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May 9, 1997


Appeal from the Circuit Court of Cook County. Honorable Kenneth L. Gillis, Judge Presiding.

Released for Publication June 25, 1997.

Presiding Justice Hartman delivered the opinion of the court. Hartman, P.j., Hoffman and South J.j., concurring.

The opinion of the court was delivered by: Hartman

PRESIDING JUSTICE HARTMAN delivered the opinion of the court:

Defendants Maryland Casualty Company (Maryland) and Northern Insurance Company of New York (Northern) appeal the circuit court's grant of summary judgment in favor of plaintiff, Mobil Oil Corporation (Mobil), finding defendants liable for Mobil's attorneys fees pursuant to section 155 of the Insurance Code (215 ILCS 5/155(1) (West 1992)) (section 155), and awarding Mobil $442,762 in such fees. Mobil incurred these fees in two separate actions: a tort claim in which Maryland, after initially agreeing to defend Mobil under two liability insurance policies, later disputed the policy limits and advised Mobil to retain separate counsel, which it did; and a declaratory judgment action, in which Mobil claimed that the policies obligated defendants to indemnify Mobil for any liability incurred in the tort claim.

The insurance policies were purchased by a third party, B.M.W. Constructors, Inc. (B.M.W.), the named insured, as part of a contract for the repair of a flare system at Mobil's oil refinery in Joliet, Illinois. The contract required B.M.W. to obtain liability insurance that would cover any work performed by B.M.W. at the refinery. For liability stemming from bodily injury, B.M.W. was required to obtain a minimum of $250,000 in coverage for each occurrence, and a minimum of $500,000 in aggregate coverage. The contract also required that B.M.W. obtain liability insurance naming and covering Mobil and any of Mobil's affiliates, under the policies "as their interests may appear."

B.M.W. procured the insurance from its insurance representative, with coverage to be provided by Northern, a subsidiary of Maryland. The policies provided coverage for general liability, automobile liability, and excess liability. The general liability policy offered $1 million in coverage for each occurrence and a maximum of $6 million in coverage for aggregate liability. The excess liability policy provided up to $5 million in coverage. In July 1988, B.M.W. sent Mobil the certificate of coverage received from Northern for these policies, as required by Mobil's contract with B.M.W. The certificate listed B.M.W. as the insured party and added Mobil "as an additional insured as their interests may appear." The certificate made no reference to the contract between B.M.W. and Mobil.

On September 17, 1988, two B.M.W. employees, Steve Cibulskis and Marvin Lamar, were injured as they performed repair work at the Joliet refinery. They and their spouses filed suit against Mobil in the circuit court of Cook County, No. 90-L-3410 (Cir. Ct. Cook Co.) (Cibulskis lawsuit). Mobil tendered its defense to Maryland which, in April 1989, unconditionally accepted Mobil's tender, hired a law firm to defend the Cibulskis lawsuit, and informed the law firm that, under the general liability policy, Mobil was entitled to up to $2 million in coverage.

In a subsequent letter to one of the underlying plaintiff's attorneys, Maryland's claim representative stated that Maryland had accepted Mobil's tender of its defense and that further correspondence regarding the claim should be forwarded to Maryland.

The parties to the Cibulskis lawsuit spent the next few years conducting discovery and preparing for trial. Maryland's trial attorney settled with Lamar, who was not severely injured, and continued to prepare for the claims by Cibulskis and his wife. In a response to one of the underlying plaintiffs' interrogatories regarding insurance coverage, Mobil's answers, prepared by Maryland's appointed defense counsel, stated that Mobil was covered by two insurance policies, with policy limits of $1 million and $5 million, which was submitted to those plaintiffs by Maryland's trial attorney on April 15, 1991. In two pretrial reports, Maryland's trial attorney recommended that the Cibulskis' case be settled for approximately $1.5 to $2 million.

After extensive discovery had been completed, with some 33 depositions taken and expert witnesses engaged, Maryland told Mobil in a letter dated December 16, 1991, that the insurance policies provided Mobil with only $250,000 in coverage, because the contract between Mobil and B.M.W., mentioned that sum. That contract was never made part of the rider or policy. Maryland further advised Mobil to retain its own defense counsel in the Cibulskis lawsuit to protect its interests in the event that Mobil's liability for the claim exceeded $250,000. On February 6, 1992, Mobil responded to Maryland's letter, noting that it was entitled to the full amount of coverage, $6 million, as an additional insured under the insurance policies. In a written reply, Maryland reiterated its position that Mobil was entitled only to $250,000 in coverage.

Mobil hired its own attorney for the Cibulskis lawsuit on March 24, 1992, who filed a complaint against Maryland, Northern, and B.M.W. in chancery, seeking a declaration that the insurance policies provided full coverage to Mobil as an additional insured, and obligated the above-named defendants to indemnify Mobil in the Cibulskis lawsuit. Mobil also filed a third-party complaint against B.M.W., which was dismissed.

On March 12, 1993, Maryland wrote Mobil stating, in effect, that the insurance company had reconsidered its position, and agreed to provide Mobil full coverage under the insurance policies. *fn1 Maryland refused, however, to pay any legal fees already incurred by Mobil's attorneys in the Cibulskis lawsuit.

Mobil's attorney continued to prepare for trial. She repeatedly disagreed with Maryland's trial attorney regarding how and when the Cibulskis lawsuit should be resolved. Mobil's attorney sent several letters to this trial attorney, asking him to settle the lawsuit, because Mobil believed that a trial judgment might exceed the policy limits. The first letter, dated February 15, 1993, asked the attorney to accept the Cibulskis' offer to settle the case for $5.5 million, because they planned to seek punitive damages at trial which, if awarded, might be much higher than the current settlement offer. *fn2 A letter sent on May 14, 1993 by Mobil's attorney requested that Maryland accept the reduced offer of $3,750,000. A third letter, dated June 14, 1993, asked that Maryland accept a $2,250,000 offer, and accused Maryland of acting in bad faith by refusing to settle the case, asserting that Mobil could be subject to much greater liability if the case proceeded to trial. On July 30 and August 23, 1993, Mobil sent letters to Maryland's attorneys in the declaratory judgment action, warning that Mobil would sue Maryland for any amount awarded to the Cibulskis that exceeded the policy limits.

In an August 6, 1993 letter, Maryland assured Mobil that it was willing to negotiate a fair and reasonable settlement, but disputed Mobil's contention that it should be responsible for paying any punitive damage award. On August 23, Mobil responded by asking why Maryland refused to accept the Cibulskis' most recent settlement offer of $2 million. Mobil's attorney reminded Maryland that its own trial attorney had recommended a settlement in the area of two million dollars, and had concluded that the case should be settled.

On August 27, 1993, after the circuit court held a pretrial conference with the parties to the Cibulskis lawsuit, Mobil's attorney again wrote Maryland requesting that it accept the Cibulskis' settlement offer, which now stood at $1,800,000. The attorney noted the court's comment that two million dollars was a reasonable settlement offer in light of the evidence that would be presented at trial. The attorney further accused Maryland of acting in bad faith by refusing to settle the case, and again threatened to sue Maryland if a judgment against Mobil exceeded the policy limits. The case went to trial that day. Several days later, on September 2, 1993, Maryland's trial attorney finally agreed to settle the case for $1.75 million.

In the declaratory judgment action against Maryland and Northern, Mobil filed an amended complaint just before the Cibulskis lawsuit was settled. Count one alleged that defendants Maryland, Northern, and B.M.W. were obligated to indemnify Mobil in the Cibulskis lawsuit, and must pay for the costs of trial and any settlement or judgment entered against Mobil. Count two stated a claim against B.M.W. for breach of contract, seeking as damages the attorney's ...

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