American Country Insurance Co. v. Hanover Insurance Co.

FOURTH DIVISION
DECEMBER 18, 1997


No. 1--96--2975

AMERICAN COUNTRY INSURANCE COMPANY,

Plaintiff-Appellee,

v.

THE HANOVER INSURANCE COMPANY,

Defendant-Appellant

and

CHUBB INSURANCE COMPANY, SCARSDALE
DEVELOPMENT, LTD., and KATHLEEN POLIZZI,
administrator of the estate of MARK
POLIZZI, deceased,

Defendants.)
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)Appeal from the
Circuit Court of
Cook County

No. 92--CH--11392

Honorable
Aaron Jaffe,
Judge Presiding.


PRESIDING JUSTICE CERDA delivered the opinion of the court:
This appeal involves an insurance coverage dispute between
plaintiff, American Country Insurance Company (American Country),
and defendant, The Hanover Insurance Company (Hanover),
concerning the priority of coverage for the second $1 million of
a $4.5 million settlement in an underlying wrongful death action.
After cross-motions for summary judgment were filed and argued,
the trial court entered judgment for American Country on the
ground that its umbrella policy was excess over Hanover's policy.
For the following reasons, we affirm.
On October 1, 1990, Mark Polizzi was employed by Keystone
Mechanical Industries, Inc. (Keystone) installing underground
water utilities at the Edgewood Estates real estate development
in Bartlett, Illinois. The walls of the trench in which he was
working collapsed on him, causing his death. Scarsdale
Development, Ltd. (Scarsdale) was the general contractor on the
construction project and Keystone was the plumbing subcontractor.
At the time of Polizzi's injury, Keystone was insured by a
Commercial Liability Policy issued by American Country. Under
this policy, which had a limit of $1 million for a single
occurrence, Scarsdale was named as an additional insured.
Keystone was also covered by a $5 million Commercial Excess
Policy, an umbrella policy, issued by American Country. Although
Scarsdale was not originally an additional insured under the
Excess Policy, it was later added as an additional insured.
The American Country Excess Policy included the following
"Other Insurance" clause:
"Section 10 - OTHER INSURANCE
This insurance is excess over any other valid and
collectible insurance, whether primary, excess,
contingent, or any other basis, except other insurance
written specifically to be excess over this insurance.
"Underlying insurance" is not other insurance."
In addition, Scarsdale was insured by Hanover's Homebuilders
Commercial Lines Policy, which provided general liability
coverage up to $1 million for each occurrence. The policy's
insuring agreement provides:
"We will pay those sums that the insured becomes
legally obligated to pay as damages because of "bodily
injury" or "property damage" to which this insurance
applies. We will have the right and duty to defend any
"suit" seeking those damages."
The policy also contains the following provisions:
"IV. EXCESS INSURANCE
Under SECTION IV - COMMERCIAL GENERAL LIABILITY
CONDITIONS PARAGRAPH "4. Other Insurance" is hereby
deleted and replaced with the following:
4. Other Insurance
If other valid and collectible insurance is available
to the insured for a loss we cover under Coverage A, B
or D of this Coverage Part, our obligations are limited
as follows:
This insurance is excess over any other insurance,
whether primary, excess, contingent or on any other
basis."
Scarsdale was also covered by a Commercial Excess Umbrella
Policy, with a $5 million limit for each occurrence, issued by
Chubb Insurance Company (Chubb). However, that policy is not
involved in this appeal.
The underlying wrongful death action was settled for $4.5
million. American Country, Hanover, and Chubb contributed to the
settlement as follows:
$1 million American Country's Primary Commercial General
Liability Policy (policy limit)
$1 million Hanover's Primary Homebuilders Policy
$1.25 million American Country's Commercial Excess
Liability Policy
$1.25 million Chubb's Commercial Excess Umbrella Policy.
American Country and Hanover settled the underlying case without
waiving their right to raise coverage issues between them.
American Country filed a declaratory judgment action seeking
a declaration that the American Country Excess Policy is excess
to, and pays after, the Hanover Policy. American Country and
Hanover filed cross-motions for summary judgment. Following
argument, the trial court granted judgment for American Country.
The court reasoned that, considering the policies as a whole,
American Country's policy was written to be excess over Hanover's
policy.
There is no dispute that American Country's Commercial
General Liability Policy was the primary insurer and pays the
first $1 million in settlement of the underlying case. The sole
issue is whether Hanover's Homebuilders Commercial Liability
Policy or American Country's Excess Policy pays the second $1
million of the settlement. In other words, is Hanover's
commercial general liability policy excess over American
Country's umbrella policy?
Hanover's position is that its Special Homebuilders Coverage
Endorsement, which replaced the standard "Other Insurance"
clause, made it excess over all other insurance policies,
including umbrella excess insurance policies. To support its
position, Hanover relies on Putnam v. New Amsterdam Casualty
Company, 48 Ill. 2d 71, 269 N.E.2d 97 (1970), which held that
where two policies cover the same loss, Illinois courts will give
effect to the respective "Other Insurance" clauses and apply them
as written, but, if incompatible, will prorate coverage between
the two policies.
Hanover compares the "Other Insurance" clauses of both
policies and argues that its policy is excess over American
Country's umbrella policy because it is "excess over any other
insurance, whether primary, excess, contingent or on any other
basis," whereas American Country's policy is "excess over any
other valid and collectible insurance, whether primary, excess,
contingent, or any other basis, except other insurance written
specifically to be excess over this insurance." Emphasis added.
Hanover considers its policy as "written specifically to be
excess over" American Country's umbrella policy. Hanover further
claims that it pays last over all other coverage because its
policy stated that it does not pay until after all other
insurance has been paid.
In response, American Country argues that its Commercial
Excess Policy is a true excess policy that does not pay until
Hanover's primary policy limits are exhausted. To support its
position, American Country relies on Illinois Emcasco Insurance
Co. v. Continental Casualty Company, 139 Ill. App. 3d 130, 133-
134, 487 N.E.2d 110 (1985), which held that a primary policy pays
before an excess umbrella policy and that the general rules
regarding excess and "Other Insurance" clauses do not apply in
that situation.
This court's review is de novo. Deciding whether the
summary judgment entered was correct is a question of law (Cates
v. Cates, 156 Ill. 2d 76, 78, 619 N.E.2d 715 (1993)) as is the
construction of an insurance policy's provisions (Outboard Marine
Corp. v. Liberty Mut. Ins. Co., 154 Ill. 2d 90, 108, 607 N.E.2d 1204 (1992)).
After analyzing Putnam v. New Amsterdam Casualty Company, 48 Ill. 2d 71, 269 N.E.2d 97 (1970) and Illinois Emcasco Insurance
Co., 139 Ill. App. 3d 130, 487 N.E.2d 110 (1985), we come to the
conclusion that they are complementary, not conflicting,
decisions.
In Putnam, 48 Ill. 2d at 73, passengers involved in an
automobile accident caused by an uninsured motorist sued the
owner and driver of the car in which they were riding. The owner
and driver, who were married, were insured by Hartford Accident &
Indemnity Company (Hartford) under a policy that covered the
passengers as insureds. The Hartford policy paid the passengers
$7,500, as their apportioned share, under the policy's uninsured
motorist provision. After receiving the $7,500, the passengers
sought payment under their insurance policy's uninsured motorist
provision with New Amsterdam Casualty Company (New Amsterdam),
seeking compensation for their damages that exceeded $7,500.
Putnam, 48 Ill. 2d at 73.
The Illinois Supreme Court ruled that New Amsterdam was not
liable because its policy's "excess-escape" clause precluded
recovery. Putnam, 48 Ill. 2d at 89. The court explained that
where two insurance policies cover a loss at the same level,
Illinois courts look to the "other insurance" clauses to
determine each insurer's liability. After analyzing the
applicable clauses of both insurance policies, the court
concluded that the New Amsterdam policy clearly provided that its
coverage applied only as excess insurance if other insurance was
available. Since the Hartford policy was other available
insurance, the injured passengers were not entitled to any
recovery under their New Amsterdam policy.
The court adopted the majority approach and based its
decision on the underlying general principles of the majority
view. Putnam, 48 Ill. 2d at 82. The court explained that the
majority approach is "to reconcile the applicable clauses of
conflicting policies, therefore giving effect to the intention of
all the parties, whenever possible." Putnam, 48 Ill. 2d at 80.
In Illinois Emcasco Insurance Co., 139 Ill. App. 3d at 131,
Warren Kolber, who was driving a car owned by Clark King with
King's permission, was involved in an automobile accident. His
two passengers sued him for damages and two judgments totalling
$2,034,000 were entered against him. Illinois Emcasco Insurance
Co., 139 Ill. App. 3d at 131.
Both Kolber and King were insured against the accident.
King was insured by State Farm Mutual Insurance Company, which
paid its $300,000 policy limit toward the judgment. King was
also insured under an umbrella excess liability policy issued by
CNA, which required an underlying primary automobile insurance
policy in the amount of $300,000. Kolber, as an approved driver,
was an additional insured under the umbrella policy. Kolber was
also insured under a policy issued by Emcasco to Kolber's father
as a member of his father's household. Illinois Emcasco
Insurance Co., 139 Ill. App. 3d at 131.
The Emcasco policy was a primary policy that became an
excess policy and the CNA policy was an umbrella excess policy,
also known as a "true excess" policy. Illinois Emcasco Insurance
Co., 139 Ill. App. 3d at 132. Both policies included "Other
Insurance" clauses, which provided that "the insurance with
respect to a *** non-owned automobile shall be excess over any
valid and collectible insurance." Illinois Emcasco Insurance
Co., 139 Ill. App. 3d at 132.
The Illinois Emcasco decision explained that an umbrella
policy is different from a primary policy containing an excess
insurance clause. Illinois Emcasco Insurance Co., 139 Ill. App.
3d at 132-33. Not only does an umbrella policy provide special
coverage unique to coverage provided by primary policies, but its
premiums are generally lower than those for primary policies
because they pay above the limits of primary coverages. As a
result, instead of examining the individual "Other Insurance"
clauses, the court construed the policies as a whole and the
underlying policy considerations. Illinois Emcasco Insurance
Co., 139 Ill. App. 3d at 133.
Because the Emcasco policy provided primary coverage and the
CNA policy required the procurement of underlying insurance
coverage, the appellate court ruled that the two policies could
not be considered on the same level nor could the general rules
regarding excess clauses be applied. Illinois Emcasco Insurance
Co., 139 Ill. App. 3d at 134. The appellate court held that when
one policy is a primary policy and another policy is an umbrella
excess policy, the umbrella policy should be required to
contribute only after the limits of the primary policy have been
reached. Illinois Emcasco Insurance Co., 139 Ill. App. 3d at
134. The court stated that "the two policies cannot be
considered on the same level nor can the general rules regarding
excess and escape clauses be applied." Illinois Emcasco
Insurance Co., 139 Ill. App. 3d at 134.
Illinois Emcasco cites the Appleman treatise on insurance,
which states:
"There is, however, a unique form of excess contract
which always remains excess over and above all other
applicable forms of contract, except as to the specific
risks upon which it may elect to carry the primary
burden. That is the umbrella or catastrophe policy.
* * * *
[U]mbrella coverages, almost without dispute, are
regarded as true excess over and above any type of
primary coverage, excess provisions arising in regular
policies in any manner, or escape clauses." 8A
Appleman, Insurance Law and Practice 4906, at 348,
4909.85, at 453-54 (1981).
The Putnam and Illinois Emcasco cases are not conflicting
since the Putnam case involves two primary policies that contain
"Other Insurance" clauses and Illinois Emcasco involves a primary
policy with an "Other Insurance" clause and an umbrella excess
policy.
Another case to consider is Federal Insurance Co. v. St.
Paul Fire and Marine Insurance Co., 271 Ill. App. 3d 1117, 649 N.E.2d 460 (1995), which compares the law in Putnam and Illinois
Emcasco. In Federal Insurance Co., 271 Ill. App. 3d at 1117, the
physician who was liable for a patient's injuries was insured by
a professional liability policy issued by Employers Fire
Insurance Company (Employers). That policy contained an "Other
Insurance" clause, which stated that the policy was primary
insurance and its liability was not reduced by the existence of
an excess policy. Federal Insurance Co., 271 Ill. App. 3d at
1119.
In addition, Federal Insurance Company (Federal) issued an
excess professional liability, or umbrella, policy to the doctor.
It specifically provided that it was excess only to the Employers
policy and did not include an "excess over any other insurance"
clause. The third insurer, St. Paul Insurance, issued a
professional liability policy to the medical corporation that
provided coverage for the emergency room doctors to the hospital,
naming its physician employees, including the liable physician,
as insureds. Federal Insurance Co., 271 Ill. App. 3d at 1119.
The case was settled for $1.7 million. Based on the "Other
Insurance" clauses, the trial court apportioned liabilities
between Employers, St. Paul, and Federal. The court found that
Employers and St. Paul were each responsible on a primary level
for $100,000 and the remaining $1.5 million was to be shared
between St. Paul and Federal. Federal Insurance Co., 271 Ill.
App. 3d at 1121.
The court agreed that where two insurance policies cover a
loss at the same level, Illinois courts look to the "other
insurance" clauses to determine each insurer's liability. When
there are two or more primary policies, they can be compared by
looking at the "Other insurance" clauses of the applicable
policies to resolve apportionment issues. Federal Insurance Co.,
271 Ill. App. 3d at 1122.
Although the appellate court affirmed the trial court's
judgment, it explained that its decision was based on the
specific language of Federal's excess policy, which stated that
the policy was specifically excess to Employers policy. Without
that specific language, the appellate court would have followed
Illinois Emcasco and found that Federal's umbrella excess policy
was excess over all the other policies involved. Federal
Insurance Co., 271 Ill. App. 3d at 1123.
There is no such language in American Country's umbrella
excess policy limiting its excess coverage to any specific other
insurance policy. The only exception is for insurance written
specifically to be excess over the umbrella policy. The general
language in Hanover's "Other Insurance" clause cannot be
interpreted to mean that it was specifically written to be excess
over American Country's umbrella policy. If that had been the
intention, the American Country umbrella policy would have been
specifically named in the Hanover "Other Insurance" clause.
Therefore, in accordance with the reasoning in Federal Insurance
Co. and Emcasco, we conclude that American Country's umbrella
policy is excess over Hanover's policy.
We also considered United States Fidelity and Guaranty Co.
v. Continental Casualty Co., 198 Ill. App. 3d 950, 955, 556 N.E.2d 671 (1990), which held that the doctrine of equitable
distribution does not apply to primary/umbrella excess insurer
issues. That court stated:
"This court has expressly recognized that differences
exist between the 'unique and special coverage' of an
excess policy and a primary policy. (Illinois Emcasco
Insurance Co. v. Continental Casualty Co. (1985), 139
Ill. App. 3d 130, 487 N.E.2d 110.) By definition, the
policies do not cover the same risks, i.e., when the
protections of the primary policy cease, the
protections under the excess policy commence." United
States Fidelity and Guaranty Co., 198 Ill. App. 3d at
955.
See also U.S. Gypsum Co. v. Admiral Insurance Co., 268 Ill. App.
3d 598, 651-655, 643 N.E.2d 1226 (1994) and Missouri Pacific
Railroad Co., 288 Ill. App. 3d 69, 80-84, 679 N.E.2d 801 (1997).
Based on the foregoing, we affirm the circuit court
judgment.
Wolfson, J., and McNamara, J., concur.