countervailing evidence to support a factual dispute as to
whether Michael Best's hourly rate is reasonable. Presently, the
issue cannot be resolved by the court because AMEC has submitted
no evidence in support of its contention. Also, the issue was
not sufficiently raised in AMEC's opening brief so Regent was not
required to respond.

AMEC is entitled to partial summary judgment as to that
part of Count I seeking a declaration that it is entitled to
retain its own counsel to represent it in the Hawver litigation
and that Regent is required to reimburse AMEC's reasonable costs.
The issue of whether Michael Best's standard rate is reasonable
cannot presently be resolved. Also remaining to be resolved is
the Count II contract claim which seeks damages for past costs in
the Hawver litigation that have not yet been reimbursed. No
judgment will be entered until all matters are resolved. It is
expected that the parties will be able to resolve the issue of a
reasonable fee and any amount due for past costs. Within one
week the parties shall meet to discuss resolving the remaining
fee and reimbursement issue. If requested by Regent, AMEC shall
provide sufficient records establishing the costs it has already
incurred. See Taco Bell Corp. v. Continental Casualty Co., 2003
WL 21372473 *2 (N.D. Ill. June 11, 2003). At the next status

hearing the parties shall report whether they have resolved this

-13-



AMEC "[t]o the extent any liability of AMEC arises out of its own
affirmative breach of duty, and not out of the work or negligence
of Gurtz Electric Company, Inc., [and therefore] AMEC is not an
additional insured under the Regent Insurance Company policy."

Travelers, on behalf of AMEC, informed Regent that, since
Regent had accepted the defense subject to a reservation of
right, AMEC was entitled to select its own attorney and would
continue to be represented by Michael Best. The parties were not
able to reach any agreement as to Michael Best being allowed to
represent AMEC. Regent also indicated that any possible
reimbursement for using this law firm would be limited to
Regent's usual fee scale topping out at $135.00 per hour, not a
higher fee that Michael Best customarily charges to clients and
apparently has charged to AMEC both in this litigation and prior
representation.

Neither Gurtz nor AMEC will be liable to Hawver if, in
the Hawver lawsuit, it is found that Hawver's injury was not
caused by any negligence at the construction site, other than
possible negligence by Hawver himself. If negligence is found to
have caused injury to Hawver, then Gurtz's and AMEC's interests
May diverge. AMEC may still be found liable even if Gurtz is
not. For example, it may be found that Hawver's injury was
caused by a niegligently protruding conduit for which Gurtz had no
responsibility, but for which AMEC was either directly

responsible or responsible due to the conduct of another



defense to the allegations relating thereto." 522 N.E.2d at 616.
That situation is similar to the present case. Here, Regent has
an incentive to show that the negligent conditions, if any, that
caused Hawver's injury did not exist in the work of Gurtz, but
little incentive to show that negligent conditions did not exist
in the work of AMEC itself or one of AMEC's other subcontractors.
Regent argues that the present situation is
distinguishable because insurance coverage for AMEC does not
track the question of causation that would be at issue in
Hawver's lawsuit. Regent contends that distinctions must be
recognized as between the proximate causation at issue in
Hawver's lawsuit and the "arising out of" language contained in
the policy's definition of additional insureds. Regent contends
that liability coverage arising out of Gurtz's work is broader
than the question of an injury proximately caused by Gurtz's
work. Illinois case law holds that "arising out of" language in
an insurance policy is broader than proximate causation in that

it is satisfied by "but for" causation. Liberty Mutual Insurance

Co. v. Westfield Insurance Co., 301 Ill. App. 3d 49, 703 N.E.2d
439, 442 (1st Dist. 1998); West American Insurance Co. v.

Bedwell, 306 Ill. App. 3d 861, 715 N.E.2d 759, 763-64 (3d Dist.),
appeal denied, 186 Ill. 2d 591, 723 N.B.2d 1170 (1999);

Goodheart-Willcox Co. v. First National Insurance Co. of America,

Inc., 2001 WL 501194 *7 (N.D. Ill. May 8, 2001). While that

general proposition is true and applicable to the “arising out



certain, or even likely, that, both the locale of Hawver's injury
and the party responsible for the locale where Hawver was injured
will not be an issue in Hawver's lawsuit.

AMEC also contends that the reservation of right itself
indicates ground for conflict. AMEC contends the reservation of
right asserts an additional ground for Regent denying indemnity
to AMEC that is not contained in the policy. AMEC contends the
reservation of right asserts that Regent need not indemnify AMEC
and provide a defense if AMEC is contributorily negligent. That,
however, is not an accurate description of the statement in the
reservation of right. It is stated that AMEC would not be an
additional insured entitled to indemnity if AMEC's liability
arises from AMEC's own affirmative misconduct “and not out of the
work or negligence of Gurtz." AMEC focuses on the first part of
the statement, ignoring its conjunctive nature and the second
requirement. This statement is consistent with the language of
the policy. If taken at face value, it May even place an
additional burden on Regent (affirmative misconduct by AMEC) in
order to avoid indemnifying AMEC for possible liability.

Regent does not dispute AMEC's contention that a conflict
between an insurer and insured may entitle the insured to select
its own counsel. The disagreement is over what type of conflict
must be shown in order for the insured to be entitled to that
option. The parties agree that Illinois law applies in resolving

this issue.


subcontractor. In that situation, AMEC would have liability to
Hawver without Gurtz also being liable. If the conduit was not
part of Gurtz's "work," which could be likely in such a scenario,
then AMEC would likely be liable without there being coverage
from Regent. Thus, Regent has an interest in showing there was
no negligence whatsoever, which benefits both AMEC and Gurtz.
But Regent also has an interest in showing Gurtz was not
responsible for. any negligent condition that may have existed
regardless of whether AMEC would still be responsible for that
condition. Assuming there are possible facts to support it, it
could even be in Regent's interest to attempt to show that AMEC
(or another subcontractor based on whom AMEC may be vicariously
liable), not Gurtz, was responsible for the conduit or other
possible negligent condition that may have caused Hawver to fall.
Even if Regent does not attempt to point a finger at AMEC, it is
still true that Regent's own interests provide an incentive to
show that any injury to Hawver occurred away from Gurtz's work
without any regard for where the injury may have instead
eccurred. Pointing the finger away from Gurtz does not
necessarily mean pointing to a different physical location for
the injury. It may just mean showing that Gurtz was not the
subcontractor responsible for installing a particular conduit or
pipe on which Hawver allegedly was injured. There is no
contention by Regent that the allegations of Hawver's complaint

do not support these possibilities or that it is otherwise



not to be covered by the insurance contract." Littlefield,

979 F.2d at 106. See also American Country Insurance Co, v
Williams, 339 Ill. App. 3d 835, 791 N.E.2d 1268, 1276 (1st Dist.
2003) ("The test of whether a conflict of interest exists .. .
is if, in comparing the allegations of the complaint to the terms
of the policy, the insurer's interests would be furthered by
providing a less than vigorous defense to the allegations.");
Illinois Masonic Medical Center v. Turequm Insurance Co., 168
Ill. App. 3d 158, 522 N.E.2d 611, 613 (lst Dist. 1988) (same).
Illinois courts have "also found that where an insurer represents
two insureds whose interests in the litigation are adverse, a
conflict of interest exists if, in order for the insurer to
adequately represent one of its insureds, it would have to pick a
strategy that would harm the other.” Emerson Electric, 2001 WL
1155273 at *3 (citing Murphy v. Urso, 88 Ill. 2d 444, 430 N.E.2d
1079, 1083 (1981)).

In Illinois Masonic, the insured was a hospital. The
underlying litigation was a claim for medical malpractice that
occurred during one or more of three hospital stays. Two of
those hospital stays occurred after the policy with the insurer
had expired. It was held that an adequate conflict existed
justifying the hospital's retention of its own counsel because
the insurer's "best interest (a) lie in a finding that the
malpractice, if any, occurred during one or both of the two post-

policy periods and (b) would be furthered by a less than vigorous


Minuty, Order Form (06/97)

United States District Court, Northern District of Illinois

Nearer | WILLIAM. wan | Surge .
CASE NUMBER 03 C 2880 DATE MARCH | { » 2004
CASE AMEC CONSTRUCTIONS MANAGEMENT, INC. v.
TITLE REGENT INSURANCE COMPANY
[In the following box (a) indicate the party filing the motion, ¢.g., plaintiff, defendant, 3rd party plaintiff, and (b) state briefly the nature
MOTION: of the motion being presented.]
DOCKET ENTRY:
qa) o Filed motion of [ use listing in “Motion” box above.]
@ oOo Brief in support of motion due
@) Oo Answer brief to motion due. . Reply to answer brief due.
(4) Qa Ruling/Hearing on set for at :
(6) @& STATUS HEARING SET FOR APRIL 7, 2004 AT 11:00 a.m.
(6) oO Pretrial conference[held/continued to} [set for/re-set for] on set for at
(©) Qa Trial[set for/re-set for} on at
(8) D0 [Bench/Jury trial] [Hearing] held/continued to at
(9) oO This case is dismissed [with/without] prejudice and without costs[by/agreement/pursuant to]

OOFRCP4(m) CLocal Rule 41.1 CUFRCP41(a)(1) CFRCP41(a\(2).

summary judgment is denied.

(1) . [For further detail see attached Memorandum Opinion and Order.]

(0) «x {Other docket entry] Plaintiff's motion for partial summary judgment [13] is granted in
part and denied in part. Plaintiff is entitled to a declaration that it has the right to retain its
own counsel in the Hawver case and be reimbursed by defendant. Defendant's motion for

\

No notices required, advised in open court.
2
No notices required. er of nor
umber of novices
a | Notices mailed by judge’s staff.
Notified counsel by telephone.
Docketing 10 mail notices. AWN0I Laisid “s'n
Mail AO 450 form, nda
Copy to judge/magistrate judge. _ hog ener
BS nd PL Sv aIZ
courtroom
ow depury’s
Anitials f if mm re ,
Ts * Date/tlme received ia
central Clerk's Office nailing initials



finding of liability as against AMEC, but not Gurtz, would result
in no coverage for AMEC under the Regent policy. Even if a
finding as to no liability for Gurtz would not necessarily
completely eliminate the possibility of AMEC being covered for
any liability imposed on it, such findings would likely eliminate
the principle basis for coverage. A finding of no liability for
Gurtz very well may collaterally estop or judicially estop AMEC
from contending that the injuries to Hawver were caused by
Gurtz's work, which would ordinarily be the principal basis for
contending the liability arose from Gurtz's work. Thus,
regardless of the distinctions between the concepts of proximate
cause and arising out, Regent still lacks a strong incentive to
vigorously defend AMEC against accusations that Hawver was
injured in an area of the construction site that was not part of
Gurtz's work.

For the foregoing reasons, Regent would have a serious
conflict in defending AMEC. Therefore, AMEC is entitled to
select its own counsel for the Hawver lawsuit and have Regent
reimburse it for its costs and legal fees.

The other issue raised by the parties is the question of
the hourly rate that Regent should be required to pay the
attorneys retained by AMEC. In response to summary judgment,
Regent provides letters it sent to AMEC in which Regent stated
that, for lawsuits it is required to defend in the Chicago area,

Regent ordinarily retains attorneys who are paid between $95.00

-11-



of" language contained in the policy presently at issue, the
Liberty Mutual case cited by Regent, as well as the cases

cited in Liberty Mutual, all involve situations that are
distinguishable from the present case. In each of those cases,
the plaintiff in the underlying lawsuit was an employee of one of
the insureds and thus the plaintiff's injury had a but-for
relationship to the insured's work (regardless of any proximate
causation) because the employee would not have been in the
particular situation but for being employed by the insured. See
Liberty Mutual, 703 N.E.2d at 442-43; American States Insurance
Co, v. Liberty Mutual Insurance Co., 291 Ill. App. 3d 336, 683
N.E.2d 510 (1st Dist. 1997); Shell Oil Co. v. AC & S, Inc.,

271 Ill. App. 3d 898, 649 N.E.2d 946 (5th Dist. 1995); Maryland
Casualty Co. v. Chicago & North Western Transportation Co.,

126 Ill. App. 3d 150, 466 N.E.2d 1091 (1st Dist. 1984).

In the present case, Hawver was not an employee of either
of the possible insureds, Gurtz or AMEC. Scenarios can be
conceived where an injury to Hawver might have a but-for
relationship to Gurtz's work without also having a proximate
cause relationship. For example, if Hawver was coming to
socialize with a Gurtz employee when he tripped over conduit that
was not part of Gurtz's work, perhaps it could be found that
Hawver's injury was not proximately caused by Gurtz's work while
still having a but-for relationship to Gurtz's work. That,

however, is not necessarily a likely scenario. More likely, a

-10-



An insurer must allow the insured to select its own

counsel when there is a "serious conflict" between the insurer

and insured. Littlefield v. McGuffey, 979 F.2d 101, 105-06 & n.3

(7th Cir. 1992) (quoting Maneikis v. St. Paul Insuranc

Illinois, 655 F.2d 818, 825 (7th Cir. 1981)); Sears, Roebuck &
Co, v. Emerson Electric Co., 2001 WL 1155273 *6 (N.D. Ill.

Sept. 28, 2001). Construing Illinois law, the Seventh Circuit
held that there is no serious conflict unless "the insurer and
the insured were complete adversaries on a crucial issue which
would necessarily be decided either one way or the other if
liability [were] imposed." Maneikis, 655 F.2d at 825. This
"exception requires an either/or situation" in which there will
be one finding that favors the insured or another that favors the
insurer. Littlefield, 979 F.2d at 106. Subsequent to Maneikis,
however, the Illinois courts have held that this is not the only
circumstance that constitutes a serious conflict. See Nandorf,
Inc. v. CNA Insurance Cos,, 134 Ill. App. 3d 134, 479 N.E.2d 988,
992 (1st Dist. 1985); Littlefield, 979 F.2d at 106; Emerson
Electric, 2001 WL 1155273 at *3. In Nandorf, the insurer was
found to have a conflict where the insured faces a small claim
for compensatory damages which is subject to indemnity by the
insurer, but a large claim for punitive damages which is not
subject to indemnity. 479 N.E.2d at 992, "Under Nandorf,

then, a conflict may exist when the insurer lacks incentive to

defend its insured on a portion of the claims that appear


Regent policy. The policy further provided: "Who is an Insured
(Section II) is amended to include as an insured the person or
organization shown in the Schedule, but only with respect to
liability arising out of ‘your work' for that insured by or for
you." The “your" and "you" in this quoted provision is Gurtz.
"[T]hat insured," as used in this provision, refers to additional
insureds such as AMEC. The policy defines "your work" as
meaning:

a. Work or operations performed by you or on your

behalf; and

b. Materials, parts or equipment furnished in

connection with such work or operations.

"Your work" includes:

a. Warranties or representations made at any time

with respect to the fitness, quality, durability,

performance or use of "your work;" and

b. The providing or failure to provide warnings

or instructions.

Initially, in the Hawver lawsuit, Travelers provided a
defense for AMEC. AMEC was represented by attorneys at the law
firm of Michael Best & Friedrich, LLC, which apparently has
represented AMEC on other matters as well. On AMEC's behalf,
Travelers sent notice to both Tribco's insurer and Regent
requesting that both insurers defend and indemnify AMEC in the
suit brought by Hawver. Regent "accept[ed] the tender of defense
made by AMEC under a full reservation of rights." Regent stated
that it may, at some future time, withdraw from the defense,

refuse to make any indemnity payments, or otherwise contest

coverage. Regent further stated that it may refuse to indemnify



issue’ and, if not, suggest appropriate further proceedings for
its resolution. To the extent the parties can resolve the
remaining issue and desire that a judgment be entered, they
should submit a draft judgment order.

IT IS THEREFORE ORDERED that plaintiff's motion for
partial summary judgment [13] is granted in part and denied in
part. Plaintiff is entitled to a declaration that it has the
right to retain its own counsel in the Hawver case and be
reimbursed by defendant. Defendant's motion for summary judgment
is denied. A status hearing will be held on April 7, 2004 at
11:00 a.m.

ENTER:

ssp eure book.

UNITED STATES DISTRICT JUDGER

DATED: March |\ , 2004

‘Hopefully, the parties will be able to settle their
dispute. But even if Regent is not willing to give up its right
to appeal the ruling that AMEC is entitled to retain its own
counsel, it still may be able to agree with AMEC as to an
appropriate hourly rate and past reimbursement. A judgment could
still be entered that would not preclude Regent's right to
appeal.

- 14 -



AMEC has moved for partial summary judgment on its count seeking
a declaratory judgment. In response to that motion, and without
objection from AMEC, Regent requests that summary judgment be
entered in its favor. Regent's motion can be considered even
though a formal motion for summary judgment has not been filed.

On a motion for summary judgment, the entire record is
considered with all reasonable inferences drawn in favor of the
nonmovant and all factual disputes resolved in favor of the
nonmovant. Turner v. J.V.D.B. & Associates, Inc., 330 F.3d 991,
994-95 (7th Cir. 2003); Palmer v. Marion County, 327 F.3d 588,
592 (7th Cir. 2003); Abrams v. Walker, 307 F.3d 650, 653-54 (7th
Cir. 2002). Here, the facts generally are not in dispute. The
following facts are taken as true for both parties' motions for
summary judgment.

AMEC was hired as the general contractor to construct the
Peninsula Hotel. Two of the subcontractors on the project were
Tribco Construction Services and Gurtz Electric Co. Thomas
Hawver, an employee of Tribco, alleged that he was injured at the
construction site when he tripped over protruding electrical
conduit. Hawver initially brought suit against AMEC and
subsequently added Gurtz as a defendant. That lawsuit is pending
in the Circuit Court of Cook County, Illinois.

AMEC has a general liability policy issued by Travelers
Insurance Company. Gurtz has a general liability policy issued

by Regent. AMEC was listed as an additional insured under the



IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION

AMEC CONSTRUCTIONS MANAGEMENT,
INC.,

Plaintiff,
Vv.

No. 03 C 2880

REGENT INSURANCE COMPANY,

Defendant.

ae

MAR 1 2 2004 \

PINT RDER

This case concerns defendant Regent Insurance Company's
duty to defend plaintiff AMEC Construction Management, Inc.
There is complete diversity of citizenship and the amount in
controversy exceeds $75,000. AMEC was the general contractor at
a construction site. An employee of a subcontractor was injured.
The employee brought suit against a second subcontractor and
AMEC. Regent insured the second subcontractor and Regent's
policy also provides some coverage for AMEC. The question is
whether a conflict of interest exists between Regent and AMEC
such that AMEC is entitled to retain counsel of its choice. To
the extent AMEC is entitled to choose its own counsel, a question

exists regarding the rate that Regent is obliged to pay counsel.



and $135.00 per hour. Without submitting any supporting summary
judgment materials or specifically setting forth Michael Best's
hourly fee, AMEC indicates that Michael Best's standard hourly
fee is higher than $135.00 per hour. AMEC contends Regent should
be required to pay Michael Best's standard fee and further
contends that Michael Best's standard fee is reasonable. AMEC
represents that it has paid Michael Best's standard fee in the
past and contends such payments would be conclusive evidence that
the fee is a reasonable market rate. Although this
representation is made in AMEC's reply, no affidavit or other
appropriate summary judgment material is submitted to support
this representation,

In AMEC's opening brief, AMEC asserted, without any
supporting legal argument or factual support, that Regent should
be required to pay Michael Best's standard rate. In its answer
brief, Regent pointed to the lack of support for AMEC'’s assertion
and contended, without citing any legal support, that the fee to
be paid Michael Best had to be reasonable. AMEC then responded

by providing a legal argument, agreeing that the applicable legal

standard is reasonableness, see Taco Bell Corp. v. Continental
Casualty Co., 2003 WL 1475035 *12-13 (N.D. Ill. March 17, 2003),

and contending that Michael Best's fee is reasonable because AMEC
purportedly has paid it in the past. It is true that a past
history of the rates being paid is strong evidence that the rates

are reasonable. See id, Perhaps Regent could produce sufficient

- 12 -