Appeal from the Circuit Court of Cook County; the Hon.
Benjamin Nelson, Judge, presiding.
JUSTICE JOHNSON DELIVERED THE OPINION OF THE COURT:
Great West Steel Industries, Ltd. (Great West), appeals from the judgment of the Cook County circuit court which, in a bench trial, found that Northbrook Insurance Company (Northbrook) was under no obligation to defend and indemnify Great West, its insured, in two claims filed against Great West in Canada (the Canadian claims). Great West also appeals from the trial court's decision that it had failed to prove that Northbrook's conduct in investigation of the Canadian claims amounted to breach of the policy on the ground of conflict of interest. Northbrook cross-appeals from the portion of the trial court's judgment that ordered it to return to Great West the premium Great West had paid for the policy.
The parties raise the following questions for our review:
1. Whether the trial court erred in finding that the Canadian claims were excluded from coverage under the terms of the professional liability insurance policy because Great West knew of the design defects which gave rise to those claims when the policy became effective;
2. If the trial court so erred, whether it correctly found that coverage could not have been denied on the ground that Great West made material misrepresentations in its insurance application such that the policy was void and of no effect;
3. Whether Northbrook should have been estopped from raising policy or coverage defenses on the ground that it had failed to defend with a reservation of right or to institute a declaratory judgment action to determine the extent of policy coverage;
4. Whether the trial court erred in finding that Great West had not proved Northbrook's breach of policy through conflict of interest;
5. Whether the trial court erred in ordering Northbrook to return to Great West the premium it had paid upon the policy.
We reverse in part and affirm in part and remand.
The parties' pleadings, documents, and testimentary evidence established the following pertinent information. Great West was a designer and fabricator of structural steel headquartered in Vancouver, British Columbia, Canada. Northbrook was an insurance carrier with its principal place of business in Barrington, Illinois.
On approximately July 21, 1975, Great West entered into a subcontract with a general contractor, Ellis-Don, Limited (Ellis-Don), wherein Great West agreed to design, engineer and erect the structural steel framework of a parts distribution center and warehouse to be built for General Motors Corporation (Canada) (GM). The building was to be located in Woodstock, Ontario.
Construction of the warehouse was apparently substantially completed by the winter of 1975. On February 22, 1976, a perimeter portion of the roof of the warehouse collapsed (the first roof collapse). Efforts to determine the cause(s) of the collapse and to organize remedial repair measures were undertaken through the spring, summer, and fall months of 1976.
On January 2, 1977, a second perimeter portion of the roof of the warehouse collapsed (the second roof collapse). Illustration A at the end of this opinion specifies the relative locations of the two separate collapses of the roof.
Great West's insurance carriers at the time of the first collapse were companies other than Northbrook. On October 19, 1976, Great West completed and sent to Northbrook its application for professional liability insurance for engineers' errors and omissions.
Northbrook issued a policy for such liability insurance to Great West, effective October 23, 1976. By its terms, coverage was provided for a period of one year with a maximum liability of $1 million. Great West apparently paid the premium due on the policy ($34,930 (Canadian)).
Paragraph 1 of the policy's insuring agreements stated in pertinent part that "[t]he Company [Northbrook] will pay on behalf of the Insured all sums in excess of the deductible amount stated in the Declarations which the Insured shall become legally obligated to pay as damages by reason of any act, error or omission committed or alleged to have been committed by the Insured, or any person or organization for whom the Insured is legally liable provided always that: * * * [t]he Insured has no knowledge of such act, error, or omission on the effective date of this Policy."
The policy also excluded coverage of claims arising from incidents specified in, inter alia, questions 19A and 19B of Great West's insurance application to Northbrook. These specific questions, and Great West's responses thereto, were as follows:
"19A. Has any claim ever been made against the firm or against any persons named in question #8 above? Yes If so, state briefly the cause and nature of the claim including the amount involved and names of the project and the claimant, the date when the claim was made, the date the act giving rise to the claim was committed and the final disposition:
[Answer] Nov. 28/1973 Collapse of supermarket roof. Claim denied no cover under CGL due to professional exclusion. Insured currently pursuing litigation against Primary Insurer. (This claim discussed in full with Mrs. Carroll).
19B. Is the Applicant aware of any circumstances which may result in any claim against him, his predecessors in business, or any of the present or past partners or officers? ___ Yes ___ No
If yes, please give full details on the same basis as 19A."
Thus, Great West's application made no reference to the first roof collapse. The record establishes that supporting documents submitted in conjunction with the application referred to the first roof collapse, but stated that the incident was a result of a faulty weld.
When the second roof collapse occurred in January 1977, Great West promptly notified Northbrook of the incident pursuant to the terms of the policy. Individuals representing Northbrook were dispatched to the warehouse in Woodstock the day after the collapse. Based on the investigations of this group, as well as others later working on the incident, Northbrook essentially ...