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This is an insurance coverage dispute between LaGrange Memorial Hospital (LaGrange) and St. Paul Insurance Company(St. Paul) arising out of a workers' compensation claim brought by Hilke Mundy (Mundy) for injuries she sustained whileworking as a physical therapist at LaGrange. LaGrange filed a declaratory judgment action against St. Paul, contending thatSt. Paul had a duty to defend and indemnify LaGrange against Mundy's claim under an umbrella excess insurance policyissued by St. Paul to Rehabilitation Services of Mid-America (RSMA), now known as MedRehab, Inc.(the St. Paul policy). The circuit court granted summary judgment to LaGrange. For St. Paul's vexatious and unreasonable conduct, the courtawarded statutory penalties, pursuant to section 155 of the Illinois Insurance Code (215 ILCS 5/155(1) (West 1996)), andprejudgment interest under section 2 of the Illinois Interest Act (815 ILCS 205/2 (West1996)). St. Paul now appeals. Weaffirm with sanctions.

Numerous motions have been filed by the parties in this appeal which will also be considered here. We first considerwhether we have jurisdiction over this appeal. St. Paul had until August 27, 1999, to file its notice of appeal, but did not doso until August 30, 1999. The notice of appeal was filed late, by one business day, due to an inadvertent miscalculation onthe part of St. Paul's docketing department. Upon learning of its error, St. Paul timely filed a motion for an extension oftime to file its notice of appeal pursuant to Illinois Supreme Court Rule 303(d) (155 Ill. 2d R. 303(d)), to which LaGrangefiled a response, requesting that we deny St. Paul's motion. We granted the motion. LaGrange subsequently filed a motionto cite additional authority, namely, Berg v. Allied Security, Nos. 85967, 85974 cons. (July 1, 1999), in support of itsargument that this appeal should be dismissed due to St. Paul's late notice of filing, as this court was without jurisdiction.

The instant case is similar to Bank of Herrin v. Peoples Bank, 105 Ill. 2d 305, 473 N.E.2d 1298 (1985). In Bank of Herrin,the Illinois Supreme Court held that a docketing error of three days was a "reasonable excuse" for the late filing of a noticeof appeal, where the error was an honest mistake and on the day the error was discovered, the appealing attorney mailed amotion for an extension to opposing counsel and filed the motion with the court on the next business day, one business dayafter the 30 days had elapsed. We conclude that Berg is inapposite as it did not involve either Supreme Court Rule 303(d)or a docketing error on the part of counsel, similar to that in Herrin and the instant case. Thus, we have jurisdiction toconsider this appeal.

LaGrange also filed a motion for sanctions, pursuant to Rule 375(b), contending that St. Paul's appeal is not taken in goodfaith and is frivolous. St. Paul filed a response; LaGrange filed a reply. LaGrange also filed a motion to strike, as untimely,St. Paul's response to the motion for sanctions, which we now deny. LaGrange's motion for sanctions is directed to themerits of the appeal, which we shall address before we consider the motion.

La Grange also filed a motion to strike St. Paul's reply brief. Although LaGrange's arguments are not entirely withoutmerit, we deny the motion.

On or about March 1, 1983, RSMA entered into a written contract with LaGrange, formerly known as CommunityMemorial Hospital. Under the terms of the contract, RSMA, a provider of physical therapy services, was to be responsiblefor the operation of the physical therapy department at LaGrange, which included the exclusive rendering of all servicesand the performance of all the duties customarily conducted by physical therapists in similar hospitals, including thegeneral and overall administration, supervision and operation of the physical therapy department.

The written contract entered into by RSMA provided in part as follows:

"RSMA agrees to indemnify, hold harmless, save and protect from any and all claims, demands, costs, or judgementsincluding reasonable attorney's fees which arise out of *** Workman's Compensation Liability or other liability imposedupon the Hospital as a result of this Contractual Agreement. RSMA shall maintain liability coverage in the amount of$700,000.00 to $600,000.00 on each employee. RSMA also maintains a $1,000,000.00 umbrella policy for negligence.[LaGrange] shall receive, at least annually, an update on the certificate or [sic] insurance for RSMA. RSMA shall maintainin force for the duration of this Contract, Workman's Compensation coverage insured in any company or associationauthorized under the laws of this State (Illinois) to insure the liability to pay compensation under the Act."

In compliance with this provision, RSMA maintained several insurance policies, including the St. Paul policy at issue here. This St. Paul policy covered not only RSMA but certain other entities. The relevant language states as follows⁽¹⁾:

"What This Agreement Covers

We'll pay amounts you and others protected under this agreement are legally required to pay as damages for covered bodilyinjury, property damage, personal injury, and advertising injury claims. Claims for bodily injury or property damage areonly covered if the injury or damage results from an accidental event."

In addition, the policy provided as follows:

"Who is Protected ***

Besides you, certain other persons are protected under this agreement. Some are protected because of the way yourbusiness is owned: by an individual, partnership or joint venture, or other organizations such as a corporation."

The policy further provides as follows:

"Those you have agreed to protect. We'll protect any person, organization, trustee or estate if you've entered into a writtencontract that requires you to provide the kind of protection offered by this agreement. However, this protection onlyapplies in connection with:

- operations you conduct or that are conducted on your behalf; or

- facilities you own or use.

The policy also contained the following language under the exclusions:

"We won't cover or defend against claims for any of the following liabilities.

Worker's compensation. We won't cover obligations that protected persons or their insurers have under worker'scompensation, unemployment compensation, disability benefits or similar laws. But this exclusion won't apply to liabilityof others you've assumed under a contract or agreement."

On December 27, 1984, which was during the term of the agreement between RSMA and LaGrange, Mundy was injured. At the time, RSMA had a workers' compensation insurance policy and a general liability insurance policy with St. Paul, aswell as the St. Paul policy involved in this appeal. On March 25, 1985, Mundy filed a workers' compensation claim againstLaGrange. LaGrange made temporary total disability (TTD) payments to Mundy, as required under the Illinois Workers'Compensation Act (820 ILCS 305/8(b) (West 1996)).

Prior to the arbitration on Mundy's workers' compensation claim, LaGrange sent a letter to RSMA, dated March 12, 1990,demanding indemnification for Mundy's claim pursuant to the 1983 contract. The 2