Vedder v. Continental Western Insurance Company

ILLINOIS OFFICIAL REPORTS
Appellate Court
Vedder v. Continental Western Insurance Co., 2012 IL App (5th) 110583Appellate Court HEATHER D. VEDDER and STANDARD MUTUAL INSURANCE
Caption COMPANY, Plaintiffs-Appellants, v. CONTINENTAL WESTERN
INSURANCE COMPANY and WILLIAM V. KROEGER, Defendants-
Appellees.
District & No. Fifth District
Docket No. 5-11-0583
Filed October 29, 2012
Held In an action arising from a dispute over the coverage for the injuries
(Note: This syllabus suffered by the individual defendant when his motorcycle was struck by
constitutes no part of plaintiff’s vehicle while she was driving as a volunteer for an ambulance
the opinion of the court service insured by the codefendant, summary judgment was properly
but has been prepared entered for defendant insurer and against plaintiff’s insurer, since
by the Reporter of plaintiff’s policy provided primary coverage for her vehicle, the
Decisions for the ambulance service’s policy provided only excess coverage and plaintiff’s
convenience of the attempted targeted tender to the service’s insurer was ineffective.
reader.)
Decision Under Appeal from the Circuit Court of Montgomery County, No. 11-MR-7; the
Review Hon. Douglas L. Jarman, Judge, presiding.
Judgment Affirmed.
Counsel on Robert Marc Chemers and Richard M. Burgland, both of Pretzel &
Appeal Stouffer, Chtrd., of Chicago, for appellants.
Daniel G. Litchfield and Kevin A. Titus, both of Litchfield Cavo LLP, of
Chicago, for appellees.
Panel JUSTICE WELCH delivered the judgment of the court, with opinion.
Justices Spomer and Wexstten concurred in the judgment and opinion.
OPINION
¶1 This is a declaratory judgment action to determine primacy of coverage between two
insurers, Standard Mutual Insurance Company (hereinafter Standard Mutual), which insured
Heather D. Vedder (the defendant in the underlying suit), and Continental Western Insurance
Company (hereinafter Continental), which insured Nokomis/Witt Area Ambulance Service
(hereinafter NWAA), for whom Vedder was working as a volunteer.
¶2 The conflict arises out of an underlying personal injury lawsuit brought by William
Kroeger against Vedder and NWAA to recover for personal injuries he suffered when the
motorcycle he was driving was struck by a vehicle being driven by Vedder. At the time of
the collision, Vedder was driving her personally owned vehicle but was acting as a volunteer
for NWAA. Vedder’s vehicle was insured by Standard Mutual; NWAA was insured by
Continental. Count I of Kroeger’s complaint sought damages against Vedder based on her
negligence, and count II sought damages against NWAA under the theory of respondeat
superior.
¶3 The business auto policy issued by Continental to NWAA provides coverage for:
“all sums an ‘insured’ legally must pay as damages because of ‘bodily injury’ or
‘property damage’ *** caused by an ‘accident’ and resulting from the ownership,
maintenance or use of a covered ‘auto’.”
¶4 Under the business auto policy, a “covered auto” includes any auto, and an “insured”
includes any employee or volunteer worker. For purposes of this appeal there is no dispute
that under the Continental business auto policy, Vedder, as a volunteer worker of NWAA,
is an “insured” and that Vedder’s personally owned vehicle is a “covered auto.” The
Continental business auto policy further contains the following “other insurance” clause:
“a. For any covered ‘auto’ you own, and any ‘commandeered auto’ this Coverage Form
provides primary insurance. For any covered ‘auto’ you don’t own, the insurance
provided by this Coverage Form is excess over any other collectible insurance ***.”
¶5 The insurance policy issued by Standard Mutual to Vedder provides coverage for all
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sums the insured becomes legally obligated to pay as damages because of bodily injury
arising out of the ownership, maintenance, or use of the owned automobile. Persons insured
under the policy with respect to the owned automobile include the named insured (Vedder)
and “any other person or organization but only with respect to his or its liability because of
acts or omissions of [the named insured].” The Standard Mutual policy further contains the
following “other insurance” clause:
“If the insured has other insurance against a loss covered by Part I of this Policy the
company shall not be liable under this policy for a greater proportion of such loss than
the applicable limit of liability stated in the declarations bears to the total applicable limit
of liability of all valid and collectible insurance against such loss ***.”
¶6 The underlying personal injury action was filed July 1, 2010. From the beginning a
dispute arose between the two insurers as to which policy provided primary coverage and
which insurer was obligated to provide a defense. Continental learned of the filing of the
underlying lawsuit on August 1, 2010, when it was notified by its insured, NWAA. On
August 9, 2010, Continental assigned defense counsel to represent both NWAA and Vedder,
but shortly thereafter counsel discovered a conflict of interest and withdrew from
representation of Vedder. On August 23, 2010, Continental learned that Standard Mutual had
retained defense counsel for Vedder. From the beginning, Continental took the position that
its coverage, if any, was excess, not primary, because Vedder had been driving her personal
vehicle at the time of the accident.
¶7 On October 15, 2010, Continental formally tendered to Standard Mutual the defense of
NWAA. On December 8, 2010, Standard Mutual accepted the tender of the defense of
NWAA, agreeing that the two policies were “co-primary” with respect to NWAA, and
offered to pay 50% of the costs of NWAA’s defense.
¶8 On December 8, 2010, Vedder’s counsel sent a letter to Continental asserting that Vedder
was an “insured” under the Continental policy and tendering defense and indemnification to
Continental. Vedder requested that Continental assume her defense and indemnification
exclusively and stated that she did not wish Standard Mutual to participate in her defense
and/or indemnification. Vedder stated that she would “deactivate” her prior tender to
Standard Mutual, which would remain as a backup insurer. Vedder acknowledged that this
was a selective and targeted tender of her defense and indemnification.
¶9 By letter dated January 13, 2011, Continental restated to Standard Mutual its position that
the Continental policy is excess over any other valid and collectible insurance when the
vehicle involved in the accident is not owned by NWAA, and since Vedder was driving her
personally owned vehicle at the time of the accident the Standard Mutual policy provides
primary coverage for both Vedder and NWAA. Accordingly, Continental declined Vedder’s
targeted tender of defense.
¶ 10 On January 24, 2011, Standard Mutual and Vedder filed in the circuit court of
Montgomery County their complaint for declaratory judgment against Continental and
Kroeger. Count I of the complaint sought a declaration that by virtue of Vedder’s selective
and targeted tender to Continental, Continental is the sole and exclusive insurer with respect
to Kroeger’s claims against Vedder, and further that by virtue of its failure and refusal to
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provide Vedder with a defense, Continental is estopped from raising any defense to coverage.
Count II sought money damages pursuant to section 155 of the Illinois Insurance Code (215
ILCS 5/155 (West 2010)), because of Continental’s bad faith. Count III sought
reimbursement to Standard Mutual for costs incurred in defending Vedder where, by virtue
of the targeted tender, Continental was the sole and primary insurer. Count IV sought a
declaration that with respect to the defense of NWAA the policies of Continental and
Standard Mutual were “co-primary” and each insurer was liable to pay one-half the costs
associated with the defense of NWAA.
¶ 11 On March 25, 2011, Continental filed its answer and affirmative defenses to Standard
Mutual’s complaint and a counterclaim for declaratory judgment. In count I of its
counterclaim, Continental alleges that the Standard Mutual policy provides the sole primary
coverage for NWAA and is responsible for 100% of the costs of defense. In count II of its
counterclaim, Continental alleges that Vedder’s attempted “selective and targeted tender”
was invalid and ineffective because Vedder neither paid a premium nor negotiated to be a
named insured under the Continental policy and because, in any event, application of the
targeted tender doctrine in the auto insurance context violates the public policy of the state.
The counterclaim seeks declarations that Continental does not owe Vedder any defense, that
Standard Mutual is required to provide and fund the entire defense of Vedder, that Standard
Mutual is required to provide and fund the entire defense of NWAA, that the Standard
Mutual policy provides primary coverage to both Vedder and NWAA, that the Continental
policy provides excess coverage to Vedder, and that Standard Mutual must reimburse
Continental for sums it expended in defense of NWAA.
¶ 12 Both parties filed motions for summary judgment. Standard Mutual sought summary
judgment on all four counts of its complaint. Continental sought summary judgment on count
IV of Standard Mutual’s complaint and on count I of its own counterclaim.
¶ 13 On December 8, 2011, the circuit court granted the motion of Continental for summary
judgment and denied that of Standard Mutual. The court held that Standard Mutual’s policy
provided primary coverage to both Vedder and NWAA and that the coverage of the
Continental policy was excess. The court stated:
“The language of the Continental Western insurance policy clearly provides excess
coverage and not primary coverage for autos not owned by the insured ambulance
service. Under the Standard Mutual policy, the ambulance service is an ‘insured’ and
Standard Mutual owes a duty to defend the ambulance service.”
¶ 14 We note that the circuit court did not rule on count II of Standard Mutual’s complaint,
which sought damages under section 155 of the Illinois Insurance Code. However, the court
found that there was no just reason to delay enforcement or appeal of the judgment.
Accordingly, we have jurisdiction over this appeal pursuant to Illinois Supreme Court Rule
304(a) (eff. Feb. 26, 2010).
¶ 15 On appeal, Standard Mutual argues that Vedder’s selective and targeted tender to
Continental triggered Continental’s sole responsibility to defend Vedder in the underlying
lawsuit and that Vedder’s right to targeted tender prevails over principles of horizontal
exhaustion. Alternatively, Standard Mutual argues that, to the extent this court finds the
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targeted tender principle inapplicable, Continental is still solely responsible for Vedder’s
defense because, due to its delay in seeking declaratory judgment as to its duty to defend, it
is estopped from asserting policy defenses. Standard Mutual also argues that Continental
cannot rely on the “other insurance” provision to escape its duty to defend Vedder. Finally,
Standard Mutual argues that it is entitled to judgment in the amount of 50% of NWAA’s
defense costs because the two insurers are co-primary with respect to NWAA.
¶ 16 Because this case is an appeal from a ruling on a summary judgment, and presents purely
a question of law, the construction of an insurance policy, our review is de novo. Ragan v.
Columbia Mutual Insurance Co., 183 Ill. 2d 342, 349 (1998); Crum & Forster Managers
Corp. v. Resolution Trust Corp., 156 Ill. 2d 384, 390 (1993).
¶ 17 We discuss first the circuit court’s denial of Standard Mutual’s motion for summary
judgment on counts I and III of its complaint, and its grant of Continental’s motion for
summary judgment on count II of its counterclaim, addressing the insurers’ respective duties
to defend Vedder. With respect to this issue, we affirm because by the terms of the two
policies, and pursuant to public policy and case law, Standard Mutual, as the insurer of the
vehicle owner, provided primary coverage, while Continental provided only excess coverage;
an insured can only selectively target tender between two primary coverages, so Vedder
could not target tender her defense and indemnification to Continental; and Continental is
not estopped to raise policy defenses because of an unreasonable failure to provide Vedder
with a defense.
¶ 18 By the plain language of the insurance policies, Standard Mutual provides primary
coverage and Continental provides only excess coverage to Vedder. Under the Standard
Mutual policy, Vedder is the named insured and the policy insures the vehicle that Vedder
was driving. Under the Continental policy, Vedder is an insured only by definition, the
vehicle being driven was not owned by the named insured (NWAA), and the policy’s “other
insurance” clause explicitly provides that “[f]or any covered ‘auto’ you don’t own, the
insurance provided by this Coverage Form is excess over any other collectible insurance.”
Case law interpreting “other insurance” clauses virtually identical to that in the Continental
policy has held that the insurer of the vehicle involved in the accident provides primary
coverage. In Country Mutual Insurance Co. v. Teachers Insurance Co., 324 Ill. App. 3d 246,
248 (2001), we construed an “other insurance” clause identical to that in the Continental
policy to provide only excess coverage to the primary coverage provided to the owner of the
vehicle involved in the accident.
¶ 19 Furthermore, pursuant to public policy and industry custom and practice, the insurance
covering the vehicle involved in the accident is the primary insurance. In State Farm Mutual
Automobile Insurance Co. v. Universal Underwriters Group, 182 Ill. 2d 240, 246 (1998), our
supreme court held that pursuant to custom in the insurance industry, primary liability is
generally placed on the insurer of the owner of an automobile. The court further held that to
construe a policy covering the vehicle involved in the accident as other than the primary
insurance for that vehicle would violate the public policy of this state as defined by the
legislature in section 7-317 of the Illinois Vehicle Code (625 ILCS 5/7-317 (West 2008)).
See also Pekin Insurance Co. v. State Farm Mutual Automobile Insurance Co., 305 Ill. App.
3d 417, 421 (1999). Accordingly, Continental had no obligation to defend Vedder in the
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underlying lawsuit.
¶ 20 Nevertheless, Standard Mutual argues that its targeted tender to Continental served to
render Continental solely responsible for Vedder’s defense and indemnification and absolved
Standard Mutual of any such responsibility. We find that Vedder’s targeted tender was
invalid and ineffective because the principle of horizontal exhaustion does not allow an
insured to target tender to an excess insurer.
¶ 21 The principle of horizontal exhaustion requires an insured who has multiple primary and
excess policies covering a common risk to exhaust all primary policy limits before invoking
excess coverage. Kajima Construction Services, Inc. v. St. Paul Fire & Marine Insurance
Co., 227 Ill. 2d 102, 105 (2007). Our courts have consistently held that an insured cannot
target tender a defense to his excess insurer while primary coverage remains unexhausted.
Kajima, 227 Ill. 2d at 115; State Automobile Mutual Insurance Co. v. Habitat Construction
Co., 377 Ill. App. 3d 281, 293 (2007); River Village I, LLC v. Central Insurance Cos., 396
Ill. App. 3d 480, 492 (2009). Accordingly, Vedder’s targeted tender of her defense to
Continental was ineffective and invalid and could not serve to make Continental solely
responsible for Vedder’s defense.
¶ 22 There is another reason Vedder cannot target tender her defense to Continental: Vedder
did not pay a premium for or bargain for coverage under the Continental policy. In Pekin
Insurance Co. v. Fidelity & Guaranty Insurance Co., 357 Ill. App. 3d 891, 902-03 (2005),
it was held that an insured does not have a paramount right to deselect its own insurer in
favor of another where the insured is not named as an insured or additional insured on the
selected policy and did not pay a premium for or bargain for coverage under the selected
policy. In State Auto Property & Casualty Insurance Co. v. Springfield Fire & Casualty Co.,
394 Ill. App. 3d 414, 419 (2009), the court explained that whether an individual is a named
insured is significant because the rationale for allowing an insured to deselect coverage is
that it vests the named insured with the right to choose between two policies for which the
named insured has either paid the premium or negotiated for the right to be on the policy. “In
contrast, when a party has only contracted with, and paid the premium for, one policy and
attempts to deselect its policy in favor of a policy on which it has not paid the premium or
negotiated to be the named insured, this rationale is inapplicable.” 394 Ill. App. 3d at 419.
Accordingly, because Vedder neither paid a premium for nor bargained for coverage under
the Continental policy, she cannot target tender her defense to Continental.
¶ 23 Relying on Chicago Hospital Risk Pooling Program v. Illinois State Medical Inter-
Insurance Exchange, 397 Ill. App. 3d 512, 530-34 (2010) (CHRPP), Standard Mutual argues
that, where a claim is made under a theory of respondeat superior, the employee has an
absolute right to target tender her defense to her employer’s insurer. Standard Mutual’s
reliance on CHRPP is misplaced. That case involved a targeted tender to a co-primary
insurer, not to an excess insurer.
¶ 24 The Standard Mutual policy provided primary coverage to Vedder; the Continental policy
provided only excess coverage. Vedder’s attempted targeted tender to Continental was
ineffective and invalid and could not serve to render Continental solely responsible for
Vedder’s defense of the underlying suit.
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¶ 25 Standard Mutual next argues that, even if the targeted tender is held invalid, Continental
is still solely responsible for Vedder’s defense because, due to its delay in seeking
declaratory judgment, it is estopped from asserting policy defenses such as the “other
insurance” clause. Standard Mutual argues that Continental’s delay between learning of the
underlying suit on August 1, 2010, and the filing of its counterclaim to Vedder’s complaint
for declaratory judgment on March 25, 2011, was unreasonable as a matter of law and
Continental should be estopped from asserting any defense to coverage. We do not agree.
¶ 26 We find nothing unreasonable in Continental’s actions. Continental learned of the
underlying suit on August 1, 2010. On August 9, 2010, Continental provided Vedder with
defense counsel. Shortly thereafter, counsel withdrew due to a conflict of interest, but on
August 23, 2010, Continental learned that Standard Mutual, the primary insurer, had
provided Vedder with counsel. Other than the invalid targeted tender, no request was made
of Continental to provide a defense for Vedder. Indeed, at Continental’s request, Standard
Mutual agreed to provide a defense for NWAA as well. Upon the filing of Standard Mutual’s
complaint for declaratory judgment, Continental filed its counterclaim. There is no indication
that at that point the underlying action had been, or was close to being, resolved. Continental
took appropriate action within a reasonable time of learning of the underlying lawsuit and
did not breach its duty to defend Vedder. See State Automobile Mutual Insurance Co. v.
Kingsport Development, LLC, 364 Ill. App. 3d 946, 960-61 (2006). Accordingly, Continental
is not estopped from raising policy defenses to coverage.
¶ 27 Finally, Standard Mutual argues that even if the targeted tender was ineffective and
Continental is not estopped to assert policy defenses, Continental cannot rely on the “other
insurance” clause to escape its duty to defend Vedder. Standard Mutual relies primarily on
Zurich Insurance Co. v. Raymark Industries, Inc., 145 Ill. App. 3d 175, 199-200 (1986).
Standard Mutual argues that where two or more policies have been triggered and where, as
here, the language of the policies provides that the insurers are obligated to pay “all sums”
and defend “any suit,” each carrier is independently responsible to the mutual insured for the
full cost of the defense, and an “other insurance” clause does not affect an insurer’s duty to
provide a full defense and indemnification to its insured. Standard Mutual’s reliance on
Raymark is misplaced.
¶ 28 Raymark involved the allocation of indemnity and defense costs in thousands of lawsuits
involving asbestos-related claims filed against the insured, Raymark Industries. Zurich
Insurance argued that the circuit court had erred in refusing to order pro rata allocations of
obligations among the triggered primary policies. Instead, the circuit court made each insurer
whose policy was triggered liable for the whole of the injury. Accordingly, each insurer was
obligated to provide Raymark’s indemnity and defense.
¶ 29 The appellate court affirmed, relying on the language of the policies, which stated that
the insurer was obligated to pay “ ‘ll sums’ ” which Raymark may become legally obligated
to pay and to defend “ ‘any suit’ ” against Raymark. 145 Ill. App. 3d at 199. The court
concluded that the insurers’ own policy language provided that, as between Raymark and its
insurers, each insurer was independently responsible to Raymark for the full costs of defense
and indemnity. 145 Ill. App. 3d at 199. The court further held that the fact that a policy may
contain an “other insurance” clause does not affect the individual insurance company’s
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obligations to the insured. 145 Ill. App. 3d at 199. Of course, in that case, the “other
insurance” clause was not an excess clause like the “other insurance” clause in the
Continental policy, but, because all the policies were primary, simply addressed the
allocation of loss as does the “other insurance” clause in the Standard Mutual policy.
¶ 30 Raymark is simply inapposite to the case at bar. Raymark involved only primary carriers
that were each independently obligated to provide a full defense and indemnity, up to the
limits of the policy, to Raymark. The case at bar does not involve two primary insurance
policies, but one primary policy and one excess policy. The excess insurer has no obligation
to defend or indemnify Vedder until the limits of the primary policy are exhausted.
¶ 31 Accordingly, we affirm the circuit court’s denial of Standard Mutual’s motion for
summary judgment on counts I and III of its complaint and the grant of Continental’s motion
for summary judgment on count II of its counterclaim.
¶ 32 We turn now to the circuit court’s denial of Standard Mutual’s motion for summary
judgment on count IV of its complaint, and the grant of Continental’s motion for summary
judgment on count IV of Standard Mutual’s complaint and on count I of its counterclaim,
concerning the insurers’ respective duties to defend NWAA. Standard Mutual argues that the
two policies were both primary with respect to NWAA, and therefore the two insurers should
share defense costs equally.
¶ 33 As we have already held, the Standard Mutual policy is primary and the Continental
policy is excess. Accordingly, Standard Mutual is obligated to pay for the entire defense of
NWAA. We affirm the circuit court’s denial of Standard Mutual’s motion for summary
judgment on count IV of its complaint and the grant of Continental’s motion for summary
judgment on count IV of Standard Mutual’s complaint and on count I of its counterclaim.
¶ 34 “Summary judgment is appropriate where the pleadings, depositions, admissions and
affidavits on file, viewed in the light most favorable to the nonmoving party, reveal that there
is no genuine issue as to any material fact and that the moving party is entitled to judgment
as a matter of law.” Kajima, 227 Ill. 2d at 106. Because there are no disputed issues of
material fact, and Continental was entitled to judgment as a matter of law, we affirm the
circuit court’s denial of Standard Mutual’s motion for summary judgment and its grant of
Continental’s motion for summary judgment.
¶ 35 For the foregoing reasons, the judgment of the circuit court of Montgomery County is
hereby affirmed.
¶ 36 Affirmed.
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