Essex Insurance Company v. RHO Chemical Company, Inc. et al

Filing 75

MEMORANDUM Opinion and Order Signed by the Honorable Amy J. St. Eve on 11/3/2015:Mailed notice(kef, )

IN THE UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
ESSEX INSURANCE COMPANY,
Plaintiff,
v.
RHO CHEMICAL COMPANY, INC.,
ROBERT ROLIH, LORRAINE ROLIH,
GENERAL SURFACTANTS, INC., and
MILAN STAVINOHA,
Defendants.

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No. 14-CV-6628
Judge Amy J. St. Eve

MEMORANDUM OPINION AND ORDER
AMY J. ST. EVE, District Court Judge:
Plaintiff and Defendants have filed cross motions for summary judgment seeking
Declaratory Judgment as to an exclusion provision’s applicability to an insurance policy. For the
following reasons, the Court grants Plaintiff’s motion for summary judgment and denies
Defendants’ motions.
BACKGROUND
I.

Northern District of Illinois Local Rule 56.1
Local Rule 56.1(a)(3) requires the moving party to provide “a statement of material facts

as to which the moving party contends there is no genuine issue.” Cracco v. Vitran Exp., Inc.,
559 F.3d 625, 632 (7th Cir. 2009). The nonmoving party then must file “a response to each
numbered paragraph in the moving party’s statement, including, in the case of any disagreement,
specific references to the affidavits, parts of the record, and other supporting materials relied
upon.” Id. (citing N.D. Ill. L.R. 56.1(b)(3)(B)). Indeed, “[w]hen a responding party’s statement
fails to dispute the facts set forth in the moving party’s statement in the manner dictated by the

rule, those facts are deemed admitted for purposes of the motion.” Id. The nonmoving party
also must present a separate statement of additional facts, if any, that it contends require the
denial of summary judgment. See Ciomber v. Cooperative Plus, Inc., 527 F.3d 635, 643-44 (7th
Cir. 2008) (citing N.D. Ill. L.R. 56.1(b)(3)(C)). These rules assist the courts by “organizing the
evidence, identifying undisputed facts, and demonstrating precisely how each side propose[s] to
prove a disputed fact with admissible evidence.” Bordelon v. Chicago Sch. Reform Br. of Trs.,
233 F.3d 524, 527 (7th Cir. 2000) (citation omitted).
Local Rule 56.1“is designed, in part, to aid the district court, ‘which does not have the
advantage of the parties’ familiarity with the record and often cannot afford to spend the time
combing the record to locate the relevant information,’ in determining whether a trial is
necessary.” Delapaz v. Richardson, 634 F.3d 895, 899 (7th Cir. 2011) (citation omitted). In
general, the aim of Local Rule 56.1 statements and responses is to identify the relevant
admissible evidence supporting the material facts, not to make factual or legal arguments. See
Cady v. Sheahan, 467 F.3d 1057, 1060 (7th Cir. 2006) (“[S]tatement of material facts also did . .
. not comply with Rule 56.1 as it failed to adequately cite the record and was filled with
irrelevant information, legal arguments, and conjecture.”). The rule makes the summary
judgment process less burdensome on district courts by requiring the parties to nail down the
relevant facts and the way they propose to support or refute them. Sojka v. Bovis Lend Lease,
Inc., 686 F.3d 394, 398 (7th Cir. 2012). Importantly, “district court[s] [are] entitled to expect
strict compliance with Local Rule 56.1.” Cichon v. Exelon Gen. Co., L.L.C., 401 F.3d 803, 809
(7th Cir. 2005) (citation omitted). A court, in its discretion, may choose to disregard statements
of fact and responses, in full or in part, that do not comply with Local Rule 56.1’s requirements.
See, e.g., Cracco, 559 F.3d at 632; Cichon, 401 F.3d at 809-10; Cady, 467 F.3d at 1060;

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Bordelon, 233 F.3d at 528. In sum, “[f]or litigants appearing in the Northern District of Illinois,
the Rule 56.1 statement is a critical, and required, component of a litigant’s response to a motion
for summary judgment.” Sojka, 686 F.3d at 398.
Here, the Court has not considered statements of fact set forth by either side that fail to
comply with Local Rule 56.1, and it has deemed as admitted those statements of fact to which
the opposing party failed to properly respond. See Cracco, 559 F.3d at 632. Furthermore, the
Court considered the facts asserted in the underlying complaints. See Atlantic Cas. Ins. Co. v.
Paszko Masonry, Inc., 718 F.3d 721, 723 (7th Cir. 2013) (“The facts alleged in a complaint
against an insured, charging a tort or other wrong, are critical to determining the insurer’s duty to
defend.”). With these principles in mind, the Court turns to the relevant facts.
II.

Relevant Facts.
A.

Jurisdiction and Venue

Essex Insurance Company (“Essex”) is a Delaware Corporation with its principal place of
business in Glen Allen, Virginia. (R. 61, Essex Stmnt. of Facts, at ¶1.) RHO Chemical
Company, Inc. (“RHO”) is an Illinois corporation with its principal place of business in Joliet,
Illinois. (Id. at ¶2.) General Surfactants, Inc. (“GSI”) is an Illinois Corporation with its principal
place of business in Joliet, Illinois. (Id. at ¶6.) GSI is not a named insured and does not
otherwise qualify as an insured under the insurance policy at issue. (Id. at ¶7.) Robert Rolih is
the president of RHO, the president of GSI, and a citizen of Illinois. (Id. at ¶3.). Lorraine Rolih
is Robert Rolih’s wife and a citizen of Illinois. (Id. at ¶4.) RHO and the Rolihs are named
insureds under Essex Insurance Policy No. 3DF8043 (“insurance policy”). (Id. at ¶5.) Milan
Stavinoha (“Stavinoha”) is a citizen of Illinois and the plaintiff in the underlying lawsuit filed on
April 11, 2014 entitled Milan Stavinoha v. RHO Chemical Company, Inc., General Surfactants,

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Inc., Robert Rolih, and Lorraine Rolih, No. 14 L 302. (Id. at ¶8.) The underlying case is
currently pending in the Circuit Court of the 12th Judicial Circuit in Will County, Illinois. (Id.)
Both parties seek relief under the Declaratory Judgment Act, 28 U.S.C. §§ 2201, 2202.
“The Declaratory Judgment Act allows a party . . . who expects to eventually be sued, to
determine his rights and liabilities without waiting for his adversary, the presumptive plaintiff, to
bring suit. That act, however, is not an independent grant of federal subject-matter
jurisdiction[.]” DeBartolo v. Healthsouth Corp., 569 F.3d 736, 741 (7th Cir. 2009). Here, the
Court has diversity jurisdiction over this action under 28 U.S.C. § 1332, because complete
diversity of citizenship exists between the parties and the amount in controversy exceeds
$75,000.00. (R. 61 at ¶¶12-14.) Venue is premised upon 28 U.S.C. §1391. (Id. at ¶15.) In
addition, all parties agree that Illinois law applies. (Id. at ¶11.)
B.

Underlying Lawsuit

Stavinoha filed a lawsuit in state court against RHO, GSI, and the Rolihs, claiming he
suffered severe injuries on April 27, 2012, when portions of a building’s roof fell out from under
him at 30 Industry Avenue, Joliet, Illinois. (R. 9-4, Stavinoha Compl., at ¶4; R. 61 at ¶¶18-20.)
He alleges that RHO, GSI, and the Rolihs owned, controlled, maintained and operated the
building at the time of his injury. (R. 9-4 at ¶1; R. 61 at ¶18.) On the day of his injury,
Stavinoha was present at the Industry Avenue premises performing work on the roof pursuant to
his employment with P&P Roofing & Carpenters Construction (“P&P”). (R. 61 at ¶20.)
Specifically, Stavinoha asserts that he was a lawful invitee on the premises when he was injured,
and seeks to recover from Defendants for their negligence and associated unsafe working
conditions. (R. 9-4 at ¶2-4.)

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Defendants then filed a Third Party Complaint in the underlying action seeking
contribution against P&P, whom they admitted was Stavinoha’s employer. (R. 61 at ¶40.) In
their Third Party Complaint, Defendants allege that P&P sent Stavinoha to repair the roof of a
building on Industry Avenue pursuant to an oral agreement between P&P and the Rolihs. (Id.)
Defendants conclude that Stavinoha was repairing the roof when the roof collapsed, causing him
severe injuries, and maintain that P&P bears responsibility for Stavinoha’s injuries as his
employer. (Id.)
Further undisputed facts apart from the underlying complaints illustrate that Stavinoha
was injured while repairing the building’s roof under P&P’s employment. First, on June 12,
2012, Stavinoha filed a claim for worker’s compensation benefits with the Illinois Industrial
Commission due to his April 27, 2012 injuries received in the course and scope of his P&P
employment. (Id. at ¶21.) Since then, Stavinoha successfully received benefits pursuant to his
claim against P&P. (Id. at ¶ 22.) Second, on or about April 25, 2014, Defendant Robert Rolih
reported Stavinoha’s underlying personal injury lawsuit to his insurance agency, admitting that
“a roofer went up on the roof to repair it and fell thru [sic] the concrete panels.” (Id. at ¶16.)
C.

Essex Insurance Policy And Exclusion Provision

At the time of Stavinoha’s injuries, Essex insured RHO and the Rolihs. (Id. at ¶5.)
Under Paragraph 1(a), the policy states:
We [Essex] will pay those sums that the insured becomes legally obligated to pay
as damages because of “bodily injury” or “property damage” to which this
insurance applies. We will have the right and duty to defend the insured against
any “suit” seeking those damages. However, we will have no duty to defend the
insured against any “suit” seeking damages for “bodily injury” or “property
damage” to which this insurance does not apply. We may, at our discretion,
investigate any “occurrence” and settle any claim or “suit” that may result.

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(R. 23-1 at 9; R. 46, RHO Stmnt. Of Facts, at ¶9.) The insurance policy also contains a
“Combination General Endorsement Form – MEGL 0001 05/10” that includes an exclusion for
bodily injury claims made by contractors and their employees. Specifically, Paragraph 7
(“exclusion provision”) states:
Unless stated elsewhere in this policy, the following exclusion applies only to
injury, loss, or damages sustained in Illinois and/or New York State:
This insurance does not apply to “bodily injury,” “property damage,” “personal
and advertising injury,” or any injury, loss, or damages, including consequential
injury, loss or damage, arising out of, caused or contributed to by any injury
sustained by any contractor, self-employed contractor, and/or subcontractor, or
any “employee,” “leased worker,” casual worker, contract worker, “temporary
worker,” or “volunteer worker” of same. This exclusion applies to any obligation
to share damages with or repay someone else who must pay damages because of
the injury, as well as liability assumed under any “insured contract.”
(R. 23-1 at 38; R. 61 at ¶23.) The term “contractor” does not appear in quotation marks to
designate it as having a special meaning in the insurance policy. (R. 46 at ¶13.) The crux of the
present lawsuit is whether Stavinoha and his injuries fall within this provision. If not, Essex has
no duty to defend or indemnify RHO and the Rolihs in the underlying lawsuit.
D.

Essex Reservation of Rights Letter

On June 13, 2014, Essex sent a Reservation of Rights letter to its insureds, RHO and the
Rolihs. (R. 61 at ¶24.) Essex informed them that it did not believe the contract provided
coverage for the underlying Stavinoha lawsuit, given the specific exclusion provision detailed
above. (Id.) The insurer agreed, however, to participate in RHO and the Rolih’s defense against
Stavinoha’s lawsuit pursuant to a full reservation of all rights. (Id.) Essex informed them that
“in agreeing to participate in the defense of RHO and the Rolihs or conducting any investigation
relating thereto, Essex is not waiving any of its rights to deny coverage or to refuse to defend or

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continue defending RHO and the Rolihs at any future time.” (R. 23-3 at 6; R. 61 at ¶24.) In
relevant part, Essex’s Reservation of Rights letter informed RHO and the Rolihs that
Essex does not believe that the reservation of rights creates a material coverage
conflict of interest between it and RHO and the Rolihs in the provision of their
defense against the Stavinoha Complaint. If there was a material coverage
conflict of interest, RHO and the Rolihs would have the right to counsel of its
choosing at the expense of Essex. However, the mere fact of a reservation of
rights alone does not automatically give rise to a material coverage conflict
requiring independent counsel.
(R. 23-3 at 7 (citing Stoneridge Dev. v. Essex Ins. Company, 888 N.E.2d 633 (Ill. App. 2nd Dist.
2008)); R. 61 at ¶25.)
Moreover, the Reservation of Rights letter explained why Essex did not believe a conflict
existed in the defense of RHO and the Rolihs, and invited them to contact Essex with any
disagreement or concerns. (R. 61 at ¶26.) The Reservation of Rights letter also denied that
Essex owed any coverage to GSI, because GSI was not an insured under the policy. (Id. at ¶27.)
Essex agreed, however, to provide a courtesy defense to GSI to allow defense counsel to
continue efforts to try to get GSI dismissed from the Stavinoha case. (Id.)
On May 19, 2014, Michael Holy of Leahy, Eisenberg & Fraenkel, Ltd., appointed by
Essex, entered his appearance on behalf of RHO, the Rolihs, and GSI in the underlying
Stavinoha lawsuit. (Id. at ¶28.) On June 30, 2014, Scott Hoster of Dystrup, Roster & Jarot, P.C.,
the personal attorney for RHO, the Rolihs, and GSI, filed his appearance in the underlying
matter. (Id. at ¶29.) At no time has Hoster advised Essex of any belief on his part that retaining
Holy as defense counsel was a conflict of interest. (Id. at ¶30.) Per the Will County Circuit
Court file, Attorney Hoster attended all case management conferences for the underlying
Stavinoha lawsuit, and no one has filed substantive motions. (Id. at ¶31.)

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On November 11, 2014, James Marsh, coverage counsel of record for RHO, the Rolihs
and GSI, sent a letter to Essex arguing that Essex’s reservation of rights created a conflict of
interest requiring independent defense counsel. (Id. at ¶34.) Later, on November 25, 2014,
Essex wrote to Marsh noting that the November 11, 2014 letter was the first indication that a
conflict of interest arising out of Essex’s defense potentially injured RHO and the Rolihs. (Id. at
¶35.) Subsequently, Essex agreed to allow RHO and the Rolihs to control their own defense at
Essex’s expense without admitting that a material conflict of any kind existed. (Id.) On
December 5, 2014, Marsh asked Holy, Essex’s appointed defense counsel, to cover a court
hearing on December 9, 2014 despite continuing to assert an actionable conflict of interest and
continuing to use Hoster. (Id. at ¶36.)
On January 8, 2015, Marsh advised Essex that “Mr. and Mrs. Rolih, RHO Chemical, and
General Surfactants have chosen Attorney William Kozol of the Joliet firm Rathbun, Cservenyak
& Kozol to represent them as independent counsel in the underlying Will County lawsuit.” (Id.
at ¶37.) On January 22, 2015, Essex reported to Marsh that all parties, including the Rolihs and
RHO, knew that Stavinoha, working for P&P, was performing roof repairs at the time of the
injury. (Id. at ¶38.) Thus, asserted Essex, these known facts could not give rise to a material
conflict of interest. (Id.)
SUMMARY JUDGMENT STANDARD
Summary judgment is proper when “the pleadings, depositions, answers to
interrogatories, and admissions on file, together with the affidavits, if any, show that there is no
genuine issue as to any material fact and that the moving party is entitled to a judgment as a
matter of law.” Fed. R. Civ. P. 56(c). A genuine issue of material fact exists if “the evidence is
such that a reasonable jury could return a verdict for the nonmoving party” Anderson v. Liberty

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Lobby, Inc., 477 U.S. 242, 248, 106 S. Ct. 2505, 91 L. Ed. 2d 202 (1986). In determining
summary judgment motions, “facts must be viewed in the light most favorable to the nonmoving
party only if there is a ‘genuine’ dispute as to those facts.” Scott v. Harris, 550 U.S. 372, 380,
127 S. Ct. 1769, 167 L. Ed. 2d 686 (2007). The party seeking summary judgment has the burden
of establishing the lack of any genuine issue of material fact. See Celotex Corp. v. Catrett, 477
U.S. 317, 323, 106 S. Ct. 2548, 91 L. Ed. 2d 265 (1986). After “a properly supported motion for
summary judgment is made, the adverse party ‘must set forth specific facts showing that there is
a genuine issue for trial.’ ” Anderson, 477 U.S. at 250 (quoting Fed R. Civ. P. 56(e)) (footnotes
omitted).
ANALYSIS
On August 27, 2014, Essex timely sought Declaratory Judgment in this action and filed
its Amended Complaint for Declaratory Judgment on September 5, 2014. (R. 9.) On November
11, 2014, RHO and the Rolihs filed their Counter Complaint for Declaratory Judgment. (R. 23.)
Now, all parties have filed cross-motions for summary judgment. (R. 56; R. 60.) First,
Defendants assert that Essex has a duty to defend RHO and the Rolihs in the underlying lawsuit,
because the exclusion provision (1) is not clear and free from doubt and (2) is inapplicable to the
facts at issue. Second, Defendants argue in the alternative that Essex breached its duty of good
faith by failing to adequately warn RHO and the Rolihs of an actionable conflict of interest.
Essex, however, contends that it has no duty to defend or indemnify Defendants, because the
exclusion provision is (1) unambiguous and (2) applicable to the facts. Further, Essex argues
that there was no conflict of interest and Defendants did not suffer any prejudice. The Court
addresses each argument in turn.

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I.

Essex Insurance Policy’s Exclusion Provision
A.

Illinois Insurance Contract Principles

The parties agree that Illinois law governs the Court’s interpretation of the insurance
policy at issue. “Under Illinois law, ‘[a]n insurance policy is a contract, and the general rules
governing the interpretation of other types of contracts also govern the interpretation of
insurance policies.’ ” Westfield Ins. Co. v. Vandenberg, 796 F.3d 773, 777 (7th Cir. 2015)
(quoting Hobbs v. Hartford Ins. Co. of the Midwest, 214 Ill. 2d 11, 291 Ill. Dec. 269, 823 N.E.2d
561, 564 (2005)); see also Geschke v. Air Force Ass’n, 425 F.3d 337, 342 (7th Cir. 2005).
Illinois applies the four corners rule of contract interpretation, which bars consideration of
extrinsic evidence when the contract is facially unambiguous and fully integrated. See TAS
Distributing Co., Inc. v. Cummins Engine Co., Inc., 491 F.3d 625, 636 (7th Cir. 2007) (citing Air
Safety, Inc. v. Teachers Realty Corp., 185 Ill. 2d 457, 236 Ill. Dec. 8, 706 N.E.2d 882, 885
(1999)); see also Brooklyn Bagel Boys, Inc. v. Earthgrains Refrigerated Dough Prods., Inc., 212
F.3d 373, 380 (7th Cir. 2000). “Like any contract under Illinois law, ‘an insurance policy is
construed according to the plain and ordinary meaning of its unambiguous terms.’ ” Schuchman
v. State Auto Property and Cas. Ins. Co., 733 F.3d 231, 235 (7th Cir. 2013) (quoting AutoOwners Ins. Co. v. Munroe, 614 F.3d 322, 324 (7th Cir. 2010) (citing Nicor, Inc. v. Associated
Elec. & Gas, 223 Ill. 2d 407, 307 Ill. Dec. 626, 860 N.E.2d 280, 286 (2006)). In sum, “the
primary function of the court is to ascertain and enforce the intentions of the parties as expressed
in the agreement.” Westfield Ins. Co., 796 F.3d at 777-78 (quoting Crum & Forster M’ngrs
Corp. v. Resolution Tr. Corp., 156 Ill. 2d 384, 189 Ill. Dec. 756, 620 N.E.2d 1073, 1078 (1993)).
Specifically, “an insurer has no duty to defend where ‘there clearly was no coverage or
potential for coverage.’ ” Panfil v. Nautilus Ins. Co., 799 F.3d 716, 719 (7th Cir. 2015) (quoting

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Lyerla v. AMCO Ins. Co., 536 F.3d 684, 687 (7th Cir. 2008) (citing Gen. Agents Ins. Co. of Am.,
Inc. v. Midwest Sporting Goods Co., 215 Ill. 2d 146, 293 Ill. Dec. 594, 828 N.E.2d 1092, 1098
(2005)); see also id. (“When an insurer denies a duty to defend based on an exclusionary clause,
its application must be ‘clear and free from doubt.’ ”) (quoting Hurst-Rosche Eng’rs, Inc. v.
Commercial Union Ins. Co., 51 F.3d 1336, 1342 (7th Cir. 1995)). “In assessing whether the duty
[to defend] exists, a court must construe the allegations in the underlying complaint liberally and
any doubt in coverage must be resolved in favor of the insured.” Native Am. Arts, Ins. v.
Hartford Cas. Ins. Co., 435 F.3d 729, 732 (7th Cir. 2015) (citing Ill. State Med. Ins. v. Cichon,
258 Ill. App. 3d 803, 196 Ill. Dec. 277, 629 N.E.2d 822, 826 (1994)). “Nonetheless, deference
only goes so far; if the policy terms are unambiguous, the court must apply their plain and
ordinary meaning.” Id. (citing Crum & Forster M’ngrs Corp., 156 Ill. 2d 384, 189 Ill. Dec. 756,
620 N.E.2d at 1078); see also Wehrle v. Cincinnati Ins. Co., 719 F.3d 840, 843 (7th Cir. 2013)
(“Where the provisions are clear and unambiguous, they must be given their plain, ordinary, and
popular meaning, and the policy will be applied as written[.]”) (quotations and citations omitted).
Indeed, “if there is no ambiguity there is no need to look elsewhere.” Ace Am. Ins. Co. v. RC2
Corp., Inc., 600 F.3d 763, 767 (7th Cir. 2010) (quoting Nicor, Inc., 223 Ill. 2d 407, 307 Ill. Dec.
626, 860 N.E.2d at 286). Importantly, “[i]n determining whether a provision of an insurance
policy is ambiguous, Illinois courts examine whether it ‘is subject to more than one reasonable
interpretation, . . . not whether creative possibilities can be suggested.’ ” Wehrle, 719 F.3d at
843 (quoting Bruder v. Country Mut. Ins. Co., 156 Ill. 2d 179, 189 Ill. Dec. 387, 620 N.E.2d 355,
362 (1993)). Indeed, “ ‘[c]ourts will not strain to find ambiguity in an insurance policy where
none exists.’ ” Id. (quoting McKinney v. Allstate Ins. Co., 188 Ill. 2d 493, 243 Ill. Dec. 56, 722
N.E.2d 1125, 1127 (1999)).

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B.

The Essex Insurance Policy’s Exclusion Provision Is Unambiguous

Defendants RHO and the Rolihs argue that “paragraph 7 of the combination General
endorsement is vague and ambiguous.” (R. 57 at 3.) Thus, Defendants conclude, the exclusion
provision does not clearly exclude them from Essex’s coverage.1 Essex argues, however, that
“the exclusion is not ambiguous or void.” (R. 62 at 14.)
In relevant part, the exclusion provision provides that, “[t]his insurance does not apply to
‘bodily injury’ . . . ‘personal and advertising injury,’ or any injury . . . including consequential
injury . . . arising out of, caused or contributed to by any injury sustained by any contractor, selfemployed contractor, and/or subcontractor, or any ‘employee,’ ‘leased worker,’ casual worker,
contract worker, ‘temporary worker,’ or ‘volunteer worker’ of same.” (R. 23-1 at 38; R. 61 at
¶23.) This language is susceptible to one meaning: the insurance policy excludes from coverage
certain injuries sustained, in relevant part, by contractors or their employees or volunteers.
According to the insurance policy, this exclusion provision “applies only to injury, loss, or
damages sustained in Illinois and/or New York.” (R. 23-1 at 38; R. 61 at ¶23.) Although an
Illinois state court has not yet construed this language, a New York state court has construed it.
In Essex Ins. Co. v. Mondone, Mondone sought to “recover damages for personal injuries he
allegedly sustained while working as an electrical contractor at a residential property” where
Essex’s insureds were also contractors. 106 A.D.3d 1045, 1046, 965 N.Y.S.2d 616 (2013). The
operative Essex insurance policy contained the same “section VII” exclusion provision seen
here. Id. Significantly, the New York state court concluded that “[t]he plain language of the
exclusion applies to exclude coverage here.” Id. at 1047. As a result, Essex was “not obligated

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Defendant Stavinoha filed a response to Essex’s motion for summary judgment in which he makes insurance
policy arguments similar to RHO and the Rolihs (R. 65), but the Court focuses on the latter’s insurance policy
arguments, because “the tort plaintiff [in the underlying suit] has no authority to interpret the insurance contract.”
Atlantic Cas. Ins. Co., 718 F.3d at 723.

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to defend or indemnify [its insureds] in the underlying action[.]” Id. The Court agrees with the
New York court.2
RHO and the Rolihs argue otherwise. Specifically, they contend that in order for the
exclusion provision to apply, Stavinoha’s injury must have “caused or contributed to another
injury, or caused another injury to ‘arise out of’ his injury.” (R. 57 at 3.) Put differently,
Defendants argue that two separate injuries are required to trigger the exclusion provision. This
argument amounts to nothing more than a “creative possibilit[y].” Wehrle, 719 F.3d at 843.
Under Defendants’ interpretation, the exclusion provision would only exclude from coverage
injuries arising out of another person’s “bodily injury.” This is nonsensical. While the provision
may exhibit a bit of poor draftsmanship, a “reasonable construction” of the provision would hold
that its last reference to “injury” simply serves as an aggregate term referring back to the specific
kinds of injuries listed earlier in the provision. Amerisure Mut. Ins. Co. v. Microplastics, Inc.,
622 F.3d 806, 811 (7th Cir. 2010) (Referring to the “paramount rule of reasonable construction
which guides all contract interpretations”). The plain language of the provision is unambiguous.
Thus, the insurance policy excludes from coverage any of the specific injuries listed in the
provision when sustained by a contractor or her employee or volunteer.
Further, Defendants argue that the insurance policy does not define the term “contractor,”
rendering the exclusion provision determinatively ambiguous. Specifically, RHO and the Rolihs
contend that because the policy does not define the term “contractor,” the Court must not engage
in “guess work” and should interpret the term liberally in favor of coverage. (R. 57 at 4.)
Defining “contractor,” however, requires no such guessing. “[A]mbiguous terms are construed

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Essex relies on several cases where courts construed insurance provisions that were different, albeit similar, from
Paragraph 7. (R. 62 at 7-8.) The Essex provision in Mondone, however, matches the provision here. 106 A.D.3d
1045, 965 N.Y.S.2d 616.

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against the drafter but, in construing a policy, ‘governing legal authority must, of course, be
taken into account as well, for a policy term may be considered unambiguous where it has
acquired an established legal meaning.’ ” Ace Am. Ins. Co., 600 F.3d at 766 (quoting Nicor, Inc.,
223 Ill. 2d 407, 307 Ill. Dec. 626, 860 N.E.2d at 286). The “plain and ordinary” meaning of the
word “contractor” is “one that contracts to perform work or provide supplies.” Contractor
Definition, MERRIAM-WEBSTER.COM, http://www.merriam-webster.com/dictionary/contractor
(last visited Nov. 3, 2015); see also Schuchman, 733 F.3d at 235 (Instructing courts to construe
insurance policies according to the “plain and ordinary meaning” of their unambiguous terms).
Indeed, governing Illinois law has historically held the same, stating that “[t]he term ‘contractor’
is of obvious definition. It describes a party who enters into a contract with the owner of a
certain property to perform some type of work thereon.” Richard v. Ill. Bell Tel. Co., 66 Ill. App.
3d 825, 23 Ill. Dec. 215, 383 N.E.2d 1242, 1260 (1978). Thus, despite not defining “contractor,”
the exclusion provision remains unambiguous and survives Defendants’ challenge.
C.

The Essex Insurance Policy’s Exclusion Provision is Applicable

Next, Defendants assert that the exclusion provision’s “application to the facts presented
here is not clear and free from doubt, as required by Illinois law.” (R. 57 at 2.) Even reviewing
the facts in the light most favorable to Defendants, this argument fails.
First, Defendants contend that the second sentence in the exclusion provision renders the
exclusion as a whole inapplicable to the current facts. Specifically, that sentence states: “[t]his
exclusion applies to any obligation to share damages with or repay someone else who must pay
damages because of the injury, as well as liability assumed under any ‘insured contract.’ ” (R.
61 at ¶23.) Defendants maintain that “there is nothing in this second sentence of paragraph 7 to
indicate that it does not serve to limit the applicability of the first sentence of paragraph 7.” (R.

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57 at 4.) Under a plain reading, there is nothing in the second sentence, however, indicating that
it does serve to limit the first sentence’s applicability. Thus, even if it is true that “[n]owhere in
the underlying lawsuit it is [sic] alleged that Rho Chemical or the Rolihs have an obligation to
share damages with or repay someone else who must pay damages because of the injury alleged
by Stavinoha,” the exclusion provision’s first part, independent from what follows, still applies
to the facts at issue. (Id.)
Second, Defendants argue that Stavinoha and P&P were not contractors and, as a result,
do not fall within the exclusion provision’s framework. Specifically, Defendants assert that
“there was no contract entered into between Rho Chemical and Stavinoha.” (R. 57 at 5.)
Defendants’ own actions, however, preclude their argument. On February 26, 2015, Defendants’
independent counsel filed a Third Party Complaint in the underlying lawsuit. The undisputed
facts illustrate that Defendants admitted the following: “On and prior to April 27, 2012, P&P
entered into an oral agreement with the Defendants [Rolih] to perform repairs to a roof of a
building located on Industry Avenue in Joliet, Illinois.” (R. 61 at ¶40.) Defendants further
asserted that on the April 27, 2012 injury date, Stavinoha “was employed by P&P and was
working on a roof of a building located on Industry Avenue in Joliet, Illinois.” (Id.) Under
Illinois law, oral agreements can form legally binding contracts. See Central Ill. Light Co. v.
Consolidation Coal Co., 349 F.3d 488, 491-92 (7th Cir. 2003) (citing Quake Construction, Inc.
v. Am. Airlines, Inc., 141 Ill. 2d 281, 152 Ill. Dec. 308, 565 N.E.2d 990, 993-94 (1990)). Here,
an oral agreement with no written contract between Defendants and P&P does not automatically
prevent P&P from operating as a “contractor.” Indeed, taking these undisputed—or improperly
disputed—facts as true, there is no genuine issue of fact that P&P was a contractor under the
provision’s plain and ordinary meaning, making Stavinoha a contractor’s employee. See United

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States v. Funds in Amount of Thirty Thousand Six Hundred Seventy Dollars, 403 F.3d 448, 466
(7th Cir. 2005) (“Summary judgment would be meaningless if litigants could manufacture
genuine issues of material fact through . . . ‘admissions’ materially different from positions taken
in the past.”). Thus, the exclusion provision remains applicable.
As a result, the insurance policy’s exclusion provision is both unambiguous and
applicable to the facts at issue. As such, Essex does not have a duty to defend or indemnify
Defendants RHO and the Rolihs.
II.

Conflict of Interest
Finally, Defendants argue that Essex breached its duty of good faith by failing to warn

Defendants of an actionable conflict of interest. (R. 57 at 8.) In response, Essex contends that
there was no conflict of interest and that, regardless, Defendants were not prejudiced. (R. 62 at
11.)
“Under Illinois law, . . . when an insurer believes that a policy does not provide coverage,
it can provide a defense under a reservation of rights or obtain a declaratory judgment as to its
rights and obligations.” Willis Corroon Corp. v. Home Ins. Co., 203 F.3d 449, 452 (7th Cir.
2000); see also Am. Safety Cas. Ins. Co. v. City of Waukegan, Ill., 678 F.3d 475, 485 (7th Cir.
2012) (“Illinois requires an insurer that denies coverage either to defend under a reservation of
rights or to seek a declaratory judgment of non-coverage[.]”). Regarding its reservation of
rights, “an insurer is not required to assert all of its defenses to liability in a letter to its insured.”
Tobi Eng’g, Inc. v. Nationwide Mut. Ins. Co., 214 Ill. App. 3d 692, 158 Ill. Dec. 366, 574 N.E.2d
160, 162 (1991). Of course, a “bare notice of a reservation of rights is insufficient unless it
makes specific reference to the policy defense which may ultimately be asserted and to the
potential conflict of interest.” Cowan v. Ins. Co. of North Am., 22 Ill. App. 3d 883, 318 N.E.2d

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315, 326 (1974); see generally Nautilus Ins. Co. v. Dubin & Assocs., Inc., No, 11 C 1251, 2012
WL 2458607, at *4 (N.D. Ill. June 27, 2012). “In order to determine if a conflict exists, the court
‘must compare the allegations of the underlying complaint against the insured to the terms of the
insurance policy at issue.’ ” National Cas. Co. v. Forge Indus. Staffing Inc., 567 F.3d 871, 875
(7th Cir. 2009) (quoting Am. Family Mut. Ins. Co. v. W. H. McNaughton Builders, Inc., 363 Ill.
App. 3d 505, 300 Ill. Dec. 234, 843 N.E.2d 492, 498 (2006)). Specifically, “[i]f, after comparing
the complaint against the insured to the insurance policy, it appears that factual issues will be
resolved in the underlying suit that would allow insurer-retained counsel to lay the groundwork
for a later denial of coverage, then there is a conflict between the interests of the insurer and
those of the insured.” Id. (quotations and citations omitted).
Regarding the alleged conflict of interest, the factual issues in the underlying suit had the
potential to allow Essex’s retained counsel to “lay the groundwork” for the current denial of
coverage. Id. Specifically, one of the determinative issues in the underlying complaint against
Defendants is whether P&P is a contractor and Stavinoha, a contractor’s employee. As these
legal characterizations dictate who may bear responsibility for the alleged negligence below, it is
possible the associated underlying factual determinations are related enough to Essex’s exclusion
provision—also hinged on “contractor” status—to cause a conflict of interest.
Defendants forget, however, that “[p]rejudice resulting from a conflict of interest . . . will
not be presumed and the burden of establishing it rests with the insured and must be proved by
clear, concise, and unequivocal evidence.” Nautilus Ins. Co., 2012 WL 2458607, at *7 (citing
Royal Ins. Co. v. Process Design Assocs., Inc., 221 Ill. App. 3d 966, 164 Ill. Dec. 290, 582
N.E.2d 1234, 1240 (1991)). Nowhere in the statement of facts do Defendants offer clear,
corroborated evidence that they were prejudiced by the potential conflict of interest at issue.

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Specifically, Defendants’ conflict of interest arguments are directly contradicted by Essex’s
Reservation of Rights letter. Defendants do not contest that Essex sent the Reservation of Rights
letter nor that Defendants received it. First, Defendants contend that “Essex affirmatively denied
the existence of a conflict of interest between it and its insureds.” (R. 57 at 8.) Essex’s
Reservation of Rights letter, however, specifically stated, “[i]n our view, the only coverage issue
in this case would be one of law as to whether [sic] paragraph 7 exclusion in the MEGL-0001
Endorsement, when compared against the allegations of the underlying complaint, would be
deemed by a court to exclude coverage. In our view, this reservation does not create a material
conflict[.]” (R. 23-3 at 7.) Essex explicitly referenced both the “policy defense which may
ultimately be asserted” and “the potential conflict of interest.” Cowan, 22 Ill. App. 3d 883, 318
N.E.2d at 326. Afterward, Essex simply opined that a “material” conflict did not exist. Indeed,
Essex asked Defendants to call with any questions or disagreements specifically regarding any
potential material conflicts of interest. (R. 61 at ¶26; R. 23-3 at 7.) It is uncontested that
Defendants did not raise any such conflicts until almost five months after Essex sent the
Reservation of Rights letter. Indeed, Defendants’ attorney, Scott Hoster, did not object to
Essex’s appointed counsel. Second, Defendants argue that “Essex did not decline to defend and
offer to allow its insureds to control their own defense at Essex’s expense.” (R. 57 at 8.) Again,
Essex’s Reservation of Rights letter tells a different story. In it, Essex wrote, “[i]f there was a
material coverage conflict of interest, RHO and the Rolihs would have the right to counsel of its
choosing at the expense of Essex.” (R. 23-3 at 7; R. 61 at ¶25.) Furthermore, when Jordan
Marsh told Essex for the first time in a November 11, 2014 letter that Essex’s Reservation of
Rights letter created a conflict of interest, Essex permitted RHO and the Rolihs to hire their own

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defense counsel at Essex’s expense. As a result, Defendants have failed to identify any
prejudice.
Thus, Essex fulfilled both steps required of it after determining it had no duty to defend
Defendants: it proceeded to defend them under a reservation of rights, and it sought a declaratory
judgment. Although taking these steps does not mean “estoppel can never lie,” Essex
successfully informed Defendants of any potential conflicts with regard to the exclusion
provision at issue and ultimately permitted Defendants to hire their own counsel at Essex’s
expense once Defendants raised a conflict of interest. Willis Corroon Corp., 203 F.3d at 452.
Moreover, Defendants have failed to raise any issue of material fact regarding their burden of
demonstrating prejudice from said conflicts. As a result, Essex is not estopped from asserting
the unambiguous, applicable policy exclusion described in detail above.
CONCLUSION
For the foregoing reasons, the Court grants Plaintiff’s motion for summary judgment and
denies Defendants’ motion for summary judgment.

DATED: November 3, 2015

ENTERED

______________________________
AMY J. ST. EVE
United States District Court Judge

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