John Burns Construction Co. v. Indiana Insurance Co.

SIXTH DIVISION
September 11, 1998

No. 1-97-1806

JOHN BURNS CONSTRUCTION COMPANY and, ) Appeal from the
ROYAL INSURANCE COMPANY, ) Circuit Court of
) Cook County
Plaintiffs-Counterdefendants-Appellants,)
)
v. ) No. 96 CH 5539
)
INDIANA INSURANCE COMPANY, )
)
Defendant-Counterplaintiff-Appellee, )
)
and )
)
SIDNEY GAULT, ) Honorable
) Thomas Durkin,
Defendant-Counterdefendant-Appellee. ) Judge Presiding.

JUSTICE QUINN delivered the opinion of the court:
Plaintiffs, John Burns Construction Company (John Burns) and
Royal Insurance Company (Royal), appeal from the trial court's
order granting defendant, Indiana Insurance Company's (Indiana
Insurance) motion for judgment on the pleadings. At issue is
whether an insurer to whom litigation is tendered may seek
contribution from another insurer whose policy is applicable,
where the insurer to whom tender is made has an "other insurance"
clause in its policy, even though such action is contrary to the
wishes of the insured. John Burns and Royal also appeal from the
trial court's order denying their motion for leave to file an
amended complaint.
In October 1993, John Burns subcontracted with Sal Barba
Asphalt Paving, Inc. (Barba), to pave the parking lot at the
Harvard, Illinois, Metra commuter rail station. Under the
subcontract, Barba agreed to maintain insurance for John Burns
under its insurance policy. Barba had an insurance policy with
Indiana Insurance Company, effective from March 31, 1994, to
March 31, 1997. Barba arranged for an endorsement to be added to
this insurance policy naming John Burns as an additional insured,
effective July 5, 1994.
On December 8, 1994, Sidney Gault (Gault) fell and was
injured in the parking lot adjacent to the Harvard Metra train
station. Gault filed a lawsuit in September 1995, under case No.
95 L 13295, alleging the negligence of various defendants,
including John Burns for the paving work.
John Burns notified Barba of the lawsuit and requested that
Barba's insurance company, Indiana Insurance Company, defend and
indemnify John Burns. John Burns made this tender to Indiana
Insurance through Barba in a letter dated September 20, 1995, on
the basis that it was a primary carrier, based on Institute of
London Underwriters v. Hartford Fire Insurance Co., 234 Ill. App.
3d 70, 599 N.E.2d 1311 (1992). In the same letter, John Burns
stated that it looked solely to Barba's insurer, Indiana
Insurance, for defense and indemnification. John Burns also
advised Barba in the letter that it gave notice to its own
insurance carrier, Royal, for "informational purposes only" and
that it requested that Royal not become involved in the
litigation.
In a letter to Johns Burns dated October 25, 1995, Indiana
Insurance declined to defend John Burns in the Gault litigation.
Indiana Insurance stated that it believed it did not have a duty
to defend John Burns because Gault's injuries were not sustained
during the operative period of the contract for the paving work.
Indiana Insurance stated that it had retained counsel, the law
firm of Condon & Cook, while it investigated the matter, but that
it would instruct counsel to withdraw his appearance.
John Burns then sought defense from Royal in the Gault
litigation. The case was subsequently settled after the trial
court granted Indiana Insurance's motion for summary judgment.
The court's order required Royal and Indiana to share in the
costs of defense and indemnification.
John Burns and Royal filed a complaint for declaratory
judgment on May 29, 1996. The complaint sought a declaration
from the court that Indiana Insurance had a duty to defend and
indemnify John Burns in the Gault litigation. Indiana Insurance
filed an answer on October 25, 1996, admitting that the
endorsement on the insurance policy providing for John Burns as
an additional insured provided coverage for John Burns.
Indiana Insurance also filed a counterclaim for declaratory
judgment, admitting that it owed John Burns the duty to defend
but requesting a declaration by the court that Royal and Indiana
Insurance both contribute equally to John Burns' defense and
indemnification, based on the fact that both insurance policies
had an "other insurance" provision. Indiana Insurance's policy
stated the following:
"4. Other Insurance.
If other valid and collectible insurance is
available to the insured for a loss we cover
under Coverage A or B of this Coverage Part,
our obligations are limited as follows:

a. Primary Insurance

This insurance is primary except when b.
below applies. If this insurance is
primary, our obligations are not
affected unless any of the other
insurance is also primary. Then, we
will share with all that other insurance
by the method described in c. below.

b. Excess Insurance

This insurance is excess over any of the
other insurance, whether primary,
excess, contingent or on any other
basis:
(1) That is Fire, Extended Coverage,
Builder's Risk, Installation Risk
or similar coverage for `your
work';
(2) That is Fire Insurance for premises
rented to you; or
(3) If the loss arises out of the
maintenance or use of aircraft,
`autos' or watercraft to the extent
not subject to Exclusion g. of
Coverage A (Section 1).

***

c. Method of Sharing

If all of the other insurance permits
contribution by equal shares, we will
follow this method also. Under this
approach each insurer contributes equal
amounts until it has paid its applicable
limit of insurance or none of the loss
remains, whichever comes first ***."

In their answer to the counterclaim, John Burns and Royal
admitted that Royal's insurance policy contains a clause similar
to Indiana Insurance's, but denied that the "other insurance"
provisions were relevant, based on the ground that it had made a
tender of defense on a primary basis solely to Indiana Insurance
based on the Institute case. Institute, 234 Ill. App. 3d 70, 599 N.E.2d 1311.
In November 1996, Indiana Insurance filed a motion for
judgment on the pleadings, arguing that both Indiana Insurance
and Royal should share the cost of defense. John Burns and Royal
responded and filed a motion for summary judgment, arguing that
John Burns had a right to elect which of the insurers should
defend the Gault case.
On March 24, 1997, the trial court heard argument on the
motions and granted Indiana Insurance's motion for judgment on
the pleadings and denied John Burns' motion for summary judgment.
The court held that Burns' tender to Royal after Indiana
Insurance's refusal to accept the tender made Royal liable under
the Royal policy. The court held that both insurance companies
had to contribute equally to John Burns' defense and
indemnification.
On April 11, 1997, John Burns and Royal filed a motion for
leave to file an amended complaint. The amended complaint added
a third count to the complaint for declaratory judgment. The
newly added proposed count III stated that Royal's insurance
policy was excess to Indiana Insurance policy's coverage and in
support cited an excess insurance clause in Royal's policy. The
motion was argued before the court on April 23, 1997. The trial
court denied the motion.
John Burns and Royal appeal from the March 24, 1997, order
granting Indiana Insurance's motion for judgment on the
pleadings, and from the April 23, 1997, order denying John Burns'
and Royal's motion for leave to file an amended complaint.
Two issues are presented for review: (1) whether the trial
court erred in granting Indiana Insurance's motion for judgment
on the pleadings and denying John Burns' and Royal's motion for
summary judgment; and (2) whether the trial court erred in
denying John Burns' and Royal's motion for leave to file an
amended complaint. For the following reasons, we affirm the
order granting Indiana Insurance's motion for judgment on the
pleadings and denying John Burns' and Royal's motion for summary
judgment, and affirm the order denying John Burns' and Royal's
motion for leave to file an amended complaint.
Under section 2-615 of the Illinois Code of Civil Procedure,
any party may move for judgment on the pleadings. 735 ILCS 5/2-
615(e) (West 1994). On a motion for judgment on the pleadings,
filed by a defendant prior to the filing of an answer, the only
issue before the court is whether the complaint or a particular
count thereof states a cause of action upon which relief can be
granted. Mitchell v. Norman James Construction Co., 291 Ill.
App. 3d 927, 932, 684 N.E.2d 872 (1997). A grant of a
defendant's motion for judgment on the pleadings is appropriate
only where the plaintiff's complaint is legally insufficient such
that the plaintiff can prove no set of facts that would entitle
it to relief. Abbott-Interfast Corp. v. Harkabus, 250 Ill. App.
3d 13, 16, 619 N.E.2d 1337 (1993).
This court reviews summary judgment orders de novo and may
affirm the trial court's ruling on any basis in the record. J.A.
Jones Construction Co. v. Hartford Fire Insurance Co., 269 Ill.
App. 3d 148, 150, 645 N.E.2d 980 (1995).
At issue is whether an insurer to whom litigation is
tendered may seek contribution from another insurer whose policy
is applicable, where the insurer to whom tender is made has an
"other insurance" clause in its policy, even though such action
is contrary to the wishes of the insured. We hold that it can.
In the instant case, Indiana admitted that it had a duty to
defend John Burns but sought contribution from Royal for half of
the cost of defense and indemnification. Indiana argues on
appeal that, even though John Burns tendered only to Indiana, the
fact that Royal knew of the litigation constituted actual notice
sufficient to trigger its duty to defend John Burns. Thus, since
Royal had a duty to defend, it did not matter that John Burns
made tender only to Indiana.
The trial court ruled that Royal also had a duty to defend
John Burns because, after Indiana refused to accept the tender,
John Burns subsequently tendered to Royal, thereby indicating
that it "no longer sought exclusive coverage from Indiana."
In making its ruling, the trial court relied on Institute
of London Underwriters v. Hartford Fire Insurance Co., 234 Ill.
App. 3d 70, 599 N.E.2d 1311 (1992), in granting Indiana's motion
for judgment on the pleadings. Institute held that an insured
may elect which of its insurers is to defend and indemnify a
claim by tendering its defense to one insurer and not the other,
and thus foreclose the settling insurer from obtaining
contribution from the nonsettling insurer. In Institute, Great
Lakes was Hartford's insured and an additional insured under
Institute's policy. Institute, 234 Ill. App. 3d at 71. A law
suit was filed, and Great Lakes tendered the defense to Institute
and did not tender its defense to its own insurer, Hartford.
Institute, 234 Ill. App. 3d at 72. Institute defended Great
Lakes and settled the case and then filed a declaratory judgment
action against Hartford for half of the settlement amount in
contribution. Institute, 234 Ill. App. 3d at 71. The trial
court's grant of summary judgment in favor of Hartford was
affirmed on appeal. This court held that where two insurance
policies apply, the insured may elect which insurer it wishes to
defend and indemnify the claim by tendering the defense to one
insurer and not the other. Institute, 234 Ill. App. 3d at 78-80.
This court also held that such an election forecloses the
settling insurer from obtaining contribution from the nonsettling
insurer for the cost of the defense. Institute, 234 Ill. App. 3d
at 80.
Institute, however, is distinguishable from the instant
case. The critical distinction that is dispositive of this case
is that, in Institute, the insurance company to whom tender was
made, Institute, did not have an "other insurance" clause in its
policy, so it could not seek contribution from the second
insurance carrier, Hartford. Institute, 234 Ill. App. 3d at 71.
Thus, this court held that Hartford was not required to
contribute to the settlement costs of the litigation under the
"other insurance" clause in Hartford's policy because the policy
was not triggered where no tender was made to Hartford.
Institute, 234 Ill. App. 3d at 77. Here, conversely, Indiana had
an "other insurance" clause, so when John Burns tendered the
claim to Indiana, Indiana could seek contribution for the defense
from the other insurer, Royal. Here, John Burns' tender to
Indiana triggered the "other insurance" clause in Indiana's
policy.
However, we reject the trial court's reasoning that Royal's
duty to defend was triggered by John Burns' subsequent tender to
it because this action indicated that John Burns no longer sought
an exclusive defense from Indiana. It was not John Burns'
subsequent tender to Royal that triggered Royal's duty to defend;
rather, the initial tender to Indiana triggered the "other
insurance" clause in Indiana's policy, which in turn triggered
Royal's duty to defend.
Were we to hold otherwise, the "other insurance" clause
would be judicially written out of Indiana's policy. John Burns
and Royal could have bargained for any provisions in their policy
that would have avoided the result in this case, such as making
Royal's policy excess to that of Indiana. However, they did not
do so, and we must give effect to the insurance policies as they
are written. Under Indiana's "other insurance" clause, Royal
also had a duty to defend John Burns and must contribute equally
to the costs of the defense of the underlying litigation.
Next, John Burns argues that Indiana should be estopped from
raising any policy defenses where it was prejudiced when it was
forced to then tender its defense to Royal. Where a complaint
presents a case of potential coverage, the insurer must either
defend under a reservation of right or seek a declaratory
judgment. J.A. Jones Construction Co. v. Hartford Fire Insurance
Co., 269 Ill. App. 3d 148, 151, 645 N.E.2d 980 (1995). An
insurer that fails to exercise either of these two options will
be estopped from later raising any policy defenses. J.A. Jones,
269 Ill. App. 3d at 151. Estoppel is based on conduct by the
insurer which misleads the insurer or causes prejudice. J.A.
Jones, 269 Ill. App. 3d at 151.
Here, Indiana neither proceeded to defend John Burns under a
reservation of rights, nor did it seek a declaratory judgment.
However, John Burns and Royal filed their declaratory judgment
action before the underlying case was disposed of. Once the
declaratory judgment action was filed, Indiana admitted that it
wrongfully declined to defend John Burns. Indiana has not raised
any policy defenses in this case. We affirm the trial court's
ruling that Indiana should not be estopped from asserting its
coverage position due to lack of prejudice to Royal or John
Burns. Thus, we affirm the trial court's grant of judgment on
the pleadings to Indiana, though on an entirely different basis
from the trial court's ruling.
John Burns' and Royal's second argument on appeal is that
the trial court abused its discretion in denying their motion to
file an amended complaint to add a third count.
Section 2-1005(g) of the Code of Civil Procedure provides
the following with respect to amendments:
"(g) Amendment of pleading. Before or after the
entry of a summary judgment, the court shall permit
pleadings to be amended upon just and reasonable
terms." 735 ILCS 5/2-1005 (g)(West 1994).
Under this section, the right to amend is very broad. In re
Estate of Hoover, 155 Ill. 2d 402, 416, 615 N.E.2d 736 (1993). A
trial court's determination whether to allow or deny a pleading
amendment is a matter of discretion and will not be reversed
absent an abuse of discretion. Hoover, 155 Ill. 2d at 416. The
Illinois Supreme Court has adopted four factors to use in
determining whether a trial court's denial of a party's motion to
amend is an abuse of discretion: (1) whether the proposed
amendment would cure the defective pleading; (2) whether the
proposed amendment would surprise or prejudice the opposing
party; (3) whether the proposed amendment was timely filed; and
(4) whether the movant had previous opportunities to amend.
Loyola Academy v. S&S Roof Maintenance, Inc., 146 Ill. 2d 263,
273, 586 N.E.2d 1211 (1992).
Here, the trial court did not abuse its discretion in
denying John Burns' and Royal's motion to file an amended
complaint. It is clear that Royal had abundant opportunities to
amend the complaint to add the count based on the excess carrier
provision in its own policy.
Therefore, we affirm the trial court's order granting
judgment on the pleadings to Indiana and hold that both insurance
companies were to contribute equally to John Burns' defense and
indemnification under the "other insurance" clause in Indiana's
policy. We also affirm the trial court's order denying John
Burns' and Royal's motion to amend the complaint.
Affirmed.
CAMPBELL, P.J., and GREIMAN, J., concur.