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Argonaut Insurance Co. v. Safway Steel Products, Inc.

Case Date: 12/30/2004
Court: 1st District Appellate
Docket No: 1-02-2449 Rel

SECOND DIVISION
Date Filed: December 30, 2004


No. 1-02-2449

 
ARGONAUT INSURANCE COMPANY, KENNY
CONSTRUCTION COMPANY, INC., and
PARK NEWBERRY, an Illinois Corporation,

               Plaintiffs

               v.

SAFWAY STEEL PRODUCTS, INC.,

               Defendant

(Reliance Insurance Company of
Illinois,

               Defendant-Appellee;

Federal Insurance Company,

               Intervening Plaintiff-Appellant;

Transcontinental Insurance Company,

               Intervening Defendant-Appellee).

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)		 Appeal from the
Circuit Court of
Cook County.





No. 99 CH 09234






Honorable
Nancy Jo Arnold,
Judge Presiding.





 


JUSTICE HALL delivered the opinion of the court:

Federal Insurance Company (Federal), the interveningplaintiff, appeals from an order of the circuit court of CookCounty vacating the grant of Federal's motion to intervene anddismissing its counterclaim for declaratory relief againstTranscontinental Insurance Company (Transcontinental), theintervening defendant.

On appeal, Federal raises the following issues: (1) whetherthe circuit court erred in vacating its order granting Federal'smotion to intervene, and (2) whether Federal's amendeddeclaratory judgment complaint against Transcontinental wasproperly dismissed.

BACKGROUND

Park Newberry (Park) hired Kenny Construction Company(Kenny) to act as the general contractor on a condominium projectdeveloped by Park. In turn, Kenny hired Safway Steel Products,Inc. (Safway), as a subcontractor to erect and perform all heavy-duty sidewalk canopy work. Pursuant to its contract with Kenny,Safway added Kenny and Park as additional insureds in itsinsurance policy with Reliance, Safway's primary insurancecarrier.(1) The contract also required Safway to provide thisinsurance as primary and noncontributory to any insurancepolicies maintained by Kenny and Park.

On December 16, 1996, Donald Hallsten was injured in acollision between his bicycle and a taxicab, allegedly the resultof a construction canopy's obstruction of the view around theconstruction site. Kenny, Park, and Safway were named asdefendants in the lawsuit stemming from the collision. Kennytendered defense of this suit to Reliance pursuant to Reliance'scertificate of insurance naming Kenny and Park as additionalinsureds on its policy with Safway.(2)

Argonaut, as Kenny andPark's primary insurer, proceeded to defend the suit on behalf ofKenny and Park and, ultimately, settled it for $4 million. SinceArgonaut's policy was limited to $1 million, Federal, Kenny'sexcess insurer, provided the settlement balance of $3 million.

Argonaut, Kenny, and Park filed a declaratory judgmentcomplaint against Reliance to determine whether Reliance had aduty to defend and indemnify Kenny and Park in the foregoingpersonal injury suit.(3) In their amended complaint, Argonaut,Kenny, and Park alleged that because Reliance failed to provide adefense and indemnification, Argonaut, on behalf of Kenny andPark, was forced to defend and incur expenses that should havebeen borne by Reliance.

On April 3, 2001, the circuit court ruled, as to count I,that Reliance owed Kenny and Park a duty to defend and indemnifyunder its policy. The court dismissed Argonaut's request forsimilar declaratory relief for lack of standing but grantedArgonaut leave to amend.

On April 11, 2001, Argonaut filed an amended count Iseeking, inter alia, declaratory relief against Reliance based onequitable contribution. Argonaut argued that Reliance was liableto Argonaut for the $1 million paid in the settlement of thepersonal injury suit as well as $472,566.50 in legal costsincurred to defend it. Argonaut further argued that thisliability arose out of Reliance's duty to defend and indemnifyKenny and Park as additional insureds.

On May 3, 2001, Reliance appealed the circuit court'sdecision granting Kenny and Park declaratory relief. On July 2,2001, this court dismissed the appeal.

On May 29, 2001, the Commissioner of the Commonwealth ofPennsylvania placed Reliance in rehabilitation, ordering allpending actions against the company to be stayed for 60 days. Reliance moved the circuit court to dismiss Argonaut's amendedcomplaint or, in the alternative, to stay the proceedings.

On June 21, 2001, Federal petitioned the court to intervenein Argonaut's declaratory suit against Reliance and for leave tofile a declaratory judgment complaint against Transcontinental. In support of its petition, Federal maintained that it wasentitled to the first $3 million recovery from the Reliance-Transcontinental "tower of insurance." Federal argued that itwas entitled to recover Reliance's policy limit of $1 million and$2 million from Transcontinental's excess coverage policy. Assuch, Federal's interest would be prejudiced if Argonaut wasawarded its costs of $1 million plus legal expenses, therebyexhausting Reliance's $1 million primary policy limit. Federalalso argued that it should be granted intervention as of rightbecause the court's resolution of the case would bind it in anyfuture action against Reliance and Transcontinental to recoverits contribution to the settlement of the personal injury case. In the alternative, Federal argued that it should be grantedpermissive intervention because its claim against Reliance andTranscontinental arose from the same nucleus of operative factsas Argonaut's claim.

On June 28, 2001, the circuit court granted Federal'spetition to intervene and granted Federal leave to file itsdeclaratory judgment complaint against Transcontinental. Thegravamen of Federal's claim was Reliance's and Transcontinental'sduty to defend and indemnify Kenny as an additional insured.(4)Federal also sought a determination of Transcontinental'sliability to reimburse Federal for its $3 million contribution tosettle the personal injury claim.

On October 3, 2001, Reliance was declared insolvent and wasplaced in liquidation. Reliance then moved to amend its earliermotion to dismiss or stay the proceedings. On October 15, 2001,the circuit court granted Reliance's motion to dismiss Argonaut'samended complaint for declaratory relief pursuant to Reliance'sliquidation status.(5)

The court continued the case for status asto Federal's complaint against Transcontinental.

Subsequently, Reliance renewed its motion to dismiss theremaining proceedings. Reliance argued that Federal's requestfor a declaratory judgment against Reliance, pursuant toFederal's intervention in Argonaut, Kenny, and Park's originalaction for declaratory relief, was barred by section 221.10 ofthe Illinois Insurance Code (215 ILCS 5/221.10 (West 2000))because of Reliance's liquidation status. In the alternative,Reliance argued that, even if Federal sought relief only againstTranscontinental, Reliance would be an indispensable party tothese proceedings without which any judgment againstTranscontinental would be null and void by operation of law. OnApril 30, 2002, Federal amended its complaint seeking relief onlyfrom Transcontinental.

On July 12, 2002, the circuit court dismissed Federal'samended complaint against Transcontinental. The court found thatFederal's complaint did not allege sufficient facts to provecommonality of insureds, a necessary element to recover underequitable contribution. The court also determined that itimproperly granted Federal's petition to intervene becauseFederal's complaint "is against another insured,Transcontinental, [which] happened to insure a co-defendant inthe underlying action," as opposed to Reliance, which was a partyto the original declaratory judgment action filed by Argonaut,Kenny, and Park. The court further explained that "Federal'scomplaint has no relationship to the case that was before [thecircuit court], and it is dismissed for that reason."

On August 6, 2002, Federal appealed the circuit court's July12, 2002, order. During the pendency of this appeal, Reliancefiled a motion to dismiss this appeal, based on its liquidationand indispensable-party status. We ordered the motion to dismisstaken with the case.
 

ANALYSIS

I. Federal's Petition to Intervene
A. Standard of Review

The decision to allow or deny intervention, whetherpermissive or as of right, is a matter of sound judicialdiscretion that will not be reversed absent an abuse of thatdiscretion. In re Estate of K.E.S., 347 Ill. App. 3d 452, 464,807 N.E.2d 681 (2004). An appellate court may find an abuse ofdiscretion only where no reasonable person would take the viewadopted by the trial court. Janky v. Perry, 343 Ill. App. 3d230, 234, 797 N.E.2d 1066 (2003).

B. Discussion

Federal contends that the circuit court erred when itvacated the grant of its petition to intervene. The purpose ofintervention "'is to expedite litigation by disposing of theentire controversy among the persons involved in one action toprevent a multiplicity of actions.'" Home Insurance Co. v.Lorelei Restaurant Co., 83 Ill. App. 3d 1083, 1086, 404 N.E.2d895 (1980), quoting University Square, Ltd. v. City of Chicago,73 Ill. App. 3d 872, 877-78, 392 N.E.2d 136 (1979 Furthermore,the intervention statute is remedial in nature and as such,should be construed liberally. In re Marriage of Hartian, 172Ill. App. 3d 440, 450, 526 N.E.2d 1104 (1988).
 

1. Standing to Intervene

The first threshold issue to consider in determining thepropriety of the circuit court's grant of Federal's petition tointervene is whether Federal had standing to intervene in theaction by Argonaut, Kenny, and Park. To have such standing, aparty must have "an 'enforceable or recognizable right,' and morethan a general interest in the subject matter of theproceedings." In re Marriage of Perkinson, 147 Ill. App. 3d 692,698, 498 N.E.2d 319 (1986), quoting Board of Education, DistrictNo. 219 v. Board of Education, District No. 225, 112 Ill. App. 3d212, 221, 445 N.E.2d 464 (1983). An interest that is speculativeor hypothetical is insufficient to support intervention. Perkinson, 147 Ill. App. 3d at 698. Moreover, where theinterest, if favorably resolved, could merely be advantageous tothe intervenor at some future date, it is insufficient to supportintervention. Perkinson, 147 Ill. App. 3d at 699.

In this case, Federal, as excess insurer to Kenny and Parkand the payor of the bulk of the costs to settle the personalinjury case, had a substantial interest in determining the extentof Reliance's liability for these costs. As such, Federal hadmore than a general interest in the action and, thus, hadstanding to intervene.
 

2. Intervention as of Right

Once standing to intervene is resolved, intervention can beallowed as a matter of right or at the discretion of the trialcourt. See 735 ILCS 5/2-408(a), (b) (West 2000). Interventionas a matter of right should be allowed upon consideration ofissues of timeliness, inadequacy of representation, andsufficiency of interest. Hartian, 172 Ill. App. 3d at 450. Inthe case at bar, there is no dispute about the timeliness ofFederal's petition to intervene, and thus, only inadequacy ofrepresentation and sufficiency of interest need be considered.

In determining whether an intervenor could be adequatelyrepresented by the existing parties, courts consider a variety offactors. City of Chicago v. John Hancock Mutual Life InsuranceCo., 127 Ill. App. 3d 140, 145, 468 N.E.2d 428 (1984) (notingthat determination of the adequacy of representation is notsubject to "hard and fast rules"). These factors include: (1)the extent to which the interests of the applicant and ofexisting parties converge or diverge, (2) the commonality oflegal and factual positions, (3) the practical abilities ofexisting parties in terms of resources and expertise, and (4) thevigor with which existing parties represent the applicant'sinterests. John Hancock Mutual Insurance Co., 127 Ill. App. 3dat 145. Of this list, the most important factor is how theinterest of the intervenor compares with that of the presentparties. John Hancock Mutual Insurance Co., 127 Ill. App. 3d at145. In determining the sufficiency of the intervenor'sinterest, the allegations of the petition to intervene must betaken as true. Strader v. Board of Education of Community UnitSchool Distict Number 1, 351 Ill. App. 438, 451, 115 N.E.2d 539(1953).

In its petition to intervene, Federal alleged that it wasentitled to recover the entire limit of Safway's policy withReliance, creating a direct conflict with Argonaut, which suedReliance for the same reason. Federal also argued, in effect,that its ability to recover from Transcontinental would beadversely affected should Argonaut not prevail against Reliance. While this may be an insufficient future interest to supportintervention, Federal's interest in ensuring that Reliance wasfound liable for settlement costs was both present and immediate.

Taking these allegations as true, Federal's interest in thelitigation would not be adequately represented by Argonaut'sconflicting interest. While it could be argued that Argonaut andFederal have similar resources and expertise to pursue the actionand their interests share the same legal and factual basis, thereis reasonable concern as to whether Argonaut would haveadequately represented Federal's interest with vigor,particularly considering their conflicting interests. Therefore,the circuit court properly granted Federal's petition tointervene as a matter of right and abused its discretion invacating the grant of intervention.

 

II. Dismissal of Federal's Complaint

A. Standard of Review

The circuit court stated that Federal's claim against Transcontinental was subject to dismissal because it failed toallege a commonality of insureds. Therefore the dismissal waspursuant to section 2-615 of the Code of Civil Procedure (735ILCS 5/2-615 (West 2000)), and our review is de novo. Carroll v.Faust, 311 Ill. App. 3d 679, 684, 725 N.E.2d 674 (2000).
 

B. Discussion
 

1. Final Order

Since Federal's complaint against Transcontinental relies onthe circuit court's April 3, 2001, order, finding Reliance owed aduty to defend and indemnify Kenny and Park, this order meritsfurther discussion to clarify its status.

Our supreme court has determined that a final order is ajudgment which finally and absolutely ascertains the rights ofthe parties to a lawsuit. Flores v. Dugan, 91 Ill. 2d 108, 112,435 N.E.2d 480 (1982); see also Clemons v. Mechanical DevicesCo., 202 Ill. 2d 344, 350, 781 N.E.2d 1072 (2002) (noting that,in determining whether an order is final, "one should look to itssubstance and effect rather than to its form"). Such a judgmentmust necessarily be on the merits so that, if affirmed, the onlything remaining is to execute the judgment. Flores, 91 Ill. 2dat 112.

A review of the record indicates that the circuit court'sdetermination that Reliance owed a duty to defend and indemnifyKenny and Park is neither final nor appealable. The circuitcourt's dismissal of Argonaut's amended complaint on October 15,2001, expressly stated that such dismissal was pursuant tosection 221.1 et seq. (215 ILCS 5/221.1 et seq. (West 2000)) andwas "not a finding on merits as to [the action for declaratoryrelief against Reliance]." Thus, it is axiomatic that thecircuit court's April 3, 2001, ruling with respect to Argonaut,Kenny, and Park's count I in its amended complaint fordeclaratory relief was not final since it did not determine theissues among the parties finally and completely on the merits. Therefore, it is not appealable. See 155 Ill. 2d R. 301.
 

2. Federal's Complaint Against Transcontinental

Our supreme court has stated that pleadings must beliberally construed with a view to doing substantial justicebetween the parties. Gonzalez v. Thorek Hospital & MedicalCenter, 143 Ill. 2d 28, 34, 570 N.E.2d 309 (1991). However, if aplaintiff fails to plead in his complaint sufficient facts or theessential elements required for the action, the plaintiff willhave failed to state a cause of action. Gonzales, 143 Ill. 2d at35.

In addition, all the parties that have an interest in a suitshould be joined to allow the court to dispose of the entirecontroversy. See 735 ILCS 5/2-406(a) (West 2000) ("If a completedetermination of a controversy cannot be had without the presenceof other parties, the court may direct them to be brought in");see also Giese v. Terry, 382 Ill. 34, 41, 46 N.E.2d 90 (1943)("All persons should be made parties who are legally orbeneficially interested in the subject matter of the litigation,and who will be affected by the decree, so as to enable the courtto dispose of the whole controversy"). If the absence of anecessary party is brought to the court's attention or noted byeither the circuit or appellate court sua sponte, "the courtshould not proceed further in the matter until the omission hasbeen corrected." Giese, 382 Ill. at 41.

Federal's complaint against Transcontinental sought reliefon the basis of equitable contribution and equitable subrogation. The circuit court dismissed the complaint on the basis that itfailed to state a claim upon which relief could be granted. Insupport of its decision, the court indicated only that Federalfailed to establish the commonality of insureds required to grantrelief under an equitable contribution theory.(6)

a. Equitable Contribution

Equitable contribution allows an insurer that paid for theentire loss to be reimbursed by other insurers liable for thesame loss. Liberty Mutual Insurance Co. v. Westfield Insurance.Co., 301 Ill. App. 3d 49, 52, 703 N.E.2d 439 (1998). Thus,contribution does not arise as a right to recover from a partythat is primarily responsible for a loss. Fireman's FundInsurance Co. v. Maryland Casualty Co., 65 Cal. App. 4th 1279,1293, 77 Cal. Rptr. 2d 296, 303 (1998). Rather, it arises from aright, which is independent from the rights of the insured, torecover from a co-obligor who shares the same liability as theparty seeking contribution. Fireman's Fund Insurance Co. , 65Cal App. 4th at 1293, 77 Cal. Rptr. 2d. at 303. In other words,contribution may arise where insurance policies "cover a risk onthe same basis and there is an identity between the policies asto parties and insurable interests and risks." Home IndemnityCo. v. General Accident Insurance. Co. of America, 213 Ill. App.3d 319, 321, 572 N.E.2d 962 (1991). However, it is axiomatic that equitable contribution doesnot apply to primary/excess insurance issues. Home IndemnityCo., 213 Ill. App. 3d at 321. By their very definitions, primaryand excess insurance policies cover different risks. HomeIndemnity Co., 213 Ill. App. 3d at 321. Excess insuranceprotection begins where primary insurance protection ends. HomeIndemnity Co., 213 Ill. 2d at 321.

Federal's complaint failed to plead sufficient facts toestablish commonality of risks to support its equitablecontribution claim against Transcontinental.(7) In its complaint,Federal averred that Reliance provided Safway primary insurancecoverage and Transcontinental provided excess insurance coverage. Federal further averred that the contract between Kenny andSafway required Safway to add Kenny as an additional insured onSafway's insurance polices whereby Reliance andTranscontinental's policies would be primary and non-contributing. Assuming, arguendo, that Reliance and Transcontinental were liable to Kenny as averred by Federal,Federal would be fourth in line to cover Kenny's insured risksafter Reliance, Transcontinental, and Argonaut, as Kenny'sprimary insurer. In other words, Transcontinental and Federaldid not share the same risks with respect to Kenny. As such,there is no set of circumstances that could support Federal'sequitable contribution claim against Transcontinental. Therefore, Federal's claim for equitable contribution wasproperly dismissed.

b. Equitable Subrogation

Unlike equitable contribution, equitable subrogation isdirectly dependent on the right of the insured as subrogor. Fireman's Insurance Co., 65 Cal. App. 4th at 1291, 77 Cal. Rptr.2d at 302. The required elements to prove a cause of action forequitable subrogation are: (1) the insured suffered a loss forwhich the defendant is liable, (2) the claimed loss was one forwhich the insurer was not primarily liable, (3) the insurer hascompensated the insured in whole or in part for the same loss forwhich the defendant is primarily liable, (4) the insurer has paidthe claim of its insured to protect its own interest and not as avolunteer, (5) the insured has an existing, assignable cause ofaction against the defendant that the insured could have assertedfor its own benefit had it not been compensated for its loss bythe insurer, (6) the insurer has suffered damages caused by theact or omission upon which the liability of the defendantdepends, (7) justice requires that the loss be entirely shiftedfrom the insurer to the defendant, whose equitable position isinferior to that of the insurer, and (8) the insurer's damagesare in a liquidated sum, generally the amount paid to theinsured. Fireman's Fund Insurance Co., 65 Cal. App. 4th at1292, 77 Cal. Rptr. 2d at 302-03.

Federal's subrogation claim was insufficient because Federalfailed to plead the essential elements of equitable subrogation. In particular, Federal failed to provide sufficient facts toestablish Reliance and Transcontinental's liability to defend andindemnify Kenny and Park. Federal relied on the circuit court'sApril 3, 2001, order finding Reliance had a duty to defend andindemnify Kenny and Park to establish such liability. However,as previously discussed, this order was not a final determinationon the merits. Furthermore, it is wholly unclear from Federal'samended complaint whether Transcontinental provided anendorsement making Kenny and Park additional insureds in Safway'spolicy with Transcontinental. Federal alleged only that theTranscontinental policy attached upon the exhaustion of theReliance policy. Even if such endorsement existed, there is noallegation that the Transcontinental excess policy, unlike theReliance policy, was made primary and noncontributing as to Kennyand Park. Absent such a showing, the nexus required to establishTranscontinental's liability to Kenny and Park, and thus, toFederal as subrogor, does not exist.

Even if Federal's complaint averred sufficient facts toestablish its subrogation rights against Transcontinental, theinability to join Reliance is fatal. While it is true thatFederal's amended complaint seeks relief only againstTranscontinental, imputing liability to Transcontinental willsubstantially prejudice Reliance's rights. There is no disputethat the Transcontinental policy was for excess insurance andstood behind the Reliance primary insurance policy to coverliabilities. Thus, assuming, arguendo, that Federal proved thatTranscontinental had a duty to defend and indemnify Kenny andPark, it cannot do so without, expressly or impliedly, provingReliance's liability as well. As such, Reliance's interest wouldbe substantially prejudiced by an adverse ruling againstTranscontinental thereby making Reliance an indispensable partyto the proceedings. Since Reliance cannot be joined in thematter, the complaint against Transcontinental must be dismissedfor its inability to join an indispensable party.

 

Conclusion

For all of the foregoing reasons, we reverse the circuitcourt's order vacating the granting of Federal's interventionpetition and affirm the dismissal of Federal's complaint againstTranscontinental. Deciding this case as we do, we denyReliance's motion to dismiss the appeal as moot.

The judgment of the circuit court is reversed in part andaffirmed in part.

Motion denied.

Reversed in part and affirmed in part.

BURKE, P.J., and GARCIA, J., concur.

 

1. Safway's insurance policy with Reliance provided for $1million of primary coverage. Transcontinental provided $10million of excess coverage for Safway.

2. According to the pleadings, Reliance neither accepted nordeclined the tender of the defense but requested additionalinformation. Eventually, Reliance asserted that it had noindemnity obligation.

3. Counts I and II of the amended complaint were directedagainst Reliance, and counts III and IV were directed againstSafway.

4. It is unclear if Transcontinental extended its excessinsurance policy with Safway to provide excess coverage for Kennyand Park as additional insureds.

5. In its October 15, 2001, order, the court also deniedReliance's motion to dismiss or, in the alternative, stay theproceedings as to Kenny and Park on count II as moot in light ofReliance's liquidation. Because it had entered a final judgmentas to Safway on counts III and IV in its April 3, 2001, order thecourt made a Supreme Court Rule 304(a) (155 Ill. 2d R. 304(a))finding but only with respect to those counts.

6. The circuit court did not specifically address theequitable subrogation count in dismissing the complaint.

7. Although the circuit court dismissed Federal's equitablecontribution claim on the basis of lack of commonality ofinsureds, this Court can uphold the decision on any basis foundin the record. Home Indemnity Co., 213 Ill. App. 3d at 321.