Title: Employers Insurance of Wausau v. Ehlco Liquidating Trust

State: illinois

Issuer: Illinois Supreme Court

Document:

Employers Insuance v. Ehlco Liquidating, No. 
84684 (Ill. S.Ct.) 
Docket No. 84684-Agenda 
25-September 1998.
Opinion filed January 22, 
1999.
JUSTICE BILANDIC delivered the opinion of the 
court:
This appeal involves a dispute over insurance 
coverage for environmental property damage at industrial sites in Mena, 
Arkansas, and Albany County, Wyoming. Employers Insurance of Wausau (Wausau) 
filed this declaratory judgment action in the circuit court of Cook County 
against Ehlco Liquidating Trust; its trustee, Noel H. Goodman; and C.E. Heath 
Compensation and Liability Insurance Company (Heath).
Wausau is an insurance company that issued 
insurance policies to Edward Hines Lumber Company (Hines) and a subsidiary owned 
by Hines. Hines and its subsidiary operated lumber treatment facilities at the 
sites in Arkansas and Wyoming. Hines subsequently dissolved. Ehlco Liquidating 
Trust (Ehlco) is a trust created to resolve Hines' contingent liabilities. Heath 
was an excess insurer of Hines.
The circuit court ultimately granted Ehlco's 
motions for judgment on the pleadings with respect to insurance coverage for 
both sites. The appellate court reversed both judgments on the pleadings and 
remanded for further proceedings in accordance with its decision. 292 Ill. App. 
3d 1036. We allowed the petition for leave to appeal filed by Ehlco and its 
trustee. 166 Ill. 2d R. 315.
BACKGROUND
The pleadings disclose the following undisputed 
facts pertinent to the issues in this appeal. Two underlying lawsuits are 
involved, one in Arkansas and one in Wyoming. Each underlying suit resulted from 
the operation of industrial wood-treatment facilities that dispersed hazardous 
wastes into the environment, thereby causing environmental contamination and 
property damage.
From January 1, 1968, to October 1, 1971, Wausau 
insured Hines and its subsidiary pursuant to certain comprehensive general 
liability insurance policies. These policies provided that Wausau "will pay on 
behalf of the insured all sums which the insured shall become legally obligated 
to pay as damages because of *** property damage *** to which this insurance 
applies, caused by an occurrence, and the company shall have the right and duty 
to defend any suit against the insured seeking damages on account of such *** 
property damage." Wausau discontinued insuring Hines in 1971.
Mena Site
The Mena site consists of 57 acres of land on 
which the Nebraska Bridge Supply and Lumber Company (Nebraska Bridge) 
constructed a post and pole production plant and, later, a wood-treatment 
facility. In 1967, Hines acquired all the stock of Nebraska Bridge, making 
Nebraska Bridge a wholly owned subsidiary of Hines. From 1967 to 1978, Nebraska 
Bridge, as a Hines subsidiary, continued to operate the wood-treatment facility 
on the Mena site. Hines sold the Mena site in 1978.
In 1980, the United States Congress enacted the 
Comprehensive Environmental Response, Compensation, and Liability Act of 1980 
(CERCLA) (42 U.S.C. §9601 et seq.). On March 18, 1982, the United 
States Environmental Protection Agency (EPA) wrote a letter to Hines pursuant to 
CERCLA. The letter advised Hines that it may be a potentially responsible party 
(PRP), liable for the costs of investigating and responding to environmental 
contamination at the Mena site. Earlier, the EPA had verbally informed Hines 
that it intended to initiate an administrative action against Hines relating to 
the Mena site. As a result, also on March 18, 1982, but apparently before Hines 
received the PRP letter, Hines notified Wausau of the EPA's intentions. Hines' 
letter to Wausau stated:
On March 29, 1982, 
Wausau responded to Hines' letter. Wausau indicated that its policies did not 
appear to provide coverage for the potential claim, stating:
"Regarding the allegation of property damage, 
there is no coverage for property damage occurring after our coverage expired, 
or after October 1, 1971. Also applicable to the last policy we had which 
expired October 1, 1971 we had endorsement number nineteen which was the 
exclusion for contamination or pollution unless it was sudden and 
accidental."
On August 2, 1982, and again on March 8, 1983, 
Hines wrote to Wausau requesting that it reconsider its refusal to defend Hines 
against the EPA's investigation and proceeding concerning the Mena site. Wausau 
provided no defense.
Meanwhile, the EPA commenced a lengthy 
environmental investigation of the Mena site, which concluded in late 1986. The 
EPA then issued its record of decision, which set forth its findings of fact and 
its final decision concerning remediation of environmental contamination at the 
Mena site.
On March 17, 1988, pursuant to CERCLA, the EPA 
filed a suit against Hines and another company in the United States District 
Court for the Western District of Arkansas. United States v. Edward Hines 
Lumber Co. & Mid-South Wood Products of Mena, Inc., No. 88-2049 (W.D. 
Ark. Ft. Smith Div.). The complaint alleged that the Mena site was contaminated 
with several known and suspected carcinogens, including arsenic; that the 
pollutants were migrating from the site; and that the releases and threatened 
releases may present an "imminent and substantial" endangerment to human health 
or the environment. The complaint sought an injunction requiring the defendants 
to implement remedial action and reimburse the EPA for sums expended, and 
declaring the defendants liable for all future costs incurred for environmental 
investigations, clean-up, and response and enforcement actions. The pleadings 
are silent as to whether Wausau had notice of the filing of this 
complaint.
Hines, the EPA, and the other company executed a 
consent decree concerning the Mena site. Therein, Hines agreed to finance and 
perform certain environmental response actions. Hines also agreed to reimburse 
the EPA for certain funds expended. The federal district court signed and 
entered this consent decree on May 16, 1988.
Wyoming Site
In the 1930s, Nebraska Bridge operated a 
wood-treatment facility in Albany County, Wyoming, on property owned by Union 
Pacific Railroad Company (Union Pacific). In 1934, Nebraska Bridge agreed to 
indemnify Union Pacific for property damage caused by its operations. As noted, 
Hines acquired Nebraska Bridge in 1967. From 1967 until 1972, Hines continued to 
operate the facility at the Wyoming site under the Nebraska Bridge 
name.
In 1981, the State of Wyoming filed suit against 
Union Pacific for damages caused by environmental contamination at the Wyoming 
site. In December of 1991, Union Pacific sued Ehlco, as the liquidating trust of 
Hines, under the 1934 indemnification agreement it had with Nebraska Bridge, in 
the federal district court of Wyoming. Union Pacific R.R. Co. v. J.H. Baxter 
& Co.; Ehlco Liquidating Trust, No. 91-CV-0247-B (D. Wyo.). 
Ehlco sent notice of this suit to Wausau in January 1992 and requested a prompt 
response regarding defense.
Wausau acknowledged receipt of Ehlco's letter on 
February 27, 1992, and stated that it was searching for its policies. Ehlco 
continued to supply information and update Wausau on the status of the 
underlying suit and continued to assert that Wausau owed Ehlco a defense and 
coverage. Wausau apparently did nothing other than request information from 
Ehlco. In June of 1992, Ehlco informed Wausau of a $1.3 million settlement offer 
by Union Pacific. In response, Wausau offered to pay 9% of the settlement and 9% 
of the defense costs incurred. Ehlco rejected Wausau's offer. Ehlco settled the 
lawsuit for $1.3 million and, as a result, the district court dismissed the suit 
with prejudice on November 5, 1992.
Circuit and Appellate Court 
Proceedings
On February 26, 1993, after both underlying 
suits were concluded, Wausau filed a complaint in the circuit court of Cook 
County seeking a declaratory judgment that it owed no duty to defend or 
indemnify Ehlco for environmental property damage at the Wyoming site. Ehlco 
answered and moved for judgment on the pleadings, seeking a declaration that 
Wausau owed defense and indemnity coverage for the Wyoming site.
Ehlco also filed a counterclaim against Wausau 
seeking a declaration that Wausau owed defense and indemnity coverage for the 
environmental damage at the Mena site. Wausau then amended its complaint and 
sought a declaration of its obligations concerning the Mena site, in addition to 
the Wyoming site. Wausau also moved to dismiss Ehlco's counterclaim as barred, 
asserting that Ehlco breached a notice condition in the insurance policies. 
Ehlco later moved for judgment on the pleadings with regard to the Mena 
site.
On November 7, 1994, the circuit court entered 
an order denying Wausau's motion to dismiss Ehlco's counterclaim regarding the 
Mena site. The circuit court found that Wausau was estopped from asserting 
Hines' purported late notice as a defense to Ehlco's claim. For ease of 
discussion, Hines is referred to as Ehlco from this point forward.
Also on November 7, the circuit court granted 
both of Ehlco's motions for judgment on the pleadings. The circuit court held, 
as to each underlying matter, that Wausau owed a duty to defend Ehlco; that 
Wausau's duty to defend had been triggered; that Wausau wrongly breached its 
duty to defend, by (1) failing to defend Ehlco and by (2) failing to file a 
timely declaratory judgment action; and that, as a result, Wausau was estopped 
from asserting its defenses to coverage. Based on the foregoing holdings, the 
circuit court declared that, with regard to the Mena site, Wausau was liable for 
clean-up and defense costs, as well as prejudgment interest. As to the Wyoming 
site, Wausau was liable for defense costs, the cost of the Union Pacific 
settlement, and prejudgment interest. With regard to both sites, the circuit 
court found that Wausau's conduct was unreasonable and vexatious, and ordered 
Wausau to pay all attorney fees and costs in the declaratory judgment action, 
pursuant to section 155 of the Illinois Insurance Code (215 ILCS 5/155 (West 
1994)).
On December 22, 1994, Ehlco filed in the circuit 
court, pursuant to statute (735 ILCS 5/2-701(c) (West 1994)), a petition 
entitled "Petition for Relief Pursuant to Declaratory Judgment." The petition 
sought an order from the circuit court awarding money damages in accordance with 
the declaratory relief already awarded in the judgments on the pleadings. The 
petition sought in excess of $10 million from Wausau. For the Mena site, Ehlco 
sought recovery of $8,443,659.93 in clean-up costs and $369,783.90 in defense 
costs. For the Wyoming site, Ehlco sought recovery of $750,000 in damages paid 
pursuant to that settlement and $415,051.93 in defense costs. In addition, the 
petition sought certain amounts for prejudgment interest and declaratory suit 
fees.
Wausau filed two motions for reconsideration, 
which the circuit court denied in orders dated December 23, 1994, and March 21, 
1995. Also, in the latter order, the circuit court entered judgment for Heath, 
concluding that the case against Heath was moot. Finally, the circuit court 
entered a finding of no just reason to delay enforcement or appeal pursuant to 
Supreme Court Rule 304(a) (155 Ill. 2d R. 304(a)).
On April 7, 1995, Wausau filed its notice of 
appeal in the appellate court. The notice stated that the appeal was being taken 
from the circuit court's orders of February 28, 1994; November 7, 1994; December 
23, 1994; and March 21, 1995.
On May 18, 1995, while Wausau's appeal was 
pending in the appellate court, this court issued Lapham-Hickey Steel Corp. 
v. Protection Mutual Insurance Co., 166 Ill. 2d 520 (1995). 
Lapham-Hickey held that a lawsuit must be filed in order to trigger an 
insurer's duty to defend. Lapham-Hickey, 166 Ill. 2d  at 
529-33.
The appellate court reversed some of the circuit 
court's rulings and affirmed others. 292 Ill. App. 3d 1036. The appellate court 
agreed that Wausau was estopped from raising defenses to coverage, with one 
exception. This exception was that Wausau was not estopped from raising Ehlco's 
alleged late notice in an attempt to defeat coverage. According to the appellate 
court, timely notice is a condition precedent to coverage and, thus, it is not 
subject to estoppel.
With respect to the Mena site, the appellate 
court reversed the circuit court and held that Wausau owed no duty to defend 
Ehlco in the Arkansas lawsuit filed by the EPA. Relying on this court's decision 
in Lapham-Hickey, the appellate court held that the Arkansas suit did 
not constitute a "suit" within the meaning of the "any suit" language in the 
insurance policies. Rather, the appellate court found, this suit was "pro 
forma" in nature, "a mere formality," and "but an extension or 
implementation of the administrative proceeding," because the parties had 
executed, and contemporaneously filed with the federal complaint, the proposed 
consent decree.
In addressing the Wyoming site, the appellate 
court affirmed the circuit court's ruling to the extent that the suit filed by 
Union Pacific triggered Wausau's duty to defend. Nonetheless, the appellate 
court held that Wausau should not have been estopped from pursuing its claim 
that Ehlco provided late notice of this claim to Wausau, thereby negating 
coverage. According to the appellate court, no duty to defend could arise if 
Ehlco had breached this condition precedent to coverage. The appellate court 
therefore remanded the cause to the circuit court for further proceedings. The 
appellate court stated that, if Wausau's late- notice defense was not successful 
on remand, then Wausau could still be subjected to an estoppel and a section 155 
award as to the Wyoming site.
As a final matter, the appellate court concluded 
that Wausau waived its right to pursue alternative claims against Heath. The 
appellate court thus affirmed the judgment for Heath.
Ehlco and its trustee appeal. 166 Ill. 2d R. 
315. Wausau requests cross-relief. 166 Ill. 2d R. 315(g); 155 Ill. 2d R. 
318(a).
ANALYSIS
This is an action for declaratory relief (see 
735 ILCS 5/2-701 (West 1992)) in which the circuit court granted Ehlco's motions 
for judgment on the pleadings (see 735 ILCS 5/2-615(e) (West 1994))."[A] motion 
for judgment on the pleadings is like a motion for summary judgment limited to 
the pleadings." 3 R. Michael, Illinois Practice §27.2, at 494 (1989), citing 
Tompkins v. France, 21 Ill. App. 2d 227 (1959); see Brown v. 
Zehnder, 295 Ill. App. 3d 1031, 1033 (1998). Judgment on the pleadings is 
proper"[i]f the admissions in the pleadings disclose that there is no genuine 
issue of material fact and that the movant is entitled to judgment as a matter 
of law." 3 R. Michael, Illinois Practice §27.2, at 494 (1989), citing 
Baker-Wendell, Inc. v. Edward M. Cohon & Associates, Ltd., 100 Ill. 
App. 3d 924, 927 (1981). For purposes of resolving the motion, the court must 
consider as admitted all well-pleaded facts set forth in the pleadings of the 
nonmoving party, and the fair inferences drawn therefrom. Baker-Wendell, 
Inc., 100 Ill. App. 3d at 927. The court must also examine the pleadings to 
determine whether an issue of material fact exists, and, if not, determine 
whether the controversy can be resolved solely as a matter of law. 
Baker-Wendell, Inc., 100 Ill. App. 3d at 927. Copies of written 
instruments attached to a pleading as an exhibit are considered a part of the 
pleading. 735 ILCS 5/2-606 (West 1994).
In granting Ehlco's motions for judgment on the 
pleadings, the circuit court examined various pleadings including Wausau's third 
amended complaint for declaratory judgment, Ehlco's answer, and Ehlco's 
counterclaim. Parenthetically, the record on appeal contains a fourth amended 
complaint by Wausau, which was filed long after Ehlco's motions were granted and 
which the circuit court never considered. Curiously, both Ehlco and Wausau rely 
on allegations contained in this fourth amended complaint to support their 
respective arguments, and neither party challenges the propriety of doing so. We 
decline to participate in this procedural irregularity. Our analysis is confined 
to the pleadings that were before the circuit court when it ruled on the 
motions.
I. Duty to Defend as to the Mena 
Site
A. Was a Suit 
Filed?
Ehlco initially contends that the appellate 
court erred in holding that Wausau had no duty to defend Ehlco as to the Mena 
site because no true suit was filed against Ehlco concerning that site. 
According to Ehlco, the appellate court's holding directly contradicts the plain 
language of the insurance policies at issue and this court's opinion in 
Lapham-Hickey. Ehlco maintains that Wausau's duty to defend was 
triggered when the EPA filed its lawsuit against Ehlco in the federal district 
court in Arkansas.
Our decision in Lapham-Hickey is 
dispositive of this issue. In that case, the EPA began investigating possible 
environmental contamination at a Lapham-Hickey facility. The Minnesota Pollution 
Control Agency (MPCA) took over the investigation. During the investigation, the 
MPCA sent Lapham-Hickey a proposed consent order, which stated that 
Lapham-Hickey was a PRP and which required certain remedial actions. 
Lapham-Hickey declined to sign that consent order. Following negotiations, the 
MPCA issued Lapham-Hickey a "no-action" letter, and Lapham-Hickey agreed to 
conduct a voluntary investigation of its facility. No suit was ever filed 
against Lapham-Hickey. Later, upon discovering contamination at its facility, 
Lapham-Hickey filed its own declaratory judgment action against its insurer 
seeking reimbursement of costs expended. The insurance policy at issue provided 
that the insurer would "defend any suit against the Insured" that alleged 
liability for certain damages. The question presented to this court was whether, 
although no "suit" was ever filed against Lapham-Hickey, the insurer's duty to 
defend was triggered by the MPCA's proposed consent order or its other actions. 
We held that because no suit was filed, the insurer's duty to defend was never 
triggered. Lapham-Hickey, 166 Ill. 2d  at 529-33. Lapham-Hickey 
established a bright-line test for determining when a "suit" exists in this 
context. "Suit" "refers to a proceeding in a court of law" and requires a 
complaint. Lapham-Hickey, 166 Ill. 2d  at 531-32. Neither a PRP letter, 
a draft consent order, nor a "no-action" letter constitutes a "suit." 
Lapham-Hickey, 166 Ill. 2d  at 533.
In the present case, the comprehensive general 
liability insurance policies at issue imposed on Wausau the "duty to defend any 
suit against the insured." The question to be resolved, therefore, is whether a 
"suit" was filed against Ehlco sufficient to trigger Wausau's duty to defend. 
Under Lapham-Hickey, it is clear that a "suit" was filed against Ehlco 
with respect to the Mena site. The EPA filed a suit against Ehlco in the federal 
district court in Arkansas, pursuant to CERCLA, on March 17, 1988. This suit was 
instituted by the filing of a complaint. The EPA's action thus constitutes a 
"suit" because it was a proceeding in a court of law, and it was instituted with 
a complaint.
Nonetheless, Wausau urges us to adopt the 
appellate court's reasoning that the Arkansas complaint was not a true suit 
because it was "a mere formality" and "but an extension or implementation of the 
administrative proceeding," since the parties had executed and contemporaneously 
filed the proposed consent decree with the Arkansas complaint. Wausau claims 
that there cannot be a suit where one party's liability in the suit is a 
foregone conclusion by reason of a previously executed consent decree. Wausau 
contends that the "any suit" language in its policies cannot be construed to 
encompass a complaint filed in a court of law, if that complaint is accompanied 
by a proposed consent decree. We reject this argument. Lapham-Hickey 
held that the word "suit" is unambiguous in this context and therefore gave the 
word its plain and ordinary meaning. Lapham-Hickey, 166 Ill. 2d  at 
531-32. As discussed above, the Arkansas complaint meets 
Lapham-Hickey's definition of suit.
Even assuming, arguendo, that Wausau's 
interpretation of "any suit" is reasonable, at best it would create an ambiguity 
in the policy language. "A policy provision is ambiguous only if it is subject 
to more than one reasonable interpretation." Lapham-Hickey, 166 Ill. 2d  
at 530. Wausau's interpretation would then compete with the definition of suit, 
set forth above. Where competing reasonable interpretations of a policy exist, a 
court is not permitted to choose which interpretation it will follow. 
Outboard Marine Corp. v. Liberty Mutual Insurance Co., 154 Ill. 2d 90, 
108-09 (1992). Rather, in such circumstances, the court must construe the policy 
in favor of the insured and against the insurer that drafted the policy. 
American States Insurance Co. v. Koloms, 177 Ill. 2d 473, 479 (1997); 
Outboard Marine Corp., 154 Ill. 2d  at 108-09. Since Wausau's 
interpretation affords less coverage to Ehlco, we would be required to reject 
it. Wausau's argument thus fails in any event.
Wausau also asserts that Ehlco waived its 
argument that the Arkansas complaint was a suit requiring a defense. According 
to Wausau, Ehlco waived this argument in the circuit court when it requested 
judgment on the pleadings based on the PRP letter.
The record does not support Wausau's waiver 
argument. The record reveals that the circuit court was presented with argument 
on the issue of whether the Arkansas complaint was a suit within the meaning of 
the policies' language. Ehlco presented a memorandum of law in support of its 
pleadings in which Ehlco maintained that Wausau's duty to defend had been 
triggered. Wausau argued that no triggering event had occurred because there was 
no suit within the meaning of its policies. Ehlco responded: "Wausau's claim 
that the underlying environmental matters were not suits *** is plainly wrong. 
Those matters involved actions filed in federal courts *** and a *** [PRP] 
letter from the [EPA]." In support of this assertion, Ehlco directed the circuit 
court to the copies of the complaints filed in both the Wyoming and Arkansas 
actions. Given that Ehlco argued to the circuit court that the Arkansas 
complaint was a suit requiring a defense, this claim was preserved. That Ehlco 
also argued in the circuit court that Wausau's duty to defend was triggered by 
the PRP letter is of no consequence with regard to waiver. Therefore, Wausau's 
waiver argument is without merit.
In accordance with the above holdings, we 
reverse the appellate court's determination that Wausau owed no duty to defend 
with respect to the Mena site because no sufficient suit was filed. Wausau, 
however, asserts other arguments concerning its duty to defend Ehlco with 
respect to the Mena site. We address these arguments below.
B. Tender by 
Ehlco
Wausau claims that it owed no duty to defend the 
1988 Arkansas complaint concerning the Mena site because Ehlco failed to tender 
its defense of that suit to Wausau. Relying on Institute of London 
Underwriters v. Hartford Fire Insurance Co., 234 Ill. App. 3d 70 (1992), 
Wausau insists that an insured must tender its defense to an insurer in order to 
trigger the insurer's duty to defend. A tender pursuant to Institute of 
London Underwriters required the insured to notify the insurer that a suit, 
which potentially falls within the policy coverage, was filed and that the 
insured desires the insurer's assistance in defending the suit. Wausau contends 
that Ehlco failed to tender its defense to Wausau and, as a result, Wausau's 
duty to defend was never triggered.
This court recently rejected the tender 
requirement set forth in Institute of London Underwriters. In 
Cincinnati Cos. v. West American Insurance Co., 183 Ill. 2d 317 (1998), 
we held that the lack of a tender by the insured does not relieve the insurer of 
its duty to defend if the insurer had "actual notice" of the underlying suit. 
"[A]ctual notice" means that the insurer knows both "that a cause of action has 
been filed and that the complaint falls within or potentially within the scope 
of the coverage of one of its policies." Cincinnati Cos., 183 Ill. 2d  
at 329-30.
The pleadings here do not disclose whether Ehlco 
tendered its defense of the underlying Arkansas suit to Wausau. We therefore 
consider whether Wausau had actual notice of the suit. The pleadings, however, 
are also silent on the factual issue of whether Wausau had actual notice that 
the Arkansas suit had been filed. Because the pleadings fail to demonstrate that 
Wausau had actual notice of the Arkansas suit, which would trigger Wausau's duty 
to defend that suit, we must affirm the appellate court's reversal of the 
circuit court's grant of Ehlco's motion for judgment on the pleadings with 
regard to the Mena site. The pleadings before us do not entitle Ehlco to 
judgment as a matter of law.
We note, however, that in the circuit court 
Ehlco prevailed in its motion for judgment on the pleadings with regard to the 
Mena site because the court was persuaded that Wausau's duty to defend had been 
triggered by events that preceded the filing of the 1988 Arkansas suit, 
particularly the EPA's 1982 PRP letter. This result is not surprising given 
that, when the circuit court ruled upon the pleadings in 1994, notice of a PRP 
letter had been held sufficient to trigger the duty to defend. See United 
States Fidelity & Guaranty Co. v. Specialty Coatings Co., 180 Ill. App. 
3d 378 (1989), overruled, Lapham-Hickey, 166 Ill. 2d 520. 
Consequently, there was no need in the circuit court for Ehlco to raise 
arguments pertaining to tender or actual notice of the Arkansas complaint, and 
the parties did not design their pleadings to address such issues. Under these 
circumstances, we hold that the parties should be given the opportunity to amend 
their pleadings to address the actual notice issue in the circuit 
court.
Despite this omission in the pleadings, Ehlco 
attempts to preserve its judgment on the pleadings as to the Mena site by 
pursuing another argument. In addressing Wausau's tender contention, Ehlco 
asserts that, under the facts of this case, Wausau should be equitably estopped 
from requiring any further notice from Ehlco because Wausau had already flatly 
denied coverage to Ehlco on other grounds in 1982 and continuing through 1983. 
The pleadings show that Ehlco first advised Wausau of the EPA's intention to 
assert CERCLA liability against it on March 18, 1982. Ehlco wrote that although 
it had "received no formal notice," it had been informed by the EPA of its 
intentions to assert CERCLA liability against it with regard to the Mena site. 
The letter stated: "We therefore hereby give you notice of such claims." On 
March 29, 1982, Wausau responded by letter that its policies did not appear to 
provide coverage for the potential claim. Wausau stated that there was no 
coverage for property damage occurring after the policies expired in 1971, and 
that one of the policies contained a pollution exclusion clause. Ehlco maintains 
that this March 29, 1982, letter from Wausau constituted a flat denial of 
coverage on grounds other than notice. The pleadings further disclose that, on 
August 2, 1982, and again on March 8, 1983, Ehlco wrote to Wausau and requested 
it to reconsider its refusal to defend Ehlco against the EPA's investigation and 
proceeding concerning the Mena site. Wausau apparently did nothing in response. 
Ehlco asserts that Wausau's repeated failures to retract its earlier denial of 
coverage left Ehlco with no doubt that Wausau would not treat the Mena site as 
covered. Ehlco insists that, given Wausau's actions in 1982 and 1983, Ehlco was 
not required to give Wausau any further notice regarding the subsequent lawsuit, 
which was filed by the EPA on March 17, 1988. Rather, Ehlco's position is that 
Wausau should be equitably estopped from asserting further notice requirements 
of Ehlco.
We decline Ehlco's invitation to equitably estop 
Wausau based on the pleadings before us. As with the actual notice issue 
discussed above, the parties did not design their circuit court pleadings to 
address this theory of the case. Consequently, the parties should be given the 
opportunity to raise and rebut this argument in the circuit court in the first 
instance.
C. Summary as to the Mena 
Site
In summary, we hold that the 1988 Arkansas suit 
was a suit within the meaning of Lapham-Hickey. We therefore reverse 
the appellate court's determination that Wausau owed no duty to defend with 
respect to the Mena site because no sufficient suit was filed. We nonetheless 
affirm the appellate court's reversal of the circuit court's grant of Ehlco's 
motion for judgment on the pleadings with regard to the Mena site, but for a 
different reason. Ehlco is not entitled to judgment on the pleadings as to the 
Mena site because the pleadings fail to demonstrate that Wausau's duty to defend 
the Arkansas suit was properly triggered by actual notice of that suit. As 
explained above, the parties should be given the opportunity to amend their 
pleadings to address the actual notice and equitable estoppel issues in the 
circuit court.
Wausau argues that, if this court holds that 
Wausau had a duty to defend with respect to the Mena site, then we must remand 
this matter to the appellate court for consideration of issues which Wausau 
raised but the appellate court did not reach as to that site. Wausau offers no 
description of the issues that remain to be addressed by the appellate court. 
Rather, Wausau cites to a footnote in the appellate court decision, which 
states:
These issues have 
not been raised or briefed in this court. Nonetheless, where errors were raised 
but not ruled upon in the appellate court, it is appropriate for this court to 
remand the cause to the appellate court for resolution of the issues that 
remain. People v. Lowery, 178 Ill. 2d 462, 473 (1997); Suwalski v. 
Suwalski, 40 Ill. 2d 492, 501 (1968). Therefore, pursuant to Wausau's 
request, we remand this cause first to the appellate court for consideration of 
any issues that were raised, but which the appellate court did not reach as a 
result of its Mena rulings. On remand, the appellate court should be cognizant 
of the rulings in this opinion and proceed accordingly. The appellate court need 
resolve only those issues that it deems appropriate for resolution, in light of 
our holdings here. After resolving these issues, the appellate court should 
remand this cause to the circuit court for further proceedings consistent with 
this opinion, unless the appellate court's resolution of the issues before it 
makes such further proceedings improper or unnecessary.
II. Duty to Indemnify as to the 
Mena Site
Ehlco next argues that the appellate court's 
holding that no sufficient suit was filed as to the Mena site under 
Lapham-Hickey "may" negatively impact Ehlco's ability to be indemnified 
by Wausau for the Mena clean-up costs. Ehlco thus urges us to hold that Wausau 
still owes an independent duty to indemnify Ehlco concerning that site. This 
issue need not be addressed. We have already held that the 1988 Arkansas action 
was a suit within the meaning of Lapham-Hickey. Although we reversed 
Ehlco's judgment on the pleadings as to the Mena site on another ground, further 
proceedings on remand may or may not result in a finding that Wausau breached 
its duty to defend the Arkansas suit. If, during further proceedings, the 
indemnification issue becomes relevant, Ehlco may raise and argue the issue at 
that point.
III. Estoppel as to Both 
Sites
Ehlco maintains that the appellate court erred 
in holding that the estoppel doctrine does not apply to Wausau's late-notice 
defenses. Estoppel and late-notice defenses are at issue in this appeal with 
regard to both sites.
Briefly, under the estoppel doctrine, an insurer 
which breaches its duty to defend is estopped from raising policy defenses to 
coverage. Wausau contends, however, that the estoppel doctrine does not bar it 
from raising late-notice defenses. Additional background information is 
necessary for an understanding of Wausau's late-notice defenses, and how the 
estoppel doctrine relates to those defenses.
A. Insurance Policy Provisions 
Relevant to
Late-Notice 
Defenses
With minor variation, the notice provisions of 
the insurance policies provided in pertinent part as follows:
B. Mena 
Site
As earlier set forth, we affirmed the appellate 
court's reversal of Ehlco's judgment on the pleadings with regard to the Mena 
site because the pleadings do not resolve whether Wausau's duty to defend the 
1988 Arkansas complaint was triggered. Wausau contends that, even if its duty to 
defend that complaint was triggered, insurance coverage would nevertheless be 
precluded for that site because Ehlco provided Wausau with late notice in 
violation of the policies' provisions.
Wausau's pleadings raise the defense of late 
notice of an occurrence with respect to the Mena site. Wausau alleges that Ehlco 
failed to comply with the policies' notice provision requiring the insured to 
give Wausau notice of an "occurrence" as soon as practicable. Wausau does not 
dispute that Ehlco's March 1982 letter to Wausau constituted notice. According 
to Wausau, however, Ehlco was aware of the environmental contamination at the 
Mena site at least as early as 1978, yet failed to provide Wausau with notice of 
it until March of 1982. Wausau maintains that Ehlco's failure to provide timely 
notice of the occurrence to Wausau constituted a breach of the policies, thereby 
defeating coverage. Ehlco counters that the doctrine of estoppel bars Wausau 
from raising this defense.
The circuit court held that Wausau was estopped 
from raising this late-notice defense. The appellate court agreed that insurers 
which breach the duty to defend are generally estopped from raising policy 
defenses to coverage. The appellate court, however, recognized an exception to 
the general estoppel doctrine for late-notice defenses.
C. Wyoming Site
Wausau additionally asserts that, 
notwithstanding its duty to defend the Wyoming suit, insurance coverage is 
precluded for the Wyoming site because Ehlco provided Wausau with late notice in 
violation of the policies' provisions. Wausau raises two late-notice defenses 
with regard to the Wyoming site.
Wausau first asserts that Ehlco provided late 
notice to Wausau of an "occurrence" within the meaning of the policies' 
language. Wausau's pleadings claim that Ehlco breached the condition precedent 
in its policies "pertaining to Ehlco's duties in the event of an occurrence ***, 
including those conditions requiring that Ehlco give proper and timely notice to 
Wausau." In particular, Wausau asserts that, if an occurrence of property damage 
happened during the policy periods from 1967 through 1971, then Ehlco failed to 
provide notice of that occurrence to Wausau until 21 to 25 years later in 1992. 
Ehlco denies giving Wausau late notice of any occurrence of which it was aware. 
Ehlco admits that in early 1992 it promptly gave Wausau notice of the Wyoming 
suit filed against it by Union Pacific. Ehlco counters that Wausau is estopped 
from raising this late-notice defense.
Wausau also asserts that Ehlco provided it with 
late notice of the Wyoming suit, in violation of the policies' provisions 
requiring suit papers to be timely forwarded to Wausau. It is undisputed that 
the Wyoming suit was filed against Ehlco in December of 1991, and that Ehlco 
provided notice of this suit to Wausau less than 60 days later, in January of 
1992.
The circuit court held that Wausau was estopped 
from raising these late-notice defenses. The appellate court, applying its 
late-notice exception to the estoppel doctrine, reversed and remanded the 
Wyoming site proceedings to the circuit court to give Wausau the opportunity to 
raise its defense of late notice of an occurrence.
The circuit court also found, as an aside, that 
Ehlco's notice of the Wyoming suit to Wausau within 60 days was timely as a 
matter of law. The appellate court did not directly address this issue, but held 
that the record sufficiently established that Ehlco properly tendered its 
defense of the Wyoming suit to Wausau.
D. Analysis
The general rule of estoppel provides that an 
insurer which takes the position that a complaint potentially alleging coverage 
is not covered under a policy that includes a duty to defend may not simply 
refuse to defend the insured. Rather, the insurer has two options: (1) defend 
the suit under a reservation of rights or (2) seek a declaratory judgment that 
there is no coverage. If the insurer fails to take either of these steps and is 
later found to have wrongfully denied coverage, the insurer is estopped from 
raising policy defenses to coverage. Waste Management, Inc. v. International 
Surplus Lines Insurance Co., 144 Ill. 2d 178, 207-08 (1991); Clemmons 
v. Travelers Insurance Co., 88 Ill. 2d 469, 475 (1981); Murphy v. 
Urso, 88 Ill. 2d 444, 451 (1981); Thornton v. Paul, 74 Ill. 2d 132, 145, 159 (1978).
The estoppel doctrine has deep roots in Illinois 
jurisprudence. It arose out of the recognition that an insurer's duty to defend 
under a liability insurance policy is so fundamental an obligation that a breach 
of that duty constitutes a repudiation of the contract. Kinnan v. Charles B. 
Hurst Co., 317 Ill. 251, 257 (1925). Although the doctrine also has roots 
in the principle of equitable estoppel, a review of the case law reveals that it 
has since developed into a distinct doctrine that stands on its own. See 
Clemmons, 88 Ill. 2d 469; Murphy, 88 Ill. 2d 444; 
Thornton, 74 Ill. 2d 132; Kinnan, 317 Ill. 251; Sims v. 
Illinois National Casualty Co., 43 Ill. App. 2d 184 (1963).
This estoppel doctrine applies only where an 
insurer has breached its duty to defend. Thus, a court inquires whether the 
insurer had a duty to defend and whether it breached that duty. See 
Clemmons, 88 Ill. 2d  at 475-78 (determining first that the insurer had 
a duty to defend, and then finding that the insurer had renounced that duty). 
Application of the estoppel doctrine is not appropriate if the insurer had no 
duty to defend, or if the insurer's duty to defend was not properly triggered. 
These circumstances include where the insurer was given no opportunity to 
defend; where there was no insurance policy in existence; and where, when the 
policy and the complaint are compared, there clearly was no coverage or 
potential for coverage. See La Rotunda v. Royal Globe Insurance Co., 87 
Ill. App. 3d 446, 452 (1980); McFadyen v. North River Insurance Co., 62 
Ill. App. 2d 164, 171 (1965).
Once the insurer breaches its duty to defend, 
however, the estoppel doctrine has broad application and operates to bar the 
insurer from raising policy defenses to coverage, even those defenses that may 
have been successful had the insurer not breached its duty to defend. See 
Clemmons, 88 Ill. 2d  at 475-79. To date, this court has recognized a 
single exception to the estoppel doctrine. That exception is for serious 
conflicts of interest (Thornton, 74 Ill. 2d at 159), which we discuss 
later in this opinion. We are called upon here to decide whether the appellate 
court's recognition of an exception to the estoppel doctrine for late-notice 
defenses is proper. As noted, there are two types of late-notice defenses at 
issue in this appeal, late notice of an occurrence and late notice of a 
suit.
The case law conflicts on the issue of whether 
to recognize an exception to the estoppel doctrine for late-notice defenses. The 
appellate court below followed cases that have recognized the exception. See 
Industrial Coatings Group, Inc. v. American Motorists Insurance Co., 
276 Ill. App. 3d 799, 810-12 (1995) (involving late notice of an occurrence); 
M/A Com, Inc. v. Perricone, 187 Ill. App. 3d 358 (1989) (involving late 
notice of an occurrence); Del Grosso v. Casualty Insurance Co., 170 
Ill. App. 3d 1098 (1988) (involving late notice of a suit). Other cases have 
held that this exception does not exist. La Rotunda v. Royal Globe Insurance 
Co., 87 Ill. App. 3d 446, 452-53 (1980) (involving late notice of a suit); 
McFadyen v. North River Insurance Co., 62 Ill. App. 2d 164 (1965) 
(involving late notice of an accident); Maneikis v. St. Paul Insurance 
Co., 655 F.2d 818, 821-23 (7th Cir. 1981) (involving late notice of a 
suit); see Petersen Sand & Gravel, Inc. v. Maryland Casualty Co., 
881 F. Supp. 309, 313-15 (N.D. Ill. 1995) (involving another defense, but 
following cases rejecting a late-notice exception).
The decisions recognizing an exception for 
late-notice defenses reason that an insured's compliance with a notice provision 
in a liability insurance policy is a condition precedent to coverage. As a 
result, where the insured breaches the notice provision, that breach negates any 
duty to defend or indemnify on the insurer's part. Furthermore, because the duty 
to defend has been negated, the general rule estopping the insurer from denying 
coverage where it breaches the duty to defend does not apply. In effect, this 
argument is that the insurer is free to disregard its duty to defend where the 
insured first breaches the contract of insurance by failing to provide timely 
notice. We are not persuaded by this argument. To accept it would be to 
contradict long established law governing the insurers' duty to defend and the 
consequences of breaching that duty.
Illinois law is well established that where an 
underlying complaint alleges facts within or potentially within policy coverage, 
"the insurer is obliged to defend its insured even if the allegations are 
groundless, false, or fraudulent." United States Fidelity & Guaranty Co. 
v. Wilkin Insulation Co., 144 Ill. 2d 64, 73 (1991). The insurer may not 
refuse to defend "unless it is clear from the face of the underlying 
complaint[] that the allegations fail to state facts which bring the case 
within, or potentially within, the policy's coverage." (Emphasis in 
original.) Wilkin Insulation Co., 144 Ill. 2d  at 73. The underlying 
complaint and the policy must be construed in favor of the insured, with all 
doubts resolved in the insured's favor. Wilkin Insulation Co., 144 Ill. 2d  at 74. Moreover, as noted above, where a complaint alleges facts potentially 
within the policy's coverage, an insurer taking the position that a claim is not 
covered cannot simply refuse to defend the suit. Rather, the insurer must either 
defend the suit under a reservation of rights or seek a declaratory judgment 
that there is no coverage. If the insurer fails to take either of these actions, 
the estoppel doctrine applies.
Wausau contends that its late-notice defenses 
act to excuse its failure to take either of these actions. We disagree. The 
estoppel doctrine has long provided insurers in Wausau's circumstances with the 
proper recourse. If an insurer believes that it received notice too late to 
trigger its obligations, it should defend its insured under a reservation of 
rights or litigate the matter in a declaratory judgment action. La 
Rotunda, 87 Ill. App. 3d at 453; Maneikis, 655 F.2d  at 824. The 
insurer cannot simply abandon its insured. We therefore hold that there is no 
exception to the estoppel doctrine for late-notice defenses of the types 
asserted here. To hold otherwise would seriously undermine the effectiveness of 
the estoppel doctrine and its intended enforcement of the duty to defend. See 
generally S. Nardoni & J. Vishneski, "The Illinois Estoppel Doctrine: 
Illinois Courts Make it Costly for Insurers to Breach Their Duty to 
Defend," 8 Envtl. Cl. J. 45 (Autumn 1995) (reviewing the history of the 
estoppel doctrine and arguing against the recognition of an exception for 
condition precedent defenses).
In reaching our holding, we reject Wausau's 
contention that we must adopt the late-notice exception to estoppel to be 
consistent with our decision in State Security Insurance Co. v. Burgos, 
145 Ill. 2d 423 (1991). Although Burgos holds that notice of occurrence 
provisions in insurance liability policies are valid prerequisites to coverage, 
Burgos does not address the issue of whether an insurer may be estopped 
from asserting this policy condition as a bar to coverage. Consequently, 
Burgos is inapposite.
To the extent that the decisions recognizing an 
exception for late-notice defenses (Industrial Coatings Group, Inc., 
276 Ill. App. 3d 799; M/A Com, Inc., 187 Ill. App. 3d 358; Del 
Grosso, 170 Ill. App. 3d 1098) conflict with our holding, they are hereby 
overruled.
Having declined to recognize a late-notice 
exception to the estoppel doctrine, we now turn to the case at hand. As to the 
Mena site, if it is ultimately determined during further proceedings that Wausau 
breached its duty to defend, then the estoppel doctrine will bar Wausau's 
assertion of its late-notice defense.
With regard to the Wyoming site, we determine, 
infra, that Wausau breached its duty to defend in the Wyoming action. 
Since Wausau breached its duty to defend, the estoppel doctrine applies. We 
therefore hold that the estoppel doctrine bars Wausau from asserting its 
late-notice defenses against Ehlco as to the Wyoming site. Accordingly, the 
appellate court erred when it remanded this cause to the circuit court for 
further proceedings in which Wausau would be allowed to assert its defense of 
late notice of an occurrence. We reverse this holding of the appellate 
court.
IV. Wausau's 
Cross-Relief
Wausau requests cross-relief on several of the 
appellate court's rulings. After reviewing Wausau's arguments, we determine that 
Wausau is not entitled to cross-relief.
A. Tender by Ehlco of the 
Wyoming Suit
Wausau first contends that it had no duty to 
defend Ehlco with regard to the Wyoming suit because Ehlco never requested 
Wausau to assume Ehlco's defense. Wausau appears to be asserting that Ehlco 
failed to properly tender its defense to Wausau. As earlier discussed, this 
court recently held that the lack of a tender by the insured does not relieve 
the insurer of its duty to defend if the insurer had "actual notice" of the 
underlying suit. Cincinnati Cos. v. West American Insurance Co., 183 Ill. 2d 317 (1998).
Wausau certainly had actual notice of the 
Wyoming suit. The admissions in the pleadings show that Union Pacific sued Ehlco 
in December of 1991, in the federal district court of Wyoming. Ehlco sent notice 
of this suit to Wausau in January 1992 and requested a prompt response regarding 
defense. Wausau acknowledged receipt of Ehlco's letter, but replied only that it 
was searching for its policies. Ehlco continued to supply information and update 
Wausau on the status of the underlying suit and continued to assert that Wausau 
was liable. Wausau took no action on Ehlco's behalf. The undisputed facts 
therefore establish that Ehlco requested Wausau to defend it in the Wyoming 
suit, and that Wausau had actual notice of that suit.
B. Conflict of Interest 
Exception as to the Wyoming Suit
Wausau next maintains that it should not be 
estopped from arguing policy defenses to coverage with regard to the Wyoming 
suit because a conflict of interest precluded it from assuming Ehlco's 
defense.
A narrow exception to the estoppel doctrine 
exists where there is a serious conflict of interest that precludes the insurer 
from assuming the insured's defense. Murphy, 88 Ill. 2d at 451-58; 
Thornton, 74 Ill. 2d  at 152, 159. Even where a conflict exists, 
however, the insurer's obligation to provide a defense should be satisfied by 
reimbursing the insured for the costs of the defense. Thornton, 74 Ill. 2d  at 152.
In this case, the appellate court held that, 
even in the unlikely event that a serious conflict existed between Wausau and 
Ehlco, the circuit court was nonetheless justified in estopping Wausau from 
raising policy defenses to coverage because of Wausau's conduct in failing to 
reimburse Ehlco for the costs of its defense as incurred. The pleadings show 
that, despite Ehlco's repeated requests for assistance, Wausau failed to provide 
Ehlco a defense by reimbursing it for costs as they were incurred. Wausau's 
briefs do not challenge the appellate court's holding in this regard, other than 
to make a factual allegation that Ehlco never forwarded its defense bills to 
Wausau. This factual allegation is not contained in the pleadings. Wausau had 
the opportunity to raise this factual allegation at the pleading stage, but 
failed to do so. Consequently, we affirm this holding by the appellate 
court.
C. Timeliness of Declaratory 
Judgment Action
as to the Wyoming 
Suit
Wausau also urges that estoppel cannot apply to 
the Wyoming suit because Wausau filed a timely declaratory judgment action. This 
assertion is without merit. Where an insurer waits to bring its declaratory 
judgment action until after the underlying action has been resolved by a 
judgment or a settlement, the insurer's declaratory judgment action is untimely 
as a matter of law. See Clemmons, 88 Ill. 2d  at 479; Insurance Co. 
v. Markogiannakis, 188 Ill. App. 3d 643, 651-52 (1989). Here, the pleadings 
reveal that Ehlco sent notice of the Wyoming suit to Wausau in January 1992 and 
requested a defense. Wausau did not provide a defense. Ehlco continued to 
provide Wausau with information regarding the suit and, in June of 1992, Ehlco 
informed Wausau of a $1.3 million settlement offer by Union Pacific. Wausau did 
not object to the reasonableness of this settlement offer. Rather, Wausau merely 
offered to pay 9% of the settlement and 9% of the defense costs incurred. Ehlco 
then settled the suit and, as a result, the district court dismissed the suit 
with prejudice on November 5, 1992. Wausau did not file its complaint seeking a 
declaratory judgment of noncoverage with regard to the Wyoming suit until 
February 26, 1993. This was almost four months after the underlying suit was 
concluded. Thus, Wausau's declaratory judgment action was untimely as a matter 
of law.
D. Is Prejudice Required as to 
the Wyoming Suit?
Wausau further argues that estoppel is not 
proper with regard to the Wyoming suit because Ehlco has never pleaded or proved 
that it was prejudiced by Wausau's breach of its duty to defend. Wausau's 
argument presumes that prejudice is an element of the estoppel doctrine that 
must be pleaded and proved by the insured before estoppel applies. None of this 
court's cases applying this form of estoppel, however, even discuss prejudice. 
See Waste Management, Inc., 144 Ill. 2d at 207-08; Clemmons, 
88 Ill. 2d 469; Murphy, 88 Ill. 2d 444; Thornton, 74 Ill. 2d 132. Moreover, several appellate court cases have expressly rejected the 
requirement of prejudice in this context. Aetna Casualty & Surety Co. v. 
Prestige Casualty Co., 195 Ill. App. 3d 660, 665 (1990); Casualty 
Insurance Co. v. Northbrook Property & Casualty Insurance Co., 150 Ill. 
App. 3d 472, 478 (1986); Aetna Casualty & Surety Co. v. Coronet 
Insurance Co., 44 Ill. App. 3d 744, 747-49 (1976). The few cases that 
Wausau offers in support of a prejudice requirement are inapplicable. Those 
cases concern a different form of equitable estoppel that arises once an insurer 
actually assumes an insured's defense without reserving its rights. See Crum 
& Forster Managers Corp. v. Resolution Trust Corp., 156 Ill. 2d 384, 
390, 395-97 (1993); Maryland Casualty Co. v. Peppers, 64 Ill. 2d 187, 
195-96 (1976); American States Insurance Co. v. National Cycle, Inc., 
260 Ill. App. 3d 299, 305-10 (1994); Mid-State Savings & Loan Ass'n v. 
Illinois Insurance Exchange, Inc., 175 Ill. App. 3d 265, 267, 270-72 
(1988). Therefore, Wausau's argument that Ehlco was required to plead and prove 
prejudice fails.
E. Summary as to the Wyoming 
Site
In summary, we reverse the appellate court's 
holding remanding the Wyoming site cause to the circuit court for further 
proceedings in which Wausau would be allowed to assert its defense of late 
notice of an occurrence. We hold that the estoppel doctrine bars Wausau from 
raising its late-notice defenses against Ehlco. We also reject all of Wausau's 
requests for cross-relief. Accordingly, we reverse the appellate court's 
reversal of the circuit court's grant of Ehlco's motion for judgment on the 
pleadings. The circuit court's grant to Ehlco of judgment on the pleadings with 
regard to the Wyoming site is hereby affirmed.
F. Section 155 Award as to the 
Wyoming Suit
We next decide whether the circuit court wrongly 
awarded Ehlco attorney fees and costs pursuant to section 155 of the Illinois 
Insurance Code (215 ILCS 5/155 (West 1994)) as to the Wyoming suit. Section 155 
states in relevant part:
This statute 
provides "an extracontractual remedy to policyholders." Cramer v. Insurance 
Exchange Agency, 174 Ill. 2d 513, 520 (1996). An award under section 155 is 
proper where an insurer has acted vexatiously and unreasonably in refusing to 
defend its insured. Richardson v. Illinois Power Co., 217 Ill. App. 3d 
708, 711 (1991).
Applying section 155, the circuit court in the 
instant case concluded that Wausau's conduct in refusing to defend Ehlco in the 
Wyoming suit was vexatious and unreasonable. Accordingly, the circuit court 
declared Wausau liable for all attorney fees and costs in the declaratory 
judgment action with respect to the Wyoming site. The appellate court, in 
addressing the Wyoming site, held that the circuit court did not abuse its 
discretion in declaring Ehlco entitled to section 155 fees and costs. Wausau now 
contends that the appellate court erred in reaching this conclusion.
We first determine the proper standard of review 
to be applied. Generally, an abuse of discretion standard is utilized to review 
a circuit court's decision to award attorney fees and costs under section 155. 
See, e.g., Keller v. State Farm Insurance Co., 180 Ill. App. 
3d 539, 554-55 (1989). In this declaratory action below, however, the circuit 
court found Ehlco to be entitled to section 155 fees and costs when it granted 
Ehlco's motions for judgment on the pleadings. We must therefore apply the 
standard of review that is appropriate for a grant of judgment on the pleadings. 
Cf. Mobil Oil Corp. v. Maryland Casualty Co., 288 Ill. App. 3d 
743, 751-55 (1997) (applying de novo standard of review to a section 
155 award made in a grant of summary judgment). As earlier noted, judgment on 
the pleadings is proper where the admissions in the pleadings disclose that 
there is no genuine issue of material fact and that the movant is entitled to 
judgment as a matter of law.
We agree with the circuit court that the 
admissions in the pleadings entitle Ehlco to section 155 fees and costs. It is 
undisputed that Ehlco first sent notice of the Wyoming suit to Wausau in January 
of 1992 and requested a prompt response regarding defense. Wausau failed to 
provide Ehlco with a defense. Rather, Wausau asserted only that it was searching 
for its policies. Ehlco continually implored Wausau to reconsider its refusal to 
defend, to no avail. Ehlco settled the suit against it without Wausau's 
assistance. Ultimately, Wausau waited until February of 1993, over one year 
after it first received notice and nearly four months after the Wyoming suit was 
concluded, before filing its own complaint seeking a declaratory judgment of 
noncoverage. These undisputed facts compel the legal conclusion that Wausau's 
refusal to defend the Wyoming suit was vexatious and unreasonable as a matter of 
law. We therefore affirm the circuit court's conclusion that Ehlco is entitled 
to section 155 attorney fees and costs in the declaratory judgment action with 
respect to the Wyoming site.
Wausau additionally maintains that the section 
155 award was improper because Wausau had asserted a bona fide defense 
to coverage. In support, Wausau briefly mentions its defense of late notice of 
an occurrence in the Wyoming action, but offers no argument as to how this 
defense qualifies as bona fide. Since Wausau's argument offers no basis 
on which to reverse the section 155 award, we decline to do so.
G. Heath
The final issue in this appeal concerns Heath, a 
defendant insurance company and Hines' excess insurer. The circuit court entered 
judgment for Heath. In the appellate court, Wausau contended that the circuit 
court had erred in precluding Wausau from pursuing claims against Heath for 
contribution, subrogation, and unjust enrichment. The appellate court held that 
Wausau waived those claims for purposes of appeal because Wausau failed to raise 
them in the circuit court.
Wausau now contends that the appellate court 
erred in holding that Wausau waived those claims. We disagree. Issues raised for 
the first time on appeal are waived. Haudrich v. Howmedica, Inc., 169 Ill. 2d 525, 536 (1996). Our review of the record discloses that Wausau did not 
raise these claims in the circuit court. We therefore affirm the appellate 
court's application of waiver here.
CONCLUSION
For the reasons stated, we reverse the appellate 
court's holding that Wausau did not have a duty to defend with regard to the 
Mena site because no sufficient suit was filed. We, however, affirm the 
appellate court's reversal of the judgment on the pleadings as to the Mena site 
because the pleadings fail to demonstrate that Wausau's duty to defend the 
Arkansas suit was properly triggered by actual notice of that suit. Accordingly, 
we reverse the circuit court's award to Ehlco of judgment on the pleadings as to 
the Mena site. This cause is remanded to the appellate court for consideration 
of any issues that were raised but which the appellate court did not reach as a 
result of its Mena rulings. As earlier noted, the appellate court, on remand, 
should be cognizant of the rulings in this opinion and proceed accordingly. The 
appellate court need resolve only those issues that it deems appropriate for 
resolution, in light of our holdings here. After resolving these issues, the 
appellate court should remand this cause to the circuit court for further 
proceedings consistent with this opinion, unless the appellate court's 
resolution of the issues before it makes such further proceedings improper or 
unnecessary.
We reverse the appellate court's holding 
permitting Wausau to assert its defense of late notice of an occurrence as to 
the Wyoming site. In addition, we reject all of Wausau's requests for 
cross-relief as to that site. Accordingly, we reverse the appellate court's 
reversal of the circuit court's award to Ehlco of judgment on the pleadings as 
to the Wyoming site. The circuit court's award to Ehlco of judgment on the 
pleadings with regard to the Wyoming site is affirmed. The section 155 award as 
to the Wyoming site is affirmed. The appellate court's ruling concerning Heath 
is also affirmed.
Appellate court judgment 
affirmed in part
and reversed in 
part;
circuit court judgment affirmed 
in part
and reversed in 
part;
cause remanded with 
directions.
JUSTICE RATHJE took no part in the consideration 
or decision of this case.