Numerous Illinois cases have considered the question of when an insurer must defend or indemnify an additional insured. E.g., Pekin Ins. Co. v. Centex Homes, 2017 IL App (1st) 153601; National Union Fire Ins. Co. of Pittsburgh, PA. v. R. Olson Constr. Conts., Inc., 329 Ill.App.3d 228 (2d Dist. 2002); Commonwealth Edison Co. v. National Union Fire Ins. Co. of Pittsburgh, PA., 323 Ill.App.3d 970 (1st Dist. 2001).  In most additional insured coverage cases, two factors are critical to the outcome. The first is the wording of the additional insured endorsement, and the second is the extent to which facts outside the underlying complaint can be considered in determining the insured’s duty to defend. 

Additional insured endorsements have evolved over the last few decades to restrict coverage for the additional insured to situations in which the damages were the fault of the named insured. Earlier additional insured endorsements, such as ISO Form CG 20 10 11 85, provided coverage to the additional insured for all liability “arising out of” the named insured’s “work.”  This coverage was quite broad. As one court stated, the “phrase ‘arising out of’ is both broad and vague and must be liberally construed in favor of the insured; accordingly, ‘but for’ causation, not necessarily proximate causation, satisfies this language.” Maryland Cas. Co. v. Chicago and North Western Transp. Co., 126 Ill.App.3d 150, 154 (1st Dist. 1984).  Thus, in Liberty Mut. Ins. Co. v. Westfield Ins. Co., 301 Ill.App.3d 49, 55 (1st Dist. 1998), the court found that where an employee of the named insured was injured while performing work on the project the named insured was retained to perform by the additional insured, the additional insured’s liability arose out of the named insured’s work “as a matter of law.” There was no requirement that the named insured’s negligence or other misconduct caused or contributed to the plaintiff’s damages.

Later endorsements are more restrictive. For example, ISO Form CG 20 10 04 13 limits coverage for the additional insured to its liability for bodily injury or property damage “caused, in whole or in part by” the named insured’s “acts or omissions.” Under this endorsement, coverage depends on whether some “act or omission” of the named insured was at least a partial cause of the damages.

Once these more restrictive endorsements were in use, the extent to which facts outside the underlying complaint could be used to trigger the duty to defend became more critical. For example, if the later forms had been in effect in Liberty Mutual v. Westfield, the result might have been much different. The mere fact that the named insured’s employee was injured on the job would not, as a matter of law, mean that there was coverage because it would not establish that the employee’s injuries were caused by the named insured’s “act or omission.” 

This was the issue presented in Core Constr. Servs. of Illinois v. Zurich American Ins. Co., 2019 IL App (4th) 180411 (4/12/19). In Core, the underlying plaintiff was an employee of Schindler Elevator Corporation (“Schindler”). Core Construction Services (“Core”) was a general contractor and had retained Schindler to work on the building’s escalators. The underlying plaintiff was injured on the job and sued Core and the building owner. Core’s contract with Schindler required it to obtain insurance naming Core and the building owner as additional insureds. Schindler procured coverage from Zurich. Core tendered its defense to Zurich, arguing that the plaintiff’s injuries were caused by his employment, and therefore in whole or in part by the acts or omissions of his employer, Schindler. 

Had coverage been provided under the older additional insured endorsements which provided coverage for the additional insured’s liability arising out of the named insured’s work or operations, the decision would have been easy, and the plaintiff’s injuries would have arisen out of Schindler’s work as a matter of law. However, the Zurich policy provided coverage to the additional insured only for bodily injury “caused, in whole or in part, by (1) [Schindler’s] acts or omissions ….” 2019 IL App (4th) 180411, ¶ 10.  The underlying complaint alleged negligence only against Core and the building owner and never mentioned any act or omission on the part of Schindler, so Zurich maintained there was no coverage.  Specifically, Zurich argued that the endorsement provided coverage to Core only when Core was vicariously liable for Schindler’s acts or omissions and claimed that “there is not one word within the [underlying complaint] against CORE that alleges any negligent act or omission by Schindler.”  Id. at ¶17. 

The court’s decision did not challenge Zurich’s interpretation of the endorsement. It did not address the question of whether the requirement that the bodily injury must be caused in whole or in part by the named insured’s “acts or omissions” included a negligence standard, or whether the named insured’s non-negligent acts or omissions would suffice. Nor did it address Zurich’s argument that the additional insured’s liability must be vicarious for the negligent acts or omissions of the named insured, or whether there could be coverage for the additional insured’s liability for its own acts, provided that the injuries were at least partially caused by the named insured’s acts or omissions. 

Instead, the court turned to the question of whether it was limited to the underlying complaint in determining the duty to defend. The court stated that under Illinois law, in determining the duty to defend, a trial court may consider extrinsic evidence “if in doing so the trial court does not determine an issue critical to the underlying action.” Id. at ¶26, quoting from, American Economy Ins. Co. v. Holabird & Root, 382 Ill.App.3d 1017, 1031 (1st Dist. 2008).  To determine the duty to defend, the court may look to the contract between the named insured and the additional insured, counterclaims against the named insured, and third-party complaints against the named insured. Id., citing, Pekin Ins. Co. v. Centex Homes, 2017 IL App (1st) 153601, ¶ 35. 

Although the complaint did not have any allegations against Schindler, the court reasoned that when “an employer is not alleged to have been negligent, the trial court must construe the underlying complaint within the context of the Workers’ Compensation Act.” Id., ¶ 27. Under the Act, employers are required to pay for their employees’ medical expenses when they are injured on the job, without regard to the employer’s fault, and in return, the Act prohibits employees from suing their employers for negligence. Id.; 820 ILCS 303/5(a). As a result, the fact that the underlying complaint does not allege negligence against the named insured/employer “must be understood as the possible result of tort immunity for employers under the workers’ compensation laws and should not be a basis for refusing to defend an additional insured.” Id. ¶ 28, quoting from, Centex Homes, ¶ 38. 

The court concluded that Zurich was not entitled to judgment as a matter of law because the allegations of the underlying complaint had to be read within the context of the Workers’ Compensation Act immunity for employers. Core Constr., 2019 IL App (4th) 180411 at ¶34. The court then noted that Core had subcontracted with Schindler to work on the escalators and was responsible for the safety and supervision of its employees.  The plaintiff, one of Schindler’s employees, was injured at the construction site while he was working on the escalators. The plaintiff alleged that his injuries were due to Core’s and the building owner’s failure to provide a safe work site and the failure to exercise control over the construction work related to the escalators. Thus, while the complaint did not allege that Schindler was negligent when viewed in conjunction with the prohibition on suing the employer, a liberal construction of the complaint created the potential that Schindler’s acts or omissions caused the plaintiff’s injuries. Id., ¶38.  Thus, Zurich had a duty to defend.

A few things stand out from the decision in Core Construction. First, the court’s holding expands on the decision in Centex Homes that the underlying complaint need not contain any allegations of negligence against the named insured so long as it contains factual allegations that are sufficient to support a theory of recovery based on the negligence of the named insured. Centex Homes, 2017 IL App (1st) 153601, ¶ 39. Under this rule, it is likely that in most cases in which the additional insured endorsement provides coverage for injury “caused in whole or in part by” the named insured’s “acts or omissions,” if an employee of the named insured is injured while working on the job being performed for the additional insured, there will be a duty to defend.

Another aspect of this case is the fact that the court seems to have accepted Zurich’s characterization of the endorsement as requiring the additional insured to be vicariously liable for the negligent acts or omissions of the named insured. Notably, courts in other states are split on the question of whether the “acts or omissions” language in the endorsement requires that the named insured’s actions must have been negligent. Compare, Garcia v. Fed. Ins. Co., 969 So.2d 288 (Fla. 2007) (acts or omissions means negligence); with, Maryland Cas. Co. v. Regis Ins. Co., 1997 U.S. Dist. LEXIS 4359, 1997 WL 164268 (W.D. Pa. 1997) (“the plain and ordinary meaning of ‘act or omission’ is not negligence.”) and Dillon Cos. v. Royal Indem. Co., 396 F.Supp.2d 1277 (D. Kan. 2005) (the phrase “acts or omissions” in an additional insured endorsement “includes any act or failure to act” by the named insured or its employee, not just negligent acts or omissions.”) 

Other courts have agreed with Zurich’s interpretation, and have found that coverage is only available to the additional insured for its vicarious liability for the named insured’s actions, so that if the additional insured had independent negligence, there was no coverage. Schafer v. Paragano Custom Building, Inc., 2010 N.J. Super. Unpub. LEXIS 356 * 6, 2010 WL 624108 (N.J. App. 2010) (“The additional insured endorsement issued by Harleysville clearly states that Paragano is covered only as to liability caused by the acts or omissions of K&D Builders. It provides coverage for a claim asserted against Paragano for vicarious liability; it does not provide coverage for a claim against Paragano for its own direct negligence.”); 373 Wythe Realty, Inc. v. Indian Harbor Ins. Co., 2010 U.S. Dist. LEXIS 45947 * 8, 2010 WL 1930256 (E.D.N.Y. 2010) (“The only reasonable interpretation is that the duty to defend an additional insured is invoked once a lawsuit alleges that an additional insured is responsible for the conduct of the named insured.”)

Based on the holding in Core Construction, even if the court does adopt the vicarious liability standard, there will likely be a duty to defend in most cases involving injuries to the named insured’s workers while performing a job related to the work the named insured was performing for the additional insured. The question then will become whether the insurer can subsequently deny coverage for any settlement or judgment against the additional insured if the facts presented in discovery or trial do not demonstrate any negligence for the named insured.