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Pekin Insurance Co. v. Pulte Home Corp.

November 04, 2003

PEKIN INSURANCE COMPANY, PLAINTIFF-APPELLEE AND CROSS-APPELLANT,
v.
PULTE HOME CORPORATION, DEFENDANT-APPELLANT AND CROSS-APPELLEE (KEVIN P. BROCKMAN, PLAINTIFF).



Appeal from the Circuit Court of Cook County No. 00 CH 15248 Honorable Nancy J. Arnold, Judge Presiding.

The opinion of the court was delivered by: Justice Cahill

UNPUBLISHED

We review a declaratory judgment action of some procedural complexity in which an insurer challenged its duty both to defend and indemnify an additional insured under the insurer's policy. The dispute generated two appeals. In the first, decided February 23, 2000, we affirmed a trial court finding that the insurer's reservation of rights letter was defective and waived the insurer's right to contest a duty to defend. Pekin Insurance Company v. Pulte Home Corporation, No. 1-99-1128 (2000) (unpublished order under Supreme Court Rule 23) (Pekin I).

The second (and present) appeal asks us to decide the impact of Pekin I on the insurer's duty to defend a refiled complaint. We must also consider whether the trial court may go beyond the allegations of an underlying complaint to decide whether an additional insured's potential imputed liability triggered the insurer's duty to indemnify under the additional insured endorsement. We conclude that our ruling in Pekin I, that the insurer waived the right to contest its duty to defend, is the law of the case and precludes relitigation of the issue in subsequent litigation involving identical parties. We also conclude that, since the issue of imputed liability would not and could not have been litigated in the underlying action, the trial court must go beyond the allegations of the underlying complaint to address the question of indemnity. We reverse the trial court's ruling that the insurer had no duty to defend or indemnify the additional insured based on the allegations of the refiled complaint. We remand for consideration of the indemnity issue. We do not reach the trial court's denial of Pekin's defense costs in light of our finding that Pekin had a duty to defend.

Kevin Brockman, the underlying plaintiff, was injured in a construction accident on February 23, 1994. Brockman was an employee of a subcontractor, S&M Exteriors. Pulte was the project's general contractor. The contract between Pulte and S&M required that Pulte be named as an additional insured under S&M's policy. S&M was insured by Pekin. Pekin issued an additional insured endorsement that covered Pulte, but only to the extent that Pulte's liability could be imputed to S&M. The endorsement read:

"WHO IS AN INSURED is amended to include as an insured the person or organization shown in the Schedule as an additional insured. That entity shall be covered for all liability for bodily injury, property damage or death that are imputed to it as a result of your actions or conduct on this policy."
Brockman filed a two-count complaint only against Pulte on February 16, 1996. The complaint alleged common law negligence and violations of the Structural Work Act (the Act) (740 ILCS 150/1 et seq. (West 1994)). S&M was not named in the complaint. Pulte tendered the defense of the Brockman suit to Pekin on March 21, 1996. Pekin accepted the tender under a reservation of rights in a letter sent to Pulte on May 20, 1996. Pulte filed a third-party complaint against S&M on June 11, 1997. S&M was defaulted on December 5, 1997, for failure to appear or answer the third-party complaint.

Pekin filed a complaint for declaratory judgment on December 9, 1996, seeking a declaration that it had no duty to defend or indemnify Pulte under the additional insured endorsement. The trial court found that Pekin's May 20, 1996, reservation of rights letter applied only to the duty to indemnify and waived the right to contest the duty to defend. We affirmed this ruling in Pekin I, slip op. at 5-6.

Brockman voluntarily dismissed the underlying complaint on August 18, 1999, while Pekin I was pending on appeal. Brockman then refiled an identical complaint on September 3, 1999. Pulte retendered the defense of the 1999 complaint to Pekin on August 29, 2000. Pekin responded with a second reservation of rights letter on September 22, 2000, in which Pekin clearly reserved its right to deny a defense and indemnity to Pulte. Pekin followed this up with a second complaint for declaratory judgment. This complaint, in keeping with the second reservation of rights letter, sought a declaration that Pekin was not obligated to defend or indemnify Pulte against the 1999 Brockman complaint.

The underlying 1999 Brockman lawsuit was tried on January 8 and 9, 2001. Pekin provided a defense. After a bench trial, the judge entered an order in Brockman's favor and awarded $197,481 in damages on January 16, 2001. Pekin then filed an amended complaint in its pending action for declaratory judgment.

On February 6, 2001, Pulte filed an amended motion to dismiss the declaratory judgment action under section 2-619(a)(4) of the Code of Civil Procedure (the Code) (735 ILCS 5/2-619(a)(4) (West 2000)). The motion sought to dismiss part of Pekin's complaint that sought a declaration that Pekin had no duty to defend Brockman's lawsuit. The motion was based on and cited to our holding in Pekin I that Pekin had waived the right to contest its duty to defend. Pekin I, slip op. at 5-6. The trial court denied the motion on June 6, 2001. The trial court found that the refiled Brockman complaint in 1999 was a new action in which Pekin could reassert its reservation of rights to defend.

The parties then filed cross-motions for summary judgment. On January 15, 2002, the trial court entered an order denying Pulte's motion for summary judgment and granting Pekin's cross-motion. The trial court found that Pekin had no duty either to defend or indemnify Pulte against the 1999 Brockman complaint under the additional insured endorsement. But Pekin's request for reimbursement of defense costs was denied in the same order, without explanation.

Pulte then filed a timely appeal, arguing that the trial court erred in denying its section 2-619(a)(4) motion to dismiss based on our ruling in Pekin I. Pulte also argues that there is an issue of fact as to whether Pekin had a duty to indemnify under the additional insured endorsement. Pekin cross-appeals the denial of defense cost reimbursement.

Our review on appeal extends to both the January 15, 2002, summary judgment order and the June 6, 2001, order denying Pulte's section 2-619(a)(4) motion to dismiss. An appeal from a final judgment draws into question all earlier non-final orders that produced the judgment. Burtell v. First Charter Service Corp., 76 Ill. 2d 427, 433, 394 N.E.2d 580 (1979); Hough v. Kalousek, 279 Ill. App. 3d 855, 863-64, 665 N.E.2d 433 (1996).

We first consider what impact our ruling in Pekin I has on this appeal. Pulte argues that our ruling in Pekin I estops Pekin from contesting its duty to defend Pulte against the refiled 1999 complaint. Pekin responds that the voluntary dismissal of the first complaint extinguished its duty to defend. That duty arose out of a defective reservation of rights letter written in response to the first complaint. The later refiling, Pekin asserts, is a ...


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