Ohio Casualty Insurance Co. v. Oak Builders, Inc.

FIFTH DIVISION
JUNE 1, 2007
1-05-2279
OHIO CASUALTY INSURANCE COMPANY, )
)
Plaintiff-Appellee, ) Appeal from the
) Circuit Court of
v. ) Cook County.
)
OAK BUILDERS, INC., ) No. 04 CH 3755
)
Defendant-Appellant ) Honorable
) Martin Agran,
) Judge Presiding.
(David Huerta, )
)
Defendant-Appellee). )
JUSTICE TULLY delivered the opinion of the court:
This appeal concerns a declaratory judgment action that was brought in the circuit court
of Cook County by plaintiff-appellee, Ohio Casualty Company (Ohio Casualty). Ohio Casualty
sought a declaratory judgment that its policy did not provide coverage to defendant-appellant,
Oak Builders, Inc. (Oak Builders), for an underlying action brought against Oak Builders by
David Huerta (Huerta),1 In the alternative, Ohio Casualty sought a declaratory judgment that any
coverage Ohio Casualty's policy did provide to Oak Builders was excess to Oak Builders'
coverage under a different insurance policy, which was issued to Oak Builders by American
1
Huerta is the plaintiff in the underlying action pending in the circuit court. Ohio
Casualty named Huerta as "a necessary but nominal party" to its declaratory judgment action.
Ohio Casualty sought no specific relief from Huerta; on the contrary, Huerta was joined "solely
in order to be bound by the judgment entered" in Ohio Casualty's declaratory judgment action.
1-05-2279
Family Insurance Company (American Family). Following a hearing on cross summary
judgment motions filed by both Ohio Casualty and Oak Builders, the circuit court held that the
"additional insured endorsement" in Ohio Casualty's policy provided coverage for Huerta's suit,
but that the coverage provided by Ohio Casualty's policy was "excess" to the coverage provided
under Oak Builders' policy with American Family. In essence, the circuit court concluded that
Ohio Casualty would be liable only if the amount owed in the Huerta suit exceeded the
maximum amount recoverable under Oak Builders' policy with American Family.
On appeal, Oak Builders argues that the circuit court's judgment should be reversed
because the coverage provided by Ohio Casualty's "additional insured endorsement" was co-
primary rather than excess and, therefore, Ohio Casualty and Oak Builders should be liable for a
pro-rata share of the settlement or judgment in the underlying lawsuit brought by Huerta. For
the following reasons, we reverse and remand with directions.
FACTS
On June 17, 2002, Huerta brought an action in the circuit court against Oak Builders,
among others, alleging injuries as a result of negligence at a construction site. At the time of the
accident at issue in Huerta's personal injury action, Huerta was assigned to perform construction
work at the site pursuant to a contract between his employer, JAZ Construction, Inc. (JAZ
Construction), and Oak Builders. JAZ Construction was insured by Ohio Casualty under a
contractor's liability policy. The contractor's liability policy issued to JAZ Construction by Ohio
Casualty contained an "additional insured endorsement," which provided insurance coverage to
2
1-05-2279
Oak Builders as an additional insured. In addition to being insured pursuant to Ohio Casualty's
"additional insured endorsement," Oak Builders was insured under a commercial general liability
policy issued by American Family.
In response to Huerta's complaint, Oak Builders tendered defense to Ohio Casualty
pursuant to its status as an "additional insured" under JAZ Construction's . On November 19,
2002, Oak Builders also filed a third-party complaint against JAZ Construction denying all
liability and negligence alleged against it in Huerta's complaint. Additionally, Oak Builders'
third-party complaint sought contribution from JAZ Construction, as Huerta's employer, on the
grounds that JAZ Construction had committed one or more negligent acts or omissions resulting
in Huerta's claimed injuries.
On March 3, 2001, Ohio Casualty filed a declaratory judgment seeking a declaration that
Oak Builders was not an additional insured under JAZ Construction's policy for purposes of
Huerta's complaint. Ohio Casualty also sought a declaration that, even if Oak Builders was an
additional insured for purposes of Huerta's complaint, Ohio Casualty's policy provided Oak
Builders with exclusively excess coverage. Ohio Casualty filed a motion for judgment on the
pleadings. In addition, Oak Builders filed a motion for summary judgment in which it argued it
qualified as an additional insured on the policy issued by Ohio Casualty to JAZ Construction and
that Ohio Casualty's policy provided primary coverage to Oak Builders.
Following a hearing, the circuit court granted Oak Builders' motion for summary
judgment in part, finding that Oak Builders was an additional insured on the policy issued by
3
1-05-2279
Ohio Casualty to JAZ Construction. The circuit court also found, however, that the Ohio
Casualty policy provided "excess" coverage rather than "primary" coverage to Oak Builders
because the Ohio Casualty policy's "additional insured endorsement" provided fundamentally
excess coverage. The circuit court granted Ohio Casualty's motion for judgment on the pleadings
as to this second issue.
Oak Builders filed a motion for reconsideration of the circuit court's ruling that the Ohio
Casualty policy provides exclusively excess coverage to the policy issued by American Family.
Oak Builders sought a finding that the Ohio Casualty policy and the American Family policy
both provide primary coverage to Oak Builders and, therefore, Ohio Casualty has a duty to share
the cost of defending and indemnifying Huerta's suit against Oak Builders. The circuit court
denied Oak Builders' motion for reconsideration and this timely appeal followed.
DISCUSSION
This appeal concerns a dispute over the interpretation of "other insurance" clauses
contained in the two insurance policies issued to Oak Builders. One insurance policy was issued
to Oak Builders by American Family pursuant to a commercial general liability policy and the
other insurance policy was issued to Oak Builders by Ohio Casualty pursuant to an "additional
insured endorsement." Ohio Casualty asserts that the American Family policy provides
"fundamentally primary" coverage to Oak Builders and the "other insurance" clause in Ohio
Casualty's "additional insured endorsement" renders Ohio Casualty's coverage "fundamentally
excess." As such, Ohio Casualty argues that American Family should be solely responsible for
4
1-05-2279
defending and indemnifying the suit brought by Huerta. Oak Builders, on the other hand,
contends that both the American Family policy and the Ohio Casualty policy provide "primary"
coverage and the "excess" other insurance clauses in the two insurance policies are mutually
repugnant. Oak Builders asserts that, because both policies provide "primary" coverage and the
two "excess" other insurance clauses are mutually repugnant, American Family and Ohio
Casualty should share the cost of defending and indemnifying the action brought by Huerta. We
agree with Oak Builders.
A court's primary objective in construing the language of an insurance policy is to
ascertain and give effect to the intentions of the parties as expressed by the language of the
policy. Crum & Forster Managers Corp. v. Resolution Trust Corp., 156 Ill. 2d 384, 391 (1993).
Like any contract, an insurance policy is to be construed as a whole, giving effect to every
provision, if possible, because it must be assumed that every provision was intended to serve a
purpose. Central Illinois Light Co. v. Home Insurance Co., 213 Ill. 2d 141, 153 (2004). If the
words used in the policy, given their plain and ordinary meaning, are unambiguous, they must be
applied as written. Crum & Forster Managers Corp., 156 Ill. 2d at 391. However, if the words
used in the policy are ambiguous, they will be strictly construed against the drafter. Central
Illinois Light Co., 213 Ill. 2d at 153. It is well settled that the construction of an insurance policy
is a question of law and is an appropriate subject for disposition by way of summary judgment.
Illinois Farmers Insurance Co. v. Marchwiany, 222 Ill. 2d 472, 476 (2006). Since the
construction of an insurance policy is a question of law, our review is de novo. Nicor, Inc. v.
5
1-05-2279
Associated Electric & Gas Insurance Services, Ltd., 223 Ill. 2d 407, 416 (2006).
As stated, this case presents a dispute regarding the interpretation of the "other insurance"
clauses contained in the American Family policy and in the Ohio Casualty policy. Our supreme
court, in Putman v. New Amsterdam Casualty Co., 48 Ill. 2d 71 (1970), provided guidance
regarding the different types of "other insurance" clauses and the manner in which disputes
involving "other insurance" clauses should be resolved. In Putnam, our supreme court noted that
there are generally three types of "other insurance" clauses that tend to appear in insurance
contracts: "pro-rata" clauses, "excess" clauses, and "escape" clauses. Putnam, 48 Ill. 2d at 76.
The Putnam court explained the three types of "other insurance" clauses as follows:
"The typical pro-rata clause provides that when an insured has other insurance available,
the company will be liable only for the proportion of the loss represented by the ratio
between its policy limit and the total limits of all available insurance. The excess clause
allows coverage only 'over and above' other insurance. The escape clause holds the
policy null and void with respect to any hazard as to which other insurance exists."
Putnam, 48 Ill. 2d at 76.
After explaining the three different types of "other insurance" clauses, the Putnam court
adopted the majority rule for resolving "other insurance" disputes and concluded that "other
insurance" provisions should be reconciled whenever possible to effectuate the intent of the
parties. Putnam, 48 Ill 2d at 77-82. While our supreme court adopted the view that "other
insurance" provisions should be reconciled whenever possible, the Putnam court also confirmed
6
1-05-2279
that "when two policies contain the same sort of 'other insurance' clause, the clauses will be
deemed incompatible." Padilla v. Norwegian-American Hospital, Inc., 266 Ill. App. 3d 829, 836,
citing Putnam, 48 Ill. 2d at 80. The Putnam court reasoned that "this approach is fair when there
is no rational basis for applying the clause of one policy and refusing to apply the identical clause
of another policy." Putnam, 48 Ill. 2d at 78-79.
In this case, the American Family policy's "other insurance" clause provides, in relevant
part, as follows:
"Other Insurance:
If valid and collectible insurance is available to [Oak Builders] for a loss we cover under
Coverages A or B of this Coverage Part, [American Family's] obligations are limited as
follows:
A. Primary Insurance
This insurance is primary except when B, below, applies. If this insurance is primary, our
obligations are not affected unless any of the other insurance is also primary. Then we
will share with all that other insurance by the method described in C, below.
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
7
1-05-2279
by attachment or endorsement." (Emphasis added.)
The "other insurance" clause in the Ohio Casualty "additional insured endorsement,"
which makes Oak Builders an additional insured because it was a "person or organization whom
[JAZ Construction, the named insured, was] required to name as an additional insured on this
policy under a written policy or agreement," provides, in relevant part, as follows:
"Any coverage provided hereunder shall be excess over any other valid and collectible
insurance available to [Oak Builders] whether primary, excess, contingent or on any other
basis unless a contract specifically requires that this insurance be primary or you request
that it apply on a primary basis." (Emphasis added.)
After reviewing both of these "other insurance" provisions, it is clear that both are
"excess" clauses. Indeed, both clauses specifically use the word "excess" and both clauses clearly
convey the intent to have insurance coverage only "over and above" other available insurance.
See Putnam, 48 Ill. 2d at 76. We must attempt to reconcile "other insurance" clauses whenever
possible. However, when, as here, we are faced with two primary insurance policies that contain
the same sort of "other insurance" clauses -- specifically, "excess" insurance clauses -- the
policies are mutually repugnant and incompatible. See Putnam, 48 Ill. 2d at 80; Padilla, 266 Ill.
App. 3d at 836. Faced with these two insurance policies, both of which provide primary
coverage for the type of suit brought by Huerta and both of which contain "other insurance"
clauses stating that the coverage provided is "excess," we must conclude that the two "excess"
clauses cancel each other out and American Family and Ohio Casualty should share the costs
8
1-05-2279
associated with defending and indemnifying the suit brought by Huerta.
In an effort to avoid having to share the cost of defending and indemnifying the suit
brought by Huerta against Oak Builders, Ohio Casualty asserts two arguments. First, Ohio
Casualty contends that the coverage it provides to Oak Builders "is expressly identified as excess
coverage in the Ohio Casualty policy." In other words, Ohio Casualty asserts that Oak Builders'
insurance coverage with American Family is "fundamentally primary coverage," while Oak
Builders' coverage with Ohio Casualty is "fundamentally excess." What Ohio Casualty
overlooks, however, is that both the American Family policy and the Ohio Casualty "additional
insured endorsement" provide primary coverage and the intent and purpose of each policy's
"other insurance" clause is to convert otherwise primary coverage into excess insurance when
other primary insurance covers the loss. Since both policies provide primary coverage and both
policies contain the same sort of excess "other insurance" clauses, the "other insurance" clauses
are irreconcilable in that following the express terms of one policy would be in direct conflict
with the express terms of the other policy; that is, if each "excess" clause was given effect,
neither policy would provide primary coverage. In fact, the only way that the two conflicting
"excess" clauses could be reconciled would be to read the Ohio Casualty "additional insured
endorsement" first and then determine that American Family's coverage is "primary" and Ohio
Casualty's coverage is "excess." There is no plausible reason for reading Ohio Casualty's policy
first and we believe that Ohio Casualty's approach would lead to an arbitrary result that was not
9
1-05-2279
contemplated by the parties.
Second, Ohio Casualty asserts it should not be responsible for sharing with American
Family the cost of defending and indemnifying the suit brought by Huerta because the two
"excess" clauses are not identical and, therefore, the two clauses can be reconciled. It is true that
the "excess" clause in the Ohio Casualty policy's "additional insured endorsement" and the
"excess" clause in the American Family policy do not contain identical verbiage and, in Putnam,
our supreme court rejected the proposition that all "other insurance" clauses are repugnant,
"" Putnam, 48 Ill. 2d at 79, quoting Lamb-Weston, Inc.
v. Oregon Auto Insurance Co., 219 Or. 110, 129 341 P.2d 110, 119 (1959). However, the
Putnam court described the three different types of "other insurance" clauses and concluded that
where "other insurance" clauses of the same type are in conflict, it is "impossible to give effect to
the intent of all parties." Putnam, 48 Ill. 2d at 80. Indeed, in Padilla, relying on our decision in
Putnam, we confirmed that "when two policies contain the same sort of 'other insurance' clause,
the clauses will be deemed incompatible." (Emphasis added.) Padilla 266 Ill. App. 3d at, 836,
Putnam, 48 Ill. 2d at 80. As discussed above, the American Family policy and the Ohio
Casualty's "additional insured endorsement" both contain similar "other insurance" clauses;
specifically, both policies contain "excess" insurance clauses. Since the policies at issue in this
case both contain the same type of "other insurance" clauses, we must conclude that the two
clauses cannot be reconciled and the parties should share the cost of defending and indemnifying
10
1-05-2279
the law suit brought by Huerta.
In sum, we hold that both the American Family policy and the Ohio Casualty policy's
"additional insured endorsement" provide primary insurance and both contain the same sort of
excess "other insurance" clauses. As such, both insurance companies intended to offer excess
insurance if and when other primary insurance was available. We conclude that the "excess"
insurance clauses are mutually repugnant and cancel each other out since the only way to give
effect to one insurer's intention would be arbitrarily to read one policy's excess clause first and
undermine the intention of the insurer whose policy's "excess" insurance clause was read second.
Finally, we hold that where, as here, "two policies contain the same sort of 'other insurance'
clause, the clauses will be deemed incompatible." (Emphasis added.) Padilla 266 Ill. App. 3d
829, 836, Putnam, 48 Ill. 2d at 80. In such cases, the loss is pro-rated between the policies.
CONCLUSION
We reverse the judgment of the circuit court and remand the cause for a calculation of the
respective liabilities under the American Family policy and the Ohio Casualty policy in
accordance with this opinion and the language of the contracts.
Reversed and remanded with directions.
O'MARA FROSSARD and GALLAGHER, JJ., concur.
11