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02/16/96 TRANSCONTINENTAL INSURANCE COMPANY v.

February 16, 1996

TRANSCONTINENTAL INSURANCE COMPANY, AN ILLINOIS CORPORATION, IN ITS OWN RIGHT AND AS SUBROGEE OF KENNEDY HOMES, LTD., PLAINTIFF-APPELLANT, CROSS-APPELLEE,
v.
NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, DEFENDANT-APPELLEE, CROSS-APPELLANT.



Appeal from the Circuit Court of Cook County. The Honorable Aaron Jaffe, Judge Presiding.

The Honorable Justice Egan delivered the opinion of the court: Zwick, P.j., and McNAMARA, J., concur.

The opinion of the court was delivered by: Egan

The Honorable Justice EGAN delivered the opinion of the court:

In May 1979, Kennedy Homes, Ltd., and Mohawk Construction entered into a contract under which Mohawk was to perform cement work as a subcontractor for a construction project for which Kennedy was a contractor. In April 1990, an employee of Mohawk, Desry Sykes, was injured at the construction site when he fell from a scaffold that collapsed. He filed a complaint against Kennedy and others, not including Mohawk, and alleged that these defendants violated the Structural Work Act (Ill. Rev. Stat. 1989, ch. 48, par. 60 et seq. (subsequently 740 ILCS 150/0.01 et seq. (West 1992))(repealed by Pub. Act 89-2, eff. Feb. 14, 1995)). At the time of Sykes' injury, the plaintiff, Transcontinental Insurance Company, insured Kennedy. The defendant, National Union Fire Insurance Company of Pittsburgh, insured Mohawk under a commercial general liability policy with a policy term of March 6, 1990, to March 6, 1991.

The defendant rejected the plaintiff's tender of Kennedy's defense in the Sykes suit on the basis that Kennedy was not an additional insured under its policy. Kennedy and the plaintiff then filed a declaratory judgment action against the defendant and Mohawk, in which they sought a declaration that the defendant had wrongfully refused to defend Kennedy and must reimburse the plaintiff for sums it had expended in defending the suit. The defendant filed a counterclaim, in which it sought a declaration that it had no duty to defend or to indemnify.

Kennedy was not a party to any amended complaints. Transcontinental, in its own right and as subrogee of Kennedy, became the only plaintiff in complaints subsequent to the original. Mohawk was dropped as a defendant after the original complaint.

The plaintiff and defendant filed cross motions for summary judgment, each of which the judge granted in part and denied in part. He ruled that the defendant had no duty to indemnify the plaintiff but that it had a duty to defend Kennedy and, therefore, must pay the plaintiff for "reasonable defense costs incurred in defending Kennedy" in the Sykes suit. The plaintiff and defendant appeal the judge's partial denial of their respective motions for summary judgment.

The allegations before the trial judge were as follows. In its July 9, 1993, second amended complaint, the plaintiff asserted that, before trial, it had paid Sykes $3,012,943 to settle his suit and that it had incurred fees and expenses of $136,416.54 in defending the suit. It alleged that, by refusing to defend and indemnify Kennedy in the Sykes suit, the defendant had breached its insurance contract and negligently and in bad faith breached its duty to provide coverage. It asked the judge to declare that Kennedy was an additional insured under the defendant's policy, that the defendant was obligated to provide a defense and indemnification; that its refusal to do so was wrongful; and that it was estopped from asserting any policy defenses. In addition, the plaintiff requested a declaration that the defendant's coverage was primary and that the defendant must reimburse the plaintiff for the sums it had expended in defense and settlement of the suit and in bringing the declaratory judgment action.

In its counterclaim, the defendant requested that the trial judge declare that the defendant was not obligated to defend Kennedy in the Sykes suit and that it was not obligated to reimburse or indemnify the plaintiff for any fees, costs, settlement or judgment resulting from the Sykes suit.

In deciding that the defendant had no duty to indemnify the plaintiff but had a duty to defend Kennedy, the judge made the following findings. The insurance agreement between Mohawk and Kennedy was an agreement by Mohawk to personally indemnify Kennedy against Kennedy's own negligence. As such, it was void under "An Act relating to certain agreements in connection with personal injuries" (Ill. Rev. Stat. 1989, ch. 29, pars. 61 to 63 (now the Construction Contract Indemnification for Negligence Act (740 ILCS 30/.01 et seq. (West 1992))))(Indemnification Act). The defendant, therefore, had no obligation to indemnify Kennedy. Nevertheless, the judge decided that it was not clear from the defendant's insurance policy that the Sykes complaint against Kennedy was beyond the defendant's policy's coverage. Consequently, the defendant was obligated to defend Kennedy.

The plaintiff contends that the trial judge erred in failing to find that Kennedy was an additional insured under the defendant's policy and, given the court's finding that the defendant had a duty to defend, in failing to find that the defendant was required to indemnify the plaintiff for the settlement it paid. As a cross-appeal, the defendant argues that the trial judge erred in holding that it had a duty to defend Kennedy when it had no duty to indemnify Kennedy.

The critical inquiry in this case is whether Kennedy was an additional insured under the defendant's policy with Mohawk at the time of the Sykes accident. The plaintiff argues that Kennedy was an additional insured under this policy according to the terms of a "Blanket Additional Insured" endorsement, which provided:

"1. Who is an insured (section II) is amended to include as an insured anyone for whom you have agreed prior to loss to provide insurance, but only as respect [sic ] liability arising out of your premises or 'your work'.

2. This insurance does not apply to:

(a) Liability arising out of the negligence of the additional insured; and

***

3. If required by your agreement with the additional insured, this insurance shall be primary insurance for the additional insured. If anyone, who does work for you also provides similar insurance for the additional insured, however, then that insurance will be primary, and this insurance will be excess over, or secondary to, that insurance."

According to the plaintiff, Mohawk agreed to provide insurance for Kennedy through the following provisions of its construction contract with Kennedy:

"4. Insurance Requirements

A. Subcontractor shall furnish, at Subcontractor's expense, prior to commencing upon the performance of the Work and keep in full force and effect during Subcontractor's ...


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