Westfield Insurance Co. v. FCL Builders, Inc.

• Court: Appellate Court of Illinois
• Decided: March 8, 2011
• Docket: 1-10-0521 NRel
• Status: Unpublished

Opinion

SECOND DIVISION MARCH 8, 2011 No. 1-10-0521

WESTFIELD INSURANCE COMPANY, ) Appeal from the ) Circuit Court of Plaintiff-Appellee, ) Cook County ) v. ) No. 08 CH 47632 ) FCL BUILDERS, INC., ) Honorable ) Daniel A. Riley, Defendant-Appellant, ) Judge Presiding. ) (Anwar Oshana, ) ) Defendant). )

JUSTICE CONNORS delivered the judgment of the court, with opinion. Justices Karnezis and Harris concurred in the judgment and opinion.

OPINION

Defendant FCL Builders, Inc. (FCL), appeals from the circuit court’s order granting

summary judgment in favor of plaintiff Westfield Insurance Company (Westfield). The circuit

court found that FCL was not an additional insured under the insurance policy that Westfield had

issued to a third party, JAK Iron Works, Inc. (JAK). We affirm.

BACKGROUND

FCL is a general contractor that was hired to work on a construction project. FCL

subcontracted out the steel fabrication and erection for the project to Suburban Ironworks, Inc.

(Suburban), which in turn further subcontracted out the steel erection to JAK. JAK employed

defendant Anwar Oshana.

FCL's subcontract with Suburban required Suburban to perform all structural steel work

for the project. The contract also required Suburban to obtain a certain amount of commercial

general liability (CGL) insurance, which would cover not only Suburban and its employees but No. 1-10-0521

also FCL as the general contractor. Importantly for this case, the contract mandated that any

subcontractors that Suburban might further subcontract with must also maintain the same level

of CGL insurance and include FCL as an insured under the policy.

When Suburban subcontracted the steel erection work to JAK, Suburban and JAK

executed a contract that incorporated by reference a previously existing Master Subcontract

Agreement between the two parties. The master agreement included a provision that required

JAK to obtain the same level of insurance coverage that was required by the contract between

FCL and Suburban, the terms of which were also incorporated by reference into the JAK-

Suburban contract. In short, JAK was contractually required to purchase an insurance policy that

would cover itself, Suburban, and FCL in the event of a mishap on the steel erection job. JAK

duly purchased a CGL policy from Westfield. The policy contained an endorsement that

amended the definition of “insured” under the contract. The endorsement reads, in pertinent

part:

“A. Section II – Who Is an Insured is amended to include as an additional

insured any person or organization for whom you are performing operations when

you and such a person or organization have agreed in writing in a contract or

agreement that such person or organization be added as an additional insured on

your policy.”

The policy came into effect in October 2005, and JAK began erecting steel on the job

site. Unfortunately, about a month into the job, JAK's employee Oshana was severely injured

when he fell off of a steel beam. Oshana later filed a tort lawsuit against FCL and Suburban,

alleging the breach of various duties of care regarding job site safety that they allegedly owed to

2 No. 1-10-0521

Oshana.

It is at this point that the dispute that is the subject of this appeal arose. FCL turned to

Westfield for defense against Oshana's lawsuit and for indemnification in the event that it was

successful. However, Westfield refused to either defend or indemnify FCL, asserting that FCL

did not qualify as an additional insured under its policy with JAK. The parties were unable to

resolve the matter, and Westfield filed the instant declaratory judgment action, seeking a

declaration that it was not obligated to either defend or indemnify FCL in Oshana's underlying

tort action.

Following discovery, the parties filed cross-motions for summary judgment. Westfield

argued that the plain language of the additional insured provision of the policy only extended

coverage to entities that had an agreement in writing with JAK for them to be added to the policy

as additional insureds. Westfield asserted that, because JAK only had a contract with Suburban,

FCL could not be an additional insured. FCL maintained that it met the requirements of the

policy provision due to the fact that the JAK-Suburban contract incorporated by reference the

terms of the Suburban-FCL contract, which contained the provision requiring FCL to be an

additional insured on the insurance policy and thus satisfied the written-agreement requirement.

Additionally, FCL pointed to deposition testimony to the effect that JAK and Suburban had

understood that JAK would be required to add FCL as an additional insured under any policy

that JAK later purchased. Finally, FCL noted that it had received a certificate of insurance that

listed FCL as an additional insured under JAK's policy with Westfield.

After full briefing by all parties and extensive oral arguments, the circuit court held that

FCL was not an additional insured under the policy. The circuit court found that the policy

3 No. 1-10-0521

provision was unambiguous and required what the court termed “direct priv[i]ty in order for an

entity to qualify as an additional insured.” The circuit court accordingly denied FCL's motion

for summary judgment and granted Westfield's motion. With no other issues remaining in the

case, FCL timely filed a notice of appeal. This case is now before us.

ANALYSIS

This case comes to us following summary judgment in Westfield's favor. Summary

judgment is appropriate only where the pleadings, depositions, admissions and affidavits, viewed

in the light most favorable to the nonmovant, show that no genuine issue of material fact exists

and that the moving party is entitled to judgment as a matter of law. See 735 ILCS 5/2-1005(c)

(West 2008). “The construction of an insurance policy and a determination of the rights and

obligations thereunder are questions of law for the court which are appropriate subjects for

disposition by way of summary judgment.” Crum & Forster Managers Corp. v. Resolution

Trust Corp., 156 Ill. 2d 384, 391 (1993). We review an order granting summary judgment de

novo. See Schultz v. Illinois Farmers Insurance Co., 237 Ill. 2d 391, 400 (2010).

The sole issue on summary judgment below and now on appeal is whether FCL qualifies

as an additional insured under the insurance contract. Our primary duty in construing an

insurance contract is “to ascertain and give effect to the intentions of the parties as expressed in

the agreement. If insurance policy terms are clear and unambiguous, they must be enforced as

written unless doing so would violate public policy.” Schultz, 237 Ill. 2d at 400. However, “[a]

policy provision is not rendered ambiguous simply because the parties disagree as to its

meaning. [Citation.] Rather, an ambiguity will be found where the policy language is

susceptible to more than one reasonable interpretation. [Citations.]” Founders Insurance Co. v.

4 No. 1-10-0521

Munoz, 237 Ill. 2d 424, 433 (2010).

The provision at issue in this case is the endorsement that modified the definition of

insured under the contract. The plain language of the endorsement requires two conditions to be

met in order for an entity to qualify as an additional insured under JAK's policy with Westfield.

First, the entity must be one “for whom you [JAK] are performing operations.” Second, JAK

and that entity must “have agreed in writing in a contract or agreement” that the entity be added

to the policy as an additional insured.

The second condition is dispositive here. Even assuming, without deciding, that JAK

was “performing operations” for FCL within the meaning of the policy, there is no evidence in

the record that JAK had agreed in writing with FCL for FCL to be an additional insured. The

policy explicitly and unambiguously requires a direct, written agreement to that effect in order to

cover anyone other than JAK under the policy. Because no such written agreement ever existed

between FCL and JAK, FCL cannot be an additional insured under the policy and Westfield is

not obligated to furnish FCL with a defense or indemnification in Oshana's tort lawsuit.

Summary judgment for Westfield was therefore proper.

FCL offers three arguments in support of a contrary result, which we will address in turn.

FCL initially points to the contract between Suburban and JAK, which incorporated the terms of

the FCL-Suburban contract. FCL argues that the terms of the JAK-Suburban contract obligated

JAK to include FCL as an additional insured in the CGL policy that it purchased from Westfield,

and that this contractual obligation is sufficient to satisfy the additional insured provision of the

insurance contract.

FCL's argument on this point is flawed for several reasons. First, FCL's position is not

5 No. 1-10-0521

supported by the plain language of the insurance policy. The policy provision defines an

additional insured as “any person or organization for whom you are performing operations when

you and such a person or organization have agreed in writing in a contract or agreement that

such person or organization be added as an additional insured.” (Emphasis added.) The plain

and ordinary meaning of the term “such person or organization” in this provision is that it refers

back to the same person or organization for whom JAK is performing operations, which was

mentioned earlier in the same provision, and it does not encompass any other entity. See Black's

Law Dictionary 1446 (7th ed. 1999) (defining “such” as “[o]f this or that kind,” and as “[t]hat or

those; having just been mentioned”). Notably, the provision does not refer to any person or

organization. By repeatedly using the term “such” instead of “any,” the provision necessarily

requires that, in order to qualify as an additional insured, an entity must enter into a direct

written agreement with JAK listing them as additional insured.

Second, FCL's position assumes that if JAK had a contractual obligation to Suburban to

list FCL as an additional insured and JAK subsequently bought a CGL policy from Westfield,

then FCL must necessarily be an additional insured under that policy. However, the question in

this case is not JAK's contractual obligations to Suburban, much less any potential obligations to

FCL as a third-party beneficiary of the JAK-Suburban contract. Instead, the question is

Westfield's contractual obligations to its insureds, and those obligations are controlled by the

insurance contract itself. The additional insured provision in this case unambiguously limits

Westfield's obligations to only JAK and those entities with whom JAK directly contracts in

writing for additional coverage. Regardless of whether JAK and Suburban had agreed that FCL

should be an additional insured, JAK and FCL did not agree in writing that FCL was an

6 No. 1-10-0521

additional insured. The terms of the FCL-Suburban contract and the Suburban-JAK contract are

consequently irrelevant to whether Westfield is obligated to cover FCL as an additional insured

under this particular policy provision.

FCL's position relies heavily on the case of West American Insurance Co. v. J.R.

Construction Co., 334 Ill. App. 3d 75 (2002). West American also dealt with an additional

insured provision, and in that case the insurance company also argued that a direct written

contract between the general contractor and the primary insured was required to cover any

additional insured. See id. at 80. The court held that the general contractor was an additional

insured, noting that (1) a certificate of insurance naming the general contractor as an additional

insured had been issued, (2) the general contractor and the primary insured had orally agreed to

add the general contractor to the policy as an additional insured, and (3) the insurance company

wrote a letter and several memoranda purporting to accept the general contractor as an additional

insured. See id. at 81. FCL argues that West American should guide the outcome in this case

because of the presence of the Suburban-JAK contract that incorporated the Surburban-FCL

contract, as well as the certificate of insurance listing FCL as an additional insured.

West American is readily distinguishable from this case. FCL's reliance on West

American is misplaced because the additional insured provision in West American differs in

crucial respects from the additional insured provision in the Westfield insurance contract. The

West American provision defined additional insured as “ 'any person or organization who you are

required to name as an additional insured on this policy under a written agreement or contract.' ”

Id. at 80. This provision is broader than the Westfield provision at issue here. Unlike the

Westfield provision, the West American provision encompasses any entity that the primary

7 No. 1-10-0521

insured was contractually required to name as an additional insured, regardless of whether the

primary insured and that entity have a direct written contract. As discussed above, the Westfield

provision has different requirements and is significantly narrower in scope. Because the policy

provision that was at issue in West American is not the same as the one at issue here, West

American has no bearing on whether FCL is an additional insured in this case.

FCL next argues that the evidence in the record demonstrates that JAK and Suburban

intended for FCL to be an additional insured under the policy. FCL points to deposition

testimony of both the owner of Suburban and the superintendent of JAK, during which they

affirmed that it was their intent under the Suburban-JAK contract that FCL would be an

additional insured under the Westfield policy. However, this testimony is irrelevant to our

inquiry. As we have already stated, our primary objective is to determine the parties' intent, but

the best evidence of that intent is the contract itself. See Schultz, 237 Ill. 2d at 400. We may

only consider extrinsic evidence outside of the contract if the contract is ambiguous. See

Gallagher v. Lehnert, 226 Ill. 2d 208, 233 (2007). The policy provision in this case is not

ambiguous, and it is therefore inappropriate to consider extrinsic evidence such as deposition

testimony when interpreting it. Moreover, even if extrinsic evidence were necessary in order to

determine the intent of the parties to the insurance contract, the deposition testimony refers only

to what Suburban and JAK intended regarding their respective obligations under the Suburban-

JAK contract. The deposition testimony consequently has no relevance to what JAK and

Westfield intended for their respective obligations to be under the Westfield insurance contract.

Finally, FCL argues that it must be an additional insured under the policy because it

received a “certificate of insurance” that listed it as an additional insured. However, this

8 No. 1-10-0521

certificate does nothing to modify Westfield's obligations under the contract. First, the

certificate was not issued to FCL by Westfield, but instead appears to have been issued by an

unrelated third party. Its utility in defining Westfield's obligations is therefore questionable at

best. Second and more importantly, the certificate contains a prominent disclaimer that states:

“THIS CERTIFICATE IS ISSUED AS A MATTER OF

INFORMATION ONLY AND CONFERS NO RIGHTS UPON THE

CERTIFICATE HOLDER. THIS CERTIFICATE DOES NOT AMEND,

EXTEND OR ALTER THE COVERAGE AFFORDED BY THE POLICIES

BELOW.”

Illinois courts have previously examined certificates like this, and the effect that such a

certificate has on the interpretation of an insurance cases is governed by two lines of cases. See

United Stationer's Supply Co. v. Zurich American Insurance Co, 386 Ill. App. 3d 88, 102 (2008)

(discussing the divergent lines of precedent). If the certificate does not mention the policy and

the terms of the two conflict, then the certificate generally controls coverage. See id. (citing

cases). However, “where the certificate refers to the policy and expressly disclaims any

coverage other than that contained in the policy itself,” the policy controls. Id. (citing cases).

The certificate here falls within the second line of cases. The certificate in this case is

identical to the certificates at issue in both United Stationer's Supply, 386 Ill. App. 3d at 103, and

Pekin Insurance Co. v. American Country Insurance Co., 213 Ill. App. 543, 544 (1991). As in

those cases, the certificate here expressly confers no rights on the certificate holder, and it

expressly does not alter Westfield's liability on the policy in any way. Cf. United Stationer's

Supply, 386 Ill. App. 3d at 105; Pekin, 312 Ill. App. 3d at 547-48. FCL consequently cannot rely

9 No. 1-10-0521

on the certificate in order to establish that it is an additional insured under the policy.

CONCLUSION

For the reasons stated above, FCL is not an additional insured under JAK's insurance

policy with Westfield. Consequently, Westfield is not obligated to defend FCL in Oshana's tort

action or to indemnify FCL in the event it is found liable to Oshana. We therefore affirm the

circuit court's order granting summary judgment to Westfield.

Affirmed.