Appeal from the Circuit Court of Cook County. Honorable Albert Green, Judge Presiding.
The opinion of the court was delivered by: Justice Hartman
Two insurance carriers dispute the extent of insurance coverage provided by defendant Illinois National Insurance Company (Illinois National), an Illinois insurance corporation, for claims arising out of an accident involving their insureds' garbage truck and an automobile. After the underlying lawsuit was settled, plaintiff RLI Insurance Company (RLI), also an Illinois insurance corporation, sought a declaratory judgment and entry of a monetary judgment, alleging Illinois National was obligated to reimburse RLI in an amount up to and including $1.6 million which RLI had paid under Illinois National's coverages in settlement of the underlying claims. RLI and Illinois National cross-moved for summary judgment, which the circuit court granted partially in favor of RLI and partially in favor of Illinois National. Illinois National appeals and RLI cross-appeals.
The issues presented include whether (1) Illinois National unqualifiedly accepted responsibility of coverage for its insureds under its commercial general liability policy (CGL) through settlement under that policy; (2) Illinois National's separate payment of its settlement commitment under its business auto policy (BA) justifies its repudiation of coverage provided by its CGL policy; and (3) the "aggregate maximum limit" contained in Illinois National's BA policy, but not in Illinois National's CGL policy limits its obligation under its CGL policy. On cross-appeal the issues raised include whether (1) the "anti-stacking" provision of Illinois National's BA policy applies to these circumstances; and (2) Illinois National's BA policy concerning underinsured motorists (UIM) is in harmony with Illinois law.
On January 24, 1991, Michael Schneider, an employee of Haulaway, Inc. (Haulaway), was loading garbage into the back of a garbage truck when Hyang W. Yoo drove her car into Schneider, pinning him between the two vehicles. Schneider suffered serious injuries and sought recovery from numerous defendants, including Yoo, C. Groot Automatic Disposal Company, Inc. (Groot Automatic Disposal), which owned the garbage truck involved in the accident, and Groot Industries, Inc., (Groot Industries) (collectively, the Groot defendants) the parent company of Haulaway and Groot Automatic Disposal, its wholly-owned subsidiaries. *fn1
On the date of Schneider's accident, Groot defendants and Haulaway were named insureds under two insurance policies issued by Illinois National and an umbrella policy issued by RLI.
Illinois National's CGL policy provided insureds with liability insurance limits in the amount of $1 million per occurrence, but contained an exclusion for "'bodily injury' or 'property damage' arising out of the ownership, maintenance, use or entrustment to others of any *** 'auto' *** owned or operated by or rented or loaned to any insured. Use includes operation and 'loading or unloading.'" *fn2 Illinois National's BA policy provided insureds with automobile liability coverage limits in the amount of $1 million "for any one accident or loss." An "anti-stacking clause" in the BA policy limited coverage when other policies or coverages provided by Illinois National applied to the same accident, *fn3 but did not take effect when any coverage form or policy issued by Illinois National or an affiliated company specifically applies as excess insurance over the BA coverage form.
The BA policy also provided uninsured motorist (UM) coverage in the amount of $1 million upon occurrence of "'bodily injury' sustained by the 'insured' caused by an 'accident.'" *fn4 Any amount payable under the UM coverage, however, could be reduced by "[a]ll sums paid or payable under any workers' compensation, disability benefits or similar law" and "[a]ll sums paid by or for anyone who is legally responsible, including all sums paid under this Coverage Form's Liability Coverage."
RLI's umbrella policy provided insureds with liability coverage in the amount of $5 million per occurrence subject to a schedule of underlying insurance including Illinois National's CGL and BA policies. The RLI coverage had an automobile liability limitation which provided that it did not apply to the ownership, maintenance or use of a vehicle except as insofar as such coverage was provided by the underlying policies. *fn5
A letter dated September 3, 1992, from Marvin L. Donaldson, litigation specialist for American International Adjustment Company, Inc., informed Groot Industries that it received Schneider's summons and complaint and that Illinois National provides bodily injury and property damage coverage in the amount of $1 million. Also in the letter, Donaldson assigned attorneys for the defense of the lawsuit and advised of the existence of certain coverage questions and the Groot defendants' need to retain personal counsel due to the possibility of judgment in excess of liability coverage. The letter further stated that "[i]n the absence of any reply *** we will assume you will not have your own personal attorney participate, and we will proceed accordingly in the defense of this suit." The letter made reference to Illinois National's CGL policy, but not the BA policy.
In a letter dated September 29, 1992, Rick Dikeman, an RLI claims examiner, informed Groot Industries that it was reserving RLI's rights and defenses under its umbrella policy because the policy contained an automobile liability exclusion. *fn6
Susan Warnke was an AIG Claim Services, Inc. (AIG) claims representative who held primary responsibility for the Schneider claims. AIG represented Illinois National in connection with the Schneider lawsuit. Warnke testified by deposition that on November 23, 1993, she completed an internal coverage analysis for the Schneider matter. The coverage analysis listed Illinois National's CGL policy number for the Groot defendants. Warnke noted the potential for "excess exposure" and specifically found that the action was covered under the CGL policy and that the automobile exception would not apply because the vehicle was not operated by the insureds. Warnke indicated the automobile exclusion would not apply in order for auditors to see why Illinois National decided to handle the claim under the CGL policy. Warnke insisted in her testimony that technically, both the CGL and BA policies could not apply to the Schneider lawsuit because of the CGL policy's automobile exception and the BA policy's lack of coverage for product liability claims. Nevertheless, Warnke concluded on the coverage analysis form that there were no coverage problems.
On November 2, 1994, Warnke authored a "high cost narrative update" memorandum in which she stated she "sent the excess carrier an update as we expect the initial demand will be in the are[a] of $6,000,000 and we estimate our contribution may be as high as 1/3." Warnke testified that her memorandum was ambiguous and that she did not know whether she was referring to "'we' as the insured or 'we' as the carrier."
In the "Director's Evaluation Report," a summary of basic information on the Schneider claim, Warnke left blank an area of the form indicating whether a reservation of rights by Illinois National was required. The report, dated November 7, 1994, stated that copies of the policies were received and reviewed. The report further noted that after a conference with Warnke's supervisor, Richard Palatine, both confirmed coverage under the CGL policy "as the insured was not operating the vehicle at the time of loss." In addition, the report did not make a distinction between the liability theories of Groot Industries and Groot Automatic Disposal.
On February 3, 1995, Warnke received a letter from Robert Bright, director of claims litigation for RLI, which acknowledged Warnke's receipt of $1 million in settlement authority under the CGL policy, but questioned her determination that Illinois National's BA Policy did not apply. Bright noted that "[t]here appears [sic] to be allegations which involve both policies" in that "[t]he allegations against Groot Disposal appear to primarily arise from the ownership, maintenance and use of a covered vehicle," while "[t]he allegations against Groot Industries primarily concern supervision and design of the vehicle." Bright also acknowledged the potential for the RLI umbrella policy to be directly involved with the Schneider claim and recommended that Warnke refer the defense of the matter to RLI's trial counsel. *fn7
A second letter from Bright to Warnke, dated February 23, 1995, continued to disagree with Warnke's analysis of the potential application of Illinois National's CGL policy and BA policy because the liability theories as to Groot Automatic Disposal appeared to fit within the BA policy while the liability theories as to Groot Industries appeared to fit within the CGL policy. Bright also questioned whether a provision in the BA policy could limit coverage under the CGL policy.
In a May 18, 1995 letter directed to Bright and Lawrence K. Rynning, RLI's defense counsel, Warnke stated that the CGL policy did not apply at all because it excluded liability "arising out of the ownership, maintenance, use or entrustment to others of any *** 'auto' *** owned or operated by or rented *** to any insured." Warnke gave as another reason the CGL policy did not apply was that "[i]f we were providing coverage under one coverage form or policy [the BA policy], the anti-stacking provisions of the policy would prevent it from being covered under the general liability policy." Notwithstanding this change in theory, ...