FIRST DIVISION

SEPTEMBER 24, 2007

No. 1-05-0365

STATE AUTOMOBILE MUTUAL ) Appeal from the

INSURANCE COMPANY, as Successor in ) Circuit Court of

Interest to and Real Party in ) Cook County.

Interest in Place of Meridian )

Mutual Insurance Company, )

)

Plaintiff-Appellee, )

)

 v. )

) No. 02 CH 21220

HABITAT CONSTRUCTION COMPANY, )

)

Defendant-Appellant )

)

)

(Central Building and Preservation;)

Solomon Cordwell, Buenz and ) The Honorable,

Associates, Inc.; and Larry ) Bernetta D. Bush,

Medolan, ) Judge Presiding.

)

Defendants). )

JUSTICE GARCIA delivered the opinion of the court.

In this declaratory judgment action, the trial court granted

summary judgment in favor of the plaintiff, State Automobile

Mutual Insurance Company (State Auto), finding it did not have a

duty to defend or indemnify the defendant, Habitat Construction

Company (Habitat), in an underlying personal injury action.

Habitat contends on appeal that it, rather than State Auto, was

entitled to summary judgment.
No. 1-05-0365

1 The insurance policy was originally issued through

Meridian Mutual Insurance Company (Meridian). On June 1, 2001,

State Auto assumed all of the obligations and liabilities of

Meridian. The Meridian/State Auto policy is referred to as "the

policy" or "the State Auto policy."

2

BACKGROUND

In 2000, a construction project for a building located at

2701 South Indiana in Chicago (the project) was underway. 

Habitat was the general contractor on the project, and Central

Building & Preservation (Central Building) was a subcontractor

hired to provide certain services. The written contract between

Habitat and Central Building required Central Building to add

Habitat as an additional insured on the commercial general

liability policy it had in effect through State Auto, its

insurer.1 Habitat purportedly has in effect its own liability

insurance policy through Pennsylvania General Insurance Company. 

The record provides no information about the terms of that

policy. 

The State Auto policy contains a "Blanket Additional Insured

Endorsement-Primary and Non-Contributory" provision, which

provides, in part:

"WHO IS AN INSURED (Section II) is amended to

include as an insured any person or

organization whom you are required to name as
No. 1-05-0365

3

an additional insured on this policy under a

written contract or agreement.

* * *

The insurance provided the additional

insured is limited as follows:

1. That the person or organization is

only an additional insured with respect

to liability arising out of:

* * *

(b) 'Your work' for that additional 

insured for or by you.

* * *

3. The insurance provided the 

additional insured does not apply to

'bodily injury,' 'property damage,'

'personal injury,' 'advertising injury,'

or defense coverage under the

Supplemental Payments section of the

policy arising out of an architect's,

engineer's, or surveyor's rendering of

or failure to render any professional

services including:

(a) The preparing, approving, or failing

to prepare or approve maps, drawings,

opinions, reports, surveys, change orders,
No. 1-05-0365

4

design or specifications; and

(b) Supervisory, inspection, or

engineering services.

Any coverage provided hereunder shall be

excess over any other valid and collectible

insurance available to the additional insured

whether primary, excess, contingent, or on

any other basis unless a contract

specifically requires that this insurance be

non-contributory and or primary or you

request that it apply on a non-contributory

and or primary basis." 

The policy defines "Your work" as "Work or operations

performed by you or on your behalf; and *** [m]aterials, parts or

equipment furnished in connection with such work or operations."

On June 19, 2000, Larry Medolan, a Central Building

employee, was allegedly injured while working on the project. On

April 2, 2002, Medolan filed a one-count complaint in the circuit

court of Cook County, naming Habitat, South Commons Stage One

Venture, and Solomon, Cordwell, Buenz and Associates, Inc., as

defendants. Central Building was not named in the complaint. 

Medolan alleged the defendants owned or were in charge of the

project site. He also alleged "[t]hat at the aforementioned time

and place, [Medolan] was employed by Central Building &

Preservation L.P. on said premises in the furtherance of the
No. 1-05-0365

5

aforesaid work." He further alleged that the defendants were

present during the construction and participated in coordinating

the work done, designated work methods, and had the authority to

stop the work, refuse the work and materials, and order changes

in the work "in the event the work was being performed in a

dangerous manner or for any other reason." Medolan also alleged

the defendants erected a concrete wall to be used in the

construction, that his "duties and responsibilities *** required

that he work on and about the aforesaid concrete wall," and that

a section of concrete fell onto the scaffold on which he was

working, injuring him. Medolan alleged, in part, that the named

defendants were guilty of certain negligent acts and/or

omissions, including: (1) failing to make a reasonable inspection

of the premises; (2) improperly operating, managing, maintaining,

and controlling the premises; (3) failing to provide him with a

safe place to work; (4) failing to warn him of dangerous

conditions; (5) failing to provide adequate safeguards to prevent

injury to him; (6) failing to supervise the work; and (7)

improperly directing workers to cut excessive amounts of

concrete, which caused the area to become unstable. According to

the complaint, the defendants' negligence proximately caused

Medolan's injuries.

Habitat, on May 21, 2003, filed a third-party complaint

against Central Building. Habitat denied liability, but

alternatively alleged that if it was found liable, Central
No. 1-05-0365

6

Building engaged in certain negligent acts or omissions,

including the same seven acts alleged by Medolan in his

complaint. According to the third-party complaint, Central

Building's negligence proximately caused Medolan's injuries. 

Habitat forwarded the Medolan complaint to Central Building

for defense and indemnification. Central Building then forwarded

the matter to State Auto. State Auto rejected Habitat's tender

of defense and, on November 22, 2002, filed the instant action

seeking a declaration that there was no coverage under the policy

for Habitat with respect to the Medolan action.

Habitat and State Auto filed cross-motions for summary

judgment. After hearing arguments from the parties, the court

granted State Auto's summary judgment motion and denied that of

Habitat. The court concluded that under American Country

Insurance Co. v. James McHugh Construction Co., 344 Ill. App. 3d

960, 801 N.E.2d 1031 (2003), State Auto had no duty to defend or

indemnify Habitat under the policy. Because it so concluded, the

trial court did not address whether the State Auto policy applied

on a primary or excess basis. This timely appeal followed. 

ANALYSIS 

Habitat contends on appeal that it, and not State Auto, is

entitled to summary judgment. Habitat argues that the Medolan

action falls within the policy and that State Auto has a duty to

defend and indemnify it. State Auto counters that summary

judgment was properly granted in its favor because the Medolan
No. 1-05-0365

7

complaint is devoid of any allegation that Habitat's liability

arose out of Central Building's work. State Auto also argues

that the professional services exclusion of the policy bars

coverage to Habitat. State Auto alternatively contends that even

if we find that Habitat is covered under the policy, the coverage

applies solely on an excess basis.

I. Standard or Review

Summary judgment is proper where "the pleadings,

depositions, and admissions on file, together with the

affidavits, if any, show that there is no genuine issue as to any

material fact and that the moving party is entitled to a judgment

as a matter of law." 735 ILCS 5/2-1005(c) (West 2004); Purtill

v. Hess, 111 Ill. 2d 229, 240, 489 N.E.2d 867 (1986). Where the

parties file cross-motions for summary judgment, they invite the

court to decide the issue as a matter of law. Liberty Mutual

Fire Insurance Co. v. St. Paul Fire & Marine Insurance Co., 363

Ill. App. 3d 335, 339, 842 N.E.2d 170 (2005). However, "the mere

filing of cross-motions does not preclude a determination that

triable questions of fact exist." State Farm Mutual Automobile

Insurance Co. v. Coe, 367 Ill. App. 3d 604, 607, 855 N.E.2d 173

(2006). The grant of summary judgment is reviewed de novo. 

Outboard Marine Corp. v. Liberty Mutual Insurance Co., 154 Ill.

2d 90, 102, 607 N.E.2d 1204 (1992).

II. Duty to Defend

The issue in this case is whether State Auto had a duty to
No. 1-05-0365

8

defend or indemnify Habitat under the policy. "An insurer's duty

to defend an insured is much broader than its duty to indemnify." 

State Automobile Mutual Insurance Co. v. Kingsport Development,

LLC, 364 Ill. App. 3d 946, 951, 846 N.E.2d 974 (2006). To

determine whether an insurer has a duty to defend an insured,

this court looks to the allegations in the underlying complaint

and compares them to the relevant provisions of the insurance

policy at issue. Outboard Marine Corp., 154 Ill. 2d at 107-08. 

The allegations in the complaint must be liberally construed in

favor of the insured. Valley Forge Insurance Co. v. Swiderski

Electronics, Inc., 223 Ill. 2d 352, 363, 860 N.E.2d 307 (2006). 

"If the facts alleged in the underlying complaint fall within, or

potentially within, the policy's coverage, the insurer's duty to

defend arises." Outboard Marine Corp., 154 Ill. 2d at 108.

Many cases from this court have addressed the situation

presented here: an employee of a subcontractor is injured in the

course of his or her employment on a construction site and sues

the general contractor, an additional insured on the

subcontractor's general liability policy. See, e.g., Kingsport,

364 Ill. App. 3d 946, 846 N.E.2d. 974; McHugh, 344 Ill. App. 3d

960, 801 N.E.2d 1031; National Union Fire Insurance Co. v. R.

Olson Construction Contractors, Inc., 329 Ill. App. 3d 228, 769

N.E.2d 977 (2002); American Country Insurance Co. v. Cline, 309

Ill. App. 3d 501, 722 N.E.2d 755 (1999); Liberty Mutual Insurance

Co. v. Westfield Insurance Co., 301 Ill. App. 3d 49, 703 N.E.2d
No. 1-05-0365

9

439 (1998); American Country Insurance Co. v. Kraemer Brothers,

Inc., 298 Ill. App. 3d 805, 699 N.E.2d 1056 (1998). This court

has explained:

"[T]he Illinois Workers' Compensation

Act (820 ILCS 305/5(a) (West 2000)) bars

injured workers from suing their own

employers. Consequently, because injured

construction workers cannot sue their

subcontractor employers, it is common

practice for them to sue the general

contractor involved with the project. In

realization of that possibility, general

contractors will usually set up insurance

requirements for their subcontractors, with

the intent of passing the liability for

worker injuries along to the worker's

employer's insurance carrier." McHugh, 344

Ill. App. 3d at 963.

A. Additional Insured

We first address whether the allegations in the Medolan

complaint directed against Habitat triggered the "additional

insured" coverage based on liability "arising out of" Central

Building's work on behalf of Habitat. In his complaint, Medolan

alleged that at the time of his injury "he was employed by

Central Building [and was] on said premises in furtherance of the
No. 1-05-0365

2 The parties point to other materials in the record,

including Medolan's discovery deposition and answers to certain

interrogatories, to support their positions. However, as neither

party has convinced us to do otherwise, we adhere to the general

rule that courts look only to the underlying complaint to

determine whether there is a duty to defend. Olson, 329 Ill.

App. 3d at 235; see also Outboard Marine Corp., 154 Ill. 2d at

107-08. 

10

aforesaid work."2 We examine the facts alleged in the complaint

to determine whether they potentially fall within the policy's

coverage; if so, the insurer has a duty to defend. Outboard

Marine Corp., 154 Ill. 2d at 108.

Habitat relies on cases such as Liberty Mutual Insurance

Co., 301 Ill. App. 3d at 54-55, and Maryland Casualty Co. v.

Chicago & North Western Transportation Co., 126 Ill. App. 3d 150,

154, 466 N.E.2d 1091 (1984), which have found "arising out of"

language like that used in the State Auto policy to be both

"broad and vague" and requiring only a "but for" causal

connection between the accident and the named insured's work. 

Habitat argues that "but for" the fact that Medolan was working

as Central Building's employee at a project where Habitat

contracted with Central Building to perform certain work,

Medolan's alleged injury would not have happened. 

State Auto counters that the trial court in this case
No. 1-05-0365

3 At oral argument, we addressed the case of State

Automobile Mutual Insurance Co. v. Kingsport Development, LLC,

364 Ill. App. 3d 946, 951, 846 N.E.2d 974 (2006), a case that

presents virtually identical facts and issues, decided after

briefs were submitted in this case. Neither party sought to

present Kingsport as additional authority, even though counsel

for State Auto was appellate counsel in Kingsport. 

11

properly rejected Habitat's reliance on a "but for" analysis

because cases using such a test involved allegations under the

now-repealed Structural Work Act (see 740 ILCS 150/0.01 et seq.

(West 1994) (repealed by Pub. Act 89-2, §5, eff. February 14,

1995)). State Auto also argues that McHugh, 344 Ill. App. 3d

960, 801 N.E.2d 1031, and Olson, 329 Ill. App. 3d 228, 769 N.E.2d

977, control the outcome of this case.3

In McHugh, we recognized the "common practice" for employees

of subcontractors injured on the job to sue the general

contractor involved with the project in light of the Illinois

Workers' Compensation Act (820 ILCS 305/5(a) (West 2004)) bar

preventing injured workers from suing their own employers. 

McHugh, 344 Ill. App. 3d at 963. This "common practice" often

results in the general contractor placing insurance requirements

on its subcontractors with the intent of passing the liability

for worker injuries along to the worker's employer's insurance
No. 1-05-0365

12

carrier. However, as a close examination of the cases finding no

duty to defend, such as McHugh and Olson, and those finding a

duty to defend, such as Kingsport, reveals, the success of that

intent turns on the language of the policy under which the

general contractor is named an additional insured. If there is

an exclusion provision directly applicable to the facts alleged

in the pending complaint against the additional insured so as to

trigger that exclusion, no duty to defend arises. See McHugh,

344 Ill. App. 3d 960, 801 N.E.2d 1031; Olson, 329 Ill. App. 3d

228, 769 N.E.2d 977. However, in the absence of such a

controlling exclusionary clause, we determine whether a causal

connection between the accident and the named insured's work

triggers a duty to defend. See Kingsport, 364 Ill. App. 3d 946,

801 N.E.2d 974. 

Thus, before a "but for" analysis can be applied to

determine whether a duty to defend has been triggered, we first

determine whether there exists any policy exclusion that deals

squarely with the allegations in the complaint that would make a

"but for" analysis unnecessary. Where coverage for the

additional insured requires that the liability arise out of named

insured's operations, that coverage may further be limited to

liability not arising from additional insured's own negligence. 

See Olson, 329 Ill. App. 3d at 238. A complaint that alleges

only "direct negligence" of the purported "additional insured"

may "place it squarely within the coverage exclusion that makes
No. 1-05-0365

13

[the policy] inapplicable to allegations *** 'arising out of any

act or omission of the additional insured(s).'" McHugh, 344 Ill.

App. 3d at 972. We look to McHugh and Olson to examine the

exclusionary language in those cases that resulted in the

respective policy being inapplicable to the underlying complaint.

In Olson, 329 Ill. App. 3d at 1231, the Second District

determined that the provision excluding "'LIABILITY RESULTING

FROM [THE ADDITIONAL INSURED'S] OWN NEGLIGENCE OR THE NEGLIGENCE

OF ITS SERVANTS, AGENTS OR EMPLOYEES'" was sufficient to remove

the general contractor from the protection of the subcontractor's

insurance policy where the complaint alleged only negligence

against the general contractor. In McHugh, 344 Ill. App. 3d at

964, this court found the provision excluding liability "'arising

out of any act or omission of the additional insured(s) or any of

their employees'" to likewise place the worker's complaint

outside the protection of the insurer's endorsement where only

direct negligence of the general contractor was alleged in the

complaint.

We note that "negligence" is defined in the pattern jury

instructions as "the failure to do something which a reasonably

careful person would do [an omission], or the doing of something

which a reasonably careful person would not do [an act]." 

Illinois Pattern Jury Instructions, Civil, No. 10.01 (2000). 

Thus, the exclusionary provisions in Olson and McHugh are

comparable as both excluded liability for a complaint alleging a
No. 1-05-0365

14

negligence theory of recovery against the additional insured. We

look to the State Auto policy before us to determine whether a

similar exclusionary provision exists. Of course, this is

precisely what the Second District in Kingsport did and found no

such exclusionary provision. We then look to determine whether

the "but for" analysis should apply. Again, this is precisely

what the Second District in Kingsport did. The parties at oral

argument adopted the not surprising positions of asking that we

follow Kingsport (Habitat) and that we reject Kingsport (State

Auto), but neither party has sought leave to present written

argument in this regard. Our own examination of Kingsport leads

us to adopt and follow its holding. 

In Kingsport, Kingsport Development, the general contractor

of the construction site, was an additional insured on W.A.

Anderson Construction Company's (Anderson) State Auto general

liability policy, a policy containing the same language as the

policy at issue in this case. Anderson was a subcontractor on

the project. Halek, an Anderson employee, was injured on the

construction site and filed a complaint naming Kingsport as a

defendant and alleging that Kingsport's negligence proximately

caused his injuries. Kingsport, 364 Ill. App. 3d at 948. The

complaint also alleged Halek was an Anderson employee, he was at

the construction site in the course of his employment with

Anderson when the injury occurred, Kingsport was present at the

site through its subcontractors, and Kingsport participated in
No. 1-05-0365

15

coordinating the work and had a duty to require its

subcontractors to comply with safety standards. Kingsport, 364

Ill. App. 3d at 952. State Auto filed an action in the circuit

court seeking a declaration that it had no duty to defend or

indemnify Kingsport under the policy. The trial court agreed and

granted summary judgment in State Auto's favor. Kingsport, 364

Ill. App. 3d at 950. 

On appeal, the Second District reversed, finding that the

facts of the underlying complaint established that "Halek's

injuries potentially arose out of Anderson's work, and, based on

the policy language, State Auto [had] a duty to defend Kingsport

in the underlying suit." Kingsport, 364 Ill. App. 3d at 954.

In so holding, the court distinguished McHugh and Olson. 

The Kingsport court found the language in the State Auto policy

distinguishable from that in the policy at issue in McHugh

because the policy in McHugh "limited coverage to ' "acts or

omissions in connection with" ' the insured's work for the

additional insured and excluded coverage for injury ' "arising

out of any act or omission of the additional insured(s) or any of

their employees." ' " Kingsport, 364 Ill. App. 3d at 958,

quoting McHugh, 344 Ill. App. 3d at 964. The State Auto policy,

however, "require[d] only that the liability arise out of

Anderson's work and [did] not require a more detailed examination

of whose acts and omissions are alleged to have caused the

injury." Kingsport, 364 Ill. App. 3d at 958. The court in
No. 1-05-0365

16

Kingsport did recognize "policy language [in the second of three

additional endorsements in the McHugh policy] that is similar to

the language in this case," prompting it to disagree with

McHugh's restrictive reading of that second additional

endorsement resulting in coverage only " ' "with respect to

liability arising out of [the subcontractor's] ongoing operations

performed for that insured," ' " and, thus, excluding coverage

for the direct negligence of the general contractor. Kingsport,

364 Ill. App. 3d at 958-59, quoting McHugh, 344 Ill. App. 3d at

976. According to the Kingsport court, "in arriving at this

conclusion, the McHugh court *** failed to construe the second

endorsement's language liberally in favor of the insured." 

Kingsport, 364 Ill. App. 3d at 959. We do not find the Kingsport

court's disagreement with McHugh on that basis causes us to

question the analysis Kingsport employed in reviewing the State

Auto policy before it, an analysis we otherwise agree with.

The Kingsport court also distinguished Olson, 329 Ill. App.

3d 228, 769 N.E.2d 977. The relevant language of the policy of

the insurer, National, provided that "'COVERAGE SHALL NOT APPLY

TO ANY LIABILITY RESULTING FROM THE [ADDITIONAL INSURED'S] OWN

NEGLIGENCE OR THE NEGLIGENCE OF ITS SERVANTS, AGENTS OR

EMPLOYEES.'" Olson, 329 Ill. App. 3d at 231. It also provided

that Olson was included as an additional insured "but only with

respect to liability arising out of [the subcontractor's] ongoing

operations performed for [Olson]." Olson, 329 Ill. App. 3d at
No. 1-05-0365

17

231. The court in Kingsport reasoned that, unlike the language

of the National policy, which specifically denied coverage for

liability resulting from the general contractor's own negligence,

or the negligence of its employees, the State Auto policy had no

such exclusion. Kingsport, 364 Ill. App. 3d at 958. 

The Kingsport court concluded that State Auto had a duty to

defend Kingsport. In so holding, the court accepted Kingsport's

contention that the "arising out of" language used in the State

Auto policy mandated the application of a "but for" analysis, and

held that the allegations in the injured employee's complaint

established that but for his work for Anderson and Anderson's

presence on the construction site, he would not have been

injured. Kingsport, 364 Ill. App. 3d at 954. The court rejected

State Auto's attempt to distinguish cases applying a "but for"

analysis on the basis that those cases involved allegations under

the Structural Work Act, finding the cases cited "did not rely on

any of the Act's provisions in their analysis, and their

reasoning is equally applicable to this case." Kingsport, 364

Ill. App. 3d at 955. 

In the case at bar, Medolan's complaint named Habitat and

others as defendants and alleged the defendants owned or were in

charge of the construction site, that Medolan was employed by

Central Building and was on the premises in furtherance of his

work, that the defendants were present during the construction

and participated in coordinating the work done, and that the
No. 1-05-0365

18

defendants erected a concrete wall to be used in the

construction. Medolan alleged that his duties required that he

work on the wall and that, while he was working on the wall, a

section of the concrete wall fell onto the scaffold on which he

was working and that, as a proximate and direct result of the

defendants' acts or omissions, he was injured. 

The State Auto policy at issue in this case, like the policy

at issue in Kingsport, provides that Habitat is "only an

additional insured with respect to liability arising out of ***

'Your [Central Building's] work' for that additional insured

[Habitat] for or by you." This court must construe the State

Auto policy at issue here "with due regard to the risk

undertaken, the subject matter that is insured and the purposes

of the entire contract," and will give the unambiguous terms of

the policy their plain, ordinary and popular meaning. Outboard

Marine Corp., 154 Ill. 2d at 108. Unlike the language of the

policy at issue in McHugh, which excluded coverage for injuries

arising out of the acts or omissions of the general contractor,

and the policy at issue in Olson, which prohibited coverage for

liability resulting from the general contractor's own negligence,

or the negligence of its employees, the State Auto policy at

issue in this case only requires that liability "aris[e] out of"

Central Building's work for Habitat and contains no similar

exclusionary clause. 

In other words, the policies at issue in McHugh and Olson
No. 1-05-0365

19

essentially limited coverage to liability arising from the work

of its named insured, the subcontractor, but expressly excluded

coverage for the general contractor's own negligence. Here,

State Auto failed to include any such language in its policy. 

When the allegations of Medolan's complaint, which establish

Medolan was injured in furtherance of his work for Central

Building, are liberally construed, and are compared to the

relevant provisions of the State Auto policy, it is clear that

Medolan's alleged injuries at least potentially arose out of

Central Building's work. Consequently, the allegations in the

Medolan complaint, when compared to the language of the policy,

give rise to a duty on the part of State Auto to defend Habitat. 

Kingsport, 364 Ill. App. 3d at 954. 

B. Professional Exclusion Provision

State Auto sets forth the alternative argument that the

policy's professional services exclusion bars coverage to

Habitat. This contention is properly before this court as we may

affirm a trial court's grant of summary judgment on any basis

appearing in the record. Material Service Corp. v. Department of

Revenue, 98 Ill. 2d 382, 387, 457 N.E.2d 9 (1983). 

As noted above, the policy excludes coverage for additional

insureds for certain injuries "arising out of an architect's,

engineer's, or surveyor's rendering of or failure to render any

professional services including: (a) The preparing, approving, or

failing to prepare or approve maps, drawings, opinions, reports,
No. 1-05-0365

20

surveys, change orders, design or specifications; and (b)

Supervisory, inspection, or engineering services."

State Auto points out that the Medolan complaint alleges

Habitat was negligent for failing to make reasonable inspection

of the premises, improperly operating, managing, maintaining, and

controlling the premises, and failing to supervise the work being

done on the premises. According to State Auto, because these

assertions amount to allegations that Habitat failed to perform

proper supervisory and inspection services, Habitat is not

covered. 

State Auto's contention fails. Habitat is a general

contractor. It is the responsibility of a general contractor "to

control the project schedule and insure that the structure

complies with the project specifications." McHugh, 344 Ill. App.

3d at 963. Habitat is not an architect, engineer, or surveyor,

and Medolan's complaint does not allege otherwise. The plain

language in insurance polices is to be applied as written, and

the parties should be bound to the agreement they made. State

Street Bank & Trust Co. v. INA Insurance Co., 207 Ill. App. 3d

961, 966, 567 N.E.2d 42 (1991). Here, the plain language of the

professional services exclusion, which by its terms applies to an

architect's, engineer's, or surveyor's rendering of or failure to

render any professional services, has no application. 

III. Primary or Excess Coverage

We have concluded that as a matter of law, the allegations
No. 1-05-0365

21

in the Medolan complaint, when compared to the language of the

State Auto policy, give rise to State Auto's duty to defend

Habitat in the underlying action, and the trial court erred in

granting summary judgment in favor of State Auto. State Auto

contends that even if we conclude that the trial court improperly

granted summary judgment in its favor, Habitat is not entitled to

summary judgment in this case because the State Auto policy

applies in excess to Habitat's own general liability policy. 

State Auto also argues its duty to defend Habitat is

distinguishable from its duty to indemnify Habitat. 

To support its contention that the policy applies only on an

excess basis, State Auto points to the policy's "other insurance"

provision, which states:

"Any coverage provided hereunder shall be

excess over any other valid and collectible

insurance available to the additional insured

whether primary, excess, contingent, or on

any other basis unless a contract

specifically requires that this insurance be

non-contributory and or primary or you

[Central Building] request that it apply on a

non-contributory and or primary basis." 

State Auto argues that because the agreement between Habitat

and Central Building did not require Central Building to provide

Habitat with coverage as an additional insured on a
No. 1-05-0365

22

noncontributory or primary basis, and because Central Building

has never requested that any coverage afforded to Habitat as an

additional insured apply on a noncontributory or primary basis,

any primary coverage available to Habitat for the Medolan action

must be exhausted before the State Auto policy can be triggered. 

Habitat responds that the State Auto policy is "primary and

non-contributory" because Habitat "target tendered" its defense

to State Auto in accordance with John Burns Construction Co. v. 

Indiana Insurance Co., 189 Ill. 2d 570, 727 N.E.2d 211 (2000).

John Burns discusses the "targeted tender rule," which is also

referred to as the "selective tender rule." This rule allows an

insured covered by multiple concurrent policies the right to

select which insurer will defend and indemnify it regarding a

specific claim. John Burns, 189 Ill. 2d at 574, see also

Institute of London Underwriters v. Hartford Fire Insurance Co.,

234 Ill. App. 3d 70, 78-79, 599 N.E.2d 1311 (1992). Illinois

courts also recognize the theory of horizontal exhaustion, which

provides that an insured must exhaust all available primary

insurance before any excess insurance may be invoked. See United

States Gypsum Co. v. Admiral Insurance Co., 268 Ill. App. 3d 598,

653-54, 643 N.E.2d 1226 (1994). In Kajima Construction Services,

Inc. v. St. Paul Fire & Marine Insurance Co., 368 Ill. App. 3d

665, 668-70, 856 N.E.2d 452 (2006), appeal allowed, 222 Ill. 2d

609, 862 N.E.2d 234 (2007), a case decided after the instant

appeal arose and the review of which is currently pending in the
No. 1-05-0365

23

supreme court, the court addressed the relation between the

selective tender rule and horizontal exhaustion. The Kajima

court held that an insured cannot selectively tender a defense to

an excess insurer where primary coverage remains unexhausted. 

Kajima, 368 Ill. App. 3d at 671-72. Thus, Kajima seems to reject

Habitat's contention that it could selectively tender its defense

to State Auto where the policy's "other insurance" provision

states the policy is to apply in "excess over any other valid and

collectible insurance available to" Habitat. 

In this case, however, it is unclear whether Habitat has in

effect any primary insurance that would cover the Medolan action. 

Although it can hardly be questioned that Habitat, the general

contractor of a major construction project, has in effect its own

insurance policy or policies, as we noted above, the record

discloses no information about any such policy. We therefore

remand the matter to the trial court to determine whether the

State Auto policy applies on an excess basis only. See

Kingsport, 364 Ill. App. 3d at 962 (remanding to the trial court

to determine whether the State Auto policy applied on a primary

or excess basis). 

Moreover, as State Auto points out, the duty to defend is

distinguishable from the duty to indemnify. See Kingsport, 364

Ill. App. 3d at 951. "[T]he question of whether the insurer has

a duty to indemnify the insured for a particular liability is

only ripe for consideration if the insured has already incurred
No. 1-05-0365

24

liability in the underlying claim against it." Outboard Marine

Corp., 154 Ill. 2d at 127. Thus, we also remand to the trial

court for a determination of this issue. See Kingsport, 364 Ill.

App. 3d at 962 (remanding to the trial court to resolve the issue

of indemnification). 

CONCLUSION

For the reasons stated above, the trial court's grant of

summary judgment in favor of State Auto is reversed, and the

matter is remanded to the trial court for further proceedings.

Reversed and remanded. 

WOLFSON, and R. GORDON, JJ., concur.