Kotecki: Supreme Court Clarification
In a recent case, the Illinois Supreme Court ruled that agreements whereby employers of injured parties agree to indemnify others for liability arising from the employer’s negligence are not “insured contracts” as defined by a CGL policy.The Court held that contribution actions against employers fall within the employee exclusion of the standard CGL policy and are not subject to the “insured contract” exception to the exclusion. The Supreme Court held that such contracts did not constitute an agreement to assume the tort liability of another, but rather constituted an agreement to waive the “Kotecki” defense that is available to employers of injured parties. The Kotecki defense limits the liability of the employer of an injured party in suits for contribution to the extent of their Workers’ Compensation lien. Subcontractors are frequently asked to waive their Kotecki rights.
As a result of this recent court decision, employers sued for contribution from injuries to their employees will not have coverage under their CGL policy, even if the contribution claim is based on a written indemnity agreement. Instead, employers will be required to look for coverage for such claims under their employer’s liability/Workers’ Compensation policy. Therefore, coverage for contribution claims against employers of injured parties now rest with the employer’s liability insurer. In many cases the employer’s liability limits of the workers’ compensation policy are at $500,000 so this could increase the number of claims filed withtheir umbrella carrier.
Primary and Non-Contributory Changing Again ...
Just when you thought you understood the primary and non-contributory portions of your contracts – they’re changing again! A recent Illinois Appellate court decision – Kajima vs St.Paul Travelers clarifies the “selective tender” rule. The decision held that the “selective tender” rule does not allow for a general contractor’s insurer to vertically exhaust all successive insurance policies in the tier of the subcontractors. All primary policies including the general contractor’s must answer first and then be fully exhausted before any excess policy is considered.
The court ruled that although the selective tender rule is recognized and applied by Illinois courts, it is applicable only to concurrent primary coverage and not consecutive primary and excess coverage policies where other primary coverage is available. Therefore, if you tender a loss, and the loss exceeds the primary limits of the party who accepted the tender, you must have reported the loss to your own primary carrier. A policyholder has a duty to report a loss at the time of notice. Therefore, if you wait to report the loss until you become aware that the exposure is more than the tendered parties primary limits, the carrier could deny the claim for late reporting. Timely reporting of all losses is absolutely critical.