Illinois Appellate Court Holds Insured Contract Void Under Construction Contract Indemnification for Negligence Act

Heron Salgado, a construction worker, was employed by Abel Building & Restoration in January 2011 when he was assigned to work at a job site at 51^st Street. He was working on a scaffold design that was built, erected and maintained by Designed Equipment Acquisition Corp. While he was working at that site, he was injured twice. Once on Jan. 17, 2011, Salgado was injured when a heavy bucket fell and struck him. Two days later he was injured again when he fell into an “opening” in the scaffolding.

Salgado filed a lawsuit against Designed Equipment in December 2012. Designed tendered its defense for this case first to its own insurance company and then to Pekin Insurance Co. who were Abel’s insurers, maintaining that Abel was an “additional insured” under Abel’s policy with Pekin.

Pekin rejected the tender of defense and filed a complaint seeking declaratory judgment. Pekin first claimed that Designed was not an additional insured under the contractor’s endorsement and also that the lease between Abel and Designed was an “insured contract” and therefore void under the Construction Contract Indemnification for Negligence Act.

On Jan. 5, 2015, Pekin moved for summary judgment. The trial judge granted it on the grounds that Pekin raised. Designed appealed.

In the appeal, it was argued by Pekin that Designed was not an additional insured because the terms of the contract specified that an additional insured must be “performing operations for” or with Designed and Abel was merely renting the scaffold for work at a third-party job site.

In the alternative, Pekin argued that even if Designed was an additional insured, coverage did not apply in accordance with the contract if Designed was sued for its own negligence, rather than the negligence of the named insured, Abel. Pekin also maintained that the agreement between Abel and Designed was not an “insured contract,” and that even if it was, it was void under the Construction Contract Indemnification for Negligence Act.

Designed responded by arguing that Pekin’s policy was ambiguous because it contained “two additional insured endorsements with different terms and provisions” and that the trial court should have construed that ambiguity in its favor and ruled that Pekin had a duty to defend.

Further, Designed agreed that the agreement was an insured contract but argued that no legal precedent existed to hold the contract void because it was a lease agreement rather than a construction contract. The appellate court found that Designed’s argument that the policy was ambiguous had been waived because it had not been raised before the trial court.

The appeals panel then turned to the issue of whether the agreement was an “insured contract” and if so, whether it was void. The appellate court found that because the indemnity provision of the agreement stated Abel “shall indemnify and defend [Designed] against and hold [Designed] harmless from any and all claims, actions, suits . . . which (A) relate to . . . bodily injury . . . and (B) are caused by [Designed],” it did constitute an “insured contract.”

The Construction Contract Indemnification for Negligence Act states that “With respect to contracts or agreements, . . . for the construction, alteration, repair or maintenance of a building, . . . or other work dealing with construction, . . .every covenant, promise or agreement to indemnify or hold harmless another person from that person’s own negligence is void as against public policy and wholly unenforceable.”

Designed argued that this was meant to apply only for construction contracts, while their agreement was a lease or rental. Pekin argued that the act applied because Designed leased a scaffold to a building restoration company specifically for work at a “job site” per the contract. The appellate court acknowledged that no precedent precisely covered this fact situation, but the appellate court concluded that since both parties knew the scaffold would be going to a jobsite and used for construction and restoration, the act did apply and the agreement was void. Accordingly, the appellate court affirmed the trial court’s decision.

Pekin Insurance v. Designed Equipment Acquisition Corp., et al., 2016 IL App (1^st) 151689 (July 18, 2016).

Kreisman Law Offices has been handling construction injury cases, jobsite injury cases, catastrophic injury cases and scaffold injury lawsuits for individuals and families who have been injured or killed by the negligence of another for more than 40 years, in and around Chicago, Cook County and its surrounding areas, including Tinley Park, Evanston, Palos Park, Palos Hills, Elmhurst, Naperville, Winnetka, Orland Park, Lincolnshire, Flossmoor, Olympia Fields, Blue Island, Chicago Heights, South Barrington, New Lenox, Park Forest, Park Ridge, Chicago (Rogers Park, Albany Park, Lincoln Square, Hegewisch, East Side), Schaumburg and Aurora, Ill.