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Argonaut Insurance Co. v. Safeway Steel Products

December 30, 2004

ARGONAUT INSURANCE COMPANY, KENNY CONSTRUCTION COMPANY, INC., AND PARK NEWBERRY, AN ILLINOIS CORPORATION, PLAINTIFFS
v.
SAFEWAY STEEL PRODUCTS, INC., DEFENDANT (RELIANCE INSURANCE COMPANY OF ILLINOIS, DEFENDANT-APPELLEE; FEDERAL INSURANCE COMPANY, INTERVENING PLAINTIFF-APPELLANT; TRANSCONTINENTAL INSURANCE COMPANY, INTERVENING DEFENDANT-APPELLEE).



Appeal from the Circuit Court of Cook County. No. 99 CH 09234. Honorable Nancy Jo Arnold, Judge Presiding.

The opinion of the court was delivered by: Justice Hall

Federal Insurance Company (Federal), the intervening plaintiff, appeals from an order of the circuit court of Cook County vacating the grant of Federal's motion to intervene and dismissing its counterclaim for declaratory relief against Transcontinental Insurance Company (Transcontinental), the intervening defendant.

[9]     On appeal, Federal raises the following issues: (1) whether the circuit court erred in vacating its order granting Federal's motion to intervene, and (2) whether Federal's amended declaratory judgment complaint against Transcontinental was properly dismissed.

BACKGROUND

Park Newberry (Park) hired Kenny Construction Company (Kenny) to act as the general contractor on a condominium project developed by Park. In turn, Kenny hired Safeway Steel Products, Inc. (Safeway), as a subcontractor to erect and perform all heavy-duty sidewalk canopy work. Pursuant to its contract with Kenny, Safeway added Kenny and Park as additional insureds in its insurance policy with Reliance, Safeway's primary insurance carrier.*fn1 The contract also required Safeway to provide this insurance as primary and noncontributory to any insurance policies maintained by Kenny and Park.

On December 16, 1996, Donald Hallsten was injured in a collision between his bicycle and a taxicab, allegedly the result of a construction canopy's obstruction of the view around the construction site. Kenny, Park, and Safeway were named as defendants in the lawsuit stemming from the collision. Kenny tendered defense of this suit to Reliance pursuant to Reliance's certificate of insurance naming Kenny and Park as additional insureds on its policy with Safeway.*fn2 Argonaut, as Kenny and Park's primary insurer, proceeded to defend the suit on behalf of Kenny and Park and, ultimately, settled it for $4 million. Since Argonaut's policy was limited to $1 million, Federal, Kenny's excess insurer, provided the settlement balance of $3 million.

Argonaut, Kenny, and Park filed a declaratory judgment complaint against Reliance to determine whether Reliance had a duty to defend and indemnify Kenny and Park in the foregoing personal injury suit.*fn3 In their amended complaint, Argonaut, Kenny, and Park alleged that because Reliance failed to provide a defense and indemnification, Argonaut, on behalf of Kenny and Park, was forced to defend and incur expenses that should have been borne by Reliance.

On April 3, 2001, the circuit court ruled, as to count I, that Reliance owed Kenny and Park a duty to defend and indemnify under its policy. The court dismissed Argonaut's request for similar declaratory relief for lack of standing but granted Argonaut leave to amend.

On April 11, 2001, Argonaut filed an amended count I seeking, inter alia, declaratory relief against Reliance based on equitable contribution. Argonaut argued that Reliance was liable to Argonaut for the $1 million paid in the settlement of the personal injury suit as well as $472,566.50 in legal costs incurred to defend it. Argonaut further argued that this liability arose out of Reliance's duty to defend and indemnify Kenny and Park as additional insureds.

On May 3, 2001, Reliance appealed the circuit court's decision granting Kenny and Park declaratory relief. On July 2, 2001, this court dismissed the appeal.

On May 29, 2001, the Commissioner of the Commonwealth of Pennsylvania placed Reliance in rehabilitation, ordering all pending actions against the company to be stayed for 60 days. Reliance moved the circuit court to dismiss Argonaut's amended complaint or, in the alternative, to stay the proceedings.

On June 21, 2001, Federal petitioned the court to intervene in Argonaut's declaratory suit against Reliance and for leave to file a declaratory judgment complaint against Transcontinental. In support of its petition, Federal maintained that it was entitled to the first $3 million recovery from the Reliance-Transcontinental "tower of insurance." Federal argued that it was entitled to recover Reliance's policy limit of $1 million and $2 million from Transcontinental's excess coverage policy. As such, Federal's interest would be prejudiced if Argonaut was awarded its costs of $1 million plus legal expenses, thereby exhausting Reliance's $1 million primary policy limit. Federal also argued that it should be granted intervention as of right because the court's resolution of the case would bind it in any future action against Reliance and Transcontinental to recover its contribution to the settlement of the personal injury case. In the alternative, Federal argued that it should be granted permissive intervention because its claim against Reliance and Transcontinental arose from the same nucleus of operative facts as Argonaut's claim.

On June 28, 2001, the circuit court granted Federal's petition to intervene and granted Federal leave to file its declaratory judgment complaint against Transcontinental. The gravamen of Federal's claim was Reliance's and Transcontinental's duty to defend and indemnify Kenny as an additional insured.*fn4 Federal also sought a determination of Transcontinental's liability to reimburse Federal for its $3 million contribution to settle the personal injury claim.

On October 3, 2001, Reliance was declared insolvent and was placed in liquidation. Reliance then moved to amend its earlier motion to dismiss or stay the proceedings. On October 15, 2001, the circuit court granted Reliance's motion to dismiss Argonaut's amended complaint for declaratory relief pursuant to Reliance's liquidation status.*fn5 The court continued the case for status as to Federal's complaint against Transcontinental.

Subsequently, Reliance renewed its motion to dismiss the remaining proceedings. Reliance argued that Federal's request for a declaratory judgment against Reliance, pursuant to Federal's intervention in Argonaut, Kenny, and Park's original action for declaratory relief, was barred by section 221.10 of the Illinois Insurance Code (215 ILCS 5/221.10 (West 2000)) because of Reliance's liquidation status. In the alternative, Reliance argued that, even if Federal sought relief only against Transcontinental, Reliance would be an indispensable party to these proceedings without which any judgment against Transcontinental would be null and void by operation of law. On April 30, 2002, Federal amended its complaint seeking relief only from Transcontinental.

On July 12, 2002, the circuit court dismissed Federal's amended complaint against Transcontinental. The court found that Federal's complaint did not allege sufficient facts to prove commonality of insureds, a necessary element to recover under equitable contribution. The court also determined that it improperly granted Federal's petition to intervene because Federal's complaint "is against another insured, Transcontinental, [which] happened to insure a co-defendant in the underlying action," as opposed to Reliance, which was a party to the original declaratory judgment action filed by Argonaut, Kenny, and Park. The court further explained that "Federal's complaint has no relationship to the case that was before [the circuit court], and it is dismissed for that reason."

On August 6, 2002, Federal appealed the circuit court's July 12, 2002, order. During the pendency of this appeal, Reliance filed a motion to dismiss this appeal, based on its liquidation and indispensable-party ...


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