Acuity v. Kessor Enterprises Ltd ( 2018 )

NONPRECEDENTIAL DISPOSITION
To be cited only in accordance with Fed. R. App. P. 32.1
United States Court of Appeals
For the Seventh Circuit
Chicago, Illinois 60604
Argued September 20, 2018
Decided November 6 2018
Before
DANIEL A. MANION, Circuit Judge
DAVID F. HAMILTON, Circuit Judge
MICHAEL Y. SCUDDER, Circuit Judge
No. 17-2950
ACUITY, a Mutual Insurance Appeal from the United States District
Company, Court for the Northern District of
Plaintiff-Appellee, Illinois, Eastern Division.
v. No. 16-cv-3683
KESSOR ENTERPRISES, Ltd., d/b/a Robert M. Dow, Jr.,
Superior Labor Solutions, Judge.
Defendant-Appellant.
ORDER
Kessor Enterprises, Ltd., d/b/a Superior Labor Solutions, wants Acuity, its
insurance company, to defend it against a third-party complaint seeking indemnity.
Acuity believes the situation falls within an exclusion to Kessor’s insurance coverage
and seeks a declaration that it has no duty to defend Kessor against the third-party
claim. Kessor believes an exception to that exclusion applies and claims coverage. In a
thorough and persuasive opinion, the district court agreed with Acuity and entered
summary judgment on its behalf. We affirm the judgment.
No. 17-2950 Page 2
I.
Kessor “is an Illinois corporation that supplies union labor to disaster clean-up
and repair projects.” In 2012, Kessor entered into a contract (the Master Contract) with a
company called BMS-Cat, Inc., to provide labor to BMS-Cat’s jobsites. Pursuant to this
contract, Kessor provided union labor to BMS-Cat’s project at the Jones Beach Theater
in New York.
On December 4, 2012, Michael Christie, a Kessor employee, allegedly suffered
bodily injury while working at the Jones Beach Theater site. In 2013, Christie sued BMS-
Cat and Live Nation, the owner of the Jones Beach Theater, alleging negligence and
violation of New York labor laws. Christie had already brought and settled a workers’
compensation claim against Kessor.
While Christie’s suit against Live Nation was pending, Live Nation filed a third-
party complaint against Kessor. In the complaint, Live Nation asserts Kessor must
indemnify it pursuant to the terms of the Master Contract between Kessor and BMS-
Cat. Specifically, Live Nation points to paragraph 4.1 of the Master Contract, which
provides:
To the fullest extent permitted by law, [Kessor] shall indemnify and
hold harmless BMS-CAT, the customer with whom BMS-CAT
contracts for the Project, and/or the owner(s) of the property at which
the Project is located, and its and their respective agents and
employees, from and against all claims, actions, liabilities, losses,
costs, damages, and expenses (including attorneys’ fees and costs)
sustained or incurred by reason of any act, omission negligence, or
fault by [Kessor], or its agents and employees, or otherwise arising out
of or in any manner related to the Services, the Work, or the
performance by [Kessor] under the Contract. 1
Kessor contacted its insurance carrier, Acuity, asserting Live Nation’s claim fell
within the coverage provisions of its Commercial General Liability (CGL) policy. That
policy covered “those sums that the insured becomes legally obligated to pay as
damages because of bodily injury.” The CGL policy further provided that Acuity “will
have the right and duty to defend the insured against any suit seeking those damages.”
1
The Master Contract defines “the Services” as Kessor’s provision of union labor and “the Work” as “the
work for which Kessor has been asked to provide its Services.”
No. 17-2950 Page 3
Kessor believed Acuity owed it indemnity for any damages and a duty to defend
because Live Nation was seeking damages arising from Christie’s alleged bodily injury.
Acuity disagreed, maintaining the situation fell within either the policy’s
“Contractual Liability” exclusion or the policy’s “Employer’s Liability” exclusion (or
both). Acuity filed this suit seeking declaratory judgment that it owed no duty to
defend Kessor from Live Nation’s third-party complaint. Kessor responded by arguing
the situation fell within exceptions to the exclusions. On cross-motions for summary
judgment, the district court held in favor of Acuity, concluding the Employer’s Liability
exclusion applied. Kessor appeals.
II.
The district court held Acuity was not required to indemnify Kessor or defend it
against Live Nation because the Employer’s Liability exclusion took the situation out of
the policy’s coverage. Having performed our own de novo review applying Illinois law, 2
we agree. See State Auto Prop. & Cas. Ins. Co. v. Brumit Servs., Inc., 877 F.3d 355, 357 (7th
Cir. 2017) (performing de novo review in a case involving “cross-motions for summary
judgment with no disputed facts”).
The CGL policy’s Employer’s Liability exclusion applies to damages arising from
“bodily injury to: (1) An employee of the insured out of and in the course of (a)
Employment by the insured; or (b) Performing duties related to the conduct of the
insured’s business.” Because Christie allegedly suffered bodily injury in the course of
his employment with Kessor, both parties acknowledge that, on its face, this exclusion
applies.
The parties disagree, however, on whether the sole exception to this exclusion
applies. That exception retains coverage for “liability assumed by the insured under an
insured contract.” The CGL policy defines an “insured contract” as, inter alia, “[t]hat part
of any other contract or agreement pertaining to [Kessor’s] business…under which
[Kessor] assume[s] the tort liability of another party to pay for bodily injury or property
damage to a third person or organization.” The policy defines “[t]ort liability” as “a
liability that would be imposed by law in the absence of any contract or agreement.”
The Illinois Supreme Court has interpreted similar language as requiring the insured to
2
Neither party disputes that the law of Illinois, where Kessor maintains its principal place of business,
applies to the interpretation of the CGL policy. See generally U.S. Fire Ins. Co. v. Beltmann N. Am. Co., 883
F.2d 564, 566 (7th Cir. 1989) (“Illinois is the forum state and its choice of law directs a court to turn to the
state where the policy was issued for its interpretation, unless such an interpretation would upset Illinois
public policy.”).
No. 17-2950 Page 4
have assumed the liability of a third party for the third party’s own negligence. See Va.
Sur. Co. v. N. Ins. Co. of N.Y., 866 N.E.2d 149, 158–59 (Ill. 2007).
In this case, Kessor’s potential liability to Live Nation is premised on the
indemnity provision of the Master Contract. Therefore, we must decide whether that
provision of the Master Contract is an “insured contract,” that is, whether the Master
Contract caused Kessor to assume Live Nation’s liability for Live Nation’s own
negligence.
The Master Contract contains a choice-of-law clause directing that it “be
construed under and governed by the substantive laws of the State of Texas.” As
“Illinois respects a contract’s choice-of-law clause as long as the contract is valid and the
law chosen is not contrary to Illinois’s fundamental public policy,” see Thomas v.
Guardsmark, Inc., 381 F.3d 701, 705 (7th Cir. 2004), we apply Texas law to our analysis of
the Master Contract.
Texas considers “indemnification of a party for its own negligence” to be “an
extraordinary shifting of risk.” Dresser Indus., Inc. v. Page Petroleum, Inc., 853 S.W.2d 505,
508 (Tex. 1993). For this reason, Texas law employs “the express negligence doctrine,”
which requires “parties seeking to indemnify the indemnitee from the consequences of
its own negligence [to] express that intent in specific terms.” Ethyl Corp. v. Daniel Constr.
Co., 725 S.W.2d 705, 708 (Tex. 1987).
Kessor argues the Master Contract satisfies this test. It cites the following
language from the Master Contract’s indemnity provision: “To the fullest extent
permitted by law, [Kessor] shall indemnify and hold harmless [Live Nation]…against
all claims…otherwise arising out of or in any manner related to the Services, the Work, or the
performance by [Kessor] under the Contract.” 3 Kessor maintains the italicized language
clearly and expressly encompasses the parties’ intent that Kessor would indemnify Live
Nation for Live Nation’s own negligence related to Kessor’s work. The decisions of the
Texas Supreme Court compel us to disagree.
For example, in Gulf Coast Masonry, Inc. v. Owens-Illinois, Inc., 739 S.W.2d 239, 239
(Tex. 1987), Gulf Coast, a contractor, had entered into an indemnity agreement with
Owens-Illinois, the owner of the property. That agreement provided that Gulf Coast
would indemnify Owens-Illinois for any property damage or personal injury “arising
out of or in any way connected with or attributable to the performance or non-performance of
work here under by [Gulf Coast]…or by any act or omission of [Gulf Coast]…while on
[Owens-Illinois’s] premises.” Id. (emphasis added). The Texas Supreme Court held that
3
Emphasis added.
No. 17-2950 Page 5
language, including the “arising out of or in any way connected with or attributable to”
language, did not satisfy the express negligence test. Id. at 240 (reversing court of
appeals).
The supreme court did find sufficient language in Atlantic Richfield Co. v.
Petroleum Personnel, Inc., 768 S.W.2d 724 (Tex. 1989). In that case, the contract read,
“[Contractor] agrees to…indemnify…[Owner]…in any matter arising from the work
performed hereunder, including but not limited to any negligent act or omission of
[Owner].” Id. at 726 (ellipses in original). The court held “the language ‘any negligent act
of [Owner]’ is sufficient to define the parties’ intent.” Id.; see also Maxus Exploration Co. v.
Moran Bros., Inc., 817 S.W.2d 50, 56–57 (Tex. 1991) (holding provision calling for
indemnity “without limit and without regard to the cause or causes thereof or the
negligence of any party or parties” satisfies “the requirement of Texas law that the
indemnity agreement be express”).
The situation here is closer to Gulf Coast than it is to Atlantic Richfield. Unlike the
contract in Atlantic Richfield, the Master Contract contains no explicit assumption of
liability for a third-party’s negligence. Accordingly, we conclude the Master Contract
does not, under Texas law, oblige Kessor to indemnify Live Nation for Live Nation’s
own negligence.
Kessor contends this conclusion goes to the merits of Live Nation’s contractual
indemnity claim and does not obviate Acuity’s duty to defend Kessor from Live Nation.
See Northbrook Prop. & Cas. Co. v. Transp. Joint Agreement, 741 N.E.2d 253, 254 (Ill. 2000)
("[T]he insurer is obliged to defend its insured even if the allegations are groundless,
false, or fraudulent.”). But a duty to defend only arises “[i]f the facts alleged in the
underlying complaint fall within, or potentially within, the policy’s coverage.” Pekin Ins.
Co. v. Wilson, 930 N.E.2d 1011, 1017 (Ill. 2010). In this case, given the terms of the CGL
policy and the operation of Texas law, Live Nation’s contractual indemnity claim
cannot possibly fall within the policy’s coverage. This is because Texas treats the
express negligence doctrine “not [as] an affirmative defense but a rule of contract
interpretation.” Fisk Elec. Co. v. Constructors & Assocs., Inc., 888 S.W.2d 813, 814 (Tex.
1994). Therefore, “indemnity provisions that do not clearly provide for indemnification
for the indemnitee’s own negligence do not, as a matter of law, indemnify the
indemnitee for its own negligence.” Id. at 814–15. Because the Master Contract does not
“clearly provide” for Kessor to indemnify Live Nation for its own negligence, and given
that interpretation of an insurance policy is itself a question of law in Illinois, Twenhafel
v. State Auto Prop. & Cas. Ins. Co., 581 F.3d 625, 628 (7th Cir. 2009), the indemnity
provision of the Master Contract, as a matter of law, is not an insured contract within the
No. 17-2950 Page 6
meaning of the CGL policy. Consequently, it is not possible for Live Nation’s claim to
fall within the policy’s coverage, and Acuity owes no duty to defend.
III.
As we agree with the district court’s conclusion that the Employer’s Liability
exclusion removes Live Nation’s claim from coverage under the CGL policy, we
AFFIRM.