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Liberty Mutual Insurance Co. v. Westfield Insurance Co.

November 03, 1998

LIBERTY MUTUAL INSURANCE COMPANY, PLAINTIFF-APPELLEE,
v.
WESTFIELD INSURANCE COMPANY, DEFENDANT-APPELLANT.



The opinion of the court was delivered by: Justice McNULTY

Appeal from the Circuit Court of Cook County.

Honorable John K. Madden, Judge Presiding.

This is a declaratory judgment action brought by Liberty Mutual Insurance Company (Liberty) seeking equitable contribution from Westfield Insurance Company (Westfield) based on a settlement Liberty paid on behalf of W.B. Olson, Inc. (Olson). The trial court entered summary judgment in favor of Liberty and against Westfield for one-half of the defense and settlement costs Liberty incurred, plus prejudgment interest. Westfield appeals, claiming that: (1) it did not waive its right to require proof of all facts necessary to recovery or to contest the reasonableness of the settlement; (2) its additional insured endorsement did not cover Olson's liability in the underlying suit as a matter of law; and (3) Liberty was not entitled to prejudgment interest. We affirm.

Liberty issued a commercial general liability policy to Olson, which provided liability coverage for, among other things, Olson's work as a general contractor at a construction project known as the Dearborn Phase II Project (the project) at 1400 South State Street in Chicago. The Liberty policy's bodily injury limits were $1 million per occurrence. The policy was effective from March 31, 1989, to March 31, 1990. Westfield Insurance Company issued a commercial general liability policy with bodily injury liability limits in the amount of $1 million per occurrence, effective February 1, 1989, to February 1, 1990, to Rivard Brothers, Inc. (Rivard), which provided liability coverage for, among other things, Rivard's work as Olson's subcontractor at the project.

Sometime prior to October 23, 1989, Olson, as general contractor, entered into a subcontract agreement with Westfield's insured, Rivard Brothers, Inc., for the performance of certain carpentry work at the project. Olson was named as an additional insured on the Westfield policy by means of an endorsement which provided:

"WHO IS AN INSURED (Section II) is amended to include as an additional insured the person or organization shown in the Schedule, but only with respect to liability arising out of 'your work' for that insured by or for you."

The Westfield policy defined "your work" as "work or operations performed by you or on your behalf."

On or about May 4, 1990, William R. Taylor, an employee of Rivard, filed suit against Olson, alleging that he was severely injured on or about October 23, 1989, while employed at the project. Taylor's claims were based on theories of common law negligence and violations of the Illinois Structural Work Act (740 ILCS 150 (West 1994)).

Olson tendered the defense and indemnification of the Taylor suit to Liberty, and Liberty provided Olson's defense. Olson's defense and indemnification were subsequently tendered to Westfield. Westfield agreed to split equally with Liberty the defense and indemnification of Olson, on the condition that the coverage condition in the additional insured endorsement, that Olson's liability arise out of Rivard's work, apply. The two insurers agreed that Liberty's in-house lawyers would handle Olson's defense.

On or about May 27, 1994, five days prior to the scheduled trial date of the Taylor suit, Westfield informed Liberty that it was no longer willing to pay a pro rata share of the cost of settling the Taylor suit. Westfield's decision was based on the fact that it had obtained access to a videotape which indicated that Taylor's injuries were less severe than Taylor claimed.

On June 2, 1994, the day of trial, at a pretrial conference, the trial court recommended that the case be settled by Olson, the only remaining defendant, for $900,000. Liberty's attorney proposed to Westfield's attorney that they the settle the case for that amount, with each contributing 50% toward the settlement. Westfield's attorney refused, on the ground that $900,000 was an excessive amount considering the extent of plaintiff's injuries and in light of the videotape.

As an alternative, Liberty's attorney proposed to Westfield's attorney that Westfield take sole responsibility for trying the case and for paying an adverse verdict, subject to the condition that Liberty tender $450,000 to Westfield or agree to pay the first $450,000 of any adverse judgment against Olson. Westfield's attorney declined this proposal. Liberty then settled Taylor's lawsuit against Olson for approximately $900,000, without any contribution from Westfield.

On June 17, 1994, Liberty wrote to Westfield and asked it to reimburse Liberty for one-half of the settlement costs. On August 1, 1994, Liberty wrote to Westfield again requesting Westfield to pay 50% of the settlement and informing Westfield that defense costs were in excess of $100,000 and that Liberty expected payment of 50% of those costs. On November 13, 1994, Liberty wrote to Westfield again requesting Westfield to pay 50% of the defense costs, which were calculated to be $54,941.82.

On March 7, 1995, Liberty filed a declaratory judgment action against Westfield seeking equitable contribution for half of the cost of defending and settling the Taylor suit, reimbursement of the settlement, and defense costs. On June 3, 1996, Liberty filed a motion for summary judgment and for penalties and fees. Liberty claimed in its motion that Westfield was estopped from contesting the reasonableness of Liberty's settlement, because Westfield had breached its duty to defend Olson. On September 26, 1996, the trial court granted Liberty's motion, but rejected Liberty's contention that Westfield had breached its duty to defend. The trial court also found that Westfield's refusal to reimburse defense costs merited sanctions. On October 18, 1996, Westfield filed a motion to vacate the summary judgment, contending that absent an estoppel, there was no basis for the judgment, because Liberty had not proven the facts necessary to Taylor's recovery or the reasonableness of the settlement. The trial court granted that motion on January 10, 1997, granting Liberty leave to file a second motion for summary judgment addressing the elements of equitable contribution. On January 21, 1997, Liberty again moved for summary judgment, contending that Westfield waived its right to contest the reasonableness of the settlement by failing to either settle or try the case. The trial court granted the motion, finding that Olson's liability to Taylor arose out of Rivard's work as a matter of law and ...


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