Insurer Estopped from Asserting Policy Defenses to Coverage under General Liability Insurance Policy
In FCCI Ins. Co. v. Westfield Ins. Co., Alden Bennett (“Bennett”) was a general contractor for the construction of Alden Trails II Young Adult Facility in Bloomingdale (“Alden Trails”). Bennett was the named insured on a general liability insurance policy issued by Mt. Hawley Insurance Company (“Mt. Hawley”). In connection with the construction project in Bloomingdale, Bennett executed a subcontract agreement with Garbe Iron Works Inc. (“Garbe Iron”), by which Garbe Iron agreed to perform certain structural steel work for Bennett. Garbe was the named insured on a general liability insurance policy issued by FCCI Ins. Co. (“FCCI”) and Bennett was an additional insured. Garbe Iron then executed a purchase order contract with Douglas Iron Works Inc.(“Douglas Iron”), by which Douglas Iron agreed to perform certain steel work related to the Bloomingdale’s construction project. Douglas was the named insured on a general liability insurance policy issued by Westfield Ins. Co. (“Westfield”). Douglas Iron then entered into a purchase order contract with JAK Iron Works, Inc. (“JAK Iron”), by which JAK Iron agreed to perform certain iron work related to the Bloomingdale’s construction project. JAK Iron was the named insured on a general liability insurance policy issued by Westfield. Vincent Hodor (“Hodor”) was employed by JAK Iron and was working at the construction site when he fell and injured his head, neck, arm and back. Hodor brought a lawsuit against Bennett for construction negligence and premise liability.
FCCI filed a complaint for declaratory judgment seeking a declaration that it did not owe a duty to defend Bennett with regard to the underlying lawsuit. The complaint alleges that while Bennett was an additional insured under the FCCI policy, the policy provided only excess coverage to Bennett and did not provide primary coverage. An agreed order was entered which stated that: 1) the other Alden Trails entities withdrew their tender of defense to FCCI; (2) FCCI did not owe a duty to defend nor a duty to indemnify the other Alden Trails entities because they were not insureds under the FCCI insurance policy; (3) “FCCI Endorsement MG 221 (GL) (05-89) affords no coverage to Alden Bennett Construction Company and Alden Trails III, LLC (owner) in relation to the underlying Hodor lawsuit pursuant to Endorsement CGM 2009 (07-03)”; and (4) “FCCI policy No. M00 067 0158 affords excess coverage only to Alden Bennett Construction Company and Alden Trails III, LLC (owner) in relation to the underlying Hodor lawsuit pursuant to Endorsement CGM 2009 (07-03).” The order concluded by stating that “[t]his order resolves all issues among the parties and therefore, this matter is dismissed.”
Mt. Hawley, Bennett’s insurer, filed a petition to intervene, as well as a petition to vacate the May 12 order. Mt. Hawley claimed that it was not named as a defendant or third-party defendant in the matter, nor was it provided notice of the “agreed order” prior to its entry. Mt. Hawley did not in any way consent to the entry of the order. Mt. Hawley claimed that FCCI was “fully aware” of Mt. Hawley’s interest in the matter prior to the filing of the complaint for declaratory judgment, including Mt. Hawley’s position that the FCCI policy afforded Bennett coverage on a primary basis and that Mt. Hawley had tendered Bennett’s defense to Garbe, FCCI’s named insured, in July 2006. Mt. Hawley claimed it was a necessary party and that, therefore, the trial court did not have jurisdiction to enter the “agreed order.”
The court reviewed whether estoppels and waivers applied to bar FCCI from raising defenses to coverage under the policy.
Illinois law states that where an insured has not knowingly decided against an insurer’s involvement, the insurer’s duty to defend is triggered by actual notice of the underlying suit, regardless of the level of the insured’s sophistication. The lack of tender by the insured doe not relieve the insurer of its duty to defend if the insurer had actual notice of the underlying suit. Actual notice is defined as notice sufficient to permit the insurer to locate and defend the lawsuit. In order to have actual notice sufficient to locate and defend a suit, the insurer must know both that a cause of action has been filed and that the complaint falls within or potentially within the scope of coverage of one of its policies. Once the insured has received actual notice, the insurer must take some action to adjudicate the issue of coverage or undertake to defend the insured under a reservation of rights. It must also take the action within a reasonable time of a demand by the insured. In this case, where an insurer waited nearly 10 months to file a declaratory judgment action after receiving actual notice of a lawsuit against its additional insured, the trial court properly found that the insurer was estopped from asserting policy defenses to coverage.
FCCI Ins. Co. v. Westfield Ins. Co., 2014 IL App (1st) 131598.
