Franchisee’s Liability Insurer’s Duty to Defend Franchisors Against Action Brought by Injured Patron
In Pekin Insurance v. Equilon Enterprise, Waldemar Zablocki (“Zablocki”) filed suit for injuries he sustained while he lit a cigarette behind the gas station while a truck delivered gasoline to the underground tanks of the station. Equilon Enterprises (“Equilon”) and Shell Oil Company (“Shell”), are subsidiaries of the Royal Dutch Shell Company. Summit signed certain franchise agreements with Shell, which imposed a duty on Summit to name Shell as an additional insured under Summit’s liability policy.
In its complaint for declaratory judgment, Pekin Insurance (“Pekin”) claimed its insurance policy extended coverage to Shell for negligence in the granting of a franchise and to claims of vicarious liability. The Zablocki complaint did not allege that the Shell defendants were vicariously liable for Zablocki’s injuries, nor did the complaint allege any fault by Shell in granting a franchise to Summit. Summit procured the Pekin policy as the named insured with an effective date of July 1, 2007. In accordance with certain franchise agreements, Summit listed Shell as “additional insured” to the Pekin policy. Under the “Optional Coverage” of the policy’s “Businessowners Supplemental Declarations,” there are two entries for the additional insured, each of which modifies the “Who is an Insured” clause of the policy.
The court reviewed whether the insurer has a duty to defend the action. Pekin claimed the policy covers actions that allege negligence in the granting of the franchise by Shell under the first endorsement. Additionally, Pekin argued the second endorsement of July 1, 2007, afforded coverage only for vicarious liability based on the “arising out of” language, which the Zablocki action did not allege as the basis for his claims against Shell.
There are two endorsements for optional coverage which purported to provide coverage to the additional insured under the Pekin policy. The existence of these two endorsements for additional-insured coverage necessarily means that the “Grantors of Fran” endorsement does not provide the only coverage to Shell, as the additional insured. While the “Grantors of Fran” endorsement appeared to limit coverage as Pekin claims to negligence arising from the awarding of a franchise, Pekin did not, and cannot, argue that either coverage existed for Shell under that endorsement or it did not exist at all. Plainly, Shell was also listed as additional insured under the second endorsement. Thus, it cannot be that the first endorsement limits coverage under the entire policy, as Pekin contended “negligence in granting a franchise” in light of the second endorsement. If the first endorsement limited coverage to only instances of negligence in granting a franchise, it would render meaningless the coverage provided by the second endorsement. “[A]ny ambiguities arising when several provisions of the policy are read together will be construed in favor of the insured.” The second endorsement provided for coverage to Shell as additional insured, the “grantor of franchise” endorsement, did not limit coverage under the Pekin policy to Shell in its “capacity as franchisor to Summit.”
The franchise agreements, as the driving force behind Summit’s procurement of the Pekin policy, reinforced the court’s decision that Pekin had a duty to defend Shell. Resolution of the duty to defend issue should not turn on the absence of allegations of vicarious liability when the allegations in the complaint do not preclude the possibility that the additional insured could be found liable solely because of the acts or omissions of the named insured.
Accordingly, the court rejected Pekin’s implicit contention that in the context of this case, only if the allegations of the underlying complaint support a claim of vicarious liability, can the court find a duty to defend owed by Pekin. The burden is on Pekin to demonstrate that the allegations in the underlying complaint do not potentially fall within the coverage of the policy.
The court held duty to defend additional insured based on language of endorsement for liability arising out of operations or premises owned or rented by insured.
Pekin Insurance v. Equilon Enterprise, 980 N.E.2d 1139 (Ill.App. 1st Dist. 2012).
