T.H.E. Insur Co v. City of Alton ( 2000 )

In the
United States Court of Appeals
For the Seventh Circuit
No. 99-3225
T.H.E. INSURANCE COMPANY,
Plaintiff-Appellee,
v.
CITY OF ALTON,
Defendant-Appellant.
Appeal from the United States District Court
for the Southern District of Illinois.
No. 98 C 375--Paul E. Riley, Judge.
Argued May 10, 2000--Decided September 13, 2000
Before EASTERBROOK, RIPPLE, and ROVNER, Circuit
Judges.
ROVNER, Circuit Judge. A tragic accident at a
municipal fireworks display gave rise to this
dispute over insurance coverage. The district
court concluded that the policy at issue excluded
coverage for bodily injury to "shooters," the
persons hired to ignite the fireworks on display,
and that this exclusion applied to the City as an
"additional insured." We agree that the City of
Alton was not entitled to rely on the general
coverage language in the certificate of insurance
because the certificate stated on its face that
it did not amend, extend or alter the terms of
the underlying policy. We therefore affirm the
district court’s grant of summary judgment in
favor of T.H.E. Insurance Company.
I.
The City of Alton hired Fireworks Partners,
Inc. d/b/a Madbombers Fireworks Production, Inc.
("FPI") to stage a fireworks display in
celebration of the Fourth of July holiday in
1997. The fireworks were to be launched from a
barge floating on the Mississippi so that they
would be visible at Riverfront Park in downtown
Alton. FPI was insured by T.H.E. Insurance
Company under a general commercial liability
policy. The policy excluded coverage for bodily
injury to shooters or their assistants hired to
perform displays, or anyone aiding in the display
of fireworks, whether or not these persons were
employed by FPI, the named insured. Pursuant to
the contract between FPI and Alton, FPI procured
a certificate of insurance naming Alton and the
Alton Expo Commission as additional insureds
under FPI’s insurance policy with T.H.E.
Insurance. The one page certificate of insurance
stated, in relevant part, "This certificate
neither affirmatively nor negatively amends,
extends or alters the coverage afforded by the
policy(ies) described hereon."
An explosion during the July 3, 1997 fireworks
display killed three FPI employees and injured a
fourth. All were working as shooters or shooters’
assistants at the time of the accident. The
families brought suit against a number of
defendants, including the City of Alton. Alton
sought indemnification from T.H.E. Insurance.
Alton had never received or reviewed FPI’s
underlying policy with T.H.E. Insurance, and was
unaware of the exclusion for bodily injury to
shooters. T.H.E. Insurance filed a declaratory
judgment action against all of the defendants,
seeking a declaration that it was not obliged to
defend or indemnify the City of Alton or any of
the other defendants. T.H.E. Insurance then moved
for summary judgment, and the district court
granted judgment in favor of T.H.E., declaring
that T.H.E. had no obligation to defend or
indemnify the City of Alton in the underlying
tort litigation. The district court found that
the City was not entitled to rely on the general
language in the certificate of insurance when the
certificate itself stated it did not alter,
extend or amend the terms of the underlying
policy. That notice was sufficient to inform the
City that it must refer to the underlying policy
to determine the extent of coverage, according to
the district court. The district court also found
that there was no conflict between the
certificate and the policy itself and thus the
shooters bodily injury exclusion applied to the
City as an additional insured. The City of Alton
appeals.
II.
The parties agree that Illinois law governs
this dispute, and the City of Alton concedes that
if the shooters exclusion applies to it as an
additional insured, then T.H.E. Insurance has no
duty to defend or indemnify the City against the
claimed losses. Under Illinois law, construction
of an insurance contract is a question of law,
suitable for disposition by a court on a motion
for summary judgment. See John Bader Lumber Co.
v. Employers Ins. of Wausau, 441 N.E.2d 1306,
1307 (Ill. App. 1 Dist. 1982). Alton contends
that the only document it received was the
certificate of insurance, which listed coverage
but not exclusions. Alton maintains that the
disclaimer language on the certificate was
inadequate, and that the policy exclusions are in
direct conflict with the certificate. Alton
argues that the court is obliged to construe any
conflicts between the certificate and the policy
in favor of granting coverage on behalf of Alton,
and that summary judgment was therefore wrongly
granted. T.H.E. Insurance counters that the
disclaimer put Alton on notice that it could not
rely on the certificate to define coverage but
was obliged to look to the underlying policy to
determine the scope of coverage and exclusions.
T.H.E. also maintains that there are no conflicts
between the language of the certificate and the
underlying policy and thus there are no
ambiguities for the court to construe in Alton’s
favor. Because the certificate directs the
insured to the policy and the policy disclaims
liability for shooters, T.H.E. argues that
summary judgment was appropriate.
Two lines of Illinois cases address the issue
of coverage when there is a certificate of
insurance separate from the policy itself. In one
line of cases, where the certificate did not
refer to the policy, and the terms of the
certificate conflicted with the terms of the
policy, the courts found that the certificate
language should govern the extent and terms of
coverage. See International Amphitheatre Co. v.
Vanguard Underwriters Ins. Co., 532 N.E.2d 493,
502 (Ill. App. 1 Dist. 1988) (where the terms of
the certificate conflicted with the terms of the
policy, the insured was not aware of the
exclusions in the policy, and the certificate did
not warn of further exclusions, the certificate
would govern the terms of the insurance
contract); John Bader Lumber, 441 N.E.2d at 1308
(same); J.M. Corbett Co. v. Insurance Co. of
North America, 357 N.E.2d 125, 127-28 (Ill. App.
1 Dist. 1976) (same). But where the certificate
refers to the policy and expressly disclaims any
coverage other than that contained in the policy
itself, the courts found that the policy should
govern the extent and terms of the coverage. See
American Country Ins. Co. v. Kraemer Brothers,
Inc., 699 N.E.2d 1056, 1060 (Ill. App. 1 Dist.
1998) (where the certificate of insurance
contains a disclaimer, the insured may not rely
on the certificate but must look to the policy
itself to determine the scope of coverage); Pekin
Ins. Co. v. American Country Ins. Co., 572 N.E.2d
1112, 1114-15 (Ill. App. 1 Dist. 1991) (where the
certificate of insurance contains a disclaimer
and there is no conflict between the terms of the
certificate and the terms of the policy, the
insured will be held to the terms of the
underlying policy); Lezak & Levy Wholesale Meats,
Inc. v. Illinois Employers Ins. Co. of Wausau,
460 N.E.2d 475, 477 (Ill. App. 1 Dist. 1984)
(same).
The City argues that the disclaimer language in
the second line of cases was much broader than
the disclaimer on T.H.E.’s certificate. T.H.E.’s
certificate simply stated that the "certificate
neither affirmatively nor negatively amends,
extends or alters the coverage afforded by the
policy(ies) described hereon." In Lezak, the
certificate stated, "This certificate is not a
policy or binder of insurance and does not in any
way alter, amend or extend the coverage afforded
by any policy referred to herein." 460 N.E.2d at
476-77. The Lezak certificate then reiterated
that it was subject to the terms, conditions and
exclusions of the policy. 460 N.E.2d at 467. In
Pekin, the certificate stated that it was "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. . . .
The insurance afforded by the policies described
herein is subject to all of the terms,
exclusions, and conditions of such policies."
Pekin, 572 N.E.2d at 1114. Finally, the
certificate in Kraemer was identical to the Pekin
disclaimer. Kraemer, 699 N.E.2d at 1060. We agree
with the district court that the operative phrase
in each disclaimer is the language stating that
the certificate does not alter, amend or extend
the coverage of the underlying policy. That
phrase puts the insured on notice that the
insurance contract will be governed by the terms
of the underlying policy and not by the
certificate itself. The certificate issued to the
City of Alton contained adequate warning that the
insured could not simply rely on the certificate
for the terms and conditions of coverage.
Nor do we find any conflict between the
relevant terms of the policy and the language
contained in the certificate. Alton complains
that the certificate does not exclude coverage
for bodily injury to shooters, but that the
policy does. Alton also complains that the
certificate provides coverage for independent
contractors of FPI while the policy excludes
coverage for bodily injury to any shooters
whether they are employees or independent
contractors of FPI. Alton characterizes the
absence of the exclusion on the certificate and
its inclusion in the policy as an ambiguity that
must be construed in favor of coverage for the
City. This is simply a restatement of Alton’s
argument that it should not be held to exclusions
that are not evident on the face of the
certificate. As we explained above, the
disclaimer removes any ambiguity by informing the
insured that it may not rely on the certificate
to determine the limits of coverage. There is no
conflict in the terms regarding coverage for
bodily injury to shooters when reading the
certificate and the policy together, as we must
under Illinois law. See Vanguard, 532 N.E.2d at
500 (where a policy of insurance consists of a
policy and other documents executed as part of
one transaction and the policy is incorporated
into the other documents by reference, all of the
documents must be construed together to determine
the meaning and effect of the insurance
contract).
Alton’s final argument is that the certificate
and policy conflict on the issue of coverage for
accidents arising out of the use of watercraft.
Alton points out that the certificate lists the
location of the fireworks display as "on [a]
barge on [the] Mississippi River," but the policy
excludes coverage for bodily injury or property
damage arising out of use of any watercraft,
rendering the coverage illusory. There are two
problems with the City’s argument. First, the
City of Alton raises this argument for the first
time on appeal and therefore has waived the
issue. Second, it is not the watercraft exclusion
that T.H.E. Insurance is invoking to deny
coverage. Indeed, if this were the only exclusion
T.H.E. could point to in order to deny coverage,
we might well find that there is a conflict
between the terms of the certificate and the
terms of the policy. In that circumstance, the
Illinois cases make clear that the later issued
certificate will prevail. See Vanguard, 532
N.E.2d at 502-03 (if the certificate contains
provisions that conflict with the master policy,
the certificate normally controls); J.M. Corbett,
357 N.E.2d at 128 (same). This ambiguity does not
affect the outcome here because T.H.E.’s policy
clearly disclaims liability for bodily injury to
shooters.
III.
Because the certificate of insurance contained
an adequate disclaimer placing the City of Alton
on notice that it would be held to the terms of
the underlying policy, we affirm the grant of
summary judgment in favor of T.H.E. Insurance.
AFFIRMED.