Pekin Insurance Company v. Designed Equipment Acquisition Corporation , 63 N.E.3d 242 ( 2016 )

2016 IL App (1st) 151689
FIRST DIVISION
September 12, 2016
No. 1-15-1689
IN THE
APPELLATE COURT OF ILLINOIS
FIRST JUDICIAL DISTRICT
PEKIN INSURANCE COMPANY, )
) Appeal from the
Plaintiff-Appellee, ) Circuit Court of Cook County.
)
v. )
)
DESIGNED EQUIPMENT ACQUISITION ) 14 CH 10908
CORPORATION, an Illinois Corporation, d/b/a )
Designed Equipment Corporation, and HERON )
SALGADO, )
) Honorable Peter Flynn,
Defendants, ) Judge Presiding.
)
(Designed Equipment Acquisition Corporation, )
an Illinois Corporation, d/b/a Designed Equipment )
Corporation, Defendant-Appellant). )
)
PRESIDING JUSTICE CONNORS delivered the judgment of the court, with opinion.
Justice Cunningham and Justice Harris concurred in the judgment and opinion.
OPINION
¶1 This case involves a declaratory action that was brought as a result of an insurance policy
coverage dispute. Both parties to the litigation filed cross-motions for summary judgment. The
trial court granted plaintiff's motion and denied defendant's motion, effectively denying coverage
for defendant. Defendant now appeals, arguing that the policy at issue contains an ambiguity that
the court below should have construed in favor of defendant and that the lease constituted an
No. 1-15-1689
"insured contract," which would provide defendant with insurance coverage. For the reasons set
forth below, we affirm.
¶2 I. BACKGROUND
¶3 On May 20, 2010, Abel Building & Restoration (Abel) entered into a rental agreement
with defendant, Designed Equipment Acquisition Corporation (Designed), whereby Designed
leased Abel scaffolding materials. The lease agreement was signed by representatives from Abel
and Designed. The lease agreement stated that the rented materials would be delivered to Abel's
jobsite at 500 East 51st Street, Chicago, Illinois. The lease agreement also contained various
clauses and provisions, including, inter alia, an indemnification provision that read:
"15. INDEMNIFICATION: LESSEE SHALL INDEMNIFY AND DEFEND
LESSOR AGAINST AND HOLD LESSOR HARMLESS FROM ANY AND ALL
CLAIMS, ACTIONS, SUITS, PROCEEDINGS, COSTS, EXPENSES, DAMAGES
AND LIABILITIES, INCLUDING REASONABLE ATTORNEY'S FEES, WHICH: (A)
RELATE TO INJURY OR TO DESTRUCTION OF PROPERTY, OR BODILY
INJURY, ILLNESS, SICKNESS, DISEASE OR DEATH OF ANY PERSON
(INCLUDING EMPLOYEES OF LESSEE); AND (B) ARE CAUSED OR CLAIMED
TO BE CAUSED, IN WHOLE OR IN PART BY THE EQUIPMENT LEASED
HEREIN OR BY THE LIABILITY OR CONDUCT (INCLUDING ACTIVE, PASSIVE,
PRIMARY OR SECONDARY) OF LESSOR, ITS AGENTS OR EMPLOYEES, OR
ANYONE FROM WHOSE ACTS ANY OF THEM MAY BE LIABLE. THE PARTIES
AGREE THAT LESSOR SHALL ONLY BE LIABLE OR RESPONSIBLE FOR
ACTIONS OF WILFUL MISCONDUCT. LESSEE SHALL AT ITS OWN COST AND
EXPENSE, DEFEND LESSOR AGAINST ALL SUITS OR PROCEEDINGS
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No. 1-15-1689
COMMENCED BY ANYONE IN WHICH LESSOR IS A NAMED PARTY FOR
WHICH LESSOR IS ALLEGED TO BE LIABLE OR RESPONSIBLE AS A RESULT
OF OR ARISING OUT OF THE EQUIPMENT, OR ANY ALLEDGED [sic] ACT OR
OMISSION BY LESSOR AND LESSEE SHALL BE LIABLE AND RESPONSIBLE
FOR ALL COSTS, EXPENSES AND REASONABLE ATTORNEY'S FEES
INCURRED IN SUCH DEFENSE AND/OR SETTLEMENT, JUDGMENT OR OTHER
RESOLUTION OF THE CLAIM IN THE EVENT THAT SUCH ACTION IS
COMMENCED NAMING LESSOR AS A PARTY, LESSOR MAY ELECT TO
DEFEND SAID ACTION ON ITS OWN BEHALF AND LESSEE AGREES THAT IT
SHALL BE LIABLE FOR ALL COSTS, EXPENSES AND REASONABLE
ATTORNEY'S FEES INCURRED BY LESSOR IN SUCH DEFENSE.
PURPOSE OF THIS CLAUSE: IT IS THE PURPOSE OF THIS CLAUSE TO
SHIFT THE RISK OF ALL CLAIMS RELATING TO THE LEASED PROPERTY TO
THE LESSEE DURING THE ENTIRE TERM OF THIS LEASE.
***
23. INSURANCE: Lessee shall keep the equipment insured against all risks
of loss or damage from every cause whatsoever for not less than the full replacement
value thereof and shall carry commercial general public liability and property damage
insurance with full contractual liability to cover this lease. Lessee's failure to have such
insurance shall be a breach hereof and subject to termination as provided in Paragraph 10.
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No. 1-15-1689
Lessee shall also designate Lessor, its agents, employees, officers, and directors
as additional insured parties under all policies of insurance by Lessee as their interests
may appear and shall furnish evidence thereof to Lessor. See Exhibit A."
¶4 In September 2010, Abel procured a commercial lines insurance policy from plaintiff,
Pekin Insurance Company (Pekin), for the period of September 22, 2010, to September 22, 2011.
The policy provided for commercial general liability coverage protection and listed Abel as the
named insured. The policy contained an additional insured endorsement titled "Contractors
Additional Insured/ Waiver of Rights of Recovery Extension Endorsement" (contractors
endorsement). In relevant part, the contractors endorsement stated:
"1. Additional Insured - When Required By Written Construction Contract For
Ongoing Operations Performed By You For An Additional Insured and/or Your
Completed Operations
A. With respect to coverage afforded under this section of the
endorsement, Section II- Who Is An Insured is amended to include as an insured
any person or organization for whom you are performing operations, when you
and such person or organization have agreed in a written contract effective during
the policy period stated on the Declarations Page (hereinafter referred to as the
'Policy Period') and executed prior to the 'bodily injury' or 'property damage' for
which coverage is sought, that you must add that person or organization as an
additional insured on a policy of liability insurance (hereinafter referred to as the
'Additional Insured').
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No. 1-15-1689
The Additional Insured is covered only with respect to vicarious liability
for 'bodily injury' or 'property damage' imputed from You to the Additional
Insured as a proximate result of:
(1) Your ongoing operations performed for that Additional
Insured during the Policy Period; or
(2) 'Your work' performed for the Additional Insured during
the Policy Period, but only for 'bodily injury' or 'property damage' within
the 'products - completed operations hazard.'
B. It is further understood that the designation of any person or
organization as an Additional Insured:
(1) does not increase the scope or limits of coverage afforded
by this policy; and
(2) does not apply if the person or organization is specifically
named as an additional insured under any other provision of this policy.
C. With respect to the coverage afforded to the Additional Insured,
the following additional exclusions apply:
This insurance does not apply to:
(1) Liability for 'bodily injury' or 'property damage' arising out
of the rendering of, or the failure to render, any professional services,
including, but not limited to:
(a) The preparing, approving, or failing to prepare or
approve, maps, shop drawings, opinions, reports, surveys, field
orders, change orders or drawings and specifications, or
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No. 1-15-1689
(b) Supervisory, inspection, architectural or engineering
activities.
(2) Liability for 'bodily injury' or 'property damage' arising out
of or in any way attributable to the claimed negligence or statutory
violation of the Additional Insured, other than vicarious liability which is
imputed to the Additional Insured solely by virtue of the acts or omissions
of the Named Insured."
¶5 The policy contained another endorsement titled "Additional Insured- Lessor of Leased
Equipment" (lessors endorsement), that contained a "schedule" that listed a company called
"PAC VANS" as the only additional insured in that endorsement. In its entirety, the lessors
endorsement read:
"A. Section II - Who Is An Insured is amended to include as an additional
insured the person(s) or organization(s) shown in the Schedule. [B]ut only with respect to
liability for 'bodily injury', 'property damage' or 'personal and advertising injury' caused,
in whole or in part, by your maintenance, operation or use of equipment leased to you by
such person(s) or organization(s).
B. With respect to the insurance afforded to these additional insureds, this
insurance does not apply to any 'occurrence' which takes places after the equipment lease
expires."
¶6 The policy also contained a contractual liability exclusion that read:
"2. Exclusions
This insurance does not apply to:
***
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b. Contractual Liability
'Bodily injury' or 'property damage' for which the insured is obligated to
pay damages by reason of the assumption of liability in a contract or agreement.
This exclusion does not apply to liability for damages:
(1) That the insured would have in the absence of the contract
or agreement; or
(2) Assumed in contract or agreement that is an 'insured
contract', provided the 'bodily injury' or 'property damage' occurs
subsequent to the execution of the contract or agreement. Solely for the
purposes of liability assumed in an 'insured contract', reasonable attorney
fees and necessary litigation expenses incurred by or for a party other than
an insured are deemed to be damages because of 'bodily injury' or
'property damage', provided:
(a) Liability to such party for, or for the cost of, that
party's defense has also been assumed in the same 'insured
contract'; and
(b) Such attorney fees and litigation expenses are for
defense of that party against a civil or alternative dispute resolution
proceeding in which damages to which this insurance applies are
alleged."
The policy's definition for "insured contract" that is relevant in this case is:
"f. That part of any other contract or agreement pertaining to your business
(including an indemnification of a municipality in connection with work performed for a
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No. 1-15-1689
municipality) under which you assume the tort liability of another party to pay for 'bodily
injury' or 'property damage' to a third person or organization. Tort liability means a
liability that would be imposed by law in the absence of any contract or agreement."
¶7 Subsequent to Abel beginning work at the jobsite on 51st Street, one of its employees
who was working at the jobsite, Heron Salgado, was injured. Salgado was injured on two
occasions: January 17, 2011, when a heavy bucket allegedly fell on him, and January 19, 2011,
when he allegedly fell into an opening in the scaffolding. In December 2012, he filed two
separate lawsuits for his personal injuries against Designed, which were thereafter consolidated.
Salgado's complaints alleged that Designed was contracted by Abel to "design, build, erect,
operate[,] and maintain a certain scaffold [Salgado] was required to use in order to perform his
work." Salgado's complaints further alleged that Designed negligently caused his injuries in the
following ways: failed to properly design the scaffold; failed to properly construct and erect the
scaffold; failed to maintain proper safety measures for persons in and about the scaffold; failed to
properly monitor, inspect, and review the design, construction, and erection of the scaffold;
allowed a defective scaffold to be erected while knowing that its condition was dangerous to
persons working on the scaffold; failed to take necessary precautions and implement safeguards
for the safety of those working on the scaffold; provided an unsafe scaffold; and was otherwise
guilty of negligence.
¶8 As a result of Salgado's complaints, Designed tendered its defense to its own insurance
company and then to Pekin, Abel's insurance company, in a letter dated May 23, 2014. Pekin
responded to Designed's letter on June 19, 2014, and rejected the tender of defense, stating that
although the policy issued to Abel was endorsed with an additional insured endorsement,
Designed was not an additional insured under the policy. Pointing to the language of the
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No. 1-15-1689
contractors endorsement, Pekin asserted that the endorsement "amends to the who is an insured
definition to include 'any organization for whom you [Abel] are performing operations ***' and
we point out that Abel was not performing operations for Designed at the time of either alleged
accident, but was leasing or renting a scaffold and related appurtenant parts from Designed."
Pekin further explained that, in the alternative, if Designed were an additional insured, its
defense would still be rejected because Abel's policy excluded coverage for the negligence of the
additional insured. Pekin also suggested, inter alia, that it would not provide coverage because
Salgado sued Designed for its own negligence, not vicarious liability for the acts or omissions of
Abel. Finally, Pekin acknowledged the indemnity provision from the lease agreement between
Designed and Abel but argued that although the policy's exclusion for bodily injuries contained
an exception for an insured contract, such contracts involving construction were void against
public policy in Illinois.
¶9 On June 30, 2014, Pekin filed the complaint for declaratory judgment from which this
appeal stems. Designed and Salgado 1 were named as defendants. Pekin's complaint contained
three counts, each seeking a declaration that it did not have a duty to defend Designed. Count I
alleged that Designed was not an additional insured under the contractors endorsement because
Abel did not perform operations for Designed and Salgado's complaints did not allege Abel
performed any operations for Designed. Count II, which was pled in the alternative, alleged that
Designed was not entitled to coverage because Designed was sued for its own negligence and the
contractors endorsement specifically excluded coverage for the negligence of any additional
insured. Count III, also pled in the alternative, alleged that Pekin had no duty to defend
Designed because the lease between Abel and Designed did not qualify as an "insured contract"
1
Pekin's complaint stated that Salgado was "a nominal but necessary party to this declaratory judgment
action and who [was] joined herein solely to be bound by the judgment rendered in this cause although no specific
relief is sought against him." We point this out to make clear that Salgado is not a party to this appeal.
9
No. 1-15-1689
pursuant to the policy, and even if it did, said agreement would be void under the Construction
Contract Indemnification for Negligence Act (Act) (740 ILCS 35/1 (West 2012)), which reads:
"With respect to contracts or agreements, either public or private, for the construction,
alteration, repair or maintenance of a building, structure, highway bridge, viaducts, or
other work dealing with construction, or for any moving, demolition or excavation
connected therewith, every covenant, promise or agreement to indemnify or hold
harmless another person from that person's own negligence is void as against public
policy and wholly unenforceable."
¶ 10 Designed filed its answer to Pekin's complaint on August 26, 2014, denying the material
allegations of the complaint. Designed did not file any affirmative defenses or motions to
dismiss.
¶ 11 On January 5, 2015, 2 Pekin filed its motion for summary judgment, essentially reiterating
the arguments made in its letter rejecting Designed's tender of defense. Namely, Pekin argued
Designed was not an additional insured under Abel's policy because Abel was not performing
operations for Designed at the time of Salgado's injury; even if Designed was an additional
insured, there was no coverage where the additional insured was sued for its own negligence, not
the negligence of the named insured; and there was no duty to defend even if the lease between
Abel and Designed was an insured contract, because it was void under Illinois law.
¶ 12 On February 20, 2015, Designed filed its cross-motion for summary judgment and
response to Pekin's motion for summary judgment. Designed asserted that summary judgment
should be granted in its favor because "Abel, Pekin's insured, became legally obligated to pay
2
We note that the copy of Pekin's motion for summary judgment that is contained in the record is file-
stamped by the clerk of court as being filed on "January 5, 2016." However, it is clear from the other documentation
in the record and the timeline of this case that said date is an error and the motion should have been file-stamped
with the year 2015, not 2016. Thus, we presume the motion was actually filed on January 5, 2015 for purposes of
this appeal.
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No. 1-15-1689
any damages that Salgado may recover from [Designed] because Abel assumed such liability
when it entered into the [c]ontract to lease [Designed's] scaffolding." Designed further argued
that the lease agreement between it and Abel met the policy's definition of an insured contract
and thus was not excluded from coverage. Designed contended that the case law cited by Pekin
involved "a much different indemnification agreement" than the one at issue here. Further, the
Act was not applicable and did not void the indemnification provisions in the lease between Abel
and Designed.
¶ 13 Sometime thereafter, 3 Pekin filed its response to Designed's cross-motion for summary
judgment and reply in support of its motion for summary judgment. Pekin began its
response/reply by pointing out that Designed "seem[ed] to take little to no issue with the fact that
it does not find itself within the coverage of the Pekin policy by virtue of the [contractors]
endorsement"; thus Pekin relied on its argument in its motion for summary judgment for counts I
and II of its complaint. As for count III, Pekin argued that Designed's assertion that its
agreement with Abel was an "insured contract" because it was merely a lease, not a construction
contract, must fail. Pekin cited two cases to support this proposition, Folkers v. Drott
Manufacturing Co., 152 Ill. App. 3d 58 (1987) and American Pecco Corp. v. Concrete Building
Systems Co., 392 F. Supp. 789 (N.D. Ill. 1975). Pekin argued that the lease agreement here fell
within the parameters of the Act, because the contract involved the lease of scaffolding to Abel, a
building restoration company. Pekin pointed to the terms and conditions of the lease agreement
that forbid the use of the scaffold in any other manner than for use at the jobsite.
¶ 14 Designed filed its reply in support of its cross-motion for summary judgment on March
25, 2015. In its reply, Designed primarily reiterated its arguments from its cross-motion.
3
The copy of Pekin's response contained in the record is not file-stamped, thus the exact date that it was filed
is unclear.
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No. 1-15-1689
Designed also asserted that Pekin failed to explain how count I of its complaint is somehow
dispositive of the remaining counts. Designed argued that its lease agreement with Abel
qualified as an insured contract but was not a construction contract and therefore not void under
the Act. Designed stressed that its agreement with Abel was a lease, not a subcontract agreement
that obligated either party to perform any construction, demolition, or excavation, thus rendering
it outside the realm of a construction contract. Designed also attacked the case law cited by
Pekin, calling the Folkers case "outdated" and "markedly different than the contract at issue
here." Designed argued that merely because the scaffolding that was the subject of the lease was
later used by Abel in restoration work does not transform the lease into a construction contract
for purposes of the Act.
¶ 15 The trial court held a hearing on both motions for summary judgment on May 6, 2015.
The parties presented oral arguments, and the court expressed its ruling on the record. While the
parties were arguing their positions regarding whether Designed should be considered an
additional insured under the policy, counsel for Pekin referred to the lease agreement between
Abel and Designed as a "subcontract." Counsel for Designed thereafter stated, "[t]here is
absolutely no evidence that the contract was a subcontract. Designed Equipment was never a
subcontractor of Abel. They never provided any construction duties at this job site. It was
merely a rental agreement or a lease agreement. It was not a subcontract agreement." The
following exchange then occurred regarding Designed's counsel's position:
"MR. SYREGELAS [Pekin's attorney]: I'll clear that up. Subcontract was a slip
of the tongue.
THE COURT: What you've done there is put yourself—
MR. SYREGELAS: Out of the endorsement.
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No. 1-15-1689
THE COURT: I have to find—is to put yourself out of the additional insured
endorsement. If Abel and Designed don't have some kind of subcontract relationship,
then it doesn't make sense to say either is performing work for the other. And the
subcontractor—it would be additional insured definition requires that one be performing
work for the other, correct?
MR. DEBRE [Designed's attorney]: That is a portion of the policy, but I think our
main arguments are to this contract being an insured contract under the policy."
The court then stated that it believed that if it did not get past the additional insured portion of
the contract, then it did not have to reach the issue of whether the lease was an insured contract.
¶ 16 Ultimately, the court stated that it found in favor of Pekin for two reasons. First, the
court agreed with Pekin that the policy in question "ha[d] an additional insured endorsement that
would not cover the rental contract at issue here." The court explained that the language of the
contractors endorsement that applied to "any person or organization for whom [Abel is]
performing operations" simply did not fit the factual scenario here. Rather, the court noted that
such language is "intended to cover classic subcontract relations" and that it was drafted to cover
"upstream insurance obligations.” 4 The court also found for Pekin on the issue of whether the
lease agreement between Abel and Designed constituted an insured contract, determining that it
did, but that it was void. The court mentioned that it found the cases cited to be "less than
squarely on point," but nevertheless concluded that the parties here knew the scaffold was for use
in a construction project. Thus, the Act applied and the insured contract was void. The court
stated that Pekin prevailed on counts I and III, and that count II was "not addressed separately,
4
The court defined "upstream insurance obligations," stating "the construction food chain has a liability
going down and insurance liability going up. Every subcontractor is requiring the people below to insure him and so
on up the line until we get to the owner."
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No. 1-15-1689
but it is subsumed in the analysis of Count I." As a result, the court granted Pekin's motion for
summary judgment as to all three counts and denied Designed's cross-motion.
¶ 17 On June 5, 2015, Designed timely filed its notice of appeal.
¶ 18 II. ANALYSIS
¶ 19 "The construction of an insurance policy and a determination of the rights and obligations
thereunder are questions of law for the court and appropriate subjects for disposition by summary
judgment." (Internal quotations marks omitted.) Liberty Mutual Fire Insurance Co. v. St. Paul
Fire & Marine Insurance Co., 363 Ill. App. 3d 335, 338 (2005). “When parties file cross-
motions for summary judgment, they agree that only a question of law is involved and invite the
trial court to decide [the] issues based on the record.” Pielet v. Pielet, 2012 IL 112064, ¶ 28.
However, the mere filing of cross-motions for summary judgment does not establish that there is
no issue of material fact, nor does it obligate the court to render summary judgment. Id.
Summary judgment is appropriate only where "the pleadings, depositions, and admissions on
file, together with the affidavits, if any, show that there is no genuine issue [of] material fact and
that the moving party is entitled to a judgment as a matter of law." 735 ILCS 5/2-1005(c) (West
2012). We review de novo a ruling on a motion for summary judgment. Clark Investments, Inc.
v. Airstream, Inc., 399 Ill. App. 3d 209, 213 (2010).
¶ 20 Designed makes two arguments on appeal: (1) the Pekin insurance policy contained an
ambiguity given the presence of its two additional insured endorsements with differing terms and
provisions, which the trial court should have construed in favor of Designed and found that Pekin
had a duty to defend and (2) the lease agreement between Abel and Designed constituted an
insured contract within the meaning of the policy thereby allowing coverage, and no legal
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No. 1-15-1689
precedent exists to hold the contract void under the Act. We address each of these arguments
and Pekin's responses thereto below.
¶ 21 Designed's argument that Abel's insurance policy contained an ambiguity due to the
purportedly conflicting language of the contractors endorsement and the lessors endorsement
was not raised, or even mentioned, in the court below, and thus is forfeited on appeal. Designed
contends that an ambiguity exists because the lessors endorsement and the contractors
endorsement contain differing terms and provisions. Pekin responds that such an argument was
never brought up in the court below and is therefore waived on appeal. In its reply, Designed
asserts that waiver does not apply because "Count I and the purported underlying theory for it
[the contractors endorsement] were directly addressed by [Designed] in the underlying
litigation." Designed further argues that "[e]ven assuming that a party makes an argument not
previously perfected at some previous point in the record, the 'waiver' rule does not limit a
court's powers of review."
¶ 22 “It is well settled that issues not raised in the trial court are deemed waived and may not
be raised for the first time on appeal.” Haudrich v. Howmedica, Inc., 169 Ill. 2d 525, 536
(1996). However, "waiver is an admonition to the parties, not a limitation upon the powers of
[the] courts of review." (Internal quotation marks omitted.) Northwestern Memorial Hospital v.
Sharif, 2014 IL App (1st) 133008, ¶ 21. This court has the discretion to review the merits of a
party's argument in the interest of judicial economy and where the necessary facts to understand
the argument are simple. Zadrozny v. City Colleges of Chicago, 220 Ill. App. 3d 290, 292-93
(1991).
¶ 23 After a review of the May 6, 2016, hearing transcript, the parties' cross-motions for
summary judgment, responses, and replies, it is clear that the lessors endorsement was never
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No. 1-15-1689
addressed by the parties or the court. Similarly, the policy's alleged ambiguity that Designed
raises in its appellate brief was also never examined by the trial court. Designed attempts to
make it seem as though the trial court, in fact, addressed its argument regarding the lessors
endorsement and the policy's alleged ambiguity by asserting that the trial court thoroughly
examined count I and the theories underlying it. However, Designed never pointed out the
existence of the lessors endorsement or argued that the policy contained an ambiguity. Although
Designed blames Pekin for solely focusing on the contractors endorsement, Designed could have
argued the relevance of the lessors endorsement and any purported ambiguity in its own motion
for summary judgment or in its response to Pekin's motion for summary judgment, but it never
did. Likewise, Designed did not file a counterclaim, a motion to dismiss, or an affirmative
defense, any of which could have acted as a vehicle to address the lessors endorsement or alleged
ambiguity. The trial court never examined the issue of the lessors endorsement or any alleged
ambiguity at the hearing on the cross-motions, because these issues were never raised by either
party. Thus, Designed is essentially asking this court to undertake a policy interpretation that
was not performed by the circuit court. We do not agree with Designed's categorization of the
facts here as being "remarkably simple," and we exercise our discretion not to address
Designed's argument for the first time on appeal. See Zadrozny, 220 Ill. App. 3d at 292-93. We
now turn to Designed's remaining argument.
¶ 24 Designed next argues that the lease agreement between Abel and Designed constituted an
insured contract within the meaning of the policy thereby allowing coverage and asserts that no
legal precedent exists to hold the contract void under the Act. Pekin responds that the court's
findings regarding the lease agreement as an insured contract and the resultant application of the
Act to void the agreement were correct. Specifically, Pekin contends that the parties did not
16
No. 1-15-1689
enter into an insured contract, and even if they had, the Act applies to void such a contract. The
trial court determined that the Act applies and voids the agreement here, stating "[i]t's very hard
for me not to conclude that both sides to this transaction knew that the purpose of the scaffold
was for use in a construction project ***. To take any other view would encourage the artful
drafting of what are really construction contracts to pretend they're something else, and it seems
to me that neither sound public policy nor a sensible reading of the statute would warrant such an
approach."
¶ 25 An indemnity agreement is a contract subject to contract interpretation rules. Buenz v.
Frontline Transportation Co., 227 Ill. 2d 302, 308 (2008). “It is well settled that indemnity
contracts are [to be] strictly construed and will not be construed as indemnifying against a party's
own negligence unless such a construction is required by the clear and explicit language of the
contract.” Bituminous Casualty Corp. v. Plano Molding Co., 2015 IL App (2d) 140292, ¶ 8. We
review the interpretation of a contract de novo. Id.
¶ 26 Designed argues that Abel became legally obligated to pay for damages that Salgado may
recover from Designed. Paragraph 15 of the lease agreement between Abel and Designed
contained an indemnification clause that stated, inter alia:
"[Abel] shall indemnify and defend [Designed] against and hold [Designed] harmless
from any and all claims, ***, which relate to *** bodily injury *** and are caused or
claimed to be caused, in whole or in part by the equipment leased herein or by the
liability or conduct *** of [Designed]. *** [Abel] shall *** defend [Designed] against
all suits or proceedings commenced by anyone in which [Designed] is a named party for
which [Designed] is alleged to be liable or responsible as a result of or arising out of the
equipment, or any alledged [sic] act or omission by [Designed]."
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No. 1-15-1689
See supra ¶ 4. Abel's policy from Pekin contains an exclusions section that excluded contractual
liability for bodily injury or property damage that Abel would be required to pay by reason of
assumption of liability in a contract or agreement. See supra ¶ 7. The policy's exclusions
section also stated that the contractual liability exclusion does not apply to liability that is
assumed in an insured contract. Id.
¶ 27 The parties disagree as to whether the indemnity provision from the lease constitutes an
insured contract. Designed argues that it is an insured contract and thus the exclusion does not
apply, requiring Pekin to provide coverage. Pekin responds that the lease agreement is not an
insured contract because the indemnity provision does not clearly and explicitly express the
parties' intent that Abel would indemnify Designed for Designed's own negligence. Rather,
Pekin contends, the indemnity provision only requires Abel to indemnify Designed to the extent
of Abel's own negligence and cites the case of Hankins v. Pekin Insurance Co., 305 Ill. App. 3d
1088 (1999), as support for its position.
¶ 28 The Hankins case involved a declaratory action brought by Hankins, a cartage company
that operated a trucking terminal, against its insurer. Id. at 1089. At issue was the language of
an agreement Hankins entered into with Rudolf, a motor freight carrier, and whether their
agreement constituted an insured contract. Id. The hold-harmless provision in Hankins and
Rudolf's agreement stated that Hankins agreed to indemnify and hold Rudolf harmless from
claims, damages, losses, and expenses which might arise out of work performed by Hankins and
caused by Hankins' negligence. Id. at 1089-90. The court determined that the language of the
hold-harmless provision did not clearly and explicitly express the parties' intent that Hankins
would indemnify Rudolf against Rudolf's own negligence but instead found that the agreement
provided that Hankins would indemnify Rudolf against liability caused by Hankins negligence.
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No. 1-15-1689
Id. at 1093. Thus, the court held that the hold-harmless provision was not an insured contract
within the meaning of the policy. Id.
¶ 29 Looking to the language of the indemnity provision of the lease between Abel and
Designed, it is clear to this court that the language constitutes an insured contract, thus we
disagree with Pekin's argument and find this case to be factually distinct from Hankins.
According to the policy here, an insured contract is defined as "[t]hat part of any contract or
agreement pertaining to [Abel's] business *** under which [Abel] assume[s] the tort liability of
another party to pay for 'bodily injury' or 'property damage' to a third person or organization.
Tort liability means a liability that would be imposed by law in the absence of any contract or
agreement." The indemnity provision in the lease between Abel and Designed states that "[Abel]
shall indemnify and defend [Designed] against and hold [Designed] harmless from any and all
claims, actions, suits, proceedings, costs, expenses, damages, and liabilities ***, which: (A)
relate to *** bodily injury ***, and (B) are caused by *** [Designed]." Unlike the language of
the hold-harmless provision in Hankins, the language of the indemnity provision in the lease
requires Abel to indemnify Designed for Designed's own negligence. Therefore, we find that an
insured contract exists because the language of the indemnity provision clearly and explicitly
evidences the parties' intent that Abel agreed to indemnify Designed against Designed's own
negligence.
¶ 30 Having found that the lease agreement was an insured contract, we turn to Pekin's
argument that even if it was an insured contract, the Act applies to void the agreement. The Act
provides:
"With respect to contracts or agreements, either public or private, for the construction,
alteration, repair or maintenance of a building, structure, highway bridge, viaducts, or
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other work dealing with construction, or for any moving, demolition or excavation
connected therewith, every covenant, promise or agreement to indemnify or hold
harmless another person from that person's own negligence is void as against public
policy and wholly unenforceable." 740 ILCS 35/1 (West 2012).
¶ 31 Designed contends that the Act should not apply to void the insured contract, because the
contract at issue is a simple, straightforward agreement for the rental of equipment, not a
construction contract within the meaning of the Act. Pekin asserts that the agreement is void
under the Act because it involved the lease of scaffolding to a building restoration company and
delivered to a construction site. Also, Pekin points to the language of the lease that stated that
the scaffolding "equipment will not be removed from the job address unless approved by
[Designed] in writing prior thereto." The trial court found the agreement to be "a contract for a
scaffold and a site for delivery of the materials that are going to make the scaffold -- in other
words, [Designed is] going to assemble the scaffold --which the parties have told me here is a
construction site. It's very hard for me not to conclude that both sides to this transaction knew
that the purpose of the scaffold was for use in a construction project, and if this is so, then in my
view, construing the anti-indemnification act, the statute should apply." The trial court also
noted that although "the cases don't fit comfortably," Pekin still should prevail.
¶ 32 We agree with the trial court's conclusion that the Act should apply here and also
recognize as accurate its statement that the existing cases are not exactly on point. In Folkers v.
Drott Manufacturing Co., 152 Ill. App. 3d 58, 66 (1987), which was cited by Pekin in support of
its assertions, the court found that the indemnity provision of a rental contract for a crane fell
squarely within parameters of the Act and was therefore void where the agreement stated that the
crane's purpose was "for use in construction operations." Unlike Folkers, the agreement here
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No. 1-15-1689
does not expressly state the purpose of the lease as being for construction operations, thus it is
not directly on point. The remainder of the cases cited by both parties are from the federal
courts. We note that the federal cases are not binding on this court. SK Handtool Corp. v.
Dresser Industries, Inc., 246 Ill. App. 3d 979, 986 (1993). However, even looking at those
cases, we do not find them to be parallel to the case at bar. See Avalos v. Pulte Home Corp., No.
04 C 7092, 2006 WL 3813735 (N.D. Ill. Dec. 22, 2006) (finding that the agreement at issue was
not a construction contract where the primary duty under the contract was to deliver building
materials rather than perform actual acts of construction), Winston Network, Inc. v. Indiana
Harbor Belt R.R. Co., 944 F.2d 1351 (7th Cir. 1991) (holding that the Act did not apply where a
painter was injured while painting advertisement on a railroad bridge because the advertising
agreement at issue did not involve construction), Gama v. Central Rent-a-Crane, Inc., No. 88 C
9590, 1989 WL 121275 (N.D. Ill. Sept. 28, 1989) (applying Indiana law, the court ordered that a
motion for judgment on the pleadings be denied where further factual development was
necessary to determine if the contract at issue affected nonhighway construction), and American
Pecco Corp. v. Concrete Building Systems Co., 392 F. Supp. 789 (E.D. Ill. 1975) (determining
that where a lessor not only provided a crane but also the operator for the crane, lessor became a
subcontractor in the construction of a building and the lease's indemnity provision was voided by
the Act).
¶ 33 The Act expressly states that it applies to "contracts or agreements, either public or
private, for the construction, alteration, repair or maintenance of a building, structure, highway
bridge, viaducts, or other work dealing with construction." 740 ILCS 35/1 (West 2012). Here,
the contract at issue between Abel and Designed is a lease or rental agreement for scaffolding
equipment. Both parties admit that the lease does not contain the word "construction."
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However, we have not found any case that states that there is a magic word that must be used in
an agreement in order to bring it within the purview of the Act.
¶ 34 Using a common sense approach when looking to the language of the lease and the facts
of this case, as was done by the trial court, we believe it is evident that the lease agreement here
involves, at least, "other work dealing with construction." 740 ILCS 35/1 (West 2012). First, the
lessee of the equipment is listed in the lease as "Abel Building Restoration," which evidences the
type of company Designed was leasing the equipment to. Additionally, the "bill to" and "ship
to" addresses are different, which reasonably would lead one to believe that the scaffolding
equipment was to be shipped to the jobsite where it would be used, rather than Abel's corporate
or office address from which the bills are paid. The lease also states that the equipment was not
to be removed from the jobsite unless approved by Designed in writing. Thus, Abel was not free
to use the scaffolding anywhere but the location to which it was delivered. The parties agree that
the lease required Designed to deliver and assemble the scaffolding. Thus, it could also be
inferred that Designed knew what type of jobsite was at issue because its employees went to the
site to deliver and assemble the scaffolding. However, even looking past the assumption that
Designed knew the type of site based on its employees actually going to the site, we believe that
the language of the lease and the type of equipment involved, on its own, renders the agreement
as one that involves "other work dealing with construction." The lease required Designed to
deliver and assemble scaffolding, which is certainly a type of work that deals with construction,
and if not construction specifically, then "alteration, repair or maintenance of a building." Either
way, the lease here falls under the Act, rendering the insured contract void. We, like the trial
court, cannot imagine that a lease of scaffolding equipment by a building restoration company
can be reasonably interpreted as not being for the "construction, alteration, repair or
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maintenance" of a building or structure or "other work dealing with construction." Designed is
asking this court to render an interpretation of the lease that runs contrary to common sense, and
we refuse to do so.
¶ 35 III. CONCLUSION
¶ 36 Based on the foregoing, we affirm the trial court's decision to grant Pekin's motion for
summary judgment on all three counts and deny Designed's cross-motion for summary judgment.
¶ 37 Affirmed.
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