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

• Decision Date: 21 November 1979
• Docket Number: No. 51445,51445
• Citation: 397 N.E.2d 839,77 Ill.2d 446,34 Ill.Dec. 167
• Parties: , 34 Ill.Dec. 167 SECURITY MUTUAL CASUALTY COMPANY, Appellee, v. HARBOR INSURANCE COMPANY et al., Appellees. (Insurance Company of North America et al., Appellants).
• Court: Illinois Supreme Court

Page 839

397 N.E.2d 839

77 Ill.2d 446, 34 Ill.Dec. 167

SECURITY MUTUAL CASUALTY COMPANY, Appellee, v. HARBOR INSURANCE COMPANY et al., Appellees (Insurance Company of North America et al., Appellants).

No. 51445.

Supreme Court of Illinois.

Nov. 21, 1979.

Baker & McKenzie, Chicago (Francis D. Morrissey and Norman J. Barry, Jr., Chicago, of counsel), for appellant Ins. Co. of North America.

Lord, Bissell & Brook, Chicago (R. R. McMahan and Thomas W. Dempsey, Chicago, of counsel), for appellant Certain Underwriters at Lloyd's of London.

A. Denison Weaver, Chicago, for appellee Sec. Mut. Cas. Co. Peterson, Ross, Schloerb & Seidel, Chicago, and Bodkin, McCarthy, Sargent & Smith, Los Angeles, Cal. (Henry G. Bodkin, Jr., Los Angeles, Cal., Norbert J. Wegerzyn, Toni M. Oberscheven, and Louis C. Roberts, Chicago, of counsel), for appellee Harbor Ins. Co.

Haskell & Perrin, Chicago (Donald M. Haskell and Philip A. Jackman, Chicago, of counsel), for appellee Continental Cas. Co.

GOLDENHERSH, Chief Justice:

Plaintiff, Security Mutual Casualty Company, appealed from the order of the circuit court of Cook County allowing the petition of defendant Harbor Insurance Company (hereafter Harbor) to compel arbitration. The appellate court reversed (65 Ill.App.3d 198, 21 Ill.Dec. 707, 382 N.E.2d 1), and we allowed the petitions for leave to appeal of defendants Certain Underwriters at Lloyd's and Insurance Company of North America. This controversy stems from an action filed in the superior court of Los Angeles County, California, by John Bertero against National General Corporation charging the malicious prosecution of a cross-complaint filed in prior litigation between the parties. Bertero recovered a judgment against National which was affirmed by the Supreme Court of California on December 10, 1974. (Bertero v. National General Corp. (1974), 13 Cal.3d 43, 118 Cal.Rptr. 184, 529 P.2d 608.) The relevant facts and the description of the insurance policies and reinsurance agreements here involved are set forth in the appellate court opinion and need not be reviewed here. (65 Ill.App.3d 198, 200-02, 21 Ill.Dec. 707, 382 N.E.2d 1.) All of the insurance companies involved have appeared and filed briefs in this court.

Harbor paid substantially all of the judgment recovered by Bertero and demanded reimbursement from plaintiff Security under the reinsurance agreement in force between the parties from January 1, 1960, to January 1, 1965. Security refused to pay and Harbor demanded arbitration. Security filed this action for declaratory judgment seeking a declaration of its rights and obligations under the reinsurance treaty. Named as defendants in addition to defendant Harbor were Continental Casualty Company, Consolidated Mutual Insurance Company, Insurance Company of North America and Certain Underwriters at Lloyd's.

Pursuant to section 2 of the Uniform Arbitration Act (Ill.Rev.Stat.1975, ch. 10, par. 102), Security filed a petition seeking a stay of arbitration. Harbor moved to strike Security's petition to stay arbitration and filed a petition to compel arbitration. The circuit court denied Security's petition to stay arbitration and allowed Harbor's petition to compel arbitration. Security appealed. The appellate court held that the successful conclusion of the original action (the defeat of National's cross-claim against Bertero) was a prerequisite to the malicious prosecution action and that the cause of action, therefore, did not arise until August 1965, when National's cross-complaint against Bertero was terminated in his favor. It reasoned that since the reinsurance treaty between Security and Harbor had been terminated on January 1, 1965, prior to the time when Bertero's cause of action arose, there was no longer a contractual relationship between the parties, and that "Security was no longer bound to provide excess coverage for Harbor and no arbitration clause was in effect between the parties." 65 Ill.App.3d 198, 206, 21 Ill.Dec. 707, 712, 382 N.E.2d 1, 6.

The reinsurance agreement between Harbor and Security provided Inter alia :

"ARTICLE I.

CLASSES OF BUSINESS REINSURED:

The Company will reinsure with the Reinsurer and the Reinsurer will accept reinsurance from the Company upon the specific terms and conditions set forth in this Agreement as respects the following classes of business:

Third Party Bodily Injury Liability (including Medical Payments) and Property Damage Liability Business;

Workmens Compensation and Employers' Liability Business;

Motor Cargo Business"

"ARTICLE XIII.

ARBITRATION:

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

As soon as one party demands arbitration and has named an arbitrator, the other party binds itself to name an arbitrator within one (1) month and the two arbitrators shall then within a further period of one (1) month select an umpire. In the case of their being unable to agree upon an umpire, each of them shall name three of whom the other declines two, and the decision shall be made by each of them drawing lots. The umpire shall act under the said Agreement or submission with the same force and effect as if he had been specifically named therein and the decision of the majority of the court of arbitration shall be final and binding upon the contracting parties.

* * *."

The long established rule, enunciated in Ross v. Watt (1854), 16 Ill. 99, is that "In construing instruments of submission to arbitration, courts always give as large a construction to them, as the words of...