You Can’t Change the Terms of a Contract by Argument on Appeal

Specific Requirements for Waiver of Subrogation Don’t Cover Every Possible Insurance Policy

People write contracts containing insurance provisions without sufficient knowledge of insurance. As a result they attempt to have a court enforce the contract they should have created rather than the contract actually signed by the parties. Courts are appropriately loathe to accept such a request.

In Travelers Property Casualty Company of America, as Subrogee of Gallo Equipment Co. v. Arcelormittal USA Inc., Gallo Equipment Co., Third-Party, No. 1-18-0129, 2019 IL App (1st) 180129, Appellate Court of Illinois First District First Division (March 11, 2019) the appellate court was faced with just such a request.


Plaintiff Travelers Property Casualty Company of America (Travelers), as subrogee of Gallo Equipment Co. (Gallo), filed this breach of contract action against ArcelorMittal USA Inc. (ArcelorMittal). ArcelorMittal then filed a third-party breach of contract complaint against Gallo. The circuit court of Cook County ultimately entered summary judgment in favor of Travelers, awarded Travelers damages, and dismissed ArcelorMittal’s third-party claim against Gallo.

ArcelorMittal leased lift truck tractors from Gallo pursuant to a written equipment supply contract (supply contract). ArcelorMittal used the tractors to move steel coils at its steel fabrication mill in East Chicago, Indiana. One of the leased tractors caught fire at the East Chicago mill. The tractor, which Gallo purchased in 2005, was maintained by ArcelorMittal mechanics under the direction and supervision of a Gallo employee. The fire reportedly started as a result of a fuel hose being improperly routed across the engine during an earlier repair. There was no dispute that ArcelorMittal was responsible for the loss. ArcelorMittal offered to compensate Gallo for the tractor, but Gallo rejected the offer as too low. Gallo then submitted a claim to its insurer, Travelers, under an inland marine policy. Travelers settled Gallo’s claim for $305,625.

In June 2015, Travelers, as subrogee of Gallo, sued ArcelorMittal for breach of contract. Travelers alleged that under the terms of the supply contract, ArcelorMittal was responsible for any damage to the tractor that occurred while ArcelorMittal was using it, and that ArcelorMittal was liable for the cost to replace or repair the tractor.

ArcelorMittal moved for summary judgment on Travelers’s breach of contract claim, arguing that Travelers was barred from asserting a subrogation claim because the supply contract required Gallo to obtain subrogation waivers from its insurers for claims arising out of the supply contract. Travelers filed a cross-motion for summary judgment on its breach of contract claim, arguing that ArcelorMittal was responsible for damage to the tractor under the supply contract, that ArcelorMittal failed to resolve Gallo’s claim under ArcelorMittal’s self-insurance program, and that the correct measure of damages was $318,000, based on the testimony of Michael Gallo and supported by a repair quote that Gallo received. After the cross-motions for summary judgment were briefed, the circuit court, in a written order, granted Travelers’s motion for summary judgment and awarded Travelers $305,625.


Summary judgment is appropriate if the pleadings, depositions, affidavits, and other admissions on file establish that there is no genuine issue of material fact and that the moving party is entitled to judgment as a matter of law. The purpose of summary judgment is not to try a question of fact, but rather to determine whether one exists. When the parties file cross-motions for summary judgment on the same issue, they typically agree that only a question of law is involved and invite the circuit court to decide the case based on the record before it.

Once the moving party satisfies that initial burden, the burden shifts to the nonmoving party to come forward with some factual basis that would entitle it to a favorable judgment. Evidence not admissible at trial cannot be used to support or oppose a motion for summary judgment.”

Courts ascertain the intent of the parties at the time the contract was made, as disclosed by the language used to express the parties’ rights and duties. A contract’s clear and unambiguous language is given its ordinary meaning.. A contract should be construed so as to not render any words, phrases, or terms ineffective or meaningless. If the language of a contract is found to be ambiguous, the contract terms must be construed to determine and give effect to the intent of the parties when they entered into the contract.

ArcelorMittal argues that, under the plain, clear language of that contract, the parties intended that Gallo’s insurance policies would provide that all rights of subrogation against ArcelorMittal were waived, unless the damage resulted from ArcelorMittal’s gross negligence or willful misconduct.

However, the appellate court performed a common sense reading of the contract’s section 11(b) that shows that the only “coverage described above” are the specific coverages identified is section 11(a), and that for those five specific types of insurance, Gallo was required to add ArcelorMittal as an additional insured and waive subrogation under those five types of policies. There was no catch-all provision in section 11 that extended the requirements of section 11(b) to other insurance policies that Gallo maintained—such as the inland marine policy issued by Travelers—that were not specifically identified in section 11(a). The plain language of the agreement does not reflect an intent to capture and subjugate every insurance policy issued to Gallo to the section 11(b) subrogation waiver. Instead, the plain language of the supply contract requires both ArcelorMittal and Gallo to have or to obtain five specific types of insurance coverage and, in Gallo’s case, Gallo was required to obtain a subrogation waiver for each of those specific coverages.

Since the inland marine policy under which Gallo submitted its a claim was not one of the policies enumerated in section 11(a) of the supply contract, and nothing in the plain language of the agreement suggests that the parties intended for Gallo to obtain a waiver of subrogation under any other unspecified insurance policy that it had, ArcelorMittal’s argument failed. As a result, Travelers, as subrogee, is entitled to recover the amount it paid to Gallo for the damage sustained to the tractor under section 4(a) of the supply contract.


If ArcelorMittal wished a subrogation waiver from claims paid by an inland marine insurer who insured against the loss of the tractors it needed to negotiate a contract that required a subrogation waiver of the inland marine insurer, Travelers or simply one that waived subrogation on all insurance policies. They did not. As a result they are obligated to pay Travelers what it paid to its insured. A knowledgeable person to write, read, or amend a contract professionally could have resolved this dispute. Careful reading of the contracts would have avoided the entire dispute. Subrogation would have been waived or, the contract as written would have resulted in a negotiated settlement with Gallo.

© 2019 – Barry Zalma

This article, and all of the blog posts on this site, digest and summarize cases published by courts of the various states and the United States.  The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant  specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 50 years in the insurance business. He is available at and

Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.

Over the last 51 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

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Passover is one of the many holidays Jewish people celebrate to help them remember the importance of G_d in their lives. We see the animals, the oceans, the rivers, the Passover Seder for Americans: An All English - Easy to Perform - Passover Seder by [Zalma, Thea, Zalma, Barry]mountains, the rain, sun, the planets, the stars, and the people and wonder how did all these wonderful things come into being?

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About Barry Zalma

An insurance coverage and claims handling author, consultant and expert witness with more than 48 years of practical and court room experience.
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