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Alliance Syndicate, Inc. v. Parsec, Inc.

Case Date: 12/19/2000
Court: 1st District Appellate
Docket No: 1-97-2295 Rel

SECOND DIVISION
December 19, 2000


No. 1-97-2295
ALLIANCE SYNDICATE, INC.,

                      Plaintiff, Counter-Defendant-Appellee,

     v.

PARSEC, INC. and PARSEC, INC., as Indemnitor of CSX
CORPORATION,

                      Defendants, Counter-Plaintiffs and Third-
                      Party Plaintiffs-Appellants,

     v.

ILLINOIS INSURANCE EXCHANGE,

                      Third-Party Defendant-Appellee,

     v.

MARSH & McLENNQAN, BURNS & WILCOX, and
CLASSIC SYNDICATE, INC.,

                      Third-Party Defendants.

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)		 Appeal from the
Circuit Court of
Cook County



















Honorable Albert Green,
Judge Presiding.

JUSTICE McBRIDE delivered the opinion of the court:

Following an accident in which Henry Smith was injured while working in a railyard, Smith brought suit against a numberof entities, including Parsec, Inc. (Parsec). Smith later entered into a $2.5 million settlement with Parsec and Parsec asindemnitor of CSX Corporation (CSX). During the pendency of Smith's suit (the underlying case), plaintiff AllianceSyndicate, Inc. (Alliance) brought a declaratory judgment action against its insured, defendant Parsec, Inc. (Parsec), seekinga declaration as to Alliance's obligation to defend or indemnify Parsec in the Smith suit under a general liability insurancepolicy. Parsec filed a counterclaim against Alliance and various other defendants, including third-party defendant theIllinois Insurance Exchange (IIE). Alliance and the IIE filed motions for summary judgment on various counts in Parsec'sthird amended counterclaim. Following a hearing, the circuit court entered summary judgment in favor of Alliance and IIEand against Parsec. Parsec now appeals.(1)

Parsec and the Baltimore & Ohio Railroad Company (the predecessor-in-interest to CSX) entered into an agreement (theParsec/CSX agreement) under which Parsec was to load and unload freight containers at various rail yards. Under theterms of the Parsec/CSX agreement, Parsec was:

"(a) To indemnify, protect, defend and save harmless [CSX] from and against all loss, damages, costs and expenses,including attorneys' fees, claims, demands and causes of action on account of -

(i) injury to or death of all persons (including, but not limited to, employees of [Parsec and CSX]), and loss of or damage toany property ***, caused by or resulting in any manner from any acts, omissions or negligence of [Parsec] or any of[Parsec's] officers, agents or employees, in performing or failing to perform any of the services or duties on the part of[Parsec] to be performed under this Agreement.

* * *

(b) In the performance of the work hereunder, [Parsec] shall comply with all applicable federal and state laws andregulations with reference to Employers' Liability and Workmen's Compensation insurance, and when requested by [CSX]shall furnish proof of such compliance and shall indemnify, protect, defend and hold harmless [CSX] from and against anyand all loss, damages, costs and expenses, including attorneys' fees, claims, demands and causes of action of whatsoevernature, due to the violation of such laws or regulations by [Parsec], or resulting from any claim of subrogation provided insuch laws or regulations, or otherwise."

The Parsec/CSX agreement also required Parsec to provide general liability insurance coverage "in an amount of not lessthan $2,000,000 per occurrence for bodily injury and property damage liability," and required that such insurance nameCSX as an additional insured.

Parsec, as part of the Budco Group, retained an entity known as Marsh & McLennan as its agent for the purpose ofobtaining general liability insurance coverage for its various business entities, including the coverage required under theParsec/CSX contract. Marsh & McLennan was aware that Parsec was required to name the various railroads where itperformed services as additional insureds under any policy issued. Marsh & McLennan retained Burns & Wilcox, aninsurance broker/wholesaler, to obtain coverage for Budco. A copy of the Parsec/CSX agreement was included in thesubmission to Burns & Wilcox as an example of a typical contract entered into by Parsec. Burns & Wilcox contacted theIllinois Insurance Exchange (IIE), a statutorily-created central processing facility for the placement of insurance risks withvarious separate member entities known as syndicates. Burns & Wilcox then allegedly forwarded to various syndicatemembers of the IIE the application and supporting materials from Parsec via Marsh. The Alliance Syndicate (Alliance)submitted a quotation for the primary general liability coverage of $1 million. Burns & Wilcox forwarded the proposal toMarsh & McLennan. Budco Group accepted the Alliance proposal and a policy was issued. The policy, as issued, was ineffect from May 4, 1987, to May 4, 1988, and did not name CSX or any other railroads where Parsec performed work asadditional insureds. The Classic Syndicate (Classic) provided a quotation for the excess coverage of $1 million. Thatquotation was also accepted by the Budco Group.

The policy between Parsec and Alliance was written through the IIE. However, the policy specified in Schedule A that theIIE was not a party to the insurance contract and had no liability thereunder. The excess general liability policy betweenParsec and Classic was obtained through the same channels and contained the same IIE liability disclaimer.

Under the Parsec/CSX agreement, Parsec was an independent contractor and was to supply all personnel and equipment toperform the contracted for loading and unloading operations. Transpersonnel, Inc., in turn, had an agreement with Parsecto provide temporary workers. On August 12, 1987, Henry Smith, who had been hired by Transpersonnel approximatelyseven days earlier, was seriously injured in a rail yard accident when he was run over by a vehicle known as a spottingtractor. A spotting tractor is a large vehicle used for moving and placing containers on and off of rail cars.

At the time of his accident, Smith was directly employed by, and received his paychecks from, Transpersonnel. However,he was under the exclusive supervision and control of Parsec when he was injured at the railyard. The spotting tractor thatcaused his injuries was owned by Parsec and was operated by a Parsec employee. Although the accident happened at a railyard owned by CSX Railroad, no CSX personnel were present when the accident occurred.

Following the accident, Smith proceeded to file suit against Parsec alleging, inter alia, careless and negligent acts and/oromissions and wilful misconduct on the part of Parsec. After Smith filed the underlying case against Parsec, Parsec, withthe acquiescence of Alliance, retained counsel for its defense. Alliance then informed Parsec that if Smith were found to bea Parsec employee, Alliance believed an exclusion in the policy for bodily injury to employees of Parsec would apply andthe policy would not provide any coverage to Parsec for liability assessed against it. Alliance stated that it was thusproviding a defense under a reservation of rights.

Other defendants, including CSX, were later added to the underlying Smith case. The amended complaint in the Smithcase sought recovery from CSX for negligence under the Federal Employer's Liability Act (FELA). 45 U.S.C.