Architect’s Insurer Must Pay Up for Fatal Accident

     CHICAGO (CN) – The 7th Circuit adjusted a $1 million insurance dispute over a piece of scaffolding that fell 42 floors from the John Hancock building in Chicago and killed three.
     Shorenstein Realty Services, one of the owners of the John Hancock Building, commissioned an architectural firm to design and oversee renovation of windows of exterior walls of the building. The architects at McGinnis Chen Associates hired a general contractor to execute the project.
     In 2002, high winds caused a scaffold being used in the renovation to fall from the building’s 42nd floor. Three people who were in cars below were killed and three others were injured.
     Shorenstein and eight of its affiliates settled the resulting lawsuits in 2006 for a total of $8.7 million. Shorenstein’s insurer, National Union Fire Insurance Company, paid the settlements and then sought reimbursement from American Motorists Insurance Company, McGinnis Chen’s insurer.
     U.S. District Judge Elaine Bucklo ruled in National Union’s favor and ordered American Motorists to pay almost $1 million.
     Both sides appealed. National Union argued that it deserved more, while American Motorists argued that it should not have to pay a dime.
     A three-judge panel for the 7th Circuit largely affirmed the ruling, but determined that the award should have been divided among Shorenstein’s affiliates differently.
     American Motorists’ policy with McGinnis Chen covered the “any person or organization to whom [McGinnis Chen is] obligated by virtue of a written contract … to provide such insurance,” according to the ruling.
     Shorenstein had argued that this exposed only the building’s owner and manager to tort liability, and therefore the only entities that had contributed to the settlement of the suits. Inclusion of other affiliates would reduce the size of the reimbursement that could be obtained under American Motorists’ policy.
     “If an uninsured defendant makes the settlement of a case larger than it would have been had the insured defendant been the only defendant, the excess should be allocated to the uninsured defendant and so the insurer will not be responsible for reimbursing the cost of the entire settlement,” Judge Richard Posner wrote for the court.
     Three of the Shorenstein entities were insured on the contract, rather than the two acknowledged by the District Court, the 7th Circuit determined.
     “The critical question, however, is whether the judge was right to rule that all the Shorenstein defendants, whether or not insured, should be deemed to have contributed equally to the settlement,” Posner wrote.
     Because the settlement agreement failed to apportion liability among the settling defendants, the court could not determine each party’s contribution.
     “If there was no basis for joining the other entities as defendants, Shorenstein should have moved to dismiss them as tort defendants before settling the tort suit, in order to establish their irrelevance to the amount of the settlement,” Posner wrote.
     The court affirmed Judge Bucklo’s ruling, but ordered one other entity, Shorenstein Co. LP, added to the apportionment. The amount of reimbursement to which National Union is entitled will have to be recalculated.
     At 100 stories, the John Hancock Building is Chicago’s third-tallest building.

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