Pekin Insurance Co. v. Johnson-Downs Construction Inc.

2017 IL App (3d) 160601

• Court: Appellate Court of Illinois
• Decided: November 6, 2017
• Docket: 3-16-0601
• Status: Unpublished

Opinion

2017 IL App (3d) 160601

Opinion filed July 6, 2017 Supplemental opinion filed November 6, 2017 _____________________________________________________________________________

IN THE

APPELLATE COURT OF ILLINOIS

THIRD DISTRICT

PEKIN INSURANCE COMPANY, ) Appeal from the Circuit Court ) of the 12th Judicial Circuit, Plaintiff-Appellant, ) Will County, Illinois. ) v. ) Appeal No. 3-16-0601 ) Circuit No. 16-MR-962 JOHNSON-DOWNS CONSTRUCTION, INC., ) an Illinois Corporation; CINCINNATI ) The Honorable INSURANCE COMPANY, a Foreign Insurance ) John Anderson, Corporation; and JEFF BARNETT, ) Judge, presiding. ) Defendants-Appellees. ) ) _____________________________________________________________________________

JUSTICE McDADE delivered the judgment of the court, with opinion. Justices Carter and O’Brien concurred in the judgment and opinion. Justice O’Brien dissented upon filing of a supplemental opinion, with opinion. _____________________________________________________________________________

OPINION

¶1 Defendant Johnson-Downs Construction, Inc. (Johnson-Downs), entered into a

construction contract with Art’s Landscaping, Inc. (Art’s). Jeff Barnett, an Art’s employee, was

injured at the site and sued Johnson-Downs for construction negligence. Pekin Insurance

Company (Pekin) filed a declaratory judgment action in Will County circuit court claiming it did not have a duty to defend Johnson-Downs as an additional insured under Art’s insurance policy.

Johnson-Downs filed a motion to stay the action pending the resolution of the underlying case,

which the trial court granted. Pekin appeals, arguing (1) the trial court’s grant of the motion to

stay was an abuse of discretion, (2) the trial court cannot consider Johnson-Downs’s third

amended complaint in its determination, and (3) the trial court cannot consider Barnett’s

amended complaint in its determination. We reverse and remand with directions.

¶2 FACTS

¶3 Defendant Johnson-Downs entered into a contract with Art’s, in which Art’s would

perform work on the construction of an addition to the Riverside Hospital in Kankakee, Illinois.

Section 13.4 of the contract stated that Art’s was required to name Johnson-Downs as an

additional insured on its liability insurance policy. Art’s had an insurance policy through Pekin

Insurance Company. The relevant portion of the policy regarding additional insured states:

“ADDITIONAL INSURED—

OWNERS, LESSEES OR CONTRACTORS—

WHEN REQUIRED IN CONSTRUCTION

AGREEMENT WITH YOU

PRIMARY AND NONCONTRIBUTORY

This endorsement modifies insurance provided under the

following:

COMMERCIAL GENERAL LIABILITY COVERAGE PART

1. Section II—Who Is An Insured is amended to include as an

insured any person or organization for whom you are performing

operations, when you and such person or organization have agreed

2 in a written contract effective during the policy period stated on the

Declarations Page (hereinafter referred to as the ‘Policy Period’)

and executed prior to the ‘bodily injury’ or ‘property damage’ for

which coverage is sought, that you must add that person or

organization as an additional insured on a policy of liability

insurance (hereinafter referred to as the ‘Additional Insured’).

The Additional Insured is covered only with respect to vicarious

liability for ‘bodily injury’ or ‘property damage’ imputed from You

to the Additional Insured as a proximate result of your ongoing

operations performed for that Additional Insured during the Policy

Period.” (Emphasis added.)

¶4 In October 2011, Jeff Barnett, an Art’s employee, was injured while driving a front end

loader at the construction site. Barnett filed a suit against Johnson-Downs alleging construction

negligence and premises liability. At the time, Johnson-Downs was the only named defendant.

Cincinnati Insurance Company, Johnson-Downs’s insurer, tendered the complaint to Pekin for a

defense and indemnification. Since May 2013, Pekin has defended Johnson-Downs under its

reservation of rights.

¶5 In March 2014, Johnson-Downs filed a third-party complaint against Art’s alleging Art’s

was negligent and, as a result, liable for Barnett’s injuries. In April 2016, Pekin sought a

declaratory judgment claiming that (1) Johnson-Downs does not have any rights under the

certificate of insurance, (2) Johnson-Downs has failed to bring a claim in which Pekin has a duty

to defend, and (3) Pekin is entitled to recovery for defense cost. Johnson-Downs filed a response

and motion to stay the declaratory judgment pending the resolution of the underlying case. In its

3 motion to stay, Johnson-Downs alleged that count II of Pekin’s declaratory judgment would

result in the trial court determining an issue of ultimate fact in violation of the Peppers doctrine.

See Maryland Casualty Co. v. Peppers, 64 Ill. 2d 187 (1976).

¶6 In July 2016, Barnett filed an amended complaint in the underlying case breaking the

construction negligence claim into two separate counts: direct construction negligence and

vicarious construction negligence. In Johnson-Downs’s reply to the motion to stay, it requested

that the trial court consider Barnett’s amended complaint and Johnson-Downs’s third-party

complaint when ruling on the motion. In September 2016, the trial court granted the motion to

stay the declaratory judgment pending the resolution of the underlying claim.

¶7 ANALYSIS

¶8 I. Motion to Stay

¶9 Pekin argues that the trial court abused its discretion when it granted Johnson-Downs’s

motion to stay because the declaratory judgment did not involve a determination of ultimate fact

in the underlying case.

¶ 10 A circuit court may grant a motion to stay as part of its inherent authority to control the

disposition of cases before it. Cullinan v. Fehrenbacher, 2012 IL App (3d) 120005, ¶ 10. The

court should consider certain factors including the orderly administration of justice and judicial

economy when making its determination. Id. We will not disturb a circuit court's decision on a

motion to stay absent an abuse of discretion. Id. An abuse of discretion occurs if the court “acted

arbitrarily without the employment of conscientious judgment or, in view of all the

circumstances, exceeded the bounds of reason and ignored recognized principles of law so that

substantial prejudice resulted.” (Internal quotation marks omitted.) Id.

4 ¶ 11 Under the Peppers doctrine, it is inappropriate for a court to make a determination on an

issue of ultimate fact critical to the underlying case. See Peppers, 64 Ill. 2d at 197. Specifically,

any determination of ultimate facts upon which liability or recovery might be found in an

underlying case is precluded from review. Landmark American Insurance Co. v. NIP Group,

Inc., 2011 IL App (1st) 101155, ¶ 59.

¶ 12 In Peppers, our supreme court held that the trial court’s ruling that the injury was

intentional was one of ultimate fact that could bind the parties to the underlying litigation.

Peppers, 64 Ill. 2d at 196-97. In Canel, the First District ruled that determining whether Canel

Associates knew or should have known that a claim would be made before the insurance policy

took effect was an “ultimate fact[ ] upon which recovery is predicated in the underlying action.”

TIG Insurance Co. v. Canel, 389 Ill. App. 3d 366, 374 (2009). Our court in Pittington held that

Pittington’s argument that injury was not expected, anticipated, or intended is not one of ultimate

fact because the “underlying tort suit is based solely on theories of negligence.” Metropolitan

Property & Casualty Insurance Co. v. Pittington, 362 Ill. App. 3d 220, 229 (2005). In NIP

Group, the First District ruled that determining whether faxes are covered under the insurance

policy was not an issue of ultimate fact when the nature and extent of the faxes were not a

deciding factor in the underlying case. Landmark American Insurance Co. v. NIP Group, Inc.,

2011 IL App (1st) 101155, ¶ 61.

¶ 13 In Johnson-Downs’s motion to stay, it requested that the trial court stay Pekin’s

declaratory judgment action because Pekin’s count II allegation presents an issue of ultimate fact

critical to the underlying case. Count II claims that Pekin does not owe a duty to defend Johnson-

Downs because the insurance policy states that an additional insured is only covered for

vicarious liability claims and the underlying complaint lacks such allegations. Without

5 specifying its reasons, the trial court granted Johnson-Downs’s motion to stay. Assuming

arguendo that the trial court’s ruling is based on the argument presented by Johnson-Downs in

its motion to stay, the trial court can make a determination of whether the complaint contains any

allegations of vicarious liability that Pekin has a duty to defend by comparing the complaint to

the language in the insurance policy. This can be decided without examining the extent of

Johnson-Downs’s supervisory control over Art’s alleged negligent acts and, ultimately,

determining whether Johnson-Downs is in fact vicariously liable. Thus, we find that the trial

court abused its discretion in granting the motion to stay and the declaratory judgment action can

proceed to resolution prior to the conclusion of the underlying suit. Accordingly, we reverse and

remand for a hearing on and resolution of the declaratory judgment action. We continue our

analysis to determine whether the trial court can consider Johns-Downs’s third-party complaint

and Barnett’s amended complaint in its duty to defend determination.

¶ 14 II. Third-Party Complaint

¶ 15 Pekin argues that Johnson-Downs’s third-party complaint against Barnett cannot be

considered by the trial court in its determination because the complaint was prepared by a

putative additional insured seeking coverage under the policy in violation of case law.

¶ 16 A trial court may consider evidence beyond the underlying complaint, including a third-

party complaint. Pekin Insurance Co. v. United Contractors Midwest, Inc., 2013 IL App (3d)

120803, ¶ 29 (citing Pekin Insurance Co. v. Wilson, 237 Ill. 2d 446, 458-62 (2010)). However,

there are exceptions that prohibit the review of third-party complaints. See Wilson, 237 Ill. 2d at

459 (“a circuit court may, under certain circumstances, look beyond the underlying complaint in

order to determine an insurer’s duty to defend” (emphasis added)). In DePaul University, the

First District determined that a putative additional insured is not allowed to bolster its claim of

6 coverage by referencing its own third-party complaint. American Economy Insurance Co. v.

DePaul University, 383 Ill. App. 3d 172, 180 (2008). The First District in National Fire also

determined that a putative additional insured could not reference his third-party complaint as a

way to bolster coverage under the insurance policy. National Fire Insurance of Hartford v.

Walsh Construction Co., 392 Ill. App. 3d 312, 322 (2009). Following the guidance of DePaul

University and National Fire, our court in United Contractors declined to consider the putative

additional insured’s third-party complaint where the additional insured filed the complaint after

the declaratory action, demonstrating potential self-serving evidence. Pekin Insurance Co. v.

United Contractors Midwest, Inc., 2013 IL App (3d) 120803, ¶¶ 29-32.

¶ 17 Here, Johnson-Downs, the putative additional insured and the author of the third-party

complaint, is requesting the trial court to consider its own complaint in the trial court’s

determination of Pekin’s duty to defend. As in DePaul University, National Fire, and United

Contractors, Johnson-Downs cannot present its own complaint to bolster its position that a claim

of vicarious liability is present in the underlying case. Therefore, we instruct the trial court not to

consider Johnson-Downs’s third-party complaint in its determination of Pekin’s duty to defend.

¶ 18 III. Amended Complaint

¶ 19 Pekin argues that Barnett’s amended complaint was a transparent attempt to plead into

coverage and, therefore, should not be considered in the trial court’s determination. Johnson-

Downs alleges Illinois law does not prohibit a pleading that potentially triggers coverage when

the facts support a cause of action.

¶ 20 We agree with Johnson-Downs. In Illinois, a pleading is not a transparent attempt to

plead into coverage when the facts support a cause of action. See American Family Mutual

Insurance Co. v. Guzik, 406 Ill. App. 3d 245, 248-49 (2010) (State Farm’s argument that Guzik

7 negligently failed to prevent fire from spreading was transparent attempt to plead into coverage

when the factual allegations show Guzik’s actions were not negligent); Pekin Insurance Co. v.

Dial, 355 Ill. App. 3d 516, 522 (2005) (transparent attempt to plead into coverage where the

factual allegations show a course of conduct that was clearly intentional and not merely negligent

or accidental conduct that falls within the insurance policy); USAA Casualty Insurance Co. v.

McInerney, 2011 IL App (2d) 100970, ¶ 26 (“the Cyrs properly alleged an alternative theory of

recovery and there is no indication that the claim for negligent misrepresentation was a

transparent attempt to trigger insurance coverage”).

¶ 21 In this case, the amended complaint alleges that Art’s failure to maintain equipment and

working conditions resulted in Barnett’s injuries and that Johnson-Downs, as the general

contractor, exercised control over Art’s such that Johnson-Downs was liable for Art’s negligent

acts and omissions. The insurance policy covers claims of vicarious liability imputed to Johnson-

Downs as a proximate result of Art’s acts or omissions in its performance for Johnson-Downs.

We believe the factual allegations in the amended complaint state a vicarious liability claim that

falls within the coverage of the insurance policy, and therefore, Barnett’s amended complaint

was not an improper or unsupported attempt to plead into coverage. Moreover, the facts

supporting the amended claim were present in an undifferentiated form in Barnett’s original

complaint. Accordingly, we instruct the trial court that it may consider Barnett’s amended

complaint in its duty to defend determination.

¶ 22 CONCLUSION

¶ 23 The judgment of the circuit court of Will County is reversed and remanded with

directions.

¶ 24 Reversed and remanded with directions.

8 ¶ 25 SUPPLEMENTAL OPINION

¶ 26 FACTS

¶ 27 As a preliminary matter, we adopt all facts and holdings of our decision on the merits,

which was set forth in our previous opinion, filed July 6, 2017.

¶ 28 On July 28, 2017, plaintiff Pekin Insurance Company filed a motion to tax costs against

defendants Johnson-Downs Construction, Inc. and Cincinnati Insurance Company pursuant to

Illinois Supreme Court Rule 374 (eff. Feb. 1, 1994), requesting costs in the amount of $1587.46.

Plaintiff contends that, because our court reversed the lower court’s ruling in the decision above,

it is entitled to costs under Illinois Supreme Court Rule 374(b)(2), (3), (5) (eff. Feb. 1, 1994) for

the following: (1) a $50 docketing fee, (2) $287.25 for the preparation of the record on appeal,

(3) $663.21 for professional printing of its appellant brief, and (4) $587 for professional printing

of its reply brief. Defendants filed objections to the motion.

¶ 29 ANALYSIS

¶ 30 An amendment to Rule 374 became effective July 1, 2017. In its motion, plaintiff cited

the former version of the rule; however, it filed the motion after the amendment’s effective date.

We review plaintiff’s motion under the newly amended version.

¶ 31 Rule 374 states, in relevant part:

“(a) Except as otherwise provided by law *** if a judgment is

reversed, costs shall be taxed against the appellee unless excused

by the court for good cause shown ***.

(b) The following costs are taxable:

(1) filing fees paid to the clerk of the reviewing court;

(2) appearance fees in the reviewing court;

9 (3) the fee paid to the clerk of the trial court (but not to

court reporter) for the preparing the record on appeal; and

(4) the actual and reasonable cost of printing or otherwise

producing duplicate paper copies of documents authorized by these

rules (the cost of including unnecessary matters or arguments may

be disallowed as costs).” Ill. S. Ct. R. 374(a), (b) (eff. July 1,

2017).

¶ 32 We reversed the trial court’s decision above, and plaintiff’s requested costs are taxable

under Rule 374(b). Thus, we find plaintiff is entitled to costs taxed against defendants.

¶ 33 Defendants argue that Rule 374 is inapplicable and cite In re D.D., 337 Ill. App. 3d 998

(2002), to support their contention that an interlocutory order, such as the subject of appeal in

this case, is not a judgment as contemplated in the rule. Defendants further contend plaintiff is

only entitled to costs if this court reversed a final judgment. We disagree.

¶ 34 In the instant case, plaintiff filed an appeal from an interlocutory order pursuant to

Illinois Supreme Court Rule 307 (eff. Feb. 1, 2010). This court reversed the trial court’s order

staying proceedings on plaintiff’s motion for declaratory judgment. Rule 374 permits costs

against defendants if the judgment is reversed unless good cause is shown. Ill. S. Ct. R. 374(a)

(eff. July 1, 2017). Illinois Supreme Court Rule 2(b)(2) (eff. July 1, 2017) states the term

“ ‘[j]udgment’ also includes decree, determination, decision, order, or portion thereof.”

Therefore, we determine an interlocutory order constitutes a judgment under Rule 374.

¶ 35 Also, defendants contend it would be unjust to order costs to plaintiff because it

ultimately prevailed on the substance of the underlying claim. We do not believe defendants’

argument shows good cause to excuse the implementation of costs against them. The rule states

10 that if a judgment is reversed, costs must be taxed against the appellee. Ill. S. Ct. R. 374(a) (eff.

July 1, 2017). Here, the decision was reversed, and therefore, costs must be taxed against

defendants as the appellees. Accordingly, we hold costs in the amount of $1587.46 must be taxed

against defendants.

¶ 36 Costs allowed.

¶ 37 JUSTICE O'BRIEN, dissenting:

¶ 38 Although I concur with the original published opinion, I write to dissent from the

majority’s supplemental opinion granting Pekin’s motion for costs under Rule 374. Under the

plain language of Rule 374, costs shall be taxed against the losing party unless excused by the

court for good cause shown. Ill. S. Ct. R. 374(a) (eff. July 1, 2017). In this case, where the

appellees were granted a stay in the lower court, which was reversed on appeal, but then the

appellees prevailed on the underlying claim in the lower court, I believe that good cause has been

shown such that costs should be excused under the rule.