State Farm Fire & Cas. Co. v. First Nat. Bank & Trust Co. of Pekin, Gen. No. 71--15

• Decision Date: 04 January 1972
• Docket Number: Gen. No. 71--15
• Citation: 277 N.E.2d 536,2 Ill.App.3d 768
• Parties: STATE FARM FIRE AND CASUALTY COMPANY, a Corporation, Plaintiff-Appellant, v. FIRST NATIONAL BANK AND TRUST COMPANY OF PEKIN, a Corporation, et al., Defendants-Appellees.
• Court: United States Appellate Court of Illinois

Page 536

277 N.E.2d 536

2 Ill.App.3d 768

STATE FARM FIRE AND CASUALTY COMPANY, a Corporation Plaintiff-Appellant, v. FIRST NATIONAL BANK AND TRUST COMPANY OF PEKIN, a Corporation, et al., Defendants-Appellees.

Gen. No. 71--15.

Appellate Court of Illinois, Third District.

Jan. 4, 1972.

[2 Ill.App.3d 769] John F. Dolan, Davis, Morgan & Witherell, Peoria, for plaintiff-appellant.

David A. Dvorak, Moehle, Moehle, Reardon, Sincock & Associates, East Peoria, Bartley, Hession & Palmer, Peoria, for defendants-appellees.

DIXON, Justice.

This is an appeal from a declaratory judgment requiring the plaintiff, State Farm Fire and Casualty Company, to defend two lawsuits brought against its insured, Nancy J. Ehrett. The issue is whether State Farm has been relieved of its obligation to defend those lawsuits by a breach of the co-operation clause in Mrs. Ehrett's policy.

From the record it appears that on February 21, 1968, at about 1:40 in the morning, Mrs. Ehrett was driving her automobile east on Route 8 in East Peoria, Illinois, at a speed of about 40 miles per hour, and another automobile, driven by Stanley Leland, was going west. Mrs. Ehrett looked down to locate a cigarette in her purse and did not notice the other car as it approached. The cars collided. Mrs. Ehrett was hospitalized, and Mr. Leland was killed.

There were no witnesses to the collision. Mrs. Ehrett afterwards suffered from amnesia and had no recollection of any details of the accident. Mr. Leland's body was found to have a blood alcohol level raising the presumption that he was intoxicated. Mrs. Ehrett had been observed drinking for an extended time before the accident. Most of the debris from Mr. Leland's car had settled around it where it came to rest in the westbound lane. A coroner's jury concluded that Mrs. Ehrett's car had crossed into the opposite lane and had caused the collision.

Later in the morning on the date of the accident, Wilda Alexander, a good friend of Mrs. Ehrett and the owner of the Cooler Tap, where Mrs. Ehrett had been drinking, visited her in her hospital room. Mrs. Alexander asked Mrs. Ehrett to say she was not at the Cooler Tap the preceding evening, in order to protect Mrs. Alexander from dram shop litigation. The two of them fabricated a story about watching a movie together on television at Mrs. Alexander's house. Thereafter on a number of occasions Mrs. Ehrett stated that she did not have a drink after 9:00 or 9:30 in the evening before the accident, and had consumed only two drinks earlier, a beer at about 4:00 P.M. and a shot of whiskey at about 9:00 P.M.

The next day, February 22, 1968, Mrs. Ehrett was visited by a claims adjuster for State Farm, and she gave him her fabricated story. Before the interview he had read a newspaper account of the accident, reporting that Mrs. Ehrett had said someone else was driving her car. He therefore had her sign a request for claim service and non-waiver of rights, wherein she agreed that State Farm would not waive any of its rights by undertaking the investigation and defense of any claims arising out of the accident. He explained that this was necessary because of the question as to the identity of the driver which was raised by the newspaper article. State Farm then procured counsel for Mrs. Ehrett.

At the inquest on February 29, 1968, there was testimony from two persons who had seen Mrs. Ehrett drinking and dancing at the Cooler Tap before the accident. Mrs. Ehrett was there represented by an attorney employed by State Farm, who later summarized the proceedings for State Farm. On March 4, 1968, an attorney acting for the family of Stanley Leland called the State Farm claims adjuster and informed him that he had six witnesses who would say that Mrs. Ehrett had been drinking almost constantly during the afternoon and evening of February 20, 1968, at the Cooler Tap and had appeared to be intoxicated. State Farm did not at that time obtain from him the names of his witnesses, nor mention them to Mrs. Ehrett. Subsequently two phone calls were made to his office but there was no answer, and no further efforts were made by State Farm to identify and question the six witnesses.

On March 27, 1968, the claims adjuster submitted a report to State Farm that if the testimony concerning physical evidence at the accident scene should hold up, State Farm might have no defense possibilities with regard to legal liability of Mrs. Ehrett. He added that there appeared to be a strong basis for considering denial of coverage if it could be substantiated that Mrs. Ehrett had misrepresented facts concerning her activities prior to the accident.

The administrator of the estate of Stanley Leland brought a wrongful death action against Mrs. Ehrett, and summons was served on her August 20, 1968. A guardian for minors claiming an interest in the automobile Mr. Leland had been driving brought a property damage action against Mrs. Ehrett, and summons was delivered to her by mail October 3, 1968. State Farm was advised of the two suits on October 28, 1968, when Mrs. Ehrett brought the summonses to its office. She explained her tardiness by saying that at first she thought the wrongful death action was against two taverns and not her, but the second summons directed her to appear in court and so she decided she had to do something about the papers. At that time she executed another non-waiver agreement, being told that it was necessary because of her failure to forward the summonses promptly. Her having given a false story to conceal her drinking prior to the accident was not mentioned as another reason it was wanted.

On December 19, 1968, when the deposition of Mrs. Ehrett was about to be taken, the attorney employed by State Farm to represent her explained to her that from information obtained by the attorney representing Mr. Leland's family it appeared that she had not told the truth about her activities preceding the accident. He told her that if she had made false statements, her coverage under her policy with State Farm had been jeopardized, and that if she changed her story, her coverage would be further jeopardized, but he recommended that she tell the truth. She then admitted that her previous, accounts were false, that she had been drinking, and that she and Mrs. Alexander had conspired to give a false account in order to foreclose dram shop claims against Mrs. Alexander.

Although State Farm learned about the witnesses to...