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Donald B. Macneal, Inc. v. Int. Fire & Cas.





Appeal from the Circuit Court of Cook County; the Hon. James C. Murray, Judge, presiding.


Plaintiff, Donald B. MacNeal, Inc., brought this action for declaratory judgment against its excess insurer, defendant Interstate Fire and Casualty Company. Plaintiff sought recovery under an umbrella insurance policy for $100,000, which it paid to settle a claim when the underlying primary insurer became insolvent. The trial court entered judgment on the pleadings in favor of defendant, and plaintiff appeals.

Plaintiff purchased primary and excess liability insurance for the operation of its recreational facility known as Holiday Park. The primary liability insurance policy was issued by All-Star Insurance Corporation. The initial policy provided bodily injury liability coverage of $100,000 per person, effective December 1, 1972, to April 1, 1974. A successor policy, effective April 1, 1974, to April 1, 1975, provided coverage of $300,000 per person. The excess insurance policy issued by defendant provided umbrella bodily injury liability coverage of $1,000,000 for any one occurrence, effective June 14, 1973, to June 14, 1976. Defendant's liability applied "in excess of (1) the amount recoverable under underlying insurance as set out in Item 4." Item 4 described the "Underlying insurance" for Holiday Park as "Comprehensive General Liability" issued by All-Star and stated the limits of insurance as "$100/300/50,000." Alternatively, defendant's liability was "in excess of * * * (2) $10,000.00 ultimate net loss in respect of each occurrence not covered by said underlying insurance."

A business invitee sustained a serious injury at Holiday Park on July 4, 1974, and filed an action against plaintiff in 1975 requesting $1,000,000 in damages. On March 1, 1977, All-Star was ordered into liquidation because of insolvency. While the personal injury action was pending, plaintiff filed the present complaint for declaratory judgment against defendant, pursuant to section 2-701 of the Code of Civil Procedure (Ill. Rev. Stat. 1981, ch. 110, par. 2-701). Plaintiff sought a declaration of rights and obligations of the parties arising out of defendant's excess insurance policy involving All-Star's insolvency. Thereafter, the personal injury suit against plaintiff was settled for $1,000,000; plaintiff paid $100,000 and defendant paid $900,000. Plaintiff and defendant agreed that the payments would not prejudice the rights of either to a determination of their ultimate respective rights and obligations under the excess insurance contract.

Thereafter, plaintiff filed an amended complaint seeking reimbursement for the defense and compromise of the claim in excess of $10,000 ($139,135.84) or in excess of $100,000 ($49,135.84). Defendant's answer stated that its coverage was in excess of $300,000 ultimate loss. Plaintiff sought judgment on the pleadings, maintaining that defendant was obligated to pay the entire $1,000,000 coverage under its excess policy because the "amount recoverable" from the insolvent underlying insurer was zero. Plaintiff requested reimbursement for $100,000 which it had contributed to the $1,000,000 settlement. Defendant asserted that the "amount recoverable" from the underlying insurance was the face value of the primary policy.

Defendant filed a counterclaim for declaratory judgment seeking $200,000 reimbursement from plaintiff. Defendant also moved for judgment on the pleadings. The trial court, finding that defendant did not assume the obligations of the primary insurer for plaintiff, denied plaintiff's motion and granted defendant's motion for judgment on the pleadings. The issue raised by defendant's counterclaim was reserved by the trial court. After the trial court granted defendant's motion to dismiss its counterclaim with prejudice, plaintiff filed this appeal.

• 1 The issue on appeal is whether under the language of the insurance contract plaintiff (insured) or defendant (excess insurer) is obligated to bear the loss resulting from the insolvency of the primary insurer. Plaintiff maintains that the language of the insurance contract which provided coverage for amounts "in excess of the amount recoverable under underlying insurance" requires defendant to reimburse plaintiff for the $100,000 paid to settle the personal injury action. Plaintiff argues that this $100,000 was within the coverage of the underlying insurance which was not paid by the underlying primary insurer, All-Star. Since All-Star was ordered into liquidation, plaintiff claims that the "amount recoverable" was zero. Defendant contends that as an excess insurer, it does not bear the risk of a primary insurer's insolvency because it did not contract to assume that risk.

Since both parties have filed motions for judgment on the pleadings, it is generally conceded that no fact questions exist and that the issues presented to the court are solely questions of law. (Zipf v. Allstate Insurance Co. (1977), 54 Ill. App.3d 103, 369 N.E.2d 252.) Moreover, construction of an insurance policy presents only a question of law (State Farm Mutual Automobile Insurance Co. v. Schmitt (1981), 94 Ill. App.3d 1062, 419 N.E.2d 601), and this issue is, therefore, appropriate for determination by means of judgment on the pleadings. See Kravis v. Smith-Marine, Inc. (1974), 20 Ill. App.3d 470, 314 N.E.2d 577.

Under established rules of construction, if a provision of an insurance contract is ambiguous, it will be construed in favor of the insured and against the insurer who drafted the instrument (Dora Township v. Indiana Insurance Co. (1980), 78 Ill.2d 376, 400 N.E.2d 921) and seeks to limit its liability. (State Farm Mutual Automobile Insurance Co. v. Schmitt (1981), 94 Ill. App.3d 1062, 419 N.E.2d 601.) A provision in an insurance contract is considered to be ambiguous if it is subject to more than one reasonable interpretation. (Reserve Insurance Co. v. General Insurance Co. of America (1979), 77 Ill. App.3d 272, 395 N.E.2d 933.) The provision at issue is as follows:

"Item 3. Limit of Liability: The limit of the company's liability shall be * * *.

(a) $1,000,000 single limit any one occurrence ***. ***

in excess of

(1) The amount recoverable underlying insurance as ...

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