Target Covered As Additional Insured Under Vendor’s Policy, Even Though Agreements With Vendor Conflicted Regarding Requirement To Provide Such Coverage

The Seventh Circuit, applying Illinois law, held that Target Corporation (“Target”) was entitled to coverage under one of its vendor’s CGL policies for a claim by a customer injured by a falling dressing room door, pursuant to a side agreement requiring the vendor to add Target as an additional insured.

Target was sued by a customer after a fitting room door supplied by Harbor came off its hinges and fell on her in December 2011.  Target filed a third-party complaint against Harbor Industries Inc. (“Harbor”) seeking contribution and indemnification.  Ultimately, both Target and Harbor settled with the customer.  Target tendered the defense of the customer’s lawsuit to Selective Insurance Company of South Carolina (“Selective”) under the basis that it was an additional insured on Harbor’s policy with Selective.  Selective then filed suit seeking a declaration that it had no defense or indemnity obligations to Target for the customer’s lawsuit.  Both parties filed motions for summary judgment.  The district court granted summary judgment in favor of Target and held that Selective had a duty to indemnify Target for costs incurred defending and settling the customer’s lawsuit.  Selective appealed.

On appeal, the parties disputed whether Target was an additional insured under the Selective policy.  The dispute focused on the interplay of three contracts: the Supplier Qualification Agreement (“Supplier Agreement”), Target and Harbor’s “Program Agreement” for the fitting rooms, and Harbor’s insurance policy with Selective.  The Supplier Agreement required Harbor to maintain commercial general liability insurance “in full force and effect during the term of this Agreement” and to “designate Target as an additional insured by endorsement acceptable to Target.”   In April 2009, Target and Harbor entered into the Program Agreement which detailed the relationship for Harbor to supply fitting rooms to Target through July 1, 2010.  An endorsement to the Selective policy provided, in relevant part, that an additional insured was any person or organization that Harbor had agreed in a written contract to add as an additional insured and only with respect to liability for “bodily injury” or “property damage” caused, in whole or in part, by “your product.”

The parties disputed whether the Supplier Agreement was in effect when the customer’s injury occurred.  The Seventh Circuit agreed with the district court that, based on the plain meaning of the contract language, the Supplier Agreement was a “broad agreement governing the overarching relationship between Target and Harbor” and that the broad language “makes it clear that the parties did not intend for the Supplier Agreement to terminate when specific program agreements terminated.”  Therefore, during the relevant time period, the Supplier Agreement was a “written contract” requiring Harbor to designate Target as an additional insured to the policy.

The court also agreed with the district court that Selective had a duty to defend and indemnify Target under the policy.  The court found that the there was a duty to defend because Selective’s policy provides liability coverage for “bodily injury” arising out of Harbor’s “products” within the “products-completed operations hazard” provision.  The court rejected Selective’s argument that there was no duty because the customer’s claims focused on Target’s negligence.  According to the court, “Illinois law rejects Selective’s argument that it can avoid this duty simply because of legal labels [the customer] used in her complaint.”  Moreover, the court found that, even if the facts in the customer’s complaint were not sufficient to trigger the duty to defend, the facts alleged in Target’s third-party complaint were enough.  The court was able to consider the third-party complaint because, under Illinois law, if an insurer files a declaratory action regarding its duty to defend, the court can consider all relevant facts alleged in all of the pleadings.

In finding that Selective had a duty to indemnify Target, the court rejected Selective’s argument that it did not have a duty to cover the entire amount of the settlement because it was impossible to reasonably conclude that Target’s entire settlement payment represented damages for covered loss.  According to the court, under Illinois law, there were two questions to determine if Selective had a duty to indemnify: (1) whether Target settled an otherwise covered loss in anticipation of liability and (2) whether the covered claims were a primary focus of the litigation.  The Seventh Circuit answered both questions in the affirmative and upheld the district court.  Selective Ins. Co. of South Carolina v. Target Corp., No. 16-1669 (7th Cir. Dec. 29, 2016).