In Vivify Constr., LLC v. Nautilus Ins. Co., 2017 IL App (1st) 170192, an Illinois appellate court upheld a lower court’s finding that Nautilus Insurance Group (“Nautilus”) had no duty to defend a general contractor in a personal injury suit by an injured subcontracting employee, saying the parties’ contract excludes defending bodily injury claims from employees of an insured’s subcontractors.

Vivify Construction, LLC. (“Vivify”) subcontracted with Victoria Metal Processor, Inc. (“Victoria”) to perform work at a construction project where Vivify was the general contractor.  The subcontract between the parties required that Victoria purchase commercial general liability coverage that made the Vivify an “additional insured … for claims caused in whole or in part by [subcontractor’s] negligent acts or omissions during [subcontractor’s] operations.”  An employee of Victoria was injured at the construction project and filed suit against Vivify.

Victoria was insured by Nautilus.  The Nautilus policy provided blanket additional insured coverage that made “any person or organization” an additional insured when the named insured subcontractor “agreed in writing in a contract … that such person or organization be added as an additional insured.” The policy stated that such person or organization is an additional insured “only with respect to liability for ‘bodily injury’… caused, in whole or part, by your acts or omissions, or the acts or omissions of those acting on your behalf.”  However, the policy by endorsement, excluded coverage for bodily injury to “any insured’s contractors’, subcontractors’, or independent contractors’ ‘employees’.”

Vivify tendered its defense of the lawsuit to Nautilus, but Nautilus cited the policy’s employee exclusion in declining to defend.  Nautilus filed a declaratory judgment action and the lower court granted judgment on the pleading in favor of the insurer, finding no coverage for the underlying suit.   Vivify appealed and argued that the court should consider evidence outside of the policy in determining whether the insurer had a duty to defend, particularly the construction agreement between the contractor and subcontractor.

In affirming the lower court, the panel rejected Vivify’s argument that it could interpret a facially unambiguous insurance policy by considering outside evidence such as underlying complaints and related pleadings.   The court stated “interpreting the scope of a policy coverage presents a separate issue from whether the circumstances of an underlying action fall with the scope of that policy.”   While the court recognized that it has suggested at times the courts can consider parol evidence when interpreting an insurance policy, the court distinguished earlier Illinois decisions and clarified that parol evidence should not be considered when interpreting an otherwise unambiguous insurance policy.

Insurers and defense counsel alike should carefully review the liability policy at issue to determine whether the policy actually meets the insurance requirements of the parties’ written agreements.  If the policy falls short, the First District’s opinion in Vivify suggests Illinois courts will reject any request to “re-interpret” the policy to make up the difference, so long as the policy language is unambiguous.