October 4, 2001

No. 3--00--0846

IN THE

APPELLATE COURT OF ILLINOIS

THIRD DISTRICT

A.D., 2001

Cincinnati Insurance Company (Cincinnati) filed a two-countcomplaint seeking contribution from River City ConstructionCompany (River City) and Auto-Owners Insurance Company (Auto-Owners) for a work-related injury settlement paid by Cincinnatito Victor Modugno. Cincinnati appeals from the judgment of thetrial court granting the defendants' separate motions to dismiss,filed pursuant to section 2--619 of the Code of Civil Procedure(735 ILCS 5/2--619 (West 2000)). We affirm in part and reversein part.

In November 1995, Victor Modugno was working for IllinoisPiping Corporation (Illinois Piping) at the CaterpillarCorporation (Caterpillar) Building LL in East Peoria. River Cityhad a contract with Caterpillar to fabricate and install tanks atBuilding LL. By November 1995, River City had fabricated andinstalled the tanks and grating around the tanks, but had failedto install temporary or permanent hand railing as required by thecontract. Modugno's work required use of the grating to accesshis jobsite. While Modugno was on the grating, he lost hisbalance and fell a distance of 20 feet to the ground, sustainingserious injuries. Cincinnati alleges that River City knew thatworkers were using the grating around the tanks prior toModugno's fall.

At the time of the accident, Auto-Owners provided generalliability insurance coverage for River City, and Cincinnatiprovided general liability insurance coverage for IllinoisPiping. River City was named as an additional insured underIllinois Piping's policy. Caterpillar was named as an additionalinsured under both policies.

In November 1997, Cincinnati settled with Modugno for$541,422.12 for his injuries. Modugno's wife received $25,000for damages she sustained as a result of her husband's injuries. As a result of the settlement, the Modugnos signed releaseswaiving all claims against Caterpillar, Illinois Piping, andCincinnati, as well as all claims against River City and Auto-Owners.

In November 1999, Cincinnati filed a two-count complaintagainst River City and Auto-Owners. Count I asserted asubrogation action on behalf of Caterpillar against River Citypursuant to the Illinois Joint Tortfeasor Contribution Act (740ILCS 100/0.01 et seq. (West 2000)), requesting contribution fromRiver City based on its pro rata share of the liability. CountII asserted a direct action by Cincinnati against Auto-Owners forequitable contribution. In this count, Cincinnati requested thata determination be made as to Caterpillar's proportionate shareof liability and that Auto-Owners be ordered to reimburseCincinnati for 50% of such amount.

River City filed a section 2--619 (735 ILCS 5/2--619 (West2000)) motion to dismiss count I, arguing that since River Citywas named as an additional insured under Cincinnati's policy withIllinois Piping, it was not subject to Cincinnati's subrogationclaim. River City also filed a section 2--615 (735 ILCS 5/2--615(West 2000)) motion to dismiss, arguing that count I failed tostate a cause of action because it did not specify the amountpaid by Caterpillar in excess of its pro rata share of liability.

Auto-Owners filed a section 2--619 motion to dismiss countII arguing that Cincinnati could not maintain an action forequitable contribution because Cincinnati's and Auto-Owners'policies did not insure the same risk and because Cincinnatifailed to segregate the settlement amounts.

Cincinnati obtained and filed deposition testimony fromRiver City officials John Hoelscher, chief financial officer, andJoseph West, a former vice president of customer accounts. Cincinnati also filed affidavits from Jeff Lewis, IllinoisPiping's owner and president, and from Peter Coyle of CoyleInsurance Agency. Coyle was responsible for procuring theCincinnati policy issued to Illinois Piping.

In his deposition, Hoelscher said that when Illinois Pipingis a subcontractor of River City, Illinois Piping must includeRiver City as an additional insured. However, according toHoelscher, when there is no written subcontract between RiverCity and Illinois Piping, then Illinois Piping is not required toprovide any insurance to River City. Hoelscher conceded that atthe time of Modugno's fall, there was no contractual relationshipbetween River City and Illinois Piping regarding the work atBuilding LL. In his deposition, West stated that there was nocontractual relationship between River City and Illinois Pipingat Building LL. West indicated that Hoelscher was charged withthe duty of ensuring that the proper insurance was in place forRiver City. In his affidavit, Coyle indicated that it was hisunderstanding when he wrote the Cincinnati policy that theadditional insured status for River City would only apply whenRiver City had a contractual relationship with Illinois Piping ona construction project. According to Lewis' affidavit, IllinoisPiping had subcontracts with River City at various work sites,but was not River City's subcontractor at Building LL at the timeof Victor Modugno's fall.

The circuit court found the endorsement adding River City asan additional insured to be clear and unambiguous and not subjectto interpretation by parol evidence. Stating that it agreed withthe defendants' positions, the court then entered an orderdismissing counts I and II of the complaint with prejudicepursuant to section 2--619. 735 ILCS 5/2--619 (West 2000). Cincinnati now appeals.

A section 2--619 dismissal resembles the grant of a summaryjudgment motion; thus, we conduct a de novo review and considerwhether the existence of a genuine issue of material fact shouldhave precluded the dismissal or, absent such an issue of fact,whether dismissal was proper as a matter of law. Epstein v.Chicago Board of Education, 178 Ill. 2d 370, 383, 687 N.E.2d1042, 1049 (1997). First, we will consider Cincinnati's claimagainst River City and then its claim against Auto-Owners.

In count I of its complaint, Cincinnati, as the subrogee ofCaterpillar, seeks contribution from River City according to theJoint Tortfeasor Contribution Act (740 ILCS 100/2 (West 2000)). In defense, River City notes the general rule that an insurer maynot subrogate against its own insured or any person or entityhaving the status of a co-insured under the policy. See DixMutual Insurance Company v. La Framboise, 149 Ill. 2d 314, 323,597 N.E.2d 622, 626 (1992). River City argues that Cincinnati isbarred from seeking contribution from River City because RiverCity is a co-insured under Illinois Piping's insurance policywith Cincinnati. The policy at issue included an additionalinsured endorsement which provides:

"WHO IS AN INSURED (Section II) is amended to include as an insured the person or organization shown in theSchedule as an insured but only with respect to liability arising out of your [Illinois Piping's] operations or premises owned by or rented to you [Illinois Piping]."

The policy included additional insured endorsements for 18different entities of which River City was one. Consequently,River City argues that Cincinnati cannot seek contribution sinceRiver City is a co-insured.

To counter this argument, Cincinnati offered extrinsicevidence to establish that the additional insured endorsement didnot apply to the instant claim. Specifically, Cincinnati askedthe trial court to consider the depositions from two River Cityofficers, as well as affidavits from the insurance broker whoprocured the Cincinnati policy for Illinois Piping and from theprincipal of Illinois Piping.

In dismissing Cincinnati's complaint, the trial courtapplied the traditional "four corners" rule of contractinterpretation. This rule provides that "[a]n agreement, whenreduced to writing, must be presumed to speak the intention ofthe parties who signed it. It speaks for itself, and theintention with which it was executed must be determined from thelanguage used. It is not to be changed by extrinsic evidence." Western Illinois Oil Co. v. Thompson, 26 Ill. 2d 287, 291, 186N.E.2d 285 (1962). The trial court's decision to exclude parolevidence is reviewed for an abuse of discretion. See McDonald'sOperators Risk Management Ass'n v. Coresource, Inc., 307 Ill.App. 3d 187, 194, 717 N.E.2d 485, 491, (1999).

The strict application of the "four corners" rule continuesto find support in the Illinois Appellate Court. See, e.g.,Bonnie Owen Realty, Inc. v. Cincinnati Insurance Co., 283 Ill.App. 3d 812, 820, 670 N.E.2d 1182, 1187 (5th Dist. 1996). However, this court has adopted the "provisional approach" tocontract interpretation, which allows the court to provisionallyconsider parol evidence to determine if an agreement that appearsto be clear on its face is actually ambiguous. Ahsan v. Eagle,Inc., 287 Ill. App. 3d 788, 790, 678 N.E.2d 1238, 1241 (1997). In Ahsan we stated: "[T]he 'four corners' rule has two flaws: itassumes precision in language that cannot exist, and it requiresthe judge to determine the true intent of the parties in atransaction that is removed in time and circumstance." Ahsan,287 Ill. App. 3d at 790, 678 N.E.2d at 1240. Other districts ofthe Illinois Appellate Court have also applied the "provisional"approach to contract interpretation. See USG Corp. v. SterlingPlumbing Group, Inc., 247 Ill. App. 3d 316, 318, 617 N.E.2d 69,71 (1st Dist. 1993); Riney v. Weiss & Neuman Shoe Co., 217 Ill.App. 3d 435, 443, 577 N.E.2d 505, 510 (4th Dist. 1991). Moreover, in Dungey v. Haines & Britton, Ltd., 155 Ill. 2d 329,614 N.E.2d 1205 (1993), our supreme court examined the evidenceto determine whether a latent ambiguity existed in an automobilepolicy that was not ambiguous on its face. The court stated:"'What at first blush might appear unambiguous in the insurancecontract might not be such in the particular factual setting inwhich the contract was issued.'" Dungey, 155 Ill. 2d at 336, 614N.E.2d at 1209, quoting Glidden v. Farmers Automobile InsuranceAss'n, 57 Ill. 2d 330, 336, 312 N.E.2d 247, 250 (1974)

The supreme court declined to formally adopt the provisionalapproach in Air Safety Inc. v. Teachers Realty Corp., 185 Ill. 2d457, 706 N.E.2d 882 (1999), because the contract in that caseincluded an explicit integration clause in the contract, whichprovided that the "'[c]ontract represents the entire andintegrated agreement between the parties hereto and supersedesall prior negotiations, representations, or agreements, eitherwritten or oral.'" Air Safety, 185 Ill. 2d at 460, 706 N.E.2d at883.

River City argues that the "Changes" clause in the IllinoisPiping policy also includes an express integration clause. Thisclause provides:

"B. CHANGES

This policy contains all the agreements between you[Illinois Piping] and us [Cincinnati] concerning theinsurance afforded. The first Named Insured shown inthe Declarations is authorized to make changes in theterms of this policy with our consent. This policy'sterms can be amended or waived only by endorsementissued by us and made a part of this policy."

The Changes clause in the instant policy is distinctlydifferent from the integration clause in Air Safety because itdoes not express the parties' intent to establish the contract astheir entire and integrated agreement superceding all otheragreements. Rather, the Changes clause prevents unilateralmodifications of the policy.

In Air Safety, the court explained that "[t]he integrationclause makes clear that the negotiations leading to the writtencontract are not the agreement." (Emphasis in original.) AirSafety, 185 Ill. 2d at 464, 706 N.E.2d at 885. The Changesclause, on the other hand, addresses the circumstances underwhich the instant policy can be amended after it was issued. Because we conclude that the instant policy does not contain anexplicit integration clause, the policy does not manifest theparties' agreement to preclude a court from considering extrinsicevidence to determine the existence of a latent ambiguity.

Accordingly, we hold that the circuit court erred indeclining to provisionally evaluate extrinsic evidence todetermine whether it revealed any latent ambiguities in theinsurance contract. However, such evidence must have an indiciaof reliability. The parties are entitled to only present to thecourt objective evidence, i.e., evidence that cannot befabricated and that can be supplied by disinterested thirdparties. See Ahsan, 287 Ill. App. 3d at 791, 678 N.E.2d at 1241. Objective evidence also includes any admissions of an adverseparty.

Applying this standard, the court should have provisionallyconsidered the admissions of the two River City officials,Hoelscher and West. They admitted in their depositions thatIllinois Piping was not contractually obligated to providecoverage to River City for the work performed by River City atBuilding LL. However, such evidence does not establish a latentambiguity in the insurance contact at issue, because it sheds nolight on the question of whether Illinois Piping had nonethelesscontracted with Cincinnati for River City's status as anadditional insured for liability arising out of Illinois Piping'soperations at Building LL. Although Cincinnati argues that theendorsement should be limited to situations in which IllinoisPiping is acting as a subcontractor for River City, no suchlimitation is included in the endorsement. Because Cincinnatidid not offer objective extrinsic evidence demonstrating anylatent ambiguity in the policy, the circuit court's refusal toprovisionally consider the extrinsic evidence offered byCincinnati in this instance was harmless error. For the reasonsstated, we affirm the circuit court's dismissal of count I ofCincinnati's complaint. 

II. Auto-Owners

In count II of its complaint, Cincinnati seeks equitablecontribution from Auto-Owners for Caterpillar's proportionateshare of liability. The right to equitable contribution ariseswhen one insurer pays money for the benefit of another insurer. Royal Globe Insurance Co. v. Aetna Insurance Co., 82 Ill. App. 3d1003, 1006, 403 N.E.2d 680, 683 (1980). The doctrine ofequitable contribution permits an insurer that has paid theentire loss to be reimbursed by other insurers that are alsoliable for the loss. Liberty Mutual Insurance Co. v. WestfieldInsurance Co., 301 Ill. App. 3d 49, 52, 703 N.E.2d 439, 441(1998). In order for the settling insurer to recover in anaction for equitable contribution, the policies must cover a riskon the same basis and there must be identity between the policiesas to parties and insurable interests and risks. Aetna Casualty& Surety Co. v. James J. Benes & Associates, Inc., 229 Ill. App.3d 413, 417, 593 N.E.2d 1087, 1090 (1992).

The Cincinnati insurance policy provided coverage toIllinois Piping and to Caterpillar as a co-insured for liabilityarising out of Illinois Piping's operations. The Auto-Owners'insurance policy provided coverage to River City and toCaterpillar as a co-insured for liability arising out of RiverCity's work. Victor Modugno was injured while performing workfor Illinois Piping on grating erected by River City. Modugno'sclaim against Caterpillar is based upon the alleged failure ofits subcontractor River City to erect hand rails. Since bothpolicies insured against Caterpillar's liability for the samerisk, there is sufficient identity of insurable interests tosupport equitable contribution for the settlement paid byCincinnati on behalf of Caterpillar.

However, Auto-Owners points out that the policies havedifferent sets of insureds and argues that the decision in SchalBovis, Inc. v. Casualty Insurance Co., 315 Ill. App. 3d 353, 732N.E.2d 1179 (2000), supports its argument that Cincinnati cannotseek equitable contribution from Auto-Owners because there is notan identity of risks insured.

While it is well established that excess insurers cannotseek equitable contribution from primary insurers, the court inSchal Bovis extended this rule of law, reasoning that a primaryinsurer cannot seek equitable contribution from another primaryinsurer unless the coverage is substantially identical in allrespects. See Schal Bovis, 315 Ill. App. 3d at 363, 732 N.E.2dat 1187. Because the rule in Schal Bovis would unfairly protectAuto-Owners from paying for the benefit it received -- releasefrom liability -- we refuse to follow Schal Bovis. TheCincinnati policy insures Caterpillar for liability arising outof Illinois Piping's operations, and the Auto-Owners policyinsures Caterpillar for liability arising out of River City'swork. Cincinnati settled the Modugnos' claim against Caterpillarand paid out insurance proceeds for Cincinnati's benefit and forthe benefit of Auto-Owners. While the Auto-Owners and Cincinnatipolicies have different sets of insureds, Caterpillar was insuredfor Modugno's injuries under both policies. Consequently,dismissal of Cincinnati's claim for equitable contribution waserror.

Auto-Owners next argues that Cincinnati should be barredfrom seeking contribution because it failed to differentiatebetween worker's compensation and personal injury awards withinthe settlement with Modugno. A plaintiff in contribution mustplead and offer evidence of the amount he paid to the injuredparty, along with evidence of the joint tortfeasor's fault, sothat the fact finder has a basis for determining what, if any,amount was paid by plaintiff over and above his fair share of thejoint liability. Victory Memorial Hospital Ass'n v. Schmidt,Garden & Erickson, 158 Ill. App. 3d 931, 935, 511 N.E.2d 953, 956(1987). However, in Hall v. Archer-Daniels-Midland Co., 122 Ill.2d 448, 459-61, 524 N.E.2d 586, 591-92 (1988), the court heldthat Archer-Daniels-Midland (ADM) was not prohibited from seekingcontribution although it failed to segregate compensatory damagesfrom punitive damages (sought in the complaint against ADM only)within the settlement. The court reasoned that the settlementwas in good faith and whether the plaintiff had paid in excess ofits pro rata share could be appropriately decided by a jury. Hall, 122 Ill. 2d at 461, 524 N.E.2d at 592. As in Hall, thesettlement in this case appears to have been made in good faithand a jury should have the opportunity to determine Caterpillar'sproportionate share of liability.

The judgment of the circuit court of Tazewell Countydismissing count I is affirmed. The judgment of the circuitcourt dismissing count II is reversed. The case is remanded forfurther proceedings in accordance with this opinion.

Affirmed in part and reversed in part; cause remanded.

HOLDRIDGE and SLATER, J.J., concurred.