By: Daniel G. Litchfield

New Appellate Decision Addresses Additional Insured Endorsement and Nature of Appropriate Defense Costs

W.E. O'Neil Construction Company v. General Casualty Company of Illinois, No. 1-99-1502 (Ill. App., 1st Dist), March 30, 2001. O'Neil was the general contractor. It was insured by Assurance under an umbrella over a substantial retention. O'Neil subcontracted masonry work to Blommaert Brothers. Blommaert was insured by General Casualty. O'Neil was sued on account of an injury to a Blommaert employee. General Casualty unilaterally offered to pay 50% of the defense expense under reservation of rights. It maintained that O'Neil and Assurance were responsible for the other 50%. Assurance paid for the defense under reservation of rights. Assurrance's reservation was based on its umbrella status. It claimed that General Casualty's coverage was primary to its own. Thus, it claimed General Casualty should pay for the entire defense. O'Neil holds as follows:

Blommaert's contractual indemnity agreement did not violate the Construction Contract Indemnification for Negligence Act (740 ILCS 35/1 (West 1998)). The act makes void construction contract agreements that indemnify another for their own negligence. Here, the subcontract's indemnity agreement was limited to claims "caused by, resulting from, arising out of or occurring in connection with his execution of the Work." (Emphasis in the original). This provision was clearly restricted to claims based on the subcontractor's conduct and not the general contractor's conduct.

Even if the indemnity provision was void, Blommaert's contractual agreement to procure insurance for O'Neil was a separate contractual obligation. This obligation was not the same as the promise to indemnify O'Neil. General Casualty thus had to meet any duties it owed O'Neil pursuant to the additional insured endorsement irrespective of the enforceability of the indemnity agreement.

General Casualty had a duty to fully and solely defend O'Neil. It breached that duty. Its offer to pay 50% under reservation of rights did not save it from being in breach.

Assurance was entitled to reimbursement of the defense expense it paid.

Assurance sought reimbursement for the legal expense incurred in writing letters and otherwise chasing other insurance for O'Neil. General Casualty argued that these amounts were not incurred in O'Neil's defense. O'Neil holds that General Casualty has no duty to pay for this legal work. "General Casualty is not liable to Assurance for the law firm's time in contacting other insurers to get them to share in defense costs."

This case does not present a departure from established Illinois law. However, it is important because it specifically holds that certain legal tasks are not, as a matter of law, part of a duty to defend.

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