Lloyd'S v. Cent. Mut. Ins. Co.

• Decision Date: 23 May 2014
• Docket Number: No. 1–13–3145.,1–13–3145.
• Citation: 2014 IL App (1st) 133145,382 Ill.Dec. 483,12 N.E.3d 762
• Parties: CERTAIN UNDERWRITERS AT LLOYD'S, LONDON, Subscribing to Certificate No. CRCC001448, Plaintiff–Appellant, v. CENTRAL MUTUAL INSURANCE COMPANY, Defendant–Appellee (Golden Nail Builders, Inc., Erik Electric Service, Inc., and Pawel Bawol, Defendants).
• Court: United States Appellate Court of Illinois

2014 IL App (1st) 133145

12 N.E.3d 762

382 Ill.Dec. 483

CERTAIN UNDERWRITERS AT LLOYD'S, LONDON, Subscribing to Certificate No. CRCC001448, Plaintiff–Appellant,

v.CENTRAL MUTUAL INSURANCE COMPANY, Defendant–Appellee (Golden Nail Builders, Inc., Erik Electric Service, Inc., and Pawel Bawol, Defendants).

No. 1–13–3145.

Appellate Court of Illinois, First District, Fifth Division.

May 23, 2014.

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

Craig L. Unrath and Natalie D. Thompson, both of Heyl, Royster, Voelker & Allen, of Peoria, and Brent A. Swanson and Andrew J. Roth, both of Heyl, Royster, Voelker & Allen, of Rockford, for appellee.

OPINION

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

¶ 1 General contractor Golden Nail Builders, Inc. (Builders), was the named insured on a commercial general liability insurance policy it obtained from Certain Underwriters at Lloyd's London (Underwriters) and an additional insured on a commercial general liability insurance policy that subcontractor Erik Electric Service, Inc. (Erik Electric), obtained from Central Mutual Insurance Company (CMIC). When an employee of a sub-subcontractor was injured on a home construction site, the two insurers disagreed as to which was the primary insurer and which was the excess insurer. The disagreement arose because although Erik Electric was contractually required to maintain insurance coverage for Builders as an additional insured, the subcontractor agreement did not specify that the additional coverage be primary or excess. Underwriters filed this declaratory judgment action seeking a declaration that it was the excess insurer. However, on cross-motions for summary judgment, CMIC persuasively argued that the circumstances were nearly identical to those in River Village I LLC v. Central Insurance Cos., 396 Ill.App.3d 480, 483, 335 Ill.Dec. 707, 919 N.E.2d 426, 428 (2009), in which the court determined the additional coverage at issue there was excess because (a) the agreement between the general contractor and subcontractor was silent as to whether the additional coverage obtained for the general contractor was to be primary or excess and (b) the "other insurance" clause in the subcontractor's insurance policy stated that coverage would be excess " ‘unless a contract requires that this insurance be * * * primary.’ " Underwriters appeals, urging us to find that the controlling case is Ohio Casualty Insurance Co. v. Oak Builders, Inc.,

373 Ill.App.3d 997, 312 Ill.Dec. 1, 869 N.E.2d 992 (2007), in which the court found that two insurers were coprimary rather than primary and excess. Underwriters also contends CMIC is estopped from asserting policy defenses because it neither filed its own declaratory judgment action nor assumed Builders' legal defense, and that Underwriters is entitled to reimbursement of the funds it has expended on defending Builders.

¶ 2 Builders and Erik Electric are Chicago companies that entered into a subcontractor agreement on May 19, 2008. The agreement provided for subcontractor Erik Electric to "maintain coverage" for the duration of its project with contractor Builders, that the coverage limits of the liability insurance would be no less than $1 million, and that Builders "will be included as [an] Additional Insured." As we just noted above, the subcontractor agreement did not specify whether the additional insured coverage provided to Builders needed to be primary or excess insurance. Primary insurance coverage is coverage whereby, under the terms of the policy, liability attaches immediately upon the happening of an event that gives rise to liability. Whitehead v. Fleet Towing Co., 110 Ill.App.3d 759, 764, 66 Ill.Dec. 449, 442 N.E.2d 1362, 1366 (1982). A primary insurer provides " ‘first dollar’ " coverage up to the limits of its policy. Scott M. Seaman & Charlene Kittredge, Excess Liability Insurance: Law and Litigation, 32 Tort & Ins. L.J. 653, 655 (1997). In contrast with primary insurance, excess insurance coverage is a secondary layer which protects an insured when a judgment or settlement exceeds the primary policy's limits of liability. Id. at 656. A secondary insurer covers the same risks as the primary insurer ( id. at 657 ), but under the terms of an excess policy, the secondary insurer's "liability attaches only after a predetermined amount of primary coverage has been exhausted" ( Federal Insurance Co. v. Economy Fire & Casualty Co., 189 Ill.App.3d 732, 738, 136 Ill.Dec. 1017, 545 N.E.2d 541, 546 (1989) ; 1 Eric Mills Holmes & Mark S. Rhodes, Holmes's Appleman on Insurance 2d § 2.16, at 323 (1996)). Put another way, an excess policy does not broaden the underlying coverage, it increases the amount of coverage available to compensate for a loss. Excess insurance premiums are typically less expensive than primary insurance premiums because excess insurers experience less frequent claims and incur lower costs than primary insurers. See Kajima Construction Services, Inc. v. St. Paul Fire & Marine Insurance Co., 227 Ill.2d 102, 116, 316 Ill.Dec. 238, 879 N.E.2d 305, 314 (2007) ; Michael M. Marick, Excess Insurance: An Overview of General Principles and Current Issues, 24 Tort & Ins. L.J. 715, 718 (1989).

¶ 3 Erik Electric obtained a certificate of liability insurance from CMIC dated May 20, 2008, which stated on its face, "[Builders] is named as an additional insured as respects General Liability, as required by written contract." The certificate also stated that it was "issued as a matter of information only and confers no rights upon the certificate holder" and "does not amend, extend or alter the coverage afforded by the policies below."

¶ 4 Builders and Casagrande Architects were sued by electrician Pawel Bawol on August 18, 2010, and in a first amended complaint Bawol added Erik Electric as a defendant. Bawol alleged that he was severely injured due to the defendants' negligence on or about November 26, 2008, while he was in the employ of an electrical sub-subcontractor and assisting Builders with the construction of a single-family home at 1920 North Hudson Avenue, Chicago. Bawol alleged he was hurt when he fell from a ramp made of piled masonry debris that tradesmen were to use when entering or leaving through the front door of the house under construction.

¶ 5 Builders tendered its defense of Bawol's suit to Underwriters on September 13, 2010, and Underwriters accepted the defense subject to a reservation of rights. Builders' defense attorney then tendered Builders' defense to CMIC on May 18, 2011. On October 27, 2011, however, CMIC's claims adjustor responded to counsel, "I do not see where our insurance coverage is triggered in this situation. Why do you feel your [client, Builders,] would qualify as an additional insured under our policy?" After getting no response, the claims adjustor sent a similar letter on December 5, 2011, to the defense attorney, stating, "I have not heard from you regarding my letter to you of 10/27/11. For your convenience I have included a copy of that letter. I look forward to hearing from you in the future." After still not receiving a response, CMIC sent another letter on January 13, 2012, but this time advising that the lack of response led CMIC to conclude that the tender of defense was being withdrawn and, if this was not correct, to contact CMIC. Builders still did not respond to CMIC, and on February 28, 2012, CMIC again wrote to Builders, this time stating that it considered the "silence on this matter" to be a withdrawal of the tender of defense and also that CMIC was declining coverage based on CMIC's policy language. On April 13, 2012, Underwriters contacted CMIC for the first time and said that Builders did not intend to withdraw its tender and that it would write again after taking the time to research the coverage issues. On April 19, 2012, Underwriters sent a detailed letter in which it "re-tender[ed]" Builders' defense and explained why it considered CMIC to be the primary insurer and liable for indemnifying Underwriters for opposing the Bawol suit. On May 10, 2012, CMIC declined the "re-tender."

¶ 6 Underwriters then initiated this declaratory judgment action, CMIC filed an answer which included affirmative defenses, and the parties filed cross-motions for summary judgment. After briefing and oral arguments, the circuit court granted in part Underwriter's motion for summary judgment, based on the court's finding that CMIC owed additional insured coverage to Builders. The court also, however, granted in part CMIC's motion for summary judgment, based on the court's findings that the CMIC coverage was excess only based on the plain language of the policies and that CMIC was not estopped from asserting policy defenses due to the fact that the excess insurer had no duty to defend Builders and had timely rejected the tender and "re-tender" and defended against Underwriters' declaratory judgment action. This appeal followed.

¶ 7 The construction of an insurance policy and the determination of contractual rights are questions of law that are appropriately addressed through the summary judgment process. Steadfast Insurance Co. v. Caremark Rx, Inc., 359 Ill.App.3d 749, 755, 296 Ill.Dec. 537, 835 N.E.2d 890, 896 (2005). While the entry of summary judgment is considered a "drastic measure," it is a proper and expeditious means of disposing of a lawsuit when the moving party's right to judgment is "clear and free from doubt" and the moving party is entitled to judgment as a matter of law. Outboard Marine Corp. v. Liberty Mutual Insurance Co., 154 Ill.2d 90, 102, 180 Ill.Dec. 691, 607 N.E.2d 1204, 1209 (1992) ; 735 ILCS 5/2–1005(c) (West 2008) (the Code of Civil Procedure provides for the entry of summary judgment only where the record shows "that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law"). We review de novo the trial judge's...