                                Illinois Official Reports

                                       Appellate Court



          Pekin Insurance Co. v. Rada Development, LLC, 2014 IL App (1st) 133947



Appellate Court           PEKIN INSURANCE COMPANY, Plaintiff-Appellant, v. RADA
Caption                   DEVELOPMENT, LLC, and BARNABUS R. SUTTON, Defendants,
                          CERTAIN UNDERWRITERS AT LLOYD’S, LONDON, Sub-
                          scribing to Certificate No. CRCC000537, Third-Party Petitioner-
                          Appellee.


District & No.            First District, First Division
                          Docket No. 1-13-3947

Filed                     July 28, 2014


Held                       In a declaratory judgment action seeking a determination that
(Note: This syllabus defendant developer was not an additional insured under a policy
constitutes no part of the plaintiff issued to a subcontractor on defendant’s project for purposes
opinion of the court but of an underlying personal injury action arising from a construction
has been prepared by the accident at the project where the trial court initially entered a default
Reporter of Decisions judgment for plaintiff insurer finding that it had no duty to defend the
for the convenience of developer, and plaintiff insurer then successfully used that judgment
the reader.)               as a collateral estoppel bar to the separate declaratory judgment action
                           filed by the developer’s insurer seeking a determination that plaintiff
                           was obligated to defend the developer as an additional insured, the
                           trial court properly vacated the default judgment pursuant to the
                           petition filed by the developer’s insurer under section 2-1401 of the
                           Code of Civil Procedure and a motion to intervene in plaintiff’s
                           declaratory judgment action based on the allegation that as the
                           developer’s insurer, it was a necessary party to plaintiff’s action but
                           was never joined, especially when the default judgment affected the
                           rights of the developer’s insurer by requiring the insurer to defend the
                           developer in the underlying action.


Decision Under            Appeal from the Circuit Court of Cook County, No. 12-CH-31076; the
Review                    Hon. Kathleen Pantle, Judge, presiding.
     Judgment                 Affirmed.


     Counsel on               Robert Marc Chemers and Philip G. Brandt, both of Pretzel &
     Appeal                   Stouffer, Chtrd., of Chicago, for appellant.

                              Neal R. Novak and Colleen M. Costello, both of Novak Law Offices,
                              of Chicago, for appellee.




     Panel                    JUSTICE HOFFMAN delivered the judgment of the court, with
                              opinion.
                              Presiding Justice Connors and Justice Cunningham concurred in the
                              judgment and opinion.




                                                OPINION

¶1         The plaintiff, Pekin Insurance Company (Pekin), filed a declaratory judgment (Pekin
       action) against the defendants, Rada Development, LLC (Rada), and Barnabus R. Sutton
       (Sutton), seeking a judicial declaration that Rada was not an additional insured under the Pekin
       policy issued for Chicago Masonry Construction, Inc. (Chicago Masonry), a codefendant with
       Rada in a personal injury action instituted by Sutton. The trial court found that Pekin had no
       duty to defend Rada in the Sutton lawsuit. Later, Certain Underwriters at Lloyd’s, London,
       Subscribing to Certificate No. CRCC000537 (Lloyd’s), filed a petition to vacate the trial
       court’s judgment under section 2-1401 of the Code of Civil Procedure (Code) (735 ILCS
       5/2-1401 (West 2012)), arguing that the order was void because it was a necessary party to the
       Pekin action. The trial court granted Lloyd’s petition and vacated the judgment, finding the
       judgment was void because Lloyd’s was a necessary party to the Pekin action. The trial court
       further allowed Lloyd’s leave to intervene in the Pekin action. Pekin now appeals, arguing that
       the trial court erred in granting Lloyd’s section 2-1401 petition and allowing Lloyd’s to
       intervene. For the reasons that follow, we affirm.
¶2         Rada owns and is the developer of a commercial property located at 1322 North Clybourn
       Avenue in Chicago. On October 25, 2006, Rada contracted with Heartland Construction Group
       to act as the general contractor of the development project at the Clybourn Avenue property
       (hereinafter referred to as the Project). On August 7, 2006, Heartland entered into a subcontract
       agreement with Chicago Masonry, and as part of that agreement, Chicago Masonry was
       required to list Heartland as an additional insured on its liability insurance policy. Later, Rada
       took over as the general contractor of the Project, pursuant to a “reassignment agreement”
       between Rada and Heartland. Per the terms of the reassignment agreement, Heartland agreed
       to assign all of its interests in any subcontract agreement for the Project, which allegedly
       included its subcontract agreement with Chicago Masonry.

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¶3        Chicago Masonry was insured under a policy issued by Pekin, which contained an
     additional insured endorsement which included the following language:
              “any person or organization for whom you are performing operations when you and
              such person or organization have agreed in writing in a contract or agreement that such
              person or organization be added as an additional insured on your policy. Such person or
              organization is an additional insured only with respect to liability incurred solely as a
              result of some act or omission of the named insured and not for its own independent
              negligence or statutory violation. That person’s or organization’s status as an insured
              under this endorsement ends when your operations for that insured are completed or at
              the end of the policy period stated in the declarations of this policy, whichever is
              earlier. It is further understood that the designation of an entity as an additional insured
              does not increase or alter the scope of coverage of this policy.”
¶4        The Pekin policy also contained language excluding coverage of additional insureds for
     personal injury losses arising out of the “rendering of, or the failure to render, any professional
     architectural, engineering or surveying services, including *** [s]upervisory, inspection,
     architectural or engineering activities.”
¶5        On January 12, 2010, Sutton sued, inter alia, Chicago Masonry and Rada for injuries
     which he sustained in a construction accident at the Project site on November 15, 2006. Sutton
     v. Rada Development, LLC, No. 10-L-440 (Cir. Ct. Cook Co.) (hereinafter, Sutton). Chicago
     Masonry tendered its defense to Pekin. Rada tendered its defense to Lloyd’s, which had issued
     a commercial general liability insurance policy identified as Certificate No. CRCC000537 to
     Rada for the period of October 3, 2006, through October 3, 2007. Lloyd’s agreed to defend
     Rada in the Sutton suit subject to a reservation of rights.
¶6        Between May 30, 2012, and July 23, 2013, Lloyd’s attempted to tender Rada’s defense in
     the Sutton suit to Chicago Masonry and Pekin on the basis that Rada was an additional insured
     under the Pekin policy.
¶7        On August 14, 2012, Pekin filed a three-count complaint for declaratory judgment against
     Rada, seeking a declaration that it had no duty to defend Rada in the Sutton action. In count I,
     Pekin alleged that a certificate of insurance, which provided that Chicago Masonry with
     “Blanket AI” insurance and listed “Rada Architects (GC and Architect)” as an additional
     insured, issued to Rada did not afford it any coverage or trigger a duty to defend. In count II,
     Pekin alleged that it had no duty to defend Rada under the policy issued for Chicago Masonry
     because there was no written contract between Rada and Chicago Masonry requiring Chicago
     Masonry to add Rada as an additional insured under its liability policy. In count III, Pekin
     alleged that it had no duty to defend Rada because the Sutton action contained allegations of
     Rada’s own negligence, independent of the allegations alleged against Chicago Masonry.
¶8        In a letter dated August 24, 2012, Pekin acknowledged receipt of Lloyd’s tender and set
     forth its reasons for rejecting the tender of Rada’s defense. Pekin further stated that it “intends
     to file a Complaint for Declaratory Judgment to have a court declare that Rada is not entitled to
     coverage” under the Chicago Masonry policy. In a response letter dated August 27, 2012,
     Lloyd’s disagreed with Pekin’s position based on the reassignment agreement between Rada
     and Heartland, and it requested that “Pekin immediately voluntarily dismiss the Pekin” action
     and “accept the defense of Rada in the Sutton Action.” Further, if Pekin refused to do so,
     Lloyd’s stated that it would consider all available options with respect to Rada’s defense.


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¶9         In a letter dated September 11, 2012, Pekin stated that, even if Rada was an additional
       insured under Chicago Masonry’s policy, there were other policy defenses precluding a duty to
       defend Rada. Pekin further suggested that “Rada Development, LLC put forth its position in
       the declaratory judgment action rather than in letters.” However, neither Rada nor Lloyd’s
       appeared in the Pekin action.
¶ 10       On September 24, 2012, Pekin filed a motion for a default judgment against Rada.
¶ 11       In a letter to Pekin, dated October 2, 2012, Lloyd’s stated that it would not respond to
       Pekin’s action because it was not named in the suit, and instead, it had instituted its own
       declaratory judgment action in order to protect its interests. Regarding Pekin’s motion for a
       default judgment, Lloyd’s stated that any judgment entered on the basis there was no
       agreement between Chicago Masonry and Rada regarding insurance coverage would be
       unenforceable. Lloyd’s letter included a copy of its complaint for declaratory judgment, filed
       on October 2, 2012. Certain Underwriters at Lloyd’s London v. Pekin Insurance Co.,
       No. 12-CH-39364 (Cir. Ct. Cook Co.) (hereinafter, Lloyd’s action).
¶ 12       On October 15, 2012, the trial court entered an order setting a November 7, 2012, hearing
       date to prove up Pekin’s default judgment against Rada. In the meantime, Pekin filed an
       appearance in the Lloyd’s action, and shortly thereafter, moved to dismiss it under section
       2-615 of the Code for the failure to name Sutton as a necessary party.
¶ 13       On November 7, 2012, the trial court entered a default judgment against Rada in Pekin’s
       action, stating that Rada was not an insured party under Chicago Masonry’s insurance policy
       issued by Pekin.
¶ 14       On November 27, 2012, Lloyd’s amended its complaint to add Sutton as a named
       defendant. On December 12, 2012, Pekin moved to dismiss the Lloyd’s action under section
       2-619(a)(9) of the Code, asserting that the doctrine of collateral estoppel barred the attempt by
       Lloyd’s to relitigate the issue of Pekin’s duty to defend Rada.
¶ 15       On March 22, 2013, the trial court granted Pekin’s motion and dismissed the Lloyd’s
       action on the basis of collateral estoppel. Lloyd’s did not appeal from that order.
¶ 16       On June 11, 2013, Lloyd’s filed a section 2-1401 petition, seeking to vacate the default
       judgment entered in the Pekin action, and a motion to intervene pursuant to section 2-408(a)(2)
       of the Code (735 ILCS 5/2-408(a)(2) (West 2012)). Lloyd’s contended that it was a necessary
       party to the Pekin action, but it was never joined. Attached to the petition was the affidavit by
       Rada Doytcheva, a principal member of Rada, in which she stated that Rada did not appear in
       the Pekin action because of financial constraints. Doytcheva further stated that Rada “did not
       limit the tender of its defense of the Sutton action to [Lloyd’s]” and that Rada was aware of the
       Lloyd’s action seeking defense coverage under the Pekin policy. Pekin moved to dismiss the
       petition under section 2-615 of the Code, arguing that there was no Illinois law requiring it to
       join Lloyd’s in the Pekin action. Pekin further argued that Lloyd’s did not have a meritorious
       defense and did not exercise due diligence in bringing forth its petition.
¶ 17       On December 3, 2013, the trial court issued its written decision in which it determined that
       Lloyd’s was a necessary party to the Pekin action and that the default judgment entered in its
       absence was, therefore, “void.” The trial court stated that Pekin filed its declaratory judgment
       action against Rada, but never named Lloyd’s as a defendant despite having knowledge of its
       coverage position. The court found that Pekin then obtained a default judgment and used that
       judgment to collaterally estop Lloyd’s from pursuing its declaratory judgment action. The


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       court concluded that Lloyd’s was a necessary and indispensable party in the Pekin action,
       rendering the default judgment void. Accordingly, the court granted Lloyd’s petition to vacate
       the judgment and allowed Lloyd’s leave to intervene in the action. The court acknowledged
       that it was unclear as to why Lloyd’s chose to file its own action instead of intervening in the
       Pekin action or why neither party moved to consolidate the two identical actions, but the court
       found that the parties’ conduct did not alleviate the effect of the void judgment. The court also
       noted that, while an application to intervene must be made in a timely manner, “[g]iven the
       peculiar procedural maneuvers by both parties, [Lloyd’s] application for intervention [was]
       timely.” Finally, because the default judgment order was void, the trial court denied Pekin’s
       motion to dismiss which attacked Lloyd’s petition for failing to establish its diligence and a
       meritorious defense.
¶ 18        Pursuant to Illinois Supreme Court Rule 304(b)(3) (eff. Feb. 26, 2010), Pekin appealed the
       trial court’s order granting Lloyd’s section 2-1401 petition and allowing Lloyd’s leave to
       intervene in the Pekin action.
¶ 19        Section 2-1401 of the Code authorizes a party to seek relief from a final judgment, such as
       a default judgment. Sarkissian v. Chicago Board of Education, 201 Ill. 2d 95, 101 (2002).
       Generally, section 2-1401 petitions must be filed within two years of the order or judgment, the
       petitioner must allege a meritorious defense to the original action, and the petitioner must show
       that the petition was brought with due diligence. Id. at 103. However, a void order may be
       attacked at any time, either directly or collaterally, such as through a section 2-1401 petition.
       Id. “[T]he allegation that the judgment or order is void substitutes for and negates the need to
       allege a meritorious defense and due diligence.” Id. at 104. A void order is one entered by a
       court that lacks jurisdiction of the parties or of the subject matter, or that lacks the inherent
       power to make or enter the order at issue. Id. at 103. “It is generally accepted that, under
       fundamental principles of due process, a court is without jurisdiction to enter an order or
       judgment which affects a right or interest of someone not before the court.” Feen v. Ray, 109
       Ill. 2d 339, 344 (1985). We review de novo a judgment entered on a section 2-1401 petition
       that is requesting relief based on the allegation that the judgment is void. Deutsche Bank
       National Trust Co. v. Hall-Pilate, 2011 IL App (1st) 102632, ¶ 12.
¶ 20        “A necessary party is one whose participation is required to (1) protect its interest in the
       subject matter of the controversy which would be materially affected by a judgment entered in
       its absence; (2) reach a decision protecting the interests of the parties already before the court;
       or (3) allow the court to completely resolve the controversy.” Zurich Insurance Co. v. Baxter
       International, Inc., 275 Ill. App. 3d 30, 37 (1995), aff’d as modified, 173 Ill. 2d 235 (1996).
       The necessary parties rule finds its origin in the common law and is affected by several
       provisions of the Code. Id. at 36. For instance, a party who declines to join a lawsuit may be
       made a defendant (735 ILCS 5/2-404 (West 2012)); a party deemed necessary to a complete
       determination of any question raised in controversy may be joined (735 ILCS 5/2-405(a) (West
       2012)); and, the trial court may, sua sponte, order parties be joined “[i]f a complete
       determination of a controversy cannot be had without the presence of [such] parties” (735
       ILCS 5/2-406(a) (West 2012)). Zurich Insurance Co., 275 Ill. App. 3d at 36. As stated, an
       order will be void if entered by a court lacking jurisdiction over a necessary party. Id. at 37;
       Feen, 109 Ill. 2d at 344.
¶ 21        In this case, the trial court determined that it lacked jurisdiction to enter the default
       judgment order in Lloyd’s absence where the judgment affected its rights. We agree. The

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       default judgment entered in the Pekin action required that Lloyd’s continue defending Rada in
       the Sutton suit, despite its attempt to tender Rada’s defense to Pekin on the basis of the
       reassignment agreement and the additional insurance provision in the general contractor and
       subcontractor agreement; thus, the judgment materially affected the interests of Lloyd’s. See
       Zurich Insurance Co. v. Raymark Industries, Inc., 144 Ill. App. 3d 943, 946-47 (1986) (in
       holding excess insurers were necessary parties to declaratory judgment action because their
       interests were “necessarily implicated under any theory of allocation of indemnity and defense
       liability,” court stated that “[i]n order to effectuate complete relief and dispose of an entire
       controversy in a declaratory judgment action, all persons legally interested in the subject
       matter of the litigation who may be affected by the judgment should be made parties”).
       Furthermore, contrary to Pekin’s argument that Lloyd’s should not have been joined in its
       action, Pekin successfully used its default judgment to collaterally estop Lloyd’s from
       litigating the issue in its own action, despite Lloyd’s absence from the Pekin action. As the trial
       court noted, we do not understand why Pekin did not name Lloyd’s in its suit or seek to have
       Lloyd’s joined in the suit to avoid the rendering of a void judgment. We also do not know why
       Lloyd’s chose to file its own action rather than move to join in the Pekin action. Regardless, the
       parties’ odd procedural choices, as the trial court concluded, do not change the nature or effect
       of a void order. Thus, we affirm the trial court judgment which granted Lloyd’s section 2-1401
       petition and vacated the default judgment entered on November 7, 2012.
¶ 22        We further reject Pekin’s argument that the trial court abused its discretion granting the
       motion for leave to intervene in favor of Lloyd’s. A court may grant intervention either
       permissively or as a matter of right. Ramsey Emergency Services, Inc. v. Illinois Commerce
       Comm’n, 367 Ill. App. 3d 351, 364-65 (2006). Under section 2-408(a) of the Code (735 ILCS
       5/2-408(a) (West 2012)), “[u]pon timely application anyone shall be permitted as of right to
       intervene in an action” when a statute provides for the unconditional right or when the
       applicant’s interest may not be adequately represented by the existing parties and the applicant
       will be bound by an order or judgment in the action. Further, upon timely application, the
       court, in its discretion, may permit anyone to intervene in an action when a statute confers a
       conditional right to intervene or “when an applicant’s claim or defense and the main action
       have a question of law or fact in common.” 735 ILCS 5/2-408(b) (West 2012).
¶ 23        “Intervention is usually allowed only before judgment issues, and parties may not normally
       seek intervention after the rights of the existing parties have been determined and a final decree
       entered.” Ramsey, 367 Ill. App. 3d at 365. However, intervention may be allowed after
       judgment is entered where it is necessary to protect the intervenor’s rights, particularly where
       the interest of the intervenor existed at the time the judgment was entered. People ex rel. Scott
       v. Illinois Protestant Children’s Home, Inc., 95 Ill. App. 3d 552, 558 (1981). The decision to
       allow or deny intervention is within the discretion of the court and will not be overturned on
       review absent an abuse of that discretion. Ramsey, 367 Ill. App. 3d at 365.
¶ 24        Here, we cannot say that, under the particular procedural facts of this case, the trial court
       abused its discretion when it granted Lloyd’s motion to intervene in the Pekin suit. As we
       determined, the trial court correctly vacated the default judgment on the basis of Lloyd’s
       absence in the litigation. Later, Lloyd’s action was dismissed on collateral estoppel grounds
       because of the default judgment. Under these facts, we cannot say that the court abused its
       discretion in allowing Lloyd’s to intervene in the reopened Pekin action.



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¶ 25      Accordingly, for the aforementioned reasons, we affirm the judgment of the circuit court of
       Cook County.

¶ 26      Affirmed.




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