Kehoe v. Commonwealth Edison Co.

Annotate this Case
FIFTH DIVISION
May 15, 1998

No. 1-97-0600

MARK J. KEHOE, )
)
Plaintiff, ) Appeal from
) the Circuit Court
v. ) of Cook County.
)
COMMONWEALTH EDISON COMPANY, )
) No. 93-L-3459
Defendant-Appellee/Cross-Appellant, )
)
v. )
) Honorable
ABBOTT CONTRACTORS, INC., ) William Maddux,
) Judge Presiding.
Third-Party Defendant-Appellant/ )
Cross-Appellee. )

JUSTICE THEIS delivered the opinion of the court:

The issues raised by this appeal and cross-appeal stem from a
dispute over a contribution action brought by Commonwealth Edison
Company as owner of a construction site against its contractor, Abbott
Contractors, Inc., in connection with a personal injury suit brought
by Abbott employee Mark J. Kehoe against Commonwealth Edison. Abbott
appeals the trial court's denial of its post-trial motion and its
judgment ordering contribution by Abbott in the amount of $118,564.21.
On appeal, as below, Abbott claims its purchase of insurance for
Commonwealth Edison from Aetna Casualty & Surety Company (Aetna),
pursuant to the parties' construction contract and in an amount
sufficient to extinguish Commonwealth Edison's liability to Kehoe,
operated as a legal bar to Commonwealth Edison's contribution action.
Commonwealth Edison cross-appeals as to the amount of
contribution owed, claiming the trial court erred when it determined
the parties' contract did not provide for pure contribution and that
Abbott's amount of contribution was limited to the amount of its
liability under the Workers' Compensation Act. Commonwealth Edison
maintains the parties' contract contains a waiver of the statutory
limitation on employer liability and provides for pure contribution
from Abbott in the amount of $1,326,313.51, the amount of the
settlement corresponding to the percentage of liability attributed to
Abbott for Kehoe's personal injury. For the following reasons, we
reverse.
Abbott entered into a construction contract with

Commonwealth Edison. By separate provision, the contract required
Abbott to obtain an insurance policy for Commonwealth Edison in
Commonwealth Edison's own name with limits of liability of $2 million.
The construction contract also contains a provision calling for
"Contractor's Indemnification," one clause of which attempts to obtain
for Commonwealth Edison indemnification for its own negligence.
Pursuant to the construction contract, Abbott purchased from
Aetna a separate owners and contractors protective ("OCP") liability
insurance policy for Commonwealth Edison with Commonwealth Edison as
the sole named insured and Abbott as the designated contractor. The
OCP policy provided liability coverage for Commonwealth Edison in the
amount of $3 million, $1 million in excess of the construction
contract's requirement. At the same time, Abbott also obtained a
commercial general liability ("CGL") policy with Aetna in its own
name. Abbott's CGL policy's Schedule of Exclusions excludes from
coverage the OCP policy. Abbott also had obtained workers'
compensation insurance from another insurer.
During the period that Commonwealth Edison's OCP policy and
Abbott's CGL policy with Aetna were in effect, Abbott employee Mark
Kehoe was injured on the job and brought a personal injury action
against Commonwealth Edison and the City of Chicago, alleging that
each was negligent and that each had violated the Structural Work Act.
740 ILCS 150/0.01 et seq. (West 1992). The City was subsequently
dropped from the suit, leaving Commonwealth Edison as the sole
defendant.
Upon being sued by Kehoe, Commonwealth Edison filed and twice
amended a third-party contribution complaint against Abbott. Count I
of Commonwealth Edison's final amended complaint alleged various
negligent acts or omissions by Abbott and sought contribution from
Abbott for that portion of Kehoe's damages proximately caused by
Abbott. Count II repeated the acts or omissions alleged in count I
and invoked the construction contract's "Contractor's Indemnification"
provision in support of its contribution claim. In count II,
Commonwealth Edison requested contribution from Abbott "in any amount
whatsoever," alleging that Abbott had "waived the worker's
compensation defense by contract."
Abbott answered, raising the Workers' Compensation Act (820 ILCS
305/11 (West 1992)) as an affirmative defense to count I and
requesting that any judgment against it be confined to the amount of
its liability under the Workers' Compensation Act. As defenses to
count II, Abbott raised the Construction Contract Indemnification for
Negligence Act (Indemnity Act) (740 ILCS 35/1 (West 1992)), and the
fact that the parties' contract preceded the court's decision in
Kotecki v. Cyclops Welding Corp., 146 Ill. 2d 155, 585 N.E.2d 1023
(1991).
Additionally, as an affirmative defense to both counts, Abbott
maintained that, pursuant to the parties' contract, it had obtained
and paid for two liability insurance policies issued by Aetna: the
CGL policy insuring Abbott and the OCP policy insuring Commonwealth
Edison in its own name and listing Abbott as the designated
contractor. Abbott further argued that the parties' agreement that
insurance was to be provided should be interpreted as one of mutual
exculpation, that the parties' should be deemed to have agreed to look
solely to the insurance in the event of a loss.
Kehoe tried his case against Commonwealth Edison to a jury. At
the close of Kehoe's case in chief, Commonwealth Edison settled with
Kehoe. The court issued an order on July 8, 1996, stating that "the
complaint of the plaintiff against Commonwealth Edison is dismissed as
all matters in controversy have been settled and adjusted between
them," and allowing the case to continue as a third-party action
between Commonwealth Edison and Abbott. The contribution action was
tried by a jury, which found Abbott 68% liable and Commonwealth Edison
32% liable. Commonwealth Edison stipulated that it was defended under
and would be indemnified for the settlement by the policy Abbott
purchased for it from Aetna.
Abbott then filed a post-trial motion pursuant to section 2-1202
of the Code of Civil Procedure (735 ILCS 5/2-1202 (West 1992)), asking
the trial court to vacate its judgment entered on the jury verdict and
requesting entry of judgment in its favor notwithstanding the verdict
or, alternatively, a new trial. Abbott maintained it was not liable
to Commonwealth Edison in any amount and repeated its claim that
Commonwealth Edison's action for contribution was barred as a matter
of law.
Thereafter, the trial court entered an order dated November 13,
1996, confirming that Commonwealth Edison had made a good faith
settlement with Kehoe for $2 million and an assignment of rights under
the Workers' Compensation Act to Commonwealth Edison. Previously,
Kehoe had received workers' compensation in the amount of $402,684.14.
In that order, also addressing Abbott's post-trial motion, the court
found that Commonwealth Edison had a right to bring an action for
contribution against Abbott, but determined that Abbott had not
contractually waived the limitation on its liability under the
Workers' Compensation Act. As a result, the trial court concluded
that Abbott owed Commonwealth Edison, not pure contribution in the
amount of 68% of the settlement, but rather $118,564.21, an amount
constituting 68% of plaintiff's expenses and 25% of the workers'
compensation lien of $402,684.14.
Abbott appeals the trial court's judgment and denial of its post-
trial motion. Commonwealth Edison contends on cross-appeal that the
parties' construction contract provides for pure contribution and that
Abbott is liable to Commonwealth Edison for 68% of the settlement, an
amount of $1,326,313.51. We review de novo as a matter of law the
trial court's judgment and finding that Commonwealth Edison's
contribution action against Abbott was not barred. Zook v. Norfolk &
Western Ry. Co., 268 Ill. App. 3d 157, 169, 642 N.E.2d 1348, 1357
(1994).
In Illinois, two analytical approaches have developed as to the
purchase of insurance in the context of contractual indemnification.
In some instances, courts have analyzed the parties' contract to
determine whether they intended to mutually exculpate one another from
liability through the mechanism of the purchase of insurance. Dowling
v. Otis Elevator Co., 192 Ill. App. 3d 1064, 549 N.E.2d 866 (1989);
Rome v. Commonwealth Edison Co., 81 Ill. App. 3d 776, 401 N.E.2d 1032
(1980). By contrast, another series of decisions turned not upon
contract analysis, but primarily upon the courts' application of the
general rule of law that, when parties to a business transaction agree
insurance will be provided as part of the bargain, the agreement must
be interpreted as providing mutual exculpation to the bargaining
parties. Monical v. State Farm Insurance Co., 211 Ill. App. 3d 215,
569 N.E.2d 1230 (1991); Briseno v. Chicago Union Station Co., 197 Ill.
App. 3d 902, 557 N.E.2d 196 (1990); Vandygriff v. Commonwealth Edison
Co., 87 Ill. App. 3d 374, 408 N.E.2d 1129 (1980).
Courts have applied these distinct analytical approaches in
diverse factual and legal contexts. In so doing, they of necessity
confronted various ancillary issues posed by each case's unique
context. For example, antisubrogation issues may exist depending upon
the identity of the insurer, the status of the third-party defendant
as an additional insured or as a "joint insured," the existence of
multiple policies, and the type of policy at issue. In addition, the
precise nature of the cause of action, whether the action was one for
contractual or common law indemnity or for contribution, circumscribed
the courts' decision in each case. These ancillary issues directly
address the identity of the real party in interest and the nature of
the right asserted.
Nevertheless, despite their analytical, factual, and contextual
distinctions, the cases converge upon one dispositive issue regarding
the status of the underlying suit: whether a settlement or judgment
within the policy's limits was reached and fully funded by the
insurer. See Kirincich v. Jimi Construction Co., 267 Ill. App. 3d 51,
54-55, 640 N.E.2d 958, 960-61 (1994); Vaughn v. Commonwealth Edison
Co., 259 Ill. App. 3d 304, 306, 632 N.E.2d 44, 45-46 (1994); Monical,
211 Ill. App. 3d at 224, 569 N.E.2d at 1235; Briseno, 197 Ill. App. 3d
at 906, 557 N.E.2d at 198. As noted in Kirincich, 267 Ill. App. 3d at
55, 640 N.E.2d at 961, even those cases holding that contribution was
barred by the rule of mutual exculpation "arose in a factual context
where the parties' joint insurance had absorbed the entire liability
of the party seeking contribution." See Monical, 211 Ill. App. 3d
215, 569 N.E.2d 1230; Briseno, 197 Ill. App. 3d 902, 557 N.E.2d 196;
Vandygriff, 87 Ill. App. 3d 374, 408 N.E.2d 1129.
As a threshold matter, we note that we have not been asked to
determine, and we need not decide under the facts of this case,
whether Abbott's purchase of two separate policies from the same
insurer on the same day to insure against construction loss rendered
the parties "joint insureds," so as to invoke the antisubrogation
rule. See North Star Reinsurance Corporation v. Continental Insurance
Co., 624 N.E.2d 647, 649 (N.Y. 1993) (prohibiting insurers that issued
both OCP and GCL policies naming contractors as insureds from
recovering from contractors for amounts paid under policies).
However, we are aware that, as noted in Rome in the context of an
action for indemnification, third-party actions involving contractual
agreements to provide both indemnification and insurance often conceal
questions of subrogation and the identity of the real parties in
interest. Rome, 81 Ill. App. 3d at 782-83, 401 N.E.2d at 1036.
In Rome, the court's decision was premised upon the assumptions
that "the fact that an indemnitee's liability is covered by insurance
does not negate the indemnitor's obligation" and that "the
indemnitee's insurer, who had paid the indemnitee's liability and who
was subrogated to the rights of the indemnitee, may recover from the
indemnitor." Rome, 81 Ill. App. 3d at 783, 401 N.E.2d at 1036.
Although this action for contribution conceals many of the subrogation
issues directly addressed in Rome, the parties and their insurers did
not bring this case as a subrogation action, and those issues remain
beyond the scope of this appeal.
As framed by Abbott, the more narrow issue before us is whether
Abbott's purchase of insurance, pursuant to the parties' construction
contract in an amount sufficient to extinguish Commonwealth Edison's
liability to Kehoe, operated as a legal bar to Commonwealth Edison's
statutory contribution action. The correct resolution of this issue
rests not only upon our interpretation of the parties' contract as
evidencing their intent, but also upon the factual status of the
underlying case: whether Commonwealth Edison's liability to Kehoe was
in fact extinguished as a result of Abbott's purchase of insurance.
Abbott relies on the rule of mutual exculpation to suggest that
Commonwealth Edison's contribution action against it was barred as a
matter of law. As explained in Vandygriff, 87 Ill. App. 3d at 377,
408 N.E.2d at 1131, in the context of an action for common law
indemnity, the rule of mutual exculpation derives from General Cigar
Co. v. Lancaster Leaf Tobacco Co., 323 F. Supp. 931 (D. Md. 1971), and
provides: "that when parties to a business transaction mutually agree
that insurance will be provided as part of the bargain, then that
agreement must be interpreted as providing mutual exculpation to the
bargaining parties." Our supreme court's previous conclusions that a
lessee may be protected against an action brought by the lessor and
its insurer, as subrogee, for recovery of losses due to fire damage
are often used as justification for application of the rule in the
construction context. See Dix Mutual Insurance Co. v. LaFramboise,
149 Ill. 2d 314, 323, 597 N.E.2d 622, 626 (1992) (majority concluding
that, "[u]nder the particular facts of this case, the tenant, by
payment of rent, has contributed to the payment of the insurance
premium, thereby gaining the status of co-insured under the insurance
policy"); Cerny-Pickas & Co. v. C.R. Jahn Co., 7 Ill. 2d 393, 131 N.E.2d 100 (1955).
However, we are not persuaded that either the mutual exculpation
rule or our supreme court's previous determinations regarding a fire
insurer's right to bring a subrogation action against a particular
tenant directly address the issues raised by this action: an action
for contribution under the Act in the context of the specific language
of the parties' construction contract. Instead, we find the context
of this case requires us to analyze the parties' construction contract
to determine their intent.
Initially, we note that a contract is to be construed as a whole
and that our primary goal when construing a contract is to give effect
to the parties' intentions. Martindell v. Lake Shore National Bank,
15 Ill. 2d 272, 283, 154 N.E.2d 683, 689 (1958). As a general rule,
the parties' intentions are determined from their final agreement.
Vandygriff, 87 Ill. App. 3d at 376, 408 N.E.2d at 1131. Moreover,
"statutes and laws in existence at the time a contract is executed are
considered part of the contract," and "[i]t is presumed that parties
contract with knowledge of the existing law." Braye v. Archer-
Daniels-Midland Co., 175 Ill. 2d 201, 217, 676 N.E.2d 1295, 1303
(1997). In addition, a construction of a contract rendering the
agreement enforceable is preferred over one rendering the agreement
void. Schiro v. W.E. Gould & Co., 18 Ill. 2d 538, 543, 165 N.E.2d 286, 289 (1960).
Courts have held that the promise to obtain insurance is not the
same as the promise to indemnify. Dowling, 192 Ill. App. 3d at 1070,
549 N.E.2d at 870. Moreover, in Dowling, the court concluded that a
subcontractor's agreement to provide the contractor with insurance and
to indemnify the contractor against the subcontractor's negligence was
not the same as a clear and explicit waiver of the right to
contribution. Dowling, 192 Ill. App. 3d at 1071-72, 549 N.E.2d at
871.
Abbott also contends that the clause in the contract's indemnity
provision that attempts to obtain for Commonwealth Edison
indemnification for its own negligence is fatal to Commonwealth
Edison's contribution action. We do not agree. As noted in Vaughn v.
Commonwealth Edison Co., 259 Ill. App. 3d 304, 305, 632 N.E.2d 44, 45
(1994), even though an indemnity clause in a construction contract
itself may be void, its inclusion in the contract may be evidence of
the parties' intent to look beyond the insurance provided in the event
of a loss. Additionally, Commonwealth Edison's complaint expressly
sought contribution from Abbott only for that portion of Kehoe's
damages proximately caused by Abbott. It did not seek indemnification
from Abbott for its own negligence. Therefore, we cannot conclude
that the clause violated the policy behind the Indemnification Act.
See Braye, 175 Ill. 2d at 217-18, 676 N.E.2d at 1304 (emphasizing the
importance of the nature of the third-party complaint and finding
indemnification provision not void as violative of the Indemnification
Act where the nature of the complaint demonstrated the provision had
not eliminated the incentive to exercise care).
Here, as in Vaughn and Dowling, the provisions of the
construction contract at issue do not clearly express an intent by the
parties to look solely to insurance in the event of a loss. Rather,
when read as a whole, we believe the construction contract evidences
the parties' intent to provide for potential losses first by the
mechanism of insurance and then by indemnification. Indeed, section
12(b) of the parties' construction contract supports this
interpretation of the contract. There, the parties agreed that, "to
the extent the Owner is compensated by insurance as to which the
Owner's insurance carrier's rights of subrogation have been waived or
are required to be waived in accordance with the Contract," the
contractor is not required to provide indemnification. We believe the
parties intended the insurance to provide the first line of protection
from a suit such as Kehoe's.
Therefore, the status of the underlying suit in this case was
critical to the trial court's determination as to Commonwealth
Edison's ability to maintain its contribution action. Under the terms
of the parties' contract, Commonwealth Edison's contribution action
was barred after Commonwealth Edison had been fully defended, fully
protected, and the intent of the contract fulfilled.
So long as the potential for loss in excess of the policy's
limits remained, Commonwealth Edison was at risk of a loss for which
it could assert a statutory right to contribution. If, as in Dowling,
the trial court had dismissed the contribution action before liability
was determined either by settlement or judgment, Commonwealth Edison
would have remained potentially at risk for an amount in excess of the
policy's limits. Additionally, if the resources available under the
policy had been depleted or if Aetna had defended under a reservation
of rights, denied coverage, or refused fully to fund the settlement
with Kehoe, Commonwealth Edison would have been at risk of loss.
The order confirming settlement does not reference Aetna's
payment to Kehoe of Commonwealth Edison's settlement with him in the
amount of $2 million. Nevertheless, there is no evidence in the
record that Aetna defended Commonwealth Edison under a reservation of
rights, and Commonwealth Edison does not dispute that Aetna funded the
settlement. Rather, at the close of its contribution action,
Commonwealth Edison stipulated that the $2 million it paid in
settlement to Kehoe were paid from the Aetna policy purchased by
Abbott.
At that point, Commonwealth Edison was defended, its liability
was fixed by settlement, its obligation to Kehoe was fully funded by
Aetna, and the intent of the parties' contract fulfilled. As a
result, we conclude the trial court erred when it denied Abbott's
post-trial motion and entered judgment in favor of Commonwealth Edison
in the amount of $118,564.21. Because we find that the trial court
erred in failing to grant Abbott's motion for judgment notwithstanding
the verdict and in entering judgment in favor of Commonwealth Edison
in any amount, we need not consider whether the language of the
parties' construction contract constitutes a contractual waiver of the
limitations placed upon Abbott's amount of contribution under the
Workers' Contribution Act.
Reversed.
HARTMAN and HOURIHANE, JJ., concur.

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