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Bituminous Casualty Corporation v. Royal Insurance Company of America

November 25, 1998

BITUMINOUS CASUALTY CORPORATION, PLAINTIFF-APPELLEE,
v.
ROYAL INSURANCE COMPANY OF AMERICA, DEFENDANT-APPELLANT.



Appeal from the Circuit Court of the 14th Judicial Circuit, Rock Island County, Illinois, No. 96--L--210 Honorable Ronald C. Taber, Judge, Presiding.

The opinion of the court was delivered by: Justice Slater delivered the opinion of the court.

Shortly after settling an underlying personal injuries claim against Johnson Construction, Bituminous Casualty Corporation brought suit against Royal Insurance Company in an attempt to recover half the settlement monies expended. On cross-motions for summary judgment, the trial court determined that Bituminous was entitled to contribution and ordered Royal to pay $26,251.34. Royal appeals, contending that its obligation to defend and indemnify Johnson Construction was excused by the targeted tender to Bituminous.

FACTS

Glenn H. Johnson Construction Company was the general contractor responsible for constructing an Eagle Food store in Jacksonville, Illinois. Johnson Construction maintained a general liability insurance policy issued by Royal Insurance that provided coverage for the construction project.

Johnson Construction hired Builders Sales and Service, Inc. as a subcontractor. The subcontract agreement required that Johnson Construction be named as an additional insured on Builders Sales' general liability policy from Bituminous Casualty Corporation and that Bituminous handle any claims arising out of work performed by the subcontractor. This procedure of shifting the risk to the subcontractor's insurance allowed Johnson Construction to minimize its own loss history and to maintain lower premiums. For the relevant time period, Johnson Construction was listed as an additional insured on the Bituminous policy.

David Peterman, an employee of Builders Sales and a plaintiff in the underlying personal injuries suit against Johnson Construction, sought damages resulting from alleged injuries sustained by Peterman while working at the construction site.

Sheroll Ritchie, controller and secretary of Johnson Construction, testified that she notified both Royal and Bituminous of Peterman's claim. However, Ritchie advised Royal that it was Johnson Construction's intent to look solely to Bituminous to defend against Peterman's claim. When Peterman's suit was filed, Ritchie tendered the defense of the lawsuit to Bituminous to act as Johnson Construction's sole primary carrier. Royal Insurance was to remain on notice as excess carrier only. Despite Johnson Construction's expressed desire that Bituminous provide exclusive coverage, Bituminous repeatedly requested Royal to participate in the defense and indemnity of the Peterman lawsuit. Royal refused.

Bituminous retained counsel on behalf of Johnson Construction and worked out a settlement agreement with Peterman. Upon completion of the settlement, Bituminous filed its complaint against Royal seeking one-half the amount it expended to defend and indemnify Johnson Construction. Bituminous claimed it was entitled to contribution from Royal based on principles of equity and subrogation.

The trial court agreed that Royal was obliged to contribute to the Peterman settlement but reached this Conclusion based only on a construction of the language in the Bituminous policy. The trial court acknowledged an insured's right to select exclusive coverage from one of its insurers, but found, based on a construction of the "transfer of rights" clause, that Johnson Construction unambiguously assigned to Bituminous its right to choose between two primary insurers. Thus, Bituminous had the right to trigger coverage from Royal and give effect to the "other insurance" clauses of both policies.

On cross-motions for summary judgment, the trial court found in favor of Bituminous and entered judgment against Royal in the amount of $26,251.34. On appeal, Royal contends the trial court erred in construing the "transfer of rights" clause and asks us to reverse the judgment of the trial court. It is well settled that appellate review of an order granting summary judgment is de novo. Village of Hoffman Estates v. Cincinnati Insurance Co., 283 Ill. App. 3d 1011, 670 N.E.2d 874 (1996).

ANALYSIS

A. Right to Select Exclusive Coverage

In essence, the issue on appeal is the scope of an insured's right to elect exclusive coverage from one of its insurers by tendering the defense and indemnity of a claim to one insurer and not the other, and thereby foreclose the settling insurer from obtaining contribution from the non-settling insurer. Royal contends that an insured has the right to select exclusive coverage and that such election can foreclose an insurer's right to contribution. Bituminous argues that its right to equitable contribution cannot be disclaimed by the insured in an attempt to elect exclusive coverage, and further, contends that an insured's right to select can be affected by operation of various clauses in the insurance policy, namely the "other insurance" clause and the "transfer of rights" clause.

The apparent conflict between the insured's right to elect and the insurer's right to equitable contribution has already been addressed and settled in favor of the insured in Institute of London Underwriters v. Hartford Fire Insurance Co., 234 Ill. App. 3d 70, 599 N.E.2d 1311 (1992). The facts of Institute are strikingly similar to the instant case. In Institute, Great Lakes was insured by Hartford and was an additional insured under Institute's policy. A law suit was filed against Great Lakes and Great Lakes tendered the defense exclusively to Institute. Great Lakes notified Hartford of the claim but unequivocally instructed Hartford not to respond to the claim. Instead, Great Lakes ...


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