FIRST DISTRICT DENIES COVERAGE TO AN ADDITIONAL INSURED DUE TO UNFORGIVING EMPLOYEE EXCLUSION

April 2018

By Courtney Morso Driscoll

In Vivify Construction, LLC v. Nautilus Insurance Company, 2018 IL App (1st) 170192, the First District Appellate Court found an employee exclusion within the subcontractor’s policy barred coverage to the general contractor for a personal injury lawsuit even though the general contractor was an additional insured under that policy.

In Vivify, a construction worker, Pablo Vieyra, was injured when he fell from a second story scaffold. Vierya was employed by Victoria Metal Processor (“Victoria”), and the general contractor was Vivify Construction, LLC (“Vivify”). Vieyra filed a lawsuit against Vivify for failing to properly supervise the work site. Vivify then filed a third-party complaint against Victoria, claiming Victoria’s negligence led to Vieyra’s injury.

Victoria and Vivify had entered into a subcontract agreement prior to the incident. Through that subcontract, Victoria agreed to indemnify Vivify against claims of bodily injury arising from Victoria’s work. Further, the subcontract required Victoria to procure insurance on Vivify’s behalf. As a result, Victoria added Vivify as an insured under Victoria’s commercial general liability policy with Nautilus Insurance Company (“Nautilus”).

The policy provided coverage to Vivify as an additional insured “only with respect to liability for ‘bodily injury.’” The policy originally contained an exclusion for certain bodily injury to “an employee of the insured.” While that exclusion was replaced by an endorsement, the endorsement continued to exclude coverage for bodily injury to “any insured’s contractor’s, subcontractor’s or independent contractor’s” employees.

Vivify tendered its defense to Nautilus, which declined to defend Vivify based on the employee exclusion. In turn, Vivify filed a declaratory action against Nautilus, claiming Nautilus had a duty to defend Vivify in the Vieyra action. Nautilus responded by filing a counterclaim against Vivify, seeking a declaration that it did not have a duty to defend Vivify. The parties then filed cross-motions for judgment on the pleadings. The trial court entered judgment in favor of Nautilus, finding no duty to defend Vivify due to the employee exclusion. The court found the policy did not provide coverage for Vierya’s accident because he was an employee of Vivify’s subcontractor, Victoria, and coverage for bodily injury to any employees of Vivify’s subcontractors was specifically excluded under the policy. Vivify appealed this decision.

The First District upheld the trial court’s decision. In refusing to consider parol evidence (evidence of prior or contemporaneous agreements), the First District found the employee exclusion unambiguously precluded coverage for claims of bodily injury to “any insured’s contractor’s, subcontractor’s or independent contractor’s” employees, which would include injury to Vieyra. The First District further held the policy language did not change due to Victoria’s status as an insured under the policy. Rather, the First District found Victoria’s status as Vivify’s subcontractor to be controlling and stated it would have reached “the same result if Victoria were not an insured under the policy.” While Vivify argued Victoria would likely not be able to pay any of Vivify’s legal fees or judgment against it as required under the subcontract, the First District responded stating, “Vivify could have protected itself by reading the policy to ensure that it satisfied the subcontract.”

The Vivify decision affirms that courts will rely on the policy language, and not the subcontract agreement, to determine whether coverage applies in a particular lawsuit. As the First District advised, an insured or additional insured will best protect itself by fully reading any policyensure it provides sufficient coverage and/or complies with any contractual requirements.