Docket No. 102036.
IN THE
SUPREME COURT
OF
THE STATE OF ILLINOIS
VIRGINIA SURETY COMPANY, INC., Appellant, v. NORTHERN
INSURANCE COMPANY OF NEW YORK et al., Appellees.
Opinion filed January 19, 2007.
JUSTICE FITZGERALD delivered the judgment of the court,
with opinion.
Chief Justice Thomas and Justices Freeman, Kilbride, Garman,
Karmeier, and Burke concurred in the judgment and opinion.
OPINION
The plaintiff, Virginia Surety Company, Inc. (Virginia Surety),
challenges the appellate court’s decision to affirm the Will County
circuit court’s summary judgment order in favor of defendant,
Northern Insurance Company of New York (Northern). The issue is
Northern’s liability to its insured, De Graf Concrete Construction, Inc.
(De Graf), under a commercial general liability (CGL) policy for a
single-count third-party contribution action brought against De Graf.
For the following reasons, we affirm the judgment of the appellate
court.
BACKGROUND
Two contracts are central to this case: a construction subcontract
between general contractor Capital Construction Group, Inc.
(Capital), and its subcontractor De Graf, and a CGL policy purchased
by De Graf from Northern. Under the construction subcontract
between Capital and De Graf, De Graf was to perform cement
masonry work at a job site in Addison, Illinois. The contract also
required De Graf employees to work on the job site. The construction
subcontract included the following provision:
“To the fullest extent permitted by law, the Subcontractor
WAIVES ANY RIGHT OF CONTRIBUTION AGAINST
AND shall indemnify and hold harmless the Owner,
Contractor, Architect, Architect’s consultants, and agents and
employees of any of them from and against claims, damages,
losses, and expenses, including but not limited to attorneys
fees, arising out of or resulting from performance of the
Subcontractor’s Work under this Subcontract, provided that
such claim, damage, loss or expense is attributable to bodily
injury, sickness, disease or death or to injury to or destruction
of tangible property (other than the Work itself) including loss
of use therefrom, WHICH IS caused in whole or in party by
negligent acts or omissions of the Subcontractor, the Sub-
contractor’s subcontractors, anyone directly or indirectly
employed by them or anyone for whose acts they may be
liable, regardless of whether or not such claim, loss, or
expense is caused in part by a party indemnified hereunder.”
De Graf obtained a CGL policy from defendant Northern. The
Northern CGL policy generally excludes coverage for bodily injuries
to De Graf’s employees. However, under an exception to this
exclusion, Northern would pay sums for “liability assumed by the
insured under an ‘insured contract.’ ” The policy defines this “insured
contract” as
“That part of any other contract or agreement pertaining
to your business (including an indemnification of a
municipality in connection with work performed for a
municipality) under which you assume the tort liability of
another party to pay for ‘bodily injury’ or ‘property damage’
to a third person or organization. Tort liability means a liability
that would be imposed by law in the absence of any contract
or agreement.”
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On June 4, 1997, a De Graf employee, James Smith, was injured
while working at the job site. Smith filed a workers’ compensation
claim against De Graf. In addition, Smith filed a complaint in the
circuit court against Capital, alleging that Capital’s negligence
contributed to his injury. Capital thereafter filed a third-party
complaint for contribution against De Graf. Capital’s sole request for
relief was for contribution. De Graf tendered the third-party complaint
to Virginia Surety, from whom De Graf had purchased a “Worker’s
Compensation and Employer’s Liability” policy. De Graf also
tendered the third-party complaint to Northern under its CGL policy.
Virginia Surety accepted the tender and defended De Graf against the
third-party complaint, the outcome of which is not present in the
record. Northern refused to defend or indemnify De Graf.
Virginia Surety then filed a complaint for declaratory judgment
(735 ILCS 5/2–701 (West 2000)) against Northern1 in the circuit
court of Will County. Virginia Surety outlined the provisions from the
subcontract and the Northern policy described above. The complaint
alleged that the subcontract between De Graf and Capital is an
“insured contract” within the meaning of the Northern policy of
insurance. In its prayer for relief, Virginia Surety sought a declaration
that Northern was obligated to defend and indemnify De Graf under
the CGL policy. Virginia Surety also sought an award of damages for
amounts previously paid to defend and indemnify De Graf. Northern
filed an answer and a counterclaim for declaratory judgment against
Virginia Surety. It sought a declaration that it did not owe a duty to
defend or indemnify De Graf as to the third-party action under its
CGL policy. Eventually, the parties filed cross-motions for summary
judgment. The circuit court held that the subcontract between De Graf
and Capital was not an “insured contract” under the policy, and that
Northern did not have an obligation to defend or indemnify De Graf.
The circuit court therefore granted Northern’s motion for summary
judgment and denied Virginia Surety’s motion for summary judgment.
The appellate court affirmed. 362 Ill. App. 3d 571. The appellate
court first noted the parties’ arguments reflected the split in the
1
1
Virginia Surety added Capital Construction as a necessary party
defendant, but no relief was sought against Capital.
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appellate districts regarding whether a subcontract as listed above can
be considered an “insured contract.” 362 Ill. App. 3d at 574. The
appellate court distinguished those cases, however, because Capital’s
complaint only sought contribution under “Illinois Contribution
Among Joint Tortfeasors Act” and requested contribution against De
Graf in the event that judgment was entered in favor of James Smith
against Capital in the original action. 362 Ill. App. 3d at 573. The
appellate court stated, “unlike the third-party plaintiffs in Hankins,
Royal and Mulligan, Capital did not file a claim for indemnification
against De Graf.” 362 Ill. App. 3d at 574. The court noted the
difference between claims for contribution and claims for indemnity:
“ ‘There is an important distinction between contribution,
which distributes the loss among the tortfeasors by requiring
each to pay his proportionate share, and indemnity, which
shifts the entire loss from one tortfeasor who has been
compelled to pay it to the shoulders of another who should
bear it instead.’ ” 362 Ill. App. 3d at 574, quoting W. Prosser,
Torts, §51, at 310 (4th ed. 1971).
The court noted, “An ‘insured contract’ exception to an
employer’s liability exclusion only applies when one contracting party
agrees to indemnify the other contracting party from and against the
other party’s own negligence.” 362 Ill. App. 3d at 574. For the
exception to apply, De Graf must have “ ‘assume[d] the tort liability
of another party to pay for “bodily injury.” ’ Thus, the ‘insured
contract’ issue is joined only when indemnification is sought.” 362 Ill.
App. 3d at 574. Since Capital did not seek indemnification, the court
found that Northern did not have a duty to defend De Graf and
affirmed the circuit court. 362 Ill. App. 3d at 574-75. We granted
Virginia Surety’s petition for leave to appeal. 177 Ill. 2d R. 315(a).
ANALYSIS
Summary judgment is appropriate when there is no genuine issue
of material fact and the moving party is entitled to judgment as a
matter of law. Outboard Marine Corp. v. Liberty Mutual Insurance
Co., 154 Ill. 2d 90, 102 (1992); 735 ILCS 5/2–1005(c)) (West 2002).
A circuit court’s entry of summary judgment is subject to de novo
review (General Agents Insurance Co. of America, Inc. v. Midwest
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Sporting Goods Co., 215 Ill. 2d 146, 153 (2005)), and the
construction of an insurance policy, which presents a question of law,
is likewise reviewed de novo (Central Illinois Light Co. v. Home
Insurance Co., 213 Ill. 2d 141, 153 (2004)). Similarly, an indemnity
agreement is a contract and is subject to contract interpretation rules.
See Mountbatten Surety Co. v. Szabo Contracting, Inc., 349 Ill. App.
3d 857, 868 (2004). The cardinal rule is to give effect to the parties’
intent, which is to be discerned from the contract language. Central
Illinois Light Co., 213 Ill. 2d at 153. If the contract language is
unambiguous, it should be given its plain and ordinary meaning.
Central Illinois Light Co., 213 Ill. 2d at 153.
In Illinois, an employer’s liability for an injury to its employee may
come in several forms. The employer’s exposure to pay benefits to an
injured employee pursuant to the Illinois Workers’ Compensation Act
(820 ILCS 305/1 et seq. (West 2000)) is the most common. The Act
provides a schedule for identifying the compensation for specific
injuries and generally places financial limits on the employer’s liability.
See 820 ILCS 305/7, 8 (West 2000). The employer gives up its
common law defenses to the employee’s claim, such as the employee’s
contributory fault in causing his own injuries, in exchange for limited
liability. 820 ILCS 305/5, 11 (West 2000).
An injured employee may also have a cause of action against a
third party to the employment relationship, such as a general
contractor, whose negligence allegedly caused or contributed to the
employee’s injuries. The Workers’ Compensation Act does not limit
the employee’s recovery from a third party. Although the employee is
barred from bringing a civil suit directly against his employer, the
third-party nonemployer may file a third-party suit against the
employer for “contribution” toward the employee’s damages. 740
ILCS 100/1 et seq. (West 2000). The contribution lawsuit presents a
second type of liability exposure for the employer.
The concept of contribution contemplates that each party whose
fault contributed to an injury should pay its pro rata share of the
common liability. 740 ILCS 100/2, 3 (West 2000). Until 1978,
employers were immune from third-party contribution suits as well as
from direct civil suits by an injured employee. Skinner v. Reed-
Prentice Division Package Machinery Co., 70 Ill. 2d 1 (1977). We
found in Skinner v. Reed-Prentice Division Package Machinery Co.,
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70 Ill. 2d 1 (1977), that if a manufacturer was held liable on the basis
of strict liability in tort, and if the employer-buyer negligently used the
product, the manufacturer could recover on a third-party complaint
against the employer-buyer. This holding was based on governing
equitable principles, which “required that ultimate liability for
plaintiff’s injuries be apportioned on the basis of the relative degree to
which the defective product and the employer’s conduct proximately
caused them.” Stevens v. Silver Manufacturing Co., 70 Ill. 2d 41, 44
(1977), citing Skinner, 70 Ill. 2d 1. In doing so, we discarded certain
outmoded concepts of indemnity in favor of contribution. Skinner, 70
Ill. 2d at 11-13.
Through decisions of this court and the enactment of the Joint
Tortfeasor Contribution Act, Illinois employers became potentially
liable for unlimited contribution. See Skinner, 70 Ill. 2d 1, Doyle v.
Rhodes, 101 Ill. 2d 1 (1984), citing Ill. Rev. Stat. 1981, ch. 70, par.
301 et seq.; 740 ILCS 100/1 et seq. (West 2000). An Illinois employer
enjoyed limited liability to its employee under the Workers’
Compensation Act, but was exposed to unlimited contribution liability
for the same injuries as a third-party defendant in the employee’s civil
suit. In other words, the employer could be “third partied” into its
employee’s suit against a nonemployer tortfeasor and be ordered to
pay a sum according to its pro rata share of fault in causing the
employee’s injury. Doyle, 101 Ill. 2d at 8, 14. The result was to
deprive the employer of the limited liability conferred by the Workers’
Compensation Act.
In 1992, this court attempted to balance the competing interests
of the employer, as a participant in the workers’ compensation system,
and the equitable interests of the third-party defendant in not being
forced to pay more than its established fault. Kotecki v. Cyclops
Welding Corp., 146 Ill. 2d 155, 164-65 (1991). In Kotecki, we held
that an employer’s maximum liability in a third-party suit for
contribution is limited to its liability to its employee under the
Workers’ Compensation Act. Kotecki, 146 Ill. 2d at 165. This balance
allowed nonemployer defendants, such as general contractors, to
recover limited contribution from the employer, and also extended the
limited liability protection of the Workers’ Compensation Act to
contribution claims. Kotecki, 146 Ill. 2d at 165.
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Thereafter, Illinois courts held that an employer may waive its
Kotecki protection by contract and thereby be liable for its full pro
rata share of contribution. Liccardi v. Stolt Terminals, Inc., 178 Ill.
2d 540 (1997); Braye v. Archer-Daniels-Midland Company, 175 Ill.
2d 201 (1997); see also Herington v. J.S. Alberici Construction Co.,
266 Ill. App. 3d 489 (1994). These cases are based upon an
interpretation of what are loosely labeled “indemnity provisions”
contained in contracts to which the employer was a party, which act
as provisions allowing for contribution. See, e.g., Estate of Willis v.
Kiferbaum Construction Corp., 357 Ill. App. 3d 1002, 1006 (2005);
Herington, 266 Ill. App. 3d at 494. Typically, an “indemnity
provision” will require a subcontractor to “indemnify and hold
harmless” a general contractor or owner for the general contractor’s
liability for injury to person or property happening in connection with
the subcontractor’s work. Illinois courts have found that a third party
seeking this type of “partial indemnity” is truly seeking contribution.
Stevens, 70 Ill. 2d at 46 (noting, “Although stated in terms of partial
indemnity rather than contribution, the prayer for relief clearly seeks
contribution based on the relative degree to which the employer’s
misuse of the product or assumption of the risk contributed to cause
plaintiff’s injuries”); Estate of Willis, 357 Ill. App. 3d at 1006;
Herington, 266 Ill. App. 3d at 494.
Stated another way, in these provisions, an employer agrees to
unlimited liability by waiving the Kotecki limitation as to contribution
claims. Braye, 175 Ill. 2d at 210. As such, the employer is waiving its
affirmative defense provided by the Workers’ Compensation Act.
Braye, 175 Ill. 2d at 210. Nothing in Kotecki prohibits an employer
from volunteering to remain liable for its pro rata share of damages
proximately caused by its negligence; Kotecki simply allows the
employer to avail itself of the Kotecki cap on its liability. Braye, 175
Ill. 2d at 210.
We note that such contracts are governed by the Illinois
Construction Contract Indemnification for Negligence Act (Anti-
Indemnification Act) (740 ILCS 35/0.01 et seq. (West 2000)), which
voids any agreement in a construction contract to indemnify or hold
harmless a person from that person’s own negligence. The purpose of
the Anti-Indemnification Act is to foster workplace safety by
preventing a party from insulating itself from liability through use of
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a contractual indemnification provision which may deter the exercise
of ordinary care. Braye, 175 Ill. 2d at 216-17. For example, the Anti-
Indemnification Act would render void a contractual provision in
which a subcontractor agreed to pay all damages resulting from an
injury to its employee, even the pro rata share of a general contractor
who was partially at fault. 740 ILCS 35/1 (West 2000).
Thus, in Braye v. Archer Daniels, 175 Ill. 2d 201 (1997), we
found that a so-called “indemnity provision” in a construction contract
did not require a contractor-employer to indemnify a premises owner
for the owner’s negligence. Braye, 175 Ill. 2d at 217-18. The
employer’s employee had sued the owner for a job site injury, and the
owner filed a third-party complaint for contribution against the
employer. We deemed the employer to have waived its Kotecki
protection and thus could be held liable in contribution for its full
share of fault in causing its employee’s injuries. The provision merely
permitted “unlimited contribution” from the employer to the owner
and, therefore, did not violate the Anti-Indemnification Act. 175 Ill.
2d at 218.
Inevitably, both employers and their insurance carriers were faced
with the question of whether their insurance policies would cover the
employer’s remaining portion of liability when an employer elected to
waive the Kotecki protections. In other words, the nature of the
employer’s “Kotecki waiver” exposure–the employer’s liability in
contribution above its “Kotecki cap”–remained in doubt for purposes
of standard CGL policies and some employer’s liability policies. The
districts of our appellate court are split on this issue.
The first case, Hankins v. Pekin Insurance Co., 305 Ill. App. 3d
1088 (1999), decided by the Fifth District of the appellate court, arose
in a nonconstruction setting. The “indemnity provision” and the CGL
insurance policy’s definition of “insured contract” were similar to
those in this case. The court ruled that the “indemnity provision” did
not constitute an “insured contract” under the policy’s definition of
that term because, by agreeing to be held liable for unlimited
contribution, the employer was simply agreeing to accept the full share
of its “own negligence” and was not accepting the “tort liability of
another party.” In other words, an “insured contract” is one where the
insured agrees to indemnify the other party against that party’s own
negligence. Hankins, 305 Ill. App. 3d at 1093. Because the
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employer’s potential liability under the provision did not come within
the employer’s “insured contract” coverage, the insurer had no
obligation to defend or indemnify it with respect to a third-party claim
for indemnification. Hankins, 305 Ill. App. 3d at 1093.
The next case reached a contrary result when the appellate court
construed a workers’ compensation and employer’s liability policy. In
Christy-Foltz, Inc. v. Safety Mutual Insurance Casualty Corp., 309
Ill. App. 3d 686 (2000), the Fourth District of the appellate court
found a “Kotecki waiver” in a contract between an employer and the
owner of a worksite. Christy-Foltz, 309 Ill. App. 3d at 691. The court
found that, by agreeing to waive the right to invoke Kotecki as an
affirmative defense, the employer had “voluntarily assumed liability”
for its pro rata share of damages proximately caused by its own
negligence. Christy-Foltz, 309 Ill. App. 3d at 692. As a result, the
liability over and above the “Kotecki cap” would be allocated
pursuant to the Contribution Act. Any such liability would constitute
“loss” under the terms of the policy. This “loss” would not be covered
because the policy excluded coverage for “loss” which was
“voluntarily assumed” under contract. 309 Ill. App. 3d at 692-93.
Next, the Second District in Michael Nicholas, Inc. v. Royal
Insurance Co. of America, 321 Ill. App. 3d 909 (2001), also rejected
the Hankins decision. The Second District found the policy provided
coverage. It stated,
“By defining ‘insured contract’ in terms of assuming another
party’s ‘tort liability,’ [the CGL insurer] left open the
possibility that its insured could agree to be responsible for
another party’s liability in a tort action even if that liability was
not based on that party’s own negligence. That portion of [the
general contractor’s] liability to [the injured subcontractor’s
employee] (which was assumed by plaintiff pursuant to its
Kotecki waiver) that is attributable to [subcontractor’s]
negligence is in fact imposed on [the general contractor] by
law, i.e., joint and several liability.” Michael Nicholas, Inc.,
321 Ill. App. 3d at 914.
The court further found that the contract did not run afoul of the Anti-
Indemnification Act. The court stated that it was “difficult to envision
any situation where the exception would apply in plaintiff’s line of
work because if plaintiff ever agreed to indemnify another party for its
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own negligence, the contract would be unenforceable.” 321 Ill. App.
3d at 914-15.
The Second District subsequently reaffirmed this decision in West
Bend Mutual Insurance Co. v. Mulligan Masonry Co., 337 Ill. App.
3d 698 (2003), over a dissent. Mulligan involved the same contractual
“indemnity” provision and the same definition of “insured contract.”
The court relied on the reasoning of Michael Nicholas, stating:
“There is nothing in the policy, however, stating that the
‘insured contract’ exception applies only when the insured
agrees to assume liability greater than its percentage of fault.
Here, if defendant’s Kotecki cap is lower than the amount of
[the employee’s] damages that is attributable to defendant’s
negligence, then, under principles of joint and several liability,
[the general contractor] can be held liable in tort for the
difference. Relying on the indemnification clause, [the general
contractor] attempted to recover that amount. If defendant has
waived its Kotecki cap, then it has assumed tort liability that
otherwise would have been imposed against [the general
contractor].” (Emphasis omitted.) West Bend, 337 Ill. App. 3d
at 706.
The court stated that plaintiff’s argument that an insured who waives
a Kotecki cap is merely waiving an affirmative defense and is not
assuming tort liability that did not already exist is a “technical
distinction.” West Bend, 337 Ill. App. 3d at 706. “Indemnification
clauses like the one at issue here are intended to shift tort liability that
otherwise would be imposed against the indemnitee.” West Bend, 337
Ill. App. 3d at 706.
Justice McLaren vigorously dissented. West Bend, 337 Ill. App.
3d at 708 (McLaren, J., dissenting). He noted, “As the discussion of
Michael Nicholas reveals, a party’s tort liability is not necessarily
based on that party’s own negligence.” West Bend, 337 Ill. App. 3d
at 709 (McLaren, J., dissenting). According to Justice McLaren, the
majority characterized aspects of tort liability that are preexisting and
imposed by operation of law, as being assumed under the terms of the
indemnification contract in question. Justice McLaren stated,
“However the analysis contained in Michael Nicholas
characterizes aspects of tort liability that are preexisting and
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imposed by operation of law, as being assumed under the
terms of the indemnification contract in question. The major
deficiency *** is that they ignore the distinction between those
matters that are imposed by law and those that have been
assumed by the insured through the indemnification contract.
The joint and several liability analysis in Michael Nicholas
presumes that the insured assumed the joint and several
liability of all the joint and several tortfeasors. *** Joint and
several liability is not assumed by a tortfeasor; if it were, it
could be disclaimed or avoided by mere iteration.” (Emphasis
in original.) West Bend, 337 Ill. App. 3d at 709 (McLaren, J.,
dissenting).
Justice McLaren pointed out that if the joint and several liability
were assumed, then it would mean that the nonemployer-indemnitee
would be able to obtain total satisfaction of the judgment entered in
the original cause of action in violation of Indemnification Act and
would constitute a waiver of all the immunities provided to an
employer-indemnitor pursuant to the Workers’ Compensation Act.
West Bend, 337 Ill. App. 3d at 711 (McLaren, J., dissenting). Further,
“the waiver of the Kotecki cap is a waiver of a right to a credit or
offset that is provided by law and would reduce the amount of money
due from the insured. [Citation.] Neither reducing nor increasing the
out-of-pocket expense of the employer/indemnitor means that the
proportionate shares of liability have been altered.” West Bend, 337
Ill. App. 3d at 711 (McLaren, J., dissenting). He concluded, “I believe
the only reasonable interpretation is that the employer/indemnitor
agreed to indemnify the nonemployer/indemnitee for the
employer/indemnitor’s own negligence consistent with the prior
precedent as determined in Hankins.” West Bend, 337 Ill. App. 3d at
712 (McLaren, J., dissenting).
With this precedent in mind, we turn to the present agreement
between Capital Construction and De Graf under the terms of
Northern’s CGL policy. The parties’ arguments on this matter are
essentially reflective of the split in the appellate court: Northern urges
this court to adopt the reasoning of the Fifth District in Hankins and
Justice McLaren’s dissent in West Bend; Virginia Surety contends this
court should adopt the reasoning of the Second District in Michael
Nicholas and the West Bend majority and also the Fourth District in
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Christy-Foltz. We agree with Northern that under the plain language
of Northern’s CGL policy with De Graf, the agreement between De
Graf and Capital could not be an “insured contract.”
Northern’s policy provides that an insured contract is one under
which De Graf “assumes the tort liability of another party to pay for
‘bodily injury’ or ‘property damage’ to a third person or
organization.” The policy further provides that “tort liability means a
liability that would be imposed by law in the absence of any contract
or agreement.” Therefore, to determine whether the De Graf-Capital
“indemnity” agreement is an insured contract under the policy, we
must first look to the agreement itself and determine whether the
agreement obligated De Graf to assume the tort liability of Capital.
The agreement in this case is unambiguous. By the plain language
of the agreement, De Graf, as the indemnifying party, is required to
“indemnify” Capital only for De Graf’s own negligence. The meaning
of “indemnify” is illuminated by the contractual language stating that
De Graf, “to the fullest extent permitted by law *** shall indemnify
and hold harmless” Capital for claims “arising out of or resulting from
the performance of the subcontractor’s work” and “loss *** which is
caused in whole or in part by negligent acts or omissions of the
Subcontractor.” Further, this is despite any common liability on the
part of Capital for Smith’s injury, as the contract states, “regardless of
whether or not such claim, loss, or expense is caused in part by a party
indemnified hereunder.”
The confusion may be due to the use of the word “indemnity”
when the effect of the provision is nothing more than a simple
anticipatory waiver of an affirmative defense in a contribution action.
Virginia Surety’s contention therefore ignores the distinction between
“indemnity” and “contribution.” Contribution is defined as “the right
that gives one of several persons who are liable on a common debt the
ability to recover ratably from each of the others when that one person
discharges the debt for the benefit of all; the right to demand that
another who is jointly responsible for a third party’s injury supply part
of what is required to compensate the third party.” Black’s Law
Dictionary 352-53 (8th ed. 2004). Indemnity is the “reimbursement or
compensation for loss, damage, or liability in tort; esp., the right of a
party who is secondarily liable to recover from the party who is
primarily liable for reimbursement of expenditures paid to a third party
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for injuries resulting from a violation of a common-law duty.” Black’s
Law Dictionary 784 (8th ed. 2004).
With these definitions in mind, we look to the definition of “tort
liability” in the CGL policy. The policy’s “insured contract” provision
says, “Tort liability means a liability that would be imposed by law in
the absence of any contract or agreement.” Therefore, we must walk
through the procedural steps of this case to understand if De Graf
assumed any “liability imposed by law” upon Capital. In other words,
we must determine if the subcontract above is a true indemnification
provision, or a poorly labeled anticipatory waiver of an affirmative
defense.
Preliminarily, it is clear that ordinary rules of common law liability
impose liability upon Capital for Capital’s own negligence towards
Smith. Next, De Graf is liable for its own negligence under ordinary
rules of common law liability. However, De Graf enjoys the option to
limit its common law liability to Smith by asserting the affirmative
defense provided by the Workers’ Compensation Act for the amount
of its negligence up to the Kotecki cap. This leaves the portion of De
Graf’s liability due to its pro rata share of the common liability above
the Kotecki cap. Is this portion of liability “imposed by law in the
absence of any contract or agreement” on Capital or De Graf?
Both Capital and De Graf are jointly and severally liable for the
portion of De Graf’s liability above the Kotecki cap. However, the
Contribution Act states, “The right of contribution exists only in favor
of a tortfeasor who has paid more than his pro rata share of the
common liability, and his total recovery is limited to the amount paid
by him in excess of his pro rata share. No tortfeasor is liable to make
contribution beyond his pro rata share of the common liability.” 740
ILCS 100/2(b) (West 2000). The law therefore allows Capital to sue
De Graf for De Graf’s remaining pro rata portion of the common
liability. Under the terms of the Contribution Act, Capital is not liable
to make contribution beyond its pro rata share of the common
liability.
Next, if Capital brings a contribution claim against De Graf, De
Graf remains liable for its pro rata share of the common liability. 740
ILCS 100/2(b) (West 2000). Under Kotecki, however, De Graf may
assert the Workers’ Compensation Act as an affirmative defense in an
action in contribution. Braye, 175 Ill. 2d at 207, citing Doyle, 101 Ill.
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2d at 10. Our decision in Braye allows De Graf to bargain away this
affirmative defense by contract in anticipation of litigation. Here, De
Graf has waived its affirmative defense provided by the Workers’
Compensation Act and is liable for unlimited contribution,
undiminished by the workers’ compensation limitation. Accordingly,
this demonstrates that the Workers’ Compensation Act is a shield
provided by the legislature, which, at De Graf’s election, it may use
to avoid liability. This idea is bolstered by our statement in Braye that
“an employer’s potential for tort liability exists unless and until the
defense of the Workers’ Compensation Act is established.”
Furthermore, “the legislature intended the Contribution Act to apply
to an employer in a third-party action regardless of an employer’s
immunity from a direct action by the employee.” Braye, 175 Ill. 2d at
207, citing Doyle, 101 Ill. 2d at 10-11, 13-14.
The legislature intended that De Graf be liable for its pro rata
share of the negligence, regardless of any immunity provided by the
Workers’ Compensation Act. Absent De Graf’s waiver, Capital would
be obligated to pay a greater portion of the common liability only at
De Graf’s election to raise its affirmative defense. As we previously
stated, “nothing in Kotecki prohibits an employer from agreeing to
remain liable for its pro rata share of damages proximately caused by
its negligence.” (Emphasis added.) Braye, 175 Ill. 2d at 210.
Therefore, absent any contract or agreement, De Graf’s portion of the
common liability above the Kotecki cap is not “imposed by law” upon
Capital, but remains with De Graf.
Returning to the definitions of “contribution” and “indemnity”
above, it is clear both Capital and De Graf are jointly and severally
liable for the same injury. Further, both parties are primarily liable for
Smith’s injuries; neither party is secondarily liable. As explained
above, the waiver of the Kotecki cap does not shift liability. Rather,
the employer chooses to remain liable by not asserting an affirmative
defense. The legal effect to be given an instrument is not determined
by the label it bears or the technical terms it contains. Bonde v. Weber,
6 Ill. 2d 365 (1955); see Herington, 266 Ill. App. 3d 489. Indeed, this
court in Stevens v. Silver Manufacturing Co., 70 Ill. 2d 41, 46 (1977),
construed a third party’s prayer for “partial indemnity” as a
contribution claim because the prayer was based on the relative degree
to which the employer’s misuse of the product or assumption of the
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risk contributed to cause plaintiff’s injuries. Thus, we disagree with
the West Bend court’s conclusion that, “Indemnification clauses like
the one at issue here are intended to shift tort liability that otherwise
would be imposed against the indemnitee” (West Bend, 337 Ill. App.
3d at 706) because the De Graf-Capital contract is not a true
indemnification clause.
Further, we reject Virginia Surety’s, as well as the Christy-Foltz,
Michael Nicholas, and West Bends courts’, assertion that the
employer somehow assumes the joint and several liability of the third-
party nonemployer. This argument may conflate the indivisible nature
of joint and several liability with the equitable apportionment of
common liability embodied in the Contribution Act. 740 ILCS 100/2
(West 2000). It is clear, from the Contribution Act, that “[n]o
tortfeasor is liable to make contribution beyond his own pro rata share
of the common liability.” 740 ILCS 100/2 (West 2000). Virginia
Surety also argues, however, that De Graf would somehow “assume”
the joint and several liability of Capital for De Graf’s own negligence.
The false premise in this argument is the belief that this joint and
several liability is somehow divisible. As we explained in Best v.
Taylor Machine Works, 179 Ill. 2d 367 (1997), “ ‘The feasibility of
apportioning fault on a comparative basis does not render an
indivisible injury “divisible” for purposes of the joint and several
liability rule. A concurrent tortfeasor is liable for the whole of an
indivisible injury when his negligence is a proximate cause of that
damage.’ ” Best, 179 Ill. 2d at 427, quoting Coney v. J.L.G.
Industries, Inc., 97 Ill. 2d 104, 121-22 (1983). Thus, it makes no
difference if the Kotecki cap is lower than the amount of the
employee’s damages that is attributable to employer’s negligence.
Under principles of joint and several liability, the third party does not
then become liable for the difference. Instead, it always was jointly
and severally liable regardless of the Kotecki cap and it additionally
always retained the right to sue in contribution. The distinguishing
factor is the employer’s use of the affirmative defense of the Workers’
Compensation Act.
The Anti-Indemnification Act also does not prohibit this contract.
As explained above, the contract merely waives De Graf’s affirmative
defense; it does not result in De Graf’s assumption of Capital’s tort
liability. We also reject Virginia Surety’s argument that because of the
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anti-indemnity statute applicable to Illinois construction contracts,
every single “insured contract” situation De Graf might encounter will
involve an unenforceable contract, and so Northern’s exception
“would almost never apply” and be “of no value to the insured.” This
reasoning ignores that the CGL coverage Northern issued to De Graf
is not limited to suits arising out of construction contracts. Nor is the
policy limited to suits brought under Illinois law. For example, De
Graf may enter a contract to hire a maintenance company to service
its equipment or clean its building, where the other party is to be
indemnified by De Graf.
In sum, De Graf and Capital intended the provision in the
subcontract be a waiver of De Graf’s anticipated affirmative defense
in a potential contribution action rather than any purported
assumption of Capital’s joint and several liability. Therefore, the
policy’s definition of “insured contract” has not been met. De Graf did
not assume Capital’s “tort liability,” because it has not assumed
Capital’s “tort liability” which the policy defines as “liability that
would be imposed by law in the absence of any contract or
agreement.”
Accordingly, we agree with the appellate court that Northern is
not under a duty to defend or indemnify De Graf under the CGL
policy. Hence, the circuit court properly granted summary judgment
in favor of Northern. To the extent that Michael Nicholas, West Bend,
and Christy Foltz would hold otherwise, they are overruled.
CONCLUSION
For the foregoing reasons, we affirm the judgment of the appellate
court.
Affirmed.
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