Seventh Circuit Affirms Judgment Preventing Part Of Plaintiff’s $25 Million Recovery On Assigned Claims

Under a settlement agreement, the owners and operators of a large yacht agreed to pay an individual who fell and was paralyzed $25 million, payable solely through an assignment of their claims against their insurers.  The insurer for Defendant A filed a declaratory judgment action seeking a determination that it did not owe a duty under the pertinent policies to defend or indemnify Defendant A.  On Thursday, the Seventh Circuit affirmed a lower court judgment in favor of the insurer on the grounds that the policies only covered Defendant A‘s construction business.

The insurance application asked whether Defendant A owned, leased, or hired any watercraft, to which Defendant A answered “no.”  The “common policy declarations” applicable to the policies listed Defendant A‘s business as “concrete construction.”  Nonetheless, the individual plaintiff argued that the insurance policies did not expressly exclude non-construction-related injuries.  The Seventh Circuit rejected this argument, explaining, “A policy does not need to exclude from coverage liability that was not contemplated by the parties and not intended to be covered under their agreement . . . . To hold otherwise would require the parties to conjure up and exclude explicitly any and all activities in which [Defendant A] might engage.  Such a speculative exercise in hypotheticals would be nonsensical.”  In examining the intent of the parties for the insurance policies, the court concluded they were intended to provide coverage only for Defendant A‘s construction-related business and not for coverage for injuries that occurred on a chartered watercraft.

The court also found that the incident would be expressly excluded by the policies, which excluded liability that “aris[es] out of the ownership, maintenance, use or entrustment to others of any . . . watercraft owned or operated by or rented or loaned to any insured.”  Because the injuries in question would not have occurred if Defendant A had provided an appropriate railing or prevented the plaintiff from accessing the pertinent part of the yacht, the injuries were not “wholly independent of” the negligent operation, maintenance, or use of the yacht, which was required for the exclusion not to apply under Illinois law.