                                                                             THIRD DIVISION
                                                                             November 12, 2008




1-08-0085 & 1-08-0995 Cons.

CINCINNATI INSURANCE COMPANY,                               )
                                                            )
       Plaintiff-Appellant,                                 )       Appeal from the
                                                            )       Circuit Court of
       v.                                                   )       Cook County.
                                                            )
AMERICAN HARDWARE MANUFACTURERS                             )
ASSOCIATION, TIMOTHY FARRELL, WILLIAM                       )
FARRELL, REED ELSEVIER, INC., FREEMAN                       )
DECORATING COMPANY, and FREEMAN                             )
DECORATING SERVICES, INC.,                                  )
                                                            )
       Defendants                                           )
                                                            )
(Federal Insurance Company,                                 )
                                                            )       Honorable
       Defendant-Counterclaimant and Third-Party            )       Leroy K. Martin, Jr.,
       Plaintiff-Appellee).                                 )       Judge Presiding.



       JUSTICE QUINN delivered the opinion of the court:

       Plaintiff, Cincinnati Insurance Company (Cincinnati), sought an order from the circuit court

of Cook County declaring that it was not obligated to defend its insureds, American Hardware

Manufacturers Association (AHMA) and its executive officers, Timothy Farrell and William P.

Farrell (collectively, the executives), in an underlying litigation involving competing national

hardware trade shows (the underlying action). By agreement, AHMA and the executives assigned
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their rights under the Cincinnati policies to defendant-counterclaimant, Federal Insurance Company

(Federal). The circuit court denied Cincinnati’s motion for summary judgment and granted summary

judgment in favor of Federal, from which decision Cincinnati appeals.

       On appeal, Cincinnati argues that the circuit court erred by: (1) finding that Federal has

standing to pursue Cincinnati for defense fees based on the assignment agreement; and (2) granting

Federal’s summary judgment motion and denying Cincinnati’s motion for summary judgment.

                                        I. BACKGROUND

       This action arises from an insurance coverage dispute between Cincinnati and Federal

regarding the allocation of the duty to defend and the sharing of costs associated with the defense

of counterclaims from the underlying action. Cincinnati is an Illinois corporation with its principal

place of business in Ohio. Federal is organized and exists pursuant to the laws of the state of Indiana

with its principal place of business in the state of New Jersey. AHMA is a trade association serving

the hardware, home improvement, lawn and garden, paint and decorating, and related industries.

AHMA is a Delaware not-for-profit corporation with its principal place of business in Illinois.

       Cincinnati issued two primary, “occurrence”-based insurance policies to AHMA, which

provided coverage to AHMA and the executives for personal and advertising injury liability. Federal

issued a “claims made,” not-for-profit organization liability insurance policy affording coverage to

AHMA and the executives.

       In the underlying action in the United States District Court for the Northern District of

Illinois, AHMA sought damages and other relief against Reed Elsevier, Inc. (Reed), Freeman

Decorating Company and Freeman Decorating Services, Inc. (collectively, Freeman), stemming from


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a dispute involving competing national hardware trade shows. Reed and Freeman asserted

counterclaims against AHMA and the executives asserting, inter alia, defamation per se, libel per

se, breach of contract, and statutory violations of the Uniform Deceptive Trade Practices Act (815

510/1 et seq. (West 2006)), the Illinois Consumer Fraud and Deceptive Business Practices Act

(Consumer Fraud Act)(815 505/1 et seq., (West 2006)) and the Lanham Act 15 U.S.C. § 1051 et seq.

(2006) (the counterclaims). Essentially, the counterclaims allege misconduct by AHMA and the

executives for publishing and advertising material created by the AHMA in connection with its

planned 2004 national hardware exhibition.

       Cincinnati sought an order from the circuit court declaring it has no obligation to defend or

indemnify AHMA and the executives for the counterclaims. Federal entered into an assignment

agreement with AHMA and the executives to transfer to Federal all of their rights under the

Cincinnati polices and claims against Cincinnati relating to payment or reimbursement of defense

expenses incurred in defense of the counterclaims. The circuit court granted Federal’s motion to add

Federal as a party to Cincinnati’s declaratory judgment action and substitute it for AHMA and the

executives to the extent of the interests in the Cincinnati polices assigned to Federal. Federal and

Cincinnati filed cross-motions for summary judgment to establish whether Cincinnati had a duty to

defend AHMA and the executives on an equal basis with Federal with respect to the counterclaims.

The circuit court granted summary judgment in favor of Federal and denied Cincinnati’s summary

judgment motion.

                                    A. The Insurance Policies

       Cincinnati and Federal each issued separate types of insurance policies with differing policy


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periods, which pertinent provisions provide as follows.

                       1. The Cincinnati Insurance Policies Issued to AHMA

        Cincinnati issued to AHMA policy number CPP 068 29 84 for the effective dates of

September 30, 2000 to September 30, 2003. The portion of the policy pertaining to personal and

advertising injury liability states:

        “1. Insuring Agreement

                a. We will pay those sums that the insured becomes legally obligated to pay

        as damages because of ‘personal injury’ or ‘advertising injury’ to which this

        insurance applies. We will have the right and duty to defend any ‘suit’ seeking those

        damages. We may at our discretion investigate any ‘occurrence’ or offense and settle

        any claim or ‘suit’ that may result.

                                                 * * *

                b. This insurance applies to:

                        (1) ‘Personal injury’ caused by an offense arising out of your

                business, excluding advertising, publishing, broadcasting or telecasting done

                by or for you;

                        (2) ‘Advertising injury’ caused by an offense committed in the course

                of advertising your goods, products or services * * *.”

        The 2000 to 2003 Cincinnati policy also included the following exclusions:

        “2. Exclusions

                This insurance does not apply to:


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             a. ‘Personal injury’ or ‘advertising injury’:

                     (1) Arising out of oral or written publication of material, if done by
             or at the direction of the insured with knowledge of its falsity;

                    (2) Arising out of oral or written publication of material whose first
             publication took place before the beginning of the policy period;

                   (3) Arising out of the willful violation of a penal statute or ordinance
             committed by or with the consent of the insured; or

                    (4) For which the insured has assumed liability in a contract or
             agreement. This exclusion does not apply to liability for damages that the
             insured would have in the absence of a contract or agreement.”

      The 2000 to 2003 Cincinnati policy also includes a provision entitled, “Other

      Insurance,” which provides as follows:

      “4. Other Insurance

             If other valid and collectible insurance is available to the insured for a loss we

             cover under Coverages A or B of this Coverage Part, our obligations are

             limited as follows:

             a. Primary Insurance

             This insurance is primary except when b. below [triggered coverage of excess

             insurance] applies. If this insurance is primary, our obligations are not

             affected unless any of the other insurance is also primary. Then, we will

             share with all that other insurance by the method described in c. below.

                                               ***

             c. Method of Sharing

             If all of the other insurance permits contribution by equal shares, we will

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             follow this method also. Under this approach each insurer contributes equal

             amounts until it has paid its applicable limit of insurance or none of the loss

             remains, whichever comes first.”

      The pertinent definitions contained within the 2000 to 2003 Cincinnati policy

      provide:

             “1. ‘Advertising injury’ means injury arising out of one or more of the

             following offenses:

                    a. Oral or written publication of material that slanders or libels a

                    person or organization or disparages a person’s or organization’s

                    goods, products or services;

                                                 ***

                    c. Misappropriation of advertising ideas or style of doing business;

                    or

                    d. Infringement of copyright, title or slogan.

                    Advertising means an advertisement, publicity article, broadcast or

                    telecast.

                                                 ***

             12. ‘Occurrence’ means an accident, including continuous or repeated

             exposure to substantially the same general harmful conditions.

             13. ‘Personal injury’ means injury, other than ‘bodily injury,’ arising out of

             one or more of the following offenses:


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                                                   ***



                       d. Oral or written publication of material that slanders or libels a

                       person or organization or disparages a person’s or organization’s

                       goods, products or services ***.”

       Cincinnati issued a renewal policy to AHMA under policy number CPP 068 29 84/CPA 068

29 84, for the effective dates of September 30, 2003, to September 30, 2006. Coverage for personal

and advertising liability provides:

               “1. Insuring Agreement

                       a. We will pay those sums that the insured becomes legally obligated

                       to pay as damages because of ‘personal and advertising injury’ to

                       which this insurance applies. We will have the right and the duty to

                       defend the insured against any ‘suit’ seeking those damages.

                       However, we will have no duty to defend the insured against any

                       ‘suit’ seeking damages for ‘personal and advertising injury’ to which

                       this insurance does not apply. We may, at our discretion, investigate

                       any offense and settle any claim or ‘suit’ that may result.

               b. This insurance applies to ‘personal and advertising injury’ only if:

                               (1) The ‘personal and advertising injury’ is caused by an

                       offense arising out of your business; and

                               (2) The ‘personal and advertising injury’ offense was


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                         committed in the ‘coverage territory’ during the policy period ***.”



       The 2003 to 2006 Cincinnati policy’s exclusions for personal and advertising injury

are as follows:

                  “2. Exclusions

                         This insurance does not apply to:

                         a. Knowing Violation of Rights of Another

                         ‘Personal and advertising injury’ caused by or at the direction of the

                         insured with the knowledge that the act would violate the rights of

                         another and would inflict ‘personal and advertising injury.’

                         b. Material Published With Knowledge of Falsity

                         ‘Personal and advertising injury’ arising out of oral or written

                         publication of material, if done by or at the direction of the insured

                         with knowledge of its falsity.

                                                      ***

                  I. Infringement of Copyright, Patent, Trademark or Trade Secret

                         ‘Personal and advertising injury’ arising out of the infringement of

                         copyright, patent, trademark, trade secret or other intellectual property

                         rights.

                         However, this exclusion does not apply to infringement, in your

                         ‘advertisement,’ of copyright, trade dress or slogan.”


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       The 2003 to 2006 Cincinnati policy’s “Other Insurance” provision remained

unchanged from the 2000 to 2003 policy. The 2003 to 2006 policy defines a pertinent

number of terms as follows:

              “1. ‘Advertisement’ means a notice that is broadcast, telecast or published

              to the general public or specific market segments about your goods, products

              or services for the purpose of attracting customers or supporters.

              ‘Advertisement’ includes a publicity article. For purposes of this definition:

                     a. Notices that are published include material placed on the Internet

                     or on similar electronic means of communication; and

                     b. Regarding web-sites, only that part of a web-site that is about your

                     goods, products or services for the purposes of attracting customers

                     or supporters is considered an ‘advertisement.

                                                  ***

              16. ‘Occurrence’ means an accident, including continuous or repeated

              exposure to substantially the same general harmful conditions.

              17. ‘Personal and advertising injury’ means injury, including consequential

              ‘bodily injury,’ arising out of one or more of the following offenses:

                                                  ***

                     d. Oral or written publication, in any manner, of material that

                     slanders or libels a person or organization or disparages a person’s or

                     organization’s goods, products or services;


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                                                    ***

                       f. The use of another’s advertising idea in your ‘advertisement’; or

                       g. Infringing upon another’s copyright, trade dress or slogan in your

                       ‘advertisement.’”

                    2. The Federal Insurance Policies Issued to AHMA

       Federal issued a “Not For Profit Organization Liability Policy” to AHMA under

policy number 6801-4601 for the effective dates of September 30, 2004, to September 30,

2005. The Federal policy insures that it “shall pay on behalf of an Insured all Loss which

such Insured becomes legally obligated to pay on account of any Claim first made against

such Insured during the Policy Period or, if exercised, during the Extended Reporting Period,

for *** Personal Injury or Publishers Liability committed, attempted, or allegedly committed

or attempted, by such Insured before or during the Policy Period.” The Federal policy

contains many of the same definitions included in the Cincinnati policies, but defines

“Personal Injury or Publishers’ Liability” as “a Wrongful Act constituting false arrest,

wrongful detention or imprisonment, malicious prosecution, defamation, invasion of privacy,

wrongful entry or eviction, infringement of copyright or trademark, unauthorized use of title,

plagiarism, or misappropriation of ideas.” Also similar to the Cincinnati policies, the Federal

policy states that it “shall have the right and duty to defend any Claim covered by this

policy,” and that “[c]overage shall apply even if the allegations are groundless, false or

fraudulent.” In addition, the Federal policy contains an “Other Insurance” clause that

provides:

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                “If Loss arising from a Claim made against any Insured is insured

                under any other valid policy, prior or current, then this policy shall

                cover such Loss, subject to its limitations, conditions, provisions and

                other terms, only to the extent that the amount of such Loss is in

                excess of the amount of payment from such other insurance, whether

                such other insurance is stated to be primary, contributory, excess,

                contingent or otherwise, unless such other insurance is written only

                as specific excess insurance over the Limits of Liability provided in

                this policy.”

                                B. The Underlying Counterclaims

        On January 31, 2005, Reed filed its initial counterclaim against AHMA and Timothy

Farrell in the United States District Court for the Northern District of Illinois, alleging injury

occurring between July 2003 and April 2004. Thereafter, on October 4, 2005, Reed filed an

amended and supplemented counterclaim, while Freeman filed its own counterclaim against

AHMA and the executives. The counterclaims alleged misconduct by AHMA and the

executives in the form of misleading representations in various published materials and on

the Internet in connection with AHMA’s planned 2004 national hardware exhibition.

        Reed’s counterclaim alleged that it entered into a separation agreement with AHMA

so that Reed could maintain ownership of the National Hardware Show for presentation in

Las Vegas, Nevada, while AHMA could develop a new trade show in Chicago, Illinois.

Reed alleged that, “in an attempt to save its show, and to hurt Reed’s show, AHMA


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embarked on a campaign to publicly impugn Reed’s integrity in a desperate attempt to shift

industry interest to AHMA’s new trade show and away from the National Hardware Show.”

       Similarly, Freeman’s counterclaim alleged that, “[i]n furtherance of this wrongful

scheme [to hurt Reed’s trade show and save its own show], AHMA filed a lawsuit against

Reed. Although Freeman was not at that time a named party to the lawsuit, AHMA’s

original [complaint] accused Freeman of, inter alia, paying kickbacks to Reed, conspiring

with Reed to defraud AHMA, and other unlawful conduct.” Freeman also alleged that

“AHMA, William Farrell and Timothy Farrell used the lawsuit as a pretext for wrongly

publishing copies of the Complaint to third parties, and issuing press releases and other false

and misleading statements designed to sully Reed and Freeman’s reputations and make

exhibitors and attendees unwilling to attend the National Hardware Show.”

       The counterclaims assert causes of action for defamation per se and libel per se

against AHMA and the executives and solely against AHMA for violations of the Uniform

Deceptive Trade Practices Act and the Illinois Consumer Fraud and Deceptive Business

Practices Act. The counterclaims also assert against AHMA violations of the Langham Act,

including trademark infringement, false advertising, and unfair competition. in violation of

the Langham Act. In addition, breach of contract, breach of release and covenant not to sue,

and contractual indemnification are asserted against AHMA.

       The defamation allegations were plead under the actual malice standard. The

counterclaims alleged that, “[a]t the time these statements were made, Timothy Farrell and

AHMA knew that these statements were false. Alternatively, at the time the statements were


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made, Farrell and AHMA exhibited a reckless disregard for the falsity of these statements.”

The counterclaims included a prayer for punitive damages against AHMA and the executives

“because of the willful and malicious nature in which the statements were made ***.”

                       C. The Defense of AHMA and the Executives

       AHMA tendered the defense of Reed’s initial counterclaim to Federal on or about

February 17, 2005. On June 29, 2005, Federal agreed to advance defense expenses to

AHMA and Timothy Farrell subject to a reservation of rights. AHMA and the executives

tendered the defense of Reed’s amended and supplemented counterclaim and Freeman’s

counterclaim on October 4, 2005. Federal agreed to advance defense expenses to AHMA

and the executives in connection with the counterclaims subject to a complete reservation

of rights on or about November 23, 2005.

       AHMA and the executives also sought a defense for the counterclaims from

Cincinnati.1 Cincinnati commenced its declaratory judgment action on May 25, 2005, prior

to its denial of coverage to AHMA and the executives by letter dated May 27, 2005.



                              D. The Assignment Agreement

       On May 17, 2006, Federal entered into an assignment agreement with AHMA and

the executives in which AHMA and the executives assigned to Federal “any and all rights,

claims or causes of action that AHMA and/or the Executives may have against Cincinnati,


       1
           The record does not make clear when AHMA and the executives attempted to tender the

defense of the counterclaims to Cincinnati.

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however denominated, based on, arising out of, or relating to payment or reimbursement

under the Cincinnati Policies of AHMA’s and the Executives’ Defense Expenses incurred

in connection with the Counterclaims.” Federal agreed to reimburse AHMA and the

executives for expenses incurred by AHMA and the executives related to or arising out of

their cooperation in the defense of the Cincinnati declaratory judgment action. Federal also

agreed to pay AHMA’s and the executives’ past, present and future defense expenses related

to the counterclaims subject to the reservation of rights letters sent to AHMA.2 The

assignment agreement also stated that “Federal shall defend, indemnify and hold harmless

AHMA and the Executives in the Cincinnati Dec. Action and in any suit, claim, counterclaim

or cross-claim by Cincinnati relating to or arising out of AHMA and the Executives’

assignment to Federal of their rights, claims, causes of action under the Cincinnati Policies

with respect to payment of Defense Expenses incurred by AHMA and the Executives in

defense of the Counterclaims.”



                         E. Federal’s Motion for Addition of Parties

       On June 8, 2006, Federal filed a motion for addition of parties and leave to file a

counterclaim and third-party complaint pursuant to sections 2-1008, 2-616 and 2-406(c) of


       2
           Federal claims it has paid defense expenses totaling $5,632,999.62 in its response brief,

but the record does not contain a current itemization of defense expenses matching that amount.

Accordingly, the record does not make clear the amount of defense costs expended at the time

this appeal was filed.

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the Illinois Code of Civil Procedure (735 ILCS 5/2-1008, 2-616, 2-406(c) (West 2006)).

Federal asserted that, as a result of the assignment agreement, it had succeeded to the rights

of AHMA and the executives to receive reimbursement of their defense expenses from

Cincinnati in connection with the counterclaims. Federal alleged that, in addition to its rights

as the insureds’ assignee, it had independent claims against Cincinnati based upon their

respective policies’ “other insurance” clauses for contribution for the defense expenses

Federal advanced to AHMA and the executives for the underlying counterclaims. Federal

claimed that Cincinnati has a defense obligation under its policies and that Federal is entitled

to reimbursement for some or all of the defense expenses it has paid.

        On July 21, 2006, Cincinnati filed a memorandum of law in opposition to Federal’s

motion for addition of parties. Cincinnati argued that the assignment agreement lacked

consideration and, therefore, was void. Cincinnati also asserted that the assignment

agreement was a partial assignment that is prohibited by Illinois law absent the obligor’s

consent. Cincinnati contended that the anti-assignment clause in its policies prohibits the

assignment of rights and duties. In addition, Cincinnati argued that public policy precluded

the assignment agreement.

        On August 10, 2006, the circuit court granted Federal’s motion and, thereafter,

Federal was added as a third-party defendant.

                   F. Federal’s Counterclaim and Third-Party Complaint

        On August 14, 2006, Federal filed its counterclaim and third-party complaint against

Cincinnati, in which it alleged causes of action for breach of duty to defend and equitable


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contribution for allocation of defense expenses in connection with the counterclaims against

AHMA and the executives. Federal sought a declaratory judgment that it is entitled to

payment by Cincinnati of contribution of all or part of the defense expenses it advanced to

AHMA and the executives.

                    G. Cincinnati’s Complaint for Declaratory Judgment

       Cincinnati’s initial complaint for declaratory judgment was filed after Reed’s

counterclaim was first filed, but before Reed filed its amended and supplemented

counterclaim and Freeman filed its counterclaim. Cincinnati’s May 25, 2005, complaint

alleged that AHMA and the executives were not covered for the counterclaims under either

Cincinnati policy.3 Cincinnati filed an amended complaint for declaratory judgment on

August 31, 2006, after Federal was added as a third-party defendant, which alleged the same

as the initial complaint, asserting it has no duty to defend or indemnify AHMA and the

executives.

              H. Cross-Motions for Summary Judgment on the Duty to Defend

       On February 15, 2007, Federal moved for summary judgment regarding Cincinnati’s

duty to defend. Federal argued that summary judgment in its favor was warranted because

the allegations asserted in the counterclaims fell within the potential coverage afforded by

Cincinnati’s policies.    Federal contended that the statements underlying both of the

counterclaim’s defamation counts for commercial disparagement fell within the scope of


       3
           Cincinnati also asserted it had no duty to defend or indemnify AHMA and the

executives under an umbrella policy, which is not at issue in this case.

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“[o]ral or written publication, in any manner, of material that slanders or libels a person or

organization or disparages a person’s or organization’s goods, products or services,” covered

by the 2003 to 2006 Cincinnati policy. Federal also asserted that, the numerous allegations

by Reed that AHMA deceptively advertised its 2004 trade show by suggesting that it was the

continuation of the trade show to which Reed claimed exclusive rights, separately implicated

the covered offenses of “[m]isappropriation of advertising ideas or style of doing business”

and “use of another’s advertising idea in your ‘advertisement’” under both Cincinnati

policies. In addition, Federal asserted that, under Illinois law, the policies’ personal and

advertising injury offenses encompassed Reed’s count for alleged trademark infringement.

       Federal requested summary judgment to declare that (1) Cincinnati has a duty to

defend AHMA and the executives in the counterclaims under both Cincinnati policies; (2)

the “other insurance” provisions contained in their respective policies require Cincinnati to

pay one-half of all defense expenses as they are incurred by AHMA and the executives in the

underlying counterclaims; and (3) Federal is entitled to recover from Cincinnati one-half of

the defense costs it has paid on behalf of Federal’s and Cincinnati’s mutual insureds.

       Cincinnati filed its cross-motion for summary judgment on October 12, 2007.

Cincinnati argued that it has no duty to defend the defamation counterclaims or the counts

alleging violations of the Uniform Deceptive Trade Practices Act, the Illinois Consumer

Fraud Act or the Langham Act because they do not allege any fortuitous loss. Cincinnati also

asserted that it has no duty to defend the counterclaims for trademark infringement because

there is no coverage under its policies. Further, Cincinnati contended it has no duty to defend


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the breach of contract claims because those claims allege “economic loss,” which is not

covered in its policies. Finally, Cincinnati argued that, even if the circuit court were to find

a duty to defend, Federal did not meet its burden of proof as to the defense costs it seeks to

recover.

       I. The Circuit Court’s Ruling on the Cross-Motions for Summary Judgment

       On December 12, 2007, the circuit court conducted a hearing on the cross-motions

for summary judgment. Federal argued that the personal and advertising injuries are claims

based on negligence and that Illinois law provides insurance policies cannot have exclusions

for intent to negate the duty to defend. Counsel for Federal asserted that an insurer cannot,

on the one hand, grant coverage for intentional acts under a personal and advertising injury

provision, but on the other hand, preclude coverage by exclusions for intent, because an

irreconcilable conflict and ambiguity are created. Federal contended that Cincinnati has a

duty to defend because there is a possibility of coverage under the allegations in the

counterclaims. Federal noted the difference between the duty to defend and the duty to

indemnify.

       Cincinnati responded that insurers cannot have coverage for an expected or intended

injury. Cincinnati argued that the counterclaims include clear allegations of expected and

intended injuries. Cincinnati also asserted that the counterclaims’ allegations included

“knowing” and “willful”statutory violations.        Cincinnati contended that, because the

counterclaims allege intentional harm, it has no duty to defend.

       Following the parties’ arguments, the circuit court ruled in favor of Federal and


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against Cincinnati. The court noted that language of intentional acts was replete throughout

the counterclaims. Nevertheless, the court held that Cincinnati has a duty to defend AHMA

and the executives in the underlying counterclaims because of the potential for coverage.

       On December 14, 2007, the circuit court entered a written ruling on its decision to

grant summary judgment in favor of Federal and against Cincinnati. In its ruling, the circuit

court found: (1) Cincinnati has a duty to defend AHMA and the executives under its 2000

to 2003 and 2003 to 2006 policies with respect to the counterclaims in the underlying action;

(2) the “other insurance” provisions contained in the insurers’ respective policies require

Cincinnati to pay one-half of all reasonable and necessary defense expenses for the

counterclaims as they are incurred by AHMA and the executives going forward; (3) Federal

is entitled to recover from Cincinnati one-half of the reasonable and necessary past defense

costs it expended on behalf of AHMA and the executives for the counterclaims; and (4) there

is no just reason for delaying either enforcement of the judgment or appeal of the order under

Supreme Court Rule 304(a)(210 Ill. 2d R. 304(a))..

       On January 4, 2008, Cincinnati filed a notice of appeal under number 1-08-0085,

challenging the circuit court’s August 10, 2006, and December 14, 2007, orders to add

Federal as a third-party defendant and grant Federal summary judgment on the issue of

Cincinnati’s duty to defend. On March 19, 2008, the court granted Federal’s motion to

certify the August 10, 2006, order as final and appealable. Cincinnati then filed a second

notice of appeal on April 14, 2008, under number 1-08-0995. On May 8, 2008, this court

granted Cincinnati’s motion to consolidate the appeals.


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                                       II. ANALYSIS

       On appeal, Cincinnati argues as a threshold issue that Federal has neither contractual

nor equitable rights to pursue Cincinnati for defense fees. Cincinnati asserts that the circuit

court erred by finding that Federal has standing to participate in the declaratory judgment

action as a party based on the assignment agreement. Cincinnati contends that the

assignment of rights from AHMA and the executives to Federal is void because it lacks

consideration. Cincinnati also maintains that the assignment agreement is void because

partial assignments are void absent the obligor’s consent. According to Cincinnati, its anti-

assignment clause prohibited AHMA’s and the executives’ assignment of their rights under

the Cincinnati policies to Federal. Additionally, Cincinnati argues that public policy

precludes the assignment agreement. Further, Cincinnati contends that the court erred by

granting Federal’s summary judgment motion and denying its cross-motion on the issue of

duty to defend. Finally, Cincinnati asserts that Federal has no rights under the doctrine of

equitable contribution to pursue Cincinnati for defense costs.

       Federal responds that Cincinnati must defend AHMA and the executives because

Cincinnati’s policies potentially cover several offenses alleged in the counterclaims. Federal

maintains that Illinois law entitles it to recover one-half of the insureds’ defense costs from

Cincinnati. Federal asserts that the circuit court correctly held that Cincinnati is required to

reimburse Federal for one-half of the expenses it has incurred in defending AHMA and the

executives and also to pay one-half of the insureds’ defense expenses going forward.

                                   A. Standard of Review


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       The construction of an insurance policy and a determination of the rights and

obligations thereunder are questions of law for the court which are appropriate subjects for

disposition by summary judgment. Crum & Forster Managers Corp. v. Resolution Trust

Corp., 156 Ill. 2d 384, 391 (1993). Summary judgment should be granted only if the

pleadings, depositions, admissions and affidavits, construed liberally and in favor of the

nonmoving party, demonstrate that no genuine issue of material fact exists and that the

moving party is entitled to judgment as a matter of law. 735 ILCS 5/2-1005(c) (West 2006);

see also Kajima Construction Services, Inc. v. St. Paul Fire & Marine Insurance Co., 227

Ill. 2d 102, 106 (2007). Review of an order granting summary judgment is de novo.

Outboard Marine Corp. v. Liberty Mutual Insurance Co., 154 Ill. 2d 90, 102 (1992).

       Illinois courts have not addressed the standard of review for a motion to substitute

parties due to a change of interest under section 2-1008(a) of the Code of Civil Procedure

(735 ILCS 5/2-1008(a) (West 2006)). Illinois courts have held that when determining

whether there was error in permitting a party substitution under section 2-1008(b) due to the

death of a party, “the overriding consideration on appeal is whether substantial justice is

being done between the litigants and whether it was reasonable, under the circumstances, to

compel the other party to proceed on the merits.” Senese v. Climatemp, Inc., 289 Ill. App.

3d 570, 583 (1997), citing Sickler v. National Dairy Products Corp., 67 Ill. 2d 229, 234

(1977). The court in Senese noted that, “the ultimate question on review is whether the

[circuit] court properly exercised its discretion in an attempt to serve justice.” 289 Ill. App.

3d at 583. Ultimately, the Senese court found that the language of section 2-1008(b) “uses


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the permissive ‘may’ rather than the mandatory ‘shall’; therefore, the court has discretion as

to whether to dismiss the action.” 289 Ill. App. 3d at 583.

       In this case, section 2-1008(a) also contains permissive language, stating that “on

motion an order may be entered that the proper parties be substituted or added, and that the

cause or proceeding be carried on with the remaining parties and new parties, with or without

a change in the title of the cause.” (Emphasis added.) 735 ILCS 5/2-1008(a) (West 2006).

Accordingly, this court likewise will review the circuit court’s decision to grant Federal’s

motion under section 2-1008(a) for abuse of discretion “in an attempt to serve justice.”

Senese, 289 Ill. App. 3d at 583.

       Finally, assignments are governed by contract law and, as such, are reviewed de novo.

Henderson v. Roadway Express, 308 Ill. App. 3d 546, 548 (1999).

                      B. The Validity of the Assignment Agreement

       Cincinnati initially argues that the assignment agreement was invalid because (1) the

agreement lacked consideration; (2) partial assignments are prohibited absent the obligor’s

consent; (3) Cincinnati’s anti-assignment clauses in its policies prohibit assignment of

AHMA’s and the executives’ rights to Federal; and (4) public policy precludes the

assignment.

         1. Whether the Assignment Agreement was Supported by Consideration

       Cincinnati argues that the assignment agreement lacked consideration because it

contained a boilerplate recital stating that “in consideration of the foregoing and mutual

promises and representations set forth below and other good and valuable consideration, the


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adequacy of which is hereby acknowledged, AHMA, the Executives, and Federal hereby

agree as follows.” Cincinnati asserts that this language does not amount to proper

consideration. Cincinnati also contends that Federal’s agreement to pay AHMA’s legal fees

was not proper consideration.

        Federal responds that the assignment agreement provided adequate consideration,

including, a recital stating that “Federal has agreed to advance to, or on behalf of AHMA,

AHMA’s and the Executives’ Defense Expenses subject to reservation of rights letters” and

that “Federal has agreed to pay to, or on behalf of, AHMA, over $466,000 of AHMA’s and

the Executives’ Defense Expenses in the Underlying Action.” During oral argument before

this court, Federal stated that it withdrew its reservation of rights as part of its consideration.

In addition, Federal asserts that there was proper consideration because the assignment

agreement stated that “Federal agrees to pay AHMA’s and the Executives’ past, present and

future Defense Expenses related to the Counterclaims,” and also agreed to reimburse

AHMA and the executives for expenses “related to or arising out of their reasonable

cooperation” with Federal in defending the counterclaims. Federal maintains that it

shouldered the substantial burden of pursuing the insureds’ claims on their behalf in the

declaratory judgment action with a correspondingly substantial benefit to AHMA and the

executives. Federal claims that, as of the date it filed its response brief, the total defense

costs amount to $5.6 million. Federal notes that the boilerplate recital that Cincinnati refers

to provides that the assignment agreement was made “in consideration of the foregoing,”

which includes the other recitals included in the agreement.


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       “An assignment occurs when ‘there is a transfer of some identifiable interest from the

assignor to the assignee.’ ” Brandon Apparel Group v. Kirkland & Ellis, 382 Ill. App. 3d

273, 283 (2008), quoting Klehm v. Grecian Chalet, Ltd., 164 Ill. App. 3d 610, 616 (1987).

“ ‘Generally, no particular form of assignment is required; any document which sufficiently

evidences the intent of the assignor to vest ownership of the subject matter of the assignment

in the assignee is sufficient to effect an assignment.’ ” Brandon Apparel, 382 Ill. App. 3d

at 283, quoting Stoller v. Exchange National Bank of Chicago, 199 Ill. App. 3d 674, 681

(1990). A valid assignment “needs only to assign or transfer the whole or a part of some

particular thing, debt, or chose in action and it must describe the subject matter of the

assignment with sufficient particularity to render it capable of identification.” Klehm, 164

Ill. App. 3d at 616. An assignment operates “ ‘to transfer to the assignee all the right, title

or interest of the assignor in the thing assigned.’ ” Owens v. McDermott, Will & Emery, 316

Ill. App. 3d 340, 350 (2000), quoting Litwin v. Timbercrest Estates, Inc., 37 Ill. App. 3d 956,

958 (1976). “A basic principle of law applicable to all assignments is that they are void

unless the assignor has either actually or potentially the thing which he attempts to assign.”

Owens, 316 Ill. App. 3d at 350. An assignee “can obtain no greater right or interest than that

possessed by the assignor.” Owens, 316 Ill. App. 3d at 350. “Whether an assignment has

occurred ‘is dependent upon proof of intent to make an assignment and that intent must be

manifested.’ ” Northwest Diversified, Inc. v. Desai, 353 Ill. App. 3d 378, 387 (2004),

quoting Strosberg v. Brauvin Realty Services, Inc., 295 Ill. App. 3d 17, 30 (1998).

Assignments are “subject to the same requisites for validity as are other contracts, such as


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intent, mutuality of assent, capacity to contract, legal subject matter, and consideration.”

Desai, 353 Ill. App. 3d at 387.

          “Any act or promise that benefits one party or disadvantages the other is sufficient

consideration to support the formation of a contract.” Kalis v. Colgate-Palmolive Co., 337

Ill. App. 3d 898, 900 (2003). For example, a promise to forego pursuit of a legal claim will

be determined to be adequate consideration to support formation of a contract even if the

claim is invalid, provided that it is asserted in good faith. Kalis, 337 Ill. App. 3d at 900-01.

          In F.H. Prince & Co. v. Towers Financial Corp., 275 Ill. App. 3d 792, 802 (1995),

the court held that the release of an arguably uncollectible debt provided consideration to

support a settlement agreement and highlighted an additional element of value provided by

settlement of even a questionable claim.         The court noted that “[s]ettlement of the

[plaintiff’s] litigation also relieved [defendants] of the need to continue to defend against that

claim and to incur additional defense costs related thereto.” F.H. Prince, 275 Ill. App. 3d

at 802.

          In Daugherty v. Blaase, 191 Ill. App. 3d 496, 499 (1989), the court held that “an

insured may assign a cause of action to an insurance company in consideration of the

insurance company’s settlement before judgment of a claim against the insured.” The court

found that in the absence of fraud or bad faith, “a claim assigned prior to judgment

constitutes a sufficient potential claim to make the assignment valid.” Daugherty, 191 Ill.

App. 3d at 499-500. Furthermore, the court noted that “permitting assignments between an

insured and an insurance company both encourages the early settlement of lawsuits and


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relieves our overburdened court system.” Daugherty, 191 Ill. App. 3d at 500.

       In this case, the insureds, AHMA and the executives, assigned to Federal their right

to recover defense costs from Cincinnati for the underlying counterclaims. Federal is

benefitted by obtaining a legal right to recover the defense expenses it has expended to date

to defend its insureds in the counterclaims. AHMA and the executives likewise benefitted

because they are relieved of the need to continue to defend against the counterclaims.

Moreover, Federal is disadvantaged because it must continue to pay the ongoing defense

costs and to reimburse AHMA and the executives for their expenses arising out of their

cooperation with Federal in defending the counterclaims and Cincinnati’s declaratory

judgment action. As uncollectible debt has been held to be sufficient consideration in F.H.

Prince, then for the purposes of this case, a collectible debt such as one-half of the defense

expenses incurred to defend the insureds in the counterclaims likewise must serve as proper

consideration for the assignment agreement. Based on the foregoing, we find that adequate

consideration supports the assignment agreement. See Kalis, 337 Ill. App. 3d at 900-01;

F.H. Prince, 275 Ill. App. 3d at 802.

        2. Whether the Assignment Agreement is a Prohibited Partial Assignment

       Cincinnati next argues that the assignment agreement is a partial assignment that is

prohibited absent the obligor’s consent. Essentially, Cincinnati asserts that the assignment

is partial because AHMA and the executives only assigned their right to recover defense

expenses, but not their rights related to indemnity.

       Federal responds that Cincinnati’s argument improperly conflates its separate duties


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to defend and indemnify under its policies. Federal argues that, because the duties to defend

and indemnify are separate, the insureds’ assignment of their rights in their entirety to

Federal with respect to one of these duties – the duty to defend – constitutes a complete

assignment of such rights. Federal also points out that if this Court were to rule otherwise,

the purpose underlying the rule against partial assignments – avoidance of multiple suits –

would be frustrated.

       In Illinois, “[a] partial assignment of an instrument is not binding on the obligor

absent the obligor’s consent.” Service Adjustment Co. v. Underwriters at Lloyd’s, London,

205 Ill. App. 3d 329, 335 (1990). Illinois courts have applied this rule to prevent the obligor

from “ ‘be[ing] vexed twice by the same action.’ ” Service Adjustment, 205 Ill. App. 3d at

335, quoting Bain v. Financial Security Life Insurance Co., 53 Ill. App. 3d 702, 706 (1977).

The Service Adjustment court, however, noted that application of this rule “is no longer

compelling because of the civil practice rules requiring joinder of necessary parties.” 205

Ill. App. 3d at 335.

       Based on Service Adjustment, Cincinnati’s argument on this issue is misplaced

because the rule against partial assignments refers to the division of interest in a right among

multiple persons or entities, not division of the right that was assigned. In other words, if

AHMA and the executives assigned their rights to recover defense costs to Federal and other

persons, that would be considered a partial assignment under Illinois law. The Service

Adjustment court’s reference to the civil practice rules requiring joinder of necessary parties

supports this interpretation. The bar against partial assignment appears to be logistical for


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the purposes of fairness to multiple parties that share an interest in the thing that was

assigned. Bain is illustrative here.

       In Bain, the defendant, Financial Security Life Insurance Company (Financial), had

purchased certain real property and improvements from Metromodular Corporation

(Metromodular). Financial paid part of the purchase price in cash at closing and the balance

by its interest-bearing promissory note in the principal amount of $120,000, payable to

Metromodular. Thereafter, 100% of the interests in the promissory note were sold and

assigned by Metromodular to the 36 plaintiffs and the individual defendant, Alva Rauch.

The 36 plaintiffs were holders of 119/120th interests in the note, while Rauch held 1/120th

interest. Thereafter, Metromodular filed for bankruptcy. The 36 plaintiffs, as assignees of

119/120ths of the interests in Metromodular, sued Financial on the note and named Rauch

as an additional party. The circuit court granted the plaintiffs’ summary judgment motion

and entered judgment on the note against Financial. Damages were calculated against

Financial on the basis of 119/120ths of the amount due. On appeal, Financial questioned the

standing of the 36 plaintiffs to sue on partial assignments of a chose in action.

       The Bain court’s findings illustrate the proper context of a “partial assignment”:

                       “At the time the [circuit] court entered its order for summary

               judgment, the plaintiff’s complaint did name all of the assignees of

               the note and, therefore, all parties were before the trial court. We

               note, too, that the trial court itself could have brought the defendant

               Rauch into the case pursuant to Ill. Rev. Stat. ch. 110, par. 25(1)


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               which provides:

                      ‘If a complete determination of a controversy cannot be had

               without the presence of other parties, the court may direct them to be

               brought in. If a person, not a party, has an interest or title which the

               judgment may affect, the court, on application, shall direct him to be

               made a party.’

                      This procedure was not herein followed and the effect of

               plaintiffs’ act in naming Rauch a party defendant is, quite frankly, to

               force, at plaintiffs’ unfettered discretion, the defendant Rauch and the

               defendant Insurance Company to either litigate a claim, which either

               or both of them may very well not wish to litigate, or, in the case of

               defendant Rauch, face the real possibility of being collaterally

               estopped at a later date and, in the case of defendant Insurance

               Company, face the real possibility of being vexed twice by the same

               action. This is exactly the posture in which we find this case at this

               time in light of the fact that the trial court did not enter any oOrder

               with regard to defendant Rauch, although it did find the amount due

               defendant Rauch on the note in question.” Bain, 53 Ill. App. 3d at

               706.

       Ultimately, the Bain court held that in cases where in excess of 99% of the holders

of an interest in an assignment involved wish to seek an adjudication of their rights, “the


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ends of equity would not be adequately served by denying them an adjudication because the

holder of 1/120th of that interest does not choose to join.” Bain, 53 Ill. App. 3d at 706.

       Accordingly, based on Service Adjustment and Bain, the assignment agreement in this

case does not qualify as a partial assignment prohibited under Illinois law. See Service

Adjustment, 205 Ill. App. 3d at 335; Bain, 53 Ill. App. 3d at 706. We find that the

assignment agreement was a full assignment of interest to one assignee – Federal.

         3. Whether Cincinnati’s Anti-Assignment Clause Prohibits Assignment

       Cincinnati next argues that its policies each contain an unambiguous anti-assignment

clause that specifically states, “[y]our rights and duties under this policy may not be

transferred without our written consent except in the case of death of an individual named

insured ***.” Cincinnati contends that the anti-assignment clause is enforceable here, but

also concedes in its brief that “[a]nti-assignment clauses do not prohibit assignment of rights

to an insurance recovery for a loss made after that loss has taken place.” Cincinnati

maintains that, because the counterclaims are still pending, the exception to the enforcement

of anti-assignment clauses for assignments after loss is not applicable here.

       Federal responds that Cincinnati cannot rely on its anti-assignment clause because

it has wrongfully denied coverage to AHMA and the executives, citing Navlyt v. State Farm

Fire & Casualty Co., 62 Ill. App. 3d 387, 392 (1978). Federal argues that Cincinnati cannot

disclaim all obligations under its policies and simultaneously insist that the insureds obtain

its consent to transfer rights that Cincinnati contends do not exist. In addition, Federal

asserts that the exception to the enforcement of anti-assignment clauses for assignments after


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loss is applicable here because the claim arose after the counterclaims were filed. According

to Federal, the defense costs arose when the allegations contained in the counterclaims

triggered a duty to defend.

       In Young v. Chicago Federal Savings & Loan Ass'n, 180 Ill. App. 3d 280 (1989), the

defendant, Chicago Federal Savings & Loan Association (Chicago Federal), received a

mortgage from a nonparty to secure a note for $21,500. Thereafter, the title company issued

its loan policy insuring the mortgage. During the term of the policy, the real estate taxes on

the mortgaged property became delinquent. The taxes were paid by a third party who

eventually acquired a tax deed for the property, which extinguished Chicago Federal’s

mortgage interest. Once Chicago Federal discovered that the third party had been granted

a tax deed for the property, it informed the title company, which denied coverage under its

policy because it did not cover liens attaching after the date of the policy. Chicago Federal

then assigned the mortgage to the plaintiff, who paid $5,000 in consideration. After the

assignment, the title company contacted Chicago Federal and stated that it would reimburse

Chicago Federal in the amount of $14,362.86 in order to maintain a sound business

relationship. The plaintiff filed a lawsuit to recover these proceeds. The circuit court granted

summary judgment in favor of the plaintiff and entered judgment in her favor for $14,362.86.

       On appeal, Chicago Federal argued that its assignment to the plaintiff was invalid

because the title company did not consent to the assignment. The Young court affirmed the

circuit court’s decision. The court held that, when Chicago Federal assigned its policy to the

plaintiff while its claim was still pending before the title company, “it assigned its right to


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the policy proceeds, a chose in action.” Young, 180 Ill. App. 3d at 285. The court stated,

“[a]n insurance policy that is assigned after a claim arises is an assignment of the policy

proceeds; such a transaction results in assignment of a chose in action which does not require

the insurer’s consent.” Young, 180 Ill. App. 3d at 285.

       The court also referred to Couch on Insurance in support of its holding:


               “ ‘[T]he great weight of authority supports the rule that general

               stipulations in policies prohibiting assignments thereof except with

               the consent of the insurer apply to assignments before loss only, and

               do not prevent an assignment after loss, for the obvious reason that

               the clause by its own terms ordinarily prohibits merely the assignment

               of the policy, as distinguished from a claim arising thereunder, and

               the assignment before loss involves a transfer of a contractual

               relationship while the assignment after loss is the transfer of a right

               to a money claim.’ ” Young, 180 Ill. App. 3d at 285, quoting 16

               Couch on Insurance §63:40, at 763-65 (2d rev. ed. 1983).


       Pertinent here, the Ohio Supreme Court further elaborated on this issue:

               “The negation of the anti-assignment clause does not produce an

               unjust result for the insurer. The idea that an insurer would have to

               defend both the transferor and the transferee for the same risk is not

               sound. If the right to a defense has been transferred to a successor,


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               the transferor no longer has that right. The right cannot both be

               transferred and retained.”      Pilkington North America, Inc. v.

               Travelers Casualty & Surety Co., 112 Ohio St. 3d 482, 496; 861

               N.E.2d 121, 143 (2006).

       In this case, as Cincinnati correctly points out, the counterclaims are still pending. AHMA

and the executives assigned to Federal their rights to the policy proceeds, namely, the defense costs,

after the counterclaims were filed. The assignment was the transfer of a right to a “money claim”

asserted after the loss has taken place because the defense costs can be defined and are not

contingent, even though the amount of defense costs continues to grow. As in Young, this

transaction resulted in the assignment of a chose in action, which does not require Cincinnati’s

consent. 1 Young, 80 Ill. App. 3d at 285. Therefore, we find that Cincinnati’s anti-assignment clause

did not prohibit the assignment agreement. See Young, 180 Ill. App. 3d at 285.

                  4. Whether the Assignment Agreement Violates Public Policy

       Cincinnati next contends that the assignment agreement violates public policy because it

allows “an impermissible intrusion by a stranger into the attorney-client relationship.” Cincinnati

relies upon Clement v. Prestwich, 114 Ill. App. 3d 479 (1983), in support of its argument. Cincinnati

asserts that the holding in Clement is applicable because AHMA and the executives assigned to

Federal their rights against Cincinnati with regard to Cincinnati’s duty to provide a legal defense for

the counterclaims.

       Federal responds that Cincinnati’s argument is without merit because it fails to cite any

authority precluding an assignment agreement such as the one in this case. Federal argues that


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Clement is inapplicable because the assignment in that case involved a legal malpractice claim.

Federal asserts that an insurer’s contractual obligation to defend its insured is not analogous to or

equivalent with an attorney’s fiduciary duties to his client, citing Nielsen v. United Services

Automobile Ass'n, 244 Ill. App. 3d 658 (1993).

       “In Illinois, there is no fiduciary relationship between an insurance company and an insured.”

Nielsen, 244 Ill. App. 3d at 666. Here, the assignment involved recovery of defense costs arising

from an insurer’s duty to defend and not a legal malpractice claim as in Clement.

       A client’s claim for legal malpractice arises from a personal relationship between client and

attorney and involves a claim that the attorney has breached a personal duty to the client. See

Clement, 114 Ill. App. 3d at 480. In holding that assignment of legal malpractice claims violate

public policy, the Clement court reasoned:

               “ ‘It is the unique quality of legal services, the personal nature of the

               attorney’s duty to the client and the confidentiality of the attorney-

               client relationship that invoke public policy considerations in our

               conclusion that malpractice claims should not be subject to

               assignment. The assignment of such claims could relegate the legal

               malpractice action to the market place and convert it to a commodity

               to be exploited and transferred to economic bidders who have never

               had a professional relationship with the attorney and to whom the

               attorney has never owed a legal duty, and who have never had any

               prior connection with the assignor or his rights. *** The endless


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               complications and litigious intricacies arising out of such commercial

               activities would place an undue burden on not only the legal

               profession but the already overburdened judicial system, restrict the

               availability of competent legal services, embarrass the attorney-client

               relationship and imperil the sanctity of the highly confidential and

               fiduciary relationship existing between attorney and client.’ ” 114 Ill.

               App. 3d at 481, quoting Goodley v. Wank & Wank, Inc., 62 Cal. App.

               3d 389, 397, 133 Cal. Rptr. 83, 87 (1976).

       The public policy concerns raised by the assignment of legal malpractice claims do not arise

under the circumstances of this case. The record supports that Federal is not attempting to intrude

into any attorney-client relationship, rather, it seeks reimbursement of defense expenses it incurred

while defending mutual insureds under both the Cincinnati and Federal insurance policies.

Therefore, Clement is inapplicable. We find that the assignment agreement in this case raises no

public policy concerns. See Nielsen, 244 Ill. App. 3d at 666.

                                      C. The Duty to Defend

       Cincinnati next argues that the circuit court erred by finding that it has a duty to defend

AHMA and the executives in the underlying counterclaims. Cincinnati asserts that the duty to

defend has not been triggered because there is no potential for coverage. Cincinnati maintains that

the counterclaims allege non-fortuitous loss, which are not covered under its policies. In addition,

Cincinnati contends that Federal has not established that Cincinnati has a duty to defend.

       Federal responds that the counterclaims allege several offenses potentially covered under


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Cincinnati’s policies, thereby triggering Cincinnati’s duty to defend. Federal argues that Cincinnati

cannot conclusively eliminate any potential coverage by application of express or purportedly

implicit policy exclusions. Federal asserts that Cincinnati’s attempts to negate the duty to indemnify

cannot be used to avoid its duty to defend.

       An insurer’s duty to defend is determined by comparing the allegations in the underlying

complaint to the relevant provisions of the insurance policy. Outboard Marine Corp. v. Liberty

Mutual Insurance Co., 154 Ill. 2d 90, 107-08 (1992). The threshold for pleading a duty to defend

is minimal. Management Support Associates v. Union Indemnity Insurance Co. of New York, 129

Ill. App. 3d 1089, 1096 (1984). If an underlying complaint alleges facts within or potentially within

coverage, the insurer is obligated to defend its insured even if the allegations are groundless, false

or fraudulent. Hartford Fire Insurance Co. v. Whitehall Convalescent & Nursing Home, Inc., 321

Ill. App. 3d 879, 888 (2001). This court recently held that consideration of a third-party complaint

in determining a duty to defend is in line with the general rule that a circuit court may consider

evidence beyond the underlying complaint if in doing so, the circuit court does not determine an

issue critical to the underlying action. American Economy Insurance Co. v. Holabird & Root, 382

Ill. App. 3d 1017, 1031-32 (2008). The insurer justifiably refuses to defend the insured if it is clear

from the face of the underlying complaint that the allegations fail to state facts which bring the cause

within or potentially within coverage. Dixon Distributing Co. v. Hanover Insurance Co., 161 Ill. 2d

433, 439 (1994); Outboard Marine, 154 Ill. 2d at 125. If several theories of recovery are alleged in

the underlying complaint against the insured, the insurer’s duty to defend arises even if only one of

several theories is within the potential coverage of the policy. Hartford Fire Insurance, 321 Ill. App.


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1-08-0085 and 1-08-0995 Consolidated

3d at 888, citing Bituminous Casualty Corp. v. Fulkerson, 212 Ill. App. 3d 556, 564 (1991).

“Furthermore, if the insurer relies on an exclusionary provision, it must be clear and free from doubt

that the policy’s exclusion prevents coverage.” Hartford Fire Insurance, 321 Ill. App. 3d at 888.

                          1. Whether the Fortuity Doctrine is Applicable

       Cincinnati contends that the defamation and libel counts alleged in the counterclaims do not

allege any fortuitous loss and, therefore, no duty to defend was triggered. Cincinnati asserts that its

2003 to 2006 policy does not cover a lawsuit that alleges non-fortuitous loss. Relying on Board of

Education of Maine Township High School District 207 v. International Insurance Co., 292 Ill. App.

3d 14 (1997), and Viking Construction Management, Inc. v. Liberty Mutual Insurance Co., 358 Ill.

App. 3d 34 (2005), Cincinnati argues that all insurance is subject to the limitation that it is only

applicable to fortuitous loss. In addition, Cincinnati maintains that it has no duty to defend

intentional torts such as defamation and libel.

       Federal responds that Cincinnati has conflated intentional acts with intentionally caused

injuries. Federal argues that the assertion of intentional acts does not run afoul of the fortuity

requirement. Federal notes that none of the cases cited by Cincinnati involve the personal and

advertising injury coverage at issue here. Federal asserts that, to expressly grant coverage for

intrinsically intentional conduct and at the same time disclaim a duty to defend because the

underlying allegations assert intentional conduct suggests that the Cincinnati policies either provide

virtually non-existent coverage or contain a fatal ambiguity. Federal contends that, if Cincinnati’s

reasoning is correct – that personal and advertising injury coverage does not apply to the intentional

acts of the insured – the coverage would be illusory.


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        “Fortuitous” means happening by chance or accident, or occurring unexpectedly or without

known cause. Johnson Press of America, Inc. v. Northern Insurance Co. of New York, 339 Ill. App.

3d 864, 872 (2003). The Restatement of Contracts defines a fortuitous event as one that, as far as

the parties are aware, is dependent on chance. Johnson Press, 339 Ill. App. 3d at 872, citing

Restatement of Contracts §291, Comment a, 430-31 (1932). “The determination of whether a loss

is fortuitous is a legal question for the court to determine.” Johnson Press, 339 Ill. App. 3d at 872.

        Illinois courts consider that defamation is now generally governed by two standards of fault

and proof – negligence and actual malice. See St. Paul Insurance Co. of Illinois v. Landau,

Omahana & Kopka, Ltd., 246 Ill. App. 3d 852, 858 (1993). Actual malice need not be equated with

an intention to do an act from which injury may be expected. St. Paul, 246 Ill. App. 3d at 858.

Significantly for the purposes of this case, the St. Paul court held that “[a]llegations of recklessness

may bring a defamation claim within the potential coverage of a policy which covers defamation but

excludes knowing falsehoods.” 246 Ill. App. 3d at 859.

        Initially, it should be noted that Cincinnati’s reliance upon Board of Education and Viking

Construction is misplaced. Contrary to Cincinnati’s argument, Board of Education does not hold

that all insurance is subject to the limitation that it is only applicable to fortuitous losses. The

pertinent portion of that case refers to “all risk” policies: “ 'Generally, an "all risk" insurance policy

creates a special type of coverage extending to risks not usually covered under other insurance, and

recovery under an "all risk" policy will, as a rule, be allowed for all fortuitous losses not resulting

from misconduct or fraud, unless the policy contains a specific provision expressly excluding the

loss from coverage.' [Citation.]” Board of Education, 292 Ill. App. 3d at 17. The Board of


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Education case involves latent defect claims for asbestos-related property damage, which are not at

issue here.

       Furthermore, Cincinnati improperly contends that Viking Construction stands for the

proposition that coverage provided for fortuitous losses is a “requirement implicit in every liability

insurance policy.” The pertinent portion of Viking Construction discusses three approaches in its

analysis of whether faulty construction is covered under a CGL policy. The Viking Construction

court lists the three approaches, the second of which concerns “application of the ‘business risk,’

‘ordinary and natural consequences,’ or ‘breach of contract doctrine.’” Viking Construction, 358 Ill.

App. 3d at 43, quoting W. Lyman, Is Defective Construction Covered Under Contractors’ and

Subcontractors’ Commercial General Liability Insurance Policies?, Practising Law Institute, Real

Estate Law and Practice Course Handbook Series, 491 PLI/Real 505, 513 (April 2003). The Viking

Construction court then states, “[t]he rationale for the second approach is ‘the requirement implicit

in every liability insurance policy-specifically, that coverage is provided only for fortuitous losses.’

” 358 Ill. App. 3d at 43, quoting J. Yang, No Accident: The Scope of Coverage for Construction

Defect Claims, 690 Practising Law Institute, Litigation and Administrative Practice Course

Handbook Series 7, 25 (April 2003). In short, Viking Construction, like Board of Education, is a

faulty construction case and is inapplicable here.

       Cincinnati has not cited to any cases involving the fortuitous doctrine based on the

allegations contained in the underlying counterclaim. Based on the holding in St. Paul, the fortuity

doctrine does not apply in this case. See St. Paul, 246 Ill. App. 3d at 858-59. Nevertheless, an issue

remains regarding whether Cincinnati has a duty to defend claims that the insureds intended, or


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expected, to cause the alleged harm in question.

                           2. Whether the Duty to Defend was Triggered

        In this case, the counterclaims assert, inter alia, causes of action for defamation and libel

against AHMA and the executives. As previously discussed, the St. Paul court held that a

defamation complaint set forth allegations which were within or potentially within coverage and, as

such, the insurer was required to defend the action. St. Paul, 246 Ill. App. 3d at 859. In addition to

the holding in St. Paul, two notable decisions from federal courts, applying Illinois law, are pertinent

here.

        In Tews Funeral Home, Inc. v. Ohio Casualty Insurance Co., 832 F.2d 1037, 1045 (7th Cir.

1987), the defendant, Ohio Casualty Insurance Company (Ohio Casualty), issued a comprehensive

general liability policy to the plaintiff, Tews Funeral Home (Tews). Within the policy period, Tews

was named as a defendant in a case alleging that it conspired with other funeral homes in an attempt

to maintain artificially high prices for their burial services and products. In addition, Tews was

accused of conspiring to make false, misleading and defamatory statements disparaging the

underlying plaintiff and violating the Uniform Deceptive Trade Practices Act.

        Ohio Casualty hired an attorney to represent Tews and conducted the defense under a

reservation of rights. Tews retained independent counsel, who requested an acknowledgment from

Ohio Casualty that it had a duty to pay the fees and costs of independent counsel in defending the

suit. Ohio Casualty refused this demand. Tews then filed a declaratory judgment action regarding

its rights and Ohio’s duties. Tews alleged that, regardless of whether Ohio Casualty had a duty to

indemnify Tews for any damages that might arise from the underlying lawsuit, Ohio Casualty had


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a duty to defend Tews because the claims were potentially within the scope of coverage under Ohio

Casualty’s policy.

       Ohio Casualty argued that its policy explicitly excluded coverage for intentional acts. The

United States Court of Appeals, Seventh Circuit, held that Ohio Casualty’s policy was, at best,

ambiguous. The court noted that an “advertising offense” was defined in the policy to include “many

torts that characteristically require intent, maliciousness or willfulness, such as libel, slander,

defamation or the various forms of unfair competition.” Tews, 832 F.2d at 1045. The court stated

that an ambiguity arose in the policy’s definition of “occurrence,” which stated that only

unintentional acts from the standpoint of the insured are covered. The Tews court pointed out that,

in effect, one part of the policy insured against intentional torts or acts, while another part of the

policy attempted to exclude coverage for those same acts. The Tews court resolved this ambiguity

against Ohio Casualty and held that Ohio Casualty was required to defend Tews in the underlying

complaint because the policy potentially covered the conduct alleged there. 832 F.2d at 1045. In

addition, the Tews court found that claims for violations of the Uniform Deceptive Trade Practices

Act and Illinois Consumer Fraud Act were sufficient to state a cause of action for libel, which

potentially was covered under Ohio Casualty’s policy. 832 F.2d at 1044.

       Another Seventh Circuit case, Hurst-Rosche Engineers, Inc. v. Commercial Union Insurance

Co., 51 F.3d 1336 (7th Cir. 1995), involved a Cincinnati insurance policy and the same argument

Cincinnati makes here. The plaintiff, Hurst-Rosche Engineers, Inc. (Hurst-Rosche), was Cincinnati’s

policyholder. Cincinnati had issued to Hurst-Rosche an umbrella commercial liability policy that

expressly covered defamation claims. In the underlying action, a granite company sued Hurst-


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Rosche for libel and tortuous interference with contract. Cincinnati informed Hurst-Rosche that it

would not provide a defense to the underlying suit because the duty to defend belonged to the

primary carrier. After Hurst-Rosche was found liable for damages in the underlying case, it filed an

action against Cincinnati seeking damages, recovery of attorneys’ fees and declaratory relief for

breach of contract and vexatious refusal to pay insurance benefits. The district court granted

summary judgment in favor of Cincinnati.

        The Seventh Circuit noted that the Cincinnati policy defined covered personal injury claims

to include claims for, inter alia, libel, slander and defamation of character, and that these torts, by

definition, require proof of intent or willfulness. The court also noted that, despite the apparent

coverage for the specified intentional torts, the Cincinnati policy’s definition of an “occurrence”

limited coverage only to those claims resulting from unintentional conduct. The Seventh Circuit

found that these definitions created an internal inconsistency because, “on the one hand Cincinnati

purports to provide coverage for intentional tort claims, and on the other hand Cincinnati denies

coverage for those same claims.” Hurst-Rosche, 51 F.3d at 1345. The court further found that the

Cincinnati policy’s definitions were similar to those provisions in Tews. The court held that the

ambiguity in the Cincinnati policy must be resolved in favor of the insured. Hurst-Rosche, 51 F.3d

at 1346. The Cincinnati policy’s “occurrence” language did not preclude coverage for the underlying

action’s claims for libel with malice and tortious interference with contract.

        On October 7, 2008, we granted Cincinnati’s motion to cite additional authority, which

included a recent decision from the United States District Court, Central District of Illinois, entitled,

Cincinnati Insurance Co. v. Shanahan, No.07-3164 (C.D. Ill. Sept. 26, 2008). In Shanahan, each


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count of the underlying defamation complaint alleged intentional conduct. The Shanahan court, in

contrast to Tews and Hurst-Rosche, found no internal inconsistencies in the pertinent Cincinnati

policies because (1) the injury as alleged was not caused by an “occurrence,” and (2) the underlying

complaint only alleged intentional conduct. The Shanahan court held that the insured was not

entitled to coverage for the allegations contained in the underlying complaint. In addition,

Cincinnati, citing Steadfast Insurance Co. v. Caremark Rx, Inc., 359 Ill. App. 3d 749, 761 (2005),

asserts that the duty to defend is dependent upon conduct actually plead in the complaint and not a

hypothetical version, and that in this case, the conduct plead only involved intentional acts.

       The reasoning in Hurst-Rosche, rather than Shanahan and Caremark, is on point for the

instant case. Here, unlike Shanahan and Caremark, the Cincinnati policies’ definition of occurrence

is broader and the underlying complaint included allegations of both negligent and intentional

conduct.

       The injuries alleged in the underlying counterclaims occurred between July 2003 and April

2004, which potentially triggered both Cincinnati’s 2000 to 2003 and 2003 to 2006 policies. The

counterclaims’ defamation and libel counts were not limited to allegations of intentional conduct,

but also claimed that AHMA and Timothy Farrell “exhibited a reckless disregard for the falsity of

these statements.” The 2000 to 2003 policy provided coverage for personal and advertising injuries

including “[o]ral or written publication of material that slanders or libels a person or organization

or disparages a person’s or organization’s goods, products or services.” The 2003 to 2006 personal

and advertising injury liability coverage defined covered claims for injury arising out of “[o]ral or

written publication, in any manner, of material that slanders or libels a person or organization.” The


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exclusions in both policies excluded coverage for “knowing violation of rights of another” and

“material published with knowledge of falsity.” In addition, the Cincinnati policies’ definition of

“occurrence” limited coverage only to those claims resulting from unintentional conduct.

       In short, the Cincinnati policies purport to provide coverage for defamation and libel, but the

2003 to 2006 policy and the definition of “occurrence” provide coverage only for unintentional

conduct. Accordingly, as in Hurst-Rosche, the Cincinnati policies contain internal inconsistencies

because, “on the one hand Cincinnati purports to provide coverage for intentional tort claims, and

on the other hand Cincinnati denies coverage for those same claims.” Hurst-Rosche, 51 F.3d at

1345. Based on the well-reasoned decisions in Tews and Hurst-Rosche, we find that the ambiguity

in the Cincinnati policies must be resolved in favor of the insureds or, in this case, the assignee of

the insureds, Federal.    Furthermore, as in Hurst-Rosche, we find the Cincinnati policies’

“occurrence” language did not preclude coverage for the underlying counterclaims for defamation

and libel. 51 F.3d at 1346.

       The allegations in the underlying counterclaims also are of key importance to our analysis

because the duty to defend is determined by comparing the allegations in the underlying complaint

to the relevant provisions of the insurance policy. Outboard Marine, 154 Ill. 2d at 107-08.

Significantly, alleged deliberate misconduct does not always bring a claim within an intentional

conduct exclusion:

                       “[I]t is important to this case that the exclusion is not of

               intentional torts as such (nor is defamation an intentional tort in any

               simple sense), but of tortious conduct in which there is an intent to


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                injure or an expectation of injuring. And in the case of defamation, at

                least, the exclusion does not track the tort. *** [D]efamation is often

                not intended or expected to injure anyone.” Cincinnati Insurance Co.

                v. Eastern Atlantic Insurance Co., 260 F.3d 742, 746 (7th Cir. 2001).

In other words, an intent to injure or expectation of injury is not an element of the tort of defamation.

Eastern Atlantic, 260 F.3d at 746-47. For the purposes of this case, the underlying counterclaims

alleged reckless conduct that “may bring a defamation claim within the potential coverage of a policy

which covers defamation but excludes knowing falsehoods.” St. Paul, 246 Ill. App. 3d at 859.

        In sum, we find that Cincinnati’s duty to defend was triggered because the underlying

counterclaims’ defamation claims fall within the terms of Cincinnati’s policies. St. Paul, 246 Ill.

App. 3d at 859. Although the threshold for pleading a duty to defend is minimal (Management

Support, 129 Ill. App. 3d at 1096), Cincinnati’s duty to defend, at a minimum, is clear from the face

of the alleged defamation claims asserted in the counterclaims. Therefore, Cincinnati cannot

justifiably refuse to defend its insureds. Dixon Distributing, 161 Ill. 2d at 439; Outboard Marine,

154 Ill. 2d at 125. Accordingly, Cincinnati has a duty to defend AHMA and the executives in the

underlying counterclaims. Consequently, Cincinnati also is obligated to reimburse Federal one-half

of the defense expenses incurred to date in the defense of the underlying counterclaims and to pay

Federal one-half of the defense expenses going forward. Based upon this ruling, we need not address

whether the duty to defend was triggered from the remainder of the counterclaims because the

insurer’s duty to defend arises even if only one of several theories is within the potential coverage

of the policy. Hartford Fire Insurance, 321 Ill. App. 3d at 888, citing Bituminous Casualty Corp.,


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212 Ill. App. 3d at 564.

                            D. The Doctrine of Equitable Contribution

       Finally, Cincinnati asserts that Federal has no right under the doctrine of equitable

contribution to pursue Cincinnati for defense costs because the subject policies do not insure the

same risk. Cincinnati asserts that its policies provide commercial general liability on an occurrence

basis, while the Federal policy provides coverage under a claims-made, not-for-profit liability policy

and that the terms within these policies have different meanings.

       Federal responds that it possesses a right of equitable contribution from Cincinnati for

Cincinnati’s share of the defense expenses incurred in defending the counterclaims. Federal asserts

that the substantial overlap of the risks encompassed by the offenses defined in the respective

policies asserted in the counterclaims establish that Federal and Cincinnati are co-primary insurers

of AHMA and the executives.

       “The doctrine of equitable contribution permits an insurer that has paid the entire loss to be

reimbursed by other insurers that are also liable for the loss.” Liberty Mutual Insurance Co. v.

Westfield Insurance Co., 301 Ill. App. 3d 49, 52 (1998). The doctrine of equitable contribution

“arises from a right which is independent from the rights of the insured, to recover from a co-obligor

who shares the same liability as the party seeking contribution.” Argonaut Insurance Co. v. Safway

Steel Products, Inc., 355 Ill. App. 3d 1, 10-11 (2004). This doctrine may arise where the insurance

policies at issue “cover a risk on the same basis and there is an identity between the policies as to

parties and insurable interests and risks.” Home Indemnity Co. v. General Accident Insurance Co.

of America, 213 Ill. App. 3d 319, 321 (1991). The court in Schal Bovis, Inc. v. Casualty Insurance


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Co., 315 Ill. App. 3d 353, 363 (2000) further elaborated upon the requirement that there be an

identity of parties, insurable interests and risks:

                        “ ‘It is not necessary that the policies provide identical

                coverage in all respects in order for the two policies to be considered

                concurrent, and each insurer entitled to contribution from the other;

                as long as the particular risk actually involved in the case is covered

                by both policies, the coverage is duplicate, and contribution will be

                allowed.’ ” 315 Ill. App. 3d at 363, quoting 15 L. Russ & P. Segella,

                Couch on Insurance §218:16, at 218-1 (3d ed. 1999).

The holding in Schal Bovis was cited with approval by our supreme court in Home Insurance Co.

v. Cincinnati Insurance Co., 213 Ill. 2d 307, 318-322 (2004).

        Equitable contribution does not apply to primary/excess insurance issues because by they

cover different risk by their very definitions. Home Insurance Co., 213 Ill. App. 3d at 321.

Accordingly, the key question here is whether the policies establish a sufficient commonality of risks

to support an equitable contribution claim.

        In this case, the record shows, and the parties do not dispute, that the policies at issue all

afford primary coverage to the same insureds. Cincinnati’s argument that the policies insure

different risks because they are either occurrence-based or claims-made is unavailing because

whether a policy is occurrence-based or claims-made refers to how the policy is triggered rather than

the type of risk it insures. Here, the respective insurance policies each cover the same risks as sought

in the counterclaims, inter alia, defamation, libel and trademark infringement. Cincinnati’s policies


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insure against injury arising out of the oral or written publication of material that slanders or libels

a person or organization. Federal’s policy includes coverage for injuries arising out of “a Wrongful

Act,” including, for example, defamation and trademark infringement.

        Further, the “other insurance” provisions in each of the subject policies reinforce the

conclusion that Cincinnati and Federal provide coverage on the same basis. Notably, Cincinnati’s

policies state that, “[i]f all of the other insurance permits contribution by equal shares, we will follow

this method also.” Federal’s “other insurance” provision states, “[i]f Loss arising from a Claim made

against any Insured is insured under any other valid policy, prior or current, then this policy shall

cover such Loss *** only to the extent that the amount of such Loss is in excess of the amount of

payment from such other insurance,” whether primary or excess.

        In sum, the record shows that each of the respective policies share significant, fundamental

commonalities of risk that support a finding that the equitable contribution doctrine is applicable in

this case. Accordingly, we find that the circuit court correctly held that Cincinnati must reimburse

Federal for one-half of the defense expenses it has incurred to date in defending AHMA and the

executives and also pay Federal one-half of the insureds’ defense expenses going forward.

                                          III. CONCLUSION

        In conclusion, we find that the circuit court of Cook County properly granted Federal’s

motion for addition of parties under section 2-1008 of the Code of Civil Procedure (735 ILCS 5/2-

1008 (West 2006)). In addition, we find that the circuit court properly granted summary judgment

in favor of Federal and against Cincinnati on the issue of duty to defend AHMA and the executives

under its 2000 to 2003 and 2003 to 2006 policies with respect to the counterclaims in the underlying


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action. Furthermore, we affirm the circuit court’s ruling that the “other insurance” provisions

contained in the insurers’ respective policies require Cincinnati to pay one-half of all reasonable and

necessary defense expenses for the counterclaims as they are incurred by AHMA and the executives

going forward. Finally, as a matter of equitable contribution, we find that Federal is entitled to

recover from Cincinnati one-half of the reasonable and necessary past defense costs it expended on

behalf of AHMA and the executives for the counterclaims.

       Affirmed.

       GREIMAN and THEIS, JJ., concur.




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