Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca7-15-01405/USCOURTS-ca7-15-01405-0/pdf.json

Nature of Suit Code: 110
Nature of Suit: Insurance
Cause of Action: 

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In the 

United States Court of Appeals 

For the Seventh Circuit ____________________ 

No. 15-1405 

CINCINNATI INSURANCE CO., 

Plaintiff-Appellee, 

v.

VITA FOOD PRODUCTS, INC., 

Defendant-Appellant. 

____________________ 

Appeal from the United States District Court for the 

Northern District of Illinois, Eastern Division. 

No. 13 C 5181 — Edmond E. Chang, Judge. 

____________________ 

ARGUED NOVEMBER 2, 2015 — DECIDED DECEMBER 16, 2015 

____________________ 

Before BAUER, POSNER, and KANNE, Circuit Judges. 

POSNER, Circuit Judge. The Cincinnati Insurance Company 

issued a liability insurance policy to a company called Painters USA for a one-year period beginning on January 15, 

2011. It has brought this suit to try to avoid having to provide coverage to another company, Vita Food Products, 

which claims to be an “additional insured”—that is, to also 

be covered by the liability insurance policy that Cincinnati 

had issued to Painters. 

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The policy covered “bodily injury” caused by an “occurrence” (an accident, presumably) for which the insured was 

legally liable to the injured person. But in addition the policy 

allowed the insured to add an “additional insured” to the 

policy by an oral agreement (or a written one, but this case 

involves an oral agreement), provided that the oral agreement preceded the “occurrence” and that “a certificate of insurance showing that person or organization as an additional insured has been issued.” No permission from Cincinnati 

Insurance is required for the primary insured to create an 

additional insured, provided that the two insureds have a 

relationship that makes the addition of a second insured 

consistent with the nature and aims of the policy, as when 

the original insured is providing products or services to the 

additional insured (as occurred in this case). 

While Cincinnati’s insurance policy was in force, Painters 

was hired by Vita Food Products to do painting on Vita’s 

premises. According to Vita, Painters agreed to add Vita as 

an additional insured—orally. Vita doubtless was concerned 

that if one of Painters’ workers was injured on Vita’s premises, the worker would file a tort suit against Vita—he 

couldn’t sue Painters because an employee normally has only a workers’ compensation remedy against his employer 

and not a common law tort remedy. 

In fact, one of Painters’ workers, Nardo Ovando, did sue 

Vita, for negligent maintenance of its premises. It was soon 

after Painters began doing work for Vita and before there 

was any written confirmation of the oral agreement that 

Ovando fell while working at Vita. He sustained a terrible 

injury, and remains in a coma to this day. A tort suit was 

filed against Vita on Ovando’s behalf and that of his wife 

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No. 15-1405 3 

(Karina Baez, who claims loss of consortium). The suit before us, however, is a diversity suit brought by the insurance 

company to obtain a declaration that Vita was not covered 

by the policy that the company had issued to Painters. The 

company points out that the accident, even if it occurred after the oral agreement that added Vita as a party insured, 

occurred before the preparation of the certificate confirming 

Vita’s status as an additional insured. Ovando and Baez are 

named as additional defendants, since as plaintiffs in the 

state court tort suit against Vita they might claim an entitlement to share in any insurance proceeds that Vita receives in 

order to help it pay damages to the plaintiffs, should Vita be 

held liable for Ovando’s accident. 

Painters had requested the certificate within hours after 

Ovando’s injury, and an insurance agent for Cincinnati Insurance had issued it to Vita the next day. But the district 

judge agreed with Cincinnati that the certificate had come 

too late—that until it was prepared and signed the “additional insured” was not actually insured. And so the judge 

granted summary judgment in favor of the insurance company, precipitating this appeal by Vita. The insurance company also denied, and continues to deny, that the oral 

agreement adding Vita as an insured preceded the accident. 

But there was conflicting evidence on that point, and the district judge therefore correctly ruled that the issue could not 

be resolved on a motion for summary judgment. 

But his grant of summary judgment in favor of Cincinnati Insurance was premature. The reference in the insurance policy to a certificate of insurance is ambiguous. It 

could, as Cincinnati argues, be regarded as a prerequisite to 

coverage of the additional insured, but equally it could be 

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regarded as intended merely to memorialize the oral agreement, in which event the date of the certificate would not 

matter. A third possibility—which like the second supports 

Vita’s position—is that the oral agreement must be memorialized in writing before the insured can file a claim. 

The district judge invoked “the requirement that coverage is extended only ‘where a certificate has been issued.’” 

But that’s not what the policy says. The oral agreement has 

to precede the accident that gives rise to the insured’s claim, 

but there is no indication of when the certificate of insurance 

has to be issued. We have just suggested that a permissible 

interpretation would be that it must be issued before the additional insured files a claim with the insurance company, as 

it was in this case. 

An ambiguous insurance contract is interpreted “against 

the drafter of the policy and in favor of coverage,” Outboard 

Marine Corp. v. Liberty Mutual Ins. Co., 607 N.E.2d 1204, 1217–

20 (Ill. 1992), in recognition that such contracts are drafted 

by, and therefore likely to be slanted in favor of, the insurer 

and that the insured rarely has any bargaining power because such contracts are usually industry-wide standardform contracts, the terms of which therefore are not negotiated anew every time a person or firm seeks insurance coverage. The commercial general liability policy issued by Cincinnati Insurance to Painters is such a contract, for it is offered to potential insureds on a take-it-or-leave-it basis. Since 

the reference in the policy to the certificate of insurance is 

ambiguous, the judge erred in holding that the policy’s 

“clear and unambiguous” language proves that Vita was not 

an additional insured. The pertinent language was neither 

clear nor unambiguous. The certificate may be useful in 

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No. 15-1405 5 

heading off a dispute over whether there really is an oral 

agreement. But the fulfillment of that purpose would require 

only that the certificate precede the additional insured’s 

claim for the proceeds of the insurance policy, and the certificate in this case did precede the claim. 

Cincinnati Insurance argues that requiring the certificate 

before a liability-triggering event occurs is necessary to protect the insurer against fakery by the insured. After Ovando’s accident Painters would have been desperate for Vita to 

be acknowledged as an additional insured, as otherwise Vita, facing suit by Ovando and his wife, might try to drag 

Painters into the suit, accusing it of responsibility for the accident. The certificate was not issued by Painters or Vita, 

however, but instead, as we noted earlier, by an insurance 

agent on behalf of Cincinnati Insurance. The agent would 

not be willing to backdate a certificate of insurance at the insured’s (Painters’) request, so requiring that the certificate 

precede the accident would provide extra protection against 

fakery. Oral agreements are valid contracts, however, and 

the insurance policy is explicit that an oral agreement is sufficient to add an additional insured. 

The certificate of insurance, in contrast, is not a contract. 

It states that it “is issued as a matter of information only,” 

“confers no rights upon the certificate holder,” “does not affirmatively or negatively amend, extend or alter the coverage afforded by the policies,” and “does not constitute a contract between the issuing insurer(s), authorized representative or producer, and the certificate holder.” Cincinnati Insurance calls it a precondition to insuring Vita against liability for the accident to Ovando. Were it a precondition it 

would indeed amend the coverage provided by the policy 

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that Cincinnati Insurance issued to Painters. But the language of the certificate indicates that it isn’t a precondition 

to anything; it’s just information. 

The insurance company cites a similar case that it won, 

Cincinnati Ins. Co. v. Gateway Construction Co., 865 N.E. 2d 

395 (Ill. App. 2007), but overlooks a crucial difference: in 

Gateway the policy did not permit an oral agreement to add 

an additional insured. See id. at 399. Our interpretation of 

the additional-insured provision in the present case is supported by such cases as ATOFINA Petrochemicals, Inc. v. Continental Casualty Co., 185 S.W.3d 440, 443–44 (Tex. 2005), and 

United States Fidelity & Guaranty Co. v. Shorenstein Realty Services, LP, 591 F. Supp. 2d 966, 968–70 (N.D. Ill. 2008) (Illinois 

law). 

So if Vita can prove that there was an oral agreement to 

add it as an additional insured prior to the accident to 

Ovando, it will be entitled to coverage under Cincinnati Insurance’s policy. The judgment of the district court in favor 

of the insurance company is therefore REVERSED and the 

case REMANDED for further proceedings consistent with 

this opinion.

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