                           ILLINOIS OFFICIAL REPORTS
                                         Appellate Court



              United National Insurance Co. v. 200 North Dearborn Partnership,
                                  2012 IL App (1st) 100569




Appellate Court            UNITED NATIONAL INSURANCE COMPANY, a Pennsylvania
Caption                    Corporation, Plaintiff-Appellee and Counterdefendant and Cross-
                           Appellant, v. 200 NORTH DEARBORN PARTNERSHIP, an Illinois
                           Partnership, Baird & Warner, Inc., Kenilworth, Inc., Warner Investment
                           Company, Inc., and Elzie Higgenbottom, Defendants-Appellants and
                           Counterplaintiffs and Cross-Appellees (Hartford Casualty Insurance
                           Company, Intervenor Plaintiff-Appellant; United National Insurance
                           Company, Intervenor Defendant-Appellee and Cross-Appellant).


District & No.             First District, First Division
                           Docket No. 1-10-0569


Rule 23 Order filed        August 6, 2012
Rehearing denied           August 30, 2012
Rule 23 Order
withdrawn                  October 15, 2012
Opinion filed              October 22, 2012


Held                       In an action arising from a dispute over the insurance coverage for the
(Note: This syllabus       fatal injuries suffered by a janitor who fell down an elevator shaft in a
constitutes no part of     commercial building insured by plaintiff, plaintiff was not estopped from
the opinion of the court   asserting its policy defenses, despite its delay in filing a declaratory
but has been prepared      judgment action, and there was no error in the finding that the deceased
by the Reporter of         was the insured’s employee and that the employee liability exclusion in
Decisions for the          the policy precluded indemnification.
convenience of the
reader.)
Decision Under             Appeal from the Circuit Court of Cook County, No. 06-CH-17017; the
Review                     Hon. Daniel A. Riley, Judge, presiding.


Judgment                   Affirmed.


Counsel on                 Tressler LLP, of Chicago (Michael J. Duffy and Matthew J. Devereux, of
Appeal                     counsel), for appellants.

                           Leahy, Eisenberg & Fraenkel, Ltd. (Edward J. Leahy and Ronald S.
                           Keske, of counsel), and Fraser Trebilcock Davis & Dunlap, P.C. (Anita
                           G. Fox, of counsel), both of Chicago, for appellee.


Panel                      JUSTICE KARNEZIS delivered the judgment of the court, with opinion.
                           Presiding Justice Hoffman and Justice Rochford concurred in the
                           judgment and opinion.



                                            OPINION

¶1          Defendants and counterplaintiffs-appellants and cross-appellees 200 North Dearborn
        Partnership, Baird & Warner, Inc., Kenilworth, Inc., Warner Investment Company, Inc., and
        Elzie Higgenbottom, and intervenor plaintiff-appellant and cross-appellee Hartford Casualty
        Insurance Company (collectively defendants unless otherwise indicated) appeal from the trial
        court’s August 4, 2009, and January 27, 2010, orders. Plaintiff and counterdefendant and
        intervenor defendant-appellee and cross-appellant United National Insurance Company
        (United National) cross-appeals from the trial court’s August 4, 2009, and January 27, 2010,
        orders. We affirm for the following reasons.

¶2                                          Background
¶3                                      Underlying Lawsuit
¶4          This appeal concerning the extent of the respective parties’ insurance coverage stems
        from the underlying lawsuit filed after the deceased, Marian Gal, died due to an elevator
        malfunction at a building located at 200 North Dearborn Parkway in Chicago. Gal v. 200
        North Dearborn Partnership, No. 01 L 010485 (Cir. Ct. Cook Co.). The accident occurred
        on July 19, 2001. The record on appeal does not contain a copy of the original complaint.
        However, documents in the record reference that it was filed on or about August 21, 2001.
        The record contains the fifth amended complaint, which was filed on June 22, 2006. The fifth
        amended complaint named as defendants 200 North Dearborn Partnership, Aargus Security

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       Systems, Inc., Schindler Elevator Corporation, Baird & Warner, Inc., Baird & Warner
       Management Group, Inc., B&W Management Group, Inc., Elzie Higgenbottom, Kenilworth,
       Inc., and Warner Investment Company, Inc., f/k/a Kenilworth, Inc. It alleged that on the day
       of the accident, Gal was at the building located at 200 North Dearborn Parkway performing
       janitorial services. Despite previous malfunctions with one of the elevators, Gal was given
       an access key to the elevator by an Aargus security guard. When the elevator doors opened,
       the elevator was not at the same floor as Gal, and he plummeted down the elevator shaft to
       his death. The suit was ultimately settled in November 2006.

¶5                             The Agreement and Insurance Policies
¶6         In 1995, Aargus Security contracted with 200 North Dearborn in a continuing services
       agreement (Agreement) to provide certain services with respect to the property located at 200
       North Dearborn Parkway in Chicago. The Agreement provided that Aargus would name
       Baird & Warner, Inc., and the “[o]wner” as “additional insureds.” “Owner” was defined as
       “200 North Dearborn Partnership.”
¶7         United National issued a commercial general liability policy to Aargus, which covered
       the relevant time period when Gal’s accident occurred. The “additional insured” endorsement
       did not specifically name who was an additional insured; rather, it stated “blanket where
       required by contract.” The “additional insured” endorsement contained two limitations. First,
       the insurance would not apply to an additional insured’s own acts or omissions. Second, if
       liability was to be imposed on the additional insured because of its acts or omissions and
       those of the named insured, the insurance would serve as “coinsurance with any other
       insurance available to the additional insured, in proportion to the limits of liability of all
       involved policies.” The policy also contained an employer’s liability exclusion, which
       excluded coverage for bodily injury to an employee of the insured arising out of and in the
       course of employment by the insured. Further, the policy had a $1 million per-occurrence
       limit. United National initially denied coverage to 200 North Dearborn and Baird & Warner;
       however, United National later provided a defense under a reservation of rights.
¶8         200 North Dearborn was also insured by Hartford Casualty Insurance Company. Hartford
       issued a commercial general liability insurance policy to 200 North Dearborn, which covered
       the relevant time period when Gal’s accident occurred. The policy had a $1 million per-
       occurrence limit. Hartford undertook 200 North Dearborn’s defense in the underlying
       lawsuit.

¶9                                 Declaratory Judgment Action
¶ 10       United National filed this declaratory judgment action on August 18, 2006. The
       following defendants were named: 200 North Dearborn, Baird & Warner, Inc., Kenilworth,
       Inc., Warner Investment Company, Inc., Elzie Higgenbottom and Edward Gal, as special
       administrator of the estate of Marian Gal, deceased. United National acknowledged that it
       was defending its named insured Aargus in the underlying lawsuit. United National further
       acknowledged that it had agreed under a reservation of rights to defend 200 North Dearborn
       and Baird & Warner pursuant to the “additional insured” endorsement in its policy with

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       Aargus. However, United National contended that it had no duty to defend or indemnify as
       additional insured defendants Kenilworth, Inc., Warner Investment Company, Inc., and Elzie
       Higgenbottom, whom it referred to collectively as the “non-identified defendants.”
       According to the declaratory judgment complaint, the “non-identified defendants” were
       added as defendants in the third amended complaint in the underlying cause in 2003.
¶ 11       The parties filed cross-motions for summary judgment. United National sought summary
       judgment against defendants on the basis that Kenilworth, Warner Investment Company,
       Inc., and Higgenbottom were not additional insureds under United National’s policy with
       Aargus. United National further alleged that it did not have a duty to defend or indemnify
       those defendants and was not estopped from denying coverage.
¶ 12       Hartford, on behalf of itself and all defendants, sought summary judgment against United
       National on the basis that United National was estopped from denying coverage or raising
       any coverage defenses because United National breached its duty to defend. Hartford alleged
       that United National’s duty to defend was triggered by the allegations in the underlying
       complaint and since United National waited an unreasonable amount of time to bring the
       declaratory judgment action, United National should be estopped from litigating its duty to
       indemnify defendants.
¶ 13       The court ruled on the motions in a written order on August 4, 2009. The court denied
       United National’s motion and granted Hartford’s motion in part. The court determined that
       United National had a duty to defend the “non-identified defendants” under the “additional
       insured” endorsement since they were partners of 200 North Dearborn. The court also
       determined that defendants had targeted tender to United National rather than to Hartford and
       United National was required to reimburse Hartford for all sums paid in defense and
       settlement of the underlying lawsuit.
¶ 14       United National filed a motion for reconsideration or clarification of the court’s order.
       The court ruled on the motion in a written order on January 27, 2010. The court ordered: (1)
       United National was not estopped from asserting defenses to the duty to indemnify
       defendants; (2) defendants 200 North Dearborn and Baird & Warner were not entitled to
       indemnification from United National since the policy issued by United National excluded
       coverage for bodily injuries to an employee of the insured and the deceased was the insured’s
       employee; (3) any remaining duty of United National to reimburse Hartford was limited to
       the remaining limits of United National’s policy; and (4) there was no just reason to delay
       enforcement or appeal of the order. Defendants now appeal from the court’s orders and
       United National cross-appeals from the orders.

¶ 15                                             Appeal
¶ 16        Summary judgment is appropriate where “the pleadings, depositions, and admissions on
       file, together with the affidavits, if any, show that there is no genuine issue as to any material
       fact and that the moving party is entitled to a judgment as a matter of law.” 735 ILCS 5/2-
       1005(c) (West 2010). The interpretation of an insurance policy and the coverage provided
       are questions of law that are appropriate for resolution through summary judgment. American
       Service Insurance Co. v. Jones, 401 Ill. App. 3d 514, 520 (2010). We review the trial court’s

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       summary judgment ruling under a de novo standard of review. American Service Insurance
       Co., 401 Ill. App. 3d at 520.
¶ 17        An insurer’s duty to defend is much broader than its duty to indemnify its insured. Crum
       & Forster Managers Corp. v. Resolution Trust Corp., 156 Ill. 2d 384, 393 (1993). The
       primary function of the court when construing an insurance policy is to ascertain and enforce
       the intentions of the parties as expressed in the agreement. Crum & Forster Managers Corp.,
       156 Ill. 2d at 391. In determining whether an insurer has a duty to defend, a reviewing court
       must compare the allegations of the underlying complaint to the relevant terms of the
       insurance policy at issue. Clarendon America Insurance Co. v. B.G.K. Security Services, Inc.,
       387 Ill. App. 3d 697, 702-03 (2008). If the underlying complaint alleges facts within or
       potentially within the policy’s coverage, the insurer’s duty to defend arises even if the
       allegations are groundless, false or fraudulent. Clarendon America Insurance Co., 387 Ill.
       App. 3d at 703.
¶ 18        Indemnification is a separate question from the much broader duty to defend. The
       question of whether the insurer has a duty to indemnify the insured for a particular liability
       is only ripe for consideration if the insured has already incurred liability in the underlying
       claim against it. Outboard Marine Corp. v. Liberty Mutual Insurance Co., 154 Ill. 2d 90, 127
       (1992).
¶ 19        When an insurer concludes the claims in a lawsuit against its insured do not fall within
       the coverage provided by the policy, the insurer must either: (1) defend the lawsuit under a
       reservation of rights, or (2) seek a declaratory judgment that no coverage exists. Employers
       Insurance of Wausau v. Ehlco Liquidating Trust, 186 Ill. 2d 127, 150 (1999). “If the insurer
       fails to take either of these steps and is later found to have wrongfully denied coverage, the
       insurer is estopped from raising policy defenses to coverage.” Ehlco Liquidating Trust, 186
       Ill. 2d at 150-51. The estoppel doctrine applies only where an insurer has breached its duty
       to defend. Therefore, a court inquires whether the insurer had a duty to defend and whether
       it breached that duty. Ehlco Liquidating Trust, 186 Ill. 2d at 152. However, application of
       the estoppel doctrine is not appropriate if the insurer had no duty to defend, or if the insurer’s
       duty to defend was not properly triggered. Ehlco Liquidating Trust, 186 Ill. 2d at 151.
¶ 20        Defendants contend on appeal that: (1) United National should be estopped from
       contesting its duty to indemnify Hartford; (2) United National should be estopped from
       asserting the employer’s liability exclusion; and (3) United National’s liability should not be
       limited to the remaining limits of its policy. Hartford seeks reimbursement from United
       National in the amount of $475,000, for the sums it paid to settle the underlying lawsuit, as
       well as prejudgment interest accrued thereon.
¶ 21        We first consider the trial court’s determination that United National was not estopped
       from contesting coverage. The trial court stated, “United’s filing of a declaratory judgment
       prior to trial or settlement does not estop United from litigating their duty to indemnify the
       defendants.” Defendants maintain that since United National waited almost four years after
       200 North Dearborn’s tender of defense and less than one month before trial was to begin
       in the underlying lawsuit to file this declaratory judgment action, United National breached
       its duty to defend 200 North Dearborn and as a result should be estopped from relying on any


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       defenses to indemnity coverage.
¶ 22       Here, we find that United National was not estopped from contesting coverage because
       United National defended 200 North Dearborn and Baird & Warner under a reservation of
       rights and also filed a declaratory judgment action, which sought, among other relief, a
       determination of its rights to defend the “non-identified defendants” (Kenilworth, Warner
       and Higgenbottom). The record indicates that 200 North Dearborn first tendered its defense
       to United National on September 27, 2002. On February 12, 2003, Baird & Warner also
       tendered its defense to United National. That letter indicated that both 200 North Dearborn
       and Baird & Warner were targeting tender to United National and wanted United National
       to exclusively defend them rather than their own insurance provider, Hartford, pursuant to
       the principles set forth in John Burns Construction Co. v. Indiana Insurance Co., 189 Ill. 2d
       570 (2000). United National initially denied that it had a duty to defend 200 North Dearborn
       and Baird & Warner; however, in a February 1, 2005, letter, United National agreed to
       defend 200 North Dearborn and Baird & Warner under a reservation of rights. United
       National’s position was based on its review of all the materials it had received as well as the
       third amended complaint in the underlying lawsuit. Next, in an undated letter from
       defendants’ counsel to United National, counsel for the first time referenced the “non-
       identified defendants” and claimed that they had tendered their defense to United National
       in February 2003; however, no documentation supported the claim. Defendants’ counsel did
       subsequently allege in an undated letter sometime after March 2006 that the “non-identified
       defendants” were either partners of 200 North Dearborn or successors in interest to Baird &
       Warner. As noted above, the fifth amended complaint in the underlying lawsuit was filed in
       June 2006, and United National’s complaint for declaratory judgment was filed in August
       2006. In light of the long procedural history of this case, we find that United National’s
       declaratory judgment suit was filed within a reasonable amount of time so as to preclude
       estoppel. Defendants refer to United National’s “four-year” delay in bringing the declaratory
       judgment suit as unreasonable. However, as noted above, 200 North Dearborn and Baird and
       Warner tendered their defense to United National in 2002 and 2003, and United National
       agreed to defend them under a reservation of rights in 2005. United National only learned the
       “non-identified defendants” were seeking coverage under United National’s “additional
       insured” endorsement sometime in 2005 or 2006. Therefore, its filing of the declaratory
       judgment suit in August 2006 was not so delayed or unreasonable to apply estoppel. United
       National did not sit on the sidelines and ignore its duties. United National defended 200
       North Dearborn and Baird & Warner under a reservation of rights and subsequently filed a
       declaratory judgment action shortly after learning the “non-identified defendants” claimed
       coverage under its policy. Although the trial court ultimately determined that United National
       breached its duty to defend the “non-identified defendants,” estoppel does not apply because
       United National filed a declaratory judgment action.
¶ 23       We next consider the trial court’s determination that the employee liability exclusion in
       United National’s policy excluded coverage for Gal because he was the insured’s employee.
       Defendants contend that the trial court’s determination was in error and United National
       should reimburse the sums paid by Hartford to settle the underlying lawsuit.
¶ 24       As noted above, United National’s policy also contained an employer’s liability

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       exclusion, which excluded coverage for bodily injury to an employee of the insured arising
       out of and in the course of employment by the insured.
¶ 25       Notwithstanding the parties’ arguments to the trial court regarding the exclusion, the trial
       court did not specifically address the exclusion in its August 4, 2009, order. Upon United
       National’s motion to reconsider or for clarification, the trial court addressed the exclusion
       in its January 27, 2010, order, determining that the exclusion applied to preclude
       indemnification.
¶ 26       Defendants argue that the trial court’s determination was in error because the trial court
       “improperly made a factual determination as to Gal’s employment status without conducting
       the appropriate evidentiary hearing to consider presentation of admissible evidence, as
       opposed to pure argument.” Defendants further point out that the underlying complaint did
       not allege that 200 North Dearborn was Gal’s employer.
¶ 27       United National notes that it presented evidence to the trial court that 200 North
       Dearborn admitted that Gal was its employee in various documents 200 North Dearborn
       submitted to the trial court in the underlying lawsuit.
¶ 28       Here, we find no error in the trial court’s determination that Gal was the insured’s
       employee, and as such, the employee liability exclusion in the policy precluded
       indemnification. The trial court considered the evidence presented by the parties, which
       included copies of documents filed in the underlying lawsuit in which 200 North Dearborn
       admitted that Gal was its employee. Merely because the underlying complaint itself did not
       allege that 200 North Dearborn was Gal’s employer, or because the trial court in the
       underlying lawsuit made no finding as to Gal’s employer, did not preclude the trial court
       from making such a finding in the instant case.
¶ 29       We next consider the trial court’s determination that any remaining duty of United
       National to reimburse Hartford was limited to the remaining limits of its policy. Defendants
       contend that United National’s liability should not be limited to its $1 million policy limit
       because United National failed to defend its insureds in the underlying lawsuit. Here,
       however, as stated above, we found that United National was not estopped from relying on
       any policy defenses, which includes limiting its coverage to the $1 million per-occurrence
       limit. We find no error in the trial court’s determination.

¶ 30                                      Cross-Appeal
¶ 31       United National contends in its cross-appeal that: (1) the “non-identified defendants”
       were not additional insureds under United National’s policy; (2) United National did not
       breach the duty to defend because United National complied with the terms of the “additional
       insured” endorsement; (3) the targeted tender rule in John Burns does not apply to the facts
       of this case; and (4) prejudgment interest does not apply.
¶ 32       We first address whether the “non-identified defendants” were additional insureds under
       the “additional insured” endorsement in the policy. United National argues that because the
       policy only listed “owner” and Baird & Warner as additional insureds, and “owner” was only
       defined as “200 North Dearborn Partnership,” the “non-identified defendants” were not
       additional insureds.

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¶ 33        The trial court determined that the “non-identified defendants” were additional insureds
       because they were partners of 200 North Dearborn, noting that a partner’s liability was
       coextensive with the partnership itself. United National does not dispute this; rather, it
       contends that the “additional insured” endorsement applied to 200 North Dearborn, but not
       to any of its partners. Here, however, there is no such language in the policy excluding any
       past or present partners of 200 North Dearborn. We decline to adopt United National’s
       interpretation that as “owner,” “200 North Dearborn Partnership” did not include the partners
       within the partnership. Therefore, we agree with the trial court that United National had a
       duty to defend the “non-identified defendants” under the “additional insured” endorsement.
¶ 34        United National next contends that it did not breach its duty to defend because it
       complied with the terms of the “additional insured” endorsement. United National argues
       that with respect to the “non-identified defendants,” it did not have a duty to defend them and
       therefore could not have breached the duty to defend. With respect to 200 North Dearborn
       and Baird & Warner, United National argues that since its policy was to act as coinsurance,
       it complied with the terms of the policy by reimbursing Hartford 50% of its defense costs.
¶ 35        Here, as stated above, United National had a duty to defend the “non-identified
       defendants” under the “additional insured” endorsement. As to 200 North Dearborn and
       Baird & Warner, the trial court initially ordered United National to reimburse Hartford for
       100% of its defense costs (later qualified by up to the limits of the policy) because defendants
       had targeted their tender to United National. As addressed below, based on the theory of
       targeted tender, United National was obligated to provide for all of defendants’ defense costs,
       up to the policy limits.
¶ 36        United National next contends that the targeted tender rule in John Burns does not apply
       to the facts of this case. Our supreme court held in John Burns that when an insured is
       covered under more than one insurance policy, it may tender its defense solely to one insurer,
       and that insurer may not seek equitable contribution from another insurer whose policy is in
       existence but whose coverage the insured has refused to invoke. John Burns, 189 Ill. 2d at
       578. The court further held that even when there is an “other insurance” provision in the
       policy, if the other insurance is never triggered, then the apportionment of liability under the
       “other insurance” clause does not arise. John Burns, 189 Ill. 2d at 578. The trial court
       determined that since 200 North Dearborn and Baird & Warner targeted their defense to
       United National, United National had the sole primary obligation to defend and indemnify
       them.
¶ 37        Here, we agree with the trial court that the holding in John Burns applies to this case.
       Defendants 200 North Dearborn and Baird & Warner sought coverage under United
       National’s “additional insured” endorsement in 2003 and informed United National that they
       would not invoke any coverage from their insurer, Hartford. However, when United National
       initially refused to defend 200 North Dearborn and Baird & Warner, they turned to Hartford
       to provide a defense. Subsequently, United National defended 200 North Dearborn and Baird
       & Warner under a reservation of rights, but only reimbursed Hartford 50% of the defense
       costs since it believed its policy only acted as coinsurance. However, the holding in John
       Burns does not support United National’s position. According to John Burns, an insured who
       is covered under more than one policy may choose which insurer would be required to

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       defend and indemnify it and the insurer may not seek contribution from another insurer
       notwithstanding an “other insurance” clause in the policy. Therefore, United National should
       have provided 100% of the defense. Since 200 North Dearborn and Baird & Warner targeted
       their defense to United National, there was no other “available” insurance for United
       National’s policy to as act as coinsurance. The trial court’s determination, with which we
       agree, is consistent with our supreme court’s holding in John Burns.
¶ 38        Lastly, United National contends that the trial court erred in awarding defendants
       prejudgment interest. Defendants respond that the trial court correctly awarded prejudgment
       interest to Hartford. However, neither party points to any portion of the trial court’s order
       from August 4, 2009, or January 27, 2010, indicating the trial court took such action. The
       first reference to prejudgment interest appears in defendants’ brief in its conclusion section.
       Defendants argued they were seeking reimbursement from United National, “including
       prejudgment interest.” Generally, the decision to award prejudgment interest is a matter
       within the sound discretion of the trial court and will not be reversed absent an abuse of
       discretion. Marcheschi v. Illinois Farmers Insurance Co., 298 Ill. App. 306, 313 (1998). The
       trial court’s order did determine that Hartford’s damages were in a liquidated sum; however,
       it never specifically addressed the issue of prejudgment interest in either of the orders from
       which the parties appeal. Therefore, we will not address the issue on appeal.
¶ 39        Accordingly, we affirm the trial court’s order.

¶ 40      Affirmed.




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