Court Opinion

ID: 2818822
Source: CourtListenerOpinion
Date Created: 2015-07-21 18:08:30.169134+00
Date Added: 2024-06-11T12:12:44.835023
License: Public Domain

Illinois Official Reports

                                Appellate Court

                  Bituminous Casualty Corp. v. Plano Molding Co.,
                             2015 IL App (2d) 140292

Appellate Court     BITUMINOUS CASUALTY CORPORATION, Plaintiff-Appellant,
Caption             v. PLANO MOLDING COMPANY, Defendant-Appellee.

District & No.      Second District
                    Docket No. 2-14-0292

Filed               March 26, 2015

Decision Under      Appeal from the Circuit Court of Kendall County, No. 12-MR-175;
Review              the Hon. Robert P. Pilmer, Judge, presiding.

Judgment            Reversed.

Counsel on          Thomas B. Orlando, Matthew S. Ponzi, and Robert T. Boylan, all of
Appeal              Foran, Glennon, Palandech, Ponzi & Rudloff, P.C., of Chicago, for
                    appellant.

                    Christopher T. Sheean, of Swanson, Martin & Bell, LLP, of Chicago,
                    for appellee.
     Panel                     JUSTICE ZENOFF delivered the judgment of the court, with opinion.
                               Justices Jorgensen and Birkett concurred in the judgment and opinion.

                                                OPINION

¶1         Plaintiff, Bituminous Casualty Corporation, appeals from an order granting the
       cross-motion of defendant, Plano Molding Company, for summary judgment and denying
       plaintiff’s motion for summary judgment. We reverse.

¶2                                          I. BACKGROUND
¶3         Plaintiff is an Illinois insurance company. Defendant is an Illinois corporation with its
       principal place of business in Plano, Illinois. Defendant designs, manufactures, and sells
       storage boxes, which are produced from steel injection molds. In 2004, defendant ordered two
       steel injection molds, which were manufactured in China. World Commerce Services, LLC
       (World), arranged for shipment of the molds from China to Illinois. World issued a bill of
       lading identifying defendant as the “consignee.” Paragraph 2.3 of the bill of lading defined
       “merchant” as including the “Shipper, the Receiver, the Consignor, the Consignee, the Holder
       of the Bill of Lading and any person having a present or future interest in the Goods or any
       person acting on behalf of any of the above-mentioned parties.” Paragraph 10(2) of the bill of
       lading provided as follows:
               “Merchant warrants that the stowage and seals of the containers are safe and proper and
               suitable for handling and carriage and indemnifies Carrier for any injury, loss or
               damage caused by breach of this warranty.”
¶4         The molds were loaded into a shipping container and transported by sea to California by
       Kawasaki Kisen Kaisha, Ltd., and “K” Line America, Inc. (collectively K-Line). Union Pacific
       Railroad Company (Union Pacific) then transported the molds overland by rail. On April 21,
       2005, the train derailed in Oklahoma. The derailment was allegedly caused by the molds
       breaking through the floor of the container and falling onto the tracks below. As a result of the
       derailment, various cargo owners whose goods were damaged, or their insurers, sued K-Line
       and Union Pacific for damages. K-Line and Union Pacific then sued defendant in federal
       district court in Illinois, seeking reimbursement for the claims they settled as well as
       compensation for damage to K-Line’s own shipping containers and damage to Union Pacific’s
       own equipment. Defendant tendered defense of the suit to plaintiff.
¶5         Plaintiff insured defendant under a commercial general liability (CGL) policy. Plaintiff
       defended defendant pursuant to a reservation of rights until the Seventh Circuit Court of
       Appeals determined that K-Line’s and Union Pacific’s only causes of action against defendant
       stemmed from its contractual obligations under the bill of lading. Kawasaki Kisen Kaisha, Ltd.
       v. Plano Molding Co., 696 F.3d 647, 660 (7th Cir. 2012) (affirming district court’s grant of
       summary judgment as to the plaintiffs’ negligence claims but reversing grant of summary
       judgment as to the plaintiffs’ contract claims based on the bill of lading, remanding for
       disposition of the contract claims). Following that ruling, plaintiff filed the instant declaratory
       judgment action in the circuit court of Kendall County based upon a policy exclusion that

                                                    -2-
       provided that the insurance does not apply to property damage “for which the insured is
       obligated to pay damages by reason of the assumption of liability in a contract agreement.”
       Plaintiff filed a motion for summary judgment. Defendant filed a counterclaim for declaratory
       relief and a cross-motion for summary judgment based upon an exception to the exclusion in
       the policy for an “insured contract.” The policy defines an “insured contract” as:
               “That part of any other contract or agreement pertaining to your business *** under
               which you assume the tort liability of another party to pay for bodily injury or property
               damage to a third person or organization. Tort liability means a liability that would be
               imposed by law in the absence of any contract or agreement.”
       The trial court granted defendant’s cross-motion for summary judgment and denied plaintiff’s
       motion for summary judgment. Plaintiff filed a timely appeal.

¶6                                             II. ANALYSIS
¶7         When parties file cross-motions for summary judgment, they agree that only a question of
       law is involved and invite the trial court to decide the issues based on the record. Pielet v.
       Pielet, 2012 IL 112064, ¶ 28. However, the mere filing of cross-motions for summary
       judgment does not establish that there is no issue of material fact, nor does it obligate the court
       to render summary judgment. Pielet, 2012 IL 112064, ¶ 28. Summary judgment should be
       granted only where the pleadings, depositions, admissions, and affidavits on file, when viewed
       in the light most favorable to the nonmoving party, show that there is no genuine issue of
       material fact and that the moving party is clearly entitled to judgment as a matter of law. Pielet,
       2012 IL 112064, ¶ 29. We review the grant or denial of summary judgment de novo. Pielet,
       2012 IL 112064, ¶ 30.
¶8         At issue is the proper construction of paragraph 10(2) of the bill of lading. The primary
       objective in construing a contract is to give effect to the intent of the parties. Dearborn Maple
       Venture, LLC v. SCI Illinois Services, Inc., 2012 IL App (1st) 103513, ¶ 31. The plain and
       ordinary meaning of the language used in the contract is the best indication of the parties’
       intent. Dearborn, 2012 IL App (1st) 103513, ¶ 31. An indemnity agreement is a contract
       subject to contract interpretation rules. Buenz v. Frontline Transportation Co., 227 Ill. 2d 302,
       308 (2008). It is well settled that indemnity contracts are strictly construed and will not be
       construed as indemnifying against a party’s own negligence unless such a construction is
       required by the clear and explicit language of the contract. McNiff v. Millard Maintenance
       Service Co., 303 Ill. App. 3d 1074, 1077 (1999). We also review the interpretation of a contract
       de novo. Asset Recovery Contracting, LLC v. Walsh Construction Co. of Illinois, 2012 IL App
       (1st) 101226, ¶ 57.
¶9         The parties agree on a number of things. They agree that the bill of lading is a contract. See
       Kawasaki, 696 F.3d at 652 (a bill of lading can serve as evidence of a contract of carriage).
       Defendant agrees that “any liability that [it] [owes] to K-Line or Union Pacific *** emanates
       from the warranties set forth in the World Bill of Lading.” The parties, therefore, agree that the
       CGL policy’s contractual liability exclusion applies. That provision excludes coverage for
       property damage “for which the insured is obligated to pay damages by reason of the
       assumption of liability in a contract or agreement.”
¶ 10       However, the parties disagree whether the CGL policy’s exception to the exclusion for
       insured contracts applies. Defendant contends that the bill of lading is an insured contract

                                                    -3-
       because K-Line and Union Pacific are seeking indemnification for tort losses they sustained. In
       other words, defendant focuses on K-Line’s and Union Pacific’s liability to the other parties in
       the underlying lawsuits. To the contrary, plaintiff contends that the bill of lading is not an
       insured contract, because defendant is liable only for its own breach of warranty; it has not
       assumed liability for K-Line’s and Union Pacific’s negligence.
¶ 11        Virginia Surety Co. v. Northern Insurance Co. of New York, 224 Ill. 2d 550 (2007), is
       dispositive. However, before we reach our discussion of Virginia Surety, we must look at two
       divergent lines of appellate court cases that it resolved. In Hankins v. Pekin Insurance Co., 305
       Ill. App. 3d 1088 (1999), the Fifth District of the Appellate Court examined an agreement
       between Hankins, who agreed to provide a shipping and receiving terminal, and Rudolf
       Express Company, which was permitted to use the terminal to deliver and pick up loads of
       materials. Hankins, 305 Ill. App. 3d at 1089. The parties’ agreement included a hold-harmless
       clause in which Hankins agreed to indemnify and hold harmless Rudolf for all claims “ ‘caused
       in whole or in part’ ” by Hankins’ negligence. Hankins, 305 Ill. App. 3d at 1089-90. While this
       agreement was in effect, one of Hankins’ employees was injured unloading Rudolf’s truck and
       sued Rudolf. Hankins, 305 Ill. App. 3d at 1089. Rudolf filed a third-party complaint against
       Hankins, seeking indemnification and damages based in part on the agreement. Hankins, 305
       Ill. App. 3d at 1089. Hankins tendered the defense to Pekin under Hankins’ CGL policy, which
       contained a contractual liability exclusion and an exception for an insured contract identical to
       the policy language in our case. Hankins, 305 Ill. App. 3d at 1089-90. Pekin refused the tender
       as to the counts related to the indemnity and hold-harmless agreement, and argued that the
       contractual liability exclusion applied. Hankins, 305 Ill. App. 3d at 1091. The trial court
       granted judgment on the pleadings in favor of Hankins, ruling that the agreement was an
       insured contract under the Pekin policy, even though the agreement did not explicitly say that
       Hankins would be responsible for Rudolf’s negligence. Hankins, 305 Ill. App. 3d at 1091. The
       appellate court reversed. Hankins, 305 Ill. App. 3d at 1094. The appellate court held that the
       indemnity and hold-harmless agreement limited “Hankins’ liability to [his] own negligence
       and does not extend to the negligence of Rudolf.” Hankins, 305 Ill. App. 3d at 1093. The
       appellate court expressed that the language in an insured contract must “clearly, explicitly, and
       unequivocally” reflect the parties’ intention that the indemnitor will indemnify the indemnitee
       against the indemnitee’s own negligence. Hankins, 305 Ill. App. 3d at 1093.
¶ 12        This court disagreed with Hankins in Michael Nicholas, Inc. v. Royal Insurance Co. of
       America, 321 Ill. App. 3d 909 (2001). In Michael Nicholas, which involved a construction
       subcontract agreement between the plaintiff and a developer, the plaintiff agreed to indemnify
       and hold harmless the developer from all claims attributable in whole or part to the plaintiff’s
       negligence. Michael Nicholas, 321 Ill. App. 3d at 911. One of the plaintiff’s employees was
       injured and sued the developer, alleging violations of the Structural Work Act (740 ILCS
       150/0.01 et seq. (West 1994) (repealed by Pub. Act 89-2, § 5 (eff. Feb. 14, 1995))). Michael
       Nicholas, 321 Ill. App. 3d at 911. The developer sued the plaintiff, seeking either complete
       indemnification or contribution based on its agreement with the plaintiff. Michael Nicholas,
       321 Ill. App. 3d at 911. The plaintiff tendered the suit to the defendant, its insurer under a CGL
       policy that contained an exclusion for contractual liability and an exception to the exclusion for
       insured contracts. Michael Nicholas, 321 Ill. App. 3d at 911-12. When the defendant denied
       coverage, the plaintiff filed a declaratory judgment action. Michael Nicholas, 321 Ill. App. 3d
       at 911. The defendant moved to dismiss the complaint based on the policy exclusion, and the

                                                   -4-
       trial court granted the motion, relying on Hankins. Michael Nicholas, 321 Ill. App. 3d at 911.
       This court reversed and remanded the matter, holding that Hankins’ equation of “tort liability,”
       as used in the policy definition of “insured contract,” with “negligence” was too narrow, as
       “tort liability” could encompass something other than negligence, such as joint and several
       liability. Michael Nicholas, 321 Ill. App. 3d at 914. This court held that, because the plaintiff
       had waived the right to limit its exposure to what it paid its employee as worker’s
       compensation (the Kotecki cap (Kotecki v. Cyclops Welding Corp., 146 Ill. 2d 155, 165
       (1991))), it was potentially jointly and severally liable for the entire amount that the developer
       was required to pay to the injured employee. Michael Nicholas, 321 Ill. App. 3d at 914.
¶ 13        This court reaffirmed the principle of Michael Nicholas in West Bend Mutual Insurance
       Co. v. Mulligan Masonry Co., 337 Ill. App. 3d 698 (2003). West Bend presented the same
       factual scenario and identical policy language as Michael Nicholas. West Bend, 337 Ill. App.
       3d at 704. Justice McLaren dissented on the basis that Michael Nicholas and the majority in
       West Bend “ignore the distinction between those matters that are imposed by law and those that
       have been assumed by the insured through the indemnification contract.” West Bend, 337 Ill.
       App. 3d at 709 (McLaren, J., dissenting). Justice McLaren pointed out that “[j]oint and several
       liability is not assumed by a tortfeasor,” and because it is imposed rather than assumed, it was
       “neither contained in nor contemplated” by the indemnification agreement or the insurance
       contract. West Bend, 337 Ill. App. 3d at 709 (McLaren, J., dissenting). Justice McLaren agreed
       with Hankins that an indemnification agreement must state that “any liability attached to the
       other party has been assumed by the insured.” West Bend, 337 Ill. App. 3d at 712 (McLaren, J.,
       dissenting).
¶ 14        In Virginia Surety, our supreme court overruled Michael Nicholas and West Bend. Virginia
       Surety, 224 Ill. 2d at 570. The issue in Virginia Surety was whether a construction subcontract
       agreement was an insured contract. In the subcontract agreement, the subcontractor agreed to
       indemnify and hold harmless the owner, the general contractor, the architect, and their
       respective agents and employees from damages arising out of the subcontractor’s negligence.
       Virginia Surety, 224 Ill. 2d at 553. One of the subcontractor’s employees was injured on the
       job and sued the general contractor. Virginia Surety, 224 Ill. 2d at 553-54. The general
       contractor filed a third-party suit against the subcontractor, which was insured by both the
       plaintiff and the defendant. Virginia Surety, 224 Ill. 2d at 553-54. The plaintiff defended the
       subcontractor, but the defendant refused the tender. Virginia Surety, 224 Ill. 2d at 554. The
       plaintiff then filed a declaratory judgment action against the defendant, alleging that the
       subcontract agreement with the general contractor was an insured contract within the meaning
       of the defendant’s policy. Virginia Surety, 224 Ill. 2d at 554.
¶ 15        Our supreme court engaged in a long analysis devoted to the interplay between
       contribution and indemnification, which is not relevant for our purposes. Virginia Surety, 224
       Ill. 2d at 556-64. However, the result of the discussion was that our supreme court agreed with
       Hankins that a contract in which the insured agrees to indemnify against the insured’s own
       negligence is not an insured contract. Virginia Surety, 224 Ill. 2d at 565 (court said that it must
       look to the agreement and determine whether the agreement obligated the subcontractor to
       assume the general contractor’s liability). In looking at the subcontract agreement, the court
       said that it was “unambiguous.” Virginia Surety, 224 Ill. 2d at 565. “By the plain language of
       the agreement, [the subcontractor], as the indemnifying party, is required to ‘indemnify’ [the

                                                    -5-
       general contractor] only for [the subcontractor’s] own negligence.” Virginia Surety, 224 Ill. 2d
       at 565.
¶ 16        Here, defendant attempts without success to distinguish Virginia Surety. Defendant argues
       that “tort liability,” as used in the policy definition of “insured contract,” can mean
       tort-liability-as-imposed-by-law, rather than negligence. Defendant ignores that Virginia
       Surety overruled Michael Nicholas and West Bend on that very point. This court said in those
       cases that “tort liability” for purposes of an insured contract could mean joint and several
       liability, which is imposed by law. Michael Nicholas, 321 Ill. App. 3d at 914; West Bend, 337
       Ill. App. 3d at 705-06. Justice McLaren dissented in West Bend, opining that an insured
       contract is one in which the tortfeasor’s liability is assumed, rather than imposed by law. West
       Bend, 337 Ill. App. 3d at 709 (McLaren, J., dissenting). Justice McLaren’s view prevailed with
       our supreme court. Virginia Surety, 224 Ill. 2d at 565. In Virginia Surety, our supreme court
       made it clear that courts are to look at the language of the agreement, and where it
       unambiguously provides that the indemnifying party is required to indemnify only for its own
       negligence, the agreement is not an insured contract. Virginia Surety, 224 Ill. 2d at 565.
¶ 17        Defendant maintains that Virginia Surety and Hankins are limited to their facts and that we
       are not bound to follow Virginia Surety. However, nothing in the supreme court’s language in
       Virginia Surety indicated that it was limited to its facts. While Virginia Surety involved an
       issue that is not present in our case–the indemnitee’s right of contribution–that distinction does
       not negate Virginia Surety’s applicability to our scenario. The indemnification agreement in
       Virginia Surety provided that the subcontractor would indemnify the general contractor for
       losses caused by the subcontractor’s own negligence, despite any common liability imposed by
       law. Virginia Surety, 224 Ill. 2d at 565. Similarly, Hankins involved the indemnitee’s right of
       contribution. Hankins, 305 Ill. App. 3d at 1089. However, the court determined whether the
       contract was an insured contract under the defendant’s policy solely by looking at the
       contract’s language, not considering any common liability imposed by law. Hankins, 305 Ill.
       App. 3d at 1093. Moreover, our supreme court discussed Hankins in Buenz without indicating
       that Hankins was limited to its facts. Buenz, 227 Ill. 2d at 315-16. Therefore, Virginia Surety
       controls, and defendant’s citation to the dissent in People v. Trimarco, 364 Ill. App. 3d 549,
       556 (2006), as to the proper application of stare decisis, is misplaced. Accordingly, we now
       turn to the language of the bill of lading at issue in this case.
¶ 18        Paragraph 10(2) of the bill of lading provided that “Merchant”–meaning defendant–agreed
       to indemnify “Carrier”–meaning K-Line and Union Pacific–“for any injury, loss or damage
       caused by breach of this warranty.” The language of the agreement unequivocally states that
       defendant warranted that the stowage and seals of the containers were safe and proper and
       suitable for handling and carriage. Therefore, defendant agreed to indemnify K-Line and
       Union Pacific for defendant’s breach of those warranties. The agreement says nothing about
       indemnifying K-Line and Union Pacific against their own negligence. It is generally held that
       an indemnity contract will not be construed as indemnifying the indemnitee against its own
       negligence unless such a construction is required by the clear and explicit language of the
       contract, or such intention is expressed in unequivocal terms. Buenz, 227 Ill. 2d at 316;
       Westinghouse Electric Elevator Co. v. LaSalle Monroe Building Corp., 395 Ill. 429, 433
       (1947) (“It is quite generally held that an indemnity contract will not be construed as
       indemnifying one against his own negligence, unless such a construction is required by clear
       and explicit language of the contract ***.”).

                                                   -6-
¶ 19        Defendant improperly focuses on the words “any injury, loss or damage” without regard to
       their context. See Buenz, 227 Ill. 2d at 316-17 (it is not simply the use of the phrase “any and
       all” that determines whether a contract provides indemnification for an indemnitee’s own
       negligence, but the phrase must be read in the context of the entire contract). In Buenz, our
       supreme court looked at the limiting language in the agreement in Hankins, among other cases,
       to determine whether the indemnity contract at issue covered the indemnitee’s negligence.
       Buenz, 227 Ill. 2d at 312-16. By “limiting language,” the supreme court meant phraseology
       that specifically limits indemnification to the indemnitor’s actions. Buenz, 227 Ill. 2d at 313.
       For instance, the court noted that in Hankins the agreement expressly restricted
       indemnification liability to negligence occasioned by the indemnitor. Buenz, 227 Ill. 2d at
       315-16. In contrast, the agreement in Buenz contained no such limiting language. Buenz, 227
       Ill. 2d at 317-18.
¶ 20        Here, the language in the bill of lading is clear and unambiguous. It clearly was the
       intention of the parties to the contract that defendant’s indemnification liability would be
       restricted to its breach of the warranties contained in the contract. Consequently, under
       Virginia Surety, the contract is not an insured contract, and summary judgment should have
       been granted in plaintiff’s favor. Accordingly, we reverse the grant of summary judgment in
       favor of defendant and enter summary judgment in favor of plaintiff.

¶ 21      Reversed.

                                                  -7-