First District Rules Insurer Must Defend Private Security Company in Chicago Fire Damage Lawsuits Despite ‘Joint Venture’


A private security company’s agreement with a competitor does not foreclose insurance coverage in lawsuits filed against the first company alone, the First District Court of Appeal has ruled. Clarendon America Insurance Company v. B.G.K. Security Services, Inc., No. 1-07-2994 (Ill. 1st Dec. 19, 2008), arises out of a 2003 fire at a Cook County-owned building at 69 West Washington Street in Chicago. Twenty-two lawsuits resulted from the fire. Clarendon, which insures BGK, had filed for declaratory judgment that it had no duty to defend BGK in those suits.

Clarendon’s argument focuses on language in its policy, specifying that the insured parties include “[a]ny organization you newly acquire or form, other than a partnership, joint venture or limited liability company…” It used that language to argue that coverage for BGK in the 22 fire lawsuits should be excluded, because BGK had entered into a joint venture with another security company, Aargus Security Systems, Inc. Both sides filed for summary judgment in the trial court, and the trial court sided with BGK. Clarendon appealed, arguing both the summary judgment language and that it should have been allowed to complete discovery because the record was unclear.

By contrast, BGK argued that Clarendon has a duty to defend because the lawsuits name BGK rather than the joint venture, and BGK is also the insured named by the insurance policy. The appeals court agreed. Pointing out that the joint venture is extrinsic evidence, the court reasoned that this evidence involves facts that could drastically change the underlying litigation (the fire lawsuits) by affecting BGK’s liability. That would make it an impermissible consideration under Illinois caselaw, the court wrote, and thus, the trial court was right to exclude it.

In any case, the court added, the provision in question is ambiguous. Clarendon pointed to language saying that “no person or organization is an insured with respect to the conduct of any current or past… joint venture… that is not shown as a Named Insured…” Again, the court said, the Named Insured and the named defendant in the suits at issue are both BGK, and no suits named the joint venture. And because it had already concluded that considering extrinsic evidence is inappropriate at the declaratory judgment stage, the court also rejected Clarendon’s argument that it should have been allowed to proceed with discovery to clarify BGK’s status as a joint venture. It affirmed the trial court’s decision on all counts.

The Chicago business and commercial law trial attorneys at Lubin Austermuehle have substantial experience unraveling the complexities of insurance coverage disputes and other breach of contract litigation. From our offices in Chicago and Oak Brook, Illinois, we represent businesses and individuals with business-related disputes in Illinois as well as Indiana and Wisconsin. If you need to protect yourself and your business in legal proceedings and you’d like to learn more about how we can help, you can contact us to set up a confidential consultation.

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