Institute of London Underwriters v. Hartford Fire Ins. Co.

• Decision Date: 28 August 1992
• Docket Number: No. 1-90-3510,1-90-3510
• Citation: 234 Ill.App.3d 70,175 Ill.Dec. 297,599 N.E.2d 1311
• Parties: , 175 Ill.Dec. 297 INSTITUTE OF LONDON UNDERWRITERS, Plaintiff-Appellant, v. The HARTFORD FIRE INSURANCE COMPANY, Defendant-Appellee.
• Court: United States Appellate Court of Illinois

Page 1311

599 N.E.2d 1311

234 Ill.App.3d 70, 175 Ill.Dec. 297

INSTITUTE OF LONDON UNDERWRITERS, Plaintiff-Appellant, v. The HARTFORD FIRE INSURANCE COMPANY, Defendant-Appellee.

No. 1-90-3510.

Appellate Court of Illinois First District, Fifth Division.

Aug. 28, 1992.

Lord, Bissell & Brook, Chicago (C. Roy Peterson, Hugh C. Griffin and Nancy Shaw, of counsel), for plaintiff-appellant.

Kiesler & Berman, Chicago (Robert L. Kiesler and Jeanne M. Zeiger, of counsel), for defendant-appellee.

Presiding Justice McNULTY delivered the opinion of the court.

A declaratory judgment action was filed by plaintiff Institute of London Underwriters (the Institute) against defendant Hartford Fire Insurance Company (Hartford), seeking a judicial declaration that Hartford was obligated to pay a 50% share of an accident settlement procured by the Institute involving a claim against The Great Lakes Towing Company (Great Lakes) within the coverage of each insurance company's policy. The trial court denied the Institute's request for relief and granted summary judgment to Hartford on the issue of Hartford's obligation to contribute to the settlement and this appeal ensued.

The undisputed facts disclose that Hartford provided comprehensive liability insurance to Great Lakes. Great Lakes employed Thatcher Engineering Corporation (Thatcher) to perform repairs on a damaged dockwall on Great Lakes' premises. The agreement between Thatcher and Great Lakes required Thatcher to have Great Lakes named as an additional insured on Thatcher's liability insurance policy for personal injuries or death arising out of this construction project. Accordingly, Thatcher caused its liability insurer, the Institute, to issue a certificate of insurance naming Great Lakes as an additional insured on Thatcher's insurance policy with respect to the project. Hartford's policy contained an "other insurance" clause which required Hartford to contribute equally to any loss covered by another primary insurer, but the Institute's policy contained no such clause.

In August 1987, Gail Garcia, individually and as personal representative and administrator of the estate of Richard Allen Garcia, deceased, filed an action against Great Lakes in the United State's District Court for the Northern District of Illinois, Eastern Division. This action alleged that on August 12, 1987, Richard Allen Garcia, while employed by Thatcher on the project for Great Lakes, sustained injuries resulting in his death.

Great Lakes tendered the defense of this action to Thatcher requesting Thatcher to provide Great Lakes with assurances that any liability of Great Lakes would be covered by Thatcher's underwriter. Great Lakes also notified Hartford of the Garcia action.

On September 2, 1987, the Garcia action was dismissed without prejudice and Great Lakes' president informed Hartford of this by letter dated October 7, 1987. In that letter Great Lakes' president noted that the litigation could be recommenced, that Great Lakes had no involvement in the accident and indicated that the Institute had the primary duty to defend Great Lakes in any subsequent litigation.

On February 17, 1988, Great Lakes received a letter from attorney C. Roy Peterson (Peterson) advising Great Lakes that a new action had been filed in the United States District Court for the Northern District of Illinois with respect to the death of Richard Allen Garcia. It advised Great Lakes that Peterson would file an answer denying liability pursuant to the Institute policy. Peterson further advised Great Lakes that since the damage claim of $10,000,000 exceeded the primary and excess coverage limits of the Institute policy, Great Lakes should notify its excess carrier of the suit.

Because of Peterson's advice, Great Lakes notified Hartford by letter dated February 19, 1988, of the new action, enclosed a copy of the pleading and advised Hartford that the matter had been forwarded to Peterson who was representing Great Lakes under the agreement with Thatcher.

On or about January 13, 1989, Janice Nowacki, an employee of Hartford called Peterson, the attorney hired by the Institute, to represent Great Lakes in the Garcia case. Nowacki advised Peterson that Hartford also insured Great Lakes, had opened a file on the Garcia case and wanted to know its status. It is undisputed that Great Lakes never requested Hartford to defend or indemnify it with respect to the Garcia action.

On February 19, 1989, the United States District court approved a $75,000 settlement of the Garcia case and the case was dismissed with prejudice. By letters dated March 3, 1989, March 29, 1989 and April 10, 1989, Peterson wrote to Hartford requesting it to contribute half of the settlement. Great Lakes did not ask, instruct or authorize Peterson to send these letters on Great Lakes' behalf. The record reflects that Joel Koslen, the vice-president of Great Lakes, in a telephone conversation with Peterson told him Hartford should not contribute to the settlement. In addition, in April 1988, Koslen told Janice Nowacki, the adjuster for Hartford, in a telephone conversation regarding settlement of the Garcia action, that it did not want the Hartford policy to respond to the Garcia accident, but rather that Thatcher and its insurers should pay the indemnification and defense costs for this matter. When Hartford followed these instructions and declined to contribute, this litigation resulted.

The issue presented for review is as follows: where two insurance policies potentially apply to a loss, may an insured elect which of its insurers is to defend and indemnify the claim by tendering its defense to one insurer and not the other and thereby foreclose the settling insurer from obtaining contribution from the non-settling insurer? The trial court found that it could. This is a question of first impression. For the following reasons we affirm.

The Institute in requesting Hartford to contribute half of the cost of settling the Garcia claim argues that the doctrine of equitable contribution "permits one who has paid the entire loss to be reimbursed from other insurers who are also liable for the loss." (Pekin Insurance Co. v. Cincinnati Insurance Co. (1987), 157 Ill.App.3d 404, 406, 109 Ill.Dec. 656, 658, 510 N.E.2d 524, 526; Zurich Insurance Co. v. Raymark Industries, Inc. (1986), 145 Ill.App.3d 175, 197, 98 Ill.Dec. 512, 526, 494 N.E.2d 634, 648; Royal Globe Insurance Co. v. Aetna Insurance Co. (1980), 82 Ill.App.3d 1003, 1005, 38 Ill.Dec. 449, 451, 403 N.E.2d 680, 682.) This rule is applied in cases where one insurer has paid a debt equally owed by other insurers. Royal Globe, 82 Ill.App.3d 1003, 1005, 38 Ill.Dec. 449, 451, 403 N.E.2d 680, 682.

However, Hartford contends that equitable contribution does not apply to this case because it is not equally liable for the loss as the Garcia claim was never tendered to it nor was it ever requested by its insured, Great Lakes, to defend or indemnify the claim.

An insurer's obligations under an insurance contract are ordinarily triggered when the insured or someone's action on the insured's behalf tenders the defense of an action potentially within the policy coverage. International Insurance Co. v. Indiana Ins. Co. (N.D.Ill.1990), No. 87 C 4896, 1990 WL 133512; The Hartford Accident & Indemnity Co. v. Gulf Insurance Co. (7th Cir.1985), 776 F.2d 1380; Solo Cup Co. v. Federal Insurance Co. (7th Cir.1980), 619 F.2d 1178, 1183.

In the case at bar the insured, Great Lakes, did not tender a defense of the Garcia claim to Hartford nor ask Hartford to provide indemnification for it. Instead, Great Lakes notified Hartford of the claim but unequivocally stated that Hartford should not respond to the loss, but that the Institute was to provide the defense and indemnification for it under the Thatcher policy.

We recognize that the Garcia claim came within the coverage of both the Institute and the Hartford policies and that the Institute settled the case and paid the loss. However, it is our view that the meager case authority in existence relevant to the issue presented by the factual scenario at bar supports Hartford's contention that the doctrine of equitable contribution does not apply.

The only court of review to consider a fact situation similar to that of this case is Hartford Accident & Indemnity Co. v. Gulf Insurance Co. (7th Cir.1985), 776 F.2d 1380. In that case the City of Peoria carried liability insuance with Hartford and was also named as an additional insured on the Peoria Park District's policy with Gulf. An accident occurred potentially within the coverage of both policies. The City did not tender the claim to Gulf but, rather, tendered the claim to Hartford, its own primary carrier. However, Gulf had received notice of the claim from the Park District within a month after the lawsuit involving the claim was filed. Ten months later Hartford's attorney wrote Gulf's attorney a letter asking Gulf to assume the City's defense. Gulf refused. Hartford settled the claim on behalf of the City and then sued Gulf for Hartford's costs and expenses including attorney fees on the ground that Gulf was estopped to assert policy defenses to coverage for its wrongful refusal to defend a claim tendered to it on behalf of the City that was potentially within Gulf's policy coverage. The trial court found in favor of Hartford, but that decision was reversed on appeal.

The United States Court of Appeals for the 7th Circuit found that tender of the defense was required to trigger Gulf's liability to defend the claim and was not satisfied merely because Gulf was aware of the suit from the outset, stating:

"While we need not decide what the appropriate procedure for tender, if any, should be for unschooled laymen (who may be excused from any sort of active tender), clearly tender by a sophisticated city requires something more than a letter from a rival insurance company 10 months after the process of...