Court Opinion

ID: 2831202
Source: CourtListenerOpinion
Date Created: 2015-08-26 22:05:47.737401+00
Date Added: 2024-06-11T11:31:42.316322
License: Public Domain

Illinois Official Reports

                                    Appellate Court

           Certain Underwriters at Lloyd’s London v. The Burlington Insurance Co.,
                                  2015 IL App (1st) 141408

Appellate Court         CERTAIN UNDERWRITERS AT LLOYD’S LONDON,
Caption                 Subscribing to Certificate No. CVCC00537, Plaintiff-Appellee, v.
                        THE BURLINGTON INSURANCE COMPANY and BARNABUS
                        SUTTON, Defendants-Appellants.

District & No.          First District, Third Division
                        Docket Nos. 1-14-1408, 1-14-3091 cons.

Filed                   July 15, 2015

Decision Under          Appeal from the Circuit Court of Cook County, No. 13-CH-18775; the
Review                  Hon. Rodolfo Garcia, Judge, presiding.

Judgment                Affirmed.

Counsel on              Michael C. Borders and Rosa M. Tumialàn, both of Dykema Gossett
Appeal                  PLLC, of Chicago, for appellants.

                        Neal R. Novak and Colleen M. Costello, both of Novak Law Offices,
                        of Chicago, for appellee.

Panel                   JUSTICE HYMAN delivered the judgment of the court, with opinion.
                        Justices Lavin and Mason concurred in the judgment and opinion.
                                             OPINION

¶1       Plaintiff, Certain Underwriters at Lloyd’s London, Subscribing to Certificate No.
     CVCC000537 (Underwriters), issued an insurance policy to Rada Development LLC for a
     commercial development project. Barnabus Sutton, an employee of C&B Steel, Inc., a
     project subcontractor, sued Rada for injuries he sustained in an accident at the construction
     site. Underwriters filed a declaratory judgment action against C&B Steel’s insurer, The
     Burlington Insurance Company (TBIC), sought a judicial declaration that, under the TBIC
     policy, Rada qualified as an additional insured. The circuit court held that TBIC had the sole
     duty to defend Rada as an additional insured and ordered TBIC to reimburse Underwriters
     for all reasonable costs in defending Rada. TBIC appealed, asserting that the circuit court
     erred in finding that TBIC has the sole duty to defend Rada, and asked that the order be
     reversed and a new order entered finding TBIC to be a co-primary insurer obligated to share
     in the defense with Underwriters.
¶2       In a separate case involving the same tort claim, Pekin Insurance Company, which issued
     a policy to Chicago Masonry Construction, Inc., another subcontractor, sought a declaration
     that Rada was not an additional insured under its policy. (Pekin named Rada but not
     Underwriters as a defendant in that declaratory judgment action.) After the trial court found
     Pekin had no duty to defend Rada in the Sutton lawsuit, Underwriters filed a petition to
     vacate the trial court’s judgment under section 2-1401 of the Code of Civil Procedure (Code)
     (735 ILCS 5/2-1401 (West 2012)), asserting Underwriters was a necessary party. The circuit
     court granted Underwriters’ petition and vacated the judgment. The appellate court affirmed.
     Pekin Insurance Co. v. Rada Development, LLC, 2014 IL App (1st) 133947. Thereafter, in
     this case, TBIC filed a motion to vacate under section 2-1401, contending that Rada failed to
     name Pekin, a necessary party. The circuit trial court denied the petition. The trial court
     found Pekin did not acquire the status of a necessary party and TBIC had a duty to reimburse
     Underwriters’ for its defense costs. Consolidated before us are TBIC’s appeals of the order
     rejecting Pekin as a necessary party and the order granting Underwriters its reasonable
     defense costs.
¶3       We affirm. Pekin does not have the status of a necessary party to this coverage dispute.
     The court only had to determine which insurer, as between Underwriters and TBIC, owed a
     primary duty to defend Rada. Further, the trial court did not err in finding that TBIC’s “other
     insurance” clause rendered it primary to the Underwriters policy and responsible for
     Underwriters’ defense costs.

¶4                                       BACKGROUND
¶5       Rada owns and is the developer of a commercial property located in Chicago (the
     project). Rada contracted with Heartland Construction Group to act as general contractor. On
     August 1, 2006, Heartland entered into a subcontract agreement with C&B Steel, and as part
     of that agreement, C&B Steel was required to list Heartland as an additional insured on its
     liability insurance policy. Later, Rada took over as the general contractor of the project,
     under a “reassignment agreement” between Rada and Heartland. Heartland agreed to assign
     all of its interests in any subcontract agreement for the project, including its subcontract
     agreement with C&B Steel.

                                                -2-
¶6         On November 15, 2006, Barnabus Sutton, an employee of C&B Steel, sustained injuries
       in a construction related accident. Sutton sued Rada and others to recover for his injuries.
       (While these consolidated appeals were pending, the underlying action settled for $240,000
       and was dismissed.) Underwriters tendered Rada’s defense to TBIC, based on Rada’s status
       as an additional insured under the TBIC policy. TBIC denied the tender, contending that the
       policy excluded Sutton’s suit from coverage under the Employer’s Liability Exclusion
       provision and that Rada did not qualify as an additional insured under the policy.
¶7         On August 19, 2013, Underwriters filed a complaint seeking a declaration that: (i) Rada
       qualified as an additional insured, (ii) TBIC should reimburse Underwriters for all defense
       costs, (iii) the employer’s liability exclusion did not apply to Rada, and (iv) TBIC was
       otherwise estopped from asserting any coverage defenses. TBIC denied the material
       allegations of Underwriters’ complaint and filed a counterclaim based on the employer
       liability exclusion.
¶8         After argument, the circuit court entered an order on March 17, 2014, granting
       Underwriters’ motion, in part, denying TBIC’s cross-motion, in part, and declining to reach
       the estoppel issue. The court found that “TBIC has the sole duty to defend Rada *** as an
       additional insured and that TBIC must reimburse Underwriters all reasonable defense costs
       incurred defending Rada in the [underlying] action from July 23, 2013 to the present.” The
       court also held that: (i) Rada qualified as an additional insured under the TBIC policy, and
       the assignment of the contract requiring Rada to be named as an additional insured was fully
       executed before the date of loss; (ii) the employer’s liability exclusion in the TBIC policy did
       not apply to bar coverage for Rada; (iii) the amended definition of employee did not expand
       the scope of the employer liability exclusion in the TBIC policy; and (iv) TBIC’s “other
       insurance” clause rendered it primary to the Underwriters’ policy. TBIC filed a motion to
       reconsider only the circuit court’s ruling that the “other insurance” clause rendered it primary
       to the Underwriters policy, which the trial court denied.
¶9         On May 6, 2014, the circuit court entered a money judgment in favor of Underwriters and
       against TBIC for 100% of the reasonable defense fees and costs Underwriters incurred in
       defending Rada, which amounted to $107,277.88, plus prejudgment interest in the amount of
       $4,325.55, for a total judgment of $111,603.43. TBIC filed a notice of appeal asserting that
       the trial court erred in finding that it had the sole duty to defend Rada.
¶ 10       On July 23, 2014, while TBIC’s appeal of the money judgment was pending, the
       appellate court issued an opinion in Pekin Insurance Co. v. Rada Development, LLC, 2014 IL
       App (1st) 133947, holding that Underwriters should have been named as a necessary party to
       the declaratory action filed by Pekin pertaining to the same accident and underlying lawsuit.
       After learning of the Rada Development case, TBIC filed a section 2-1401 petition to vacate
       the trial court’s March 17 and May 5 orders. TBIC contended that the orders were void for
       lack of joinder of a necessary party, namely Pekin, to the declaratory action. (TBIC also filed
       a motion to vacate and for sanctions under Illinois Supreme Court Rule 375 (eff. Feb. 1,
       1994) in the appellate court, which was denied.)
¶ 11       On September 17, 2014, the circuit court heard arguments on TBIC’s section 2-1401
       petition to vacate. The court denied the petition, finding Pekin did not occupy the status of a
       necessary party to the dispute and its order directing TBIC to reimburse Underwriters’
       defense costs was not void. The court noted that TBIC’s challenge was limited to the other
       insurance clause ruling only and that TBIC did not contest that it had a duty to defend Rada.

                                                  -3-
       On October 6, 2014, TBIC filed a notice of appeal from the September 17 order. TBIC also
       filed a motion to consolidate the appeals, which we granted.

¶ 12                                            ANALYSIS
¶ 13                                          Necessary Party
¶ 14       TBIC argues the trial court erred in denying its section 2-1401 motion to vacate because
       the judgment was void where a necessary party–Pekin Insurance–was not joined. TBIC
       asserts that because Pekin may be liable to pay some of Underwriters’ defense costs, it was a
       necessary party, and thus, the order should be vacated and the case remanded with
       instructions that this case be consolidated with the Pekin case. TBIC asserts that by making it
       responsible for 100% of Underwriters’ defense costs, the trial court elevated its “other
       insurance” clause over the “other insurance” clauses in the policies issued by other involved
       insurers, including Pekin.
¶ 15       “A necessary party is one whose participation is required to (1) protect its interest in the
       subject matter of the controversy which would be materially affected by a judgment entered
       in its absence; (2) reach a decision protecting the interests of the parties already before the
       court; or (3) allow the court to completely resolve the controversy.” Zurich Insurance Co. v.
       Baxter International, Inc., 275 Ill. App. 3d 30, 37 (1995), aff’d as modified, 173 Ill. 2d 235
       (1996). An order entered without jurisdiction over a necessary party will be void. Id. The
       failure to join a necessary party may be raised at any time: by the parties or by the trial court
       or by the appellate court sua sponte. Lah v. Chicago Title Land Trust Co., 379 Ill. App. 3d
933, 940 (2008).
¶ 16       TBIC maintains that where a dispute involves the obligation that two insurers may owe to
       the same mutual insured, both insurers are necessary parties to any case adjudicating the duty
       to defend and allocating defense costs. TBIC states that by not joining Pekin, TBIC’s
       interests are not protected and the court may not completely resolve the controversy due to an
       inability to allocate some of the defense costs to Pekin. Thus, TBIC asserts, the circuit court
       order allocating to TBIC 100% of Underwriters’ defense costs is void.
¶ 17       For support, TBIC relies on Rada Development, 2014 IL App (1st) 133947, and contends
       that the appellate court held that all insurers who are claimed to have a duty to defend Rada
       in the underlying case qualify as necessary parties to a declaratory complaint that seeks to
       adjudicate those rights. In Rada Development, Underwriters defended Rada in the underlying
       action under a reservation of rights. Id. ¶ 5. Underwriters tendered Rada’s defense in the
       underlying case to Pekin and Pekin’s named insured, Chicago Masonry Construction, Inc.
       Pekin denied the tender and filed a declaratory judgment action naming Rada but not
       Underwriters as a defendant, seeking a declaration that it had no duty to defend Rada in the
       Sutton case. Id. ¶ 7. Pekin obtained a default judgment against Rada. Id. ¶ 13. Underwriters
       filed a section 2-1401 petition to vacate the default judgment and a motion to intervene under
       section 2-408(a)(2) of the Code (735 ILCS 5/2-408(a)(2) (West 2012)), contending it was a
       necessary party to the Pekin action but never joined. Rada Development, 2014 IL App (1st)
133947, ¶ 16. The circuit court granted the section 2-1401 petition to vacate. The trial court
       reasoned that Underwriters possessed necessary party status in Pekin’s declaratory judgment
       action because it had an interest in the subject matter that was materially affected by the
       default judgment order. Id. ¶ 17.

                                                   -4-
¶ 18       The appellate court affirmed, finding that Underwriters was a necessary party in the
       Pekin declaratory judgment action because the default judgment required Underwriters to
       continue defending Rada in the Sutton suit, “despite its attempt to tender Rada’s defense to
       Pekin ***; thus, the judgment materially affected the interest of [Underwriters].” Id. ¶ 21.
       Pekin’s petition for leave to appeal to the Illinois Supreme Court was denied. Pekin
       Insurance Co. v. Rada Development LLC, No. 118203 (Ill. Nov. 26, 2014). (On remand,
       TBIC filed a petition to intervene in the Pekin declaratory judgment action, which was
       granted, and TBIC filed a counterclaim in that case seeking a declaration that Pekin had a
       duty to defend Rada in the Sutton case and a cause of action based on equitable contribution.)
¶ 19       To repeat, based on the holding in Rada Development, TBIC contends that all insurers
       who are claimed to have a duty to defend Rada in the underlying case are necessary parties to
       a declaratory judgment action that seeks to adjudicate those rights. TBIC further contends
       Pekin is a necessary party because Pekin may be found to have a duty to defend Rada and,
       thus, may be liable for some of Underwriters’ defense costs. Thus, to fully adjudicate TBIC’s
       rights and obligations as to Rada, Pekin must be named a party. We disagree. Unlike in Rada
       Development, the circuit court’s ruling did not materially affect Pekin’s interests. The circuit
       court’s order held that Rada was an additional insured under the TBIC policy, that TBIC
       owes a duty to defend Rada in the Sutton case, and that because Underwriters’ policy is
       excess to the TBIC policy, Underwriters does not have a duty to defend Rada. Thus, the
       circuit court only addressed the duties and obligations as between TBIC and Underwriters
       and did not address Pekin’s rights or obligations. If indeed Pekin is found to have a duty to
       defend Rada, a matter which is still to be decided, TBIC, which intervened in the Pekin case,
       may seek from Underwriters its share of defense costs.
¶ 20       TBIC also contends that if we affirm the order denying its petition to vacate, our opinion
       will be advisory because the issue of Pekin’s duty to defend has yet to be ruled on by the trial
       court. See Golden Rule Insurance Co. v. Schwartz, 203 Ill. 2d 456, 469 (2003). For support,
       TBIC relies on Pielet v. Pielet, 2012 IL 112604. In Pielet, the Illinois Supreme Court
       remanded a breach of contract lawsuit because of a genuine issue of material fact as to
       whether certain parties’ contractual obligations were assumed by another party through
       novation. The court stated that two counts of the plaintiff’s complaint, alleging breach of
       contract, would come into play if and only if there proved to have been no novation. Because
       that remained an open question, the court found that any decision would be speculative and
       premature. Id. ¶ 57.
¶ 21       TBIC asserts that as in Pielet, whether the circuit court correctly allocated 100% of the
       defense fee burden to TBIC cannot be determined until the trial court resolves Pekin’s duty
       to defend. But unlike in Pielet, there are no open questions concerning the relationship
       between Underwriters and TBIC. TBIC acknowledges it has a duty to defend Rada, and the
       only issue raised in this declaratory action involves whether the Underwriters policy was
       excess to or equal to the TBIC policy. Pekin does not assume the status of a necessary party
       for the court to make this determination. Thus, this opinion does not qualify as advisory.

¶ 22                                  “Other Insurance” Clauses
¶ 23       Alternatively, TBIC argues that even if the section 2-1401 petition was properly denied,
       we should reverse on the basis that TBIC and Underwriters are co-primary insurers. The
       other insurance clauses in both TBIC’s policy and in Underwriters’ policy are identical and

                                                  -5-
       thus, according to TBIC, both parties provide co-primary coverage and are equally liable for
       defending Rada in the underlying action. We disagree.
¶ 24        The TBIC and Underwriters’ policies contain the following other insurance clause
       provisions:
                   “4. Other Insurance
                   If other valid and collectible insurance is available to the insured for a loss we
               cover under Coverages A or B of this Coverage Part, our obligations are limited as
               follows:
                   a. Primary Insurance. This insurance is primary except when b. below applies.
               ***
                   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 by attachment of an endorsement.”
¶ 25        Both policies state that “the words ‘you’ and ‘your’ refer to the Named Insured shown in
       the Declarations ***.” In the Underwriters’ policy, Rada is the named insured. Rada is an
       additional insured in the TBIC policy. Thus, the Underwriters’ excess insurance provision
       applies, and Underwriters policy is excess over “[a]ny other primary insurance available to
       [Rada].” Conversely, under the TBIC policy, C&B Steel is the named insured. Because C&B
       Steel has not been added as an additional insured to the Underwriters’ policy, TBIC’s excess
       other insurance provision does not apply. Thus, under the language of the other insurance
       provision of the policies, TBIC’s policy is primary and Underwriters’ policy is excess.
¶ 26        Moreover, we reject TBIC’s argument that both policies, which contain the same “other
       insurance” clause, are “mutually repugnant” and cancel each other out. TBIC relies on Ohio
       Casualty Insurance Co. v. Oak Builders, Inc., 373 Ill. App. 3d 997 (2007). The Oak Builders
       court held irreconcilable identical “other insurance” clauses contained in two policies. The
       policies converted otherwise primary coverage into excess coverage whenever primary
       coverage was available. The court concluded that this situation required the insurers to share
       the cost of defending and indemnifying the underlying tort suit. Oak Builders, 373 Ill. App.
3d at 1004. One reason the “other insurance” clauses were determined to be irreconcilable
       was the facts led to a different result depending on which policy one read first. Id. at 1003.
       While the provisions should be reconciled whenever possible to effectuate the intent of the
       parties, the majority rule provides that the court cannot arbitrarily pick one policy to be read
       first and undermine the intention of the insurer whose policy is read second. Id. at 1001
       (deeming identical “other insurance” clauses to be incompatible is fair when no rational basis
       for applying clause of one policy and refusing to apply clause of other policy (citing Putnam
       v. New Amsterdam Casualty Co., 48 Ill. 2d 71, 78-79 (1970))). Here, the two “other
       insurance” provisions are reconcilable. Regardless of which policy one reads first, the
       contracting parties’ words and apparent intent do not change; the two policies constitute
       compatible primary and excess policies, with TBIC’s policy being primary and Underwriters’
       policy being excess. Thus, the circuit court properly ruled that Underwriters’ policy provided
       excess coverage over the TBIC policy.

                                                  -6-
¶ 27      We affirm the circuit court orders entering judgment in Underwriters’ favor and denying
       TBIC’s petition to vacate.

¶ 28      Affirmed.

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