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Docket No. 97873-Agenda 34-September 2004.

THE HOME INSURANCE COMPANY, Appellant, v. THE
CINCINNATI INSURANCE COMPANY, Appellee.

Opinion filed December 2, 2004.
 

JUSTICE THOMAS delivered the opinion of the court:

The Home Insurance Company (Home) brought a two-countdeclaratory judgment action against the Cincinnati Insurance Company(Cincinnati), attempting to recover money paid to settle an underlyingpersonal injury action. On cross-motions for summary judgment, thecircuit court granted Cincinnati's motion on both counts and deniedHome's motion. The appellate court, with one justice dissenting,affirmed the circuit court. 345 Ill. App. 3d 40. We allowed Home'spetition for leave to appeal (177 Ill. 2d R. 315). We also allowedLiberty Mutual Insurance Company to file an amicus brief in supportof Home (155 Ill. 2d R. 345(a)). For the reasons that follow, weaffirm in part and reverse in part.

BACKGROUND

Allied Asphalt Paving Company (Allied) was the generalcontractor for a renovation project on the Kennedy Expressway.Allied subcontracted work on the project to Aldridge ElectricCompany, Inc. (Aldridge), and Western Industries, Inc. (Western).Matthew Fisher, an employee of Aldridge, was injured while installinglights in an underpass on the project. The accident occurred at 2 a.m.,when an intoxicated driver drove through the construction area andstruck Fisher.

Fisher sued numerous parties, including Allied and Western. Inhis third amended complaint, Fisher alleged that Allied and Westernhad agreed to assume responsibility for all safety aspects of theproject, and that Allied and Western breached their duty to provideproper safety signs, traffic cones, barricades, warning lights, flagmen,and other traffic control devices at the location where he wasworking.

At the time of the accident, Allied was named as an additionalinsured under two insurances policies: a commercial liability policyissued to Western by Cincinnati; and a policy issued to Aldridge byHome. Each policy contained a $1 million limit of liability for eachoccurrence. Additionally, each policy contained the followingendorsement:

"WHO IS AN INSURED (Section II) is amended to includeas an insured the person or organization shown in theSchedule, but only with respect to liability arising out of'your work' for that insured by or for you."

The term "your work" was defined as follows under each policy:

"a. Work or operations performed by you or on yourbehalf, and

b. Materials, parts or equipment furnished in connectionwith such work or operations."

It is undisputed that Home's policy was an excess policy, whileCincinnati's was a primary policy.

Allied tendered the defense of the Fisher action to both Cincinnatiand Home. In a June 23, 1997, letter, Cincinnati accepted the defenseof Allied, but reserved its rights to deny coverage with respect to anywork or conduct that was not performed by Western on behalf ofAllied. In a September 14, 1999, letter, Home accepted the defense ofAllied. However, Home's acceptance letter stated that Home "willagree to share the cost of Allied's defense and indemnity with theinsurance carrier for Western *** on a 50/50 basis subject to a reviewof both policies and any reservation of rights."

In October 1999, Cincinnati settled Fisher's claim againstWestern for $40,000. Thereafter, Fisher agreed to settle his suitagainst Allied for $600,000. Home paid $500,000 toward thissettlement, but Cincinnati paid only $100,000 of the total settlementamount.

On November 8, 2000, Home filed the present declaratoryjudgment action, asserting theories of equitable subrogation andequitable contribution. Count I sought a declaration that Cincinnatiwas the sole primary insurer responsible for the defense of Allied andwas thus liable to Home for the entire amount Home paid toward thesettlement. Count II sought a declaration that it was entitled torecover from Cincinnati the amount it paid in excess of its pro ratashare of the settlement.

Thereafter, Home took the evidence depositions of RichardJohnson, Allied's defense counsel, and David Cunningham,Cincinnati's claim manager. Johnson testified in his deposition that bythe time of trial, Fisher's theory had evolved to rely more heavily onthe fact that the injury was caused by a lack of a flagger at the site.Flagging was not Western's responsibility. Rather, Western wasresponsible for properly placing barricades at the site. It wasJohnson's guess that Western would probably not be found liable atall-this was because none of the evidence showed a lack ofcompliance with Illinois Department of Transportation specificationson barricades. He assessed the probability of a finding of liabilityagainst Western at no more than 20%. But Johnson also did not thinkmuch of the lack-of-a-flagman theory as it pertained to Aldridge'swork, stating that it was "off the wall" and "almost bordered on beingludicrous." Accordingly, Johnson assessed the potential that Alliedwould be found liable at all at only 10 to 20%.

Cunningham testified in his deposition that he agreed withJohnson's assertion that there was up to a 20% chance that Alliedwould be found liable, that the verdict potential was between two tothree million, and that $600,000 was a reasonable settlement amount.Cunningham also admitted that Cincinnati's payment of $40,000 tosettle on behalf of Western was based at least in part on the possibilitythat Western might lose its pending summary judgment motion and befound liable at trial. He refused to give a percentage of the possibilityof Western being found liable, stating instead that he felt there was a"slim" chance. By settling on behalf of Western, Cunningham wantedto insure that no finding would ever be made that Western was liable.Cunningham admitted that if the jury had made a finding of liabilityagainst Western on the verdict form, Cincinnati's policy, listing Alliedas an additional insured, would be triggered. But Cunninghambelieved Cincinnati would owe only for the portion of damages thatarose out of Western's work. He had no idea, however, how thatwould be determined at trial, and he had never seen a case where faultwas apportioned between insurance companies as he suggested itshould be. He acknowledged that such "arising out of" language, asis contained in Cincinnati's policy, is read very broadly by courts infavor of coverage.

Cunningham further testified in his deposition that he refused topay any more than $100,000 toward the settlement. At the time of hisrefusal, he offered to arbitrate the allocation issue.

Home filed the affidavit of Joan Kenchik, stating that she was theclaim manager for Home that handled the Fisher settlement. Sheattempted on several occasions to persuade Cincinnati to contributemore than $100,000 toward the settlement, but it refused. Home wasthus forced to pay all of the remainder of the settlement amount.Home made this payment, however, on the condition that Cincinnatiagree to arbitrate Home's claims. According to her affidavit, it wasHome's position that it was entitled to at least equal contribution fromCincinnati or, depending upon on whether the Cincinnati policycontained an "other insurance" clause, complete indemnification fromCincinnati. The affidavit does not indicate whether or not Home evercommunicated to Cincinnati that it was entitled to full reimbursementfor the settlement as an excess insurer. Kenchik's affidavit furthernotes that, while Cincinnati agreed to arbitrate at the time ofsettlement, it later refused her requests to arbitrate.

Home filed as an exhibit a letter written by Kenchik toCunningham dated October 21, 1999, which was shortly after thesettlement. In the letter, Home agreed to arbitrate the issues ofindemnification. Home also filed a response letter from Cunninghamdated October 27, 1999, stating that Cincinnati had not unqualifiedlyagreed to arbitrate. It also asked Home to specify the legal basis onwhich it was seeking reallocation of the settlement award.

The circuit court granted Cincinnati's motion for summaryjudgment and denied Home's cross-motion for summary judgment.The court found that Home was not entitled to equitable contributionfrom Cincinnati because Home's policy was excess and Cincinnati'spolicy was primary, and excess and primary insurers do not insure thesame risk. The court also denied the equitable subrogation claim,finding that Home waived it by not asserting that it had no duty todefend Allied and by not asserting that it was an excess insurer untilfiling the declaratory judgment action.

With one justice dissenting, the appellate court affirmed thecircuit court's result (345 Ill. App. 3d at 48), but did not address thecircuit court's waiver theory to resolve the subrogation claim of countI. Instead, the appellate court employed the equitable contributionanalysis of the Appellate Court, First District, in Schal Bovis, Inc. v.Casualty Insurance Co., 315 Ill. App. 3d 353 (2000), to resolve theequitable subrogation count. 345 Ill. App. 3d at 45-46. In discussingwhether Home and Cincinnati were liable for the "same loss," anecessary element to maintain an equitable contribution claim, theappellate court adopted the analysis of Schal Bovis, which held thatthe policies at issue in that case insured "different risks" for purposesof equitable contribution because each insurer insured the additionalinsured only to the extent that liability arose out the work of therespective underlying named insureds. 345 Ill. App. 3d at 45-46, citingSchal Bovis, 315 Ill. App. 3d at 363. The appellate court here foundthat because the policies did not insure the "same risk," they thereforedid not cover the "same loss" for purposes of an equitable subrogationcount. 345 Ill. App. 3d at 46. Accordingly, it found that Home wasnot entitled to equitable subrogation as a matter of law. 345 Ill. App.3d at 46.

The appellate court then turned to the equitable contributionclaim of count II. It noted that it had already found that the policiesdid not insure the same risk because of the respective "arising out of'your work' " endorsements. 345 Ill. App. 3d at 47. It therefore foundthat summary judgment was properly granted to Cincinnati on thiscount. 345 Ill. App. 3d at 47. In so finding, the appellate court refusedto adopt the reasoning of the Third District of the appellate court inCincinnati Insurance Co. v. River City Construction Co., 325 Ill.App. 3d 267 (2001), a case which declined to follow the Schal Bovisrule given the circumstances before it. As an alternative basis for itsruling granting summary judgment on count II, the appellate courtnoted that the policies did not insure the same risk because one wasan excess policy and the other was a primary policy. 345 Ill. App. 3dat 48.

ANALYSIS

Summary judgment is proper where, when viewed in the lightmost favorable to the nonmoving party, the pleadings, depositions,admissions, and affidavits on file reveal that there is no genuine issueas to any material fact and that the moving party is entitled tojudgment as a matter of law. 735 ILCS 5/2-1005(c) (West 2002);Hall v. Henn, 208 Ill. 2d 325, 328 (2003); Ragan v. Columbia MutualInsurance Co., 183 Ill. 2d 342, 349 (1998). The standard of reviewfor the entry of summary judgment is de novo. Hall, 208 Ill. 2d at 328.We may affirm a grant of summary judgment on any basis appearingin the record, regardless of whether the lower courts relied upon thatground. Raintree Homes, Inc. v. Village of Long Grove, 209 Ill. 2d248, 261 (2004); Harrison v. Hardin County Community Unit SchoolDistrict No. 1, 197 Ill. 2d 466, 475 (2001) (Harrison, C.J., speciallyconcurring, joined by Kilbride, J.).

I. Equitable Contribution

We will first address Home's arguments on the equitablecontribution issue. It essentially argues that the appellate court readthe requirements of an equitable contribution claim too narrowly.

We begin our analysis with a general discussion of contributionin the context of multiple insurers. The terms "contribution,""indemnification" and "subrogation" are often used interchangeably,but there are distinct differences between them. 15 Couch onInsurance 3d