Opinion
1-20-0788
09-30-2021
WESTFIELD INSURANCE COMPANY, on its own behalf and as the assignee of Steven R. Gregory, Plaintiff-Appellant, v. FEDERAL INSURANCE COMPANY, Defendant-Appellee.
This order was filed under Supreme Court Rule 23 and is not precedent except in the limited circumstances allowed under Rule 23(e)(1).
Appeal from the Circuit Court of Cook County No. 18 CH 04444 Honorable Franklin U. Valderrama, Judge Presiding.
PRESIDING JUSTICE REYES delivered the judgment of the court. Justices Lampkin and Martin concurred in the judgment.
ORDER
REYES PRESIDING JUSTICE
¶ 1 Held: Affirming the judgment of the circuit court of Cook County where the claims asserted by an insurance company against another insurance company were barred by the two-year statute of limitations applicable to contribution claims.
¶ 2 Steven R. Gregory (Gregory), an officer of a construction company, was named as a defendant in a lawsuit in 2010. Gregory was an insured under two separate insurance policies: a policy providing commercial general liability (CGL) coverage issued by Westfield Insurance Company (Westfield) and a policy providing directors and officers liability (D&O) coverage issued by Federal Insurance Company (Federal). Federal acknowledged its duty to defend Gregory but asserted that its D&O policy constituted excess coverage which would only be triggered by the exhaustion of the $1 million in primary coverage provided by Westfield under the CGL policy. When the underlying litigation settled, Westfield exclusively funded the $42,500 settlement payment from Gregory, as well as his defense costs. Approximately four years later, Gregory executed an assignment of his rights to Westfield.
¶ 3 Westfield, on its own behalf and as Gregory's assignee, filed a complaint for declaratory judgment and other relief against Federal in the circuit court of Cook County in April 2018. Westfield alleged, in part, that Federal (a) breached its duty to defend Gregory and was thus estopped from asserting any policy defenses to coverage and (b) was required to reimburse Westfield for the settlement and defense costs paid on Gregory's behalf. The circuit court ultimately denied Westfield's motion for summary judgment and granted Federal's motion for summary judgment, finding that Westfield's claims were time-barred by the two-year statute of limitations for contribution claims set forth in section 13-204 of the Code of Civil Procedure (Code) (735 ILCS 5/13-204 (West 2018)). Westfield contends on appeal, in part, that the 10-year statute of limitations for actions based on written contracts (735 ILCS 5/13-206 (West 2018)) is applicable and its claims were therefore timely. For the following reasons, we affirm.
¶ 4 BACKGROUND
¶ 5 The Underlying Litigation
¶ 6 In 2006, Richard Olson, as successor trustee of the Irvin E. Olson Revocable Living Trust dated June 7, 1991, and Jean Olson, as Trustee of the Jean Olson Revocable Living Trust dated June 7, 1991 (collectively, the Olsons) filed a complaint in the circuit court of Will County. In September 2010, the Olsons filed their second amended complaint (the underlying complaint) for trespass, nuisance, and injunctive relief, adding Gregory and other parties as defendants.
¶ 7 The underlying complaint alleged that the Olsons owned real estate in Plainfield, Illinois, adjacent to a parcel owned by Plainfield/27 LLC (P27), and that P27 and its contractors had built a 1000-foot stone-block wall which was partially placed on the Olsons' property. According to the underlying complaint, Gregory was an agent for the developers of a subdivision on the P27 parcel.
¶ 8 The Insurance Policies and Payments
¶ 9 Gregory was an insured under a policy issued by Westfield which provided CGL coverage to James McNaughton Construction, Inc. (JMC); Gregory was the chief operating officer of JMC. The relevant limit of liability was $1 million, with a $25,000 deductible.
¶ 10 Gregory was also an insured on a policy issued by Federal to JMC which included D&O coverage. The relevant limit of liability was $500,000, with a $0 deductible. The D&O section of the Federal policy included an "other insurance" clause, i.e., a provision establishing the apportionment of loss among insurers when more than one insurer covers the same loss.
The applicable "other insurance" provision in the Federal policy included the following language: "If any Loss under this Coverage Section is insured under any other valid and collectible insurance or bond(s) subject to the same terms, conditions and provisions as the insurance provided by this Coverage Section, prior or current, then this Coverage Section shall cover its share of such Loss, subject to its limitations, conditions, provisions and other terms, in an amount equal to the proportion that the then-available limit of liability under this Coverage Section bears to the aggregate of all limits of liability of all insurance covering such Loss, whether such other policy(ies) or bond(s) is stated to be primary, contributory, excess, contingent or otherwise, unless such other policy(ies) or bond(s) is written only as specific excess insurance over the Limits of Liability provided in this Coverage Section. If any Loss under this Coverage Section is insured under any prior or current valid and collectible Insurance policy(ies) or bond(s) other than as described above, then this Coverage Section shall cover such Loss, subject to its limitations, conditions, provisions and other terms, only to the extent that the amount of such Loss is in excess of the amount of such other insurance whether such other insurance is stated to be primary, contributory, excess, contingent or otherwise, unless such other insurance is written only as specific excess insurance over the Limits of Liability provided in this Coverage Section."
¶ 11 Westfield and Federal were provided with notice of the underlying litigation in 2010. Westfield agreed to provide a defense to Gregory as well as the two other defendants under a written reservation of rights. On February 14, 2011, Federal also issued a reservation of rights letter, acknowledging its defense obligation to Gregory under the D&O policy "subject to the terms and conditions of the policy and our reservation of rights, as set forth herein." One of the bases on which Federal reserved its rights was the "other insurance" provision of its policy. Federal's position is the "other insurance" language in its policy indicates that its coverage was intended to be secondary (or excess) in this type of case, i.e., the Federal policy would pay only after the first (or primary) policy was exhausted. Based on its view that its policy is an excess policy, Federal declined Westfield's request to contribute to the defense costs and to the eventual $42,500 settlement payment by Westfield on Gregory's behalf in the underlying litigation in early 2014.
¶ 12 In an assignment of rights executed by Gregory in January 2018, Gregory assigned to Westfield his rights and causes of action regarding the underlying litigation, including rights and causes of action against Federal arising from its duty to defend or indemnify. The assignment reflects that Westfield had agreed to waive the recovery of its $25,000 deductible from Gregory.
¶ 13 Westfield s Complaint and Federal s Answer and Affirmative Defenses
¶ 14 On April 5, 2018, Westfield - on its own behalf and as the assignee of Gregory - filed a five-count complaint for declaratory judgment and other relief against Federal in the circuit court of Cook County. In count I (duty to defend) and count II (equitable subrogation), Westfield alleged that Federal owed a duty to defend Gregory in the underlying litigation "on a primary and non-contributory basis" and was responsible for 100% of the defense fees and costs incurred by Westfield. Count III (estoppel) alleged, in part, that Federal failed to defend Gregory or to timely seek a declaratory judgment of its rights and responsibilities and was therefore estopped from asserting any policy defenses to coverage against Gregory for the settlement paid on his behalf in the underlying litigation. In count IV (indemnification), Westfield alleged that Federal breached its duty to indemnify Gregory for his settlement obligation, and thus Westfield was entitled to recoup 100% of the $42,500 settlement payment from Federal, plus prejudgment interest. Count V (violation of section 155 of the Insurance Code) alleged that Westfield was entitled to attorney fees and costs and statutory penalties under section 155 of the Insurance Code (215 ILCS 5/155 (West 2018)) based on Federal's "vexatious and unreasonable" conduct.
¶ 15 Federal filed an answer and affirmative defenses. The affirmative defenses included that: the claims were barred by the doctrines of estoppel, waiver, or laches; Federal had no duty to defend or indemnify Gregory to the extent he was entitled to coverage under the Westfield policy; and the claims were "barred by the applicable statute(s) of limitations."
¶ 16 Cross-Motions for Summary Judgment and the Circuit Court s Ruling
¶ 17 Federal and Westfield each filed motions for summary judgment. In its motion, Federal detailed the efforts by its claim handler, Martha Eberhardt (Eberhardt) - commencing in early 2011 - to obtain copies of Westfield's CGL policy and reservation of rights letter. The supporting documentation appended to the motion reflects that Eberhardt repeatedly requested the Westfield materials and conveyed Federal's position that its coverage was excess of the Westfield policy. In late 2013 or early 2014, Gregory's defense counsel in the underlying litigation finally provided a copy of the Westfield policy to Federal. Eberhardt subsequently noted in the claim file that she had reviewed the Westfield policy and concluded that Federal's "excess" position was correct. In June 2014, she closed the file following multiple unanswered attempts to obtain additional information from Gregory's defense counsel.
¶ 18 Federal in its motion for summary judgment advanced multiple legal arguments. Federal initially argued that Westfield's claims were untimely under the two-year statute of limitations for contribution and indemnity claims (735 ILCS 5/13-204 (West 2014)). Federal also asserted that it did not breach its duty to defend, as the Federal policy was excess of the Westfield policy. Federal further contended that it was not estopped from asserting its coverage defenses since it had not breached its duty to defend. Federal next challenged the effectiveness of the assignment by Gregory, arguing that Westfield extinguished any potential liability of Gregory by "absorbing" all of his defense costs and paying the settlement amount when the underlying litigation settled. In other words, as there was no indication that Gregory made any out-of-pocket payments, he had no valid claims to assign to Westfield in 2018. Federal also argued that Westfield's equitable subrogation claim fails since Federal was not primarily liable for the indemnity and defense costs in the underlying litigation. According to Federal, even if Westfield could prove the elements of equitable subrogation, its claim was barred by the doctrine of laches based on Westfield's failure to promptly pursue any indemnification claim against Federal. Finally, Federal asserted that Westfield lacked standing to pursue a claim under section 155 of the Insurance Code and, in any event, Federal's conduct was neither vexatious nor unreasonable.
¶ 19 In its motion for summary judgment, Westfield argued that Federal had a duty to defend Gregory and should be estopped from asserting policy defenses based on its failure to defend or to seek a declaratory judgment. Westfield also sought section 155 damages and prejudgment interest (815 ILCS 205/2 (West 2018)) against Federal based on its "brazen, willful avoidance of the duty to defend" and its "vexatious and unreasonable failure to pay policy proceeds." Westfield further asserted that it had standing to pursue remedies against Federal based on principles of subrogation and the assignment of rights executed by Gregory.
¶ 20 The circuit court on June 1, 2020, entered a memorandum opinion and order, finding that Westfield's claims were barred by the two-year statute of limitations for contribution and indemnity actions (735 ILCS 5/13-204 (West 2018)) and rejecting Westfield's arguments regarding the applicability of the ten-year statute of limitations for actions based on written contracts (735 ILCS 5/13-206 (West 2018)). After discussing the distinctions between the three concepts - contribution, indemnification, and subrogation - the circuit court opined that "the true nature of Westfield's action is contribution, as Westfield seeks reimbursement from Gregory's co-insurer, Federal, for the costs it incurred to indemnify Gregory." As contribution is a "principle of equity rather than of contract," the circuit court applied the two-year limitations period and concluded that Westfield's claims were barred. The circuit court thus denied Westfield's motion for summary judgment and granted Federal's motion for summary judgment. Westfield filed this timely appeal.
¶ 21 ANALYSIS
¶ 22 As noted above, the instant case was decided in the context of cross-motions for summary judgment; the circuit court denied Westfield's motion and granted Federal's motion. "When parties file cross-motions for summary judgment, they agree that only a question of law is involved and invite the court to decide the issues based on the record." Pielet v. Pielet, 2012 IL 112064, ¶ 28. The mere filing of cross-motions for summary judgment, however, does not establish that there is no genuine issue of material fact, nor does it obligate the court to render summary judgment. Id.
¶ 23 Section 2-1005(c) of the Code provides that summary judgment is appropriate when "the pleadings, depositions, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." 735 ILCS 5/2-1005(c) (West 2018). "We review a motion for summary judgment in the light most favorable to the nonmoving party." Gillespie v. Edmier, 2020 IL 125262, ¶ 9. The circuit court's decision on a motion for summary judgment is reviewed de novo. Policemen's Benevolent Labor Committee v. City of Sparta, 2020 IL 125508, ¶ 12. The interpretation of an insurance policy and the construction of a statute are also questions of law, subject to de novo review. West Bend Mutual Insurance Co. v. Krishna Schaumburg Tan, Inc., 2021 IL 125978, ¶ 30 (de novo review of the construction of an insurance policy); Policemen's Benevolent Labor Committee, 2020 IL 125508, ¶ 13 (de novo review of the construction of a statute).
¶ 24 Westfield advances multiple arguments on appeal. It initially contends that the 10-year statute of limitations for actions based on written contracts applies to its claims (735 ILCS 5/13-206 (West 2018)). Westfield next argues that Federal breached its duty to defend Gregory in the underlying action. As Federal did not defend Gregory or seek a declaratory judgment regarding such duty, Westfield asserts that Federal is estopped from raising policy defenses to coverage. Westfield also argues that Federal cannot assert the doctrine of laches as a defense due to Federal's own delay. Westfield seeks attorney fees and damages under section 155 of the Insurance Code (215 ILCS 5/155 (West 2018)) based on Federal's "vexatious and unreasonable conduct," as well as prejudgment interest (815 ILCS 205/2 (West 2018)). Finally, Westfield posits that it has standing to pursue its remedies under the assignment by Gregory and principles of subrogation.
¶ 25 For the reasons discussed below, we find that the two-year statute of limitations applies to the claims asserted by Westfield, and we thus conclude that summary judgment was properly granted in favor of Federal. In light of our determination that Westfield's claims are time-barred, we need not address its remaining claims of error.
¶ 26 As a threshold matter, Westfield contends Federal's affirmative defense based on the statute of limitations did not reference a specific section of the Code, and thus the circuit court should have disregarded this "wholly conclusory" affirmative defense. Westfield relies on a single case in support of this contention, Richco Plastic Co. v. IMS Co., 288 Ill.App.3d 782, 785 (1997). Unlike the plaintiff in Richco, however, Westfield did not file a motion to strike the affirmative defense but instead responded with a denial. In the absence of a motion to strike, Westfield's reliance on Richco is misplaced. See also Raprager v. Allstate Insurance Co., 183 Ill.App.3d 847, 854 (1989) (noting that a motion to strike an affirmative defense admits all well-pleaded facts constituting the defense, together with all reasonable inferences which may be drawn therefrom, and raises only a question of law as to the sufficiency of the pleading). We turn to the parties' other contentions.
¶ 27 Westfield and Federal disagree regarding the applicable statute of limitations. Westfield maintains that its claims arise from a written contract, i.e., the D&O insurance policy issued by Federal to JMC, under which Gregory was an insured. Under section 13-206 of the Code, actions on written contracts must be filed within 10 years. 735 ILCS 5/13-206 (West 2018). Conversely, Federal contends that the two-year statute of limitations for contribution and indemnity actions set forth in section 13-204 of the Code is applicable. 735 ILCS 5/13-204 (West 2018). The determination of the limitations period is dispositive: the claims were timely if section 13-206 applies but are time-barred if section 13-204 applies.
¶ 28 We initially observe that the complaint for declaratory judgment and other relief, filed by Westfield on its own behalf and as Gregory's assignee, included claims based on equitable subrogation and indemnification. Federal maintains, however, that the claims are more accurately characterized as contribution claims between the two insurers. As our supreme court has observed, the terms "contribution," "indemnification," and "subrogation" are often used interchangeably, but there are distinct differences between them. Home Insurance Co. v. Cincinnati Insurance Co., 213 Ill.2d 307, 315-16 (2004).
¶ 29 In the insurance context, contribution is "an equitable principle arising among coinsurers which permits one insurer who has paid the entire loss, or greater than its share of the loss, to be reimbursed from other insurers who are also liable for the same loss." Id. at 316. Equitable contribution is an insurer's right to recover from a co-obligor that shares the same liability. Progressive Insurance Co. v. Universal Casualty Co., 347 Ill.App.3d 10, 19 (2004). Where multiple insurers insure the same insured and cover the same risk, each insurer has independent standing to assert a cause of action against its coinsurers for equitable contribution when it has undertaken the defense or indemnification of the common insured. Id. "Such an action is based in equity and does not depend upon the contractual rights of the insured." Id. Accord American Alliance Insurance Co. v. IARW Insurance Co., 165 F.3d 558, 561 (7th Cir. 1999) (providing that "in Illinois, contribution among insurers is a restitutionary action governed by common-law principles").
¶ 30 "In contrast to contribution, subrogation and indemnification are devices for placing the entire burden for a loss on the party ultimately liable or responsible for it and by whom it should have been discharged." (Emphasis in original.) Home Insurance Co., 213 Ill.2d at 316. An entity seeking indemnification does so in its own right; a subrogee succeeds to another's right to payment. Id. The elements of an equitable subrogation claim are: (1) the defendant insurer must be primarily liable to the insured for a loss under an insurance policy; (2) the plaintiff insurer must be secondarily liable to the insured for the same loss under its policy; and (3) the plaintiff insurer must have discharged its liability to the insured and at the same time extinguished the liability of the defendant insurer. Id. at 323.
¶ 31 Although the parties fundamentally disagree regarding the nature and effect of the "other insurance" provision in Federal's policy, the record is clear that Westfield was not "secondarily liable" to Gregory. The doctrine of equitable subrogation is thus inapplicable. If Westfield and Federal are co-insurers, as was Westfield's position throughout the underlying litigation, then the proper cause of action is one based on contribution. See Progressive Insurance Co., 347 Ill.App.3d at 20.
¶ 32 In light of our conclusion that the claims asserted by Westfield in its complaint are contribution claims based on equity rather than contract, the two-year limitations period set forth in section 13-204 applies. 735 ILCS 5/13-204 (West 2018). The instant case is thus distinguishable from the appellate cases cited by Westfield wherein the court applied the ten-year statute of limitations for actions based on written contracts (735 ILCS 5/13-206 (West 2018)) to disputes directly resting on contractual provisions. E.g., Travelers Casualty & Surety Co. v. Bowman, 229 Ill.2d 461 (2008).
¶ 33 We further observe that the Seventh Circuit Court of Appeals in American Alliance Insurance Co. v. IARW Insurance Co., 165 F.3d 558, 560 (7th Cir. 1999) - citing section 13-204 of the Code - stated that "[t] wo years from payment is the time given by state law for contribution actions among insurers." See also Liberty Mutual Insurance Co. v. Lumbermens Mutual Casualty Co., 2008 WL 2940797, *2 (N.D. Ill. July 25, 2008) (providing that actions for equitable contribution under Illinois law are subject to a two-year statute of limitations). While federal decisions are not binding on this court, a federal court's interpretation of Illinois law is persuasive unless it runs contrary to previously decided state cases, which American Alliance Insurance does not. See Mokena Community Park District v. Romanek, 2020 IL App (3d) 180336, ¶ 13.
¶ 34 For the foregoing reasons, we find that the denial of summary judgment to Westfield and the grant of summary judgment to Federal was proper.
¶ 35 CONCLUSION
¶ 36 As discussed herein, we affirm the judgment of the circuit court of Cook County.
¶ 37 Affirmed.