Certain Underwriters at Lloyd's London v. Burlington Ins. Co.

Decision Date15 July 2015
Docket Number1–14–3091.,Nos. 1–14–1408,s. 1–14–1408
Citation37 N.E.3d 303
PartiesCERTAIN UNDERWRITERS AT LLOYD'S LONDON, Subscribing to Certificate No. CVCC000537, Plaintiff–Appellee, v. The BURLINGTON INSURANCE COMPANY and Barnabus Sutton, Defendants–Appellants.
CourtUnited States Appellate Court of Illinois

37 N.E.3d 303

CERTAIN UNDERWRITERS AT LLOYD'S LONDON, Subscribing to Certificate No. CVCC000537, Plaintiff–Appellee
v.
The BURLINGTON INSURANCE COMPANY and Barnabus Sutton, Defendants–Appellants.

Nos. 1–14–1408
1–14–3091.

Appellate Court of Illinois, First District, Third Division.

July 15, 2015.


37 N.E.3d 304

Michael C. Borders and Rosa M. Tumialàn, Dykema Gossett PLLC, Chicago, for appellants.

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

OPINION

Justice HYMAN delivered the judgment of the court, with opinion.

¶ 1 Plaintiff, Certain Underwriters at Lloyd's, London, Subscribing to Certificate No. CVCC000537 (Underwriters), issued an insurance policy to Rada Development LLC (Rada) 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),

37 N.E.3d 305

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, 384 Ill.Dec. 388, 16 N.E.3d 781. 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.

¶ 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.

37 N.E.3d 306

¶ 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, 384 Ill.Dec. 388, 16 N.E.3d 781, 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 Pekin case, TBIC filed a section 2–1401 petition to vacate the trial...

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