John Burns Const. Co. v. Indiana Ins. Co.

• Decision Date: 21 January 2000
• Docket Number: No. 86552.,86552.
• Citation: 189 Ill.2d 570,727 N.E.2d 211,244 Ill.Dec. 912
• Parties: JOHN BURNS CONSTRUCTION COMPANY et al., Appellants, v. INDIANA INSURANCE COMPANY et al., Appellees.
• Court: Illinois Supreme Court

727 N.E.2d 211

189 Ill.2d 570

244 Ill.Dec. 912

JOHN BURNS CONSTRUCTION COMPANY et al., Appellants, v. INDIANA INSURANCE COMPANY et al., Appellees.

No. 86552.

Supreme Court of Illinois.

January 21, 2000.

Rehearing Denied April 3, 2000.

Kralovec & Marquard, Chrtd., Chicago (William E. Spizzirri and David T. Nani, of counsel), for Appellants.

Mark E. Condon, Peter W. Schoonmaker and Richard J. Siebert, Condon & Cook, Chicago, for Appellee Indiana Insurance Co.

Robert J. Franco and Julie M. Cho, Bollinger, Ruberry & Garvey, Chicago, for amicus curiae W.E. O'Neil Construction Co.

Justice MILLER delivered the opinion of the court:

The plaintiffs, John Burns Construction Company and Royal Insurance Company, brought the present action in the circuit court of Cook County seeking a determination of coverage under an insurance policy issued by defendant Indiana Insurance Company. The trial judge ruled in favor of Indiana, and Burns and Royal appealed. The appellate court affirmed the circuit court. 299 Ill.App.3d 169, 233 Ill.Dec. 235, 700 N.E.2d 763. We allowed Burns and Royal's petition for leave to appeal (177 Ill.2d R. 315(a)), and we now reverse the judgments of the courts below.

The procedural history of this case is uncomplicated and requires only a brief recitation here. John Burns Construction Company entered into a subcontract in October 1993 with Sal Barba Asphalt Paving, Inc., for Barba to pave a parking lot at a commuter railroad station in Harvard, Illinois. The agreement required Barba to maintain liability insurance for Burns. Pursuant to the contract, Barba arranged for Burns to be added to Barba's policy with defendant Indiana Insurance Company by way of an endorsement naming Burns as an additional insured. Burns' coverage under the Indiana policy took effect on July 5, 1994. In December 1994, following completion of the construction work, a person using the rail station, Sidney Gault, slipped and fell in the parking lot that Barba had paved. Gault subsequently sued Burns and several other defendants for his injuries, alleging, among other things, that the lot had been improperly paved; Barba was not named a defendant in the case.

By letter dated September 20, 1995, Burns informed Barba of Gault's suit and asked that Indiana defend and indemnify Burns in the action. Burns stated in the letter that it looked solely to Indiana for defense and indemnification. Burns further explained that, although it had notified its own insurer, Royal Insurance Company, of the action, Burns did not want Royal to become involved in the suit. Burns sent Royal a copy of this letter.

Indiana initially refused to defend Burns in the Gault action. In a letter to Burns dated October 25, 1995, Indiana maintained that it did not have a duty to defend Burns because Gault's injuries were not sustained during the period of the contract for the paving work. In the wake of Indiana's refusal, Burns sought defense from Royal with regard to the Gault litigation.

Burns and Royal later filed the present action for a declaratory judgment in the circuit court of Cook County, seeking a declaration that Indiana alone had the duty to defend and indemnify Burns in the Gault action. Indiana, in its answer, said that it had "come to accept as plausible" Burns' contention that Indiana's obligations to Burns were controlled by the terms of the additional insured endorsement, rather than by the terms of the subcontract between Burns and Barba. In a counterclaim for declaratory judgment, filed with the answer, Indiana admitted that Burns was an additional insured under Barba's policy and allowed that it did have a duty to defend and indemnify Burns in the Gault litigation. Indiana asserted, however, that Royal was required to share the defense and indemnity duties, for the Indiana policy contained an "other insurance" provision. Indiana requested in the counterclaim that the court require Royal to contribute equally to Burns' defense and indemnification in the Gault matter.

Indiana later filed a motion for judgment on the pleadings, repeating its contention that Indiana and Royal should share equally the costs of defending and indemnifying Burns in the Gault litigation. Burns and Royal filed a motion for summary judgment, arguing that Burns was entitled to select which of the two insurers would bear the duties of defense and indemnity and that in this case Burns had chosen Indiana alone for those tasks. Following a hearing, the trial judge granted Indiana's motion for judgment on the pleadings and denied Burns and Royal's motion for summary judgment. The judge held that the two insurance companies were required to contribute equally to Burns' defense and indemnification in the Gault litigation. The trial judge concluded that Royal's duty to defend was triggered when Burns tendered the case to it, after Indiana had initially refused to undertake Burns' defense.

Burns and Royal appealed. The appellate court affirmed the circuit court but relied on a different rationale. 299 Ill. App.3d 169, 233 Ill.Dec. 235, 700 N.E.2d 763. The appellate court concluded that the initial tender by Burns to Indiana was sufficient to trigger the "other insurance" provision in the Indiana policy, which in turn activated Royal's duty to defend its insured. We allowed Burns and Royal's petition for leave to appeal (177 Ill.2d R. 315(a)), and we now reverse the judgments of the courts below. We granted leave to W.E. O'Neil Construction Company to file an amicus brief in behalf of Burns. 155 Ill.2d R. 345.

The policy language contained in Indiana's "other insurance" provision states, in pertinent part:

"4. Other Insurance.

If other valid and collectible insurance is available to the insured for a loss we cover under Coverage 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. 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.

* * *

c. Method of Sharing

If all of the other insurance permits contribution by equal shares, we will follow this method also. Under this approach, each insurer contributes equal amounts until it has paid its applicable limits of coverage or none of the loss remains whichever comes first * * *."

The question before us in this appeal is whether an insurer to whom litigation is tendered and whose policy contains an "other insurance" clause like the one above may seek contribution from another insurer whose policy is in existence but whose coverage the insured has refused to invoke.

In the present case, Burns was covered by two insurance policies: its own, issued by Royal, and Barba's, issued by Indiana. Burns tendered the defense of the Gault litigation to Indiana and expressly directed its own insurer, Royal, not to become involved in the matter. Indiana should have defended and indemnified the claim, as it later acknowledged, but instead chose initially to deny coverage. Burns was then forced to tender defense of the claim to its own insurer, Royal. Burns and Royal contend that Burns was entitled to elect which insurer it wished to defend and indemnify the claim by tendering the defense to one insurer and not the other. Burns and Royal further assert that once Burns chose to submit the claim to Indiana alone, Indiana was precluded from obtaining contribution from Royal. Although Indiana now agrees that it has a duty to defend and indemnify Burns, it argues, in support of the appellate court judgment, that the "other insurance" provision contained in its policy allows it to seek contribution from Royal, without regard to Burns' election of coverage. Indiana maintains that its policy contemplates that more than one insurer might face exposure and that the policy provides a formula for sharing the costs of defending and indemnifying the claim.

We agree with Burns and Royal that Burns had the right to choose which insurer would be required to defend and indemnify it in Gault's action for personal injuries, and that nothing in the Indiana policy limited Burns' right to select which insurer would be required to do this. In Cincinnati Cos. v. West American Insurance Co., 183 Ill.2d 317, 233 Ill.Dec. 649, 701 N.E.2d 499 (1998), this court considered what is necessary to trigger an insurer's duty to defend, and held that the duty arises with actual notice of a claim against an insured, regardless of the insured's level of sophistication. In reaching that result, the court acknowledged the line of...