Insurance Claim – Duty to Defend

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7^th Circuit Court of Appeals

Case Name: United Fire & Casualty Company v. Prate Roofing & Installations, LLC,

Case No.: 19-3043

Officials: SYKES, Chief Judge, and HAMILTON and SCUDDER, Circuit Judges.

Focus: Insurance Claim – Duty to Defend

The questions in this appeal arose from a fatal on-the-job accident on a commercial roofing project. The central question is whether a liability insurer for a roofing contractor owed a duty to defend another roofing contractor that was an “additional insured” under its policy. The policy covered the “additional insured” only for any vicarious liability it might incur as a result of actions or omissions by the named insured.

The insurer argues that because its named insured was an independent contractor, Illinois law would not—could not— impose any liability on the additional insured, so that there was no risk of covered liability and thus no duty to defend. The district court rejected this reasoning. The court explained that the duty to defend depends on the claims the plaintiff asserts, not on their prospects for success. We agree. A liability insurer’s duty to defend applies to impose a duty to defend allegations potentially within the policy’s liability coverage, regardless of predictions about prospects for success. The duty to defend applies even to hopeless suits—whether they are unfounded, false, or fraudulent. E.g., General Agents Ins. Co. v. Midwest Sporting Goods Co., 215 Ill. 2d 146, 155, 828 N.E.2d 1092, 1098 (Ill. 2005); Pekin Insurance Co. v. Centex Homes, 72 N.E.3d 831, 839 (Ill. App. 2017). By that logic, the duty to defend extends even to allegations seeking to impose liability that would require a dramatic change in the law.

In this case, the plaintiff’s allegations in the underlying complaint were broad enough to include claims against the additional insured that potentially fall within the scope of coverage for vicarious liability. Regardless of their potential merits, they sought to hold the additional insured liable, at least in part, for the actions or omissions of the named insured. The Illinois Appellate Court found a duty to defend on nearly identical facts in Pekin Insurance Co. v. Centex Homes and Pekin Insurance Co. v. Lexington Station, LLC, 84 N.E.3d 554 (Ill. App. 2017). Both decisions are consistent with Illinois law more broadly, and we believe the Illinois Supreme Court would agree. We follow those opinions and agree with the district court’s grant of summary judgment to the additional insured finding a duty to defend it in this case.

We also find, however, that the settlement of the underlying claims against the named insured had the effect of removing any possibility that the additional insured might be held vicariously liable for actions of the named insured. As a result, the duty to defend ended when that settlement was consummated. We therefore modify the district court’s declaratory judgment to clarify that the duty to defend came to an end with that settlement, and as modified, we affirm the district court’s judgment.

Affirmed with modifications

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Derek A Hawkins is Corporate Counsel, at Salesforce.