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SECOND DIVISION

August 14, 2001

No. 1-99-2655

JUSTICE McBRIDE delivered the opinion of the court:

This appeal arises from a declaratory judgment action filed byplaintiff-appellant, the Home Insurance Company (Home). In thetrial court, Home, among other things, sought a declaration thatdefendant-appellee, United States Fidelity and Guaranty Company(USF&G), had a duty to defend Prestress Engineering Corporation(PEC) in a wrongful death action. The action, Pavesich v.Prestress (the underlying action), was filed in the circuit courtof Cook County on June 21, 1993. USF&G moved to dismiss Home'sdeclaratory judgment complaint. Based upon an agreed order, USF&Gvoluntarily withdrew its motion to dismiss and Home filed anamended declaratory judgment complaint. USF&G answered Home'samended complaint raising two affirmative defenses, the defense oflate tender and a breach of the cooperation clause in the USF&Ginsurance policy. Home filed a motion to strike the affirmativedefenses, which was denied by the trial court on June 10, 1998. OnJuly 7, 1998, Home filed a second amended complaint for declaratoryjudgment, which was answered by USF&G accompanied by the same twoaffirmative defenses referred to above. Home moved for summaryjudgment on counts V and VI of its second amended complaint onDecember 21, 1998. USF&G responded by filing its own cross-motionfor summary judgment which, by stipulation, sought only adeclaration that USF&G had no duty to defend PEC. On June 28,1999, the trial court found that USF&G had no duty to defend PEC inthe underlying action. Thus, USF&G's cross-motion for summaryjudgment was granted and Home's motion for summary judgment wasdenied. Home appeals the orders entered by the trial court on June10, 1998, and on June 28, 1999.

The threshold question to be decided on appeal is whether thetrial court erred in granting USF&G's cross-motion for summaryjudgment and in denying Home's motion for summary judgment on thebasis that USF&G had no duty to defend PEC in the underlyingaction. The other question posed by this appeal is whether thetrial court properly denied Home's motion to strike USF&G'saffirmative defenses.

Our standard of review for summary judgment is de novo. Espinoza v. Elgin, Joliet & Eastern Ry. Co., 165 Ill. 2d 107, 113-14, 649 N.E.2d 1323 (1995). With this standard in place, we setout those facts that are relevant in disposing of this appeal.

In the underlying action, a fourth amended complaint(underlying complaint) was filed by Michele Pavesich, independentadministrator of the estate of Gregory Pavesich, deceased, on March11, 1997. The underlying complaint alleged that Mellon-StuartConstruction, Inc. (Mellon), was the general contractor for reconstructing the Bensenville Bridge, which is located overInterstate 294, pursuant to a contract with the Illinois State TollHighway Authority. Mellon allegedly entered into an agreement withPEC whereby PEC would manufacture and deliver prestressed precastconcrete beams for use in reconstructing the Bensenville Bridge.

PEC allegedly contracted with A&M Cartage of Tinley Park,Inc. (A&M), "and/or" Tri Sons Transportation, Inc. (Tri Sons), where A&M "and/or" Tri Sons was to provide drivers with tractors tohaul the concrete beams from the PEC plant to the BensenvilleBridge jobsite. It was further alleged that A&M "and/or" Tri Sonscontracted with Transmedical, Inc. (Transmedical), whereTransmedical was to supply the drivers who would haul the beamsfrom PEC's facility to the bridge project.

Pavesich was a semi tractor-trailer operator employed byTransmedical. On May 21, 1992, he was killed when a 96,000-poundconcrete beam he was hauling dislodged from its trailer mooringsand crashed through the operator's cab, resulting in his death. The concrete beam, allegedly known as beam H-12, and the truck'strailer were both manufactured by PEC.

At the time of his death, Pavesich was alleged to have been inthe scope of his employment when he was transporting the concretebeam from PEC's manufacturing plant to the bridge project. Theunderlying complaint specifically alleged that Pavesich was killedwhen the rear wheels of his truck ascended onto the curb at theintersection of Williams and Franklin, Franklin Park, Cook County,Illinois. Such activity caused the concrete beam to becomedislodged and to crush the operator's cab, which resulted in hisdeath. The underlying complaint named PEC, Tri Sons, and A&M asdefendants in the underlying action. PEC was alleged to have beenthe supplier and the designer of the trailer used by Pavesich forhauling the concrete beam to the bridge project. A&M "and/or" TriSons was alleged to have provided the operator's cab or tractorwhich Pavesich was operating on the day he was killed.

Home underwrote an insurance policy, policy number BAF5664366, a/k/a BAF566436 (Home Policy), naming "E.M. Melahn Constr[u]ctionCo." as its named insured. The Home Policy was effective for theperiod of April, 1, 1992, through April 1, 1993. A review of therecord does not reveal that PEC is an insured or even referred toin the Home Policy. However, the parties do not dispute the factthat PEC is an insured under the Home Policy. USF&G issued TriSons a truckers policy, policy number KTP176610 (USF&G Policy),effective for the period of April 14, 1992, to April 14, 1993.

In a letter dated, July 11, 1997, counsel for PEC in theunderlying action notified USF&G of the lawsuit and tendered PEC'sdefense to USF&G. USF&G admitted in its answer to Home'sinterrogatories that it had been on notice of the underlying actionsince June 21, 1993, the date the underlying action was filed. Thetender letter stated, among other things, that USF&G had a duty todefend PEC and that a conflict of interest existed between thepositions of PEC and A&M and/or Tri Sons because the underlyingcomplaint alleged liability against both PEC and Tri Sons forhauling the subject beam. Since USF&G was "precluded" fromcontrolling PEC's defense, the letter further demanded that USF&G secure independent counsel for PEC due to the conflict of interestand also that USF&G provide indemnification for PEC in theunderlying action. USF&G responded by denying coverage in a letterwritten by USF&G's counsel dated August 12, 1997. In the letter,coverage was denied by USF&G on several grounds. First, USF&Gasserted that PEC was not an insured under its policy. Second, inthe event PEC was an insured under the USF&G Policy, theallegations in the underlying complaint did not invoke coverage. Third, in the event coverage was invoked, its insurance was excessover the coverage provided PEC in the Home Policy. Fourth, PEC'sfailure to tender the suit for four years constituted a late tenderwhich breached the cooperation clause in the USF&G Policy. Finally, counsel for USF&G stated that, in the event PEC disputedthe denial of coverage, counsel was authorized to file adeclaratory judgment action on behalf of USF&G so as to "judiciallyrelieve it of any legal responsibility" to PEC in the underlyingaction.

In apparent anticipation of a denial letter from USF&G, Homefiled a declaratory judgment action in the trial court naming USF&Gand the Pavesich estate as defendants on August 1, 1997. Inresponse, USF&G filed a motion to dismiss on the basis that Homelacked standing to seek a declaration as to USF&G's obligations toPEC because Home had not yet indemnified PEC in the underlyingaction. Home settled the underlying action via a settlementagreement that was executed on October 22, 1997. USF&Gsubsequently withdrew its motion to dismiss. By agreed order, Homewas allowed leave to file an amended complaint for declaratoryjudgment and to dismiss the Pavesich estate as a defendant.

In the declaratory judgment action, Home filed a motion tostrike USF&G's affirmative defenses which was denied by the trialcourt on June 10, 1998. On June 28, 1999, the trial court foundthat USF&G had no duty to defend PEC in the underlying action. Home appeals the orders entered by the trial court on June 10,1998, and on June 28, 1999.

We now turn to the question of whether USF&G had a duty todefend in the underlying action. As noted above, Tri Sons is thenamed insured under the USF&G Policy. PEC is not a named insuredand is not identified as an additional insured. Thus, we mustdetermine whether PEC is an additional insured based upon thecoverage language in the USF&G Policy. The applicable policylanguage states, in relevant part:

"1. WHO IS AN INSURED

The following are 'insureds:'

***

• The owner or anyone else from whom youhire or borrow a covered 'auto' that is a'trailer' while the 'trailer' isconnected to another covered 'auto' thatis a power unit; or if not connected:

(1) is being used exclusively in yourbusiness as a 'trucker;' and

(2) is being used pursuant to operatingrights granted to you by a publicauthority." (Emphasis added.)

The term "auto" is defined in the USF&G Policy as "a land motorvehicle, trailer or semitrailer designed for travel on public roadsbut does not include 'mobile equipment.'" Based on the abovelanguage, the specific question we must determine is whether TriSons hired or borrowed the trailer from PEC that was involved inPavesich's death. The terms "hire" and "borrow" are not defined in the USF&G Policy and are subject to more than oneinterpretation. Thus, we must construe these terms in favor of theinsured and against the insurer that drafted the policy. OutboardMarine Corp. v. Liberty Mutual Insurance Co., 154 Ill. 2d 90, 108-09, 607 N.E.2d 1204 (1992).

It is well-settled law in Illinois:

"In determining whether the insurer owesa duty to the insured to defend an actionbrought against him, it is the general rulethat the allegations of the complaintdetermine the duty. If the complaint allegesfacts within the coverage of the policy orpotentially within the coverage of the policythe duty to defend has been established.[Citations.]" Maryland Casualty Co. v.Peppers, 64 Ill. 2d 187, 193-94, 355 N.E.2d 24(1976).

In addition, "[r]efusal to defend is unjustifiable unless it isclear from the face of the underlying complaint that the factsalleged do not fall potentially within the policy's coverage." Outboard Marine, 154 Ill. 2d at 108. "The allegations in theunderlying complaint must be liberally construed in favor of theinsured." Outboard Marine, 154 Ill. 2d at 125.

In conformity with the above standards, we now examine theallegations relied upon by the parties in the underlyingcomplaint,⁽¹⁾ in relevant part:

"16. Prior to May 21, 1992, Mellonentered into a contract with PEC which calledfor PEC to manufacture and to deliverprestressed precast concrete beams for use inthe reconstruction of the Bensenville Bridge.

17. Prior to May 21, 1992, PEC enteredinto an agreement with A&M and/or Tri-Sonsunder which A&M and/or Tri-Sons were toprovide drivers with tractors to haul theconcrete beams from the Prestress plant to theBensenville Bridge jobsite.

18. Prior to May 21, 1992, A&M and/orTri-Sons entered into an agreement withTransmedical under which Transmedical was tosupply the drivers who would haul the beamsfrom PEC's facility to the Bensenville Bridgejobsite.

19. Plaintiff's decedent, GregoryPavesich[,] was a truck driver employed byTransmedical who periodically hauled beamsfrom the Prestress facility to the BensenvilleBridge jobsite.

20. A&M and/or Tri-Sons suppliedTransmedical with the tractor which GregoryPavesich was operating on May 21, 1992.

21. PEC supplied pole trailer #532 whichGregory Pavesich was pulling on May 21, 1992.

22. Prior to May 21, 1992, PEC designedtrailer #532 for use in the delivery of itsprecast, prestressed bridge beams.

23. Prior to May 21, 1992, PECmanufactured trailer #532 for use in thedelivery of its precast, prestressed bridgebeams.

24. Prior to May 21, 1992, PEC assembledtrailer #532 for use in the delivery of itsprecast, prestressed bridge beams.

27. Prior to May 21, 1992, PEC devisedprocedures for loading and securing of itsprecast, prestressed concrete beams onto itspole trailers.

28. With regard to the loading andsecuring of all beams to the BensenvilleBridge project, PEC determined and devised themanner and method of loading its precast,prestressed concrete beams onto its poletrailers.

29. Employees of PEC performed theactual loading of beam H-12 onto trailer #532on May 21, 1992.

30. Employees of PEC assisted GregoryPavesich with the task of slinging chains overbeam H-12 during the process of securing thebeam to trailer #532 on May 21, 1992.

32. Defendant A&M and/or Tri-Sonssupplied the chains and chain binder whichGregory Pavesich used to secure beam H-12 totrailer #532 on May 21,1992.

35. On May 21, plaintiff's decedent,Gregory Pavesich, was killed when a beam(identified as beam H-12) manufactured by PECfell from the trailer supplied by PEC onto thetractor supplied by A&M and/or Tri-Sons whichwas being operated by Gregory Pavesich in theordinary course and scope of his employmentwith Transmedical en route to the BensenvilleBridge jobsite, at/or near the intersection ofWilliams and Franklin, Franklin Park, CookCounty, Illinois."

In count IV, the underlying complaint alleges:

"37. Notwithstanding the aforesaid duty[to exercise ordinary care], on and before May21, 1992, defendants [A&M and Tri Sons], byand through its agents and/or employees, wasnegligent in on one or more of the followingrespects, by:

***

b) failing to supply Gregory Pavesichwith a trailer that was appropriate forhauling precast, prestressed concrete beamslike beam H-12; or

***

d) allowing PEC to dictate the method ofloading and securing of precast, prestressedconcrete beams, including beam H-12 eventhough defendant knew, or in the exercise ofordinary care, should have known, that PEC didnot employ any engineers ***."

Based on the above allegations, Home asserts that Tri Sons atleast potentially hired or borrowed the PEC trailer. Thus,according to Home, since it cannot be categorically ruled out thatTri Sons did not hire or borrow PEC's trailer, USF&G's duty todefend is triggered. In support of its argument, Home relies onthe following cases from other jurisdictions, many of whichinvolved trucking accidents: Farmland Dairies v. New JerseyProperty Liability Insurance Guaranty Ass'n, 237 N.J. Super. 578,581, 568 A.2d 579, 581 (1990); Mission Insurance Co. v. HartfordInsurance Co., 155 Cal. App. 3d 1199, 1204, 1214, 202 Cal. Rptr.635, 637, 644 (1984); Nationwide Mutual Insurance Co. v. GreatWest Casualty Co., 102 F.3d 965, 967-68 (8th Cir. 1996); AtlanticCasualty & Fire Insurance Co. v. National American Insurance Co.,915 F. Supp. 1218, 1224 (M.D. Fla. 1996); and Travelers IndemnityCo. v. Swearinger, 169 Cal. App. 3d 779, 214 Cal. Rptr. 383 (1985).

Home relies upon the above authority because, "truck accidentcases often involve complex sets of lessor/lessee, ICC liability,and tort liability issues." Home further claims that the term"hire or borrow" as used in the USF&G Policy is meant to includeall arrangements between the owner and operator for the handling ofa trailer and for the handling of a tractor. According to Home, ifmoney changes hands, the trailer is "hired"; if no money isexchanged, the trailer is "borrowed." Thus, Home concludes thattrailer owners are included as insureds for liability purposesunder the USF&G Policy.

We are not persuaded by the authority relied upon by Homeabove to resolve the first question on appeal. Although a reviewof the cases reveals nearly identical policy language to this casein some instances (Farmland Dairies, 237 N.J. Super. at 582, 568A.2d at 582; Nationwide Mutual, 102 F.3d at 968; Atlantic Casualty,915 F. Supp. at 1221), the facts and contractual relationshipsbetween the parties are not identical to those in this case. Inthe interest of avoiding a protracted discussion on these casesfrom foreign jurisdictions, we adopt the definition of the term"borrow" as articulated by the appellate court in this state.

In Brile v. Estate of Brile, 296 Ill. App. 3d 661, 666-67, 695N.E.2d 1309 (1998), plaintiff's husband, Christopher Brile,deceased, began working for Photocomm, Inc., in Downers Grove,Illinois. Some time thereafter, Photocomm decided to close itsDowners Grove office, yet it wanted to retain the employment ofChristopher Brile because he was a valuable employee. As a result,Christopher was offered a promotion by Photocomm that required therelocation of his family to Denver, Colorado. As part of therelocation plan, it was decided by Photocomm and Christopher thathe would rent a truck for the purpose of moving his personal itemsin addition to transporting Photocomm's customer files and otheroffice materials from Illinois to Colorado. Photocomm wished tohave its customer files, material, and equipment transported byChristopher instead of hiring a common carrier due to the sensitivenature of the customer files as well as the increased shippingexpenses. Thus, Photocomm agreed to reimburse Christopher for thetruck rental because of the "dual purpose" of moving Christopher'spersonal items as well as the company's customer files.

Christopher subsequently entered into a rental agreement witha truck rental company that he paid for with a personal creditcard. Photocomm's name was not identified on the rental agreement. Christopher left for Colorado accompanied by his son Matthew,deceased. He did not inform Photocomm that Matthew would accompanyhim or that Matthew would participate in any driving during thetrip. While Matthew was driving, the truck was involved in anaccident that killed both Christopher and Matthew.

Plaintiff, Marion Brile, Christopher's wife, filed a wrongfuldeath action against her son, Matthew, resulting from the accidentthat occurred while Matthew was driving. Thereafter, the specialadministrator of Matthew's estate filed a declaratory judgmentaction against Federal Insurance Company, Photocomm's insurer,seeking a declaration that Federal's policy, issued toChristopher's employer, afforded coverage to Matthew. The trialcourt granted summary judgment in favor of Federal on the basisthat Matthew was not an insured under the Federal policy.

The Federal policy provided that anyone is an insured who"uses, with Photocomm's permission, a covered auto owned, hired, orborrowed by Photocomm." (Emphasis omitted.) Brile, 296 Ill. App.3d at 666. Among other things, Federal argued that Photocomm didnot own, hire, or borrow the vehicle Matthew was using at the timeof the accident. The court, citing Black's Law Dictionary, definedborrow as, "'[t]o solicit and receive from another any article ofproperty, money or thing of value with the intention and promise torepay or return it or its equivalent.' [Citation.]" Brile, 296Ill. App. 3d at 666-67.

As USF&G correctly notes in its brief, the court in Brilefound that the named insured, Photocomm, had received a thing ofvalue in that it obtained a method for transporting its officesupplies and customer files in a cheaper and more convenient mannerthrough the use of its employee. Because the named insuredreceived a thing of value, the court found that the insured hadborrowed the vehicle under the liability policy at issue. Brile,296 Ill. App. 3d at 667.

In this case, although there are no allegations that Tri Sonshired or borrowed PEC's trailer, it is clearly alleged that PEC'strailer was attached to A&M and/or Tri Son's tractor at the time ofthe occurrence. Applying a similar analysis, we conclude that TriSons received a "thing of value" out of its agreement with PEC muchlike the value that Photocomm received from Christopher in Brile.While the complaint does not specifically allege that Tri Sonsreceived a thing of value, it alleges that there was an agreementbetween PEC and Tri Sons, whereby Tri Sons was charged withproviding drivers and tractors in order to haul the concrete beamsto the Bensenville Bridge jobsite. While the agreement is not partof the record, the underlying complaint alleges that PEC suppliedthe trailer to Tri Sons. It also alleges that Tri Sons' tractorwas attached to PEC's trailer to haul the concrete beam.

At the very least, therefore, it can be concluded from theallegations in the complaint that Tri Sons used PEC's trailer tohaul the concrete beam to the jobsite. It is reasonable toconclude that such use by Tri Sons amounted to a "hiring" or"borrowing" under the terms in USF&G Policy. While it is unclearwhether a hiring or borrowing occurred in this case, we agree withHome that the term "hire or borrow" in the USF&G Policy is meant toinclude all arrangements for the handling of a trailer between theowner of the trailer and the owner of the tractor. As noted byHome, the court in Farmland Dairies, cited above, did interpretvirtually identical policy language to mean that trailer owners areconsidered insureds for liability purposes. Farmland Dairies, 237N.J. Super. at 581, 568 A.2d at 581. Because the USF&G Policy doesnot define "hire or borrow," we determine that Tri Sons' use of thetrailer fits within the policy term. As noted above in OutboardMarine, policy terms that could be subject to more than oneinterpretation are construed against the insurer and in favor ofthe insured. Outboard Marine, 154 Ill. 2d at 108-09. Theallegations in the underlying complaint support the propositionthat Tri Sons used PEC's trailer and unquestionably received athing of value as a result of such "use" whether it was hired orborrowed. Therefore, we find that Tri Sons, at minimum, could have"borrowed" PEC's trailer under the USF&G Policy, therebypotentially invoking coverage.

USF&G claims that Tri Sons could not have "benefitted" or didnot receive a thing of value because PEC hired Tri Sons to fulfillits obligations to Mellon to deliver the beams. Thus, according toUSF&G, Tri Sons did not benefit because the contractualrelationship was between PEC and Mellon. We disagree. As pointedout above, the underlying complaint alleges that Tri Sons, as aprovider of tractors and drivers, was the hauler of PEC's trailerwhich carried the concrete beams. As a result, Tri Sons receiveda thing of value from its agreement with PEC. We determine,therefore, that Tri Sons borrowed PEC's trailer under the USF&GPolicy.

We further conclude that USF&G had a duty to defend Tri Sonsin the underlying lawsuit and that the trial court erred ingranting its cross-motion for summary judgment. The parties do notdispute that the proper methodology for determining insurancecoverage is by comparing the allegations in the underlyingcomplaint to the policy language at issue. Our supreme court hasstated:

"As a general rule, the duty of aninsurer to defend an action brought againstthe insured is to be determined solely fromthe allegations of the complaint. If thecomplaint alleges facts within or potentiallywithin policy coverage, the insurer is obligedto defend even if the allegations aregroundless, false, or fraudulent. [Citations.]In addition, in Illinois the duty is notannulled by the knowledge of the insurer thatthe allegations are untrue." Thornton v.Paul, 74 Ill. 2d 132, 145, 384 N.E.2d 335(1978), rev'd on other grounds, AmericanFamily Mutual Insurance Co. v. Savickas, 193Ill. 2d 378, 793 N.E.2d 445 (2000).

Based on the allegations in the underlying complaint and theapplicable USF&G Policy language, we conclude that a potential forcoverage exists. The trial court's order of June 10, 1998, isaccordingly reversed.

Because we conclude that USF&G had a duty to defend, we nowaddress whether Home was entitled to summary judgment as a matterof law on estoppel, subrogation, and damages under section 155 ofthe Insurance Code (215 ILCS 5/155 (West 1996)). The trial courtnever considered these questions because it granted USF&G's cross-motion for summary judgment on the duty to defend.

Relying on Cincinnati Cos. v. West American Insurance Co., 183Ill. 2d 317, 328, 701 N.E.2d 499 (1998), Home claims that USF&G'sobligation to defend was triggered on June 21, 1993, when it hadactual notice of the underlying action. Additionally, becauseUSF&G failed to promptly file a declaratory judgment action or todefend under a reservation of rights at the time it had actualnotice of the underlying action, Home argues that it is nowestopped from raising policy defenses to coverage. EmployersInsurance of Wausau v. Ehlco Liquidating Trust, 186 Ill. 2d 127,150-51, 708 N.E.2d 1122 (1999). Thus, Home contends that summaryjudgment should have been granted on the questions of estoppel,subrogation, and section 155 damages as a result of USF&G's breachof the duty to defend which Home claims arose in 1993.

In response, USF&G contends that the actual notice ruleannounced in Cincinnati does not apply because in that case therewas no question the insurer knew a cause of action had been filedagainst its additional insured. Cincinnati, 183 Ill. 2d at 330. In this case, USF&G claims that, while it knew of the underlyinglitigation because Tri Sons was a named defendant and was a namedinsured under its policy, it did not know that PEC considereditself an insured under that same USF&G Policy until 1997. USF&Galso argues that because PEC was not named as an insured or listedas an additional insured on the USF&G Policy it did not know thatthe underlying complaint fell within or potentially within coverageas to PEC. USF&G also claims that, once notified of PEC's claim,it properly denied coverage based on its determination that PEC wasnot an insured. Therefore, USF&G argues Cincinnati isdistinguishable because the insured was named as an additionalinsured in the policy and no question concerning coverage arose inthat case. Under the instant facts, USF&G also argues that it didnot have "actual notice" of the lawsuit until July 11, 1997, whenit first received the tender letter from PEC's counsel.

Before beginning our analysis of whether and when USF&G hadactual notice of the underlying action, we refer to the language ofCincinnati in which the supreme court stated: "[I]n order to haveactual notice sufficient to locate and defend a suit, the insurermust know both that a cause of action has been filed [against itsinsured] and that the complaint falls within or potentially withinthe scope of the coverage of one of its policies." Cincinnati, 183Ill. 2d at 329-30. Therefore, in order to find that USF&G hadactual notice, both prongs of the rule must be met.

The facts in Cincinnati disclosed that plaintiff, an injuredconstruction worker, brought suit against two jobsite contractors,Baird Land Surveyors and B&D Home Repair and Builders. Baird wasnamed an additional insured on a policy underwritten by CincinnatiCompanies and B&D was insured by West American Insurance Company. Upon receiving service in connection with the lawsuit, Baird,tendered the defense to its own insurance company, which tenderedthe defense to Cincinnati. B&D tendered its defense to WestAmerican. Thus, both insurers had notice of the underlyinglitigation shortly after their respective insureds were served withprocess.

During discovery in the underlying action, the plaintiffserved B&D with interrogatories which requested that B&D list theinsured under each policy that may have provided plaintiffcoverage. B&D responded that it was covered by the West AmericanPolicy and that only B&D was an insured under that policy. On theeve of the third trial date, however, B&D's counsel disclosed toBaird that Baird was also listed as an additional insured on theWest American Policy issued to B&D. As a result, Baird tenderedits defense to West American, which rejected the tender. Cincinnati, 183 Ill. 2d at 319-20.

Cincinnati subsequently filed a declaratory judgment actionagainst West American seeking a declaration that West American wasa primary insurer for Baird in the underlying litigation. Cincinnati further sought a declaration that West American wasliable for the amount that Cincinnati had paid on behalf of Bairdto settle the underlying suit, as well as attorney fees and costsincurred by Cincinnati on behalf of Baird in defending the case. The trial court found that the answers to the interrogatoriesprovided to Baird made no reference to the West American policy andprevented Baird from making a reasonable judgment as to tender. Therefore, the lack of tender could not be attributed to Baird butshould have been attributed to the attorney for B&D. Cincinnati,183 Ill. 2d at 320. The trial court then held West American liablefor an equitable share of the settlement and attorney fees incurredafter the date West American had notice of the suit, which wasshortly after the lawsuit had been filed. Cincinnati, 183 Ill. 2dat 321.

Before the appellate court, West American argued that aninsurer has no obligation to defend an insured until the insuredactually tenders its defense to the insurer, that is, requests theinsurer's assistance in defending the underlying suit. Rejectingthat position, the appellate court affirmed the trial court'sdecision that an insurer's duty to defend claims potentially withinthe terms of a policy is triggered when the insured has actualnotice of the lawsuit, regardless of whether there has been anactual tender of the defense by the insured. Cincinnati, 183 Ill.2d at 321.

On appeal, the supreme court resolved whether an insurer'sduty to defend its insured arises when the insurer receives actualnotice of a lawsuit against its insured or only upon tender of thedefense to the insurer. Before answering that question, thesupreme court reviewed several cases, including Federated MutualInsurance Co. v. State Farm Mutual Automobile Insurance Co., 282Ill. App. 3d 716, 668 N.E. 2d 627 (1996).

In that case, the plaintiff, Federated, issued an insurancepolicy to a Volkswagen dealer that covered a fleet of automobiles. An employee of the dealer borrowed one of those vehicles to use forthe weekend. During that time, the employee attended a party withfour friends, one of whom was Kathleen Gallagher. Gallagher wasdriving the vehicle home from the party when she struck the rear ofa stopped vehicle. All four of the passengers in the vehiclesuffered injuries and filed suit against Gallagher.

After being served with process, Gallagher contacted herinsurer, defendant State Farm, on November 22, 1993. On December14, 1993, State Farm sent Federated a tender letter notifying it ofthe suit and claiming that Federated was the primary liabilitycarrier for Gallagher. On March 3, 1994, Federated filed adeclaratory judgment action on the basis that it had no duty todefend Gallagher because she did not tender her defense directly toFederated. Federated, 282 Ill. App. 3d at 719. Federated,however, had actual notice of the lawsuit against Gallagher lessthan one month after Gallagher had been served.

Federated essentially involved the same question the courtfaced in Cincinnati, that is, whether an insurer's duty to defendis triggered by actual notice of a lawsuit involving its insured orby the insured's tender of defense of that lawsuit to the insurancecompany. Federated held that actual notice triggers the duty todefend except where the insured has knowingly decided against theinsurer's involvement or where prejudice to the insurer occurs. Federated, 282 Ill. App. 3d at 727.

After reviewing the decision in Federated, the supreme courtin Cincinnati held:

"[W]here the insured has not knowinglydecided against an insurer's involvement, theinsurer's duty to defend is triggered byactual notice of the underlying suit,regardless of the level of the insured'ssophistication. *** We note that in order tohave actual notice sufficient to locate anddefend a suit, the insurer must know both thata cause of action has been filed and that thecomplaint falls within or potentially withinthe scope of the coverage of one of itspolicies." Cincinnati, 183 Ill. 2d at 329-30.

Thereafter, the supreme court concluded that West American's dutyto defend was triggered by actual notice of the underlying suit. The supreme court found that West American had actual noticebecause it was aware of the underlying lawsuit almost from itsinception and because Baird, a named defendant, was named anadditional insured under its policy. Cincinnati, 183 Ill. 2d at328, 330.

We find that the facts in both Cincinnati and Federated aredistinguishable from the instant case. In Cincinnati, it was clearthat West American had actual notice of the lawsuit against Bairdshortly after service of process for two reasons. First, B&Dtendered its defense to West American shortly after receiving notice of the law suit which included Baird as a defendant. Second, Baird was listed as an additional insured on the WestAmerican policy.

In this case, PEC was neither a named insured nor listed as anadditional insured on the USF&G Policy. In addition, USF&G did notreceive a tender letter from PEC claiming coverage until four yearsafter the commencement of the underlying litigation. As a result,we find the facts in this case are not similar to those inCincinnati.

In Federated, the insured, Gallagher, notified her owninsurance carrier of the lawsuit shortly after being served with asummons and complaint. Less than one month later, Gallagher'scarrier, State Farm, notified Federated via letter that itconsidered Federated to be the primary liability carrier forGallagher and that it was tendering the defense of the suit toFederated. Thus, Federated had actual knowledge of the suitagainst Gallagher almost immediately. While Gallagher was not anamed insured on the Federated policy, Federated was put on noticeat the outset of the litigation that Gallagher and State Farm wererequesting coverage.

In this case, however, as pointed out above, PEC did nottender the defense to USF&G until more than for years after theunderlying complaint had been filed. Further, while Home claimsthat USF&G admitted actual knowledge of the lawsuit on June 21,1993, the record reveals that USF&G only admitted to being advisedof the underlying action and that PEC was a defendant on that date. Unlike Cincinnati, PEC was not a named insured or listed as anadditional insured on the USF&G Policy. USF&G claims that it didnot have "actual notice" of the underlying action when it was firstfiled because PEC was not named or listed as an additional insuredon the USF&G Policy and because it did not know the complaint fellwithin or potentially within coverage of the policy. According toUSF&G, even if there was a duty to defend, which it contests, aquestion of fact still exists as to when the duty to defend arose. We agree that a material question of fact exists as to whetherUSF&G had actual notice of the underlying litigation as itpertained to PEC at the time the lawsuit was filed in 1993 or laterin 1997 when it received the actual tender letter.

As a result, we also conclude that questions of fact exist asto whether estoppel, subrogation, and section 155 damages apply inthis case. These questions can be resolved only after the trialcourt determines when actual notice occurred. If Home canestablish that USF&G had actual notice as it pertained to PEC in1993, the estoppel doctrine may apply on the ground that USF&Gbreached its duty to defend.

On the other hand, if the actual notice occurred in 1997, theestoppel doctrine may not apply based on USF&G's policy defenses. This is so because:

"Application of the estoppel doctrine is notappropriate if the insurer had no duty todefend, or if the insurer's duty to defend wasnot properly triggered. These circumstancesinclude where the insurer was given noopportunity to defend; where there was noinsurance policy in existence; and where, whenthe policy and the complaint are compared,there clearly was no coverage or potential forcoverage. [Citations.]" (Emphasis added.) Ehlco, 186 Ill. 2d at 151.

The facts in this case show that the underlying action wasinitiated in 1993, but PEC relied on Home's defense for four yearsbefore tendering to USF&G in 1997. Moreover, PEC's tender occurredafter the completion of discovery in the underlying action and onthe eve of trial. When PEC did tender its defense to USF&G on July11, 1997, USF&G responded within approximately 30 days, denyingcoverage, and offered to file a declaratory judgment suitconcerning its responsibility to defend the underlying action. Allowing USF&G less than 30 days to respond to its tender letter,Home filed its own declaratory judgment action in the circuit courton August 1, 1997. Further, without any involvement from USF&G,Home settled the underlying action on October 22, 1997. Based onthese facts, USF&G claims that it was given no opportunity todefend and that it should not be estopped from asserting its policydefenses. Whether the doctrine of estoppel applies on the basisthat USF&G had no opportunity to defend is a question of fact to beresolved by the trial court.

On the other hand, we also note that an insurer may not refuseto defend its insured once the duty to defend is triggered.

"Rather, the insurer has two options: (1)defend the suit under a reservation of rightsor (2) seek a declaratory judgment that thereis no coverage. If the insurer fails to takeeither of these steps and is later found tohave wrongfully denied coverage, the insureris estopped from raising policy defenses tocoverage." Ehlco, 186 Ill. 2d at 150-51.

Depending upon a full presentation of the facts, the estoppeldoctrine may be applied. The record does not reveal when PECbecame aware of its insured status under the USF&G Policy. At thevery latest, we know that PEC considered itself an insured underthe USF&G Policy around July 11, 1997. On that date, it tenderedits defense to USF&G, which denied coverage on August 12, 1997.

Home then filed a declaratory judgment action seeking coveragefor PEC on August 1, 1997. In response, on September 5, 1997,USF&G filed a motion to dismiss, in lieu of an answer, assertingthat Home had no standing to seek a declaratory judgment as toUSF&G's coverage obligations to PEC because Home had not yetindemnified PEC in the underlying action. Home then settled theunderlying litigation on October 22, 1997. In response, USF&Gwithdrew its motion to dismiss and filed a cross-motion for summaryjudgment as to Home's amended declaratory judgment complaint whichsought coverage for PEC. USF&G's cross-motion for summaryjudgement was filed 18 months after PEC tendered its defense and 17months after Home filed the original declaratory judgment action.

A full presentation of all the facts may reveal that USF&Gwrongfully denied coverage and that the doctrine of estoppel isapplicable. We conclude that whether estoppel should apply is amaterial question of fact to be resolved by the trial court. Thisquestion can only be decided after the trial court determines whenUSF&G had actual notice of the underlying action. At that point,the trial court can reach the questions of estoppel, subrogation,and section 155 damages. 215 ILCS 5/155 (West 1996).

In conclusion, because material questions of fact remain, wecannot say as a matter of law that USF&G had "actual notice" underCincinnati of the lawsuit on June 21, 1993, for sometime later. Wealso cannot say, as a matter of law, whether estoppel, subrogationor section 155 damages apply. 215 ILCS 5/155 (West 1996). Accordingly, we remand the case to the trial court for resolutionof these questions.

Finally, Home claims the supreme court intended that theCincinnati actual notice rule apply retroactively based upon itslater decision in Ehlco. Ehlco, 186 Ill. 2d at 143. The supremecourt in Ehlco remanded the case to the trial court for adetermination of when actual notice had been received. Ehlco, 186Ill. 2d at 143-44. We observe that, in Ehlco, the court appliedthe actual notice rule based on its decision in Cincinnati despitethe fact that Cincinnati was decided after the coverage disputeshad occurred in that case. Ehlco, 186 Ill. 2d at 143-44. As aresult, we agree with Home that the actual notice rule can beapplied retroactively under such circumstances.

We also find that the trial court properly denied Home'smotion to strike USF&G's affirmative defenses because factualquestions concerning these defenses remain unresolved.

The trial court's ruling on the duty to defend is reversed andthe ruling on Home's motion to strike USF&G's affirmative defensesis affirmed. The case is remanded to the trial court for thereasons set forth above.

Affirmed in part and reversed in part; cause remanded withdirections.

CAHILL, P.J., and GORDON, J., concur.

1. As noted by Home, paragraphs 1 through 35 in each count ofthe underlying complaint are identical. Thus, references to theseparagraphs will also apply to counts I and IV, which concern theallegations against PEC, A&M, and Tri-Sons in the underlyingcomplaint.