State Automobile Mutual Insurance Co. v. Habitat Construction Co.

FIRST DIVISION
SEPTEMBER 24, 2007
No. 1-05-0365
STATE AUTOMOBILE MUTUAL ) Appeal from the
INSURANCE COMPANY, as Successor in ) Circuit Court of
Interest to and Real Party in ) Cook County.
Interest in Place of Meridian )
Mutual Insurance Company, )
)
Plaintiff-Appellee, )
)
v. )
) No. 02 CH 21220
HABITAT CONSTRUCTION COMPANY, )
)
Defendant-Appellant )
)
)
(Central Building and Preservation;)
Solomon Cordwell, Buenz and ) The Honorable,
Associates, Inc.; and Larry ) Bernetta D. Bush,
Medolan, ) Judge Presiding.
)
Defendants). )
JUSTICE GARCIA delivered the opinion of the court.
In this declaratory judgment action, the trial court granted
summary judgment in favor of the plaintiff, State Automobile
Mutual Insurance Company (State Auto), finding it did not have a
duty to defend or indemnify the defendant, Habitat Construction
Company (Habitat), in an underlying personal injury action.
Habitat contends on appeal that it, rather than State Auto, was
entitled to summary judgment.
No. 1-05-0365
BACKGROUND
In 2000, a construction project for a building located at
2701 South Indiana in Chicago (the project) was underway.
Habitat was the general contractor on the project, and Central
Building & Preservation (Central Building) was a subcontractor
hired to provide certain services. The written contract between
Habitat and Central Building required Central Building to add
Habitat as an additional insured on the commercial general
liability policy it had in effect through State Auto, its
insurer.1 Habitat purportedly has in effect its own liability
insurance policy through Pennsylvania General Insurance Company.
The record provides no information about the terms of that
policy.
The State Auto policy contains a "Blanket Additional Insured
Endorsement-Primary and Non-Contributory" provision, which
provides, in part:
"WHO IS AN INSURED (Section II) is amended to
include as an insured any person or
organization whom you are required to name as
1
The insurance policy was originally issued through
Meridian Mutual Insurance Company (Meridian). On June 1, 2001,
State Auto assumed all of the obligations and liabilities of
Meridian. The Meridian/State Auto policy is referred to as "the
policy" or "the State Auto policy."
2
No. 1-05-0365
an additional insured on this policy under a
written contract or agreement.
* * *
The insurance provided the additional
insured is limited as follows:
1. That the person or organization is
only an additional insured with respect
to liability arising out of:
* * *
(b) 'Your work' for that additional
insured for or by you.
* * *
3. The insurance provided the
additional insured does not apply to
'bodily injury,' 'property damage,'
'personal injury,' 'advertising injury,'
or defense coverage under the
Supplemental Payments section of the
policy arising out of an architect's,
engineer's, or surveyor's rendering of
or failure to render any professional
services including:
(a) The preparing, approving, or failing
to prepare or approve maps, drawings,
opinions, reports, surveys, change orders,
3
No. 1-05-0365
design or specifications; and
(b) Supervisory, inspection, or
engineering services.
Any coverage provided hereunder shall be
excess over any other valid and collectible
insurance available to the additional insured
whether primary, excess, contingent, or on
any other basis unless a contract
specifically requires that this insurance be
non-contributory and or primary or you
request that it apply on a non-contributory
and or primary basis."
The policy defines "Your work" as "Work or operations
performed by you or on your behalf; and *** [m]aterials, parts or
equipment furnished in connection with such work or operations."
On June 19, 2000, Larry Medolan, a Central Building
employee, was allegedly injured while working on the project. On
April 2, 2002, Medolan filed a one-count complaint in the circuit
court of Cook County, naming Habitat, South Commons Stage One
Venture, and Solomon, Cordwell, Buenz and Associates, Inc., as
defendants. Central Building was not named in the complaint.
Medolan alleged the defendants owned or were in charge of the
project site. He also alleged "[t]hat at the aforementioned time
and place, [Medolan] was employed by Central Building &
Preservation L.P. on said premises in the furtherance of the
4
No. 1-05-0365
aforesaid work." He further alleged that the defendants were
present during the construction and participated in coordinating
the work done, designated work methods, and had the authority to
stop the work, refuse the work and materials, and order changes
in the work "in the event the work was being performed in a
dangerous manner or for any other reason." Medolan also alleged
the defendants erected a concrete wall to be used in the
construction, that his "duties and responsibilities *** required
that he work on and about the aforesaid concrete wall," and that
a section of concrete fell onto the scaffold on which he was
working, injuring him. Medolan alleged, in part, that the named
defendants were guilty of certain negligent acts and/or
omissions, including: (1) failing to make a reasonable inspection
of the premises; (2) improperly operating, managing, maintaining,
and controlling the premises; (3) failing to provide him with a
safe place to work; (4) failing to warn him of dangerous
conditions; (5) failing to provide adequate safeguards to prevent
injury to him; (6) failing to supervise the work; and (7)
improperly directing workers to cut excessive amounts of
concrete, which caused the area to become unstable. According to
the complaint, the defendants' negligence proximately caused
Medolan's injuries.
Habitat, on May 21, 2003, filed a third-party complaint
against Central Building. Habitat denied liability, but
alternatively alleged that if it was found liable, Central
5
No. 1-05-0365
Building engaged in certain negligent acts or omissions,
including the same seven acts alleged by Medolan in his
complaint. According to the third-party complaint, Central
Building's negligence proximately caused Medolan's injuries.
Habitat forwarded the Medolan complaint to Central Building
for defense and indemnification. Central Building then forwarded
the matter to State Auto. State Auto rejected Habitat's tender
of defense and, on November 22, 2002, filed the instant action
seeking a declaration that there was no coverage under the policy
for Habitat with respect to the Medolan action.
Habitat and State Auto filed cross-motions for summary
judgment. After hearing arguments from the parties, the court
granted State Auto's summary judgment motion and denied that of
Habitat. The court concluded that under American Country
Insurance Co. v. James McHugh Construction Co., 344 Ill. App. 3d
960, 801 N.E.2d 1031 (2003), State Auto had no duty to defend or
indemnify Habitat under the policy. Because it so concluded, the
trial court did not address whether the State Auto policy applied
on a primary or excess basis. This timely appeal followed.
ANALYSIS
Habitat contends on appeal that it, and not State Auto, is
entitled to summary judgment. Habitat argues that the Medolan
action falls within the policy and that State Auto has a duty to
defend and indemnify it. State Auto counters that summary
judgment was properly granted in its favor because the Medolan
6
No. 1-05-0365
complaint is devoid of any allegation that Habitat's liability
arose out of Central Building's work. State Auto also argues
that the professional services exclusion of the policy bars
coverage to Habitat. State Auto alternatively contends that even
if we find that Habitat is covered under the policy, the coverage
applies solely on an excess basis.
I. Standard or Review
Summary judgment is proper where "the pleadings,
depositions, and admissions on file, together with the
affidavits, if any, show 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." 735 ILCS 5/2-1005(c) (West 2004); Purtill
v. Hess, 111 Ill. 2d 229, 240, 489 N.E.2d 867 (1986). Where the
parties file cross-motions for summary judgment, they invite the
court to decide the issue as a matter of law. Liberty Mutual
Fire Insurance Co. v. St. Paul Fire & Marine Insurance Co., 363
Ill. App. 3d 335, 339, 842 N.E.2d 170 (2005). However, "the mere
filing of cross-motions does not preclude a determination that
triable questions of fact exist." State Farm Mutual Automobile
Insurance Co. v. Coe, 367 Ill. App. 3d 604, 607, 855 N.E.2d 173(2006). The grant of summary judgment is reviewed de novo.
Outboard Marine Corp. v. Liberty Mutual Insurance Co., 154 Ill.
2d 90, 102, 607 N.E.2d 1204 (1992).
II. Duty to Defend
The issue in this case is whether State Auto had a duty to
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No. 1-05-0365
defend or indemnify Habitat under the policy. "An insurer's duty
to defend an insured is much broader than its duty to indemnify."
State Automobile Mutual Insurance Co. v. Kingsport Development,
LLC, 364 Ill. App. 3d 946, 951, 846 N.E.2d 974 (2006). To
determine whether an insurer has a duty to defend an insured,
this court looks to the allegations in the underlying complaint
and compares them to the relevant provisions of the insurance
policy at issue. Outboard Marine Corp., 154 Ill. 2d at 107-08.
The allegations in the complaint must be liberally construed in
favor of the insured. Valley Forge Insurance Co. v. Swiderski
Electronics, Inc., 223 Ill. 2d 352, 363, 860 N.E.2d 307 (2006).
"If the facts alleged in the underlying complaint fall within, or
potentially within, the policy's coverage, the insurer's duty to
defend arises." Outboard Marine Corp., 154 Ill. 2d at 108.
Many cases from this court have addressed the situation
presented here: an employee of a subcontractor is injured in the
course of his or her employment on a construction site and sues
the general contractor, an additional insured on the
subcontractor's general liability policy. See, e.g., Kingsport,
364 Ill. App. 3d 946, 846 N.E.2d. 974; McHugh, 344 Ill. App. 3d
960, 801 N.E.2d 1031; National Union Fire Insurance Co. v. R.
Olson Construction Contractors, Inc., 329 Ill. App. 3d 228, 769
N.E.2d 977 (2002); American Country Insurance Co. v. Cline, 309
Ill. App. 3d 501, 722 N.E.2d 755 (1999); Liberty Mutual Insurance
Co. v. Westfield Insurance Co., 301 Ill. App. 3d 49, 703 N.E.2d
8
No. 1-05-0365
439 (1998); American Country Insurance Co. v. Kraemer Brothers,
Inc., 298 Ill. App. 3d 805, 699 N.E.2d 1056 (1998). This court
has explained:
"[T]he Illinois Workers' Compensation
Act (820 ILCS 305/5(a) (West 2000)) bars
injured workers from suing their own
employers. Consequently, because injured
construction workers cannot sue their
subcontractor employers, it is common
practice for them to sue the general
contractor involved with the project. In
realization of that possibility, general
contractors will usually set up insurance
requirements for their subcontractors, with
the intent of passing the liability for
worker injuries along to the worker's
employer's insurance carrier." McHugh, 344
Ill. App. 3d at 963.
A. Additional Insured
We first address whether the allegations in the Medolan
complaint directed against Habitat triggered the "additional
insured" coverage based on liability "arising out of" Central
Building's work on behalf of Habitat. In his complaint, Medolan
alleged that at the time of his injury "he was employed by
Central Building [and was] on said premises in furtherance of the
9
No. 1-05-0365
aforesaid work."2 We examine the facts alleged in the complaint
to determine whether they potentially fall within the policy's
coverage; if so, the insurer has a duty to defend. Outboard
Marine Corp., 154 Ill. 2d at 108.
Habitat relies on cases such as Liberty Mutual Insurance
Co., 301 Ill. App. 3d at 54-55, and Maryland Casualty Co. v.
Chicago & North Western Transportation Co., 126 Ill. App. 3d 150,
154, 466 N.E.2d 1091 (1984), which have found "arising out of"
language like that used in the State Auto policy to be both
"broad and vague" and requiring only a "but for" causal
connection between the accident and the named insured's work.
Habitat argues that "but for" the fact that Medolan was working
as Central Building's employee at a project where Habitat
contracted with Central Building to perform certain work,
Medolan's alleged injury would not have happened.
State Auto counters that the trial court in this case
2
The parties point to other materials in the record,
including Medolan's discovery deposition and answers to certain
interrogatories, to support their positions. However, as neither
party has convinced us to do otherwise, we adhere to the general
rule that courts look only to the underlying complaint to
determine whether there is a duty to defend. Olson, 329 Ill.
App. 3d at 235; see also Outboard Marine Corp., 154 Ill. 2d at
107-08.
10
No. 1-05-0365
properly rejected Habitat's reliance on a "but for" analysis
because cases using such a test involved allegations under the
now-repealed Structural Work Act (see 740 ILCS 150/0.01 et seq.
(West 1994) (repealed by Pub. Act 89-2, §5, eff. February 14,
1995)). State Auto also argues that McHugh, 344 Ill. App. 3d
960, 801 N.E.2d 1031, and Olson, 329 Ill. App. 3d 228, 769 N.E.2d
977, control the outcome of this case.3
In McHugh, we recognized the "common practice" for employees
of subcontractors injured on the job to sue the general
contractor involved with the project in light of the Illinois
Workers' Compensation Act (820 ILCS 305/5(a) (West 2004)) bar
preventing injured workers from suing their own employers.
McHugh, 344 Ill. App. 3d at 963. This "common practice" often
results in the general contractor placing insurance requirements
on its subcontractors with the intent of passing the liability
for worker injuries along to the worker's employer's insurance
3
At oral argument, we addressed the case of State
Automobile Mutual Insurance Co. v. Kingsport Development, LLC,
364 Ill. App. 3d 946, 951, 846 N.E.2d 974 (2006), a case that
presents virtually identical facts and issues, decided after
briefs were submitted in this case. Neither party sought to
present Kingsport as additional authority, even though counsel
for State Auto was appellate counsel in Kingsport.
11
No. 1-05-0365
carrier. However, as a close examination of the cases finding no
duty to defend, such as McHugh and Olson, and those finding a
duty to defend, such as Kingsport, reveals, the success of that
intent turns on the language of the policy under which the
general contractor is named an additional insured. If there is
an exclusion provision directly applicable to the facts alleged
in the pending complaint against the additional insured so as to
trigger that exclusion, no duty to defend arises. See McHugh,
344 Ill. App. 3d 960, 801 N.E.2d 1031; Olson, 329 Ill. App. 3d
228, 769 N.E.2d 977. However, in the absence of such a
controlling exclusionary clause, we determine whether a causal
connection between the accident and the named insured's work
triggers a duty to defend. See Kingsport, 364 Ill. App. 3d 946,
801 N.E.2d 974.
Thus, before a "but for" analysis can be applied to
determine whether a duty to defend has been triggered, we first
determine whether there exists any policy exclusion that deals
squarely with the allegations in the complaint that would make a
"but for" analysis unnecessary. Where coverage for the
additional insured requires that the liability arise out of named
insured's operations, that coverage may further be limited to
liability not arising from additional insured's own negligence.
See Olson, 329 Ill. App. 3d at 238. A complaint that alleges
only "direct negligence" of the purported "additional insured"
may "place it squarely within the coverage exclusion that makes
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No. 1-05-0365
[the policy] inapplicable to allegations *** 'arising out of any
act or omission of the additional insured(s).'" McHugh, 344 Ill.
App. 3d at 972. We look to McHugh and Olson to examine the
exclusionary language in those cases that resulted in the
respective policy being inapplicable to the underlying complaint.
In Olson, 329 Ill. App. 3d at 1231, the Second District
determined that the provision excluding "'LIABILITY RESULTING
FROM [THE ADDITIONAL INSURED'S] OWN NEGLIGENCE OR THE NEGLIGENCE
OF ITS SERVANTS, AGENTS OR EMPLOYEES'" was sufficient to remove
the general contractor from the protection of the subcontractor's
insurance policy where the complaint alleged only negligence
against the general contractor. In McHugh, 344 Ill. App. 3d at
964, this court found the provision excluding liability "'arising
out of any act or omission of the additional insured(s) or any of
their employees'" to likewise place the worker's complaint
outside the protection of the insurer's endorsement where only
direct negligence of the general contractor was alleged in the
complaint.
We note that "negligence" is defined in the pattern jury
instructions as "the failure to do something which a reasonably
careful person would do [an omission], or the doing of something
which a reasonably careful person would not do [an act]."
Illinois Pattern Jury Instructions, Civil, No. 10.01 (2000).
Thus, the exclusionary provisions in Olson and McHugh are
comparable as both excluded liability for a complaint alleging a
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No. 1-05-0365
negligence theory of recovery against the additional insured. We
look to the State Auto policy before us to determine whether a
similar exclusionary provision exists. Of course, this is
precisely what the Second District in Kingsport did and found no
such exclusionary provision. We then look to determine whether
the "but for" analysis should apply. Again, this is precisely
what the Second District in Kingsport did. The parties at oral
argument adopted the not surprising positions of asking that we
follow Kingsport (Habitat) and that we reject Kingsport (State
Auto), but neither party has sought leave to present written
argument in this regard. Our own examination of Kingsport leads
us to adopt and follow its holding.
In Kingsport, Kingsport Development, the general contractor
of the construction site, was an additional insured on W.A.
Anderson Construction Company's (Anderson) State Auto general
liability policy, a policy containing the same language as the
policy at issue in this case. Anderson was a subcontractor on
the project. Halek, an Anderson employee, was injured on the
construction site and filed a complaint naming Kingsport as a
defendant and alleging that Kingsport's negligence proximately
caused his injuries. Kingsport, 364 Ill. App. 3d at 948. The
complaint also alleged Halek was an Anderson employee, he was at
the construction site in the course of his employment with
Anderson when the injury occurred, Kingsport was present at the
site through its subcontractors, and Kingsport participated in
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No. 1-05-0365
coordinating the work and had a duty to require its
subcontractors to comply with safety standards. Kingsport, 364
Ill. App. 3d at 952. State Auto filed an action in the circuit
court seeking a declaration that it had no duty to defend or
indemnify Kingsport under the policy. The trial court agreed and
granted summary judgment in State Auto's favor. Kingsport, 364
Ill. App. 3d at 950.
On appeal, the Second District reversed, finding that the
facts of the underlying complaint established that "Halek's
injuries potentially arose out of Anderson's work, and, based on
the policy language, State Auto [had] a duty to defend Kingsport
in the underlying suit." Kingsport, 364 Ill. App. 3d at 954.
In so holding, the court distinguished McHugh and Olson.
The Kingsport court found the language in the State Auto policy
distinguishable from that in the policy at issue in McHugh
because the policy in McHugh "limited coverage to ' "acts or
omissions in connection with" ' the insured's work for the
additional insured and excluded coverage for injury ' "arising
out of any act or omission of the additional insured(s) or any of
their employees." ' " Kingsport, 364 Ill. App. 3d at 958,
quoting McHugh, 344 Ill. App. 3d at 964. The State Auto policy,
however, "require[d] only that the liability arise out of
Anderson's work and [did] not require a more detailed examination
of whose acts and omissions are alleged to have caused the
injury." Kingsport, 364 Ill. App. 3d at 958. The court in
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No. 1-05-0365
Kingsport did recognize "policy language [in the second of three
additional endorsements in the McHugh policy] that is similar to
the language in this case," prompting it to disagree with
McHugh's restrictive reading of that second additional
endorsement resulting in coverage only " ' "with respect to
liability arising out of [the subcontractor's] ongoing operations
performed for that insured," ' " and, thus, excluding coverage
for the direct negligence of the general contractor. Kingsport,
364 Ill. App. 3d at 958-59, quoting McHugh, 344 Ill. App. 3d at
976. According to the Kingsport court, "in arriving at this
conclusion, the McHugh court *** failed to construe the second
endorsement's language liberally in favor of the insured."
Kingsport, 364 Ill. App. 3d at 959. We do not find the Kingsport
court's disagreement with McHugh on that basis causes us to
question the analysis Kingsport employed in reviewing the State
Auto policy before it, an analysis we otherwise agree with.
The Kingsport court also distinguished Olson, 329 Ill. App.
3d 228, 769 N.E.2d 977. The relevant language of the policy of
the insurer, National, provided that "'COVERAGE SHALL NOT APPLY
TO ANY LIABILITY RESULTING FROM THE [ADDITIONAL INSURED'S] OWN
NEGLIGENCE OR THE NEGLIGENCE OF ITS SERVANTS, AGENTS OR
EMPLOYEES.'" Olson, 329 Ill. App. 3d at 231. It also provided
that Olson was included as an additional insured "but only with
respect to liability arising out of [the subcontractor's] ongoing
operations performed for [Olson]." Olson, 329 Ill. App. 3d at
16
No. 1-05-0365
231. The court in Kingsport reasoned that, unlike the language
of the National policy, which specifically denied coverage for
liability resulting from the general contractor's own negligence,
or the negligence of its employees, the State Auto policy had no
such exclusion. Kingsport, 364 Ill. App. 3d at 958.
The Kingsport court concluded that State Auto had a duty to
defend Kingsport. In so holding, the court accepted Kingsport's
contention that the "arising out of" language used in the State
Auto policy mandated the application of a "but for" analysis, and
held that the allegations in the injured employee's complaint
established that but for his work for Anderson and Anderson's
presence on the construction site, he would not have been
injured. Kingsport, 364 Ill. App. 3d at 954. The court rejected
State Auto's attempt to distinguish cases applying a "but for"
analysis on the basis that those cases involved allegations under
the Structural Work Act, finding the cases cited "did not rely on
any of the Act's provisions in their analysis, and their
reasoning is equally applicable to this case." Kingsport, 364
Ill. App. 3d at 955.
In the case at bar, Medolan's complaint named Habitat and
others as defendants and alleged the defendants owned or were in
charge of the construction site, that Medolan was employed by
Central Building and was on the premises in furtherance of his
work, that the defendants were present during the construction
and participated in coordinating the work done, and that the
17
No. 1-05-0365
defendants erected a concrete wall to be used in the
construction. Medolan alleged that his duties required that he
work on the wall and that, while he was working on the wall, a
section of the concrete wall fell onto the scaffold on which he
was working and that, as a proximate and direct result of the
defendants' acts or omissions, he was injured.
The State Auto policy at issue in this case, like the policy
at issue in Kingsport, provides that Habitat is "only an
additional insured with respect to liability arising out of ***
'Your [Central Building's] work' for that additional insured
[Habitat] for or by you." This court must construe the State
Auto policy at issue here "with due regard to the risk
undertaken, the subject matter that is insured and the purposes
of the entire contract," and will give the unambiguous terms of
the policy their plain, ordinary and popular meaning. Outboard
Marine Corp., 154 Ill. 2d at 108. Unlike the language of the
policy at issue in McHugh, which excluded coverage for injuries
arising out of the acts or omissions of the general contractor,
and the policy at issue in Olson, which prohibited coverage for
liability resulting from the general contractor's own negligence,
or the negligence of its employees, the State Auto policy at
issue in this case only requires that liability "aris[e] out of"
Central Building's work for Habitat and contains no similar
exclusionary clause.
In other words, the policies at issue in McHugh and Olson
18
No. 1-05-0365
essentially limited coverage to liability arising from the work
of its named insured, the subcontractor, but expressly excluded
coverage for the general contractor's own negligence. Here,
State Auto failed to include any such language in its policy.
When the allegations of Medolan's complaint, which establish
Medolan was injured in furtherance of his work for Central
Building, are liberally construed, and are compared to the
relevant provisions of the State Auto policy, it is clear that
Medolan's alleged injuries at least potentially arose out of
Central Building's work. Consequently, the allegations in the
Medolan complaint, when compared to the language of the policy,
give rise to a duty on the part of State Auto to defend Habitat.
Kingsport, 364 Ill. App. 3d at 954.
B. Professional Exclusion Provision
State Auto sets forth the alternative argument that the
policy's professional services exclusion bars coverage to
Habitat. This contention is properly before this court as we may
affirm a trial court's grant of summary judgment on any basis
appearing in the record. Material Service Corp. v. Department of
Revenue, 98 Ill. 2d 382, 387, 457 N.E.2d 9 (1983).
As noted above, the policy excludes coverage for additional
insureds for certain injuries "arising out of an architect's,
engineer's, or surveyor's rendering of or failure to render any
professional services including: (a) The preparing, approving, or
failing to prepare or approve maps, drawings, opinions, reports,
19
No. 1-05-0365
surveys, change orders, design or specifications; and (b)
Supervisory, inspection, or engineering services."
State Auto points out that the Medolan complaint alleges
Habitat was negligent for failing to make reasonable inspection
of the premises, improperly operating, managing, maintaining, and
controlling the premises, and failing to supervise the work being
done on the premises. According to State Auto, because these
assertions amount to allegations that Habitat failed to perform
proper supervisory and inspection services, Habitat is not
covered.
State Auto's contention fails. Habitat is a general
contractor. It is the responsibility of a general contractor "to
control the project schedule and insure that the structure
complies with the project specifications." McHugh, 344 Ill. App.
3d at 963. Habitat is not an architect, engineer, or surveyor,
and Medolan's complaint does not allege otherwise. The plain
language in insurance polices is to be applied as written, and
the parties should be bound to the agreement they made. State
Street Bank & Trust Co. v. INA Insurance Co., 207 Ill. App. 3d
961, 966, 567 N.E.2d 42 (1991). Here, the plain language of the
professional services exclusion, which by its terms applies to an
architect's, engineer's, or surveyor's rendering of or failure to
render any professional services, has no application.
III. Primary or Excess Coverage
We have concluded that as a matter of law, the allegations
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No. 1-05-0365
in the Medolan complaint, when compared to the language of the
State Auto policy, give rise to State Auto's duty to defend
Habitat in the underlying action, and the trial court erred in
granting summary judgment in favor of State Auto. State Auto
contends that even if we conclude that the trial court improperly
granted summary judgment in its favor, Habitat is not entitled to
summary judgment in this case because the State Auto policy
applies in excess to Habitat's own general liability policy.
State Auto also argues its duty to defend Habitat is
distinguishable from its duty to indemnify Habitat.
To support its contention that the policy applies only on an
excess basis, State Auto points to the policy's "other insurance"
provision, which states:
"Any coverage provided hereunder shall be
excess over any other valid and collectible
insurance available to the additional insured
whether primary, excess, contingent, or on
any other basis unless a contract
specifically requires that this insurance be
non-contributory and or primary or you
[Central Building] request that it apply on a
non-contributory and or primary basis."
State Auto argues that because the agreement between Habitat
and Central Building did not require Central Building to provide
Habitat with coverage as an additional insured on a
21
No. 1-05-0365
noncontributory or primary basis, and because Central Building
has never requested that any coverage afforded to Habitat as an
additional insured apply on a noncontributory or primary basis,
any primary coverage available to Habitat for the Medolan action
must be exhausted before the State Auto policy can be triggered.
Habitat responds that the State Auto policy is "primary and
non-contributory" because Habitat "target tendered" its defense
to State Auto in accordance with John Burns Construction Co. v.
Indiana Insurance Co., 189 Ill. 2d 570, 727 N.E.2d 211 (2000).
John Burns discusses the "targeted tender rule," which is also
referred to as the "selective tender rule." This rule allows an
insured covered by multiple concurrent policies the right to
select which insurer will defend and indemnify it regarding a
specific claim. John Burns, 189 Ill. 2d at 574, see also
Institute of London Underwriters v. Hartford Fire Insurance Co.,
234 Ill. App. 3d 70, 78-79, 599 N.E.2d 1311 (1992). Illinois
courts also recognize the theory of horizontal exhaustion, which
provides that an insured must exhaust all available primary
insurance before any excess insurance may be invoked. See United
States Gypsum Co. v. Admiral Insurance Co., 268 Ill. App. 3d 598,
653-54, 643 N.E.2d 1226 (1994). In Kajima Construction Services,
Inc. v. St. Paul Fire & Marine Insurance Co., 368 Ill. App. 3d
665, 668-70, 856 N.E.2d 452 (2006), appeal allowed, 222 Ill. 2d
609, 862 N.E.2d 234 (2007), a case decided after the instant
appeal arose and the review of which is currently pending in the
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No. 1-05-0365
supreme court, the court addressed the relation between the
selective tender rule and horizontal exhaustion. The Kajima
court held that an insured cannot selectively tender a defense to
an excess insurer where primary coverage remains unexhausted.
Kajima, 368 Ill. App. 3d at 671-72. Thus, Kajima seems to reject
Habitat's contention that it could selectively tender its defense
to State Auto where the policy's "other insurance" provision
states the policy is to apply in "excess over any other valid and
collectible insurance available to" Habitat.
In this case, however, it is unclear whether Habitat has in
effect any primary insurance that would cover the Medolan action.
Although it can hardly be questioned that Habitat, the general
contractor of a major construction project, has in effect its own
insurance policy or policies, as we noted above, the record
discloses no information about any such policy. We therefore
remand the matter to the trial court to determine whether the
State Auto policy applies on an excess basis only. See
Kingsport, 364 Ill. App. 3d at 962 (remanding to the trial court
to determine whether the State Auto policy applied on a primary
or excess basis).
Moreover, as State Auto points out, the duty to defend is
distinguishable from the duty to indemnify. See Kingsport, 364
Ill. App. 3d at 951. "[T]he question of whether the insurer has
a duty to indemnify the insured for a particular liability is
only ripe for consideration if the insured has already incurred
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No. 1-05-0365
liability in the underlying claim against it." Outboard Marine
Corp., 154 Ill. 2d at 127. Thus, we also remand to the trial
court for a determination of this issue. See Kingsport, 364 Ill.
App. 3d at 962 (remanding to the trial court to resolve the issue
of indemnification).
CONCLUSION
For the reasons stated above, the trial court's grant of
summary judgment in favor of State Auto is reversed, and the
matter is remanded to the trial court for further proceedings.
Reversed and remanded.
WOLFSON, and R. GORDON, JJ., concur.
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