Milk, hit Fasig while driving a Braun Milk semi-tractor at the clean-up site. Fasig filed a complaint against Braun Milk and Stephen Braun that contained ten separate causes of action based in negligence and violations of the Road Construction Act. At the time of the injury to Fasig, Braun Milk had an automobile liability insurance policy issued by Northland and a commercial general liability policy issued by Cincinnati. The Cincinnati policy contained an automobile exclusion that provided:

2. Exclusions. This insurance does not apply to:

            …

“Bodily injury” or “property damage” arising out of the ownership, maintenance, use or entrustment to others of any aircraft, “auto” or watercraft owned or operate by or rented or loaned to any insured.

This exclusion applies even if the claims against any insured allege negligence or other wrongdoing in the supervision, hiring, employment, training or monitoring of others by that insured, if the “occurrence” which caused the “bodily injury” or “property damage” involved the ownership, maintenance, use or entrustment to others of any aircraft, “auto” or watercraft that is owned or operated by or rented or loaned to any insured.

Northland agreed to defend Braun Milk and Stephen Braun against four of Fasig’s claims. Braun Milk and Stephen Braun tendered its defense for counts three and four of Fasig’s complaint to Cincinnati; counts three and four alleged that Braun Milk was negligent in handling the clean-up and that Braun Milk violated the Road Construction Injuries Act. Cincinnati filed a declaratory judgment action and a subsequent motion for summary judgment seeking a declaration that it had no duty to defend or indemnify Braun Milk or Stephen Braun.

Relying on Northbrook Prop. And Cas. Co. v. Transp. Joint Agreement, 194 Ill. 2d.96 (Ill. 2000), Cincinnati argued that auto exclusion barred coverage because claims three and four did not arise from events wholly independent of Stephen Braun’s negligent driving. Cincinnati argued that the claims were “inextricably intertwined” with excluded claims. Braun Milk and Stephen Braun argued that there was coverage because counts three and four arose out of a “separate and distinct occurrence of alleged negligence”, relying on Louis Marsch, Inc. v. Pekin Ins. Co., 140 Ill. App. 3d 1079 (1985) and State Farm v. Abesamis, 2012 IL App (1st) 120541-U (2012).

The Court granted Cincinnati’s motion for summary judgment, holding that the claims arose from an excluded injury. The Court declined to follow Marsch’s reasoning as it related to the argument that Fasig’s injuries could have arisen from causes other than Stephen Braun’s use of the truck. The Court noted that the Seventh Circuit considered the issues presented in Marsch when it analyzed Northbrook in Nautilus Ins. Co. v. 1452-4 N. Milwaukee Avenue, LLC, 562 F.3d 818 (7th Cir. 2009). The Court concluded that Northbrook and Nautilus “provide the indication that the Illinois Supreme Court may decide the issues in Marsch differently.” The Court noted, referring to claims three and four: “While these are different theories of recover [sic], the fact remains that the bodily injury arose from Braun Milk’s use of an automobile which is clearly excluded from coverage.” Consequently, Cincinnati owed no duty to defend or indemnify Braun Milk or Stephen Braun.