Court Opinion

ID: 4708037
Source: CourtListenerOpinion
Date Created: 2021-07-30 18:03:04.391605+00
Date Added: 2024-06-11T08:06:47.989513
License: Public Domain

In the

    United States Court of Appeals
                 For the Seventh Circuit
                     ____________________
No. 19-3043
UNITED FIRE & CASUALTY COMPANY,
                                                  Plaintiff-Appellant,
                                 v.

PRATE ROOFING & INSTALLATIONS, LLC,
                                                 Defendant-Appellee.
                     ____________________

         Appeal from the United States District Court for the
           Northern District of Illinois, Eastern Division.
         No. 1: 17-cv-08793 — Harry D. Leinenweber, Judge.
                     ____________________

     ARGUED NOVEMBER 5, 2020 — DECIDED JULY 30, 2021
                ____________________

   Before SYKES, Chief Judge, and HAMILTON and SCUDDER,
Circuit Judges.
   HAMILTON, Circuit Judge. The questions in this appeal
arose from a fatal on-the-job accident on a commercial rooﬁng
project. The central question is whether a liability insurer for
a rooﬁng contractor owed a duty to defend another rooﬁng
contractor that was an “additional insured” under its policy.
The policy covered the “additional insured” only for any
2                                                    No. 19-3043

vicarious liability it might incur as a result of actions or omis-
sions by the named insured.
    The insurer argues that because its named insured was an
independent contractor, Illinois law would not—could not—
impose any liability on the additional insured, so that there
was no risk of covered liability and thus no duty to defend.
The district court rejected this reasoning. The court explained
that the duty to defend depends on the claims the plaintiﬀ as-
serts, not on their prospects for success. We agree. A liability
insurer’s duty to defend applies to impose a duty to defend
allegations potentially within the policy’s liability coverage,
regardless of predictions about prospects for success. The
duty to defend applies even to hopeless suits—whether they
are unfounded, false, or fraudulent. E.g., General Agents Ins.
Co. v. Midwest Sporting Goods Co., 215 Ill. 2d 146, 155, 828
N.E.2d 1092, 1098 (Ill. 2005); Pekin Insurance Co. v. Centex
Homes, 72 N.E.3d 831, 839 (Ill. App. 2017). By that logic, the
duty to defend extends even to allegations seeking to impose
liability that would require a dramatic change in the law.
     In this case, the plaintiﬀ’s allegations in the underlying
complaint were broad enough to include claims against the
additional insured that potentially fall within the scope of
coverage for vicarious liability. Regardless of their potential
merits, they sought to hold the additional insured liable, at
least in part, for the actions or omissions of the named in-
sured. The Illinois Appellate Court found a duty to defend on
nearly identical facts in Pekin Insurance Co. v. Centex Homes
and Pekin Insurance Co. v. Lexington Station, LLC, 84 N.E.3d 554
(Ill. App. 2017). Both decisions are consistent with Illinois law
more broadly, and we believe the Illinois Supreme Court
would agree. We follow those opinions and agree with the
No. 19-3043                                                    3

district court’s grant of summary judgment to the additional
insured ﬁnding a duty to defend it in this case.
   We also ﬁnd, however, that the settlement of the underly-
ing claims against the named insured had the eﬀect of remov-
ing any possibility that the additional insured might be held
vicariously liable for actions of the named insured. As a result,
the duty to defend ended when that settlement was consum-
mated. We therefore modify the district court’s declaratory
judgment to clarify that the duty to defend came to an end
with that settlement, and as modiﬁed, we aﬃrm the district
court’s judgment.
I. Undisputed Facts
   The facts relevant to this insurance dispute are undis-
puted, so this case is suitable for summary judgment even if
the facts of the underlying accident are disputed. We set out
the facts in four steps: (a) the rooﬁng project and the relation-
ships among several businesses; (b) the relevant terms of the
United Fire & Casualty insurance policy; (c) the fatal accident
that killed Carlos Noe Perdomo Ayala; and (d) the lawsuit
brought by Mr. Perdomo Ayala’s estate against several de-
fendants.
   A. The Rooﬁng Project
     SparrowHawk, LLC owns two warehouses in Illinois. In
2016, SparrowHawk contracted with All Seasons Rooﬁng,
Inc., a Tennessee rooﬁng company, to inspect the warehouse
roofs. All Seasons discovered hail damage. Because All Sea-
sons did not hold an Illinois rooﬁng license to perform the re-
pairs, it arranged for Prate Rooﬁng & Installations, LLC, an
Illinois-licensed rooﬁng contractor, to serve as general con-
tractor with All Seasons as subcontractor. The contract
4                                                    No. 19-3043

between All Seasons and Prate Rooﬁng said that All Seasons
would actually provide all materials and labor for the project,
maintain safety, and supervise the project. As required under
the agreement, All Seasons purchased a commercial general
liability policy and general liability extension endorsement
from United Fire & Casualty Company. The policy listed
Prate Rooﬁng as an “additional insured.” This appeal is about
whether United Fire owed Prate Rooﬁng a defense in the liti-
gation of the fatal accident.
    Even though the arrangement between Prate Rooﬁng and
All Seasons was intended to allow All Seasons to take ad-
vantage of Prate Rooﬁng’s Illinois rooﬁng license, and even
though it was understood that All Seasons would in turn sub-
contract with another Illinois-licensed company to complete
the job, All Seasons subcontracted with a North Carolina roof-
ing company, 21st Century Rooﬁng, LLC.
    B. The United Fire & Casualty Insurance Policy
   For the SparrowHawk rooﬁng repair project, All Seasons
bought a liability insurance policy from plaintiﬀ-appellant
United Fire & Casualty Company. In return for the premium,
United Fire promised to provide All Seasons and “additional
insureds” with general liability coverage for negligence in its
operations. United Fire also promised to defend All Seasons
and additional insureds against covered claims.
    The United Fire policy listed Prate Rooﬁng as an “addi-
tional insured,” but it imposed an important limit on that cov-
erage. The policy did not cover Prate Rooﬁng for its own neg-
ligence or other wrongdoing. The key language in the policy
was in a “vicarious liability endorsement.” As an additional
insured under the policy, Prate Rooﬁng was promised
No. 19-3043                                                                   5

liability coverage and a duty to defend, but only “with respect
to [its] liability for ‘bodily injury’ … which may be imputed
to that person or organization directly arising out of: 1. Your
[i.e., All Seasons’] acts or omissions; or 2. The acts or omis-
sions of those acting on your [All Seasons’] behalf; in the per-
formance of your [All Seasons’] ongoing operations for the
additional insured.”
    C. The Fatal Accident
   On November 12, 2016, Carlos Noe Perdomo Ayala was
working to repair a roof on one of the SparrowHawk ware-
houses. He was an employee of 21st Century Rooﬁng, not of
All Seasons or Prate Rooﬁng. He fell backwards through an
unprotected skylight and was killed by the fall. 1
    D. The Lawsuit by Mr. Perdomo Ayala’s Estate
    The Illinois workers’ compensation system provided lim-
ited death beneﬁts for the estate of Mr. Perdomo Ayala, to the
exclusion of tort remedies against his direct employer, 21st
Century Rooﬁng. See 820 Ill. Comp. Stat. § 305/5(a). The work-
ers’ compensation system does not bar claims against tortfea-
sors who were not his direct employer, so his estate brought
a wrongful death suit in the Northern District of Illinois

    1  Every year, there are over 5,000 fatal work injuries in the United
States. U.S. Bureau of Labor Statistics, Census of Fatal Occupational Inju-
ries Summary, 2019, Bureau of Labor Statistics (Dec. 16, 2020),
https://www.bls.gov/news.release/cfoi.nr0.htm (last visited July, 30, 2021).
About 1,000 of those fatal work injuries involve people in construction and
extraction occupations. U.S. Bureau of Labor Statistics, Table 3. Fatal Oc-
cupational Injuries for Selected Occupations, 2015-19, Bureau of Labor Sta-
tistics (Dec. 16, 2020), https://www.bls.gov/news.release/cfoi.t03.htm (last
visited July, 30, 2021) (924 fatalities in 2015; 970 in 2016; 965 in 2017; 1,003
in 2018; and 1,066 in 2019).
6                                                 No. 19-3043

against several defendants: Prate Rooﬁng, All Seasons, Spar-
rowHawk, and Jones Lang LaSalle, the company responsible
for managing the SparrowHawk warehouses. Complaint,
Devon Bank v. Prate Rooﬁng & Installations, LLC et al., No. 17-
cv-03940 (N.D. Ill. May 24, 2017), ECF No. 1.
    Six counts in the Perdomo Ayala estate’s complaint were
directed at Prate Rooﬁng, alleging construction negligence,
premises liability, and general negligence. The complaint al-
leged that “Prate … by and through its agents, servants and
employees, was then and there guilty of one or more of the
following careless and negligent acts and/or omissions….”
Second Amended Complaint at 4–5, Devon Bank, No. 17-cv-
03940 (N.D. Ill. Aug. 22, 2017), ECF No. 82.
    Prate Rooﬁng tendered the defense of the case to United
Fire, which declined to defend and ﬁled this action for a de-
claratory judgment. In the meantime, Prate Rooﬁng has been
defended in the estate’s wrongful death case by its own liabil-
ity insurer, Nationwide Insurance. One way to understand
this lawsuit is as a dispute between United Fire and Nation-
wide about who should bear how much of the costs of that
defense.
    All Seasons and United Fire reached a settlement with the
Perdomo Ayala estate, paying one million dollars, the policy
limits of the United Fire policy. The terms of the settlement
released All Seasons from liability in the case. The settlement
did not release Prate Rooﬁng, an additional insured under the
same United Fire policy. On May 8, 2018, the court in the Per-
domo Ayala estate case granted the estate’s motion to dismiss
its claims against All Seasons pursuant to the settlement. The
case remains pending against Prate Rooﬁng.
No. 19-3043                                                   7

II. Procedural History of this Case
     In the midst of the Perdomo Ayala estate’s wrongful death
case, and in response to Prate Rooﬁng’s tender of the defense,
United Fire ﬁled this separate action against Prate Rooﬁng,
All Seasons, and Devon Bank (administrator of the Perdomo
Ayala estate) seeking a declaratory judgment that United Fire
had no duty to defend Prate Rooﬁng in the Perdomo litiga-
tion. The district court granted Prate Rooﬁng’s motion for
summary judgment, reasoning that United Fire’s arguments
were premised on “what it can perceive as the expected out-
come when the case ﬁnally concludes” regarding Prate’s rela-
tionship with All Seasons, but concluding that the duty to de-
fend is not so narrow. The court found that the allegations in
the underlying complaint may result in vicarious liability for
Prate Rooﬁng as additional insured, so that United Fire had a
duty to defend Prate Rooﬁng. United Fire & Casualty Co. v.
Prate Rooﬁng & Installations, LLC, 2019 WL 3410218, at *4 (N.D.
Ill. July 29, 2019). United Fire has appealed.
III. The Duty to Defend
    The district court’s core reasoning in this case was
straightforward and sound. The question is not whether the
Perdomo Ayala estate was likely to succeed on a vicarious li-
ability theory against Prate Rooﬁng, or even whether the es-
tate’s claims against it were hopeless. The standard for decid-
ing the duty to defend is well established, and it has little or
nothing to do with the likely outcome of the lawsuit for which
a defense is sought.
   A. The Duty to Defend and the “Eight-Corners” Rule
   Under Illinois law, “[a]n insurer’s duty to defend its in-
sured is much broader than its duty to indemnify.” Outboard
8                                                     No. 19-3043

Marine Corp. v. Liberty Mut. Ins. Co., 154 Ill. 2d 90, 125, 607
N.E.2d 1204, 1220 (Ill. 1992), citing Conway v. Country Cas. Ins.
Co., 92 Ill. 2d 388, 394, 442 N.E.2d 245, 247 (Ill. 1982); see also
Robert P. Redemann & Michael F. Smith, 1 Law and Practice
of Insurance Coverage Litigation § 4:6 (2020) (“It has been
well-established that the duty to defend is broader than the
duty to indemnify.”), collecting cases, including Solo Cup
Co. v. Federal Ins. Co., 619 F.2d 1178, 1183 (7th Cir. 1980) (“un-
der Illinois law, a duty to defend … is broader than a general
duty to indemnify”); 3 Jeﬀrey E. Thomas, New Appleman on
Insurance Law Library Edition § 17.01 (2021) (“It is diﬃcult to
overstate the breadth of an insurer’s duty to defend.”); Steven
Plitt et al., 14 Couch on Insurance § 200:12 (3d ed. 2020) (citing
dozens of examples across circuits; “An insurer’s duty to de-
fend is expansive….”).
     Like many other states, Illinois decides a duty-to-defend
question by applying what is sometimes called the “eight-cor-
ners rule,” meaning that the question is decided by looking
only within the four corners of the insurance policy and the
four corners of the complaint for which defense is sought. Pe-
kin Insurance Co. v. St. Paul Lutheran Church, 78 N.E.3d 941, 951
(Ill. App. 2016) (“Ordinarily … courts follow the eight-corners
rule, comparing the four corners of the underlying complaint
with the four corners of the insurance contract.”), citing Coun-
try Mutual Ins. Co. v. Dahms, 58 N.E.3d 118, 125 (Ill. App.
2016). “To determine whether the insurer has a duty to defend
the insured, the court must look to the allegations in the un-
derlying complaint and compare those allegations to the rele-
vant provisions of the insurance policy.” Outboard Marine, 154
Ill. 2d at 107–08, 607 N.E.2d at 1212 (citations omitted); accord,
Solo Cup Co., 619 F.2d at 1183.
No. 19-3043                                                          9

    The question is whether the allegations of the underlying
complaint potentially assert a claim within the liability cover-
age of the policy. West Bend Mut. Ins. Co. v. Krishna Schaum-
burg Tan, Inc., 2021 IL 125978, — N.E.3d —, —, 2021 WL
2005464, at *5 (Ill. May 20, 2021) (“A duty to defend arises if
the allegations in [the] complaint fall within or potentially
within [the] policies’ coverage….”); U.S. Fidelity & Guar. Co. v.
Wilkin Insulation Co., 144 Ill. 2d 64, 73, 578 N.E.2d 926, 930 (Ill.
1991) (“If the underlying complaints allege facts within or po-
tentially within policy coverage, the insurer is obliged to de-
fend its insured….”) (citation omitted); Weiss v. Bituminous
Cas. Corp., 59 Ill. 2d 165, 169, 319 N.E.2d 491, 494 (Ill. 1974)
(same); American Bankers Ins. Co. v. Shockley, No. 20-1938, —
F.4th —, —, 2021 WL 2641890, *3 (7th Cir. June 28, 2021) (ap-
plying Illinois law: “If the facts alleged in the complaint fall
within, or potentially fall within, the policy coverage, the in-
surer must defend the insured.”); Colton v. Swain, 527 F.2d
296, 303 (7th Cir. 1975) (applying Illinois law; insurer’s duty
to defend “arose with the ﬁling … of a complaint which stated
allegations suﬃcient to notify the company that the tort com-
plained of was potentially within the coverage of its policy”);
see also 14 Couch on Insurance § 200:12 (“An insurer’s duty to
defend … arises when any part of the claim is potentially or
arguably within the scope of the policy’s coverage[.]”). 2
   Courts construe liability insurance policies and com-
plaints liberally in favor of imposing a duty to defend. See 14
Couch on Insurance § 200:13 (“When there is doubt as to

    2 Under some circumstances, a court deciding a duty to defend ques-
tion may go outside the complaint and policy and may consider, for ex-
ample, a written agreement between the named insured and an additional
insured. See Centex Homes, 72 N.E.3d at 839–40.
10                                                    No. 19-3043

whether claims potentially fall within policy coverage, any
doubt or ambiguity in coverage is generally resolved in favor
of the insured.”). The Illinois Supreme Court applies this
standard: the “allegations in the underlying complaint must
be liberally construed in favor of the insured.” Outboard Ma-
rine, 154 Ill. 2d at 125, 607 N.E.2d at 1220 (citation omitted). “If
the facts alleged in the underlying complaint fall within, or
potentially within, the policy’s coverage, the insurer’s duty to
defend arises.” Id. at 108, 607 N.E.2d at 1212 (emphasis added)
(citations omitted). Accord, e.g., Home Federal Sav. Bank v. Ti-
cor Title Ins. Co., 695 F.3d 725, 731 (7th Cir. 2012) (applying
Indiana law: the “duty to defend depends on what the claim-
ant alleges, not the ultimate merit or lack of merit of the
claim,” and even applies to “unfounded, false and fraudulent
suits based on risks it has insured”). An insurer’s refusal to
defend is “unjustiﬁable unless it is clear from the face of the
underlying complaint that the facts alleged do not fall poten-
tially within the policy’s coverage.” Outboard Marine, 154 Ill.
2d at 108, 607 N.E.2d at 1212 (citations omitted); Pekin Ins.
Co. v. Lexington Station, LLC, 84 N.E.3d 554, 560 (Ill. App. 2017)
(same); Centex Homes, 72 N.E.3d at 839 (same).
    This standard necessarily means that a liability insurer
may not deny a defense on the ground that the suit against its
insured is hopeless. Midwest Sporting Goods, 215 Ill. 2d at 155,
828 N.E.2d at 1098 (“If the underlying complaint alleges facts
within or potentially within policy coverage, an insurer is ob-
ligated to defend its insured even if the allegations are
groundless, false or fraudulent.”); Wilkin Insulation Co., 144 Ill.
2d at 73, 578 N.E.2d at 930 (same); Centex Homes, 72 N.E.3d at
839 (same).
No. 19-3043                                                  11

   B. The Policy and the Complaint in this Case
    Turning to the issue presented here by the vicarious liabil-
ity endorsement, the proper question is whether the Perdomo
Ayala estate’s allegations sought to hold Prate Rooﬁng lia-
ble—at least in part—for actions of others, especially All Sea-
sons and 21st Century Rooﬁng. Within the scope of that ques-
tion, one way to invoke a duty to defend is to ask whether, if
the Perdomo Ayala estate proves its allegations, there is any
potential that Prate Rooﬁng could be held liable for the ac-
tions or omissions of those other entities. That’s the question
framed by the four corners of the insurance policy.
    We turn next to the four corners of the Perdomo Ayala es-
tate’s complaint against Prate Rooﬁng. We emphasize: “[A]n
insurer’s duty to defend the insured is determined primarily
by the pleadings in the underlying lawsuit without regard to
their veracity, what the parties know or believe the alleged
facts to be, the outcome of the underlying case, or the merits
of the claim…. Even if the allegations are groundless, false, or
fraudulent, the insurer is obligated to defend.” 14 Couch on
Insurance § 200:20 (footnotes omitted); accord, Midwest Sport-
ing Goods, 215 Ill. 2d at 155, 828 N.E.2d at 1098; Centex Homes,
72 N.E.3d at 839.
    As the district court pointed out, “the underlying com-
plaint alleges that All Seasons committed one or more of 19
alleged acts of negligence or omission….” The question is
whether any of those 19 alleged acts or omissions could be
alleged acts or omissions by other entities for which the estate
seeks to hold Prate Rooﬁng liable.
   We highlight three portions of the estate’s complaint, add-
ing a few emphases. Paragraph 3 of Count 1 alleges:
12                                                  No. 19-3043

       Prate … individually and through its agents, serv-
       ants and employees…participated in coordinat-
       ing the work being done and designated various
       work methods, maintained and checked work
       progress and participated in the scheduling of
       the work and the inspection of the work. In ad-
       dition, … Prate … had the authority to stop the
       work, refuse the work and materials and order
       changes in the work, in the event the work was
       being performed in a dangerous manner or for
       any other reason.
Paragraph 4 of Count 1 alleges:
       Prate … had a duty to exercise reasonable care
       in the control of said construction site, including
       the provision of safe, suitable and proper work
       site conditions, and any fall protection
       measures for Plaintiﬀ and others then and there
       working.
And Paragraph 5 of Count 1 alleges:
       Prate … by and through its agents, servants and
       employees, was then and there guilty of one or
       more of the following careless and negligent
       acts and/or omissions: … (f) Failed to supervise
       the work being done on the aforesaid premises;
       (g) Failed to provide safe, suitable and proper
       fall protection measures; (h) Failed to ensure
       safe, suitable and proper working conditions….
    To decide the duty to defend, we need not predict whether
the estate was likely to prove any of these claims against Prate
Rooﬁng in the underlying lawsuit. Rather, the question is
No. 19-3043                                                    13

whether—if the estate were to win on any of these theories—
the liability for Prate Rooﬁng would be liability for bodily in-
jury imputed to it directly arising out of All Seasons’ acts or
omissions, the acts or omissions of anyone acting on behalf of
All Seasons, or All Seasons’ performance of its ongoing oper-
ations for Prate Rooﬁng. This framing of the question is a par-
aphrase of the vicarious liability endorsement.
    Nothing in the estate’s allegations made it impossible for
Prate Rooﬁng to be held liable for actions or omissions of All
Seasons and/or All Seasons’ agents. The estate’s allegations
against Prate Rooﬁng were phrased so as to straddle the line
between holding it liable for its own actions and omissions
and holding it vicariously liable for acts and omissions of non-
employee agents, such as, potentially, All Seasons. That strad-
dle should not be surprising, especially at the pleading stage
of the estate’s lawsuit.
    Before discovery, and probably even through trial and
verdict, the estate might have wanted and needed to keep its
options open. The estate did not know the details of the de-
fendants’ contractual arrangements among themselves,
whether formally in writing or in reality on the jobsite. Illinois
law recognizes, not surprisingly, that job-site realities may
diﬀer from the carefully drafted contracts. Also, how those re-
lationships among defendants will appear in litigation after
the defendants start pointing ﬁngers at one another can be dif-
ﬁcult to predict, especially at the pleading stage when the
duty to defend must be addressed. See Centex Homes, 72
N.E.3d at 845; Lexington Station, 84 N.E.3d at 562–63 (“‘[T]he
underlying complaint will oﬀer little real guidance on the is-
sue of vicarious liability’ because the underlying plaintiﬀ ‘will
likely have no knowledge as to what relationship or degree of
14                                                  No. 19-3043

control exists between the additional insured and the named
insured.’”), quoting Centex Homes, 72 N.E.3d at 845–46.
    As far as we know, the estate was free to postpone com-
mitting itself to a choice among direct liability, vicarious lia-
bility, or a combination of both for Prate Rooﬁng. That means
we could not exclude the possibility, based on the pleadings,
that any liability for Prate Rooﬁng would ﬁt within the vicar-
ious liability endorsement. That’s why the district court was
correct.
    Our analysis tracks closely the reasoning of the Illinois Ap-
pellate Court in similar construction insurance disputes in
Centex Homes and Lexington Station. In both cases, an “addi-
tional insured” was covered only as to vicarious liability and
sought a defense in cases where plaintiﬀs alleged liability on
the basis of wrongdoing by, among others, the additional in-
sureds’ “agents.” In both cases, the appellate court applied the
general principles of Illinois insurance and contract law to
hold that the insurer indeed owed a defense to the additional
insured. Centex Homes, 72 N.E.3d at 846; Lexington Station, 84
N.E.3d at 564–65.
    United Fire argues that Centex Homes and Lexington Station
are contrary to Illinois law and that we should not follow
them. United Fire goes so far as to describe the principle that
“the duty to defend is broader than the duty to indemnify” as
a “ﬁction,” Reply Br. at 18, and reliance upon it as “easy and
facile.” Appellant’s Br. at 24. We disagree. The principle that
United Fire denigrates is the foundation for deciding disputes
over a duty to defend.
   In addition, Centex Homes and Lexington Station are based
on two pragmatic observations about these legal questions.
No. 19-3043                                                     15

First, both opinions recognize that the boundaries between di-
rect liability, liability under Restatement § 414 for negligent
selection or supervision of contractors, among other things,
and vicarious liability are not as crisp and sharp as United
Fire argues. Centex Homes, 72 N.E.3d at 843, discussing Car-
ney v. Union Paciﬁc R.R. Co., 77 N.E.3d 1, 7–8 (Ill. 2016); Lexing-
ton Station, 84 N.E.3d at 562. Second, both opinions recognize
that a plaintiﬀ in the underlying lawsuit often will not be able
to determine before ﬁling a complaint what the relationships
are among potential defendants as spelled out in written con-
tracts, let alone in actual practice in the construction project.
Centex Homes, 72 N.E.3d at 845–46; Lexington Station, 84
N.E.3d at 563. Thus, in both cases the appellate court found a
duty to defend additional insureds covered only for vicarious
liability where the plaintiﬀ’s allegations were as broad as
those of the Perdomo Ayala estate here.
    When facing a question of state law, federal courts try to
predict how the state’s highest court would rule. E.g.,
Aguirre v. Turner Construction Co., 501 F.3d 825, 828 (7th Cir.
2007). If the state’s highest court does not have a precedent
exactly on point, federal courts ordinarily give substantial
weight in their Erie Railroad predictions to decisions of inter-
mediate appellate courts. Allstate Ins. Co. v. Menards, Inc., 285
F.3d 630, 637 (7th Cir. 2002) (in absence of prevailing authority
from highest state court, federal court can give “great weight
to the holdings of the state’s intermediate appellate courts”
and deviate “only when there are persuasive indications that
the highest court of the state would decide the case diﬀerently
from the decision of the intermediate appellate court”); ac-
cord, e.g., KR Enterprises, Inc. v. Zerteck Inc., 999 F.3d 1044,
1052 (7th Cir. 2021) (declining to follow one intermediate
16                                                    No. 19-3043

appellate case that conﬂicted with and did not address appli-
cable state supreme court precedent).
    United Fire argues that Centex Homes and Lexington Station
conﬂict with Illinois Supreme Court authority on the bound-
aries of direct, vicarious, and section 414 liability, as in Car-
ney v. Union Paciﬁc. We are not persuaded. As noted, Carney
itself shows that the boundaries between those theories of li-
ability are not as crisp as United Fire contends. 77 N.E.3d at
8–10. Centex Homes and Lexington Station recognized that
same point, which can be decisive when the question of a duty
to defend must be decided on the pleadings of the underlying
lawsuit, before those distinctions can be drawn more clearly
and with complete conﬁdence in the particular case.
    We see no persuasive indication that the Illinois Supreme
Court would decide the question diﬀerently than the Illinois
Appellate Court did, so we follow Centex Homes and Lexington
Station in holding that the allegations of the Perdomo Ayala
estate in this case left room for vicarious liability against Prate
Rooﬁng. The estate’s claims against Prate Rooﬁng potentially
fell within United Fire’s coverage and triggered the duty to
defend.
     C. United Fire’s Additional Arguments
   United Fire oﬀers several additional arguments to try to
avoid the duty to defend Prate Rooﬁng. These arguments do
not persuade us to reverse, but one requires that we modify
the scope of the district court’s declaratory judgment.
   First, United Fire contends that Prate Rooﬁng twice made
“judicial admissions” to the eﬀect that All Seasons was an in-
dependent contractor, so that vicarious liability for Prate
Rooﬁng would be a legal impossibility. United Fire points to
No. 19-3043                                                      17

Prate Rooﬁng’s responses to requests for admission in discov-
ery. United Fire is correct that such admissions are judicial
admissions.
    Federal Rule of Civil Procedure 36(b) provides: “A matter
admitted under this rule is conclusively established” unless
the court grants a motion to allow it to be withdrawn or
amended. See, e.g., United States v. Kasuboski, 834 F.2d 1345,
1350 (7th Cir. 1987) (“Unless the party securing an admission
can depend on its binding eﬀect, he [or she] cannot safely
avoid the expense of preparing to prove the very matters on
which he [or she] has secured the admission, and the purpose
of the rule is defeated.”), quoting 1970 Fed. R. Civ. P. 36 advi-
sory committee note; Airco Industrial Gases, Inc. v. Teamsters,
850 F.2d 1028, 1037 (3d Cir. 1988) (reversing district court’s
failure to give Rule 36 admission binding eﬀect; “This admis-
sion is not merely another layer of evidence, upon which the
district court can superimpose its own assessment of weight
and validity. It is, to the contrary, an unassailable statement
of fact that narrows the triable issues in the case.”); Williams v.
City of Dothan, 818 F.2d 755, 762 (11th Cir. 1987) (reversing dis-
trict court’s refusal to recognize Rule 36 admission); Brook Vil-
lage North Associates v. General Electric Co., 686 F.2d 66 (1st Cir.
1982) (reversing district court’s decision to permit evidence
contradicting Rule 36 admissions); see generally 8B Wright &
Miller, Federal Practice and Procedure § 2264 (3d ed. 2010);
Fed. R. Civ. P. 36 Advisory Committee Notes to 1970 Amend-
ment (“The new provisions give an admission a conclusively
binding eﬀect, for purposes only of the pending action, unless
the admission is withdrawn or amended…. Unless the party
securing an admission can depend on its binding eﬀect, he
cannot safely avoid the expense of preparing to prove the very
18                                                    No. 19-3043

matters on which he has secured the admission, and the pur-
pose of the rule is defeated.”) (citations omitted).
    So the admission may be binding on Prate Rooﬁng. The
problem for United Fire’s argument is that the Perdomo Ayala
estate was not bound by the admission, nor was the trial court
in the estate’s underlying wrongful death suit. Prate Rooﬁng’s
theories for its defense were not guaranteed to prevail. Not-
withstanding Prate Rooﬁng’s discovery response, the estate’s
original allegations still posed the potential of vicarious liabil-
ity that would fall within United Fire’s coverage.
    Second, United Fire argues that by pleading a cross-claim
for contribution against All Seasons, Prate Rooﬁng necessarily
implied that both were joint tortfeasors, which would be le-
gally inconsistent with vicarious liability for Prate Rooﬁng.
We assume that is correct as a matter of Illinois law, but the
cross-claim was an alternative pleading. Prate Rooﬁng alleged
that it had done nothing wrong, but that if it were found to
have done something wrong to contribute to Perdomo
Ayala’s death, it wanted to seek contribution from other tort-
feasors. Such alternative pleading is both permitted and rou-
tine. See Fed. R. Civ. P. 8(d)(2) & (3); Alper v. Altheimer & Gray,
257 F.3d 680, 687 (7th Cir. 2001) (“[Pleader] is entitled to plead
in the alternative, even if the pleadings are inconsistent.”).
Pleading the cross-claim did not foreclose all possibility of vi-
carious liability for Prate Rooﬁng.
   So far, we have been addressing the duty to defend as the
Perdomo Ayala’s estate’s pleadings framed the issue. When
United Fire settled with the estate on behalf of All Seasons,
however, things changed. The settlement necessarily re-
moved any potential that Prate Rooﬁng might be held vicari-
ously liable for any tortious actions or omissions by All
No. 19-3043                                                       19

Seasons. The settlement thus ended United Fire’s duty to de-
fend, even though the estate’s underlying lawsuit proceeded
against Prate Rooﬁng on other grounds.
    “[A]ny settlement between the agent and the plaintiﬀ
must also extinguish the principal’s vicarious liability.” Amer-
ican Nat’l Bank & Tr. Co. v. Columbus-Cuneo-Cabrini Medical
Ctr., 154 Ill. 2d 347, 355, 609 N.E.2d 285, 289 (1992). This tenet
of agency law follows neatly from the nature of imputed lia-
bility. The principal’s liability exists solely because of the
agent’s liability; if the latter is erased, so is the former. See Re-
statement (Second) of Torts § 883 cmt. b (“When the liability
of one party to an action is based entirely upon a wrongful act
by another, a judgment necessarily based upon the ﬁnding
that the ﬁrst is liable and that the second is not is inconsistent
with itself….”); Restatement (Second) of Agency § 217B. Put
diﬀerently, if the agent has no liability, there is nothing to im-
pute to the principal.
    United Fire owed a duty to defend Prate Rooﬁng only for
potential vicarious liability, i.e., only if All Seasons’ potential
liability might have been imputed to it. But under the terms
of the settlement, All Seasons has no liability. There’s no fur-
ther risk to Prate Rooﬁng that it might be held liable for All
Seasons’ conduct. We see no indication that the estate, after
that settlement, continued to try to pursue Prate Rooﬁng on a
(then-hopeless) theory of vicarious liability. The United Fire
policy did not cover Prate Rooﬁng for liability writ large.
That’s what Prate Rooﬁng’s own general commercial liability
policy with Nationwide covers. Rather, United Fire covered
only a particular type of liability, the potential for which evap-
orated with the All Seasons settlement. We recognize that
Prate Rooﬁng remained a defendant in the underlying
20                                                    No. 19-3043

litigation because the estate also accuses it of direct negli-
gence. But United Fire has no duty to cover or defend Prate
Rooﬁng for those risks.
    Finally, United Fire argues that because Prate Rooﬁng also
held its policy with Nationwide, “any coverage aﬀorded to
Prate under the United Fire policy was excess and did not in-
clude a duty to defend.” United Fire did not raise this issue
with any speciﬁcity until after the district court had ruled on
the summary judgment motions. United Fire ﬁrst included it
in its Rule 59(e) motion to amend or alter the judgment. As
the district court explained, that was too late to require the
court to consider it. The merits of the argument would have
required a close side-by-side comparison of language in the
policies, particularly if both policies were written to try to
force any other applicable policies to provide primary cover-
age. See Ohio Cas. Ins. Co. v. Oak Builders, Inc., 373 Ill. App. 3d
997, 1002–04, 869 N.E.2d 992, 995–97 (2007) (conducting side-
by-side comparison of “excess clauses”). United Fire’s appel-
late brieﬁng on the issue shows considerable room for nuance
and intricacy stemming from both policy language and the
parties’ maneuvering in the litigation. The district court did
not abuse its discretion by treating the excess insurance issue
as forfeited for purposes of the summary judgment motions.
The argument therefore could not support reversal.
   For all these reasons, we AFFIRM the district court’s grant
of summary judgment for Prate Rooﬁng, as MODIFIED to
hold that United Fire’s duty to defend Prate Rooﬁng ended
upon consummation of the settlement between the Perdomo
Ayala estate and All Seasons.
No. 19-3043                                                   21

    SYKES, Chief Judge, dissenting. Determining whether an
insurer has a duty to defend requires comparing the lan-
guage of the insurance policy against the allegations in the
plaintiff’s complaint and asking whether there is any possi-
bility that the insurer could be required to indemnify the
insured. My colleagues thus ask the right question. Majority
op. at 12–13. But where they see potential liability, I see none.
    Prate Roofing cannot, as a matter of law, be held vicari-
ously liable for the torts of All Seasons. That’s true for two
reasons. First, the underlying complaint states claims against
Prate solely for direct liability. The complaint nowhere
alleges that an agency relationship, the cornerstone of deriv-
ative liability, existed between Prate and any other defend-
ant. My colleagues mistakenly rely on boilerplate allegations
of agency and general assertions of construction negli-
gence—that is, direct liability—in finding a potential for
imputed liability.
    What’s more, United Fire already settled with the under-
lying plaintiff for the full policy limit on All Seasons’ behalf.
The majority rightly holds that the settlement extinguishes
any prospect of vicarious liability as a matter of agency law.
The settlement is relevant for an additional reason as well:
the insurance policy explicitly states that United Fire’s duty
to defend ends when it settles for the policy limit.
                           *    *   *
    To understand the court’s missteps, it helps to start with
industry norms for the type of insurance policy at issue here.
General contractors like Prate routinely require their subcon-
tractors to carry commercial general liability (“CGL”) insur-
ance naming the general contractor as an additional insured.
22                                                   No. 19-3043

9 STEVEN PLITT ET AL., COUCH ON INSURANCE § 126:7 (3d ed.
2021); 2 PHILIP L. BRUNER & PATRICK J. O’CONNOR, JR.,
BRUNER & O’CONNOR ON CONSTRUCTION LAW § 5:228 (2020).
Obtaining additional-insured status gives the general con-
tractor increased protection by transferring risk to the sub-
contractor. See James P. Bobotek & David L. Beck, Evolution
of Additional Insured Coverage Under CGL Policies, NEW
APPLEMAN ON INS.: CURRENT CRITICAL ISSUES IN INS. L.,
Summer 2014, at 1, 8–9. This practice is so common that the
insurance industry has for decades used several standard
forms for the additional-insured endorsement. Id. at 10; see,
e.g., Ins. Servs. Office, Inc., Form CG 20 10 04 13, in 1 SUSAN J.
MILLER,       MILLER’S      STANDARD     INSURANCE        POLICIES
ANNOTATED, at GL-193 to -194 (7th ed. 2013).
     Coverage for an additional insured is often quite lim-
ited—normally it covers only imputed liability or liability
causally related to the subcontractor’s acts—because the
general contractor carries its own primary CGL policy
insuring against its direct liability. Am. Country Ins. Co. v.
Cline, 722 N.E.2d 755, 761–62 (Ill. App. Ct. 1999). Since
coverage is so limited, these endorsements typically cost
little or nothing above the standard policy premium. Liberty
Mut. Fire Ins. Co. v. Statewide Ins. Co., 352 F.3d 1098, 1101 (7th
Cir. 2003) (named insured paid $35 for endorsement and got
“what it pa[id] for”—“very limited coverage for additional
insureds”); Cline, 722 N.E.2d at 762 (endorsement cost just
$150 and accordingly covered only the risk arising out of the
named insured’s work); BRUNER & O’CONNOR § 5:228. The
insurance industry has repeatedly modified the terms of its
standard additional-insured rider to prevent the scope of
coverage from expanding, Bobotek & Beck at 10–23, recog-
No. 19-3043                                                   23

nizing that “a broad interpretation … could erode the[]
limits of coverage,” BRUNER & O’CONNOR § 5:228.
    This case involves one of these run-of-the-mill endorse-
ments. Prate, a general contractor with its own CGL policy,
required that All Seasons, its subcontractor, obtain a CGL
policy and name Prate as an additional insured. The
additional-insured rider came on the industry-standard
form; the endorsement cost just $750—less than 4% of the
total premium; and it covers Prate “only with respect to [All
Seasons’] liability[,] … which may be imputed to [Prate].” In
short, this cheap standard endorsement came with a clear
standard limit: no imputed liability, no coverage.
   It follows that United Fire has a duty to defend Prate if
and only if Prate could be held vicariously liable for All
Seasons’ conduct. My colleagues rightly explain that answer-
ing that question requires looking to the complaint in the
underlying litigation. That complaint, however, must be
read in light of basic principles of tort and agency law.
   Imputed or vicarious liability arises from a principal–
agent relationship. Whether such a relationship exists de-
pends on the degree of control retained by the employer. See
RESTATEMENT (SECOND) OF AGENCY § 2 (AM. LAW INST. 1958).
    Three points on the retained-control spectrum are im-
portant. If the employer hires a contractor to accomplish a
particular result without retaining any control over the
means used—i.e., if it hires an “independent contractor”—
the employer cannot be vicariously liable for the contractor’s
torts. Carney v. Union Pac. R.R. Co., 77 N.E.3d 1, 7 (Ill. 2016).
If the employer maintains some degree of control—e.g., in a
supervisory capacity—it may be directly liable for its failure
24                                                  No. 19-3043

to exercise that control with reasonable care. Id. at 8 (citing
RESTATEMENT (SECOND) OF TORTS § 414 (AM. LAW INST. 1965));
Aguirre v. Turner Constr. Co., 501 F.3d 825, 828 (7th Cir. 2007).
In such a case, the employer is personally at fault for its own
negligence. Only if the employer retains control over the
“operative detail” of the work can the contractor’s liability
be imputed to the employer. Carney, 77 N.E.3d at 9 (quoting
RESTATEMENT (SECOND) OF TORTS § 414 cmt. a). “[T]his is no-
fault vicarious liability[,] and it is based on the principles of
agency law, not negligence law.” Aguirre, 501 F.3d at 829.
“The principal’s liability is entirely derivative.” Sperl v.
Henry, 124 N.E.3d 936, 943 (Ill. 2018) (quotation marks
omitted).
    With these benchmarks in mind, it is easy to see why
United Fire has no duty to defend. Prate is insured under
this policy against imputed liability only, yet the underlying
complaint exclusively alleges claims of direct liability. The
complaint sets out five counts against Prate: two for con-
struction negligence, two for premises liability, and one for
negligence. Each includes identical factual allegations of
Prate’s negligent acts or omissions: that it “[f]ailed to pro-
vide adequate safeguards,” “[f]ailed to warn [p]laintiff of the
dangerous conditions,” “[f]ailed to ensure that all persons on
the premises were provided hard hat protection,” and the
like. If these allegations sound like they’re putting the fault
on Prate, it’s because they are. Nowhere does the complaint
allege that Prate, though itself blameless, is nonetheless
liable for the acts of its agents. Contra Aguirre, 501 F.3d at
829. Because the Ayala estate has not made any allegations
that even hint at a theory of recovery based on vicarious
liability, there is no legal or factual basis on which United
No. 19-3043                                                               25

Fire could be required to indemnify Prate. United Fire
therefore has no duty to defend.
    My colleagues point to three specific allegations against
Prate in holding to the contrary. Majority op. at 11–12. Two
include the boilerplate assertion that Prate acted “individu-
ally and through its agents,” language that the court finds
significant. It is not.
     This kind of perfunctory statement is insufficient as a
matter of Illinois law to plead an agency relationship. “A
complaint relying on agency must plead facts which, if
proved, could establish the existence of an agency relation-
ship. It is insufficient to merely plead the legal conclusion of
agency.” Connick v. Suzuki Motor Co., 675 N.E.2d 584, 592 (Ill.
1996). Two cases from the Illinois Supreme Court illustrate
the impact of this rule. Connick held that a complaint failed
to state a claim for fraud based on imputed statements
because it wasn’t enough to merely allege that the state-
ments were made by “agents of [the defendant].” Id. And
Carney—a construction-negligence case like this one—noted
that the plaintiff “ha[d] not pursued a claim of vicarious
liability,” 77 N.E.3d at 9, despite the complaint alleging that
the defendant had acted “by and through its authorized agents
and employees,” Plaintiff’s Revised Second Amended
Complaint at Law at 1, Carney v. Happ’s Inc., No. 07 L 8369 H
(Ill. Cir. Ct. 2011) (emphasis added).1

1 Prate argues that United Fire waived any reliance on Carney. But
United Fire argued in its summary-judgment brief that Carney did not
recognize a vicarious-liability claim and permissibly elaborated on that
argument on appeal by including a copy of the operative complaint in its
appendix. See Soo Line R.R. Co. v. Consolidated Rail Corp., 965 F.3d 596, 601
(7th Cir. 2020). We may take judicial notice of the complaint because it is
26                                                               No. 19-3043

    The estate’s allegations here are similarly deficient. The
complaint asserts that Prate acted “through its agents,” but it
includes no allegations to support a finding that any sup-
posed agent had authority to act on Prate’s behalf. (Indeed,
the complaint here is even more lacking than the one in
Connick because it does not even allege who the agent is.) My
colleagues read far too much into this rote language, which
appears routinely in complaints against corporate defend-
ants since corporations “can act only through agents.” Thom-
as D. Philipsborn Irrevocable Ins. Tr. v. Avon Capital, LLC, 699
F. App’x 550, 552 (7th Cir. 2017) (unpublished); accord Shager
v. Upjohn Co., 913 F.2d 398, 404 (7th Cir. 1990). These boiler-
plate allegations alone do not provide a legal basis for
holding Prate vicariously liable and thus do not trigger
United Fire’s duty to defend.
    The remaining allegations identified by my colleagues
fare no better, though they are stated in somewhat more
specific terms. Prate allegedly “participated in coordinating
the work being done and designated various work meth-
ods”; “schedule[d] work”; “had the authority to stop the
work”; “had a duty to exercise reasonable care in the control
of [the] construction site”; and “[f]ailed to supervise the
work.” These assertions are, admittedly, supervisory in
nature. But that doesn’t mean they provide a footing for
vicarious liability.

a public record. See FED. R. EVID. 201, 901(b)(7); cf. In re Lisse, 905 F.3d 495,
496 (7th Cir. 2018) (Easterbrook, J., in chambers) (noting that an order
entered by a state court is a public record appropriate for judicial notice).
No. 19-3043                                                   27

   Rather, these are stock allegations of direct negligence
under section 414 of the Restatement (Second) of Torts. That
section provides:
       One who entrusts work to an independent con-
       tractor, but who retains the control of any part
       of the work, is subject to liability for physical
       harm to others for whose safety the employer
       owes a duty to exercise reasonable care, which
       is caused by his failure to exercise his control
       with reasonable care.
My colleagues characterize the allegations as “straddl[ing]
the line” between direct and derivative liability. Majority op.
at 13. But as the comments to section 414 show, these allega-
tions fall decisively on the direct-liability side of the line:
       The rule stated in this [s]ection is usually …
       applicable when a principal contractor entrusts
       a part of the work to subcontractors, but him-
       self or through a foreman superintends the en-
       tire job. In such a situation, the principal
       contractor is subject to liability if he fails to
       prevent the subcontractors from doing even
       the details of the work in a way unreasonably
       dangerous to others, if he knows or by the ex-
       ercise of reasonable care should know that the
       subcontractors’ work is being so done, and has
       the opportunity to prevent it by exercising the
       power of control which he has retained in him-
       self. So too, he is subject to liability if he knows
       or should know that the subcontractors have
       carelessly done their work in such a way as to
       create a dangerous condition, and fails to exer-
28                                                   No. 19-3043

       cise reasonable care either to remedy it himself
       or by the exercise of his control cause the sub-
       contractor to do so.
RESTATEMENT (SECOND) OF TORTS § 414 cmt. b. In short,
allegations that Prate negligently supervised the worksite
are paradigmatic allegations of direct section 414 liability.
    As for the allegations that Prate could “coordinate,”
“stop,” “inspect,” and “schedule” work on the jobsite, that
isn’t even enough retained control to impose direct liability
under section 414, let alone vicarious liability. Id. cmt. c;
accord Carney, 77 N.E.3d at 11 (“A general right to enforce
safety … does not amount to retained control under
section 414.”).
    I recognize, of course, that an intermediate Illinois appel-
late court has twice held that allegations materially identical
to those at issue here stated a potential basis for vicarious
liability sufficient to trigger the duty to defend an additional
insured. See Pekin Ins. Co. v. Centex Homes, 72 N.E.3d 831 (Ill.
App. Ct. 2017); Pekin Ins. Co. v. Lexington Station, LLC,
84 N.E.3d 554 (Ill. App. Ct. 2017). But “we are obligated to
determine how the highest court of th[e] state would rule,”
not the lower courts. Aguirre, 501 F.3d at 828; see KR Enters.,
Inc. v. Zerteck Inc., 999 F.3d 1044, 1051 (7th Cir. 2021) (declin-
ing to follow an intermediate state-court decision that
“seem[ed] to stray from the established course of the state’s
law, especially as written by the state supreme court”). For
the reasons just explained, I highly doubt that the Illinois
Supreme Court would adopt the flawed reasoning of the
Pekin cases.
No. 19-3043                                                            29

    My colleagues contend that a plaintiff will not know the
relationships between defendants at the pleading stage, so
we should be more understanding of a complaint’s cursory
or vague allegations. Majority op. at 13 (citing Centex Homes,
72 N.E.3d at 845; Lexington Station, 84 N.E.3d at 562–63). I
agree that a plaintiff’s limited prediscovery knowledge
warrants imposing a low bar at the pleading stage. That’s a
standard justification for liberal pleading rules. See, e.g.,
Cincinnati Life Ins. Co. v. Beyrer, 722 F.3d 939, 948 (7th Cir.
2013). But even a low bar must be cleared; the allegations in
the complaint do not suggest that the Ayala estate was even
trying to plead a vicarious-liability theory of recovery. See
Def. Sec. Co. v. First Mercury Ins. Co., 803 F.3d 327, 334–35 (7th
Cir. 2015) (holding that the insurer owed no duty to defend
where the pleadings failed to allege facts placing the claims
within the policy coverage).
   More broadly, by misreading the complaint and conflat-
ing direct and derivative liability, my colleagues have ex-
panded the narrow coverage provided to additional
insureds under these prosaic policy endorsements. When
United Fire added this rider to All Seasons’ policy, it did not
agree to assume any new risks arising from Prate’s own
conduct.2 See Cline, 722 N.E.2d at 762. That’s why the en-
dorsement was so cheap. The court’s expansive reading of

2 It is not enough to say that the estate’s vicarious-liability theory is
unlikely to succeed, so United Fire will not be obligated to indemnify
Prate. The duty to defend carries its own significant burdens, regardless
of the prospects for indemnification. Cf. Bell Atl. Corp. v. Twombly,
550 U.S. 544, 559 (2007) (“It is no answer to say that a claim just shy of
plausible entitlement to relief can, if groundless, be weeded out early in
the discovery process … .”).
30                                                No. 19-3043

the underlying complaint erodes these careful limits on
additional-insured endorsements.
                          *    *   *
    United Fire’s settlement with the estate on behalf of All
Seasons provides another basis for reversal. My colleagues
rightly recognize one reason why the settlement is relevant:
it extinguished any possibility of holding Prate vicariously
liable for the acts of All Seasons. Majority op. at 18–19; see
Am. Nat’l Bank & Tr. Co. v. Columbus-Cuneo-Cabrini Med. Ctr.,
609 N.E.2d 285, 289 (Ill. 1992). That conclusion follows from
a straightforward application of the principles of agency
law, as the majority explains.
   I agree with that analysis and add only that the settle-
ment’s effect on United Fire’s duty is perfectly consistent
with the proposition that the allegations against Prate alone
cannot create a potential for imputed liability. Rather, as
explained earlier, that possibility must arise from the combi-
nation of assertions of an agency relationship and All Sea-
sons’ fault. That’s why the potential for derivative liability
evaporated when—pursuant to the settlement—all claims
against All Seasons were dismissed with prejudice; the
agent’s fault was extinguished. The dismissal of the claims
against All Seasons is what relieves United Fire of its duty to
defend. But the dismissal matters only if there are accompa-
nying allegations of an agency relationship, which brings us
back to the original error in the majority’s analysis: there
simply are no such allegations.
    That aside, I agree with my colleagues on the legal effect
of the settlement. If United Fire ever had a duty to defend
Prate, it certainly ended upon execution of the settlement. In
No. 19-3043                                                  31

addition to the agency-law reasons for that holding, it also
follows from a straightforward reading of the policy lan-
guage. The policy provides: “Our right and duty to defend
ends when we have used up the applicable limit of insur-
ance in the payment of judgments or settlements … .” That
provision applies to Prate as an additional insured, and
United Fire has undisputedly satisfied it. United Fire “used
up the applicable limit of insurance in the payment of … [a]
settlement.” Its duty to defend Prate, therefore, ended upon
settlement. See also RESTATEMENT OF LIABILITY INSURANCE
§ 18 (AM. LAW. INST. 2019) (“If so stated in the insurance
policy, exhaustion of the applicable policy limits” terminates
an insurer’s duty to defend.).
    The district judge relied on Conway v. Country Casualty
Insurance Co., 442 N.E.2d 245 (Ill. 1982), in rejecting this
straightforward conclusion. That was a mistake. To be sure,
Conway states that “since the insurer’s duty to defend its
insured is not dependent upon a duty to indemnify[] but
arises from the undertaking to defend stated in the policy, an
insurer’s payment to its policy limits, without more, does
not excuse it from its duty to defend.” 442 N.E.2d at 247. But
Conway is clearly distinguishable from this case.
    The policy at issue in Conway, like the one here, provided
that the insurer’s duty to defend ended when it exhausted
the policy limits “by payment of any judgments or settle-
ments.” Id. After an accident covered by the policy, the
insurer paid the plaintiff—pursuant to an informal agree-
ment—for the full policy limit. Id. at 246. The parties did not,
however, execute a settlement releasing the insured from
liability. Id. In holding that the insurer still owed a duty to
defend, the Illinois Supreme Court emphasized that the
32                                                 No. 19-3043

insurer had not complied with the settlement provision:
“The insurer … made no payment pursuant to a judgment or
a settlement agreement.” Id. at 248.
    By contrast, everyone agrees that United Fire settled for
the full policy limit on behalf of All Seasons and obtained a
release of claims in exchange. This small distinction makes
all the difference because the contract language demands it.
The Conway insurer did not pay pursuant to a settlement;
United Fire did.
    Nor would this be the first time that a court has distin-
guished Conway on this basis. Zurich Insurance Co. v. Raymark
Industries, Inc., 514 N.E.2d 150, 161 (Ill. 1987), involved the
application of several liability policies stating that coverage
was “subject to the limits of liability.” The Illinois Supreme
Court interpreted this language to apply to all policy obliga-
tions, including the duty to defend. Id. at 162. Accordingly,
the court held that once the insurers had discharged their
duties to indemnify through settlements or judgments, they
were no longer obligated to defend the insured. Id. at 163.
That was true even though the insured, citing Conway,
argued that the duty to defend was distinct from and broad-
er than the duty to indemnify. Because exhaustion of the
policy limit eliminated any possibility of indemnification,
the insurers had no duty to defend. Id.
   United Fire stands in the same position as the insurers in
Zurich. The policy expressly cabins its duty to defend to
payment of the policy limits. It paid the full policy limits, so
that duty is at an end.
                           *   *   *
No. 19-3043                                              33

    For these reasons, I would reverse the judgment in favor
of Prate and remand for entry of judgment for United Fire. I
therefore respectfully dissent.