Statewide Ins. v. Houston General Ins. Co.

• Decision Date: 14 December 2009
• Docket Number: No. 1-07-1798.,1-07-1798.
• Citation: 920 N.E.2d 611,336 Ill. Dec. 402
• Parties: STATEWIDE INSURANCE COMPANY and Westfield Insurance Company, Plaintiffs-Appellees and Cross-Appellants, v. HOUSTON GENERAL INSURANCE COMPANY, Defendant-Appellant and Cross-Appellee.
• Court: United States Appellate Court of Illinois

920 N.E.2d 611

336 Ill. Dec. 402

STATEWIDE INSURANCE COMPANY and Westfield Insurance Company, Plaintiffs-Appellees and Cross-Appellants, v.HOUSTON GENERAL INSURANCE COMPANY, Defendant-Appellant and Cross-Appellee.

No. 1-07-1798.

Appellate Court of Illinois, First District, First Division.

December 14, 2009.

The Law Offices of Wolf & Wolfe, Ltd.(Patrick R. Grady, of Counsel), Chicago, IL, for Appellant and Cross-Appellee.

Freeborn & Peters LLP(David C. Gustman, Robert M. Baratta, Jr., Catherine A. Miller and John C. Hammerle, of Counsel), Chicago, IL, for Appellees and Cross-Appellants.

Justice LAMPKINdelivered the opinion of the court:

In this insurance coverage dispute among three insurance companies, the trial court granted summary judgment in favor of plaintiffStatewide Insurance Company(Statewide), denied summary judgment in favor of plaintiffWestfield Insurance Company(Westfield), and denied the cross-motion for summary judgment filed by defendantHouston General Insurance Company(Houston General).

On appeal, Houston General argues that the trial court erred in granting summary judgment in favor of Statewide, contending Houston General's insurance policy did not cover the underlying construction-site accident because the coverage could not have been amended without Houston General's consent and a policy endorsement.In the alternative, Houston General argues that summary judgment was improper because there were genuine issues of material fact concerning the insured's desire to reinstate coverage and the effective date of any reinstatement.Houston General also contends the trial court's award of damages in favor of Statewide failed to consider Westfield's concurrent obligation to defend and indemnify the insured.Furthermore, Houston General challenges the trial court's award of attorney fees and costs to Statewide.

In their cross-appeal, plaintiffs Statewide and Westfield challenge the trial court's ruling that Westfield had an obligation to defend and indemnify the insured, which was based upon the trial court's finding that the insured never deactivated its tender of defense to Westfield.

For the reasons that follow, we affirm the judgment of the trial court granting summary judgment in favor of Statewide and denying summary judgment in favor of Houston General.However, we reverse the trial court's denial of summary judgment in favor of Westfield.

I.BACKGROUND

This insurance coverage dispute arose after a worker was injured at a high-rise building construction project in December 1997.Joseph Construction Company(JCC) was the general contractor, and Dryden Contractors, Inc.(Dryden), and RC Plumbing, Inc.(RC Plumbing), were two of JCC's subcontractors on that project.JCC was insured by plaintiff Statewide; Dryden was insured by defendant Houston General; and RC Plumbing was insured by plaintiff Westfield.Furthermore, JCC was named as an additional insured on both Dryden's Houston General policies and RC Plumbing's Westfield policies with respect to liability arising out of the subcontractors' ongoing operations performed for JCC.The issues on appeal concern the obligations of Houston General, based on Dryden's insurance, and Westfield, based on RC Plumbing's insurance, to defend and indemnify JCC for the December 1997 loss.

Central to this dispute are the facts concerning Dryden's Houston General insurance.Dryden was owned by Pamela Dryden-Holguin.She had retained J.N. Morcos Insurance Agency and its employee Stephen Morcos to serve as Dryden's insurance broker and procure and manage the necessary insurance for Dryden.Accordingly, Morcos had placed Dryden's insurance coverage with Houston General through Midwest General Underwriters Group (Midwest), Houston General's agent.Dryden's coverage with Houston General included commercial general liability, property, inland marine, commercial automobile and excess liability umbrella.The commercial general liability policy had liability coverage amounts of $1 million per occurrence, with a general aggregate of $2 million for the period of July 30, 1997, through July 30, 1998.The excess liability umbrella form policy had a liability limit of $5 million per occurrence for the same policy period.

On November 10, 1997, Morcos sent by facsimile to Doug Rost of Midwest a memo and five cancellation request/policy release forms signed by Ms. Dryden-Holguin.According to those forms, Dryden was requesting cancellation of its Houston General property, umbrella, general liability, commercial automobile, and inland marine policies effective as of November 15, 1997.Morcos's memo advised Rost that Morcos would send notices to the certificate holders "today,"i.e.,November 10.However, on November 13, 1997, Morcos sent by facsimile to Rost a memo referencing their earlier discussion and telling Rost to cancel Dryden's property and inland marine policies, but Dryden's general liability, umbrella, and auto liability policies "must remain in force."

On January 16, 1998, Morcos sent Rost a facsimile referencing two cancellation reports for Dryden's general liability and umbrella policies, which Morcos had received in "today's mail."Morcos reiterated his November 13, 1997 instructions that only Dryden's property and inland marine policies should have been cancelled and "the remainder of the policies should have remained in force."Morcos asked Rost to look into the matter and contact him.

On February 23, 1998, Houston General issued a final audit for Dryden's general liability policy, indicating that Dryden was entitled to a return of $7,396 in paid premiums.

On March 3, 1998, Morcos sent Rost a letter referencing Dryden's general liability, automobile and umbrella policies.Morcos reiterated that those policies should still have been in force and a final audit should not have been conducted yet.Morcos stated that he had been issuing certificates under those policies and collecting premiums.Morcos asked Rost to confirm in writing that he had "taken care of this matter and that the policies are in fact still in force."

On April 1, 1998, Rost sent Morcos a facsimile that referenced Dryden's general liability, automobile, and umbrella policies and stated:

"Please be advised that coverage is in force for the General Liability[,] Hired & Non Owned Auto plus Umbrella.Our accounting department has been advised accordingly.

Sorry for any confusion."

Meanwhile, on December 17, 1997, construction worker Michael McCartin sustained personal injuries while working at JCC's construction project.McCartin filed a lawsuit in December 1999 against JCC alleging negligence, and Statewide retained counsel on behalf of JCC.Later, McCartin amended his complaint, adding Dryden, RC Plumbing and other defendants.

On September 17, 2001, JCC sent a letter to Houston General and Dryden, tendering its defense of the McCartin lawsuit and requesting that they engage counsel to defend JCC and indemnify it in accordance with their insurance policies.JCC also stated that it had given notice of the claim to Statewide but did not seek indemnification from Statewide at that time.Rather, JCC had asked Statewide to protect its interests until Houston General or Dryden accepted the tender offer.

Also on September 17, 2001, JCC sent a letter to Westfield and RC Plumbing, tendering its defense of the McCartin lawsuit and requesting that they engage counsel to defend JCC and indemnify it in accordance with their insurance policies.JCC also stated that it had given notice of the claim to Statewide but did not seek indemnification from Statewide at that time.Rather, JCC had asked Statewide to protect its interests until Westfield or RC Plumbing accepted the tender offer.

In September 2001, Houston General declined JCC's tender of defense and indemnity on a primary basis, claiming Dryden's general liability policy did not cover McCartin's accident date of December 17, 1997.Houston General, however, would check for coverage under Dryden's umbrella policy but noted that its "only involvement if any would be on an excess basis."

In December 2001, Westfield filed a complaint for declaratory judgment against JCC, Statewide, and McCartin, seeking a finding that Westfield did not owe a duty to defend or indemnify JCC.Specifically, Westfield alleged that it was relieved of any duties to JCC because JCC violated the conditions of insurance by giving Westfield late notice of McCartin's accident and lawsuit.

On March 25, 2003, JCC's counsel sent Houston General a letter explaining that Morcos had provided a document from Midwest showing that Dryden's general liability policy with Houston General was in effect through July 30, 1998.Counsel for JCC concluded that Houston General had a policy in effect on the date of loss and owed coverage to JCC from the date of tender, September 17, 2001.Furthermore, counsel stated that JCC "has de-tendered its defense for [Statewide] and is looking to Houston General to defend and indemnify it exclusively to the limits of its policy."

On March 27, 2003, JCC sent Houston General's counsel a letter stating that JCC was covered as an additional insured under Dryden's Houston General policy, which was in effect on the date of McCartin's accident.JCC stated, "As such, we are de-tendering to [Statewide] and demanding that [Houston General] defend and indemnify [JCC] exclusively."

Houston General did not accept JCC's tender of the defense in the McCartin suit under a reservation of rights and did not file a declaratory judgment action concerning its obligations to JCC.

In September 2003, Statewide filed the complaint for declaratory judgment that is the subject of this appeal.This complaint against Houston General, JCC and McCartin sought a declaration that Houston General had a duty to appear and defend JCC on the McCartin complaint, breached that duty, and was liable for all sums paid and incurred by Statewide in its defense of JCC.

In ...