January 29, 2001

No. 2--00--0236

IN THE

APPELLATE COURT OF ILLINOIS

SECOND DISTRICT

JUSTICE O'MALLEY delivered the opinion of the court:

Third-party defendant, Statewide Insurance Company (Statewide), appeals thejudgment of the circuit court of Du Page County granting the summary judgmentmotion of third-party plaintiff, Pekin Insurance Company (Pekin). We reverse andremand.

In October 1992, an action was brought by Leon Yuan, Angela Yuan, and Leon Yuan,Ph.D., D.D.S. Ltd. (Yuans) against Richard Marker and Richard Marker Associates(Marker). In this lawsuit, the Yuans alleged breach of an architectural servicesagreement and breach of a construction contract on the grounds that Markerimproperly designed and incorrectly constructed a building which was to containthe Yuans' residence, dental offices, and laboratory. The Yuans further allegedactual and constructive fraud and consumer fraud.

The Yuans' construction project had closed on February 3, 1992, and Marker hadprovided a warranty for one year thereafter. Marker was insured by Pekin fromAugust 25, 1991, to August 25, 1992, and by Statewide beginning on August 25,1992.

Marker initially tendered defense of the cause of action to Pekin, which refusedthe tender. As a result of this refusal, Marker retained counsel to represent himin the Yuans' lawsuit.

Pekin filed a complaint for declaratory judgment on December 19, 1994, seeking ajudicial determination that it was not required to defend or to indemnify Markerwith respect to the Yuans' lawsuit.

In July 1995, the Yuans filed an "amended fourth amended complaint," and, onAugust 4, 1995, Marker tendered that complaint to Statewide for defense. OnDecember 7, 1995, Statewide refused Marker's tender on the ground that the policyheld by Marker became effective after all but one of the allegations in thecomplaint occurred. Statewide also refused the tender as being untimely. OnFebruary 22, 1996, Statewide filed a complaint for declaratory judgment, seeking ajudicial determination that it was not required to defend or indemnify Marker withrespect to the Yuan lawsuit.

On May 8, 1996, the trial court granted Pekin's motion for summary judgment in thedeclaratory judgment action brought by Pekin, and Marker appealed. While theappeal was pending, the following occurred. In June 1996, Marker settled theYuans' lawsuit. On August 30, 1996, Marker withdrew his tender to Statewide. OnSeptember 26, 1996, the trial court entered an agreed order in which it grantedStatewide's motion for voluntary nonsuit of its declaratory judgment actionagainst Marker.

Marker's appeal in the Pekin matter subsequently was decided on June 30, 1997. See Pekin Insurance Co. v. Richard Marker Associates, Inc., 289 Ill. App. 3d 819(1997). In that case, we reversed the trial court and held that Pekin had a dutyto defend Marker where the allegations of the underlying complaint filed by theYuans potentially fell within the policy coverage. Pekin Insurance Co., 289 Ill.App. 3d at 823.

On July 10, 1998, Marker brought a complaint for declaratory judgment againstPekin seeking indemnification for the settlement of the Yuans' lawsuit, attorneyfees, and costs. Pekin denied that it owed Marker indemnification. Additionally,Pekin filed a motion for leave to file a third-party complaint for declaratoryjudgment against Statewide, alleging that Statewide owed Pekin equitablecontribution pursuant to the "other insurance" provision of Pekin's insurancepolicy. The trial court granted Pekin's motion to file the third-party complaintagainst Statewide.

Marker objected to Pekin's motion on three bases. First, Pekin breached its ownduty to defend and, hence, was estopped from claiming entitlement to equitablecontribution. Second, assuming that Pekin and Statewide were co-primary insurers,Marker had elected that Pekin defend the Yuans' lawsuit and had withdrawn histender to Statewide. Therefore, Pekin was unable to seek equitable contributionfrom Statewide because Statewide's policy was not available to Pekin forcontribution. Third, Pekin had not yet paid any losses claimed by Marker,rendering the request for equitable contribution premature.

Statewide filed an answer to Pekin's third-party complaint, denying that Pekin wasentitled to equitable contribution. Statewide also filed a motion for summaryjudgment against Pekin in which it alleged, inter alia, that it owed no duty ofequitable contribution to Pekin because Marker had deactivated his tender toStatewide. Pekin filed a cross-motion for summary judgment in which it respondedthat, as a matter of law, Statewide owed Pekin equitable contribution because theStatewide policy had been triggered and Marker's attempt to withdraw his tender toStatewide was of no legal consequence where he had settled the underlying lawsuitprior to the withdrawal.

The trial court granted Pekin's motion for summary judgment, finding that"Statewide Insurance Company [was] liable to Pekin Insurance Company for equitablecontribution during the period of August 4, 1995, through July 1, 1996." Thecourt also denied Statewide's motion for summary judgment and ruled that its orderwas appealable immediately pursuant to Supreme Court Rule 304(a). 155 Ill. 2d R.304(a). Statewide filed this timely appeal.

On appeal, the parties concede that Marker's letter of August 30, 1996, clearlyindicated his intent to withdraw his tender of defense of the Yuans' lawsuit fromStatewide. Thus, the issues on appeal are whether Marker was capable ofwithdrawing his tender to Statewide after the Yuans' lawsuit was settled andwhether Statewide's coverage of the Yuans' lawsuit was accessible for equitablecontribution under the "other insurance" provision of the Pekin policy. We agreewith Statewide that the trial court, as a matter of law, incorrectly found thatPekin was entitled to equitable contribution from Statewide and, therefore,improperly granted Pekin's motion for summary judgment. For the reasons thatfollow, we reverse the judgment of the trial court.

Summary judgment is proper when the pleadings, depositions, admissions of record,and affidavits show there is no genuine issue of material fact and the movingparty is entitled to judgment as a matter of law. 735 ILCS 5/2-1005(c)(West1998); Loyola Academy v. S & S Roof Maintenance, Inc., 146 Ill. 2d 263, 271-72(1992); Alcan United, Inc. v. West Bend Mutual Insurance Co., 303 Ill. App. 3d72, 77 (1999). A motion for summary judgment is a drastic means of disposing oflitigation and should be granted only when the right of the moving party is clear. Loyola Academy, 146 Ill. 2d at 271; Schal Bovis, Inc. v. Casualty Insurance Co.,315 Ill. App. 3d 353, 364 (2000). The standard of review is de novo. CincinnatiCos. v. West American Insurance Co., 183 Ill. 2d 317, 323 (1998). In the case atbar, summary judgment would be appropriate only if, as a matter of law, Markerlost his right to forgo coverage under the Statewide policy when he tendered thedefense to Statewide and then settled the underlying lawsuit prior to withdrawinghis tender of defense.

Illinois courts have acknowledged as paramount an insured's right to choose orknowingly forgo an insurer's participation in a claim. John Burns ConstructionCo. v. Indiana Insurance Co., 189 Ill. 2d 570, 574 (2000); Cincinnati Cos., 183Ill. 2d at 324; Dearborn Insurance Co. v. International Surplus Lines InsuranceCo., 308 Ill. App. 3d 368, 374-75 (1999); Alcan United, 303 Ill. App. 3d at 79;Institute of London Underwriters v. Hartford Fire Insurance Co., 234 Ill. App. 3d70, 79 (1992). The insured may choose to forgo an insurer's assistance forvarious reasons, such as the insured's fear that premiums would be increased orthe policy canceled in the future, and this ability to forgo assistance should beprotected. Cincinnati Cos. 183 Ill. 2d at 326; Alcan United, 303 Ill. App. 3d at79.

Agreeing with a previous appellate case, Alcan United, our supreme court in JohnBurns held that multiple policies must be triggered by the insured before theinsurer on any of those policies can invoke its "other insurance" provision toapportion liability. John Burns, 189 Ill. 2d at 577-78, citing Alcan United, 303Ill. App. 3d at 72. The John Burns court observed that " 'an "other insurance"clause in a policy will not automatically reach into coverages provided underother policies merely because such other policies are in existence. The insuredstill must be given the right to determine whether it wishes to invoke its rightsto such other coverages before those coverages become accessible under the "otherinsurance" provision of a triggered policy.' " (Emphasis added.) John Burns, 189Ill. 2d at 577-78, quoting Alcan United, 303 Ill. App. 3d at 81.

In John Burns, the supreme court refused to allow an insurer, Indiana InsuranceCompany (Indiana), to seek contribution from another insurer, Royal InsuranceCompany (Royal), through the "other insurance" provision in Indiana's policy. John Burns, 189 Ill. 2d at 578. The court noted that the insured refused toinvoke its policy with Royal and expressly had directed Royal not to becomeinvolved in the defense at issue. The insured subsequently did tender the defenseto Royal but, as in the instant case, did so only after its chosen insurer,Indiana, had denied coverage. Royal and the insured then sought a declaratoryjudgment that Indiana alone had the duty to defend and indemnify the insured. Indiana moved for judgment on the pleadings, contending that Indiana and Royalshould share the costs of defending and indemnifying the insured equally,notwithstanding the insured's election of coverage.

The supreme court rejected Indiana's argument and, citing its own decision inCincinnati Cos., held that nothing in the Indiana policy limited the insured'sright to select which insurer would be required to defend and indemnify it. Thecourt reasoned that the "other insurance" provision did not "in itself overcomethe right of an insured to tender defense of an action to one insurer alone." John Burns, 189 Ill. 2d at 578. The court thus held that the Royal insurancepolicy was not available for contribution, given that the insured expresslydeclined to invoke that coverage. Further, the court noted that the only reasonthe insured previously had tendered defense to Royal was that Indiana declined torepresent the insured. In a situation similar to the case before us, the courtdeclared that "Indiana cannot now take advantage of its own breach." John Burns,189 Ill. 2d at 578.

In Cincinnati Cos., the supreme court held that an insurer was relieved of itsobligation to its insured where the insured instructed the insurer not to involveitself in the litigation. Cincinnati Cos., 183 Ill. 2d at 326. The court upheldas paramount the right of the insured to elect which of its insurers would defenda particular claim, even against another insurer's claim for equitablecontribution:

"Where the insured makes such a designation, the duty to defend falls solely onthe selected insurer. That insurer may not in turn seek equitable contributionfrom the other insurers who were not designated by the insured. *** This rule isintended to protect the insured's right to knowingly forgo an insurer'sinvolvement." Cincinnati Cos., 183 Ill. 2d at 324. Similarly, in BituminousCasualty Corp. v. Royal Insurance Co., 301 Ill. App. 3d 720, 725 (1998), the courtheld that Bituminous Casualty could not invoke the doctrine of equitablecontribution in an attempt to trigger coverage under its "other insurance"provision where the evidence was uncontroverted that the insured chose to forgothe assistance of another insurer.

In Alcan United, the court held that an "other insurance" provision in a policywill not automatically reach into coverages provided under other policies. Thecourt explained that an insured must be given the right to determine whether itwishes to invoke its rights to such other coverages before those coverages becomeaccessible under the "other insurance" provision in a triggered policy. AlcanUnited, 303 Ill. App. 3d at 81. Alcan was listed as an additional insured by asubcontractor that was to perform work for Alcan. The subcontractor arranged forWest Bend Mutual Insurance Company to provide the insurance. An employee of thesubcontractor was injured and sued Alcan, which forwarded the lawsuit to itsinsurance broker, which, in turn, forwarded the suit to Reliance NationalInsurance Company, which undertook Alcan's defense. Through a third-party claimsadjuster, Reliance tendered the lawsuit for full defense and indemnification toWest Bend. West Bend did not respond to the tender, and Alcan brought a complaintfor declaratory judgment against West Bend. In his deposition Alcan's presidentmade plain his intention for West Bend, not Reliance, to defend exclusively andindemnify Alcan. The court held that West Bend could not seek contribution fromReliance, pursuant to West Bend's "other insurance" provision, because Alcan didnot choose contemporaneous coverage from both West Bend and Reliance. AlcanUnited, 303 Ill. App. 3d at 82.

The court expressly rejected West Bend's claim that Alcan could not deactivate itsother insurance coverage to negate the "other insurance" policy clause and insteadreemphasized that an insured has a paramount right to choose or not to choose aninsurer's participation in a claim. The insured's right to choose encompasses theright to deactivate coverage with an insurer previously selected for purposes ofinvoking exclusive coverage with another insurer. Alcan United, 303 Ill. App. 3dat 82; accord John Burns, 189 Ill. 2d at 577-78.

In light of these principles of law, we conclude that Marker had not relinquishedhis right to forgo Statewide's coverage, and we reject Pekin's position thatMarker's withdrawal of his tender of defense to Statewide was of no legalconsequence. Marker clearly possessed the right to forgo Statewide's coverage ofthe Yuans' lawsuit and, as the parties have conceded, manifested this desire inhis letter of August 30, 1996. Because his right to forgo coverage with Statewideincluded an ability to deactivate the coverage, Marker was not precluded fromwithdrawing his tender of defense simply because a tender was made. Alcan United,303 Ill. App. 3d 72 (1999). Nor can it be said under the above principles thatMarker's right to forgo Statewide's coverage was relinquished simply because theYuans' lawsuit was settled. Marker chose to forgo Statewide's assistance, and,therefore, Pekin is not entitled to contribution from Statewide.

Pekin, however, urges this court to impose a limit on the right of an insured tochoose or knowingly forgo an insurer's participation in a claim in instances whereprejudice to another insurer results from such an election. Pekin argues that itwas prejudiced because Marker's withdrawal of his tender to Statewide was anunfair attempt to hold Pekin solely responsible, without benefit of equitablecontribution, for Marker's defense and indemnification. However, prejudiceinescapably results when an insured elects coverage for a claim with one insurerand knowingly forgoes the coverage of another insurer. In spite of thisprejudice, our courts have chosen to protect the insured's right to choose orknowingly forgo coverage.

Moreover, the law is clear that an insurer that is obligated to defend its insuredis responsible for the total indemnity and defense costs of a claim. ZurichInsurance Co. v. Raymark Industries, Inc., 118 Ill. 2d 23, 56 (1987); Bedoya v.Illinois Founders Insurance Co., 293 Ill. App. 3d 668, 674-75 (1997). As pointedout by the court in Cincinnati Cos., 183 Ill. 2d at 327, an insurer's liabilityresults from the insurance contract, for which the insurer receives consideration. We held that Pekin had a duty to defend Marker in Pekin Insurance Co., 289 Ill.App. 3d at 823. Therefore, as a matter of law and irrespective of the existenceof other insurance, Pekin clearly possessed the responsibilities attendant to itsduty to defend Marker.

Pekin also argues that somehow the circumstances were "manipulated" unfairly byothers to its detriment. We find no merit to this contention. In this case,Marker tendered defense of the Yuans' lawsuit to both Pekin and, subsequently,Statewide. Both Pekin and Statewide refused Marker's tender. Both filed fordeclaratory judgments, each seeking a judicial determination that it was notrequired to defend or to indemnify Marker as to the Yuans' claims. As of June1996, while continuously being denied requested assistance from each insurer,Marker settled the Yuans' lawsuit. Marker did so at a time when the trial courtin the Pekin declaratory action had ruled that Pekin had no duty to defend Markerand when the trial court in the Statewide declaratory action had not rendered itsdetermination as to Statewide's duty, if any, to Marker. Under thesecircumstances, Marker elected to forgo insurance coverage regarding the Yuans'lawsuit under the policy with Statewide and to pursue coverage under the policywith Pekin.

It was not unreasonable or "manipulative" for Marker to settle the case underthese circumstances. He alone was left to decide the course of the litigation dueto the refusal of either insurance company to assist him. He possessed the rightto forgo Statewide's insurance coverage if he so desired. As Pekin itself notes,only Marker was at risk by withdrawal from Statewide's potential coverage at atime when he had settled the case and the trial court had ruled that Pekin was notliable for Marker's defense or indemnification.

In light of our holding, we need not address Statewide's remaining allegation onappeal that Pekin failed to establish that Statewide had a duty to defend andindemnify Marker. Coverage under Statewide's insurance policy was not accessibleunder the "other insurance" provision of Pekin's insurance policy because Markerhad elected to forgo coverage under Statewide's policy.

Accordingly, for the foregoing reasons, we reverse the judgment of the circuitcourt of DuPage County granting Pekin's motion for summary judgment and remand thecause for further proceedings consistent with this order.

Reversed and remanded.

COLWELL, P.J., and RAPP, J., concur.