When Insurer Let’s Insured Unilaterally Choose Additional Insureds it has no Standing to Complain

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An insurer, by drafting an open-ended additional insured endorsement that allowed its insured, by entering into contracts under which the insurer would be obligated to provide a defense to people unknown to the insurer and which did not require that its insured to obtain the insurer’s approval of the contracts or require its insured to disclose the identities of the third parties or require that named insured name those parties as additional insureds. The insurer assumed the responsibility of providing defenses for certain unknown and unnamed third-party beneficiaries.

In Westfield Insurance Company v. Walsh/K-Five Jv (I-14-4208); et al, Defendants, 2022 IL App (1st) 210802-U, No. 1-21-0802, Court of Appeals of Illinois, First District, Third Division (August 17, 2022) compelled the insurer to live up to its agreements.

FACTS

Westfield Insurance Company (Westfield) filed a declaratory judgment action seeking a determination that it owed no duty to defend or indemnify defendants in an underlying personal injury lawsuit that occurred at a construction site.

The trial court found Westfield owed a duty to defend each and denied Westfield’s motion to avoid its defense duty.

ANALYSIS

Coverage under the Policy

The prescient words the Illinois Court of Appeal pronounced in LaGrange Memorial Hospital v. St. Paul Insurance Co., 317 Ill.App.3d 863, 870 (2000):

"By drafting this language, the insurer acknowledged and accepted that its insured would be entering into contracts under which [the insurer] would be obligated to provide a defense ***." The insurer thus assumed the responsibility of providing defenses for certain unknown and unnamed third-party beneficiaries."

The Court of Appeal affirmed the circuit court’s rulings that granted defendants motions for partial summary judgment and denied plaintiff Westfield Insurance Company’s motions for summary judgment where plaintiff had a duty to defend defendants.

ZALMA OPINION

Insurers who give away their underwriting pen to others have learned its decision was expensive. Cases like this one should cause insurers to reconsider whether it has sufficient premium to cover the risk it is letting its named insured to impose on it by entering into a contract with others.

(c) 2022 Barry Zalma & ClaimSchool, Inc.

Barry Zalma, Esq., CFE is available at http://www.zalma.com and [email protected].

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