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American National Fire Insurance Co. v. National Union Fire Insurance Company of Pettsburgh

September 5, 2003


Appeal from the Circuit Court of Cook County. No. 98 CH 3863 Honorable Stephen A. Schiller, Judge Presiding.

The opinion of the court was delivered by: Justice Reid


In this matter, the trial court denied appellant American National Fire Insurance Co.'s (American) motion for summary judgment and granted appellee, National Union Fire Insurance Company of Pittsburgh, PA.'s (National) cross-motion for summary judgment. On appeal, American argues that the trial court erred when it determined that National was not required to provide coverage under the insurance policy at issue because it received late notice and, as a consequence, did not owe anything to American for the costs of the defense and settlement of the underlying litigation. For the reasons that follow, we affirm the trial court's decision.


Camosy, Inc. (Camosy), was the general contractor on a Federal Aviation Administration construction project (the Tracon Facility job), in Elgin, Illinois. On February 5, 1993, Camosy entered into a contract with Zalk-Josephs Fabricators, Inc. (Zalk-Josephs), in which Zalk-Josephs agreed to act as a subcontractor to Camosy for the Tracon Facility job. The subcontract agreement required Zalk-Josephs to procure and maintain insurance coverage including a general liability policy, with Camosy as an additional insured. In accordance with the agreement, Zalk-Josephs procured general liability coverage from National with Camosy as an additional insured. Camosy was subsequently provided with a certificate of insurance regarding this policy.

Thereafter, Zalk-Josephs subcontracted part of the Tracon Facility job to Area Erectors, Inc. (Area Erectors). American provided general liability insurance to Area Erectors. Camosy and Zalk-Josephs qualified as additional insureds under the American policy.

On September 9, 1993, an employee of Area Erectors, Maximo Gonzalez, was injured while working at the Tracon Facility jobsite. On January 13, 1995, Gonzalez filed suit against Camosy seeking damages for his injuries. Gonzalez alleged that he was injured as a result of Camosy's: (1) violation of the Structural Work Act (740 ILCS 150/1 et seq. (West 1994)) and (2) negligence. On May 20, 1996, Gonzalez amended his complaint to add Zalk-Josephs as a defendant.

There were subsequent "targeted tenders" and/or attempted "targeted tenders" downstream to both National and American. Camosy reported the Gonzalez lawsuit to its insurer, Continental Loss Adjusting (Continental). In a letter dated February 3, 1995, Continental advised Zalk-Josephs that it wished to tender Camosy's defense in the Gonzalez lawsuit to Zalk-Josephs' insurer, National. In a letter dated February 6, 1995, Zalk-Josephs informed Continental that it was declining Continental's request. Zalk-Josephs explained that it was making this decision: (1) as a result of the decision reached in Institute of London Underwriters v. Hartford Fire Insurance Co., 234 Ill. App. 3d 70 (1992), (2) because it desired that the National policy "not be impaired" and (3) due to its expectation that American would defend and indemnify Camosy. Zalk-Josephs then tendered its defense along with Camosy's to American.

Initially, American refused Camosy's tender of defense as made by Zalk-Josephs. Thereafter, Camosy requested coverage from American on its own behalf. Subsequently, American agreed to provide coverage and assumed Camosy's defense.

Although American had accepted Camosy's tender of defense, Camosy continued to communicate with Zalk-Josephs regarding its initial desire that its defense be tendered to National. In a letter dated December 12, 1997, counsel for Camosy requested that Zalk-Josephs answer the following questions: (1) whether Camosy had coverage with National and (2) assuming that Camosy was covered by National, why National had refused to tender a defense to Camosy. On January 7, 1998, Continental also sent similar correspondence to Zalk-Josephs. Zalk-Josephs did not respond to either letter. At no time did Camosy make a direct "targeted tender" to National prior to this lawsuit being filed.

On March 25, 1998, Camosy filed a complaint for declaratory judgment against both Zalk-Josephs and National. In the complaint, Camosy sought a determination that: (1) National owed a duty to defend and indemnify it with regards to the Gonzalez suit or, in the alternative, (2) Zalk-Josephs was in breach of its contractual obligation to provide it with insurance coverage.

On May 5, 1998, American, as the insurer for Camosy and Zalk-Josephs, settled the Gonzalez suit. Thereafter, on October 13, 1998, American, individually and as the subrogee of Camosy, filed an amended complaint for declaratory judgment against National. In the complaint, American sought to be reimbursed for the costs it incurred regarding the Gonzalez suit. American alleged that it: (1) was subrogated to Camosy's rights and that National owed a duty to defend and indemnify Camosy with respect to the Gonzales suit or, in the alternative, (2) that it had a right to recover based on the doctrine of equitable contribution. On July 11, 2001, American filed a motion for summary judgment. National then filed a cross-motion for summary judgment on July 16, 2001. On September 28, 2001, the trial court granted National's cross-motion for summary judgment and denied American's motion.

The issues presented in this case are whether: (1) the trial court correctly granted summary judgment when it determined that National did not receive proper notice of the Gonzalez suit and therefore was not required to provide coverage to Camosy, as an additional insured, under Zalk-Josephs' insurance policy, (2) Camosy made a timely "targeted tender" to National by notifying Zalk-Josephs of its intentions and (3) the self-insured retention (SIR) endorsement in National's insurance policy applies to Camosy.



Summary judgment is proper where the pleadings, depositions, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law. 735 ILCS 5/2-1005(c)(West 2000); Travelers Insurance Co. v. Eljer Manufacturing, Inc., 197 Ill. 2d 278, 292 (2001). In appeals from summary judgment rulings, our review is de novo. Travelers, 197 Ill. 2d at 292.

National contends the trial court's decision to grant its cross-motion for summary judgment is proper. Relying on the decision reached in Institute of London, National maintains that an insured has the right to elect which of its insurers will defend it in a lawsuit. National asserts that Zalk-Josephs was the named insured under National's policy and was an additional insured under American's policy. Accordingly, National argues that Zalk-Josephs had the right to make a "targeted tender" and thereby select which insurer it desired to defend and indemnify it in the Gonzalez suit.

National avers that when an insured makes this designation, the selected insurer is then precluded from being reimbursed by the other insurers for its costs under a theory of equitable contribution. The right to equitable contribution arises when one insurer pays money for the benefit of another insurer. Royal Globe Insurance Co. v. Aetna Insurance Co., 82 Ill. App. 3d 1003, 1006 (1980). The doctrine of equitable contribution permits an insurer that has paid the entire loss to be reimbursed by other insurers that are also liable for the loss. Liberty Mutual Insurance Co. v. Westfield Insurance Co., 301 Ill. App. 3d 49, 52 (1998).

Relying further on the rationale of Institute of London, National also maintains that Zalk-Josephs had the right to preserve its coverage with National by "downstreaming" Camosy's tender of defense to American. Consequently, National contends that it is not required to reimburse American since Zalk-Josephs and Camosy made "targeted tenders" of their defenses solely to American.

In Institute of London, the court was faced with the question of when two insurance policies potentially apply to a loss, may an insured elect which of its insurers is to defend and indemnify the claim by tendering its defense to one insurer and not the other and thereby foreclose the settling insurer from obtaining contribution from the non-settling insurer?

The undisputed facts in Institute of London revealed that Hartford Fire Insurance Company (Hartford) provided comprehensive liability insurance to Great Lakes Towing Company (Great Lakes). Great Lakes employed Thatcher Engineering Corporation (Thatcher) to perform repairs on its premises. The agreement between the parties required Thatcher to have Great Lakes named as an additional insured on Thatcher's liability insurance policy. Accordingly, Thatcher caused Great Lakes to be named as an additional insured on its insurance policy with the Institute of London Underwriters (Institute). The Hartford policy contained an "other insurance" clause which required Hartford to contribute equally to any loss covered by another primary insurer, while Institute's policy did not. Institute of London, 234 Ill. App. 3d at 71.

Thereafter, a Thatcher employee was killed while working on the project for Great Lakes. His representative brought suit against Great Lakes. Great Lakes then tendered its defense to Institute. Great Lakes also notified its insurer, Hartford, of the suit but never requested that Hartford defend or indemnify it. Instead, Great Lakes preferred that Institute incur the costs for its defense and indemnification. Institute of London, 234 Ill. App. 3d at 71-72.

A settlement in the suit was reached and Institute, without Great Lakes' instruction or authorization, requested that Hartford contribute half of the settlement. Hartford, as requested by Great Lakes, refused. On appeal, Hartford argued that equitable contribution did not apply because Great Lakes never tendered its defense to Hartford and Great Lakes never requested that Hartford defend or indemnify the claim. Institute of London, 234 Ill. App. 3d at 73.

The Institute of London court determined that Illinois law requires a tender of defense by a sophisticated insured to an insurer before the insurer is required to defend or indemnify a claim. Institute of London, 234 Ill. App. 3d at 76. The court also found that an insured has the right to choose which policy will apply. Institute of London, 234 Ill. App. 3d at 76. In reaching this decision, the court stated:

"In the case before us the only request for Hartford's participation came from the Institute, not the insured, ***. *** Hartford was asked only to contribute to a settlement, not defend the suit. Therefore, in this case, * * * the insured's refusal or failure to tender the defense of the action to Hartford excused Hartford's duty to perform under its policy or to contribute to a settlement procured by a co-insurer." Institute of London, 234 Ill. App. 3d at 76.

In recognizing an insured's right to choose between two insurers whose policies provide potential coverage, the court noted that Great Lakes had bargained for coverage under Institute's policy procured by Thatcher. In that regard the court stated:

"Great Lakes had bargained with Thatcher to be an additional insured in its liability policy for the construction project Thatcher was to perform on Great Lakes' premises. Great Lakes did not tender its defense to Hartford because it concluded it was not responsible for the accident resulting in the death of Thatcher's employee, Garcia, and that Thatcher's insurer, the Institute, was the appropriate carrier to respond to the Garcia claim. Great Lakes may well have feared that if the loss were attributed to its policy with Hartford the result might be a rise in premiums or cancellation of its policy. This factor alone suggests the insured ought to have the right to seek or not to seek an insurer's participation in a claim as the insured chooses when more than one carrier's policy covers the loss." Institute of London, 234 Ill. App. 3d at 78-79.

In Cincinnati Cos. v. West American Insurance Co., 183 Ill. 2d 317, 324 (1998), the court considered what is necessary to trigger an insurer's duty to defend and held that the duty arises with actual notice of a claim against an insured, regardless of the insured's level of sophistication. In reaching that result, the court, relying on Institute of London, stated:

"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 rule is intended to protect the insured's right to knowingly forgo an insurer's involvement. Institute of London, 234 Ill. App. 3d at 79." Cincinnati, 183 Ill. 2d at 324.

The Cincinnati court concluded that "an insured may knowingly forgo the insurer's assistance by instructing the insurer not to involve itself in the litigation. The insurer would then be relieved of its obligation to the insured with regard to that claim." Cincinnati, 183 Ill. 2d at 326.

Subsequently, in John Burns Construction Co. v. Indiana Insurance Co., 189 Ill. 2d 570 (2000), the court was faced with a similar question. There, the appellant, John Burns Construction Company (Burns), entered into a subcontract with Sal Barba Asphalt Paving, Inc. (Barba), to pave a parking lot. The subcontract required Barba to maintain liability insurance for Burns. Pursuant to the contract, Barba had Burns added as an additional insured to its policy with its insurer, Indiana Insurance Company (Indiana). An individual subsequently fell in the aforementioned parking lot and alleged ...

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