Unambiguous Contract Must Be Interpreted as
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When two insurers dispute which is obligated to defend and indemnify the insured in a bodily injury suit, they both paid half of the settlement and agreed to resolve their differences later in a declaratory relief action – an action of absolute good faith.
In Old Republic Insurance Company v. The Young Men’s Christian Association a/k/a YMCA Of Metropolitan Chicago and Riverport Insurance Company, 2022 IL App (1st) 210294-U, No. 1-21-0294, Court of Appeals of Illinois, First District, Fifth Division (May 27, 2022) the Court of Appeals resolved the dispute after the trial court ruled in favor of Old Republic.
BACKGROUND
Old Republic Insurance Company (Old Republic), sued for declaratory judgment against the Young Men’s Christian Association of Metropolitan Chicago (YMCA) and Riverport Insurance Company (Riverport). The circuit court granted summary judgment in favor of Old Republic. YMCA and Riverport appealed.
In September 2012, YMCA hired Air Comfort Corporation (Air Comfort) as the contractor to perform routine HVAC maintenance on YMCA’s Chicagoland facilities. On September 17, 2012, YMCA and Air Comfort entered into a “Master Agreement Between Owner and Contractor” (Master Agreement). The Master Agreement was drafted by YMCA’s counsel. The Master Agreement provided: Section 6 of the Master Agreement required Air Comfort to obtain commercial liability insurance and to name YMCA as an additional insured on the policy.
On May 13, 2013, an Air Comfort employee, Joseph Dale, sustained injuries while working on the upgrade project at the Indian Boundary facility. Mr. Dale filed a negligence complaint against YMCA, claiming that YMCA failed to inspect and safely maintain the vent pit and grating at its Indian Boundary facility which resulted in his injuries.
YMCA tendered defense and indemnification of Mr. Dale’s lawsuit to Air Comfort’s insurance carrier, Old Republic. Old Republic denied coverage.
The declaratory relief suit sought a declaration that Old Republic owes “no duty to defend, indemnify or otherwise provide additional insured coverage to YMCA” under Old Republic’s insurance policy with Air Comfort for losses incurred in connection with Mr. Dale’s lawsuit. Old Republic’s policy required additional insured persons or organizations to be included in a written contract or agreement.
The complaint alleged: “There is no written contract that required Air Comfort to name YMCA as an additional insured on its *** Policy with respect to work performed by Air Comfort at the Indian Boundary YMCA pursuant to any such contract.”
While the declaratory judgment action was pending, Mr. Dale settled his lawsuit against YMCA for $700,000. In turn, YMCA and Riverport entered into a separate agreement with Old Republic, entitled “Settlement Agreement and Release.” The Settlement Agreement and Release provided that YMCA and Riverport would pay half of Mr. Dale’s settlement amount ($350,000) and Old Republic would pay the other half ($350,000).
The parties agreed that the resolution of Mr. Dale’s lawsuit “does not in any way resolve the matters to be litigated” in the declaratory judgment action, which the Settlement Agreement and Release referred to as “the Coverage Suit.” Pursuant to the Settlement Agreement and Release, the parties agreed that:
“[I]f in the Coverage Suit a judicial determination is made that Old Republic owes additional insured coverage under the Old Republic Policy to YMCA for the [Mr.] Dale Lawsuit, then Old Republic will pay YMCA and [Riverport] $350,000 plus the attorneys’ fees and costs incurred by the YMCA and [Riverport] in defending the [Mr.] Dale Lawsuit.” Similarly, the Settlement Agreement and Release further provided that YMCA and [Riverport] will pay Old Republic $350,000 plus $197,000 for a total payment of $547,000. This would reimburse Old Republic for the $350,000 paid to [Mr.] Dale plus the waived workers compensation lien $197,000.”
The trial court granted Old Republic’s motion for summary judgment and denied YMCA and Riverport’s motion. In so ruling, the trial court stated: “This Court finds there’s no genuine issue of material fact [t]hat there is no writing of which the YMCA becomes an additional insured for that specific location.”
ANALYSIS
Summary judgment was granted by the trial court in this case, on the basis that the Indian Boundary Statement of Work did not require Air Comfort to add YMCA as an additional insured on its insurance policy, and so Old Republic does not have a duty to provide coverage to YMCA for Mr. Dale’s lawsuit.
Significantly, YMCA and Riverport do not contend that the Indian Boundary Statement of Work is ambiguous. The appellate court concluded that Indian Boundary Statement of Work is, an unambiguous contract, as the language is clear, and the general meaning is easy to ascertain. The Indian Boundary Statement of Work does not provide, anywhere or in any way, that the parties intended for Air Comfort to add YMCA as an additional insured on its insurance policy with Old Republic. In fact, the word “insurance” is not even mentioned in the Indian Boundary Statement of Work.
The appellate court concluded that the Indian Boundary Statement of Work does reference a contract entitled, “MASTER SERVICES AGREEMENT DATED FEBRUARY 11, 2013,” and “Standard From [sic] of Agreement Between Owner and Contractor, dated February 11, 2013.” But, as the trial court pointed out, no such contract document exists. Further, YMCA and Riverport do not claim that they can produce that document. And they do not offer any other explanation regarding the discrepancies in the description of the referenced, non-existent, contract document.
Rather, YMCA and Riverport asked the court to look to the Master Agreement and the Irving Park Agreement to demonstrate the parties’ intent for the Indian Boundary Statement of Work. However, if a contract is unambiguous on its face, extrinsic evidence may not be used to interpret it.
Mr. Dale’s lawsuit arose out of the work contracted in the Indian Boundary Statement of Work between Air Comfort and YMCA for the upgrade project at the Indian Boundary facility. The Indian Boundary Statement of Work is a clear and unambiguous contract that does not reference any other existing contract document; there is no reason for the court to look to another contract.
Accordingly, the court of appeal concluded that there is no genuine issue of material fact that the Indian Boundary Statement of Work did not require Air Comfort to add YMCA as an additional insured on its insurance policy, and so, Old Republic is not required to provide insurance coverage to YMCA for Mr. Dale’s lawsuit. The trial court therefore properly granted summary judgment in favor of Old Republic in the declaratory judgment action
ZALMA OPINION
The two insurers did the right thing for their insured, the YMCA. The lawyer for the YMCA, who drew the various contracts between the Y and Air Comfort, erred in drafting a contract incorporating a non-existent contract and failed – for the project where Mr. Dale was injured – to require that Air Comfort make the Y an additional insured. The two insurers, although, they disagreed, acted in absolute good faith to their insured and resolved their differences without exposing the insured to damages.
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(c) 2022 Barry Zalma & ClaimSchool, Inc.
Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and [email protected].
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Jury’s Findings Interpreting Insurance Contract Affirmed
Post 5105
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Madelaine Chocolate Novelties, Inc. (“Madelaine Chocolate”) appealed the district court’s judgment following a jury verdict in favor of Great Northern Insurance Company (“Great Northern”) concerning storm-surge damage caused by “Superstorm Sandy” to Madelaine Chocolate’s production facilities.
In Madelaine Chocolate Novelties, Inc., d.b.a. The Madelaine Chocolate Company v. Great Northern Insurance Company, No. 23-212, United States Court of Appeals, Second Circuit (June 20, 2025) affirmed the trial court ruling in favor of the insurer.
BACKGROUND
Great Northern refused to pay the full claim amount and paid Madelaine Chocolate only about $4 million. In disclaiming coverage, Great Northern invoked the Policy’s flood-exclusion provision, which excludes, in relevant part, “loss or damage caused by ....
Failure to Name a Party as an Additional Insured Defeats Claim
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Contract Interpretation is Based on the Clear and Unambiguous Language of the Policy
In Associated Industries Insurance Company, Inc. v. Sentinel Insurance Company, Ltd., No. 23-CV-10400 (MMG), United States District Court, S.D. New York (June 16, 2025) an insurance coverage dispute arising from a personal injury action in New York State Supreme Court.
The underlying action, Eduardo Molina v. Venchi 2, LLC, et al., concerned injuries allegedly resulting from a construction accident at premises owned by Central Area Equities Associates LLC (CAEA) and leased by Venchi 2 LLC with the USDC required to determine who was entitled to a defense from which insurer.
KEY POINTS
Parties Involved:
CAEA is insured by Associated Industries Insurance Company, Inc. ...
Exclusion Establishes that There is No Duty to Defend Off Site Injuries
Post 5103
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Attack by Vicious Dog Excluded
In Foremost Insurance Company, Grand Rapids, Michigan v. Michael B. Steele and Sarah Brown and Kevin Lee Price, Civil Action No. 3:24-CV-00684, United States District Court, M.D. Pennsylvania (June 16, 2025)
Foremost Insurance Company (“Foremost”) sued Michael B. Steele (“Steele”), Sarah Brown (“Brown”), and Kevin Lee Price (“Price”) (collectively, “Defendants”). Foremost sought declaratory relief in the form of a declaration that
1. it owes no insurance coverage to Steele and has no duty to defend or indemnify Steele in an underlying tort action and
2. defense counsel that Foremost has assigned to Steele in the underlying action may withdraw his appearance.
Presently before the Court are two ...
ZIFL Volume 29, Issue 10
The Source for the Insurance Fraud Professional
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Zalma’s Insurance Fraud Letter (ZIFL) continues its 29th year of publication dedicated to those involved in reducing the effect of insurance fraud. ZIFL is published 24 times a year by ClaimSchool and is written by Barry Zalma. It is provided FREE to anyone who visits the site at http://zalma.com/zalmas-insurance-fraud-letter-2/ You can read the full issue of the May 15, 2025 issue at http://zalma.com/blog/wp-content/uploads/2025/05/ZIFL-05-15-2025.pdf
This issue contains the following articles about insurance fraud:
Health Care Fraud Trial Results in Murder for Hire of Witness
To Avoid Conviction for Insurance Fraud Defendants Murder Witness
In United States of America v. Louis Age, Jr.; Stanton Guillory; Louis Age, III; Ronald Wilson, Jr., No. 22-30656, United States Court of Appeals, Fifth Circuit (April 25, 2025) the Fifth Circuit dealt with the ...
Professional Health Care Services Exclusion Effective
Post 5073
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This opinion is the recommendation of a Magistrate Judge to the District Court Judge and involves Travelers Casualty Insurance Company and its duty to defend the New Mexico Bone and Joint Institute (NMBJI) and its physicians in a medical negligence lawsuit brought by Tervon Dorsey.
In Travelers Casualty Insurance Company Of America v. New Mexico Bone And Joint Institute, P.C.; American Foundation Of Lower Extremity Surgery And Research, Inc., a New Mexico Corporation; Riley Rampton, DPM; Loren K. Spencer, DPM; Tervon Dorsey, individually; Kimberly Dorsey, individually; and Kate Ferlic as Guardian Ad Litem for K.D. and J.D., minors, No. 2:24-cv-0027 MV/DLM, United States District Court, D. New Mexico (May 8, 2025) the Magistrate Judge Recommended:
Insurance Coverage Dispute:
Travelers issued a Commercial General Liability ...
A Heads I Win, Tails You Lose Story
Post 5062
Posted on April 30, 2025 by Barry Zalma
"This is a Fictionalized True Crime Story of Insurance Fraud that explains why Insurance Fraud is a “Heads I Win, Tails You Lose” situation for Insurers. The story is designed to help everyone to Understand How Insurance Fraud in America is Costing Everyone who Buys Insurance Thousands of Dollars Every year and Why Insurance Fraud is Safer and More Profitable for the Perpetrators than any Other Crime."
Immigrant Criminals Attempt to Profit From Insurance Fraud
People who commit insurance fraud as a profession do so because it is easy. It requires no capital investment. The risk is low and the profits are high. The ease with which large amounts of money can be made from insurance fraud removes whatever moral hesitation might stop the perpetrator from committing the crime.
The temptation to do everything outside the law was the downfall of the brothers Karamazov. The brothers had escaped prison in the old Soviet Union by immigrating to the United...
