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American Country Insurance Co. v. James McHugh Construction Co.

December 04, 2003


Appeal from the Circuit Court of Cook County. No. 01 CH 61 Honorable Richard J. Billik, Jr., Judge Presiding.

The opinion of the court was delivered by: Justice Greiman


Defendants James McHugh Construction Co. and James McHugh Development Co. (collectively, McHugh) sought insurance coverage with plaintiff American Country Insurance Co. (American) for a bodily injury claim and lawsuit filed by Michael Marciano against McHugh for its alleged negligence. McHugh was the general contractor on a construction project and Spectrum Stone (Spectrum) was a subcontractor and Marciano's employer. Marciano was injured as a result of his employment. As a condition of the contract between McHugh and Spectrum, McHugh was added as an additional party insured, subject to certain conditions, on the American liability policy issued to Spectrum. American denied coverage for McHugh with reference to the Marciano claim.

American filed a complaint for declaratory relief and judgment against McHugh, asserting that it had no duty to defend or indemnify McHugh in the Marciano lawsuit. McHugh answered the complaint and filed its own request for declaratory relief. The parties then filed cross-motions for summary judgment, and McHugh filed its first "motion for turnover." That motion sought compensation for the period of time that McHugh alleges American "acknowledged the claim and agreed to 'handle this claim' and lawsuit,' " before American filed its complaint for declaratory relief. The trial court "entered and continued" McHugh's request for payment of defense expenses as listed in the court's "motion for turnover order."

Eventually, the trial court granted American's motion for summary judgment and denied McHugh's motion for summary judgment. However, the court did not rule on McHugh's "motion for turnover." Thereafter, McHugh filed a "second motion for turnover," which again sought payment of defense expenses for the period of time after which American allegedly acknowledged the underlying claim and lawsuit. The trial court denied the second motion for payment of defense expenses, and defendants appealed.

After McHugh's appeal was docketed in this court, but before it filed its brief, American moved to dismiss the appeal. It argued that McHugh's postjudgment trial proceedings -namely, the second motion for turnover- did not qualify as a postjudgment motion under section 2-1203 Code of Civil Procedure (the Code) (735 ILCS 5/2-1203 (West 2000)) and, therefore, could not toll the 30-day time limit found in Supreme Court Rule 303(a)(1) for filing a timely appeal. See 155 Ill. 2d R. 303(a)(1). Plaintiff asserted that because McHugh's notice of appeal was untimely it could not confer jurisdiction upon this court. McHugh answered the plaintiff's motion, and plaintiff replied. Upon review, a motion panel of this court ordered that plaintiff's dismissal motion be taken with the case. For the reasons that follow, we deny plaintiff's motion for dismissal and affirm the trial court's decision.

By way of background, we note that McHugh's responsibility as a general contractor is to control the project schedule and insure that the structure complies with the project specifications. However, McHugh is not involved in the work performed by employees of subcontractors, as the subcontractors are ultimately responsible for the "means and methods" of their employees' work as well their safety.

We are also aware that the Illinois Workers' Compensation Act (820 ILCS 305/5(a) (West 2000)) bars injured workers from suing their own employers. Consequently, because injured construction workers cannot sue their subcontractor employers, it is common practice for them to sue the general contractor involved with the project. In realization of that possibility, general contractors will usually set up insurance requirements for their subcontractors, with the intent of passing the liability for worker injuries along to the worker's employer's insurance carrier.

In the present case, for example, McHugh claims that, as part of its contract, it required its subcontractors to provide it with insurance coverage for claims against it that arise out of the subcontractor's work. In particular, the McHugh-Spectrum subcontract provided:

"Each of the aforesaid policies shall name [McHugh] and such other parties designated on Schedule B as additional insured parties and provide that it is primary to any general liability insurance maintained by Contractor or any other additional insured party***.

Subcontractor shall cause James McHugh Construction Co. *** to be included as Additional Insureds under Subcontractor's General Liability policy and Umbrella policy, if any, Coverage shall be primary for the benefit of the Additional Insureds."

To that end, American issued a certificate of insurance adding McHugh as an additional insured under the policy. That certificate provided in pertinent part:

"This is to certify that the policies of insurance listed below have been issued to the insured named above for the policy period indicated. Notwithstanding any requirement, term or condition of any contract or other document with respect to which this certificate may be issued or may pertain, the insurance afforded by the policies described herein is subject to all the terms, exclusions, and conditions of such policies. Limits shown may have been reduced by paid claims."

The policy also contains an endorsement form 2030M, which in relevant part provides:

"The insurance provided to additional insureds is limited as follows:

(1) The person or organization is an additional insured but only with respect to your acts or omissions in connection with 'your work' for that additional insured by you or on your behalf at the location designated in the agreement and designated in a Certificate of Insurance issued by our authorized producer.

(2) Additional exclusions. This insurance does not apply to:

(c) 'Bodily Injury' or 'property damage' arising out of any act or omission of the additional insured(s) or any of their employees."

The defendants in the present case assert that it is this policy endorsement that gives plaintiff the duty to defend or indemnify the underlying defendants named in that action.

In the underlying action, Marciano's complaint asserts that McHugh constructed or erected a scaffolding from which Marciano fell, and that McHugh failed to: (1) inspect, manage and supervise the jobsite; (2) warn Marciano of dangerous conditions; or (3) provide adequate safeguards to prevent Marciano's injury. Each one of these allegations, Marciano claimed, proximately caused his injuries. However, Marciano's employer, Spectrum, was not a named defendant and was never joined as a third-party defendant. Accordingly, no acts or omissions on the part of Spectrum were alleged to have caused Marciano's injuries.

After McHugh was served with a summons in the Marciano lawsuit, it tendered the defense to American as an additional insured under Spectrum's policy. On November 6, 2000, American responded in writing to McHugh's tender and accepted the tender under a full reservation of rights. However, the letter also noted that the policy issued to Spectrum contained endorsement AC 2038M, which states in pertinent part:

"The following is added to paragraph 2c of 'Duties In The Event of Occurrence, Claim or Suit' of the 'SECTION IV COMMERCIAL GENERAL LIABILITY CONDITIONS':

(6) Promptly tender the defense of any claim made or 'Suit' to any other Insurer which also has available insurance for a loss which we cover under Coverage A or B of this coverage part."

Based on that endorsement, American requested that McHugh tender the defense of the Marciano lawsuit to its own insurer and provide American a copy of the policy. American allegedly advised McHugh that McHugh's compliance with its request was a condition precedent to coverage and that American would take no further action until McHugh complied.

On November 10, 2000, McHugh sent a letter to American that stated: "McHugh refuses to tender this matter to any insurer other than American Country." McHugh stated that in light of two Illinois decisions, John Burns Construction Co. v. Indiana Insurance Co., 189 Ill. 2d 570 (2000), and Institute of London Underwriters v. Hartford Fire Insurance Co., 234 Ill. App. 3d 70 (1992), and the absence of mention of the tender requirement in the certificate of insurance issued to McHugh, American could not put its financial interest ahead of McHugh to require a tender.

After receiving McHugh's November 10, 2000, letter, American commenced this declaratory judgment action. The complaint sought a judicial determination that American had no duty to defend McHugh in the Marciano action because: (1) endorsement form 2030M excluded coverage for McHugh's own negligent acts or omissions, and (2) McHugh repudiated its "tender-to-others" obligation under endorsement form AC 2038M. McHugh answered the complaint and counterclaimed, arguing that (1) American still owed McHugh a defense in the Marciano lawsuit, and (2) the "tender-to-others" provision of form AC 2038M was invalid.

Thereafter, the parties filed cross-motions for summary judgment, and McHugh filed a written motion entitled "motion for a turnover order." The impetus behind that motion was that American was obligated to pay McHugh's defense cost in the Marciano action from the time that American allegedly accepted McHugh's tender until the time American filed its ...

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