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THIRD DIVISION
June 20, 2001
(Nunc Pro Tunc March 30, 2001)

JUSTICE BURKE delivered the opinion of the court:

Defendants National Union Fire Insurance Company ofPittsburgh, PA. (National) and Asplundh Tree Expert Company(Asplundh) appeal from two orders of the circuit court denyingNational's and Asplundh's motions for summary judgment and grantingsummary judgment in favor of plaintiff Commonwealth Edison Company(Edison) in Edison's declaratory judgment action seekingindemnification, as an additional insured in a policy issued toAsplundh by National, for $1.5 million in settlement funds Edisonpaid in an underlying wrongful death lawsuit. On appeal, Nationaland Asplundh contend that: (1) the trial court erred in grantingEdison indemnification for the $1.5 million it paid in settlementbased only on Edison's reasonable anticipation of liability arisingout of Asplundh's actions; (2) Edison violated the voluntarypayment clause in the policy when it settled the underlying lawsuitwithout National's consent, precluding indemnification under thepolicy; and (3) Edison's self-insured retention under a separatepolicy affected National's duty to indemnify Edison. For thereasons set forth below, we affirm.

In 1992, Patrick Fierce (Fierce), special administrator of theEstate of Diana Fierce, deceased, filed a four-count complaintagainst Edison and Asplundh. Fierce's complaint (Fierce action)alleged that on or about July 2, 1992, Diana Fierce came intocontact with a downed power line in the backyard of property sheowned at 8116 Carolwood Avenue, Woodridge, Illinois, causing herserious internal and external injuries which subsequently causedher death. Fierce subsequently filed several amended complaints. Count I of the fifth amended complaint was a claim for "wrongfuldeath" against Edison and alleged, in part, that Edison failed to"trim or remove trees" located within its easement to avoid thedamaging or breaking of the power lines. Count II was a claimagainst Edison for violation of the Illinois Public Utilities Act. Count III was also a claim against Edison under the PublicUtilities Act which sought punitive damages. Count IV was a claimbased on negligence against Asplundh, alleging that Asplundh was inthe business of tree trimming, was hired by Edison pursuant to acontract to trim trees surrounding power lines on and alongeasements owned by Edison, and had a duty to inform Edison of anydamage to high voltage electrical power lines. The complaintfurther alleged that Asplundh, by and through its agents andemployees, was negligent in failing to comply with the terms ofits contract in the following respects:

"(a) Failed to properly trim or remove tree ortrees located within the aforesaideasement as needed to avoid said tree ortrees from damaging and breaking thepower lines of COMMONWEALTH EDISON;

(b) Failed to provide adequate warning of thedanger of contact between power lines andtrees[.]"

Fierce maintained that Asplundh's violation of its duties causedDiana Fierce's injuries. Count V was a claim under the WrongfulDeath Act for "infliction of emotional distress" on behalf ofPatrick Fierce who alleged that he had witnessed Diana'selectrocution and had entered the "zone of danger" created by thedowned power lines when he went to her aid.

On February 23, 1994, AIG Risk Management, Inc., on behalf ofNational as National's claims management analyst, sent a letter toEdison stating that National would defend Edison in the Fierceaction, under a reservation of rights, pursuant to the coverageunder policy No. RMGL3257964, effective from August 1, 1991 toAugust 1, 1992. The Fierce action was settled by the parties for$3 million, with Asplundh and Edison agreeing to each pay $1.5million to Fierce.

On September 18, 1995, Edison filed a complaint againstNational, seeking a declaration that National breached itsobligations to Edison as an additional insured under policy No.RMGL 325-79-64 by refusing to fund all or a portion of Edison'scontribution to the settlement in the Fierce action and thatNational must reimburse Edison $1.5 million plus interest under thepolicy.⁽¹⁾

On December 18, 1995, National filed an answer to Edison'scomplaint for declaratory relief which admitted that Edison was anadditional insured, but only with respect to "liability arising outof operations performed for [Edison] by or on behalf of Asplundh." National denied that Edison was an additional insured under thepolicy with respect to the Fierce action because Edison's liabilitydid not arise out of operations by or on behalf of Asplundh. National further denied all other material allegations against it. National also alleged three affirmative defenses. As its firstaffirmative defense, National stated that "National Union [had] noobligation under the policy to indemnify Com Ed for any monies ComEd paid to settle liability that did not arise out of Asplundh'soperations." As its second affirmative defense, National statedthat it did not have a duty to indemnify Edison based on a policyprovision which prohibited the insured from voluntarily making anypayment, assuming any obligation, or incurring any expense withoutNational's consent and that Edison failed to obtain National'sconsent before agreeing to pay $1.5 million to settle the Fierceaction. As its third affirmative defense, National stated, in thealternative, that if it was liable to Edison, that liability wouldbe subject to the "other insurance" provisions of the policy. National argued that its liability for the settlement amount wouldbe limited, according to the terms of the policy, by the amount ofother applicable primary insurance coverage.

Policy No. RM GL 325-79-64, issued by National and namingAsplundh as the "named insured," effective from August 1, 1991 toAugust 1, 1992, contained a $5 million "general aggregate limit" ofcoverage. An endorsement to the policy stated that Edison wasnamed as an additional insured, but only with respect to liabilityarising out of the operations of Asplundh. The policy alsocontained the following relevant language under the "CommercialGeneral Liability Form":

"Throughout this policy the words 'you' and'your' refer to the Named Insured shown in theDeclarations ***. The words 'we,' 'us,' and'our' refer to the company providing thisinsurance.

SECTION IV - COMMERCIAL GENERAL LIABILITYCONDITIONS

4.  Other Insurance

If other valid and collectible insuranceis available to the insured for a loss wecover under coverages A or B of thisCoverage Part, our obligations arelimited as follows:

This insurance is primary exceptwhen b. below applies. If thisinsurance is primary, ourobligations are not affected unlessany of the other insurance is alsoprimary. Then, we will share withall that other insurance by themethod described in c. below."

The policy also stated:

"No insured will, except at their own cost,voluntarily make a payment, assume anyobligation, or incur any expense, other thanfor first aid, without our consent."

The parties filed cross-motions for summary judgment. Asplundh argued that in order to obtain summary judgment, Edison"must first prove as a matter of law that it had liability--notmerely exposure--in the underlying lawsuit" and that Edison mustsecondly prove that "every dollar of its $1.5 million payment wasfor liability arising out of operations performed for [Edison] byor on behalf of [Asplundh] (and, thus, that not one single dollarof that payment was for [Edison's] own liability on account of itsown conduct." (Emphasis in original.) Asplundh further arguedthat Illinois case law precluded Edison from attempting toapportion liability between it and Asplundh for the first time ina declaratory judgment action. National made similar arguments inits motion to those made in Asplundh's motion. Edison argued inits motion for summary judgment that it was entitled toindemnification from National for the settlement amount it paid inthe Fierce action because the settlement was made with reasonableanticipation of liability arising out of Asplundh's operations andbecause Edison had given National notice of its intent to settleand the opportunity to participate in the settlement.

On September 7, 1999, the parties filed a stipulation withrespect to their cross-motions for summary judgment. The followingstatements were included in the stipulation: $1.5 million was paid,under National's policy issued to Asplundh, on behalf of Asplundh,to settle the Fierce action; Edison paid $1.5 million to settle theFierce action; prior to the settlement of the Fierce action,National was aware that Asplundh and Edison had discussed thepossibility of subsequently reallocating the settlement betweenthem; National did not play a part in the negotiations betweenEdison and Asplundh and was not advised that they had made adecision to fund the settlement on a 50/50 basis until after theagreement had been reached; Edison never subsequently sought toreallocate the settlement with Asplundh; Edison and Asplundh deniedliability at the time of the settlement of the Fierce action, andthe parties, including National, and their attorneys "believed thatboth [Edison] and [Asplundh] had strong defenses to the Fierce'sallegations against them"; National agreed that the Fierce actionshould be settled to avoid the risk of a larger jury verdictagainst Edison and Asplundh, due in part to sympathy felt by jurymembers based on the manner of Diana Fierce's death, and that $3million was a reasonable settlement amount on behalf of Edison andAsplundh; that a storm had passed through the area where theaccident occurred within several hours prior to the accident; andunder an excess policy with limits of $20 million that Edison hadpurchased from National, Edison had a self-insured retention of$2.5 million per occurrence with no aggregate limit, and anadditional self-insured retention of $2.5 million subject to anaggregate limit of $5 million.

On September 13, 1999, the trial court granted Edison's motionfor summary judgment and denied National's and Asplundh's motions. The trial court found that the underlying Fierce complaint setforth allegations which "at least establish[ed] some liability" onthe part of Asplundh. The trial court further found that Edisondid not need to provide de novo proof of Asplundh's liability inthe Fierce action to be entitled to indemnification for settlingthat case and, based on "all the information contained in ***[Fierce's] complaint, [Edison] settled in reasonable anticipationof litigation arising out of the operations of Asplundh." Additionally, because Edison repeatedly gave National notice of theopportunities to settle the Fierce action, the trial court furtherfound that Edison's settlement payments, without National'sconsent, did not affect Edison's right to indemnification. Lastly,the trial court found that based on the language of National'spolicy, Edison's self-insurance "should not be treated as otherinsurance," which would have precluded indemnification coverageunder National's policy.

On October 5, 1999, the trial court also made the followingfindings and declarations:

"1. ComEd is entitled to indemnity fromNational Union for the full amount of itspayment of $1.5 million to settle the Fierceclaim, together with prejudgment interestthereon at the statutory rate of 5% per annumfrom May 18, 1995 plus post-judgment interestat the rate of 9% per annum from the date ofthis judgment.

2. The total of prejudgment interest owedto ComEd as of the date of this Order is$328,562.

3. ComEd is entitled to its costs andexpenses associated with this action. ComEd'scosts in this action total $476.80.

4. Judgment is entered against NationalUnion in the total amount of $1,829,038.80."

This appeal followed.

National first contends, relying primarily on United StatesFidelity & Guaranty Co. v. Continental Casualty Co., 198 Ill. App.3d 950, 556 N.E.2d 671 (1990), that "a party[,] who pays funds tosettle a claim against a tortfeasor whose liability allegedly'arose out of' the operations of a second tortfeasor, must seekallocation of the tortfeasors' liability in [an] underlying actionor will be barred from seeking reimbursement therefor in asubsequent declaratory judgment action." National argues that,because Edison did not seek to apportion liability between itselfand Asplundh in the underlying Fierce action, Edison was barredfrom seeking, in its declaratory judgment action, indemnificationfor the $1.5 million settlement it paid. National notes that itgave notice to Edison that it was reserving its right to denycoverage to Edison for liability that did not arise out of theoperations of Asplundh. In its brief, Asplundh similarly relies onContinental Casualty, in support of its argument that Edison wasnot entitled to indemnification because there was no finding orallocation of liability between Edison and Asplundh in theunderlying Fierce action. National also contends that even ifEdison's claim is not barred, the trial court erred because, underthe terms of National's policy, Edison was not entitled toindemnity on all the settlement funds it paid in the Fierce actionwithout submitting proof that Edison was actually liable and thatthe full extent of its liability "arose out of Asplundh'soperations," as opposed to Edison's own liability. Nationalmaintains that Edison was subject to potential liability that wouldnot have been covered by the policy, such as liability for Edison'sfailure to replace damaged conductors and for punitive damages,because the liability would not have arisen from Asplundh'soperations. National and Asplundh also argue that the trial courtimproperly relied on United Stated Gypsum Co. v. Admiral InsuranceCo., 268 Ill. App. 3d 598, 643 N.E.2d 1226 (1994), in support ofits finding that Edison was entitled to indemnification underNational's policy.

Edison contends that it was not required to establish itsliability "de novo" in the underlying Fierce action in order toreceive indemnification from National, and argues that Illinois lawonly requires that there be a "but for" causal relationship betweenthe additional insured's liability and the operations of the namedinsured for coverage under National's policy to apply. Edisonargues that based on the uncontradicted evidence, it reasonablyanticipated liability arising from Diana Fierce's death due toAsplundh's tree trimming. Edison maintains that the policy onlyrequired that Edison's liability arise out of Asplundh's"operations," as opposed to Asplundh's "fault." Edison furtherargues that it was not required to obtain an allocation of damagesin the underlying Fierce action to establish coverage underNational's policy and that it was entitled to coverage even ifAsplundh was found not to be at fault. Edison distinguishesContinental Casualty, arguing that that case involved a claim forequitable contribution between a primary insurer and an excessinsurer for the same insured and not an action, as here, by aninsured for indemnification under a policy. Edison maintains thatthe trial court correctly applied Gypsum to the present case.

Review of a trial court's ruling on a motion for summaryjudgment is de novo. Outboard Marine Corp. v. Liberty MutualInsurance Co., 154 Ill. 2d 90, 102, 607 N.E.2d 1204 (1992). "Summary judgment is appropriate when there is no genuine issue ofmaterial fact and the moving party's right to judgment is clear andfree from doubt." Espinoza v. Elgin, Joliet & Eastern Ry. Co., 165Ill. 2d 107, 113, 649 N.E.2d 1323 (1995). "[I]f an insured settlesan underlying claim prior to verdict, it must show that it settledan otherwise covered loss in 'reasonable anticipation of personalliability.'" Gypsum, 268 Ill. App. 3d at 625, quoting WestamericaMortgage Co. v. Tri-County Reports, Inc., 670 F. Supp. 819 (N.D.Ill. 1987).

The parties in the present case rely primarily on ContinentalCasualty and Gypsum in support of their arguments. In ContinentalCasualty, the plaintiff primary insurer appealed the dismissal ofits complaint against the defendant excess insurer in which theplaintiff sought recovery of the settlement amount the plaintiffpaid in an underlying personal injury case, brought by the insuredconstruction company's employee and his wife, allegedly in excessof its obligations pursuant to the settlement agreement. Theplaintiff had issued two primary policies to the constructioncompany: (1) a workers' compensation policy (workers' policy) witha coverage limit of $500,000, covering construction work beingperformed at a hospital; and (2) a general liability policy, whichalso had a limit of $500,000 coverage, naming the hospital as anadditional insured but only with respect to liability arising outof operations performed by the construction company for thehospital. The defendant issued an umbrella excess policy to theconstruction company with a limit of $5 million. ContinentalCasualty, 198 Ill. App. 3d at 952. Subsequently, an employee ofthe construction company was injured while working at the hospitaland he filed a workers' compensation claim against his employer anda personal injury lawsuit against the hospital. The hospital thenfiled a third-party complaint for contribution or indemnificationagainst the construction company.

After the plaintiff insurer paid the injured employee'sworkers' compensation claim pursuant to the workers' policy, itobtained a subrogated interest in the amount of the claim. Theemployee's lawsuit was later settled for $2,225,000, and theworkers' compensation lien was "compromised" to a sum of $225,000. The plaintiff paid $775,000 and forgave its workers' compensationlien of $225,000, for a total of $1 million in liability, and thedefendant paid $125,000 toward the settlement. Other, unnameddefendants, who were not parties to the appeal later filed by theplaintiff, paid the balance of the settlement. In a subsequentorder by the trial court, it dismissed the hospital's third-partyclaim, and the settlement amount was restated as $2,450,000, with$225,000 of the amount attributed to the plaintiff's "forgiveness"of the workers' compensation lien. Continental Casualty, 198 Ill.App. 3d at 953.

The plaintiff then filed a declaratory judgment action,alleging that the settlement of the underlying case was predicatedon an agreement between itself and the defendant that theemployee's injuries were solely the fault of his employer, theconstruction company, and that no fault was attributable to thehospital. Although the plaintiff admitted that under the workers'policy it had a duty to indemnify the construction company up tothe limit of $500,000, it also claimed that the remaining $500,000that it had paid toward the settlement under the general policy wasnot on behalf of any liability on the part of the hospital and waspaid with the intention that the defendant would reimburse thatamount under the excess policy in recognition that the constructioncompany was 100% liable. The plaintiff sought a declaration thatthe defendant, therefore, owed it $500,000 plus interest. Thetrial court dismissed the plaintiff's complaint pursuant to thedefendant's motion, in which the defendant argued that "anydetermination of liability as between [the hospital] and [theconstruction company] was waived by the settlement and concomitantdismissal with prejudice of [the hospital's] third-party complaintagainst [the construction company]." Continental Casualty, 198Ill. App. 3d at 953.

On appeal, the Continental Casualty court stated that in orderto determine whether the defendant was obligated to pay a sum underthe excess policy, "a determination [had] to be made as to thedegrees of liability between [the hospital and the constructioncompany]." The court noted that there was no breakdown of thesettlement amount that was paid as to the liability between theconstruction company and hospital. The court found that theplaintiff properly paid $1 million of the settlement on behalf ofthe construction company and hospital pursuant to the $500,000limits of the two policies the plaintiff issued and that thedefendant had paid the $125,000 in excess. The ContinentalCasualty court further stated:

"In order to agree with [the plaintiff's]position that the settlement obligation shouldhave been distributed differently as between[the plaintiff] and [the defendant], adetermination as to the degree of liabilityattributed to [the construction company andthe hospital] would have had to have been madeby the trial court." Continental Casualty,198 Ill. App. 3d at 954-55.

Finding that a determination as to the relative degree of liabilityof the hospital and the construction company was not appropriate tobe raised for the first time on appeal, the Continental Casualtycourt affirmed the dismissal of the plaintiff's complaint.

In Gypsum, the plaintiff insured filed a declaratory judgmentaction against numerous insurers to receive, in part,indemnification for a settlement the plaintiff paid in underlyinglawsuits against it seeking to recover for property damage causedby materials containing asbestos provided to the underlyingclaimants by the plaintiff. The trial court found in favor of theplaintiff insured, granting it partial summary judgment andordering the defendant insurers to indemnify the plaintiff for thereasonable settlement amounts. The plaintiff had settled seven ofthe underlying claims against it for property damage and one otherunderlying claim that had been tried to a verdict in which damageshad been awarded against the plaintiff. On appeal of the trialcourt's finding that the plaintiff was entitled to indemnificationfor the damages on the jury verdict and the settlement funds in theunderlying cases, the defendant insurers argued that the plaintiffinsured was required to offer "actual facts" in its declaratoryjudgment action that damage occurred in each of the underlyingcases in order to be entitled to indemnification.

The appellate court in Gypsum, prior to resolving the "quantumof proof" necessary in the declaratory action for the plaintiffinsured to be entitled to indemnification, first determined that ifthe defendant insurers "were correct in their contention that [theplaintiff insured] was required to prove de novo that there wascontamination resulting from a release of asbestos fibers in eachone of the underlying cases, the record *** support[ed] the trialcourt's finding that such damage existed in each of the underlyingactions." Gypsum, 268 Ill. App. 3d at 616.

Despite the Gypsum court's agreement with the trial court thatthe de novo proof presented by the plaintiff insured "in thecoverage trial" was sufficient to support the insured's right toindemnification, the court further stated that the plaintiff "as aninsured seeking coverage would not be required to establish its ownliability in the underlying actions by independent proof." Gypsum,268 Ill. App. 3d at 621. With respect to the underlying actionthat had been tried to a verdict, the Gypsum court stated:"Irrespective of the quantum of proof necessary to establishproperty damage, [the plaintiff] as an insured in a declaratoryaction, does not have to prove de novo the existence of damage inthe underlying action, i.e., its own liability. The adverseverdict returned by the jury and subsequent entry of judgmentconclusively established [the plaintiff's] liability."

The Gypsum court then turned to the seven underlying casesthat the plaintiff had settled. The court stated that as a generalrule, "if an insured settles an underlying claim prior to verdict,it must show that it settled an otherwise covered loss in'reasonable anticipation of liability.'" Gypsum, 268 Ill. App. 3dat 626, quoting Westamerica Mortgage Co. v. Tri-County Reports,Inc., 670 F. Supp. 819 (N.D. Ill. 1987). The court agreed thatthis rule avoided placing insureds in the position of having torefute liability in the underlying action until settlement and theninstantly turn around and prove their own liability in theinsurance action. According to the Gypsum court, the rule alsoavoided a "chilling effect" on settlements as insureds would tendto choose to vigorously defend tort actions as opposed to settlingthem if there was no hope of insurance reimbursement. Gypsum, 268Ill. App. 3d at 626. The Gypsum court therefore concluded that theinsured "need only show that it had a reasonable anticipation ofliability when it settled the underlying cases."

The Gypsum court also disagreed with the defendant insurers'contention that the insured must offer proof of property damagethrough "actual facts" and not through testimony, evidence ordepositions obtained in the underlying cases, which had beensettled, because such evidence would be hearsay. In allowing theevidence, the court reasoned that the evidence from the underlyingcases would not constitute hearsay because the evidence would notgo to the issue of the existence of damages, as argued by thedefendants, "but rather to whether [the plaintiff insured] had areasonable anticipation of liability in the cases which it settledand whether the damage was the type covered by the policy withrespect to the *** case which was tried to an adverse verdict." Gypsum, 268 Ill. App. 3d at 626. The Gypsum court further stated:

"Basically, the nature of the pleadings, thepretrial discovery, evidence and testimonypresented during the trial prior to settlementwould be relevant to establish thereasonableness of the insured's anticipationof liability.

The determination of whether [theinsured's] anticipation of liability wasreasonable would naturally turn on the qualityand quantity of proof which the [insured]would expect to be offered against it in theunderlying action. The depositions from theunderlying cases, as well as the trialtestimony in those cases settled after thetrial had begun, offer the best indication ofwhat evidence [the insured] would expect tohave offered against it in the underlyingaction." Gypsum, 268 Ill. App. 3d at 626-27.

Having reviewed the cases relied on by the parties, we findthat Gypsum is controlling on the issue here. As in Gypsum, thepresent case involves an effort by Edison, the insured, to obtainindemnification for a settled claim without an actual finding ofliability. Similarly, as in Gypsum, in order to receiveindemnification for the settlement payment it made in the Fierceaction, Edison was only required to show that it settled anotherwise covered loss in "reasonable anticipation" of personalliability. In order for Edison's potential liability in the Fierceaction to have been covered by National's policy, therefore, theloss for which it would have been liable, i.e., Diana Fierce'sdeath and related damages, must have arisen out of Asplundh'soperations, according to the terms of the policy. The pleadingsand the evidence presented in both the Fierce action and in theinsurance coverage case in the trial court contain sufficientevidence to indicate that the loss arose out of Asplundh'soperations. Count I of the Fierce complaint specifically allegedthat Edison was negligent in failing to trim or remove trees withinits easement to prevent the breaking of power lines. The recordindicates that there was evidence to support that allegation. Forexample, Fierce's attorney had retained an expert, John St. Clair,an electrical engineer, who testified during an evidence depositionin the present case that continuous and long-term contact with treebranches caused damage to the covering of the power line involvedin Diana Fierce's accident. It was also his opinion that if propertree trimming had been performed, the power line would not havecome down. St. Clair assisted Fierce's attorney in preparingdiscovery responses based on his opinions. A number of employeesof Asplundh, the company responsible for the tree trimming, werealso identified as potential witnesses in the Fierce action.

Additionally, while the cross-motions for summary judgmentwere pending in the trial court, the parties stipulated that allthe parties involved in the Fierce action, including National,agreed that the Fierce action should be settled to avoid the riskof a potentially large jury verdict and that paying $3 million onbehalf of both Edison and Asplundh was a reasonable settlement. The stipulations also indicated that the lead trial attorneys forboth Asplundh and Edison in the Fierce action "discussed theirviews concerning the strengths and weaknesses of the [Fierce] caseand the defenses in the event the case was tried." In the Fierceaction, National paid $1.5 million on behalf of Asplundh to settlethat case pursuant to an agreement between Asplundh and Edison thateach would pay one-half of the settlement amount. Asplundh andEdison had also discussed the possibility of "subsequentlyattempting to reallocate the settlement between them."

Based on this record, it is clear that Fierce intended to showthat a fallen power line caused Diana Fierce's death and thatimproper tree trimming was at least a major contributing factor tothe damage to the line. The record also reveals that Edison,Asplundh, and National carefully weighed their options in electingto settle that lawsuit as opposed to contesting the allegations attrial and risking a larger jury verdict against both Edison andAsplundh. Despite the additional independent allegations againstEdison, Asplundh's allegedly negligent tree trimming was a primaryfocus of the litigation. We therefore find that plaintiff enteredinto the settlement under the reasonable anticipation that it wouldhave been found at least partially liable for Diana Fierce's deathas a result of the allegedly negligent tree trimming by Asplundh. This would have been a covered loss under National's policy becausethe loss arose out of Asplundh's operations. Accordingly, we holdthat the trial court properly granted Edison's motion for summaryjudgment.

Our holding is consistent with the principles articulated inGypsum. Requiring Edison to have obtained an actual allocation ofliability between itself and Asplundh in the Fierce action, asargued by defendants, would have acted as a chilling effect onsettlement of that case. The court in Gypsum recognized that if aninsured was faced with the choice of defending a lawsuit against itor settling the claim without any hope of receiving insurancereimbursement or indemnification, the insured would choose tovigorously defend the lawsuit. Gypsum, 268 Ill. App. 3d at 626. Additionally, requiring an insured, such as Edison, to establishactual liability in order to receive indemnification would placethe insured in the difficult position of having to refute liabilityin the underlying lawsuit and then, after obtaining a settlement,turn around and prove its own liability in order to succeed in asubsequent insurance coverage action. Gypsum, 268 Ill. App. 3d at626. These are relevant concerns in the present case, as well, andwe find that Edison is entitled to indemnification under National'spolicy for its reasonable settlement.

National next contends that it has no duty to indemnify Edisonbecause Edison paid the settlement in the Fierce action withoutNational's consent in violation of the terms of the policy. National maintains that "notices" from Edison of "opportunities tosettle" the Fierce action were insufficient to defeat the voluntarypayment provision in the policy. National claims that it was notmade fully aware of the agreement between Edison and Asplundh tosettle the Fierce action until after the payment had been made.

Edison argues that because National made a reservation ofrights and relinquished control of Edison's defense in the Fierceaction, Edison had a right to enter into a reasonable settlementafter it gave National "notice" and an opportunity to participatein the settlement. Edison also argues that National must show thatit was prejudiced by any breach of the voluntary payment clause inthe policy in order to avoid coverage and that National has notshown any such prejudice. Edison further argues that National alsowaived any right to rely on the voluntary payment clause becauseNational participated in the settlement on behalf of Asplundh with"full knowledge" that Edison and Asplundh had agreed that Edisonwould fund half of the settlement but reserved its right to assertcoverage under the Asplundh policy. Edison also notes that becausethe policy National issued to Asplundh was a fronting policy,requiring Asplundh to eventually reimburse National for anypayments made pursuant to the policy, National had been deferringto Asplundh on various decisions made in the Fierce action andNational cannot now argue that it did not have notice of theagreement to settle.

We first note that National's reliance on Piper v. State FarmMutual Automobile Insurance Co., 1 Ill. App. 2d 1, 116 N.E.2d 86(1953), in support of its argument that Edison was required toobtain National's consent to the settlement, is misplaced. Piperdid not involve a case, as here, where the defendant insurerprovided a defense to the plaintiff under a reservation of rightsand then relinquished control of the defense before invoking theprohibitions of the voluntary payment clause following theplaintiff's settlement. Although the insured in Piper settled withcertain claimants without the insurer's consent, coverage for theinsured had been revoked prior to the accident at issue based on afailure to pay insurance premiums. Piper, therefore, does notsupport National's argument here that Edison was still required toobtain National's consent for the settlement despite the fact thatEdison was represented by independent counsel, provided byNational, in the Fierce action.

Edison relies on several cases from other jurisdictions,including Cay Divers, Inc. v. Raven, 812 F. 2d 866 (3^rd Cir. 1987),which address similar issues. In Raven, the plaintiff, an aquaticsports shop, obtained an insurance policy with Lloyds of London. The plaintiff made a claim under the policy after a diver drownedand a wrongful death lawsuit was filed against the plaintiff. Theplaintiff then filed a declaratory judgment action seeking adeclaration that the defendant had a duty to defend the plaintiffin the underlying action. The district court ordered the defendantto defend the action, reserving judgment on the issue of thedefendant's liability for coverage under the policy. The defendantagreed to defend under a reservation of rights and provided anindependent attorney to the plaintiff. On the day of trial, theunderlying action was settled, and the plaintiff moved for summaryjudgment to force the defendant to indemnify it for the settlementamount. The defendant cross-moved for summary judgment, arguingthat the plaintiff violated the "Duties of Insured" clause of thepolicy because the settlement constituted an "admission ofliability" without the consent or authorization of the defendant. The district court granted the defendant's motion for summaryjudgment. On appeal of the trial court's grant of summary judgmentto the defendant insurer, the Raven court stated:

"We therefore hold that when a complaint,or a part of it, in an action against aninsured is arguably within the scope of theinsurance coverage, an insurer's discharge ofits duty to defend by providing independentcounsel, even though reserving the right tocontest coverage, relieves it of control overthe litigation, and a reasonable settlementeffectuated by the insured does not bar anaction for indemnification against theinsurer. Accordingly, we reverse thedistrict's grant of summary judgment in favorof [the defendant]." Raven, 812 F. 2d at 869-70.

In the present case, as in Raven, the record reveals thatNational agreed to provide a defense for Edison in the Fierceaction under a reservation of rights and then relinquished controlof that defense because of the potential conflict of interest. Asindicated by the parties, the record also contains various lettersfrom Edison and its attorneys requesting that National settle theFierce case. Although National contends that it did not actuallylearn of the agreement between Asplundh and Edison to each pay 50%of the settlement amount until "after the fact," the recordindicates that all the parties agreed that there was the potentialfor a large jury verdict and that the $3 million was a reasonablesettlement amount. Because of National's reservation of rights,the settlement in the underlying case did not compromise National'sability to contest indemnification in the present action. Based onthese facts, Edison was not required to obtain National's consentbecause National was not controlling Edison's defense due to apotential conflict of interest, National had notice of Edison'sintention to settle to avoid a potentially large adverse juryverdict, and even National believed that the case should besettled.

National next contends that even if Edison is entitled tocoverage, its duty to indemnify Edison is subject to Edison's self-insured retention (SIR) of $2.5 million per occurrence and $5million in the aggregate which constitutes "other insurance" withinthe terms of the policy. National maintains that if Edison's SIRdoes not constitute "other insurance," Edison will be able to avoidits decision to "go bare," without insurance, and obtain a"windfall" at National's expense. Asplundh also argues that theSIR is "other insurance," affecting any duty National has toindemnify Edison for the settlement amount.

Edison, admitting that it is self-insured for up to $5 millionper occurrence, contends that self-insurance is not "otherinsurance" and is, in fact, "no insurance." Edison claims thatIllinois law does not equate self-insurance with insurance, and hasheld that self-insurance is not subject to "other insurance"clauses. Edison also argues that even if the SIR was insurance,that insurance did not apply because Edison made a "directedtender" to National, preventing National from then compellingEdison's self-insurance to contribute to covering the loss.

The construction of an insurance policy's provisions is aquestion of law. Outboard Marine, 283 Ill. App. 3d at 649. Toascertain the meaning of the policy's words and the intent of theparties, the court must construe the policy as a whole with dueregard to the risk undertaken, the subject matter that is insured,and the purposes of the entire policy. Outboard Marine, 283 Ill.App. 3d at 649; see Western Casualty & Surety Co. v. Brochu, 105Ill. 2d 486, 493, 475 N.E.2d 872 (1985). The terms of an insurancepolicy must be read according to their plain and ordinary meaning,and a court should not search for an ambiguity where there is none.Allstate Insurance Co. v. Smiley, 276 Ill. App. 3d 971, 977, 659N.E.2d 1345 (1995). If the words in a policy are susceptible tomore than one reasonable interpretation, they are ambiguous andwill be construed in favor of the insured and against the insurerthat drafted the policy. United States Fidelity & Guaranty Co. v.Wilkin Insulation Co., 144 Ill. 2d 64, 74, 578 N.E.2d 926 (1991).

Excess or secondary insurance coverage is coverage in whichliability attaches under the policy only after a "predeterminedamount of primary coverage has been exhausted." (Emphasis inoriginal.) Outboard Marine, 283 Ill. App. 3d at 652. In Illinois,pursuant to the principle of "horizontal exhaustion," allunderlying coverage must be exhausted before excess coverage may bereached. Gypsum, 268 Ill. App. 3d at 653-54; Missouri Pacific R.R.Co. v. International Insurance Co., 288 Ill. App. 3d 69, 81, 679N.E.2d 801 (1997).

In Missouri Pacific, the plaintiff insured employer filed adeclaratory judgment action against a number of excess insurersseeking a declaration that it was entitled to indemnification forcertain noise-induced hearing loss and asbestos exposure claims. The claimants had work histories with the plaintiff spanning over73 years, beginning in the 1920's. The plaintiff maintained SIRsbetween 1934 and 1986 and carried no insurance prior to 1934. Theplaintiff purchased the relevant excess policies from the insurersbetween 1957 and 1986. The total of the SIRs underlying thosepolicies was over $67 million. Missouri Pacific, 288 Ill. App. 3dat 72.

Answering a certified question from the trial court regardingthe effect of the plaintiff's SIRs, the Missouri Pacific courtagreed with the defendant insurers that the plaintiff's SIRsconstituted primary insurance and should be exhausted before theinsurers were liable for excess coverage. The insurers' argumentwas based on two grounds: (1) the distinct and unique nature ofexcess insurance coverage; and (2) the plain language of thepolicies at issue. Missouri Pacific, 288 Ill. App. 3d at 80. Withrespect to the first ground, the Missouri Pacific court stated:

"Both United States Gypsum and Outboard Marinesupport the proposition that the SIRsconstitute primary coverage and thus thatMissouri Pacific must exhaust the SIRs beforelooking to the insurers for coverage. Like thefronting insurance in United States Gypsum,which effectively constituted self-insurance,and the period of no insurance in OutboardMarine, which is the equivalent ofself-insurance, the SIRs in the present caseconstitute primary coverage. To hold otherwisewould allow Missouri Pacific to manipulate thesource of its recovery and avoid theconsequences of its decision to becomeself-insured, conduct we found unacceptable inUnited States Gypsum and Outboard Marine. Assuch, Missouri Pacific must exhaust the SIRsbefore looking to the insurers for coverage." Missouri Pacific, 288 Ill. App. 3d at 81.

Also, with respect to the insurers' second ground that theplaintiff's SIRs constituted "other insurance" within the meaningof the policies, the Missouri Pacific court found that the "otherinsurance" language in the policies required the plaintiff toexhaust all underlying coverage, including its SIRs, before seekingcoverage under the policies. The court concluded that the languagein the policies specifically required the plaintiff to exhaustother available insurance coverage before the excess insurers wererequired to contribute.

In the present case, although the excess policy upon whichEdison took its SIR is not in the record, the parties filed thefollowing stipulation with the trial court:

"For the policy period involved in thisoccurrence, CECO [Edison] had purchased excessinsurance coverage with NATIONAL UNION withlimits of $20 million. Under the terms of theNATIONAL UNION excess policy, CECO had a self-insured retention of $2.5 million peroccurrence with no aggregate limit, and anadditional self-insured retention of $2.5million subject to an aggregate limit of $5million."

The trial court agreed with Edison that self-insurance is not"other insurance" under the policy language at issue in this case. Although the opinion in Missouri Pacific indicates that SIRs may,in fact, constitute primary insurance in Illinois, the facts andissues in that case are distinguishable from the facts and issueshere. The policy language here makes no mention of SIRs or self-insurance in the "other insurance" clause as the policy languagedid in Missouri Pacific. Additionally, the opinion in MissouriPacific did not mention that the plaintiff insured possessed anyother available primary insurance except for its SIRs and the issuethere involved whether the plaintiff was required to exhaust itsSIRs as "primary insurance" before it could reach any coverageunder the defendants' "excess" policies. In the present case,however, Edison was merely seeking to invoke coverage as anadditional insured under National's policy as primary insurance. This case, therefore, does not involve the principle of horizontalexhaustion that was addressed in Missouri Pacific. Here, Edisonwas not simply uninsured or self-insured and attempting to invokeexcess coverage. Edison had primary insurance under the Nationalpolicy through Asplundh and made no attempt to invoke coverageunder its separate excess policy under which it had taken its SIR. Edison only elected to invoke coverage under an available primarypolicy, and as we stated above, Edison is entitled toindemnification pursuant to the policy's terms because it had areasonable anticipation that its liability in the Fierce actionarose out of Asplundh's operations. Edison sought to pursuecoverage under this policy, and we find that the trial courtproperly granted Edison such coverage irrespective of the SIREdison held with regard to a separate excess policy it hadpurchased from National.

For the reasons stated, we affirm the judgment of the circuitcourt.

Affirmed.

CERDA and WOLFSON, JJ., concur.

1. The policy issued to Asplundh was a "fronting" policy,requiring that Asplundh repay National for any funds National wasrequired to pay, on Asplundh's behalf. As indicated by thearguments in the parties' briefs, Asplundh, therefore, has taken aposition similar to National that National was not required toreimburse Edison for the settlement of the Fierce action.