Hinkhouse Williams Walsh

HWW Wins Summary Judgment to Avoid Coverage for Enforcement of Indemnity Agreement.

HWW attorneys recently won a summary judgment motion in a coverage matter pending before Judge Billik in the Circuit Court of Cook County, Illinois. The litigation arose from an underlying subrogation action filed by a worker’s compensation insurer a/s/o LTN Staffing, LLC and LTN Operating, LLC (LTN) to recover workers’ compensation benefits that the insurer paid as a result of injuries sustained by an LTN employee working as a temporary worker for Belle Aire Fragrances, Inc. (Belle Aire).  HWW’s client, Erie Insurance Exchange (Erie), insured Belle Aire under a CGL policy.

The worker’s compensation insurer filed the underlying subrogation complaint against Belle Aire alleging that Belle Aire breached its contract with LTN on the grounds that Belle Aire instructed the employee to move barrels weighing in excess of forty-five pounds, in violation of an indemnity agreement in the contract between Belle Aire and LTN.  The underlying complaint further alleged that, pursuant to an employer liability insurance policy with LTN, the worker’s compensation insurer paid benefits as a result of the employee’s injury.  The insurer, as subrogee of LTN, sought to recover from Belle Aire the workers’ compensation benefits that it paid for the employee’s injuries. 

Erie denied coverage and filed a declaratory judgment action requesting the court to declare that it had no obligations to defend or indemnify Belle Aire for the claims alleged by the worker’s compensation insurer.  Erie contended that the underlying complaint did not seek recovery for any alleged “bodily injury” and did not allege an “occurrence” as defined by the insurance policy.  Erie also relied on an exclusion in the policy that excluded coverage for liability “for which the insured is obligated to pay damages by reason of the assumption of liability in a contract or agreement.” 

Belle Aire contended that the bodily injuries to the employee were the basis of the claim against it.  Erie argued that the alleged damages were only derivative of the bodily injury claim and that, in fact, the harm was solely economic arising from the breach of the indemnity provision.  The Circuit Court adopted Erie’s argument in its entirety and ruled that the subrogation theory in the underlying complaint sought enforcement of the indemnity provision in the contract against Belle Aire rather than recovery of damages for the employee’s “bodily injury.”