American States Insurance v. CFM Construction Co.

Citations: 398 Ill. App. 3d 994; 923 N.E.2d 299; 337 Ill. Dec. 740; 2010 Ill. App. LEXIS 14Docket: No. 2—08—0781

Court: Appellate Court of Illinois; January 12, 2010; Illinois; State Appellate Court

SummaryOriginalCytator Case TreatmentBackward CitatorAnalysis

EnglishEspañolSimplified EnglishEspañol Fácil

American States Insurance Company (American) appealed a trial court judgment that denied its motion for summary judgment while granting summary judgment to CFM Construction Company (CFM) and Michigan Mutual Insurance Company (Michigan). The court determined that American was obligated to reimburse Michigan half of the $700,000 settlement paid to settle claims from an accident involving an employee of a subcontractor insured by Michigan. Michigan cross-appealed, seeking attorney fees, costs, and prejudgment interest, which the court denied.

American's appeal included arguments that (1) the trial court correctly found Michigan lacked a cause of action for equitable contribution or equitable subrogation, and (2) the court improperly relied on a comparison of the insurance policies' "other insurance" clauses to justify Michigan's recovery of the settlement amount. In its cross-appeal, Michigan contended that the trial court erred by not awarding it and CFM attorney fees, costs, and prejudgment interest. 

The case stemmed from an incident at a construction site where an employee, Francisco Flores, was injured. CFM, as the general contractor, had contracted with NF Construction and International Decorators, both insured by American and Michigan, respectively. Following the injury, Flores filed lawsuits against CFM and NF, which were consolidated. CFM sought defense coverage from Michigan, which requested contribution from American, but American refused. The trial court ultimately ruled that American had a duty to defend CFM as an additional insured. After a settlement agreement was reached, Michigan received an assignment of CFM’s rights against American for breach of duty regarding defense and indemnification. American then sought a declaration of no duty to indemnify CFM, while CFM and Michigan counterclaimed for reimbursement of half the settlement amount and sought additional fees and costs. All parties moved for summary judgment, leading to the court's ruling in favor of CFM and Michigan.

The trial court denied American's motion for summary judgment and granted summary judgment in favor of CFM and Michigan, ordering American to pay Michigan $350,000 while denying fees, costs, and interest. The court ruled that Michigan could not recover under equitable contribution due to differing policy coverage but determined that both policies provided primary commercial general liability coverage with identical "other insurance" provisions, leading to a shared cost of the CFM settlement. American's subsequent motion for reconsideration was denied, prompting a timely appeal from American and a cross-appeal from Michigan.

On appeal, American contends that the trial court erred in granting summary judgment to CFM and Michigan. Summary judgment is justified when there is no genuine issue of material fact, and the moving party is entitled to judgment as a matter of law, requiring a clear and indisputable right. The appellate court reviews summary judgment decisions de novo, favoring the non-moving party in evidence interpretation.

American argues that the trial court correctly concluded that Michigan and CFM had no cause for equitable contribution, which allows an insurer who has paid a loss to seek reimbursement from other liable insurers. This doctrine is applicable when multiple insurers share the same liability and risks. American maintains that the policies covered different risks—its policy addressed CFM’s liability from NF’s work, while Michigan’s policy covered CFM’s liability from International Decorators’ work, connected to Flores.

Disagreement with American is expressed, emphasizing that when two insurers cover distinct risks, equitable contribution does not apply, as established in *Home Insurance, 213 Ill. 2d at 316*. Since the policies do not define "risk," its common dictionary definition is utilized, defined as “the possibility of loss or injury” (Merriam-Webster) and including varying interpretations related to loss probability (Webster’s Third New International Dictionary; Black’s Law Dictionary). Courts aim to interpret insurance policy language to reflect the parties' intentions, treating policies as contracts construed as a whole, where every provision is assumed to serve a purpose (*Crum, Forster Managers Corp. v. Resolution Trust Corp.*, 156 Ill. 2d 384, 391 (1993); *Central Illinois Light Co. v. Home Insurance Co.*, 213 Ill. 2d 141, 153 (2004)). Unambiguous policy terms are applied as written, while ambiguous terms are construed against the drafter (*Crum, Forster Managers Corp.*, 156 Ill. 2d at 391; *Central Illinois Light Co.*, 213 Ill. 2d at 153). The construction of an insurance policy is a legal question suitable for summary judgment (*Illinois Farmers Insurance Co. v. Marchwiany*, 222 Ill. 2d 472, 476 (2006)), and such constructions are reviewed de novo (*Nicor, Inc. v. Associated Electric, Gas Insurance Services, Ltd.*, 223 Ill. 2d 407, 416 (2006)). CFM was added as an additional insured under American's NF policy based on a provision for additional insureds related to ongoing operations performed for the insured, even if the contract did not specify construction supervision. Gerald Kemp, an NF employee, acted in a supervisory capacity at the construction site, although it remains unclear who compensated him, as NF billed CFM for these services. The interpretation of "ongoing operations" encompasses any ongoing work NF performed for CFM, defined as the execution of practical work (*Merriam-Webster’s Collegiate Dictionary*).

NF's construction supervision falls within the broad definition of coverage, as it was hired by CFM to oversee the construction, making both American States Insurance and Michigan responsible for similar risks related to supervisory liability stemming from the actions of subcontractor International Decorators. American argues against the trial court's order for reimbursement to Michigan, claiming it had no duty to indemnify CFM due to conflicting tort claims made by plaintiff Flores regarding the roles of CFM and NF as construction supervisors. It contends that while the duty to defend is broader and based on potential coverage, the duty to indemnify is narrower and contingent upon the insured being legally obligated to pay damages under the policy.

American acknowledges that the complaints were consolidated for trial, which established NF's role as a construction supervisor, a position previously recognized in their duty to defend. American fails to provide new facts or evidence to alter this analysis for the duty to indemnify and has not substantiated its claim that NF denied being the construction supervisor, violating Supreme Court Rule 341(h)(7) by not citing the record. The court rejects American's interpretation of the complaints as incompatible, opting instead to read them together, concluding that the claim is covered by American's policy. Consequently, American has a duty to indemnify CFM.

Michigan was entitled to reimbursement based on equitable contribution, leading the trial court to properly grant summary judgment in favor of CFM and Michigan, ordering American to pay Michigan $350,000, which is half of a $700,000 settlement. The court did not need to address American’s argument regarding the "other insurance" clauses since the judgment was affirmed on equitable contribution grounds. In Michigan’s cross-appeal, it contended that the trial court erred by denying its request for attorney fees and costs under section 155 of the Insurance Code, arguing that American's actions were vexatious and in bad faith. However, the trial court found that American's position, despite being disagreed with, was not vexatious or in bad faith. American argued that Michigan lacked standing to appeal this issue since CFM did not appeal, but it was determined that Michigan had standing as CFM assigned its rights to Michigan. Under section 155, a court may allow attorney fees and costs if it deems an insurer's actions vexatious and unreasonable, but the mere loss of coverage litigation does not automatically warrant such fees. The existence of a bona fide dispute over coverage negates violations of section 155. The trial court's discretion in awarding attorney fees will only be disturbed if an abuse of discretion is evident.

A trial court must assess the totality of the circumstances, including the insurer's demeanor and whether the insured was compelled to litigate to recover or was denied property use. In their countercomplaint, Michigan and CFM claimed $37,661.60 against American for vexatious and unreasonable conduct, citing five specific delays and refusals by American, including a nearly five-month wait to file a declaratory judgment after CFM tendered its defense. Despite these claims, the court concluded that American's actions were not inherently vexatious or unreasonable, noting that American articulated its policy defenses within three weeks and that differing interpretations of the insurance provisions suggested a bona fide dispute. The court found no abuse of discretion in denying Michigan and CFM's request for attorney fees or prejudgment interest, as they provided insufficient legal authority and factual support for their claims. The trial court determined that, while it disagreed with American's position, there was no evidence of bad faith. The judgment was affirmed, and it was noted that American must pay half of the settlement amount due to equal policy limits.