Home Ins. Co. v. Cincinnati Ins. Co.

• Decision Date: 02 December 2004
• Docket Number: No. 97873.,97873.
• Citation: 290 Ill.Dec. 218,821 N.E.2d 269,213 Ill.2d 307
• Parties: The HOME INSURANCE COMPANY, Appellant, v. The CINCINNATI INSURANCE COMPANY, Appellee.
• Court: Illinois Supreme Court

821 N.E.2d 269

213 Ill.2d 307

290 Ill.Dec. 218

The HOME INSURANCE COMPANY, Appellant, v. The CINCINNATI INSURANCE COMPANY, Appellee.

No. 97873.

Supreme Court of Illinois.

December 2, 2004.

Pretzel & Stouffer, Chrtd., Chicago (Robert Marc Chemers, Daniel G. Wills, of counsel), for appellant.

Daniel G. Litchfield, Mitchell H. Frazen, of Litchfield Cavo, of Chicago, for appellee.

Joseph P. Postel, of Meachum, Spahr, Cozzi, Postel & Zenz, Chicago, for amicus curiae Liberty Mutual Insurance Group.

Justice THOMAS delivered the opinion of the court:

The Home Insurance Company (Home) brought a two-count declaratory judgment action against the Cincinnati Insurance Company (Cincinnati), attempting to recover money paid to settle an underlying personal injury action. On cross-motions for summary judgment, the circuit court of Cook County granted Cincinnati's motion on both counts and denied Home's motion. The appellate court, with one justice dissenting, affirmed the circuit court. 345 Ill.App.3d 40, 280 Ill.Dec. 52, 801 N.E.2d 997. We allowed Home's petition for leave to appeal (177 Ill.2d R. 315). We also allowed Liberty Mutual Insurance Company to file an amicus brief in support of Home (155 Ill.2d R. 345(a)). For the reasons that follow, we affirm in part and reverse in part.

BACKGROUND

Allied Asphalt Paving Company (Allied) was the general contractor for a renovation project on the Kennedy Expressway. Allied subcontracted work on the project to Aldridge Electric Company, Inc. (Aldridge), and Western Industries, Inc. (Western). Matthew Fisher, an employee of Aldridge, was injured while installing lights in an underpass on the project. The accident occurred at 2 a.m., when an intoxicated driver drove through the construction area and struck Fisher.

Fisher sued numerous parties, including Allied and Western. In his third amended complaint, Fisher alleged that Allied and Western had agreed to assume responsibility for all safety aspects of the project, and that Allied and Western breached their duty to provide proper safety signs, traffic cones, barricades, warning lights, flagmen, and other traffic control devices at the location where he was working.

At the time of the accident, Allied was named as an additional insured under two insurances policies: a commercial liability policy issued to Western by Cincinnati; and a policy issued to Aldridge by Home. Each policy contained a $1 million limit of liability for each occurrence. Additionally, each policy contained the following endorsement:

"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 term "your work" was defined as follows under each policy:

"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."

It is undisputed that Home's policy was an excess policy, while Cincinnati's was a primary policy.

Allied tendered the defense of the Fisher action to both Cincinnati and Home. In a June 23, 1997, letter, Cincinnati accepted the defense of Allied, but reserved its rights to deny coverage with respect to any work or conduct that was not performed by Western on behalf of Allied. In a September 14, 1999, letter, Home accepted the defense of Allied. However, Home's acceptance letter stated that Home "will agree to share the cost of Allied's defense and indemnity with the insurance carrier for Western * * * on a 50/50 basis subject to a review of both policies and any reservation of rights."

In October 1999, Cincinnati settled Fisher's claim against Western for $40,000. Thereafter, Fisher agreed to settle his suit against Allied for $600,000. Home paid $500,000 toward this settlement, but Cincinnati paid only $100,000 of the total settlement amount.

On November 8, 2000, Home filed the present declaratory judgment action, asserting theories of equitable subrogation and equitable contribution. Count I sought a declaration that Cincinnati was the sole primary insurer responsible for the defense of Allied and was thus liable to Home for the entire amount Home paid toward the settlement. Count II sought a declaration that it was entitled to recover from Cincinnati the amount it paid in excess of its pro rata share of the settlement.

Thereafter, Home took the evidence depositions of Richard Johnson, Allied's defense counsel, and David Cunningham, Cincinnati's claim manager. Johnson testified in his deposition that by the time of trial, Fisher's theory had evolved to rely more heavily on the fact that the injury was caused by a lack of a flagger at the site. Flagging was not Western's responsibility. Rather, Western was responsible for properly placing barricades at the site. It was Johnson's guess that Western would probably not be found liable at all — this was because none of the evidence showed a lack of compliance with Illinois Department of Transportation specifications on barricades. He assessed the probability of a finding of liability against Western at no more than 20%. But Johnson also did not think much of the lack-of-a-flagman theory as it pertained to Aldridge's work, stating that it was "off the wall" and "almost bordered on being ludicrous." Accordingly, Johnson assessed the potential that Allied would be found liable at all at only 10 to 20%.

Cunningham testified in his deposition that he agreed with Johnson's assertion that there was up to a 20% chance that Allied would be found liable, that the verdict potential was between two to three million, and that $600,000 was a reasonable settlement amount. Cunningham also admitted that Cincinnati's payment of $40,000 to settle on behalf of Western was based at least in part on the possibility that Western might lose its pending summary judgment motion and be found liable at trial. He refused to give a percentage of the possibility of Western being found liable, stating instead that he felt there was a "slim" chance. By settling on behalf of Western, Cunningham wanted to insure that no finding would ever be made that Western was liable. Cunningham admitted that if the jury had made a finding of liability against Western on the verdict form, Cincinnati's policy, listing Allied as an additional insured, would be triggered. But Cunningham believed Cincinnati would owe only for the portion of damages that arose out of Western's work. He had no idea, however, how that would be determined at trial, and he had never seen a case where fault was apportioned between insurance companies as he suggested it should be. He acknowledged that such "arising out of" language, as is contained in Cincinnati's policy, is read very broadly by courts in favor of coverage.

Cunningham further testified in his deposition that he refused to pay any more than $100,000 toward the settlement. At the time of his refusal, he offered to arbitrate the allocation issue.

Home filed the affidavit of Joan Kenchik, stating that she was the claim manager for Home that handled the Fisher settlement. She attempted on several occasions to persuade Cincinnati to contribute more than $100,000 toward the settlement, but it refused. Home was thus forced to pay all of the remainder of the settlement amount. Home made this payment, however, on the condition that Cincinnati agree to arbitrate Home's claims. According to her affidavit, it was Home's position that it was entitled to at least equal contribution from Cincinnati or, depending upon on whether the Cincinnati policy contained an "other insurance" clause, complete indemnification from Cincinnati. The affidavit does not indicate whether or not Home ever communicated to Cincinnati that it was entitled to full reimbursement for the settlement as an excess insurer. Kenchik's affidavit further notes that, while Cincinnati agreed to arbitrate at the time of settlement, it later refused her requests to arbitrate.

Home filed as an exhibit a letter written by Kenchik to Cunningham dated October 21, 1999, which was shortly after the settlement. In the letter, Home agreed to arbitrate the issues of indemnification. Home also filed a response letter from Cunningham dated October 27, 1999, stating that Cincinnati had not unqualifiedly agreed to arbitrate. It also asked Home to specify the legal basis on which it was seeking reallocation of the settlement award.

The circuit court granted Cincinnati's motion for summary judgment and denied Home's cross-motion for summary judgment. The court found that Home was not entitled to equitable contribution from Cincinnati because Home's policy was excess and Cincinnati's policy was primary, and excess and primary insurers do not insure the same risk. The court also denied the equitable subrogation claim, finding that Home waived it by not asserting that it had no duty to defend Allied and by not asserting that it was an excess insurer until filing the declaratory judgment action.

With one justice dissenting, the appellate court affirmed the circuit court's result (345 Ill.App.3d at 48, 280 Ill.Dec. 52, 801 N.E.2d 997), but did not address the circuit court's waiver theory to resolve the subrogation claim of count I. Instead, the appellate court employed the equitable contribution analysis of the Appellate Court, First District, in Schal Bovis, Inc. v. Casualty Insurance Co., 315 Ill.App.3d 353, 247 Ill.Dec. 847, 732 N.E.2d 1179 (2000), to resolve the equitable subrogation count. 345 Ill.App.3d at 45-46, 280 Ill.Dec. 52, 801 N.E.2d 997. In discussing whether Home and Cincinnati were liable for the "same loss," a necessary element to maintain an equitable contribution claim, the appellate court adopted the analysis of Schal Bovis, which held that the policies at issue in that case insured "different risks" for purposes of equitable contribution because each insurer insured the additional insured only to...