Cincinnati Insurance Company v. Vita Food Products, Incorpora , 808 F.3d 702 ( 2015 )

In the
United States Court of Appeals
For the Seventh Circuit
____________________
No. 15-1405
CINCINNATI INSURANCE CO.,
Plaintiff-Appellee,
v.
VITA FOOD PRODUCTS, INC.,
Defendant-Appellant.
____________________
Appeal from the United States District Court for the
Northern District of Illinois, Eastern Division.
No. 13 C 5181 — Edmond E. Chang, Judge.
____________________
ARGUED NOVEMBER 2, 2015 — DECIDED DECEMBER 16, 2015
____________________
Before BAUER, POSNER, and KANNE, Circuit Judges.
POSNER, Circuit Judge. The Cincinnati Insurance Company
issued a liability insurance policy to a company called Paint-
ers USA for a one-year period beginning on January 15,
2011. It has brought this suit to try to avoid having to pro-
vide coverage to another company, Vita Food Products,
which claims to be an “additional insured”—that is, to also
be covered by the liability insurance policy that Cincinnati
had issued to Painters.
2 No. 15-1405
The policy covered “bodily injury” caused by an “occur-
rence” (an accident, presumably) for which the insured was
legally liable to the injured person. But in addition the policy
allowed the insured to add an “additional insured” to the
policy by an oral agreement (or a written one, but this case
involves an oral agreement), provided that the oral agree-
ment preceded the “occurrence” and that “a certificate of in-
surance showing that person or organization as an addition-
al insured has been issued.” No permission from Cincinnati
Insurance is required for the primary insured to create an
additional insured, provided that the two insureds have a
relationship that makes the addition of a second insured
consistent with the nature and aims of the policy, as when
the original insured is providing products or services to the
additional insured (as occurred in this case).
While Cincinnati’s insurance policy was in force, Painters
was hired by Vita Food Products to do painting on Vita’s
premises. According to Vita, Painters agreed to add Vita as
an additional insured—orally. Vita doubtless was concerned
that if one of Painters’ workers was injured on Vita’s prem-
ises, the worker would file a tort suit against Vita—he
couldn’t sue Painters because an employee normally has on-
ly a workers’ compensation remedy against his employer
and not a common law tort remedy.
In fact, one of Painters’ workers, Nardo Ovando, did sue
Vita, for negligent maintenance of its premises. It was soon
after Painters began doing work for Vita and before there
was any written confirmation of the oral agreement that
Ovando fell while working at Vita. He sustained a terrible
injury, and remains in a coma to this day. A tort suit was
filed against Vita on Ovando’s behalf and that of his wife
No. 15-1405 3
(Karina Baez, who claims loss of consortium). The suit be-
fore us, however, is a diversity suit brought by the insurance
company to obtain a declaration that Vita was not covered
by the policy that the company had issued to Painters. The
company points out that the accident, even if it occurred af-
ter the oral agreement that added Vita as a party insured,
occurred before the preparation of the certificate confirming
Vita’s status as an additional insured. Ovando and Baez are
named as additional defendants, since as plaintiffs in the
state court tort suit against Vita they might claim an entitle-
ment to share in any insurance proceeds that Vita receives in
order to help it pay damages to the plaintiffs, should Vita be
held liable for Ovando’s accident.
Painters had requested the certificate within hours after
Ovando’s injury, and an insurance agent for Cincinnati In-
surance had issued it to Vita the next day. But the district
judge agreed with Cincinnati that the certificate had come
too late—that until it was prepared and signed the “addi-
tional insured” was not actually insured. And so the judge
granted summary judgment in favor of the insurance com-
pany, precipitating this appeal by Vita. The insurance com-
pany also denied, and continues to deny, that the oral
agreement adding Vita as an insured preceded the accident.
But there was conflicting evidence on that point, and the dis-
trict judge therefore correctly ruled that the issue could not
be resolved on a motion for summary judgment.
But his grant of summary judgment in favor of Cincin-
nati Insurance was premature. The reference in the insur-
ance policy to a certificate of insurance is ambiguous. It
could, as Cincinnati argues, be regarded as a prerequisite to
coverage of the additional insured, but equally it could be
4 No. 15-1405
regarded as intended merely to memorialize the oral agree-
ment, in which event the date of the certificate would not
matter. A third possibility—which like the second supports
Vita’s position—is that the oral agreement must be memori-
alized in writing before the insured can file a claim.
The district judge invoked “the requirement that cover-
age is extended only ‘where a certificate has been issued.’”
But that’s not what the policy says. The oral agreement has
to precede the accident that gives rise to the insured’s claim,
but there is no indication of when the certificate of insurance
has to be issued. We have just suggested that a permissible
interpretation would be that it must be issued before the ad-
ditional insured files a claim with the insurance company, as
it was in this case.
An ambiguous insurance contract is interpreted “against
the drafter of the policy and in favor of coverage,” Outboard
Marine Corp. v. Liberty Mutual Ins. Co., 607 N.E.2d 1204, 1217–
20 (Ill. 1992), in recognition that such contracts are drafted
by, and therefore likely to be slanted in favor of, the insurer
and that the insured rarely has any bargaining power be-
cause such contracts are usually industry-wide standard-
form contracts, the terms of which therefore are not negoti-
ated anew every time a person or firm seeks insurance cov-
erage. The commercial general liability policy issued by Cin-
cinnati Insurance to Painters is such a contract, for it is of-
fered to potential insureds on a take-it-or-leave-it basis. Since
the reference in the policy to the certificate of insurance is
ambiguous, the judge erred in holding that the policy’s
“clear and unambiguous” language proves that Vita was not
an additional insured. The pertinent language was neither
clear nor unambiguous. The certificate may be useful in
No. 15-1405 5
heading off a dispute over whether there really is an oral
agreement. But the fulfillment of that purpose would require
only that the certificate precede the additional insured’s
claim for the proceeds of the insurance policy, and the certif-
icate in this case did precede the claim.
Cincinnati Insurance argues that requiring the certificate
before a liability-triggering event occurs is necessary to pro-
tect the insurer against fakery by the insured. After Ovan-
do’s accident Painters would have been desperate for Vita to
be acknowledged as an additional insured, as otherwise Vi-
ta, facing suit by Ovando and his wife, might try to drag
Painters into the suit, accusing it of responsibility for the ac-
cident. The certificate was not issued by Painters or Vita,
however, but instead, as we noted earlier, by an insurance
agent on behalf of Cincinnati Insurance. The agent would
not be willing to backdate a certificate of insurance at the in-
sured’s (Painters’) request, so requiring that the certificate
precede the accident would provide extra protection against
fakery. Oral agreements are valid contracts, however, and
the insurance policy is explicit that an oral agreement is suf-
ficient to add an additional insured.
The certificate of insurance, in contrast, is not a contract.
It states that it “is issued as a matter of information only,”
“confers no rights upon the certificate holder,” “does not af-
firmatively or negatively amend, extend or alter the cover-
age afforded by the policies,” and “does not constitute a con-
tract between the issuing insurer(s), authorized representa-
tive or producer, and the certificate holder.” Cincinnati In-
surance calls it a precondition to insuring Vita against liabil-
ity for the accident to Ovando. Were it a precondition it
would indeed amend the coverage provided by the policy
6 No. 15-1405
that Cincinnati Insurance issued to Painters. But the lan-
guage of the certificate indicates that it isn’t a precondition
to anything; it’s just information.
The insurance company cites a similar case that it won,
Cincinnati Ins. Co. v. Gateway Construction Co., 865 N.E.2d
395 (Ill. App. 2007), but overlooks a crucial difference: in
Gateway the policy did not permit an oral agreement to add
an additional insured. See id. at 399. Our interpretation of
the additional-insured provision in the present case is sup-
ported by such cases as ATOFINA Petrochemicals, Inc. v. Con-
tinental Casualty Co., 185 S.W.3d 440, 443–44 (Tex. 2005), and
United States Fidelity & Guaranty Co. v. Shorenstein Realty Ser-
vices, LP, 591 F. Supp. 2d 966, 968–70 (N.D. Ill. 2008) (Illinois
law).
So if Vita can prove that there was an oral agreement to
add it as an additional insured prior to the accident to
Ovando, it will be entitled to coverage under Cincinnati In-
surance’s policy. The judgment of the district court in favor
of the insurance company is therefore REVERSED and the
case REMANDED for further proceedings consistent with
this opinion.