U.S. App. LEXIS 1775 (7th Cir. February 4, 2015)

InsureraEUR(TM)s Duty to Indemnify Limited to InsuredaEUR(TM)s Agreed Upon aEURoeWorkaEUR? and Did Not Apply to Liability Arising from Actions of the Insured Outside Scope of aEURoeWorkaEUR? and In Breach of the Agreement In Kmart Corporation v. Footstar, Inc., Nos. 14-1242, 14-1356, 14-1359, 2015 U.S. App. LEXIS 1775 (7th Cir. Feb. 4, 2015), the Seventh Circuit reversed the district courtaEUR(TM)s finding that Footstar, Inc. (aEURoeFootstaraEUR?) and its insurer Liberty Mutual Fire Insurance (aEURoeLiberty MutualaEUR?) had a duty to indemnify Kmart Corporation (aEURoeKmartaEUR?). Pursuant to an agreement between Kmart and Footstar (aEURoeAgreementaEUR?), Footstar operated footwear departments at several Kmart locations. According to the Agreement, Footstar employees could not work outside the footwear departments. The Agreement required Footstar to defend and indemnify Kmart against personal injury arising from the goods and services provided by Footstar and add Kmart as additional insured on FootstaraEUR(TM)s insurance for the goods and services to be provided under the agreement. Consequently, Footstar obtained an insurance policy from Liberty Mutual. The insurance policy only applied to personal injury arising from FootstaraEUR(TM)s work or to personal injury arising from the goods and services provided under [the Agreement], whichever was narrower. In the underlying suit, a customer was injured when a Footstar employee was helping the customer in the stroller department. The customer sued Kmart and Footstar. Liberty Mutual refused to indemnify Kmart, and Kmart brought this action. The district court found that since the injury arose from FootstaraEUR(TM)s work, Footstar/Liberty Mutual had a duty to indemnify Kmart. The Seventh Circuit disagreed. While it is possible that the injury arose from the employeeaEUR(TM)s aEURoeworkaEUR? because his aEURoeworkaEUR? brought him to the store, the court found he was not working pursuant to the Agreement, and in fact, was in breach of the Agreement. The Agreement explicitly prohibited the employeesaEUR(TM) action outside the footwear department. Because the employeeaEUR(TM)s action was in violation of the Agreement, the court concluded Liberty Mutual did not owe a duty to indemnify. Similarly, the court held Footstar also had no duty to indemnify because the aEURoetriggeringaEUR? act was actually performed in violation of the agreement, and therefore outside the indemnity provision.