Appeal from the Circuit Court of Cook County No. 97 CH 9629 Honorable Ronald C. Riley, Judge Presiding
The opinion of the court was delivered by: Justice McBRIDE
This appeal arises from a declaratory judgment action filed by plaintiff-appellant, the Home Insurance Company (Home). In the trial court, Home, among other things, sought a declaration that defendant-appellee, United States Fidelity and Guaranty Company (USF&G), had a duty to defend Prestress Engineering Corporation (PEC) in a wrongful death action. The action, Pavesich v. Prestress (the underlying action), was filed in the circuit court of Cook County on June 21, 1993. USF&G moved to dismiss Home's declaratory judgment complaint. Based upon an agreed order, USF&G voluntarily withdrew its motion to dismiss and Home filed an amended declaratory judgment complaint. USF&G answered Home's amended complaint raising two affirmative defenses, the defense of late tender and a breach of the cooperation clause in the USF&G insurance policy. Home filed a motion to strike the affirmative defenses, which was denied by the trial court on June 10, 1998. On July 7, 1998, Home filed a second amended complaint for declaratory judgment, which was answered by USF&G accompanied by the same two affirmative defenses referred to above. Home moved for summary judgment on counts V and VI of its second amended complaint on December 21, 1998. USF&G responded by filing its own cross-motion for summary judgment which, by stipulation, sought only a declaration that USF&G had no duty to defend PEC. On June 28, 1999, the trial court found that USF&G had no duty to defend PEC in the underlying action. Thus, USF&G's cross-motion for summary judgment was granted and Home's motion for summary judgment was denied. Home appeals the orders entered by the trial court on June 10, 1998, and on June 28, 1999.
The threshold question to be decided on appeal is whether the trial court erred in granting USF&G's cross-motion for summary judgment and in denying Home's motion for summary judgment on the basis that USF&G had no duty to defend PEC in the underlying action. The other question posed by this appeal is whether the trial court properly denied Home's motion to strike USF&G's affirmative defenses.
Our standard of review for summary judgment is de novo. Espinoza v. Elgin, Joliet & Eastern Ry. Co., 165 Ill. 2d 107, 113-14, 649 N.E.2d 1323 (1995). With this standard in place, we set out those facts that are relevant in disposing of this appeal.
In the underlying action, a fourth amended complaint (underlying complaint) was filed by Michele Pavesich, independent administrator of the estate of Gregory Pavesich, deceased, on March 11, 1997. The underlying complaint alleged that Mellon-Stuart Construction, Inc. (Mellon), was the general contractor for reconstructing the Bensenville Bridge, which is located over Interstate 294, pursuant to a contract with the Illinois State Toll Highway Authority. Mellon allegedly entered into an agreement with PEC whereby PEC would manufacture and deliver prestressed precast concrete beams for use in reconstructing the Bensenville Bridge.
PEC allegedly contracted with A&M Cartage of Tinley Park, Inc. (A&M), "and/or" Tri Sons Transportation, Inc. (Tri Sons), where A&M "and/or" Tri Sons was to provide drivers with tractors to haul the concrete beams from the PEC plant to the Bensenville Bridge jobsite. It was further alleged that A&M "and/or" Tri Sons contracted with Transmedical, Inc. (Transmedical), where Transmedical was to supply the drivers who would haul the beams from PEC's facility to the bridge project.
Pavesich was a semi tractor-trailer operator employed by Transmedical. On May 21, 1992, he was killed when a 96,000-pound concrete beam he was hauling dislodged from its trailer moorings and crashed through the operator's cab, resulting in his death. The concrete beam, allegedly known as beam H-12, and the truck's trailer were both manufactured by PEC.
At the time of his death, Pavesich was alleged to have been in the scope of his employment when he was transporting the concrete beam from PEC's manufacturing plant to the bridge project. The underlying complaint specifically alleged that Pavesich was killed when the rear wheels of his truck ascended onto the curb at the intersection of Williams and Franklin, Franklin Park, Cook County, Illinois. Such activity caused the concrete beam to become dislodged and to crush the operator's cab, which resulted in his death. The underlying complaint named PEC, Tri Sons, and A&M as defendants in the underlying action. PEC was alleged to have been the supplier and the designer of the trailer used by Pavesich for hauling the concrete beam to the bridge project. A&M "and/or" Tri Sons was alleged to have provided the operator's cab or tractor which Pavesich was operating on the day he was killed.
Home underwrote an insurance policy, policy number BAF5664366, a/k/a BAF566436 (Home Policy), naming "E.M. Melahn Constr[u]ction Co." as its named insured. The Home Policy was effective for the period of April, 1, 1992, through April 1, 1993. A review of the record does not reveal that PEC is an insured or even referred to in the Home Policy. However, the parties do not dispute the fact that PEC is an insured under the Home Policy. USF&G issued Tri Sons a truckers policy, policy number KTP176610 (USF&G Policy), effective for the period of April 14, 1992, to April 14, 1993.
In a letter dated, July 11, 1997, counsel for PEC in the underlying action notified USF&G of the lawsuit and tendered PEC's defense to USF&G. USF&G admitted in its answer to Home's interrogatories that it had been on notice of the underlying action since June 21, 1993, the date the underlying action was filed. The tender letter stated, among other things, that USF&G had a duty to defend PEC and that a conflict of interest existed between the positions of PEC and A&M and/or Tri Sons because the underlying complaint alleged liability against both PEC and Tri Sons for hauling the subject beam. Since USF&G was "precluded" from controlling PEC's defense, the letter further demanded that USF&G secure independent counsel for PEC due to the conflict of interest and also that USF&G provide indemnification for PEC in the underlying action. USF&G responded by denying coverage in a letter written by USF&G's counsel dated August 12, 1997. In the letter, coverage was denied by USF&G on several grounds. First, USF&G asserted that PEC was not an insured under its policy. Second, in the event PEC was an insured under the USF&G Policy, the allegations in the underlying complaint did not invoke coverage. Third, in the event coverage was invoked, its insurance was excess over the coverage provided PEC in the Home Policy. Fourth, PEC's failure to tender the suit for four years constituted a late tender which breached the cooperation clause in the USF&G Policy. Finally, counsel for USF&G stated that, in the event PEC disputed the denial of coverage, counsel was authorized to file a declaratory judgment action on behalf of USF&G so as to "judicially relieve it of any legal responsibility" to PEC in the underlying action.
In apparent anticipation of a denial letter from USF&G, Home filed a declaratory judgment action in the trial court naming USF&G and the Pavesich estate as defendants on August 1, 1997. In response, USF&G filed a motion to dismiss on the basis that Home lacked standing to seek a declaration as to USF&G's obligations to PEC because Home had not yet indemnified PEC in the underlying action. Home settled the underlying action via a settlement agreement that was executed on October 22, 1997. USF&G subsequently withdrew its motion to dismiss. By agreed order, Home was allowed leave to file an amended complaint for declaratory judgment and to dismiss the Pavesich estate as a defendant.
In the declaratory judgment action, Home filed a motion to strike USF&G's affirmative defenses which was denied by the trial court on June 10, 1998. On June 28, 1999, the trial court found that USF&G had no duty to defend PEC in the underlying action. Home appeals the orders entered by the trial court on June 10, 1998, and on June 28, 1999.
We now turn to the question of whether USF&G had a duty to defend in the underlying action. As noted above, Tri Sons is the named insured under the USF&G Policy. PEC is not a named insured and is not identified as an additional insured. Thus, we must determine whether PEC is an additional insured based upon the coverage language in the USF&G Policy. The applicable policy language states, in relevant part:
The following are 'insureds:'
a. The owner or anyone else from whom you hire or borrow a covered 'auto' that is a 'trailer' while the 'trailer' is connected to another covered 'auto' that is a power unit; or if not connected:
(1) is being used exclusively in your business as a 'trucker;' and
(2) is being used pursuant to operating rights granted to you by a public authority." (Emphasis added.)
The term "auto" is defined in the USF&G Policy as "a land motor vehicle, trailer or semitrailer designed for travel on public roads but does not include 'mobile equipment.'" Based on the above language, the specific question we must determine is whether Tri Sons hired or borrowed the trailer from PEC that was involved in Pavesich's death. The terms "hire" and "borrow" are not defined in the USF&G Policy and are subject to more than one interpretation. Thus, we must construe these terms in favor of the insured and against the insurer that drafted the policy. Outboard Marine Corp. v. Liberty Mutual Insurance Co., 154 Ill. 2d 90, 108-09, 607 N.E.2d 1204 (1992).
It is well-settled law in Illinois:
"In determining whether the insurer owes a duty to the insured to defend an action brought against him, it is the general rule that the allegations of the complaint determine the duty. If the complaint alleges facts within the coverage of the policy or potentially within the coverage of the policy the duty to defend has been established. [Citations.]" Maryland Casualty Co. v. Peppers, 64 Ill. 2d 187, 193-94, 355 N.E.2d 24 (1976).
In addition, "[r]efusal to defend is unjustifiable unless it is clear from the face of the underlying complaint that the facts alleged do not fall potentially within the policy's coverage." Outboard Marine, 154 Ill. 2d at 108. "The allegations in the underlying complaint must be liberally construed in favor of the insured." Outboard Marine, 154 Ill. 2d at 125.
In conformity with the above standards, we now examine the allegations relied upon by the parties in the underlying complaint, *fn1 in relevant part:
"16. Prior to May 21, 1992, Mellon entered into a contract with PEC which called for PEC to manufacture and to deliver prestressed precast concrete beams for use in the reconstruction of the Bensenville Bridge.
17. Prior to May 21, 1992, PEC entered into an agreement with A&M and/or Tri-Sons under which A&M and/or Tri-Sons were to provide drivers with tractors to haul the concrete beams from the Prestress plant to the Bensenville Bridge jobsite.
18. Prior to May 21, 1992, A&M and/or Tri-Sons entered into an agreement with Transmedical under which Transmedical was to supply the drivers who would haul the beams from ...