Security Mut. Cas. Co. v. Harbor Ins. Co., 39176

• Citation: 382 N.E.2d 1,21 Ill.Dec. 707,65 Ill.App.3d 198
• Decision Date: 11 September 1978
• Docket Number: D,No. 63059,No. 39177,No. 39178,No. 39176,39176,39177,39178,63059
• Parties: , 21 Ill.Dec. 707 SECURITY MUTUAL CASUALTY COMPANY, a corporation, Plaintiff-Appellant, v. HARBOR INSURANCE COMPANY, a corporation, Continental Casualty Company, a corporation, Consolidated Mutual Insurance Company, a corporation, Insurance Company of North America, a corporation, and Thomas Robert Bayntun Chinoj, an Underwriter at Lloyd's London, for himself and those other Underwriters at Lloyd's London, subscribing to 61.54% Of Policy, and 59.64% Of Policy, and 56.61% Of Policyefendant-Appellee.
• Court: United States Appellate Court of Illinois

Page 1

382 N.E.2d 1

65 Ill.App.3d 198, 21 Ill.Dec. 707

SECURITY MUTUAL CASUALTY COMPANY, a corporation, Plaintiff-Appellant, v. HARBOR INSURANCE COMPANY, a corporation, Continental Casualty Company, a corporation, Consolidated Mutual Insurance Company, a corporation, Insurance Company of North America, a corporation, and Thomas Robert Bayntun Chinoj, an Underwriter at Lloyd's London, for himself and those other Underwriters at Lloyd's London, subscribing to 61.54% Of Policy No. 39176, and 59.64% Of Policy No. 39177, and 56.61% Of Policy No. 39178, Defendant-Appellee.

No. 63059.

Appellate Court of Illinois, First District, First Division.

Sept. 11, 1978.

Rehearing Denied Oct. 30, 1978.

A. Denison Weaver, Chicago, for plaintiff-appellant, Pretzel, Stouffer, Nolan & Rooney, Chicago (Joseph B. Lederleitner, Mount Prospect, of counsel), for defendant-appellee Harbor Ins. Co.

Donald M. Haskell, Daniel J. Pope, Chicago (Haskell & Perrin, Chicago, of counsel), for defendant-appellee Continental Cas. Co.

Epton & Druth, Ltd., Chicago, for defendant-appellee Consolidated Mutual Ins. Co.

Baker & McKenzie, Chicago, for defendant-appellee Ins. Co. of North America.

Lord, Bissell & Brook, Chicago (Thomas W. Dempsey and Hugh C. Griffin, Chicago, of counsel), for defendant-appellee Certain Underwriters at Lloyd's London.

BUCKLEY, Justice.

This is an appeal of an order compelling arbitration under a declaratory judgment action filed by Security Mutual Casualty Company (hereafter Security) to establish its rights and duties under its policy insuring Harbor Insurance Company (hereafter Harbor). Security alleges error in the circuit court of Cook County's issuance of such an order without first determining whether the matter to be arbitrated is within the terms of the parties' arbitration agreement.

Although Harbor has not contested this court's jurisdiction to entertain the appeal of the order to arbitrate, we note that an order to compel or stay arbitration has been determined to be equivalent to an order granting or refusing injunctive relief (Medline Industries, Inc. v. Pascal (1975), 23 Ill.App.3d 346, 319 N.E.2d 310; Property Management, Ltd. v. Howasa, Inc. (1973), 14 Ill.App.3d 536, 302 N.E.2d 754; School District 46, Kane, Cook and DuPage Counties v. Del Bianco (1966), 68 Ill.App.2d 145, 215 N.E.2d 25), and is appealable pursuant to Supreme Court Rule 307(a)(1), (58 Ill.2d R. 307(a)(1)).

On September 9, 1960, Security entered into a reinsurance treaty in Chicago, Illinois, with Harbor, designated "Reinsurance Agreement No. 308071." Under the treaty, Security undertook to reinsure Harbor on certain classes of risks in the amount of $1,975,000 in excess of $25,000, the latter amount being retained by Harbor. Security agreed to provide reinsurance coverage for those risks insured by Harbor with respect to the following exposure:

"Third Party Bodily Injury Liability (including medical payments) and Property Damage Liability Business; Workmens Compensation and Employers' Liability Business; Motor Cargo Business."

The treaty likewise contained an arbitration clause in Article XIII:

"In the event of any dispute between the Company and the Reinsurer in connection with this Agreement, such dispute shall be submitted to arbitration."

The policy of reinsurance remained in effect until January 1, 1965, when it was terminated by the mutual consent of Security and Harbor.

Sometime prior to August, 1963, John Bertero was employed as President of National General Corporation (hereafter National), the primary assured under insurance policy No. 5-1585 issued by Harbor to National.

At the request of the Board of Directors of National, John Bertero resigned as president effective November 12, 1959. Thereafter a dispute arose between Bertero and National. On June 8, 1962, suit was filed in Los Angeles Superior Court by Bertero against National seeking a declaratory judgment with respect to the validity of his employment contract with National. On August 28, 1963, National filed a counter-claim in the suit alleging in part that Bertero had obtained the contract through duress, undue influence and for no consideration.

On October 1, 1963, National amended its previously filed answer to include a cross-complaint for money had and received. National's cross-complaint later became the basis of a malicious prosecution action by Bertero.

In August of 1965, eight months after Security's policy of reinsurance with Harbor had been terminated, a jury verdict was returned and judgment entered in favor of Bertero in the amount of $500,000. The cross-complaint filed against him by National was dismissed. The judgment was affirmed on appeal on September 6, 1967 (Bertero v. National General Corp. (1967), 254 Cal.App.2d 126, 62 Cal.Rptr. 714), and became final December 5, 1967.

In March, 1968, after the original judgment had become final, Bertero filed suit in the Los Angeles Superior Court against National, alleging that National was guilty of malicious prosecution in filing its cross-complaint in the former suit.

National, upon being served with summons, tendered the defense to the defendant, Continental Casualty Company, the primary insurer of National at the time the original cross-complaint was filed. Continental accepted the defense and proceeded to retain counsel on behalf of National who proceeded with the defense in the malicious prosecution action.

On May 5, 1971, a judgment was recovered by Bertero against National in the amount of $1,178,952.77. On December 20, 1974, the trial court's judgment was affirmed by the California Supreme Court (Bertero v. National General Corp. (1974), 13 Cal.3d 43, 118 Cal.Rptr. 184, 529 P.2d 608). On February 4, 1975, the judgment was satisfied by means of a draft issued by Harbor in the amount of $1,444,234.83 and $19,829.18 paid by Continental Casualty Company, the primary carrier.

During this time period, the schedule of insurance on National involved various companies. From September 25, 1961 Harbor had in force its Policy No. 5-1585 providing excess combined single limit general liability coverage in the amount of $1,900,000 in excess of $100,000 which coverage remained in force from September 25, 1961, to September 25, 1963, and thereafter in the amount of $1,900,000 in excess of $10,000 from September 25, 1963, to September 25, 1964. The primary coverage was provided by Continental Casualty Company.

From September 25, 1964, to November 15, 1967, Harbor had in force its Policy No. 102298 furnishing excess comprehensive liability coverage to National. This policy was excess insurance over a policy issued by the defendant, Consolidated Mutual Insurance Company, which provided comprehensive general liability coverage to National in the amount of $25,000. During this period, Harbor was reinsured by the defendant, Certain Underwriters at Lloyd's.

From November 15, 1967, to November 15, 1970, Harbor had in force its Policy No. 105236 furnishing excess comprehensive liability coverage, which policy was in excess to a primary "Blanket Liability and Automobile Policy No. LAB 1 92 40" issued by the defendant, Insurance Company of North America, in the amount of $50,000. Harbor, in turn, reinsured its excess policy for all sums in excess of $35,000 through yet another insurance company.

Following Harbor's payment of the California judgment in favor of Bertero against National, Harbor made a demand on plaintiff, Security, to be reimbursed in the amount of $1,414,036.95. The amount represented the judgment, accrued interest and costs, less $10,000 paid by Continental Casualty Company under its primary policy and the $25,000 retained by Harbor under its excess policy provided by the reinsurance agreement issued by Security that was in force from January 1, 1960, to January 1, 1965. Security refused the demand.

Security received a letter on behalf of Harbor on March 17, 1975, demanding arbitration. On April 11, 1975, Security, filed a declaratory judgment action seeking a declaration of its rights and obligations under the reinsurance treaty issued by Security to Harbor.

Security named as defendants, in addition to Harbor, Continental Casualty Company, Consolidated Mutual Insurance Company, Insurance Company of North America, and Certain Underwriters at Lloyd's, in that their rights and liabilities under their respective policies would be affected by the resolution of the dispute between Security and Harbor.

On the same day, pursuant to Section 2 of the Illinois Arbitration Act (Ill.Rev.Stat.1975, ch. 10, par. 102), Security filed a petition seeking a stay of arbitration. On May 16, 1975, Harbor filed its motion to strike Security's Petition to Stay Arbitration and, alternatively, filed a cross-motion to compel arbitration. Following the filing of memoranda by the respective parties, the court after oral argument entered an interlocutory order on September 3, 1975. The order denied plaintiff Security's petition to stay arbitration while granting defendant Harbor's alternative petition to compel arbitration. At the same time, the court denied defendant Harbor's motion to strike and dismiss the complaint for declaratory judgment and stayed all further proceedings in that matter pending the arbitration award or decision. Security appeals from the order denying its petition to stay arbitration.

The sole issue presented by this appeal is whether it was error for the circuit court to order arbitration without first determining whether the dispute at hand was arbitrable. Section 2 of the Illinois Arbitration Act provides:

"On application, the court may stay an arbitration proceeding commenced or threatened on a showing that there is no agreement to arbitrate. That issue, when in substantial and bona fide dispute, shall be forthwith and summarily tried and the stay ordered if found for the moving party. If found for the opposing party, the court shall order the parties to proceed to...