Scottsdale Insurance Company v. Columbia Insurance Group, Inc

In the
United States Court of Appeals
For the Seventh Circuit
____________________
No. 19-3315
SCOTTSDALE INSURANCE COMPANY,
Plaintiff-Appellee,
v.
COLUMBIA INSURANCE GROUP, INC.,
Defendant-Appellant.
____________________
Appeal from the United States District Court for the
Northern District of Illinois, Eastern Division.
No. 1:18-CV-03657 — John Z. Lee, Judge.
____________________
ARGUED MAY 28, 2020 — DECIDED AUGUST 26, 2020
____________________
Before MANION, KANNE, and WOOD Circuit Judges.
MANION, Circuit Judge. While performing HVAC work at a
construction site in Chicago, Eduardo Guzman fell approxi-
mately 22 feet through an unguarded opening in the second
floor, sustaining serious injuries. Guzman sued Rockwell
Properties (the owner), Prairie Management & Development
(the manager), and others in state court.
2 No. 19-3315
The issue before us is whether Columbia Insurance Group
(Guzman’s employers’ insurer) owes a duty to defend Rock-
well and Prairie. Scottsdale Insurance Company (Rockwell’s
insurer) wants Columbia to take over the defense. The district
court granted Scottsdale judgment on the pleadings, declar-
ing Columbia has a duty to defend Rockwell and Prairie, and
ordering Columbia to reimburse prior defense costs. We af-
firm.
I. Background
We review a ruling on a Rule 12(c) motion for judgment
on the pleadings de novo and we construe the facts in the light
most favorable to the nonmovant. Buchanan-Moore v. Cty. of
Milwaukee, 570 F.3d 824, 827 (7th Cir. 2009).
A. Columbia insures TDH
TDH Mechanical provides heating, ventilation, and air
conditioning services. It employed Eduardo Guzman.
TDH bought an insurance policy from Columbia Insur-
ance Group to cover the period from April 12, 2016, to April
12, 2017. The policy contains this “insuring agreement”:
We will pay those sums that the insured be-
comes legally obligated to pay as damages be-
cause of “bodily injury” … to which this insur-
ance applies. We will have the right and duty to
defend the insured against any “suit” seeking
those damages … .
The policy also includes an endorsement adding addi-
tional insureds under particular circumstances:
No. 19-3315 3
The following amends SECTION II—Liability,
C. Who Is An Insured:
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
writing in a contract or agreement that such per-
son or organization be added as an additional
insured on your policy. Such person or organi-
zation is an additional insured only with respect
to liability arising out of your ongoing opera-
tions performed for that insured. Liability for
“bodily injury” or “property damage” caused,
in whole, or in part, by “your work” arising out
of your ongoing operations performed for that
additional insured and included in the “prod-
ucts-completed operations hazard”.
B. TDH contracts with Prairie and Rockwell
Rockwell Properties owned a piece of property under con-
struction in Chicago. Prairie Management & Development
was the construction manager at this property. In February
2017, Prairie and Rockwell contracted with TDH to provide
HVAC services at this property. That contract contains two
particularly relevant paragraphs:
14. Contractor [TDH] hereby assumes respon-
sibility and liability in and for any and all dam-
ages or injury of any kind or nature whatever to
all persons and to all property growing out of or
resulting from the act or omission of the Sub-
contractor in the performance of the Work pro-
vided for in this Contract. … Contractor [TDH],
4 No. 19-3315
to the extent permitted by law, agrees to indem-
nify, defend, save and hold harmless the Owner
[Rockwell] against any and all claims, damages,
loss or expenses (including court costs and at-
torney’s fees) by reason of the liability imposed
by law upon the Contractor, and/or Owner for
damages because of bodily injuries, including
death at any time there from [sic], sustained by
any person or persons; or on account of damage
to property arising out of or on account of or in
consequence of the performance of this Contract
where such injuries to persons or damage to
property are due or claimed to be due to any
negligence of Contractor’s employees, agents or
servants. Contractor shall protect and indem-
nify Owner against any loss or damage suffered
by anyone arising through Contractor’s negli-
gence, or those employed by Contractor may
have by reason thereof, or on account of being
charged therewith … .
15. Prior to commencing any work, the Contrac-
tor shall submit a certification of insurance ac-
ceptable to the Owner naming the Owner
(Rockwell Properties, LLC) and Prairie Manage-
ment & Development, Inc. as Additional In-
sureds for the duration of the job.
The record also includes a Certificate of Liability Insur-
ance dated February 9, 2017, identifying Columbia as the
commercial general liability insurer, TDH as the insured, and
Rockwell and Prairie as additional insureds.
No. 19-3315 5
C. Guzman falls and is injured
On March 13, 2017, Guzman was performing HVAC work
at the Chicago building when he fell “through an unguarded
opening” in the second floor. He fell 22 feet. He suffered seri-
ous injuries, but survived.
Guzman sued Prairie, Rockwell, and others for negligence
(“underlying suit”).1 He claims, among other things, that
Prairie and Rockwell “carelessly and negligently failed to su-
pervise, inspect, monitor, and coordinate the work of the sub-
contractors on the construction site in order to prevent and
protect Plaintiff from falling through the unprotected opening
in the floor … .” He also claims that Prairie and Rockwell
“carelessly and negligently failed to properly supervise the
construction site and monitor work of [their] subcontractors,
and thereby allowed [their] subcontractors to engage in the
unsafe practice of not covering or guarding the unmarked
opening in the floor with appropriate protection which ex-
posed Plaintiff to the risk of falling through the opening.”
Guzman did not sue TDH, and his suit does not specifically
mention it.
Several defendants in the underlying suit (besides Prairie
and Rockwell) filed third-party complaints against TDH for
contribution, alleging TDH negligently failed to train its em-
ployees on multiple issues, failed to maintain a safe work-
place, failed to provide proper safety equipment, allowed the
opening to remain open and unprotected, failed to supervise
1 The underlying suit’s most-recent amended complaint that is part of
the record before us is Guzman’s second amended complaint. Columbia
has advanced no arguments that any subsequent amended complaint
changes the allegations in any relevant way.
6 No. 19-3315
or inspect the construction site, failed to supervise or inspect
the work of subcontractors, failed to warn Guzman of the
opening, failed to provide adequate illumination, failed to su-
pervise the HVAC work of its employees including Guzman,
failed to enforce its own safety rules, and failed to provide
adequate safeguards to prevent the injury.
Scottsdale insured Rockwell. Scottsdale has defended
Rockwell and Prairie in the underlying suit. Columbia refuses
to defend them. Scottsdale wants Columbia to take over their
defense, and to reimburse Scottsdale for the defense costs
thus incurred. Scottsdale filed this suit, seeking a declaration
that Columbia has a duty to defend and indemnify Rockwell
and Prairie. Scottsdale moved for judgment on the pleadings.
The district court granted this motion in part, declaring Co-
lumbia owes a duty to defend Prairie and Rockwell, ordering
Columbia to pay Scottsdale over $50,000 for defense costs
through August 2019, and leaving the issue of indemnity for
another day. Columbia appeals.
II. Discussion
A. Law
Procedurally, we review a judgment on the pleadings de
novo. When a plaintiff moves for judgment on the pleadings,
the motion should not be granted unless it appears beyond
doubt that the nonmovant cannot prove facts sufficient to
support its position, and that the plaintiff is entitled to relief.
See Housing Auth. Risk Retention Grp. v. Chicago Housing Auth.,
378 F.3d 596, 600 (7th Cir. 2004).
Substantively, the parties agree Illinois law applies. Insur-
ance policies are contracts. Under Illinois law, “the general
rules governing the interpretation of other types of contracts
No. 19-3315 7
also govern the interpretation of insurance policies.” Hobbs v.
Hartford Ins. Co. of the Midwest, 823 N.E.2d 561, 564 (Ill. 2005).
The goal in interpreting an insurance policy “is to ascertain
and give effect to the intention of the parties, as expressed in
the policy language.” Id.
An insurer’s duty to defend is broader than its duty to in-
demnify. Outboard Marine Corp. v. Liberty Mut. Ins. Co., 607
N.E.2d 1204, 1220 (Ill. 1992). To determine whether an insurer
has a duty to defend, a court compares the underlying com-
plaint’s allegations (liberally construed in the insured’s favor)
to the policy’s language. Id. If the underlying complaint “al-
leges facts within or potentially within policy coverage, an in-
surer is obligated to defend its insured even if the allegations
are groundless, false or fraudulent.” General Agents Ins. Co. of
Am. v. Midwest Sporting Goods Co., 828 N.E.2d 1092, 1098 (Ill.
2005).
“An insurer can only refuse to defend if the allegations of
the underlying complaint preclude any possibility of cover-
age.” Illinois Tool Works, Inc. v. Travelers Cas. & Sur. Co., 26
N.E.3d 421, 428 (Ill. App. Ct. 2015). An insurer must defend
when “the underlying allegations do not foreclose coverage.”
Id. When an insurer relies on a provision that it contends ex-
cludes coverage, courts “review the applicability of the provi-
sion to ensure it is clear and free from doubt that the policy’s
exclusion prevents coverage.” National Fire Ins. of Hartford v.
Walsh Const. Co., 909 N.E.2d 285, 288 (Ill. App. Ct. 2009) (in-
ternal quotation marks omitted).
A court may look beyond the underlying complaint to
third-party complaints when determining whether there is a
duty to defend, so long as the third-party complaints are not
“self-serving” or filed by the additional insured seeking
8 No. 19-3315
coverage. See Farmers Auto. Ins. Ass’n v. Neumann, 28 N.E.3d
830, 834 (Ill. App. Ct. 2015); Illinois Embacaso Ins. Co. v.
Waukegan Steel Sales Inc., 996 N.E.2d 247, 254 (Ill. App. Ct.
2013); Pekin Ins. Co. v. Wilson, 930 N.E.2d 1011, 1018–20 (Ill.
2010). Any doubts about the duty to defend are resolved in
favor of the insured. Hilco Trading, LLC v. Liberty Surplus Ins.
Corp., 8 N.E.3d 166, 174 (Ill. App. Ct. 2014).
B. Analysis
1. Columbia’s policy language, and comparison to underlying
complaint
Columbia insured TDH. The Columbia policy said it
would include another organization as an additional insured
if TDH and that organization agreed in writing that that or-
ganization would be added as an additional insured.
Well, TDH agreed in writing that it would have Prairie
and Rockwell named as additional insureds on TDH’s policy.
Indeed, though it is superfluous to our analysis, a Certificate
of Liability Insurance was issued certifying Rockwell and
Prairie were additional insureds on the Columbia commercial
general liability policy. And as the district court observed, the
parties do not dispute that the TDH HVAC contract provided
that Prairie and Rockwell would be named additional in-
sureds to TDH’s policy. So Prairie and Rockwell are addi-
tional insureds on the Columbia policy, at least for some
claims. So far so good for Scottsdale.
But the Columbia policy had a limitation. It said the other
organization would only be an additional insured with re-
spect to liability arising out of TDH’s ongoing operations per-
formed for this other organization.
No. 19-3315 9
We agree with the district court that this “arising out of”
limitation in the Columbia policy does not eliminate Colum-
bia’s duty to defend in the underlying suit. This limitation
does not keep Columbia off the hook to defend because Prai-
rie’s and Rockwell’s liability for the fall potentially (and that
is enough) arises in part (and that is enough) out of TDH’s
then-ongoing operations performed for Prairie and Rockwell,
TDH’s work on the project. For the duty to defend, it does not
matter if TDH itself is actually ultimately liable, and it does
not matter that the underlying suit does not name TDH as a
defendant, or mention it. We agree with the district court that
the mere fact that Guzman did not bring a negligence claim
against TDH does not mean Prairie and Rockwell cannot be
liable to Guzman based on and arising out of TDH’s then-on-
going operations performed for them.
Columbia argues the underlying complaint does not al-
lege any facts that bring the case even potentially within cov-
erage by Columbia. We disagree. The underlying complaint
specifically alleges Prairie and Rockwell “negligently failed to
supervise, inspect, monitor, and coordinate the work of the
subcontractors on the construction site in order to prevent
and protect Plaintiff from falling through the unprotected
opening in the floor” and that Prairie and Rockwell “negli-
gently failed to properly supervise the construction site and
monitor work of [their] subcontractors, and thereby allowed
[their] subcontractors to engage in the unsafe practice of not
covering or guarding the unmarked opening in the floor with
appropriate protection which exposed Plaintiff to the risk of
falling through the opening.” TDH is potentially one of those
subcontractors. The underlying suit suggests, and does not
foreclose the possibility, that some fault lies with TDH. The
underlying suit suggests, and does not foreclose the
10 No. 19-3315
possibility, that any liability of Prairie or Rockwell arises out
of TDH’s then-ongoing operations performed for Prairie and
Rockwell. It is not clear from the face of the underlying com-
plaint that the allegations fail to state facts bringing the case
within (or potentially within) the policy’s coverage, so Co-
lumbia cannot refuse to defend. Lagestee-Mulder, Inc. v. Consol.
Ins. Co., 682 F.3d 1054, 1056 (7th Cir. 2012). 2
2. Third-party complaints
Moreover, several defendants in the underlying suit (be-
sides Prairie and Rockwell) filed third-party complaints
against TDH for contribution. We can consider these third-
party complaints. They make it even clearer that TDH might
have been at fault. They allege TDH negligently failed to train
its employees on multiple issues, failed to maintain a safe
workplace, failed to provide proper safety equipment, al-
lowed the opening to remain open and unprotected, failed to
2 The Columbia endorsement includes this incomplete sentence: “Li-
ability for ‘bodily injury’ or ‘property damage’ caused, in whole, or in part,
by ‘your work’ arising out of your ongoing operations performed for that
additional insured and included in the ‘products-complete operations
hazard.’” Based on this, Columbia argues its policy explicitly provides
coverage for additional insureds only when the liability was caused, in
part or in whole, by TDH’s work. Scottsdale seems to accept this interpre-
tation of the incomplete sentence. But even if Columbia’s argument were
based on a proper interpretation of this incomplete sentence, and even if
we did not apply the canon of construing the policy in favor of the insured,
we would still conclude it is possible that the liability of Prairie and Rock-
well was ultimately caused, in part or in whole, by “your work,” which
according to the Columbia policy means TDH’s work or operations per-
formed by TDH or on its behalf, and materials, parts, and equipment in
connection with such work or operations, and includes the failure to pro-
vide warnings or instructions.
No. 19-3315 11
supervise or inspect the construction site, failed to supervise
or inspect the work of subcontractors, failed to warn Guzman
of the opening, failed to provide adequate illumination, failed
to supervise the HVAC work of its employees including Guz-
man, failed to enforce its own safety rules, and failed to pro-
vide adequate safeguards to prevent the injury. The district
court observed that the third-party complaints “certainly
raise the possibility that TDH will be held liable for Guzman’s
injuries based on its own negligence—a possibility also con-
templated by the underlying complaint itself.” 3
Columbia asks us to ignore the third-party complaints, ar-
guing a court “may consider evidence beyond the underlying
complaint only if such evidence does not tend to determine
an issue critical to the underlying lawsuit.” (Appellant’s Br. at
13.) Columbia only cites one case for this proposition—Pekin
Ins. Co. v. Centex Homes, 72 N.E.3d 831 (Ill. App. Ct. 2017)—
and does not provide a pinpoint, probably because Centex
Homes does not support that proposition.
Centex Homes merely recognized that the Illinois Appellate
Court in CSR Roofing Contractors expressly declined to deter-
mine the applicability of Section 414 of the Restatement (Sec-
ond) of Torts because it “may tend to determine an issue cru-
cial to the determination of the underlying lawsuit.” Centex
Homes, 72 N.E.3d at 844 (quoting Pekin Ins. Co. v. CSR Roofing
Contractors, 41 N.E.3d 559, 573 (Ill. App. Ct. 2015)). And Centex
Homes merely agreed that “the coverage determination must
3 The district court referenced three third-party complaints filed by
different defendants in the underlying suit, not including Prairie or Rock-
well. We reviewed these third-party complaints. Columbia advanced no
argument in its initial appellate brief that any party amended any of these
third-party complaints in any relevant way.
12 No. 19-3315
be made without deciding any significant issues in the under-
lying case.” Centex Homes, 72 N.E.3d at 845. Deciding a signif-
icant issue in the underlying case is not necessarily the same
as considering a third-party complaint to determine whether
there is a duty to defend.
Centex Homes did not forbid consideration of third-party
complaints or other documents in determining whether there
is a duty to defend. Quite the contrary, Centex Homes ex-
pressly noted that “[i]n certain circumstances, the court may
look beyond the underlying complaint in order to determine
whether an insurer has a duty to defend.” Id. at 839.
Indeed, Scottsdale’s appellate response claims Columbia
recognizes a court may consider evidence beyond the under-
lying complaint to determine whether an insurer has a duty
to defend, and Scottsdale cites Centex Homes, 72 N.E.3d at 839.
Scottsdale then cites numerous other Illinois cases endorsing
consideration of third-party complaints in this context. Scotts-
dale notes that Columbia fails to articulate a reason why the
rule that a coverage determination must be made without de-
ciding any issue crucial to the underlying case would pre-
clude consideration of the third-party complaints here.
In reply, Columbia abandons any argument that we are
forbidden from considering the third-party complaints by the
rule against determining an issue critical to the underlying
lawsuit, and instead advances other arguments for why we
should ignore the third-party complaints. Columbia did not
raise these arguments in its initial brief, so they are forfeited.
Webster v. CDI Indiana, LLC, 917 F.3d 574, 578 (7th Cir. 2019);
No. 19-3315 13
Scheidler v. Indiana, 914 F.3d 535, 540 (7th Cir. 2019). But these
new arguments would not have prevailed anyway.4
Consideration here of the third-party complaints is not
tantamount to determining any issue crucial to the determi-
nation of the underlying suit. We find no error in considering
the third-party complaints.
They show TDH might have been at fault. But even with-
out considering them, we would still conclude that the under-
lying suit suggests and does not foreclose satisfaction of the
“arising out of” condition, and therefore the possibility of
coverage, so Columbia owes a duty to defend Prairie and
Rockwell.
As Centex Homes explicitly recognized, in this type of case,
workers’ compensation exclusivity is often at play, and that is
4 First, Columbia attempts to discount the various third-party claims
against TDH as “kitchen sink” claims, mere attempts to spread liability
against any available party. But that argument does not undermine the
potential merits of the third-party claims against TDH. And besides, we
are not deciding whether these claims are meritorious but merely whether
they indicate a potential that TDH might be partially at fault. They do,
regardless of whether other parties also might be potentially liable. Sec-
ond, Columbia argues that one of the third-party claimants against TDH
has been dismissed from the underlying case so its third-party claim is
moot. But this mootness does not affect our analysis, and does nothing to
undermine the other third-party complaints against TDH. Third, Colum-
bia argues that the particular allegations of another third-party claimant
against TDH do not implicate the Columbia policy. We simply disagree.
Fourth, Columbia argues that yet another third-party claimant shares an
owner with Prairie and Rockwell, so its third-party complaint against
TDH should be considered “self-serving,” and ignored. But even if we ig-
nore this third-party complaint, we still have the other third-party claims
to consider. Besides, even if we ignored all the third-party complaints, we
would still reach the same conclusion based on the underlying complaint.
14 No. 19-3315
why the injured employee does not sue his employer. But that
does not preclude coverage of additional insureds on the em-
ployer’s insurance policy.
3. National Fire
Columbia argues National Fire sheds light on this case.
There, the Illinois Appellate Court affirmed the lower court’s
declaratory judgment that National Fire had no duty to de-
fend proposed insureds. National Fire, 909 N.E.2d at 293. The
owner hired a general contractor to renovate property in Chi-
cago. The general contractor subcontracted with a roofing
company for a portion of the project. As part of this agree-
ment, the owner and general contractor were named addi-
tional insureds on the subcontractor’s commercial general li-
ability policy with National Fire, subject to this limitation:
“That person or organization is an additional in-
sured solely for liability due to [subcontractor’s]
negligence and specifically resulting from ‘your
work’ for the additional insured which is the
subject of the written contract or written agree-
ment. No coverage applies to liability resulting
from the sole negligence of the additional in-
sured.”
Id. at 286.
An employee of the subcontractor suffered injuries while
working on the roof. He sued the general contractor and the
owner. He alleged an employee of the general contractor
moved part of the roof’s support, causing him to fall. The un-
derlying complaint included no allegations expressly against
the subcontractor/employer. The owner and general contrac-
tor argued, however, that because the underlying complaint
No. 19-3315 15
alleged the victim was not provided with a safe place to work,
any breach of this duty would belong to the subcontractor
also, so the “sole negligence” exclusion did not apply. The ap-
pellate court rejected this argument, exposing it as a claim that
any injury of a subcontractor’s employee on the jobsite trig-
gers the subcontractor’s insurer’s duty to defend other parties
because it necessarily follows that the subcontractor must
have failed to provide a safe workplace for its employee. This,
according to the court, would render the additional-insured
limitation meaningless. The court concluded that “[m]ore
than some unspecified breach of the subcontractor’s duty to
provide a safe work place is required to support a claim that
the negligence complaint implicates negligence on the part of
the subcontractor, too.” Id. at 291. The court determined no
allegation in the underlying complaint suggested potential li-
ability on the part of the subcontractor sufficient to trigger
National Fire’s duty to defend.
But could the third-party complaint in the underlying ac-
tion show some potential for negligence by the subcontractor
such that the “sole negligence of the additional insured” lim-
itation did not bar coverage? The appellate court affirmed the
lower court’s decision not to consider the third-party com-
plaint. The appellate court recognized a “long line of cases”
allowing extrinsic evidence to inform the duty-to-defend de-
termination. Id. at 292. But the court rejected consideration of
the particular third-party complaint at issue because it was
filed by the general contractor, one of the very parties seeking
coverage. That is, after National Fire brought its declaratory
judgment action, the general contractor—seeking coverage
from National Fire—filed a third-party complaint in the un-
derlying action. The subcontractor essentially sought to
16 No. 19-3315
bolster its claim of coverage by referencing its own third-
party complaint. The court rejected this.
We agree with the district court that National Fire is distin-
guishable. First, the two insurance policies have different rel-
evant language.
Second, the two underlying complaints have different fac-
tual allegations. The underlying complaint here does not
merely suggest TDH might have breached a duty to provide
a safe work place in the manner of res ipsa loquitur. Rather, the
underlying complaint suggests Prairie and Rockwell are lia-
ble because they failed to supervise, inspect, monitor, and co-
ordinate the work of the subcontractors to prevent the fall
through the unprotected opening, and because they allowed
their subcontractors to engage in the unsafe practice of not
covering or guarding the unmarked opening.
Third, at least two of the three third-party complaints the
district court considered here were not filed by proposed ad-
ditional insureds or related entities. We “need not wear judi-
cial blinders,” American Economy Insurance Co. v. Holabird &
Root, 886 N.E.2d 1166, 1179 (Ill. App. Ct. 2008), and we can
consider them. They make it even clearer that TDH might
have been at fault.
So National Fire does not help Columbia.
III. Conclusion
This case turns on whether Prairie’s and Rockwell’s liabil-
ity in the underlying suit might partially arise out of TDH’s
operations performed for Prairie and Rockwell, because the
Columbia policy says: “Such person or organization is an ad-
ditional insured only with respect to liability arising out of
your ongoing operations performed for that insured.” The
No. 19-3315 17
answer, based on the underlying complaint and the third-
party complaints, is yes.
An insurer must defend its proposed insureds in an action
that is potentially within coverage. The underlying allega-
tions do not preclude the possibility of coverage. It is not clear
or free from doubt that the policy’s exclusion prevents cover-
age. Therefore, Columbia owes a duty to defend Prairie and
Rockwell. As the district court correctly concluded, the issue
of indemnity can wait.
We affirm.