Pekin Insurance Company v. Rada Development, LLC

2014 IL App (1st) 133947
FIRST DIVISION
Filed: July 28, 2014
No. 1-13-3947
______________________________________________________________________________
IN THE
APPELLATE COURT OF ILLINOIS
FIRST DISTRICT
______________________________________________________________________________
) Appeal from the Circuit Court
PEKIN INSURANCE COMPANY, ) of Cook County.
)
Plaintiff-Appellant, )
)
v. ) No. 12 CH 31076
)
)
RADA DEVELOPMENT, LLC, and )
BARNABUS R. SUTTON, )
)
Defendants, )
)
CERTAIN UNDERWRITERS AT LLOYD'S, )
LONDON, Subscribing to Certificate No. )
CRCC000537, ) Honorable
) Kathleen Pantle,
Third-Party Petitioner-Appellee. ) Judge, Presiding.
______________________________________________________________________________
JUSTICE HOFFMAN delivered the judgment of the court, with opinion.
Presiding Justice Connors and Justice Cunningham concurred in the judgment and
opinion.
OPINION
¶1 The plaintiff, Pekin Insurance Company (Pekin), filed a declaratory judgment (Pekin
action) against the defendants, Rada Development, LLC, (Rada) and Barnabus R. Sutton
2014 IL App (1st) 133947
(Sutton), seeking a judicial declaration that Rada was not an additional insured under the Pekin
policy issued for Chicago Masonry Construction, Inc. (Chicago Masonry), a co-defendant with
Rada in a personal injury action instituted by Sutton. The trial court found that Pekin had no
duty to defend Rada in the Sutton lawsuit. Later, Certain Underwriters at Lloyd's, London,
Subscribing to Certificate No. CRCC000537 (Lloyd's), 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)), arguing that the order was void because it was a necessary party to the Pekin
action. The trial court granted Lloyd's petition and vacated the judgment, finding the judgment
was void because Lloyd's was a necessary party to the Pekin action. The trial court further
allowed Lloyd's leave to intervene in the Pekin action. Pekin now appeals, arguing that the trial
court erred in granting Lloyd's section 2-1401 petition and allowing Lloyd's to intervene. For the
reasons that follow, we affirm.
¶2 Rada owns and is the developer of a commercial property located at 1322 North
Clybourn Avenue in Chicago. On October 25, 2006, Rada contracted with Heartland
Construction Group to act as the general contractor of the development project at the Clybourn
Avenue property (hereinafter referred to as "the Project"). On August 7, 2006, Heartland entered
into a subcontract agreement with Chicago Masonry, and as part of that agreement, Chicago
Masonry 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, pursuant to a "reassignment
agreement" between Rada and Heartland. Per the terms of the reassignment agreement,
Heartland agreed to assign all of its interests in any subcontract agreement for the Project, which
allegedly included its subcontract agreement with Chicago Masonry.
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¶3 Chicago Masonry was insured under a policy issued by Pekin, which contained an
additional insured endorsement which included the following language:
"any person or organization for whom you are performing operations when you
and such person or organization have agreed in writing in a contract or agreement that
such person or organization be added as an additional insured on your policy. Such
person or organization is an additional insured only with respect to liability incurred
solely as a result of some act or omission of the named insured and not for its own
independent negligence or statutory violation. That person's or organization's status as an
insured under this endorsement ends when your operations for that insured are completed
or at the end of the policy period stated in the declarations of this policy, whichever is
earlier. It is further understood that the designation of an entity as an additional insured
does not increase or alter the scope of coverage of this policy."
¶4 The Pekin policy also contained language excluding coverage of additional insureds for
personal injury losses arising out of the "rendering of, or the failure to render, any professional
architectural, engineering or surveying services, including *** [s]upervisory, inspection,
architectural or engineering activities."
¶5 On January 12, 2010, Sutton sued, inter alia, Chicago Masonry and Rada for injuries
which he sustained in a construction accident at the Project site on November 15, 2006. Sutton v.
Rada Development, LLC, et al., No. 10-L-440 (Cir. Ct. Cook Cty.) Chicago Masonry tendered
its defense to Pekin. Rada tendered its defense to Lloyd's, which had issued a commercial
general liability insurance policy identified as Certificate No. CRCC000537 to Rada for the
period of October 3, 2006, through October 3, 2007. Lloyd's agreed to defend Rada in the Sutton
suit subject to a reservation of rights.
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¶6 Between May 30, 2012, and July 23, 2013, Lloyd's attempted to tender Rada's defense in
the Sutton suit to Chicago Masonry and Pekin on the basis that Rada was an additional insured
under the Pekin policy.
¶7 On August 14, 2012, Pekin filed a three-count complaint for declaratory judgment against
Rada, seeking a declaration that it had no duty to defend Rada in the Sutton action. In count I,
Pekin alleged that a certificate of insurance, which provided that Chicago Masonry with "Blanket
AI" insurance and listed "Rada Architects (GC and Architect)" as an additional insured, issued to
Rada did not afford it any coverage or trigger a duty to defend. In count II, Pekin alleged that it
had no duty to defend Rada under the policy issued for Chicago Masonry because there was no
written contract between Rada and Chicago Masonry requiring Chicago Masonry to add Rada as
an additional insured under its liability policy. In count III, Pekin alleged that it had no duty to
defend Rada because the Sutton action contained allegations of Rada's own negligence,
independent of the allegations alleged against Chicago Masonry.
¶8 In a letter dated August 24, 2012, Pekin acknowledged receipt of Lloyd's tender and set
forth its reasons for rejecting the tender of Rada's defense. Pekin further stated that it "intends to
file a Complaint for Declaratory Judgment to have a court declare that Rada is not entitled to
coverage" under the Chicago Masonry policy. In a response letter dated August 27, 2012,
Lloyd's disagreed with Pekin's position based on the reassignment agreement between Rada and
Heartland, and it requested that "Pekin immediately voluntarily dismiss the Pekin" action and
"accept the defense of Rada in the Sutton Action." Further, if Pekin refused to do so, Lloyd's
stated that it would consider all available options with respect to Rada's defense.
¶9 In a letter dated September 11, 2012, Pekin stated that, even if Rada was an additional
insured under Chicago Masonry's policy, there were other policy defenses precluding a duty to
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2014 IL App (1st) 133947
defend Rada. Pekin further suggested that "Rada Development, LLC put forth its position in the
declaratory judgment action rather than in letters." However, neither Rada nor Lloyd's appeared
in the Pekin action.
¶ 10 On September 24, 2012, Pekin filed a motion for a default judgment against Rada.
¶ 11 In a letter to Pekin, dated October 2, 2012, Lloyd's stated that it would not respond to
Pekin's action because it was not named in the suit, and instead, it had instituted its own
declaratory judgment action in order to protect its interests. Regarding Pekin's motion for a
default judgment, Lloyd's stated that any judgment entered on the basis there was no agreement
between Chicago Masonry and Rada regarding insurance coverage would be unenforceable.
Lloyd's letter included a copy of its complaint for declaratory judgment, filed on October 2,
2012. Certain Underwriters at Lloyd's London v. Pekin Insurance Co. and Rada Development,
LLC, Case No. 12-CH-39364 (Cir. Ct. Cook Cty.) (hereinafter "Lloyd's action").
¶ 12 On October 15, 2012, the trial court entered an order setting a November 7, 2012, hearing
date to prove-up Pekin's default judgment against Rada. In the meantime, Pekin filed an
appearance in the Lloyd's action, and shortly thereafter, moved to dismiss it under section 2-615
of the Code for the failure to name Sutton as a necessary party.
¶ 13 On November 7, 2012, the trial court entered a default judgment against Rada in Pekin's
action, stating that Rada was not an insured party under Chicago Masonry's insurance policy
issued by Pekin.
¶ 14 On November 27, 2012, Lloyd's amended its complaint to add Sutton as a named
defendant. On December 12, 2012, Pekin moved to dismiss the Lloyd's action under section 2-
619(a)(9) of the Code, asserting that the doctrine of collateral estoppel barred the attempt by
Lloyd's to relitigate the issue of Pekin's duty to defend Rada.
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2014 IL App (1st) 133947
¶ 15 On March 22, 2013, the trial court granted Pekin's motion and dismissed the Lloyd's
action on the basis of collateral estoppel. Lloyd's did not appeal from that order.
¶ 16 On June 11, 2013, Lloyd's filed a section 2-1401 petition, seeking to vacate the default
judgment entered in the Pekin action, and a motion to intervene pursuant to section 2-408(a)(2)
of the Code (735 ILCS 5/2-408(a)(2) (West 2012)). Lloyd's contended that it was a necessary
party to the Pekin action, but it was never joined. Attached to the petition was the affidavit by
Rada Doytcheva, a principal member of Rada, in which she stated that Rada did not appear in the
Pekin action because of financial constraints. Doytcheva further stated that Rada "did not limit
the tender of its defense of the Sutton action to [Lloyd's]" and that Rada was aware of the Lloyd's
action seeking defense coverage under the Pekin policy. Pekin moved to dismiss the petition
under section 2-615 of the Code, arguing that there was no Illinois law requiring it to join
Lloyd's in the Pekin action. Pekin further argued that Lloyd's did not have a meritorious defense
and did not exercise due diligence in bringing forth its petition.
¶ 17 On December 3, 2013, the trial court issued its written decision in which it determined
that Lloyd's was a necessary party to the Pekin action and that the default judgment entered in its
absence was, therefore, "void." The trial court stated that Pekin filed its declaratory judgment
action against Rada, but never named Lloyd's as a defendant despite having knowledge of its
coverage position. The court found that Pekin then obtained a default judgment and used that
judgment to collaterally estop Lloyd's from pursuing its declaratory judgment action. The court
concluded that Lloyd's was a necessary and indispensable party in the Pekin action, rendering the
default judgment void. Accordingly, the court granted Lloyd's petition to vacate the judgment
and allowed Lloyd's leave to intervene in the action. The court acknowledged that it was unclear
as to why Lloyd's chose to filed its own action instead of intervening in the Pekin action or why
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2014 IL App (1st) 133947
neither party moved to consolidate the two identical actions, but the court found that the parties'
conduct did not alleviate the effect of the void judgment. The court also noted that, while an
application to intervene must be made in a timely manner, "[g]iven the peculiar procedural
maneuvers by both parties, [Lloyd's] application for intervention [was] timely." Finally, because
the default judgment order was void, the trial court denied Pekin's motion to dismiss which
attacked Lloyd's petition for failing to establish its diligence and a meritorious defense.
¶ 18 Pursuant to Illinois Supreme Court Rule 304(b)(3) (eff. Feb. 26, 2010)), Pekin appealed
the trial court's order granting Lloyd's section 2-1401 petition and allowing Lloyd's leave to
intervene in the Pekin action.
¶ 19 Section 2-1401 of the Code authorizes a party to seek relief from a final judgment, such
as a default judgment. Sarkissian v. Chicago Board of Education, 201 Ill. 2d 95, 101 (2002).
Generally, section 2-1401 petitions must be filed within two years of the order or judgment, the
petitioner must allege a meritorious defense to the original action, and the petitioner must show
that the petition was brought with due diligence. Id. at 103. However, a void order may be
attacked at any time, either directly or collaterally, such as through a section 2-1401 petition. Id.
at 103-04. "[T]he allegation that the judgment or order is void substitutes for and negates the
need to allege a meritorious defense and due diligence." Id. at 104. A void order is one entered
by a court which lacks jurisdiction of the parties or of the subject matter, or which lacks the
inherent power to make or enter the order at issue. Id. at 103. "It is generally accepted that,
under fundamental principles of due process, a court is without jurisdiction to enter an order or
judgment which affects a right or interest of someone not before the court." Feen v. Ray, 109 Ill.
2d 339, 344 (1985). We review de novo a judgment entered on a section 2-1401 petition that is
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requesting relief based on the allegation that the judgment is void. Deutsche Bank Nat. Trust Co.
v. Hall-Pilate, 2011 IL App (1st) 102632, ¶ 12.
¶ 20 "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)
allow the court to completely resolve the controversy." Zurich Insurance Co. v. Baxter Int'l, Inc.,
275 Ill. App. 3d 30, 37 (1995), aff'd as modified, 173 Ill. 2d 235 (1996). The necessary parties
rule finds its origin in the common law and is affected by several provisions of the Code. Id. at
36. For instance, a party who declines to join a lawsuit may be made a defendant (735 ILCS
5/2-404 (West 2012)); a party deemed necessary to a complete determination of any question
raised in controversy may be joined (735 ILCS 5/2-405(a) (West 2012); and, the trial court may,
sua sponte, order parties be joined "[i]f a complete determination of a controversy cannot be had
without the presence of [such] parties" (735 ILCS 5/2-406(a) (West 2012)). Id. at 36. As stated,
an order will be void if entered by a court lacking jurisdiction over a necessary party. Id. at 37;
Feen, 109 Ill. 2d at 344.
¶ 21 In this case, the trial court determined that it lacked jurisdiction to enter the default
judgment order in Lloyd's absence where the judgment affected its rights. We agree. The
default judgment entered in the Pekin action required that Lloyd's continue defending Rada in
the Sutton suit, despite its attempt to tender Rada's defense to Pekin on the basis of the
reassignment agreement and the additional insurance provision in the general contractor and
subcontractor agreement; thus, the judgment materially affected the interests of Lloyd's. See
Zurich Insurance Co. v. Raymark Industries, Inc., 144 Ill. App. 3d 943, 946-47 (1986) (in
holding excess insurers were necessary parties to declaratory judgment action because their
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interests were "necessarily implicated under any theory of allocation of indemnity and defense
liability," court stated that "[i]n order to effectuate complete relief and dispose of an entire
controversy in a declaratory judgment action, all persons legally interested in the subject matter
of the litigation who may be affected by the judgment should be made parties"). Furthermore,
contrary to Pekin's argument that Lloyd's should not have been joined in its action, Pekin
successfully used its default judgment to collaterally estop Lloyd's from litigating the issue in its
own action, despite Lloyd's absence from the Pekin action. As the trial court noted, we do not
understand why Pekin did not name Lloyd's in its suit or seek to have Lloyd's joined in the suit to
avoid the rendering of a void judgment. We also do not know why Lloyd's chose to file its own
action rather than move to join in the Pekin action. Regardless, the parties' odd procedural
choices, as the trial court concluded, do not change the nature or effect of a void order. Thus, we
affirm the trial court judgment which granted Lloyd's section 2-1401 petition and vacated the
default judgment entered on November 7, 2012.
¶ 22 We further reject Pekin's argument that the trial court abused its discretion granting the
motion for leave to intervene in favor of Lloyd's. A court may grant intervention either
permissively or as a matter of right. Ramsey Emergency Services, Inc. v. Illinois Commerce
Comm'n, 367 Ill. App. 3d 351, 364-65 (2006). Under section 2-408(a) of the Code (735 ILCS
5/2-408(a) (West 2012)), "[u]pon timely application anyone shall be permitted as of right to
intervene in an action" when a statute provides for the unconditional right or when the applicant's
interest may not be adequately represented by the existing parties and the applicant will be bound
by an order or judgment in the action. Further, upon timely application, the court, in its
discretion, may permit anyone to intervene in an action when a statute confers a conditional right
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to intervene or "when an applicant's claim or defense and the main action have a question of law
or fact in common." 735 ILCS 5/2-408(b) (West 2012).
¶ 23 "Intervention is usually allowed only before judgment issues, and parties may not
normally seek intervention after the rights of the existing parties have been determined and a
final decree entered." Ramsey, 367 Ill. App. 3d at 365. However, intervention may be allowed
after judgment is entered where it is necessary to protect the intervenor's rights, particularly
where the interest of the intervenor existed at the time the judgment was entered. People ex rel.
Scott v. Illinois Protestant Children's Home, Inc., 95 Ill. App. 3d 552, 558 (1981). The decision
to allow or deny intervention is within the discretion of the court and will not be overturned on
review absent an abuse of that discretion. Ramsey, 367 Ill. App. 3d at 365.
¶ 24 Here, we cannot say that, under the particular procedural facts of this case, the trial court
abused its discretion when it granted Lloyd's motion to intervene in the Pekin suit. As we
determined, the trial court correctly vacated the default judgment on the basis of Lloyd's absence
in the litigation. Later, Lloyd's action was dismissed on collateral estoppel grounds because of
the default judgment. Under these facts, we cannot say that the court abused its discretion in
allowing Lloyd's to intervene in the reopened Pekin action.
¶ 25 Accordingly, for the aforementioned reasons, we affirm the judgment of the circuit court
of Cook County.
¶ 26 Affirmed.
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