Certain Underwriters At Lloyd's London v. Burlington Insurance Co. , 2015 IL App (1st) 141408 ( 2015 )


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    2015 IL App (1st) 141408
                                      Nos. 1-14-1408 & 1-14-3091 (cons.)
    Opinion filed July 15, 2015
    Third Division
    IN THE
    APPELLATE COURT OF ILLINOIS
    FIRST DISTRICT
    CERTAIN UNDERWRITERS AT LLOYD'S
    Appeal from the Circuit Court
    LONDON, Subscribing to Certificate No.
    of Cook County.
    CVC000537,
    Plaintiff-Appellee,
    No. 13 CH 18775
    v.
    The Honorable
    THE BURLINGTON INSURANCE COMPANY
    Rodolfo Garcia,
    and BARNABUS SUTTON,
    Judge, presiding.
    Defendants-Appellants.
    JUSTICE HYMAN delivered the judgment of the court, with opinion.
    Justices Lavin and Mason concurred in the judgment and opinion.
    OPINION
    ¶1          Plaintiff, Certain Underwriters at Lloyd's, London, Subscribing to Certificate No.
    CRCC000537 (Underwriters), issued an insurance policy to Rada Development LLC for a
    commercial development project. Barnabus Sutton, an employee of C&B Steel, Inc., a project
    subcontractor, sued Rada for injuries he sustained in an accident at the construction site.
    Underwriters filed a declaratory judgment action against C&B Steel's insurer, The Burlington
    Insurance Company (TBIC), sought a judicial declaration that, under the TBIC policy, Rada
    qualified as an additional insured. The circuit court held that TBIC had the sole duty to defend
    1-14-1408 & 1-14-3091
    Rada as an additional insured and ordered TBIC to reimburse Underwriters for all reasonable
    costs in defending Rada. TBIC appealed, asserting that the circuit court erred in finding that
    TBIC has the sole duty to defend Rada, and asked that the order be reversed and a new order
    entered finding TBIC to be a co-primary insurer obligated to share in the defense with
    Underwriters.
    ¶2          In a separate case involving the same tort claim, Pekin Insurance Company, which issued
    a policy to Chicago Masonry Construction, Inc., another subcontractor, sought a declaration that
    Rada was not an additional insured under its policy. (Pekin named Rada but not Underwriters as
    a defendant in that declaratory judgment action.) After the trial court found Pekin had no duty to
    defend Rada in the Sutton lawsuit, Underwriters filed a petition to vacate the trial court's
    judgment under section 2-1401 of the Code of Civil Procedure (Code) (735 ILCS 5/2-1401
    (West 2012)), asserting Underwriters was a necessary party. The circuit court granted
    Underwriters' petition and vacated the judgment. The appellate court affirmed. Pekin Insurance
    Co. v. Rada Development, LLC, 
    2014 IL App (1st) 133947
    . Thereafter, in this case, TBIC filed a
    motion to vacate under section 2-1401, contending that Rada failed to name Pekin, a necessary
    party. The circuit trial court denied the petition. The trial court found Pekin did not acquire the
    status of a necessary party and TBIC had a duty to reimburse Underwriters' for its defense costs.
    Consolidated before us are TBIC's appeals of the order rejecting Pekin as a necessary party and
    the order granting Underwriters its reasonable defense costs.
    ¶3          We affirm. Pekin does not have the status of a necessary party to this coverage dispute.
    The court only had to determine which insurer, as between Underwriters and TBIC, owed a
    primary duty to defend Rada. Further, the trial court did not err in finding that TBIC's "other
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    insurance" clause rendered it primary to the Underwriters policy and responsible for
    Underwriters' defense costs.
    ¶4                                          BACKGROUND
    ¶5          Rada owns and is the developer of a commercial property located in Chicago ("the
    project"). Rada contracted with Heartland Construction Group to act as general contractor. On
    August 1, 2006, Heartland entered into a subcontract agreement with C&B Steel, and as part of
    that agreement, C&B Steel was required to list Heartland as an additional insured on its liability
    insurance policy. Later, Rada took over as the general contractor of the project, under a
    “reassignment agreement” between Rada and Heartland. Heartland agreed to assign all of its
    interests in any subcontract agreement for the project, including its subcontract agreement with
    C&B Steel.
    ¶6          On November 15, 2006, Barnabus Sutton, an employee of C&B Steel, sustained injuries
    in a construction related accident. Sutton sued Rada and others to recover for his injuries. (While
    these consolidated appeals were pending, the underlying action settled for $240,000 and was
    dismissed.) Underwriters tendered Rada's defense to TBIC, based on Rada's status as an
    additional insured under the TBIC policy. TBIC denied the tender, contending that the policy
    excluded Sutton's suit from coverage under the Employer's Liability Exclusion provision and that
    Rada did not qualify as an additional insured under the policy.
    ¶7          On August 19, 2013, Underwriters filed a complaint seeking a declaration that: (i) Rada
    qualified as an additional insured, (ii) TBIC should reimburse Underwriters for all defense costs,
    (iii) the employer's liability exclusion did not apply to Rada, and (iv) TBIC was otherwise
    estopped from asserting any coverage defenses. TBIC denied the material allegations of
    Underwriters' complaint and filed a counterclaim based on the employer liability exclusion.
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    ¶8             After argument, the circuit court entered an order on March 17, 2014, granting
    Underwriters' motion, in part, denying TBIC's cross-motion, in part, and declining to reach the
    estoppel issue. The court found that "TBIC has the sole duty to defend Rada *** as an additional
    insured and that TBIC must reimburse Underwriters all reasonable defense costs incurred
    defending Rada in the [underlying] action from July 23, 2013 to the present." The court also held
    that: (i) Rada qualified as an additional insured under the TBIC policy, and the assignment of the
    contract requiring Rada to be named as an additional insured was fully executed before the date
    of loss; (ii) the employer's liability exclusion in the TBIC policy did not apply to bar coverage
    for Rada; (iii) the amended definition of employee did not expand the scope of the employer
    liability exclusion in the TBIC policy; and (iv) TBIC's "other insurance" clause rendered it
    primary to the Underwriters' policy. TBIC filed a motion to reconsider only the circuit court's
    ruling that the "other insurance" clause rendered it primary to the Underwriters policy, which the
    trial court denied.
    ¶9             On May 6, 2014, the circuit court entered a money judgment in favor of Underwriters and
    against TBIC for 100% of the reasonable defense fees and costs Underwriters incurred in
    defending Rada, which amounted to $107,277.88, plus prejudgment interest in the amount of
    $4,325.55, for a total judgment of $111,603.43. TBIC filed a notice of appeal asserting that the
    trial court erred in finding that it had the sole duty to defend Rada.
    ¶ 10           On July 23, 2014, while TBIC's appeal of the money judgment was pending, the appellate
    court issued an opinion in Pekin Insurance Co. v. Rada Development, LLC, 
    2014 IL App (1st) 133947
    , holding that Underwriters should have been named as a necessary party to the
    declaratory action filed by Pekin pertaining to the same accident and underlying lawsuit. After
    learning of the Pekin case, TBIC filed a section 2-1401 petition to vacate the trial court's March
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    17 and May 5 orders. TBIC contended that the orders were void for lack of joinder of a
    necessary party, namely Pekin, to the declaratory action. (TBIC also filed a motion to vacate and
    for sanctions under Illinois Supreme Court Rule 375 (eff. Feb. 1, 1994) in the appellate court,
    which was denied).
    ¶ 11          On September 17, 2014, the circuit court heard arguments on TBIC's section 2-1401
    petition to vacate. The court denied the petition, finding Pekin did not occupy the status of a
    necessary party to the dispute and its order directing TBIC to reimburse Underwriters' defense
    costs was not void. The court noted that TBIC's challenge was limited to the other insurance
    clause ruling only and that TBIC did not contest that it had a duty to defend Rada. On October 6,
    2014, TBIC filed a notice of appeal from the September 17 order. TBIC also filed a motion to
    consolidate the appeals, which we granted.
    ¶ 12                                              ANALYSIS
    ¶ 13                                            Necessary Party
    ¶ 14          TBIC argues the trial court erred in denying its section 2-1401 motion to vacate because
    the judgment was void where a necessary party—Pekin Insurance—was not joined. TBIC asserts
    that because Pekin may be liable to pay some of Underwriters' defense costs, it was a necessary
    party, and thus, the order should be vacated and the case remanded with instructions that this
    case be consolidated with the Pekin case. TBIC asserts that by making it responsible for 100% of
    Underwriters' defense costs, the trial court elevated its "other insurance" clause over the "other
    insurance" clauses in the policies issued by other involved insurers, including Pekin.
    ¶ 15          "A necessary party is one whose participation is required to (1) protect its interest in the
    subject matter of the controversy which would be materially affected by a judgment entered in its
    absence; (2) reach a decision protecting the interests of the parties already before the court; or (3)
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    allow the court to completely resolve the controversy.” Zurich Insurance Co. v. Baxter
    International, Inc., 
    275 Ill. App. 3d 30
    , 37 (1995), aff'd as modified, 
    173 Ill. 2d 235
    (1996). An
    order entered without jurisdiction over a necessary party will be void. 
    Id. The failure
    to join a
    necessary party may be raised at any time: by the parties or by the trial court or by the appellate
    court sua sponte. Lah v. Chicago Title Land Trust Co., 
    379 Ill. App. 3d 933
    , 940 (2008).
    ¶ 16          TBIC maintains that where a dispute involves the obligation that two insurers may owe to
    the same mutual insured, both insurers are necessary parties to any case adjudicating the duty to
    defend and allocating defense costs. TBIC states that by not joining Pekin, TBIC's interests are
    not protected and the court may not completely resolve the controversy due to an inability to
    allocate some of the defense costs to Pekin. Thus, TBIC asserts, the circuit court order allocating
    to TBIC 100% of Underwriters' defense costs is void.
    ¶ 17          For support, TBIC relies on Rada Development, 
    2014 IL App (1st) 133947
    , and contends
    that the appellate court held that all insurers who are claimed to have a duty to defend Rada in
    the underlying case qualify as necessary parties to a declaratory complaint that seeks to
    adjudicate those rights. In Rada Development, Underwriters defended Rada in the underlying
    action under a reservation of rights. 
    Id. ¶ 5.
    Underwriters tendered Rada's defense in the
    underlying case to Pekin and Pekin's named insured, Chicago Masonry Construction, Inc. Pekin
    denied the tender and filed a declaratory judgment action naming Rada but not Underwriters as a
    defendant, seeking a declaration that it had no duty to defend Rada in the Sutton case. 
    Id. ¶ 7.
    Pekin obtained a default judgment against Rada. 
    Id. ¶ 13.
    Underwriters filed a section 2-1401
    petition to vacate the default judgment and a motion to intervene under section 2-408(a)(2) of the
    Code (735 ILCS 5/2-408(a)(2) (West 2012)), contending it was a necessary party to the Pekin
    action but never joined. Rada, 
    2014 IL App (1st) 133947
    , ¶ 16. The circuit court granted the
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    section 2-1401 petition to vacate. The trial court reasoned that Underwriters possessed necessary
    party status in Pekin's declaratory judgment action because it had an interest in the subject matter
    that was materially affected by the default judgment order. 
    Id. ¶ 17.
    ¶ 18          The appellate court affirmed, finding that Underwriters was a necessary party in the
    Pekin declaratory judgment action because the default judgment required Underwriters to
    continue defending Rada in the Sutton suit, "despite its attempt to tender Rada's defense to Pekin
    ***; thus, the judgment materially affected the interest of [Underwriters]." 
    Id. ¶ 21.
    Pekin's
    petition for leave to appeal to the Illinois Supreme Court was denied. Pekin Insurance Co. v.
    Rada Development LLC, No. 118203 (Ill. Nov. 26, 2014). (On remand, TBIC filed a petition to
    intervene in the Pekin declaratory judgment action, which was granted, and TBIC filed a
    counterclaim in that case seeking a declaration that Pekin had a duty to defend Rada in the
    Sutton case and a cause of action based on equitable contribution.)
    ¶ 19          To repeat, based on the holding in Rada Development, TBIC contends that all insurers
    who are claimed to have a duty to defend Rada in the underlying case are necessary parties to a
    declaratory judgment action that seeks to adjudicate those rights. TBIC further contends Pekin is
    a necessary party because Pekin may be found to have a duty to defend Rada and thus, may be
    liable for some of Underwriters' defense costs. Thus to fully adjudicate TBIC's rights and
    obligations as to Rada, Pekin must be named a party. We disagree. Unlike in Rada Development,
    the circuit court's ruling did not materially affect Pekin's interests. The circuit court's order held
    that Rada was an additional insured under the TBIC policy, that TBIC owes a duty to defend
    Rada in the Sutton case, and that because Underwriters' policy is excess to the TBIC policy,
    Underwriters does not have a duty to defend Rada. Thus, the circuit court only addressed the
    duties and obligations as between TBIC and Underwriters and did not address Pekin's rights or
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    obligations. If indeed Pekin is found to have a duty to defend Rada, a matter which is still to be
    decided, TBIC, which intervened in the Pekin case, may seek from Underwriters its share of
    defense costs.
    ¶ 20          TBIC also contends that if we affirm the order denying its petition to vacate, our opinion
    will be advisory because the issue of Pekin's duty to defend has yet to be ruled on by the trial
    court. See Golden Rule Insurance Co. v. Schwarz, 
    203 Ill. 2d 456
    , 469 (2003). For support, TBIC
    relies on Pielet v. Pielet, 
    2012 IL 112604
    . In Pielet, the Illinois Supreme Court remanded a
    breach of contract lawsuit because of a genuine issue of material fact as to whether certain
    parties' contractual obligations were assumed by another party through novation. The court stated
    that two counts of the plaintiff's complaint, alleging breach of contract, would come into play if
    and only if there proved to have been no novation. Because that remained an open question, the
    court found that any decision would be speculative and premature. Pielet, 
    2012 IL 112604
    , ¶ 57.
    ¶ 21          TBIC asserts that as in Pielet, whether the circuit court correctly allocated 100% of the
    defense fee burden to TBIC cannot be determined until the trial court resolves Pekin's duty to
    defend. But unlike in Pielet, there are no open questions concerning the relationship between
    Underwriters and TBIC. TBIC acknowledges it has a duty to defend Rada, and the only issue
    raised in this declaratory action involves whether the Underwriters policy was excess to or equal
    to the TBIC policy. Pekin does not assume the status of a necessary party for the court to make
    this determination. Thus, this opinion does not qualify as advisory.
    ¶ 22                                      "Other Insurance" Clauses
    ¶ 23          Alternatively, TBIC argues that even if the section 2-1401 petition was properly denied,
    we should reverse on the basis that TBIC and Underwriters are co-primary insurers. The other
    insurance clauses in both TBIC's policy and in Underwriters' policy are identical and thus,
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    according to TBIC, both parties provide co-primary coverage and are equally liable for
    defending Rada in the underlying action. We disagree.
    ¶ 24          The TBIC and Underwriters' policies contain the following other insurance clause
    provisions:
    "4. Other Insurance
    If other valid and collectible insurance is available to the insured for a loss we
    cover under Coverages 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.
    ***
    b.       Excess Insurance. This insurance is excess over:
    ***
    (2) Any other primary insurance available to you covering liability for damages
    arising out of the premises or operations for which you have been added as an
    additional insured by attachment of an endorsement."
    ¶ 25          Both policies state that "the words 'you' and 'your' refer to the Named Insured shown in
    the Declarations ***." In the Underwriters' policy, Rada is the named insured. Rada is an
    additional insured in the TBIC policy. Thus, the Underwriters' excess insurance provision
    applies, and Underwriters policy is excess over "[a]ny other primary insurance available to
    [Rada]." Conversely, under the TBIC policy, C&B Steel is the named insured. Because C&B
    Steel has not been added as an additional insured to the Underwriters' policy, TBIC's excess
    other insurance provision does not apply. Thus, under the language of the other insurance
    provision of the policies, TBIC's policy is primary and Underwriters' policy is excess.
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    ¶ 26          Moreover, we reject TBIC's argument that both policies, which contain the same "other
    insurance" clause, are "mutually repugnant" and cancel each other out. TBIC relies on Ohio
    Casualty Insurance Co. v. Oak Builders, Inc., 
    373 Ill. App. 3d 997
    (2007). The Oak Builders
    court held irreconcilable identical “other insurance” clauses contained in two policies. The
    policies converted otherwise primary coverage into excess coverage whenever primary coverage
    was available. The court concluded that this situation required the insurers to share the cost of
    defending and indemnifying the underlying tort suit. Oak 
    Builders, 373 Ill. App. 3d at 1004
    . One
    reason the “other insurance” clauses were determined to be irreconcilable was the facts led to a
    different result depending on which policy one read first. 
    Id. at 1003.
    While the provisions
    should be reconciled whenever possible to effectuate the intent of the parties, the majority rule
    provides that the court cannot arbitrarily pick one policy to be read first and undermine the
    intention of the insurer whose policy is read second. 
    Id. at 1001
    (deeming identical “other
    insurance” clauses to be incompatible is fair when no rational basis for applying clause of one
    policy and refusing to apply clause of other policy (citing Putnam v. New Amsterdam Casualty
    Co., 
    48 Ill. 2d 71
    , 78–79 (1970))). Here, the two “other insurance” provisions are reconcilable.
    Regardless of which policy one reads first, the contracting parties' words and apparent intent do
    not change; the two policies constitute compatible primary and excess policies, with TBIC's
    policy being primary and Underwriters' policy being excess. Thus, the circuit court properly
    ruled that Underwriters' policy provided excess coverage over the TBIC policy.
    ¶ 27          We affirm the circuit court orders entering judgment in Underwriters' favor and denying
    TBIC's petition to vacate.
    ¶ 28          Affirmed.
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Document Info

Docket Number: 1-14-1408, 1-14-3091 cons.

Citation Numbers: 2015 IL App (1st) 141408

Filed Date: 7/16/2015

Precedential Status: Non-Precedential

Modified Date: 4/18/2021