Virginia Surety Company v. Northern Insurance Company of New York

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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