The Exclusive Remedy Provision of The Workers' Compensation Act Must be Considered When Determining Coverage for Additional Insureds

June 2019

General contractors in the construction industry typically require subcontractors to procure insurance naming the general contractor as an "additional insured" on the subcontractor's commercial general liability policy. The scope of coverage afforded to the general contractor as an additional insured depends on the policy language, which often times attempts to limit coverage to liability caused by the acts or omissions of the subcontractor. In Illinois, courts will generally compare the allegations in the complaint to the policy language in determining whether a general contractor is covered by the subcontractor's policy of insurance. What if the subcontractor is not named as a defendant in the underlying complaint? Does an insurer have a valid basis to deny coverage because the complaint has no allegations that the general contractor's liability was caused by an act or omission of the subcontractor? The Illinois Court of Appeals (4th District) recently addressed these questions in Core Construction v. Zurich American Insurance, 2019 IL App (4th) 180411.

Core Construction (Core) was a general contractor for the construction of a building and subcontracted with Schindler Elevator Corporation (Schindler) to install escalators at the project. Schindler was required to name Core as an additional insured on its commercial general liability policy issued by Zurich American Insurance Company (Zurich). An employee of Schindler was injured at the project and filed suit against Core.

Core tendered its defense in the personal injury lawsuit to Zurich, which denied coverage based on the fact the underlying complaint did not name Schindler as a defendant and there were no allegations that Core's liability arose from any act or omission on the part of Zurich's named insured, Schindler. Core filed a complaint against Zurich seeking a declaratory judgment that the Zurich policy covered Core as an additional insured for the underlying lawsuit. The trial court granted judgment in favor of Zurich.

On appeal, the Appellate Court reversed, finding the policy covered Core as an additional insured. The Appellate Court noted the injured plaintiff, an employee of Schindler, was barred from filing suit against Schindler based on the exclusive remedy provision of the Illinois Workers' Compensation Act, 820 ILCS 305/5(a). The exclusive remedy provision grants tort immunity to employers of injured workers. As such, a claim for workers' compensation benefits is an injured worker's "exclusive remedy" against his employer.

The Appellate Court ruled that because the injured plaintiff was an employee of Schindler, the allegations in the underlying complaint "must be read within the context of the immunity provided by the Workers' Compensation Act." The Appellate Court reasoned that the lack of allegations pointing to negligent acts or omissions on the part of the employer must be understood as the possible result of tort immunity afforded to the employer. When considering the exclusive remedy provision, the absence of allegations concerning the employer's negligence should not be a basis for denying coverage to an additional insured.

The holding in Core is consistent with an earlier decision by the Illinois Appellate Court (First District), Pekin Insurance Co. v. Centex Homes, 2017 IL App (1st) 153601, and should help deter insurance carriers from declining additional insured coverage to general contractors sued by an injured worker of a subcontractor. Since the injured worker is barred from filing suit against his employer, insurers cannot rely on the lack of allegations of the employer's negligence in the underlying complaint to deny additional insured coverage.