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New Hampshire Insurance Co. v. Hanover Insurance Co.

May 18, 1998

NEW HAMPSHIRE INSURANCE COMPANY, PLAINTIFF-APPELLEE,
v.
HANOVER INSURANCE COMPANY, DEFENDANT-APPELLANT. (FCL/STAVA GROUP, INC., DEFENDANT.



Appeal from the Circuit Court of Cook County Honorable Michael Brennan Getty, judge Presiding.

The opinion of the court was delivered by: Justice Gallagher

IN THE APPELLATE COURT OF ILLINOIS FIRST JUDICIAL DISTRICT

This appeal involves an insurance coverage dispute between plaintiff, New Hampshire Insurance Company (New Hampshire), and defendant, Hanover Insurance Company (Hanover), regarding the priority of coverage as between two insurance policies. Hanover appeals from the trial court's decision that the umbrella policy issued by New Hampshire was an excess policy over and above the primary commercial general liability policy issued by Hanover, thereby entitling New Hampshire to reimbursement of $450,000 paid to settle the underlying case, plus prejudgment interest. We affirm. The relevant facts follow.

Thaddeus Smolucha, plaintiff in the underlying case, was injured on July 6, 1992, while working on a construction project at a General Motors plant in Chicago, Illinois. At the time, plaintiff's employer was S.G. Krause, a subcontractor of FCL/Stava. FCL/Stava was one of the defendants in the underlying case.

Pursuant to the contract between S.G. Krause and FCL/Stava, S.G. Krause had procured insurance from Granite State Insurance Company which named FCL/Stava as an additional insured. FCL/Stava also had its own commercial general liability policy from Hanover. S.G Krause also procured a commercial liability excess umbrella policy from New Hampshire which named FCL/Stava as an additional insured, although this umbrella policy was not required by the contract between S.G. Krause and FCL/Stava. All three policies were in effect on July 6, 1992, the date of Smolucha's injury in the underlying case.

A settlement was reached in the underlying case and Smolucha received a lump sum of $1,450,000 in exchange for a release against all defendants. Granite State contributed its $1 million limit of insurance to the settlement under the policy it had issued to S.G. Krause. There is no dispute that this policy was the primary policy which was required to pay the first $1 million. What is in dispute, and the first issue we address in this appeal, is which company's policy was responsible for the remaining $450,000 of the settlement. New Hampshire paid the $450,000, while reserving its rights to pursue Hanover for contribution and/or indemnity. New Hampshire and Hanover agreed to litigate the following issue:

"With respect to the $1.45 million settlement of the Smolucha case and New Hampshire's payment of $450,000 on behalf of its additional insured, FCL/Stava Group, under New Hampshire's excess umbrella policy, what is the order of priority of coverage as to the $450,000 amount as between New Hampshire's excess umbrella policy and Hanover's home builders policy, construing these policies as a whole and specifically with respect to their respective 'other insurance' clauses?"

On August 10, 1995, New Hampshire filed a first amended complaint for declaratory judgment, requesting the court to determine the priority of coverage as between the two policies. The complaint sought a declaration from the court that Hanover's commercial general liability policy provided coverage on a primary, noncontributing basis relative to New Hampshire's excess umbrella policy. The complaint also requested that Hanover be ordered to pay New Hampshire $450,000, plus statutory prejudgment interest.

On December 8, 1995, New Hampshire filed a motion for judgment on the pleadings. On March 29, 1996, the trial court granted New Hampshire's motion; Hanover's motion for rehearing was denied on May 26, 1996. On June 14, 1996, the trial court granted New Hampshire's motion for prejudgment interest. Hanover appeals from the trial court's orders of March 29, 1996, May 26, 1996, and June 14, 1996.OPINION Our review of the trial court's granting of New Hampshire's motion for judgment on the pleadings is de novo. See Chicago Title and Trust Co. v. Steinitz, 288 Ill. App. 3d 926, 934, 681 N.E.2d 669, 674 (1997). This appeal involves two issues. The first issue is whether the trial court correctly ruled that New Hampshire's umbrella policy was an excess policy over and above Hanover's primary commercial general liability policy, thereby entitling New Hampshire to reimbursement of the $450,000 that it paid to settle the underlying case. The second issue is whether the trial court was correct in awarding prejudgment interest to New Hampshire.

INSURANCE COVERAGE ISSUE

The first issue can be summarily disposed of based upon the recent well-reasoned opinion of this court in American Country Insurance Co. v. Hanover Insurance Co., 293 Ill. App. 3d 1025 (1997). Hanover, the party here, was also a party in that case. While the facts and procedural histories of the two cases are not identical, the essential issue of which policy was excess is the same. In American Country Insurance, as here, Hanover argued that its "other insurance" clause, which replaced the standard preprinted form "other insurance" clause, made it excess over all other insurance policies, including umbrella excess policies. 293 Ill. App. 3d at 1026-27. The plaintiff in American Country argued, as does New Hampshire here, that its excess policy was a "true" excess policy that does not pay until all "primary" policy limits are exhausted.

The American Country court analyzed Putnam v. New Amsterdam Casualty Co., 48 Ill. 2d 71, 269 N.E.2d 97 (1970), which stood for the proposition that where two policies cover the same loss, Illinois courts will give effect to the respective "other insurance" clauses and apply them as written but, if incompatible, will pro rate coverage between the two policies. 293 Ill. App. 3d at 1028. Hanover, here, relies upon Putnam to support its position, as it did in American Country. 293 Ill. App. 3d at 1028. Also analyzed by the American Country court was the case of Illinois Emcasco Insurance Co. v. Continental Casualty Co., 139 Ill. App. 3d 130, 487 N.E.2d 110 (1985), which held that a primary policy pays before an excess umbrella policy and in such a situation, general rules regarding excess and "other insurance" clauses do not apply. 293 Ill. App. 3d at 1028.

Hanover argues, in essence, that the Illinois Emcasco court, by focusing on the type of insurance policy rather than the specific language of the "other insurance" clause contained in each policy, incorrectly deviated from the test set out by the supreme court in Putnam. We disagree and are instead in accord with the American Country court's determination that Putnam and Illinois Emcasco are complementary, not conflicting, decisions because Putnam involved two primary policies that contained "other insurance" clauses, while Illinois Emcasco involved a primary policy that had an "other insurance" clause and an umbrella excess policy. 293 Ill. App. 3d at 1028-29. It is well known that an umbrella policy is different from a primary policy containing an excess insurance clause in that an umbrella policy provides a special and unique coverage. Since umbrella policies, by their nature, only pay above the primary policies, this different type of coverage generally allows for lower premiums than those of primary policies. See, e.g., American Country, 293 Ill. App. 3d at 1030, citing Illinois Emcasco, 139 Ill. App. 3d at 132-33, 487 N.E.2d 112. We are reluctant to interfere with this market driven fact. In our view, deciding an umbrella policy should pay before a ...


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