7th Cir. / Additional Insureds

Defense Duty Triggered by Allegations of Potential Vicarious Liability

The United States Court of Appeals for the Seventh Circuit, in an opinion written by Judge Hamilton and joined by Judge Scudder, applying Illinois law, affirmed the district court’s grant of summary judgment for the additional insured Prate Roofing & Installations, LLC (“Prate”), holding that insurer United Fire & Casualty Company (“United Fire”) had a duty to defend Prate against claims of vicarious liability in litigation involving a subcontractor’s alleged negligence resulting in the death of an employee. Chief Judge Sykes dissented from her colleagues, arguing that United Fire had no duty to defend.

The coverage dispute stems from an underlying lawsuit brought by a Prate employee’s estate against All Seasons Roofing, Inc. (“All Seasons”) and Prate after the employee died while working on a roofing project. All Seasons contracted with Prate related to a roofing project, whereas Prate was to serve as general contractor with All Seasons as subcontractor. The agreement stipulated that All Seasons would provide all materials and labor, maintain safety, and supervise the project. Additionally, All Seasons purchased a commercial general liability policy and general liability extension endorsement from United Fire, which listed Prate as an “additional insured.” This policy covered Prate only for vicarious liability arising out of any acts or omissions by All Seasons, and it did not cover Prate for any of its own negligence or wrongdoing. Ultimately, the decedent’s estate settled their suit against All Seasons, but their claims against Prate remained.

Though both Judge Hamilton, writing for the Court, and Chief Judge Sykes agree not only that All Seasons was an independent contractor for Prate, but also that Prate’s minimal involvement would not trigger vicarious liability for All Season’s negligence, they diverge on what that means for United Fire’s duty to defend. The Seventh Circuit affirmed the district court’s judgment that “the duty to defend depends on the claims the plaintiff asserts, not on their prospects for success.” Because the decedent’s estate’s allegations against Prate were broad enough to include claims against Prate as an additional insured that potentially fall within the scope of coverage for vicarious liability, United Fire had a duty to defend Prate as an additional insured to the policy it entered into with All Seasons. Specifically, the Seventh Circuit stated that “[t]he estate’s allegations against Prate Roofing were phrased so as to straddle the line between holding it liable for its own actions and omissions and holding it vicariously liable for acts and omissions of non-employee agents, such as, potentially, All Seasons.” The Court was unsurprised by this “straddle” because the estate is not likely to know the details of the contracting relationship and project management at the pleading stage. For the Seventh Circuit, it did not matter whether the claims of vicarious liability would be successful on the merits; all that mattered was that they were made in the first place. Thus, because the possibility of vicarious liability against Prate was left open, United Fire had a duty to defend Prate as an additional insured.

Chief Judge Sykes dissented, however, taking issue with the broad interpretation of the estate’s allegations. Instead of straddling the line between direct liability and vicarious liability, Judge Skyes found the same language was actually boilerplate language alleging direct liability of Prate, something outside the scope of United Fire’s policy with All Seasons. According to Judge Sykes, even if vicarious liability were to be alleged, Prate’s lack of “retained control” over All Seasons as an independent contractor in the project would preclude its application. As such, there was no vicarious liability to be imputed on Prate, and United Fire had no duty to defend Prate as an additional insured.

Nonetheless, Chief Judge Sykes agreed with the Court in its determination that the settlement between the decedent’s estate and All seasons extinguished United Fire’s duty to defend Prate, if it ever existed, because there was no remaining vicarious liability to be imputed on Prate at that point. Judge Sykes would have also held that any duty to defend extinguishes when the insurer reimburses the insured the amount of its policy limits, something the district court rejected.

In applying Illinois law, the Seventh Circuit had no direct Illinois Supreme Court decision to influence its opinion, but it relied on Pekin Insurance Co. v. Centex Homes, 72 N.E.3d 831 (Ill. App. 2017) and Pekin Insurance Co. v. Lexington Station, LLC, 84 N.E.3d 554 (Ill. App. 2017) to predict the conclusion at which the Illinois Supreme Court might arrive. As such, the Seventh Circuit held United Fire owed a duty to defend Prate in the underlying action because the complaint alleged potential vicarious liability. United Fire & Cas. Co. v. Prate Roofing & Installations, LLC, 7 F.4th 573 (7th Cir. July 30, 2021).