The federal district court found that the insurer was estopped from asserting coverage defenses after taking no action for two years before appearing in a declaratory judgment action filed by the insured. Sentinel Ins. Co. v. Walsh Constr. Co., 2018 U.S. Dist. LEXIS 6487 (N.D. Ill. Jan. 16, 2018).
Walsh Construction Company was the general contractor on a construction project to alter the streets and train tracks in Chicago. James Quigley, an iron worker for subcontractor S&J Construction Company, was crushed by a steel post. His estate filed suit against Central Contractors Service, Inc., the subcontractor that was operating the crane from which the steel post was suspended at the time of the accident, and Walsh. The complaint alleged that Walsh coordinated the work being done and designated various work methods and schedules for the project.
Walsh tendered its defense to Old Republic Insurance Company, claiming coverage as an additional insured under a policy issued to S&J. Walsh later tendered to Sentinel, the insurer for Genesis Structures, Inc., an engineering firm that had been involved in the preparation of the steel truss system. The subcontract with Walsh required Genesis to obtain primary insurance covering Walsh for the project.
The Sentinel policy promised to pay sums that the insured became legally obligated to pay as damages and to defend the insured. The term "insured" referred not only to Genesis, but also potentially to other persons or organizations "when [Genesis has] agreed, in a written contract . . . that such person or organization be added as an additional insured on [its] policy." This additional insured was covered "only with respect to liability for bodily injury . . . caused, in whole or in part, by [Genesis's] acts or omissions . . . in the performance of its ongoing operations."
Sentinel denied coverage, asserting the policy did not cover "professional errors and omissions" of Genesis. Further since Genesis had not been asked to design a truss post rigging system, the failure of the rigging system was not caused by Genesis.
In the underlying case, the Quigley estate named Genesis as a defendant in the first amended complaint and asserted a claim for negligence. Walsh filed a declaratory judgment action in state court that was dismissed due to improper service. Sentinel then filed this declaratory judgment action. Walsh and Genesis filed counterclaims, asserting the professional services exclusion did not apply and that Sentinel breached its duty to defend.
Sentinel moved for summary judgment, arguing that the "any insured" language in the professional errors and omissions exclusion barred coverage for all insureds when one insured committed an act falling within the policy exclusion. The court disagreed. Sentinel did not clearly and specifically exclude all of the conduct Walsh was alleged to have negligently committed. Therefore, the policy at least potentially provided coverage for Walsh, and Sentinel had a duty to defend Walsh.
Walsh also argued that because Sentinel breached its duty to defend, Sentinel was estopped from asserting its remaining policy defenses, including whether Walsh qualified as an additional insured and whether Sentinel's policy provided only excess insurance over the Old Republic's policy based on its "other insurance" clause. Under Illinois law, an insurer that refused to defend an insured had to seek a declaratory judgment of no coverage promptly or in a timely manner in order to avoid the application of the estoppel doctrine. Walsh tendered its defense to Sentinel in October 2012. This triggered Sentinel's duty to defend because Walsh was at least potentially covered under Sentinel's policy based upon the allegations against it in the Quigley suit.
Sentinel's first action that might be considered a judicial resolution of the coverage dispute was its appearance in the state court action that Walsh filed in January 2015, even though at the time Sentinel's first action was to move to dismiss the case for improper service. The court found this two-year delay unreasonable and Sentinel was estopped from asserting coverage defenses.
Sentinel's motion for summary judgment was denied and Walsh's motion for summary judgment was granted in part, establishing Sentinel's duty to defend.