Community State Bank of Galva v. Hartford Ins. Co.

• Decision Date: 15 August 1989
• Docket Number: No. 3-88-0497,3-88-0497
• Citation: 134 Ill.Dec. 810,542 N.E.2d 1317,187 Ill.App.3d 110
• Parties: , 134 Ill.Dec. 810 The COMMUNITY STATE BANK OF GALVA, an Illinois Banking Corporation, Plaintiff-Appellee, v. HARTFORD INSURANCE COMPANY, Defendant-Appellant.
• Court: United States Appellate Court of Illinois

Page 1317

542 N.E.2d 1317

187 Ill.App.3d 110, 134 Ill.Dec. 810

The COMMUNITY STATE BANK OF GALVA, an Illinois Banking Corporation, Plaintiff-Appellee, v. HARTFORD INSURANCE COMPANY, Defendant-Appellant.

No. 3-88-0497.

Appellate Court of Illinois Third District.

Aug. 15, 1989.

Cynthia M. Raccuglia, Anthony C. Raccuglia & Associates, Peru, for Hartford Ins. Co.

R. Philip Steele, Massie & Steele, Alpha, for Community State Bank of Galva.

Justice SCOTT delivered the opinion of the court:

Defendant-Appellant, Hartford Insurance Company ("Hartford"), appeals from certain orders entered by the trial court of Henry County granting plaintiff-appellee, Community State Bank of Galva's ("The Bank") motion for summary judgment and awarding The Bank damages under Section 767 of the Insurance Code. Ill.Rev.Stat. (1987), ch. 73, par. 767.

Hartford issued to The Bank a Banker's Benefit Bond, No. 85-BPPRR6767 covering a policy period of October 16, 1985 to October 16, 1988. The Bank alleged in its complaint filed March 26, 1987, that on or about August 17, 1986, Leland T. Everett delivered to The Bank a certain power of attorney purportedly executed by Peter S. Craig, Trustee, and appointing Leland T. Everett as agent. Craig was The Bank's customer but Everett was not. The Bank then tendered to Everett the sum of $30,000 in consideration of a promissory note executed as Peter S. Craig, Trustee, by Leland T. Everett, agent. This note was executed at the request of The Bank at the same time Everett delivered the power of attorney to The Bank's employee Barbara Nelson. There is no dispute that Nelson relied on the purported power of attorney, when agreeing to lend money to Everett in exchange for the note. An extension on the remaining $20,000 balance due on the note was later given to Everett by The Bank.

It is undisputed that the power of attorney delivered to The Bank by Everett on August 12, 1985 was a forgery. As such, The Bank turned in a claim under its policy with Hartford for coverage under the blanket bond. Hartford refused coverage thereby prompting this suit.

The relevant provisions for coverage are listed in the "Insuring Agreements" section of the policy and state as follows:

Forgery or Alteration

(D) Loss resulting directly from (2) Forgery or alteration of, on or in any Negotiable Instrument (except an Evidence of Debt), Acceptance, Withdrawal Order, Receipt for the Withdrawal of Property, Certificate of Deposit or Letter of Credit ...

Securities

(E) Loss resulting directly from the Insured having, in good faith, for its own account or for the account of others;

(1) acquired, sold or delivered, or given value, extended credit or assumed liability, on the faith of, or otherwise acted upon, any original

* * * * * *

(e) Evidence of Debt

* * * * * *

which

(i) bears a signature of any maker, drawer, issuer, endorser, assignor, lessee, transfer agent, registrar, acceptor, surety, guarantor, or of any person signing in any other capacity which is a forgery ...

The Bank's complaint alleged two counts against Hartford. The first alleged coverage for the loss resulting from reliance on the forged power of attorney and the second alleged an unreasonable and vexatious refusal to settle by Hartford and seeking damages under Section 767 or the Insurance Code. (Ill.Rev.Stat. (1987), ch. 73, par. 767.) Cross motions for summary judgment were filed, and after hearing, the trial court awarded summary judgment to The Bank on both counts against Hartford. Hartford then filed a motion for reconsideration as to the court's ruling that its refusal to settle was unreasonable and vexatious and pointed out to the court that The Bank's attorneys were initially relying on a portion of the insurance policy for coverage different than that relied by the trial court. The motion was denied, and the court thereafter heard testimony regarding damages. The Bank was awarded the balance due on the note plus interest to the date of judgment, attorney's fees, costs and $2,500. The court reserved with The Bank the right to subsequently petition the court for additional fees.

Hartford raises two issues on appeal. First (issue 1), whether the trial court erred in granting The Bank's motion for summary judgment and denying Hartford's motion for summary judgment. Second (issue 2), whether the trial court's finding that Hartford's refusal to settle was unreasonable and vexatious entitling The Bank to damages under the Insurance Code was against the manifest weight of the evidence. Both parties acknowledge that no material facts are at issue. Summary judgment is clearly the proper remedy in this case.

Regarding issue 1, the trial court found that coverage existed under section E(1)(e) of the insuring agreement. Hartford's principle argument is The Bank relied solely on the forged power of attorney, when extending credit and that a power of attorney was not specifically enumerated as covered in subparagraphs D or E quoted above, and therefore, should be exempt from coverage under the exclusions provision of the policy.

The construction of insurance policies presents questions of law to be decided by the court. (Sawyer Fruit and Vegetable Cooperative Corporation v. Lumbermens Mutual Casualty Company (1983), 117 Ill.App.3d 407, 73 Ill.Dec. 1, 453 N.E.2d 826.) The language of an insurance policy is to be liberally construed in favor of the insured and against the insurer. (Baldwin v. Auto-Owners Insurance Co. (1972), 5 Ill.App.3d 300, 282 N.E.2d 204.) Any lack of clarity of an insurance contract is the responsibility of the insurer, and in such circumstances a construction will be adopted favoring the insured and resolving uncertainty in his favor. (Tiffiny Decorating Co. v. General Accident Fire and Life Assurance Cor., Ltd. (1973), 12 Ill.App.3d 597, 299 N.E.2d 378.) Where the provisions of an insurance contract are clear and unambiguous, however, it is the court's duty to enforce them according to their plain meaning. (Allstate Insurance Co. v. Panzica (1987), 162 Ill.App.3d 589, 114 Ill.Dec. 28, 515 N.E.2d 1299.) Ambiguity should not be created where none exists. State Farm Mutual Automobile Insurance v. Byrne (1987), 156 Ill.App.3d 1098, 109 Ill.Dec. 510, 510 N.E.2d 131.

Paragraph (E)(1)(e) provides coverage when an insured, in good faith, extends credit on an evidence of debt that has been forged. The trial court extended coverage under this section on the basis that the promissory note signed by Everett as agent for Craig, Trustee, was a forged evidence of debt. Hartford stresses, however, that the note should not be considered as The Bank alleged in its complaint that it relied solely on the power of attorney, when extending credit to Everett. We do not dispute The Bank's contention that reliance solely on the power of attorney, without more, may not be covered under the policy. However, it is not disputed that at the time Everett presented the power of attorney, he was required to execute a promissory note, itself a forgery as that term is defined in the policy, in order to be extended credit. This is verified by Barbara Nelson's uncontradicted affidavit testimony, and it is simply unreasonable to...