The opinion of the court was delivered by: Justice McMORROW
The issue in this case is whether an insurer's duty to defend its insured arises upon its receipt of actual notice of the suit against its insured, or whether the duty to defend is triggered only upon the insured's tender of its defense to the insurer. The appellate court held that actual notice of the underlying claim was sufficient to trigger the duty to defend, regardless of whether the insured tendered its defense to the insurer, provided the insured did not knowingly forgo the insurer's involvement. 287 Ill. App. 3d 505. We affirm the appellate court.
This insurance coverage case has its roots in an underlying suit brought by Lorren Kessel against several defendants, including Baird Land Surveyors (Baird) and William Grady, doing business as B&D Home Repair and Builders (B&D). Kessel was injured while working at a construction site. Baird and B&D were contractors at the site. Baird was listed as an additional insured on a policy which was issued by the plaintiff, The Cincinnati Companies (Cincinnati), and held by another contractor at the site. B&D was insured under a policy issued by the defendant, West American Insurance Company (West American).
Upon receiving service of process in Kessel's suit, Baird tendered its defense in the case to its own insurer, which then tendered the defense to Cincinnati. B&D tendered its defense to West American. Thus, both Cincinnati and West American had notice of the suit shortly after service of process upon Baird and B&D. In the course of discovery in the underlying suit, Kessel served B&D with interrogatories which, inter alia, asked B&D whether it was insured for the injuries alleged in Kessel's complaint, and asked that B&D list the insureds under each policy which might cover Kessel's injuries. B&D's answer to the interrogatories stated that B&D was covered by the West American policy, and listed only itself, B&D, as an insured under that policy. On January 27, 1992, the eve of the third trial date set for the underlying case, counsel for B&D disclosed to Baird that, contrary to the answer given in response to Kessel's interrogatories, Baird was in fact listed as an additional insured on the West American policy issued to B&D. Prior to this disclosure, Baird did not know that it was listed as an additional insured on the West American policy. Counsel for Baird, retained by Cincinnati, then tendered Baird's defense to West American. West American rejected the tender.
On February 17, 1992, Kessel settled the underlying case for $60,000. Under the terms of that settlement, Baird and B&D were each to pay $30,000. Cincinnati paid Baird's share of the settlement, and West American paid B&D's share. Prior to reaching the settlement, Cincinnati and West American entered into a stipulation in which it was agreed that Cincinnati would preserve its right to pursue a contribution action against West American for reimbursement of the settlement payment and attorneys' fees.
On January 25, 1993, Cincinnati filed this declaratory judgment action against West American. Cincinnati sought a declaration that West American was a primary insurer for Baird in the underlying litigation, and that West American was thus liable for the amount which Cincinnati had paid on behalf of Baird to settle the underlying case, as well as the attorney fees and costs incurred by Cincinnati on behalf of Baird in defending the case. Cincinnati and West American then filed cross-motions for summary judgment. The trial court granted Cincinnati's motion for summary judgment. The court found that "[t]he Answers to Interrogatories provided to Baird made no reference to the West American/Ohio Casualty policy and foreclosed Baird's opportunity to make a reasonable judgment as to tender," and that "[t]he lack of tender must not be attributed to Baird but to West American through the actions of the B&D attorney in the Kessel v. Baird case." The trial court found that West American was liable for an "equitable" share of the settlement and of attorney fees incurred after the service of the answers to interrogatories on January 2, 1991. Cincinnati filed a motion for entry of money judgment for $15,000, representing one-half of the settlement paid on behalf of Baird, and $14,384.50, representing one-half of the attorney fees and costs incurred after January 2, 1991, on behalf of Baird. On April 26, 1996, the circuit court entered judgment against West American in the amount of $29,384.50.
West American appealed the trial court's ruling on the motions for summary judgment and its entry of the monetary judgment. West American argued that an insurer has no obligation to defend an insured until the insured tenders its defense to the insurer, that is, asks the insurer for assistance in defending the underlying suit; that Baird never tendered its defense in the underlying action; and that the trial court erred in attributing this lack of tender to the attorney for B&D. The appellate court affirmed the judgment of the court, holding that "an insurer's duty to defend claims potentially falling within the terms of a policy is triggered when the insurer has actual notice of the lawsuit, regardless of whether there has been an actual tender of defense by the insured." 287 Ill. App. 3d at 511, citing Federated Mutual Insurance Co. v. State Farm Mutual Automobile Insurance Co., 282 Ill. App. 3d 716, 726 (1996). The appellate court recognized, but declined to follow, the contrary decision in Institute of London Underwriters v. Hartford Fire Insurance Co., 234 Ill. App. 3d 70 (1992), in which the court held that an insurer's duty to defend a sophisticated insured arose only upon tender of the defense to the insurer. The appellate court in the case at bar determined that West American had received actual notice of the underlying suit against both Baird and B&D shortly after service of process in that case. Moreover, the court found no evidence that Baird had consciously selected one insurer over another to provide its defense. The court found that B&D's attorney, acting as the agent for both B&D and West American, had responded inadequately to Kessel's discovery requests by failing to note that Baird was an insured under the West American policy, and that Baird's failure to tender was thus attributable to West American. Finally, the appellate court rejected West American's argument that it should not be liable for attorneys' fees and costs incurred by Cincinnati prior to Baird's tender to West American in January 1992. The appellate court held that, because the delay in tender was due to the incomplete discovery responses of B&D's attorney, who was an agent of West American, West American's obligation to share in these expenses took effect at the time of those responses. We granted West American's petition for leave to appeal to this court. 166 Ill. 2d R. 315.
"In insurance law, contribution is `an equitable principle arising among coinsurers which permits one who has paid the entire loss to receive reimbursement from the other insurer liable for the loss." Aetna Casualty & Surety Co. v. James J. Benes & Associates, Inc., 229 Ill. App. 3d 413, 417 (1992), quoting Hall v. Country Casualty Insurance Co., 204 Ill. App. 3d 765, 772 (1990). In the case at bar, Cincinnati alone paid the costs of Baird's defense, and the amount of Baird's settlement indebtedness, in the underlying case. Cincinnati then brought this action for equitable contribution against West American, seeking to recover half of these costs. The issue presented in this appeal is whether West American was also liable for Baird's costs because Baird was an insured covered by the policy issued by West American. More specifically, the question is whether West American's duty to defend Baird was triggered when it had actual notice of the suit against Baird, even though Baird did not tender its defense to West American. *fn1 Because this is an appeal from an order granting summary judgment, we review the case de novo. Outboard Marine Corp. v. Liberty Mutual Insurance Co., 154 Ill. 2d 90, 102 (1992).
Generally, the question of whether an insurer has a duty to defend an insured depends on the allegations of the complaint and the scope of the policy. "In order to determine whether [an] insurer's duty to defend [an insured] has arisen, the court must compare the allegations of the underlying complaint to the policy language. [Citations.] *** If the court determines that these allegations fall within or potentially within the policy's coverage, the insurer has a duty to defend [an] insured against the underlying complaint. [Citations.]" (Emphasis in original.) Outboard Marine Corp., 154 Ill. 2d at 125.
However, certain courts applying Illinois law, including the United States Court of Appeals for the Seventh Circuit and certain districts of the Illinois appellate court, have held that an additional requirement must be met before an insurer's duty to defend is triggered. These courts hold that the duty to defend arises only after the insured tenders its defense to the insurer. Hartford Accident & Indemnity Co. v. Gulf Insurance Co., 776 F.2d 1380, 1383 (7th Cir. 1985) (Hartford I); Institute of London, 234 Ill. App. 3d at 80. According to these courts, "[w]hat is required [to trigger the duty to defend] is knowledge that the suit is potentially within the policy's coverage coupled with knowledge that the insurer's assistance is desired." Hartford I, 776 F.2d at 1383.
The courts which require an insured to tender its defense before the duty to defend is triggered recognize an exception to the tender rule if the insured is "unsophisticated." Under this exception, an insurer's duty to defend an unsophisticated insured is triggered solely by the insurer having "actual notice" of the suit against its insured. See Long v. Great Central Insurance Co., 190 Ill. App. 3d 159, 169-70 (1989). See also Aetna Casualty & Surety Co. v. Chicago Insurance Co., 994 F.2d 1254, 1260 (7th Cir. 1993); Hartford I, 776 F.2d at 1383; Institute of London, 234 Ill. App. 3d at 76-77. "Actual notice" is defined as "notice sufficient to permit the insurer to locate the suit and defend it." Long, 190 Ill. App. 3d at 168. This exception to the tender requirement is the result of concern that application of the tender rule to an unsophisticated insured would be unfair in light of the fact that the insurer has superior knowledge about the scope of its policies, and that the insured may not be aware of the tender requirement. See, e.g., Hartford Accident & Indemnity Co. v. Gulf Insurance Co., 837 F.2d 767, 774 (7th Cir. 1988) (Hartford II).
The courts which require tender also hold that any insured-irrespective of the sophistication of the insured-covered by more than one policy can knowingly designate one of the insurers to defend. Institute of London, 234 Ill. App. 3d at 78-80; Aetna, 994 F.2d at 1260. Where the insured makes such a designation, the duty to defend falls solely on the selected insurer. That insurer may not in turn seek equitable contribution from the other insurers who were not designated by the insured. Institute of London, 234 Ill. App. 3d at 79. This ...