New Hampshire Insurance Co. v. Hanover Insurance Co.

FIRST DIVISION
May 18, 1998

No. 1-96-2235

IN THE APPELLATE COURT
OF ILLINOIS
FIRST JUDICIAL DISTRICT

NEW HAMPSHIRE INSURANCE COMPANY,

Plaintiff-Appellee,

v.

HANOVER INSURANCE COMPANY,

Defendant-Appellant

(FCL/Stava Group, Inc.,

Defendant).

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

Honorable
Michael Brennan
Getty,
Judge Presiding.


JUSTICE GALLAGHER delivered the opinion of the court:
This appeal involves an insurance coverage dispute between
plaintiff, New Hampshire Insurance Company (New Hampshire), and
defendant, Hanover Insurance Company (Hanover), regarding the
priority of coverage as between two insurance policies. Hanover
appeals from the trial court's decision that the umbrella policy
issued by New Hampshire was an excess policy over and above the
primary commercial general liability policy issued by Hanover,
thereby entitling New Hampshire to reimbursement of $450,000 paid
to settle the underlying case, plus prejudgment interest. We
affirm. The relevant facts follow.
Thaddeus Smolucha, plaintiff in the underlying case, was
injured on July 6, 1992, while working on a construction project
at a General Motors plant in Chicago, Illinois. At the time,
plaintiff's employer was S.G. Krause, a subcontractor of
FCL/Stava. FCL/Stava was one of the defendants in the underlying
case.
Pursuant to the contract between S.G. Krause and FCL/Stava,
S.G. Krause had procured insurance from Granite State Insurance
Company which named FCL/Stava as an additional insured.
FCL/Stava also had its own commercial general liability policy
from Hanover. S.G Krause also procured a commercial liability
excess umbrella policy from New Hampshire which named FCL/Stava
as an additional insured, although this umbrella policy was not
required by the contract between S.G. Krause and FCL/Stava. All
three policies were in effect on July 6, 1992, the date of
Smolucha's injury in the underlying case.
A settlement was reached in the underlying case and Smolucha
received a lump sum of $1,450,000 in exchange for a release
against all defendants. Granite State contributed its $1 million
limit of insurance to the settlement under the policy it had
issued to S.G. Krause. There is no dispute that this policy was
the primary policy which was required to pay the first $1
million. What is in dispute, and the first issue we address in
this appeal, is which company's policy was responsible for the
remaining $450,000 of the settlement. New Hampshire paid the
$450,000, while reserving its rights to pursue Hanover for
contribution and/or indemnity. New Hampshire and Hanover agreed
to litigate the following issue:
"With respect to the $1.45 million settlement of
the Smolucha case and New Hampshire's payment of
$450,000 on behalf of its additional insured, FCL/Stava
Group, under New Hampshire's excess umbrella policy,
what is the order of priority of coverage as to the
$450,000 amount as between New Hampshire's excess
umbrella policy and Hanover's home builders policy,
construing these policies as a whole and specifically
with respect to their respective 'other insurance'
clauses?"
On August 10, 1995, New Hampshire filed a first amended
complaint for declaratory judgment, requesting the court to
determine the priority of coverage as between the two policies.
The complaint sought a declaration from the court that Hanover's
commercial general liability policy provided coverage on a
primary, noncontributing basis relative to New Hampshire's excess
umbrella policy. The complaint also requested that Hanover be
ordered to pay New Hampshire $450,000, plus statutory prejudgment
interest.
On December 8, 1995, New Hampshire filed a motion for
judgment on the pleadings. On March 29, 1996, the trial court
granted New Hampshire's motion; Hanover's motion for rehearing
was denied on May 26, 1996. On June 14, 1996, the trial court
granted New Hampshire's motion for prejudgment interest. Hanover
appeals from the trial court's orders of March 29, 1996, May 26,
1996, and June 14, 1996.
OPINION
Our review of the trial court's granting of New Hampshire's
motion for judgment on the pleadings is de novo. See Chicago
Title and Trust Co. v. Steinitz, 288 Ill. App. 3d 926, 934, 681 N.E.2d 669, 674 (1997). This appeal involves two issues. The
first issue is whether the trial court correctly ruled that New
Hampshire's umbrella policy was an excess policy over and above
Hanover's primary commercial general liability policy, thereby
entitling New Hampshire to reimbursement of the $450,000 that it
paid to settle the underlying case. The second issue is whether
the trial court was correct in awarding prejudgment interest to
New Hampshire.
INSURANCE COVERAGE ISSUE
The first issue can be summarily disposed of based upon the
recent well-reasoned opinion of this court in American Country
Insurance Co. v. Hanover Insurance Co., 293 Ill. App. 3d 1025
(1997). Hanover, the party here, was also a party in that case.
While the facts and procedural histories of the two cases are not
identical, the essential issue of which policy was excess is the
same. In American Country Insurance, as here, Hanover argued
that its "other insurance" clause, which replaced the standard
preprinted form "other insurance" clause, made it excess over all
other insurance policies, including umbrella excess policies. 293
Ill. App. 3d at 1026-27. The plaintiff in American Country
argued, as does New Hampshire here, that its excess policy was a
"true" excess policy that does not pay until all "primary" policy
limits are exhausted.
The American Country court analyzed Putnam v. New Amsterdam
Casualty Co., 48 Ill. 2d 71, 269 N.E.2d 97 (1970), which stood
for the proposition 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 pro rate coverage between the two policies.
293 Ill. App. 3d at 1028. Hanover, here, relies upon Putnam to
support its position, as it did in American Country. 293 Ill.
App. 3d at 1028. Also analyzed by the American Country court was
the case of Illinois Emcasco Insurance Co. v. Continental
Casualty Co., 139 Ill. App. 3d 130, 487 N.E.2d 110 (1985), which
held that a primary policy pays before an excess umbrella policy
and in such a situation, general rules regarding excess and
"other insurance" clauses do not apply. 293 Ill. App. 3d at 1028.
Hanover argues, in essence, that the Illinois Emcasco court,
by focusing on the type of insurance policy rather than the
specific language of the "other insurance" clause contained in
each policy, incorrectly deviated from the test set out by the
supreme court in Putnam. We disagree and are instead in accord
with the American Country court's determination that Putnam and
Illinois Emcasco are complementary, not conflicting, decisions
because Putnam involved two primary policies that contained
"other insurance" clauses, while Illinois Emcasco involved a
primary policy that had an "other insurance" clause and an
umbrella excess policy. 293 Ill. App. 3d at 1028-29. It is well
known that an umbrella policy is different from a primary policy
containing an excess insurance clause in that an umbrella policy
provides a special and unique coverage. Since umbrella policies,
by their nature, only pay above the primary policies, this
different type of coverage generally allows for lower premiums
than those of primary policies. See, e.g., American Country, 293
Ill. App. 3d at 1030, citing Illinois Emcasco, 139 Ill. App. 3d
at 132-33, 487 N.E.2d 112. We are reluctant to interfere with
this market driven fact. In our view, deciding an umbrella
policy should pay before a primary policy with an excess clause
makes neither commercial nor legal sense. In accordance with the
reasoning of American Country, we conclude that the trial court
in the instant case properly decided that New Hampshire's
umbrella policy was excess over and above Hanover's primary
commercial general liability policy.
PREJUDGMENT INTEREST ISSUE
We now address the second issue of whether New Hampshire is
now entitled to be reimbursed by Hanover for prejudgment interest
for the $450,000 that New Hampshire paid out of its umbrella
policy, in view of the fact that Hanover was responsible for the
settlement amount under its primary policy. Generally,
prejudgment interest "is not recoverable absent a statute or
agreement providing for it." City of Springfield v. Allphin, 82 Ill. 2d 571, 576, 413 N.E.2d 394, 396 (1980).
Hanover contends that New Hampshire should not have been
awarded prejudgment interest for two reasons. The first reason
offered by Hanover is that the parties agreed that the only issue
that would be litigated would be the order in which the policies
in issue would pay the $450,000. The trial court correctly
agreed with New Hampshire's contention that the right to
prejudgment interest was not a coverage issue and was not
contemplated by the parties at the time they entered into the
agreement to litigate the coverage issue. This conclusion is
supported by the fact that New Hampshire specifically included in
its complaint a request for prejudgment interest as part of its
prayer for relief. Hanover never moved to strike this request
from the complaint. Thus, while the parties' agreement did not
constitute an agreement for prejudgment interest, it also did not
preclude a request for such interest. Whatever other "coverage
issues" Hanover agreed not to pursue, in order to assure a faster
resolution of the primary coverage issue, "prejudgment interest"
was not one of them. Prejudgment interest is not an "issue" but,
rather, a statutory right.
Hanover also argues that New Hampshire is not entitled to
prejudgment interest under the Illinois Interest Act (Act) (815
ILCS 205/2 (West 1994)). The Act provides as follows:
" 2. Creditors shall be allowed to receive at the
rate of five (5) per centum per annum for all moneys
after they become due on any bond, bill, promissory
note, or other instrument of writing; on money lent or
advanced for the use of another; on money due on the
settlement of account from the day of liquidating
accounts between the parties and ascertaining the
balance on money received to the use of another and
retained without the owner's knowledge; and on money
withheld by an unreasonable and vexatious delay of
payment." 815 ILCS 205/2 (West 1994).
Hanover contends that the parties did not have the requisite
debtor-creditor relationship contemplated by the statute because
there was no "instrument of writing" as the term is used in the
Act and the sum at issue was not liquidated until the court made
its ruling of March 29, 1996.
Our supreme court has stated that cases in chancery do not
necessarily need statutory authority for an award of prejudgment
interest. In re Estate of Wernick, 127 Ill. 2d 61, 86-89, 535 N.E.2d 876, 887-89 (1989). Since we conclude that New Hampshire
was entitled to prejudgment interest pursuant to the Illinois
Interest Act (815 ILCS 205/2 (West 1994)), however, we need not
consider whether any alternative equitable grounds for awarding
prejudgment interest apply in this instance.
The cases addressing the issue of whether an insurance
policy constitutes an instrument of writing pursuant to the
Illinois Interest Act have typically involved insureds and their
insurers. Our research has not identified any published Illinois
opinions where the party seeking the prejudgment interest was an
excess insurer who had paid the money that was due under the
policy from the primary insurer. Nevertheless, under the facts
of the instant case, we think this is a distinction without a
difference. The date that the money became due to the insured,
FCL/Stava, was March 8, 1995, pursuant to the settlement of the
underlying case with the plaintiff, Smolucha. A debtor-creditor
relationship was established at the point where New Hampshire
paid the amount owed by Hanover. That the money was due was
clear under Illinois law at the time based upon the principle
first pronounced in Illinois Emcasco and commonly referred to as
"horizontal exhaustion," whereby all underlying coverage must be
exhausted before excess coverage may be reached because excess
coverage carries a smaller premium than primary coverage due to
the lesser risk insured. Illinois Emcasco, 139 Ill. App. 3d at
133, 487 N.E.2d at 112; see also, Missouri Pacific R.R. Co. v.
International Ins. Co., 288 Ill. App. 3d 69, 81, 679 N.E.2d 801,
809 (1997). At that point, if Hanover did not pay the money,
clearly due under its policy as pronounced in the case of
Illinois Emcasco, FCL/Stava would have had a right to prejudgment
interest. That Hanover believed that Illinois Emcasco was
wrongly decided does not mean it was not the state of current
Illinois law. Thus, while this is technically not a subrogation
case, the fact that New Hampshire stepped into the shoes of the
insured, and also agreed in writing with Hanover to seek
reimbursement of its payment by way of a declaratory judgment
action, means that the requirement that there be an instrument in
writing was met.
Hanover contends that, under the general rule of statutory
construction known as ejusdem generis, neither the insurance
policy nor the agreement between it and New Hampshire to litigate
the coverage issue constituted an "instrument in writing." Under
the rule of ejusdem generis, where general words follow an
enumeration of specific things of a particular class, the general
words are to be construed as applying only to things of the same
general class as those enumerated. See, e.g., Farley v. Marion
Power Shovel Co., 60 Ill. 2d 432, 328 N.E.2d 318 (1975). Thus,
Hanover contends that, since the term "instrument of writing"
follows a specific listing of types of commercial paper, i.e.,
bonds, bills and promissory notes, it would be a violation of
this basic canon of statutory construction to construe the term
to include insurance policies or agreements such as the one
between New Hampshire and Hanover whereby New Hampshire paid the
sum due and agreed to later litigate which party's policy was
actually responsible for the sum.
That the phrase "or other instrument of writing" should be
construed under the rule of ejusdem generis was recognized by
this court in Hamilton v. American Gage & Machine Corp., 35 Ill.
App. 3d 845, 853, 342 N.E.2d 758, 765 (1976), and again in Fenton
v. Board of Trustees, 203 Ill. App. 3d 714, 561 N.E.2d 105
(1990). We note, as did the court in Fenton, that numerous cases
have construed the term "instrument in writing" to include a
variety of written documents. See, e.g., Krantz v. Chessick, 282
Ill. App. 3d 322, 668 N.E.2d 77 (1996) (contingency fee
agreement); Hammel v. Ruby, 139 Ill. App. 3d 241, 487 N.E.2d 409
(1985) (real estate listing contract); E.M. Melahn Construction
Co. v. Village of Carpentersville, 100 Ill. App. 3d 544, 427 N.E.2d 181 (1981)(building or construction contract); Montgomery
Ward & Co., Inc. v. Wetzel, 98 Ill. App. 3d 243, 423 N.E.2d 1170
(1981)(lease). Fenton held that a pension agreement was also an
instrument in writing within the meaning of the statute since it
was a similar instrument of indebtedness. Moreover, it is well
settled that an insurance policy is a written instrument covered
by this statute and it has long been held that prejudgment
interest may be recovered under such an insurance policy from the
time money becomes due thereunder. See, e.g., Couch v. State Farm
Insurance Co., 279 Ill. App. 3d 1050, 1054, 666 N.E.2d 24, 27
(1996); Industrial Indemnity Co. v. Vukmarkovic, 205 Ill. App. 3d
176, 188, 562 N.E.2d 1073, 1081 (1990); Ervin v. Sears, Roebuck &
Co., 127 Ill. App. 3d 982, 469 N.E.2d 243 (1984); Central
National Chicago Corp. v. Lumbermens Mutual Casualty Co., 45 Ill.
App. 3d 401, 408 (1977). That those things which were
specifically enumerated in the statute might also technically fit
the definition of commercial paper is by happenstance. We
conclude that the critical similarity shared by the specifically
enumerated things in the statute, i.e., bonds, bills, and
promissory notes, is that the writings evince the creation of an
indebtedness or of a creditor-debtor relationship. See Hamilton,
35 Ill. App. 3d at 853, 342 N.E.2d at 765. Here, both the
Hanover insurance policy and the written agreement between
Hanover and New Hampshire were instruments in writing within the
meaning of the Illinois Interest Act.
Additionally, Hanover's argument that the amount was not
liquidated is without merit. It is true that prejudgment
interest will be awarded for amounts due on an instrument in
writing only if the amount was liquidated or was easily computed.
Oldenburg v. Hagemann, 207 Ill. App. 3d 315, 327, 565 N.E.2d 1021
(1991). Nevertheless, if the amount is determinable, interest
can be awarded on money payable even when the claimed right and
the amount due require legal ascertainment. Martin v. Orvis
Brothers & Co., 25 Ill. App. 3d 238, 251, 323 N.E.2d 73 (1974).
Here, there was no dispute that the amount due was $450,000.
Thus, even if there was a good-faith dispute as to which party
was responsible for payment, it would be of no import.
Prejudgment interest may be awarded on money payable when a
claimed right and the amount due still require legal
ascertainment, despite the fact that the parties might reasonably
differ as to their liability. Bank of Chicago v. Park National
Bank, 266 Ill. App. 3d 890, 900, 640 N.E.2d 1288, 1296 (1994);
Martin v. Orvis Brothers & Co., 25 Ill. App. 3d 238, 251, 323 N.E.2d 73 (1974). While a good-faith dispute could preclude an
award for prejudgment interest in a claim brought for an
unreasonable refusal to pay, such a dispute does not preclude the
recovery of prejudgment interest on money due under an instrument
of writing. See, e.g., Krantz v. Chessick, 282 Ill. App. 3d 322,
327-28, 668 N.E.2d 77, 80 (1996).
Accordingly, for all the foregoing reasons, we affirm the
trial court's decision that New Hampshire's umbrella policy was
an excess policy over and above Hanover's primary commercial
general liability policy, thereby entitling New Hampshire to
reimbursement of the $450,000 that it paid to settle the
underlying case, along with prejudgment interest.
Affirmed.
CAMPBELL, P.J. and O'BRIEN, J., concur.