The court found that the insurer was obligated to indemnify, but not to defend the insured. Old Republic Ins. Co. v. Kenny Constr. Co., 2017 U.S. Dist. LEXIS 189412 (N.D. Ill. Oct. 31, 2017).
Kenny Construction Company was hired by the Army Corp of Engineers to work on the Chicago Deep Tunnel flood control project. Kenny hired Meccon Industries, Inc. as a subcontractor to perform mechanical work and furnish materials for the project. The subcontract required Meccon to provide coverage for the contractor and any other additional insureds as required on the Insurance Requirement Sheet attached to the contract. Neither party was able to produce the Insurance Requirement Sheet.
The subcontract also required Meccon to submit to Kenny certificates from Meccon's carriers noting CGL coverage to cover the indemnity agreement in the contract.
Meecon procured CGL policies from Old Republic from 2002 to 2010 and provided insurance certificates to Kenny between 2002 and 2007. The certificates each listed Kenny as an additional insured under the policies. The certificates, however, also mentioned that they were issued for information only and did not confer any rights upon the certificated holder.
The Old Republic policies did not specifically mention Kenny as an additional insured. Instead, the policies defined "all persons or organizations as required by written contract" to be additional insureds. Although the policies had separate endorsements for ongoing operations and completed operations coverage, the definition of additional insureds was identical in each endorsement.
During Meecon's work, it requested to substitute an alternative part known as a Smith-Blair clamp for parts called for in the plans. Kenny sent the request to the Corp, which approved the changes. In August 2010, the Corp issued a final inspection and acceptance letter to Kenny.
In 2008, however, the Corp had discovered leaks which corroded various mechanical and electrical equipment in the tunnel. It was eventually determined that the Smith-Blair clamps caused the problem because they were not rated to withstand the operating fluid pressures within the tunnel. The Corp issued a Final Decision concluding that Kenny was liable for the damages caused by the negligent approval of the request to use the Smith-Blair clamps. The Final Decision awarded $11 million in property damage to the Corp. Kenny eventually settled by paying the Corp $100,000.
Old Republic was notified of the Final Decision and filed an action for declaratory judgment. Old Republic argued that Kenny was not an additional insured. Old Republic contended Kenny was not a "person or organization required by written contract" to be an additional insured because the Kenny – Meccon subcontract did not require Meccon to make Kenny an additional insured on its CGL policy. Instead, it required only that Meccon provide Kenny with certificates of insurance listing Kenny as an additional insured.
The court disagreed with Old Republic. That the subcontract required Meccon to certify that it had CGL insurance could only be reasonably construed as requirement that Meccon actually have such coverage. Whether the language requiring submittal of Meccon's "evidence of insurance shall include the contractor, the owner and any other additional insureds as required per the Insurance Requirement Sheet," made Kenny an additional insured was ambiguous. Therefore, the court looked to parol evidence.
The certificates of insurance provided that Kenny was in fact an additional insured. Therefore, the intent of the parties to the subcontract was to require that Kenny be an additional insured on Meccon's policy. Since Kenny was therefore an "organization . . . required by written contract" to be an additional insured, it qualified as an additional insured under Old Republic's policy.
Next, Old Republic argued it had neither a duty to defend or nor indemnify because the Final Decision was not a "suit" under the policies. The court agreed that the Final Decision process was not a "suit" under the policy and Old Republic had no duty to defend. But there was nothing in the policy which altered Old Republic's duty to indemnify. They duty to defend was limited to certain types of proceedings ("suits"), but no such restriction existed for the duty to indemnify.
Finally Old Republic argued that Kenny was not covered under the ongoing operations or completed operations additional insured endorsements. Old Republic contended that Kenny could not be covered under the ongoing operations endorsements because there was no evidence that any damage occurred while Meccon was still working on the projects. But when the damage occurred was not relevant because Kenny was an additional insured under both the ongoing operations and completed operations endorsements. The two endorsements used identical language to define additional insured contractors: "all persons or organizations as required by contract." Therefore, Kenny was an additional insured under both endorsements.