Ryan Companies US, Inc. et al v. Secura Insurance Company

Filing 45

WRITTEN Opinion entered by the Honorable Elaine E. Bucklo on 7/21/2011: Mailed notice(mpj, )

Order Form (01/2005)

United States District Court, Northern District of Illinois
Name of Assigned Judge
or Magistrate Judge

Elaine E. Bucklo

CASE NUMBER

10 C 1035

CASE
TITLE

Sitting Judge if Other
than Assigned Judge

DATE

7/21/2011

Ryan Companies US, Inc. et al. v. Secura Insurance Company

DOCKET ENTRY TEXT

Motion by defendant Secura Insurance Company for judgment on the pleadings
as to Ryan Companies, Inc. [41] is denied. Discovery is ordered closed on
9/22/11. Ruling set for 7/22/11 is vacated. Status hearing set for 9/9/11
at 10:00 a.m.

O[ For further details see text below.]

Docketing to mail notices.

STATEMENT
Plaintiffs Ryan Companies, Inc. (“Ryan”), Oak Brook Mechanical
Services, Inc. (“Oak Brook”), and Westfield Insurance Company (“Westfield”),
seek defense and indemnity from Secura Insurance Company (“Secura”) as
additional insureds under a policy issued by Secura to B&N Heating and Air
Conditioning, Inc. (“B&N”). The complaint alleges that Ryan, the general
contractor of a construction project in Hoffman Estates, hired Oak Brook as
a subcontractor; that Oak Brook subsequently hired B&N as its own
subcontractor; and that Oak Brook’s agreement with B&N required B&N to add
Oak Brook and Ryan as additional insureds to B&N’s policy. When one of
B&N’s employees was injured on the job, he sued Ryan and Oak Brook in the
Circuit Court of Cook County, Illinois. Ryan and Oak Brook tendered their
defense and indemnity in the suit to B&N, citing the additional insured
endorsement to the Secura policy, which provides:
Who is an insured is amended to include as an additional 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 person or organization be
added as an additional insured on your policy.
After Secura rejected both tenders, Ryan and Oak Brook were defended in the
underlying suit by Westfield.
Plaintiffs filed this suit seeking a
declaratory judgment that Secura owes Ryan and Oak Brook a duty to defend
and indemnify, and asserting claims for equitable subrogation, equitable
allocation of Ryan’s defense expenses, and contractual subrogation.

10C1035 Ruan vs. Secura

Page 1 of 4

STATEMENT
In April 2010, Secura moved to dismiss the complaint pursuant to Rule
12(b)(6), arguing that the additional insured endorsement required a written
contract or agreement between B&N and the additional insured, and denying
that any such written agreement existed between B&N and Oak Brook. I denied
the motion, holding that plaintiffs had sufficiently alleged “that there was
an agreement, evidenced by several written documents, among other things,
showing a mutual understanding between the parties that Ryan and Oak Brook
be named additional insureds on the Secura policy.” Order at 2.
Advancing a slightly different argument, Secura now moves for a
judgment on the pleadings as to Ryan under Rule 12(c). Secura points out
that, under the plain language of the provision, there must be a written
agreement not only between B&N and Oak Brook, but also between B&N and Ryan.
According to Secura, the complaint’s allegations show that a written
contract existed only between B&N and Oak Brook.
In support of its position, Secura cites the Illinois Court of
Appeals’s recent decision in Westfield Ins. Co. v. FCL Builders, Inc., 948
N.E.2d 115 (Ill. App. Ct. 2011). The facts and questions presented in the
case are virtually identical to those here. The relationship between the
parties in Westfield – FCL, Suburban, and JAK – directly parallels the
relationship between Ryan, Oak Brook, and B&N in this case. In addition,
JAK’s insurance policy with Westfield contained an “additional ensured”
endorsement identical for all practical purposes to the one included in
B&N’s policy with Secura. Specifically, the endorsement provided that “Who
Is an Insured is amended to include as an additional insured any person or
organization for whom you are performing operations when you and such a
person or organization have agreed in writing in a contract or agreement
that such person or organization be added as an additional insured on your
policy.”
Id. at 117.
The court held that FCL was not covered as an
additional insured under the policy because the endorsement’s language
unambiguously required a written contract between JAK and each person to be
added as an additional insured. Since no written contract existed between
FCL and JAK, FCL was not covered.
In reaching its holding, the court rejected all of the counterarguments that Ryan makes here in opposition to Secura’s motion.
For
example, FCL argued that it was an additional insured because the terms of
the contract between JAK and Suburban obligated JAK to include FCL as an
additional insured on the Westfield policy.
The court held that a
contractual obligation between Suburban and JAK was not sufficient, since
the additional insured provision specifically required a written contract
between JAK and FCL. The court also refused to consider the deposition
testimony of Suburban’s owner and JAK’s superintendent stating their
intention that FCL be an additional insured under the Westfield policy. The
court held that this was extrinsic evidence and could be considered only
where the contractual language was ambiguous. Additionally, the court was
unpersuaded by FCL’s appeal to the certificate of insurance it had received
which listed FCL as an additional insured.
The court pointed to a
disclaimer on the certificate (identical to the one here) stating: “THIS
CERTIFICATE IS ISSUED AS A MATTER OF INFORMATION ONLY AND CONFERS NO RIGHTS
UPON THE CERTIFICATE HOLDER. THIS CERTIFICATE DOES NOT AMEND, EXTEND OR
10C1035 Ruan vs. Secura

Page 2 of 4

STATEMENT
ALTER THE COVERAGE AFFORDED BY THE POLICIES BELOW.” Since there was no
written contract between FCL and B&N, FCL was not an additional insured
under the policy; and since the policy’s terms were controlling, the
certificate of insurance was of no moment.
Ryan advances a host of reasons why Secura’s Rule 12(c) motion is
procedurally improper. For example, Ryan argues that the motion should be
denied because it effectively amounts to a motion to reconsider the denial
of Secura’s earlier 12(b)(6) motion. Along similar lines, Ryan contends
that the denial of the 12(b)(6) motion constitutes the law of the case and
must not be disturbed. These arguments fail because Secura does not seek
to challenge the earlier question of whether a written contract exists
between Oak Brook and B&N. Rather, Secura raises a distinct argument that
there must be a written contract not only between B&N and Oak Brook, but
also between B&N and Ryan. Nor has Secura waived the argument by virtue of
the fact that it failed to present it in the Rule 12(b)(6) motion. See,
e.g., U.S. ex rel. Washington v. Gramley, No. 97 C 3270, 1999 WL 446848, at
*1 (N.D. Ill. June 21, 1999) (“Though Rule 12 generally requires a defendant
to raise all available defenses in one motion to dismiss, there are
exceptions. One such exception permits a defendant to raise a failure to
state a claim defense in a pleading, by a motion for judgment on the
pleadings, or at trial even if he failed to raise it in a prior motion to
dismiss.”) (citations omitted).
Ryan also maintains that Secura’s motion violates the mend-the-hold
doctrine, which provides “that a contract party is not permitted to change
its position on the meaning of a contract in the middle of litigation over
it.” First Bank and Trust Co. of Illinois v. Cimerring, 365 Fed. App’x. 5,
8 (7th Cir. 2010).
In response, Secura correctly points out that the
doctrine applies only where a one party suffers some detriment due to the
other’s change of position. Id. (observing that “Illinois courts have held
that the mend the hold doctrine cannot be applied absent a showing of
detriment or unfair surprise”). But, despite Secura’s insistence to the
contrary, it is not clear that Ryan has not been disadvantaged by the shift
in Secura’s interpretation of the policy. For example, Ryan claims that,
because the parties were close to reaching a settlement prior to the
Westfield decision, it “had exercised forbearance in pressing Secura for
discovery compliance,” Resp. at 12, and that the record in the case
consequently has not been developed. Ryan maintains that there is evidence
in the record showing that “Oak Brook simply conveyed Ryan’s insurance
requirements to B&N,” which, acording to Ryan, “is no different then [sic]
if Ryan had sent insurance requirements to B&N via messenger.” Id. It
further asserts that the certificate issued by Secura’s agent “evidenc[es]
B&N’s acceptance of Ryan’s requirements,” and suggests that this could
constitute a written contract since “[a] written contract or agreement does
not have to be signed in order to be accepted; it can be accepted by
performance.” Resp. at 12-13 (citation omitted).
Without expressing a position on the merits of the latter arguments,
Ryan’s request for additional discovery is reasonable. Indeed, Ryan claims
that Secura has yet to produce a copy of the underlying policy in question.
Secura argues that Ryan has never before argued that there “might be other
10C1035 Ruan vs. Secura

Page 3 of 4

STATEMENT
bases for coverage elsewhere in the Secura policy,” and that “[i]f anything,
it would appear that Ryan is the one who is contravening the “mend the hold”
doctrine, not Secura.” Def.’s Reply at 5. But endorsements to an insurance
policy should interpreted based on the policy as a whole. See, e.g., Proin
S.A. v. LaSalle Bank, N.A., 223 F. Supp. 2d 960, 966-67 (N.D. Ill. 2002)
(“In determining whether the endorsement sentence raises an ambiguity, this
court examines the contract as a whole, and attempts to give meaning and
effect to each provision in the contract.”); Paris-Custardo v. Great
American Ins. Co. of New York, 844 N.E.2d 1011, 1015 (Ill. App. Ct. 2006)
(“Since we must construe the policy as a whole, the endorsement must be read
in conjunction with the specific language of the [policy’s] exclusions
section.”). This conclusion is bolstered by the fact that certain of the
documents in question in the suit specifically refer back to the Secura
policy. For example, as noted above, the certificate of insurance that
lists Ryan as an additional insured provides: “THIS CERTIFICATE IS ISSUED
AS A MATTER OF INFORMATION ONLY AND CONFERS NO RIGHTS UPON THE CERTIFICATE
HOLDER. THIS CERTIFICATE DOES NOT AMEND, EXTEND OR ALTER THE COVERAGE
AFFORDED BY THE POLICIES BELOW.” Cf. Westfield, 948 N.E. 2d at 120 (noting
that under Illinois law, if a certificate of insurance “refers to the policy
and expressly disclaims any coverage other than that contained in the policy
itself, the policy [as opposed to the certificate] controls”)(quotation
marks omitted). The certificate of insurance presupposes familiarity with
the policy.
As for the Westfield decision, while the case is clearly suggestive,
it is equally clear that the decision is not binding here.
See, e.g.,
Alvizo v. Metro Ford Sales & Service, Inc., 2002 WL 10470, at *2 (N.D. Ill.
2002) (“A federal court applying state law must attempt to resolve the
issues as if it were the highest court of the state that provides the state
law. Moreover, decisions by intermediate state appellate courts are not
necessarily binding or authoritative in federal court.”) (citations
omitted). Furthermore, although the facts in Westfield nearly mirror the
facts present here, there is no indication that, as here, the policy at
issue in the case itself had never been produced.
In short, while I conclude that the mend-the-hold doctrine does not
foreclose the argument that Secura advances in this motion, I conclude by
the same token that Ryan is entitled to discovery before being required to
respond to the argument. Accordingly, I deny Secura’s motion for judgment
on the pleadings.

10C1035 Ruan vs. Secura

Page 4 of 4