Opinion ID: 3134619
Heading Depth: 2
Heading Rank: 5

Heading: Wausau’s Cross-Relief

Text: 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: “(1) In any action by or against a company wherein there is in issue the liability of a company on a policy or policies of insurance or the amount of the loss payable thereunder, or for an unreasonable delay in settling a claim, and it appears to the court that such action or delay is vexatious and unreasonable, the court may allow as part of the taxable costs in the action reasonable attorney fees, other costs, plus [certain penalties.]” 215 ILCS 5/155 (West 1994). 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.