In Pekin Ins. Co. v. Equilon Enters. LLC, 2012 IL App (1st) 111529; the court held that the additional insured was owed a defense under an endorsement limiting coverage to claims of vicarious liability, where the complaint alleged a “possibility” that the additional insured could be found liable, even solely, as a result of the acts or omissions of the named insured. 

In Pekin Insurance Company v. Equilon Enterprises, a customer at a Shell gas station was injured in an explosion that resulted from lighting a cigarette.  The customer filed a lawsuit asserting separate claims of negligence against the gas station and franchisor.  The alleged acts of negligence were identical and each count alleged that the party against whom the count was asserted “owned, operated and controlled the premises.”  Franchise agreements between the gas station and franchisor imposed a duty on the gas station to name the franchisor as an additional insured under the gas station’s liability policy.

Pekin, in its complaint for declaratory judgment, argued that the insurance policy at issue named the franchisor in two additional insured endorsements, one which limited coverage to negligence in the granting of a franchise, and the other limiting coverage to claims of vicarious liability.  Initially, Pekin argued that only the first endorsement applied and limited coverage to claims of negligence in the granting of a franchise.  Unsurprisingly, the court held that where there are two endorsements, each of which purported to provide coverage, an insurer cannot argue that only one controls, for that would “render meaningless the coverage provided by the second endorsement.”

As to coverage for vicarious liability, the court first distinguished cases where the additional insured was covered only to the extent that liability was incurred “solely” as a result of some act or omission of the named insured.  The court then reminded that it was Pekin’s duty to demonstrate that the allegations in the underlying complaint did not potentially fall within coverage, and, that it had failed to do so because there was a “possibility” that the franchisor could be found liable, even solely, as a result of the acts or omissions of the gas station.  The court ended by noting that the two endorsements, when read together, were ambiguous as one provided coverage for the negligent act of the franchisor, while the other, in the words of Pekin, limited coverage to the negligence of the gas station and not of the franchisor.

Concurring, Justice Gordon noted that the case was even more easily decided on the fact that the underlying complaint alleged that the franchisor “owned, operated and controlled the premises.”  Control being the “key element” of vicarious liability, Justice Gordon noted that the underlying complaint expressly alleged vicarious liability, bringing the franchisor within coverage under the second endorsement.