Contract Exclusion Bars Coverage for City but Not Individual Officials
The United States District Court for the Northern District of Illinois, applying Illinois law, has held that a contract exclusion barred coverage for a claim against an insured city by the operator of a minor league baseball team which asserted it was a third-party beneficiary to the contract for the construction of a stadium in the city. OneBeacon Am. Ins. Co. v. City of Zion, 2015 WL 4572654 (N.D. Ill. July 29, 2015). However, the court held that the insurer did have a duty to defend the city’s mayor and economic development director because the claims against them were not wholly precluded by the contract exclusion or by the policy’s profit, advantage or remuneration or criminal acts exclusions.
The operator of the minor league baseball team brought suit against the insured city and its mayor and economic development director. The team alleged the city had agreed to build a stadium in consideration for the team coming there to play. The city council had approved the sale of bonds to finance the construction of the stadium, and the city entered a construction contract to build the stadium. The team alleged that the mayor and economic development director then decided not to pursue construction at the site but continued to misrepresent to the team and to the public that construction of the stadium would occur. The team asserted breach of the construction contract against the city, alleging that the team was a third-party beneficiary to the contract. The team also asserted causes of action against the individuals for fraud and civil conspiracy, based on their misrepresentations that the city would build the stadium. The city’s insurer brought this coverage action for a declaration that it had no duty to defend the city or the individuals against the team’s suit.
The court first considered the contract exclusion in the policy’s E&O coverage part. The exclusion barred coverage, in relevant part, for any claim “arising directly or indirectly out of, or in any way related to liability assumed under any contract or agreement o[r] breach of contract to which the insured is a party.” The court found that the exclusion precluded coverage for the city because the alleged wrongful acts of the city would not exist but for the breach of the construction contract. However, the court found that the contract exclusion did not conclusively bar coverage for the individual defendants because the underlying complaint alleged numerous other wrongful acts by them, including disparaging publications about the team to the public, the failure to issue the construction bonds, and the decision to change the stadium site.
The court then considered whether the E&O coverage part’s exclusion for any claim “arising directly or indirectly out of, or in any way related to any insured gaining any profit, advantage or remuneration to which that insured is not legally entitled” would bar coverage for the individuals. The court found that the team could still have pled fraud and civil conspiracy because those causes of action did not require proof that the individuals gained a profit, advantage, or remuneration to which they were not entitled. The court also found that the policy’s criminal acts exclusion did not relieve the insurer of a duty to defend the individuals because it contained a final adjudication requirement.
Finally, the court found that there was no coverage for the city under the policy’s commercial general liability coverage part. The court declined to determine whether the allegations that the city made announcements to the public about the construction of the stadium constituted personal and advertising injury because it found that the contract exclusion in that coverage part also barred coverage for the city.