Court Opinion

ID: 3146681
Source: CourtListenerOpinion
Date Created: 2015-10-22 18:20:28.399607+00
Date Added: 2024-06-11T12:28:43.088722
License: Public Domain

FIFTH DIVISION
                                                                   JUNE 1, 2007

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OHIO CASUALTY INSURANCE COMPANY,                               )
                                                               )
                 Plaintiff-Appellee,                           )   Appeal from the
                                                               )   Circuit Court of
       v.                                                      )   Cook County.
                                                               )
OAK BUILDERS, INC.,                                            )   No. 04 CH 3755
                                                               )
                 Defendant-Appellant                           )   Honorable
                                                               )   Martin Agran,
                                                               )   Judge Presiding.
(David Huerta,                                                 )
                                                               )
                 Defendant-Appellee).                          )

       JUSTICE TULLY delivered the opinion of the court:

       This appeal concerns a declaratory judgment action that was brought in the circuit court

of Cook County by plaintiff-appellee, Ohio Casualty Company (Ohio Casualty). Ohio Casualty

sought a declaratory judgment that its policy did not provide coverage to defendant-appellant,

Oak Builders, Inc. (Oak Builders), for an underlying action brought against Oak Builders by

David Huerta (Huerta),1 In the alternative, Ohio Casualty sought a declaratory judgment that any

coverage Ohio Casualty's policy did provide to Oak Builders was excess to Oak Builders'

coverage under a different insurance policy, which was issued to Oak Builders by American

       1
         Huerta is the plaintiff in the underlying action pending in the circuit court. Ohio
Casualty named Huerta as "a necessary but nominal party" to its declaratory judgment action.
Ohio Casualty sought no specific relief from Huerta; on the contrary, Huerta was joined "solely
in order to be bound by the judgment entered" in Ohio Casualty's declaratory judgment action.
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Family Insurance Company (American Family). Following a hearing on cross summary

judgment motions filed by both Ohio Casualty and Oak Builders, the circuit court held that the

"additional insured endorsement" in Ohio Casualty's policy provided coverage for Huerta's suit,

but that the coverage provided by Ohio Casualty's policy was "excess" to the coverage provided

under Oak Builders' policy with American Family. In essence, the circuit court concluded that

Ohio Casualty would be liable only if the amount owed in the Huerta suit exceeded the

maximum amount recoverable under Oak Builders' policy with American Family.

       On appeal, Oak Builders argues that the circuit court's judgment should be reversed

because the coverage provided by Ohio Casualty's "additional insured endorsement" was co-

primary rather than excess and, therefore, Ohio Casualty and Oak Builders should be liable for a

pro-rata share of the settlement or judgment in the underlying lawsuit brought by Huerta. For

the following reasons, we reverse and remand with directions.

                                              FACTS

       On June 17, 2002, Huerta brought an action in the circuit court against Oak Builders,

among others, alleging injuries as a result of negligence at a construction site. At the time of the

accident at issue in Huerta's personal injury action, Huerta was assigned to perform construction

work at the site pursuant to a contract between his employer, JAZ Construction, Inc. (JAZ

Construction), and Oak Builders. JAZ Construction was insured by Ohio Casualty under a

contractor's liability policy. The contractor's liability policy issued to JAZ Construction by Ohio

Casualty contained an "additional insured endorsement," which provided insurance coverage to

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Oak Builders as an additional insured. In addition to being insured pursuant to Ohio Casualty's

"additional insured endorsement," Oak Builders was insured under a commercial general liability

policy issued by American Family.

       In response to Huerta's complaint, Oak Builders tendered defense to Ohio Casualty

pursuant to its status as an "additional insured" under JAZ Construction's . On November 19,

2002, Oak Builders also filed a third-party complaint against JAZ Construction denying all

liability and negligence alleged against it in Huerta's complaint. Additionally, Oak Builders'

third-party complaint sought contribution from JAZ Construction, as Huerta's employer, on the

grounds that JAZ Construction had committed one or more negligent acts or omissions resulting

in Huerta's claimed injuries.

       On March 3, 2001, Ohio Casualty filed a declaratory judgment seeking a declaration that

Oak Builders was not an additional insured under JAZ Construction's policy for purposes of

Huerta's complaint. Ohio Casualty also sought a declaration that, even if Oak Builders was an

additional insured for purposes of Huerta's complaint, Ohio Casualty's policy provided Oak

Builders with exclusively excess coverage. Ohio Casualty filed a motion for judgment on the

pleadings. In addition, Oak Builders filed a motion for summary judgment in which it argued it

qualified as an additional insured on the policy issued by Ohio Casualty to JAZ Construction and

that Ohio Casualty's policy provided primary coverage to Oak Builders.

       Following a hearing, the circuit court granted Oak Builders' motion for summary

judgment in part, finding that Oak Builders was an additional insured on the policy issued by

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Ohio Casualty to JAZ Construction. The circuit court also found, however, that the Ohio

Casualty policy provided "excess" coverage rather than "primary" coverage to Oak Builders

because the Ohio Casualty policy's "additional insured endorsement" provided fundamentally

excess coverage. The circuit court granted Ohio Casualty's motion for judgment on the pleadings

as to this second issue.

       Oak Builders filed a motion for reconsideration of the circuit court's ruling that the Ohio

Casualty policy provides exclusively excess coverage to the policy issued by American Family.

Oak Builders sought a finding that the Ohio Casualty policy and the American Family policy

both provide primary coverage to Oak Builders and, therefore, Ohio Casualty has a duty to share

the cost of defending and indemnifying Huerta's suit against Oak Builders. The circuit court

denied Oak Builders' motion for reconsideration and this timely appeal followed.

                                          DISCUSSION

       This appeal concerns a dispute over the interpretation of "other insurance" clauses

contained in the two insurance policies issued to Oak Builders. One insurance policy was issued

to Oak Builders by American Family pursuant to a commercial general liability policy and the

other insurance policy was issued to Oak Builders by Ohio Casualty pursuant to an "additional

insured endorsement." Ohio Casualty asserts that the American Family policy provides

"fundamentally primary" coverage to Oak Builders and the "other insurance" clause in Ohio

Casualty's "additional insured endorsement" renders Ohio Casualty's coverage "fundamentally

excess." As such, Ohio Casualty argues that American Family should be solely responsible for

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defending and indemnifying the suit brought by Huerta. Oak Builders, on the other hand,

contends that both the American Family policy and the Ohio Casualty policy provide "primary"

coverage and the "excess" other insurance clauses in the two insurance policies are mutually

repugnant. Oak Builders asserts that, because both policies provide "primary" coverage and the

two "excess" other insurance clauses are mutually repugnant, American Family and Ohio

Casualty should share the cost of defending and indemnifying the action brought by Huerta. We

agree with Oak Builders.

       A court's primary objective in construing the language of an insurance policy is to

ascertain and give effect to the intentions of the parties as expressed by the language of the

policy. Crum & Forster Managers Corp. v. Resolution Trust Corp., 156 Ill. 2d 384, 391 (1993).

Like any contract, an insurance policy is to be construed as a whole, giving effect to every

provision, if possible, because it must be assumed that every provision was intended to serve a

purpose. Central Illinois Light Co. v. Home Insurance Co., 213 Ill. 2d 141, 153 (2004). If the

words used in the policy, given their plain and ordinary meaning, are unambiguous, they must be

applied as written. Crum & Forster Managers Corp., 156 Ill. 2d at 391. However, if the words

used in the policy are ambiguous, they will be strictly construed against the drafter. Central

Illinois Light Co., 213 Ill. 2d at 153. It is well settled that the construction of an insurance policy

is a question of law and is an appropriate subject for disposition by way of summary judgment.

Illinois Farmers Insurance Co. v. Marchwiany, 222 Ill. 2d 472, 476 (2006). Since the

construction of an insurance policy is a question of law, our review is de novo. Nicor, Inc. v.

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Associated Electric & Gas Insurance Services, Ltd., 223 Ill. 2d 407, 416 (2006).

       As stated, this case presents a dispute regarding the interpretation of the "other insurance"

clauses contained in the American Family policy and in the Ohio Casualty policy. Our supreme

court, in Putman v. New Amsterdam Casualty Co., 48 Ill. 2d 71 (1970), provided guidance

regarding the different types of "other insurance" clauses and the manner in which disputes

involving "other insurance" clauses should be resolved. In Putnam, our supreme court noted that

there are generally three types of "other insurance" clauses that tend to appear in insurance

contracts: "pro-rata" clauses, "excess" clauses, and "escape" clauses. Putnam, 48 Ill. 2d at 76.

The Putnam court explained the three types of "other insurance" clauses as follows:

       "The typical pro-rata clause provides that when an insured has other insurance available,

       the company will be liable only for the proportion of the loss represented by the ratio

       between its policy limit and the total limits of all available insurance. The excess clause

       allows coverage only 'over and above' other insurance. The escape clause holds the

       policy null and void with respect to any hazard as to which other insurance exists."

       Putnam, 48 Ill. 2d at 76.

       After explaining the three different types of "other insurance" clauses, the Putnam court

adopted the majority rule for resolving "other insurance" disputes and concluded that "other

insurance" provisions should be reconciled whenever possible to effectuate the intent of the

parties. Putnam, 48 Ill 2d at 77-82. While our supreme court adopted the view that "other

insurance" provisions should be reconciled whenever possible, the Putnam court also confirmed

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that "when two policies contain the same sort of 'other insurance' clause, the clauses will be

deemed incompatible." Padilla v. Norwegian-American Hospital, Inc., 266 Ill. App. 3d 829, 836,

citing Putnam, 48 Ill. 2d at 80. The Putnam court reasoned that "this approach is fair when there

is no rational basis for applying the clause of one policy and refusing to apply the identical clause

of another policy." Putnam, 48 Ill. 2d at 78-79.

       In this case, the American Family policy's "other insurance" clause provides, in relevant

part, as follows:

       "Other Insurance:

       If valid and collectible insurance is available to [Oak Builders] for a loss we cover under

       Coverages A or B of this Coverage Part, [American Family's] obligations are limited as

       follows:

       A. Primary Insurance

       This insurance is primary except when B, below, applies. If this insurance is primary, our

       obligations are not affected unless any of the other insurance is also primary. Then we

       will share with all that other insurance by the method described in C, below.

       B. Excess Insurance

       This insurance is excess over:

       ***

       (2) Any other primary insurance available to you covering liability for damages arising

       out of the premises or operations for which you have been added as an additional insured

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       by attachment or endorsement." (Emphasis added.)

       The "other insurance" clause in the Ohio Casualty "additional insured endorsement,"

which makes Oak Builders an additional insured because it was a "person or organization whom

[JAZ Construction, the named insured, was] required to name as an additional insured on this

policy under a written policy or agreement," provides, in relevant part, as follows:

       "Any coverage provided hereunder shall be excess over any other valid and collectible

       insurance available to [Oak Builders] whether primary, excess, contingent or on any other

       basis unless a contract specifically requires that this insurance be primary or you request

       that it apply on a primary basis." (Emphasis added.)

       After reviewing both of these "other insurance" provisions, it is clear that both are

"excess" clauses. Indeed, both clauses specifically use the word "excess" and both clauses clearly

convey the intent to have insurance coverage only "over and above" other available insurance.

See Putnam, 48 Ill. 2d at 76. We must attempt to reconcile "other insurance" clauses whenever

possible. However, when, as here, we are faced with two primary insurance policies that contain

the same sort of "other insurance" clauses -- specifically, "excess" insurance clauses -- the

policies are mutually repugnant and incompatible. See Putnam, 48 Ill. 2d at 80; Padilla, 266 Ill.

App. 3d at 836. Faced with these two insurance policies, both of which provide primary

coverage for the type of suit brought by Huerta and both of which contain "other insurance"

clauses stating that the coverage provided is "excess," we must conclude that the two "excess"

clauses cancel each other out and American Family and Ohio Casualty should share the costs

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associated with defending and indemnifying the suit brought by Huerta.

       In an effort to avoid having to share the cost of defending and indemnifying the suit

brought by Huerta against Oak Builders, Ohio Casualty asserts two arguments. First, Ohio

Casualty contends that the coverage it provides to Oak Builders "is expressly identified as excess

coverage in the Ohio Casualty policy." In other words, Ohio Casualty asserts that Oak Builders'

insurance coverage with American Family is "fundamentally primary coverage," while Oak

Builders' coverage with Ohio Casualty is "fundamentally excess." What Ohio Casualty

overlooks, however, is that both the American Family policy and the Ohio Casualty "additional

insured endorsement" provide primary coverage and the intent and purpose of each policy's

"other insurance" clause is to convert otherwise primary coverage into excess insurance when

other primary insurance covers the loss. Since both policies provide primary coverage and both

policies contain the same sort of excess "other insurance" clauses, the "other insurance" clauses

are irreconcilable in that following the express terms of one policy would be in direct conflict

with the express terms of the other policy; that is, if each "excess" clause was given effect,

neither policy would provide primary coverage. In fact, the only way that the two conflicting

"excess" clauses could be reconciled would be to read the Ohio Casualty "additional insured

endorsement" first and then determine that American Family's coverage is "primary" and Ohio

Casualty's coverage is "excess." There is no plausible reason for reading Ohio Casualty's policy

first and we believe that Ohio Casualty's approach would lead to an arbitrary result that was not

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contemplated by the parties.

       Second, Ohio Casualty asserts it should not be responsible for sharing with American

Family the cost of defending and indemnifying the suit brought by Huerta because the two

"excess" clauses are not identical and, therefore, the two clauses can be reconciled. It is true that

the "excess" clause in the Ohio Casualty policy's "additional insured endorsement" and the

"excess" clause in the American Family policy do not contain identical verbiage and, in Putnam,

our supreme court rejected the proposition that all "other insurance" clauses are repugnant,

"" Putnam, 48 Ill. 2d at 79, quoting Lamb-Weston, Inc.

v. Oregon Auto Insurance Co., 219 Or. 110, 129 341 P.2d 110, 119 (1959). However, the

Putnam court described the three different types of "other insurance" clauses and concluded that

where "other insurance" clauses of the same type are in conflict, it is "impossible to give effect to

the intent of all parties." Putnam, 48 Ill. 2d at 80. Indeed, in Padilla, relying on our decision in

Putnam, we confirmed that "when two policies contain the same sort of 'other insurance' clause,

the clauses will be deemed incompatible." (Emphasis added.) Padilla 266 Ill. App. 3d at, 836,

Putnam, 48 Ill. 2d at 80. As discussed above, the American Family policy and the Ohio

Casualty's "additional insured endorsement" both contain similar "other insurance" clauses;

specifically, both policies contain "excess" insurance clauses. Since the policies at issue in this

case both contain the same type of "other insurance" clauses, we must conclude that the two

clauses cannot be reconciled and the parties should share the cost of defending and indemnifying

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the law suit brought by Huerta.

       In sum, we hold that both the American Family policy and the Ohio Casualty policy's

"additional insured endorsement" provide primary insurance and both contain the same sort of

excess "other insurance" clauses. As such, both insurance companies intended to offer excess

insurance if and when other primary insurance was available. We conclude that the "excess"

insurance clauses are mutually repugnant and cancel each other out since the only way to give

effect to one insurer's intention would be arbitrarily to read one policy's excess clause first and

undermine the intention of the insurer whose policy's "excess" insurance clause was read second.

Finally, we hold that where, as here, "two policies contain the same sort of 'other insurance'

clause, the clauses will be deemed incompatible." (Emphasis added.) Padilla 266 Ill. App. 3d

829, 836, Putnam, 48 Ill. 2d at 80. In such cases, the loss is pro-rated between the policies.

                                          CONCLUSION

       We reverse the judgment of the circuit court and remand the cause for a calculation of the

respective liabilities under the American Family policy and the Ohio Casualty policy in

accordance with this opinion and the language of the contracts.

       Reversed and remanded with directions.

       O'MARA FROSSARD and GALLAGHER, JJ., concur.

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