American Country Ins. Co. v. Williams

• Citation: 791 N.E.2d 1268,339 Ill. App.3d 835,274 Ill.Dec. 857
• Decision Date: 13 June 2003
• Docket Number: No. 1-01-3642.,1-01-3642.
• Parties: AMERICAN COUNTRY INSURANCE COMPANY, Counterplaintiff-Appellee, v. Thomas WILLIAMS and Yellow Cab Company, Counterdefendants (Herman Davila, Counterdefendant-Appellant).
• Court: United States Appellate Court of Illinois

791 N.E.2d 1268

339 Ill. App.3d 835

274 Ill.Dec. 857

AMERICAN COUNTRY INSURANCE COMPANY, Counterplaintiff-Appellee, v. Thomas WILLIAMS and Yellow Cab Company, Counterdefendants (Herman Davila, Counterdefendant-Appellant).

No. 1-01-3642.

Appellate Court of Illinois, First District, Fifth Division.

As Modified June 13, 2003.

Burke & Burke, Ltd., Chicago (John M. Burke and Joseph P. Schreiber, of counsel), for Appellant.

Beerman, Swerdlove, Woloshin, Barezky, Becker, Genin & London, Chicago (Alvin R. Becker and Christopher A. White, of counsel), for Appellee.

MODIFIED UPON REHEARING

Justice QUINN delivered the opinion of the court:

In the underlying action in this case, plaintiff, a police officer pedestrian, was struck by a taxicab. The driver was convicted of misdemeanor battery as a result of that occurrence. Plaintiff filed suit against the taxicab driver and the taxicab company, alleging negligence. The insurer of both the driver and the cab company undertook the defense of the personal injury case.

While the tort action was pending, the driver-insured filed suit seeking a declaration that the insurer was obligated to provide him with independent counsel because of a conflict of interest. Plaintiff from the underlying suit was granted leave to intervene. The insurer filed a counterclaim naming plaintiff, the driver and Yellow Cab, seeking a declaration that it had no duty to defend the driver. On cross-motions for summary judgment, the trial court granted the insurer's motion for summary judgment. The plaintiff in the underlying suit filed a motion to reconsider which was denied. Plaintiff in the underlying suit now appeals. The insured driver has not appealed.

For the following reasons, we affirm in part, reverse in part, and remand for further proceedings.

I. BACKGROUND

On October 31, 1996, Herman Davila, an Illinois State Police officer, was on duty outside the Thompson Center in Chicago. Thomas Williams, was driving a taxicab east on Lake Street adjacent to the Thompson Center. While another police officer was directing traffic on Lake Street, Davila observed Williams repeatedly blowing his car horn. Davila approached Williams' cab, opened the door and leaned inside the cab. While Davila was leaning inside the cab, Williams began driving, forcing Davila to run alongside the cab for 15 feet. Davila suffered injuries.

Williams was charged with misdemeanor battery as a result of his actions on October 31, 1996. Transcripts provided in the record on appeal establish that on October 9, 1997, following a jury trial, Williams was convicted of battery and sentenced to community service and probation.

On May 12, 1998, Davila filed a civil complaint naming Williams and Yellow Cab Company (Yellow Cab) as defendants. Both Yellow Cab and Williams were insured by American Country Insurance Company (American). At the time of the occurrence, American and Yellow Cab were both subsidiaries of a company known as Great Dane Holdings. The complaint alleged that Williams was the agent and servant of Yellow Cab and was operating a taxicab owned by Yellow Cab. The complaint alleged that Williams and Yellow Cab were negligent in failing to yield to Davila, in driving recklessly, in failing to keep a proper lookout and in operating a vehicle with defective brakes and steering. American undertook the defense in this case, retaining Johnson & Bell to represent Williams and Jesmer & Harris to represent Yellow Cab. Prior to retaining counsel, American notified Williams by mail that it was "handling this matter under a complete reservation of rights under the terms and conditions of your policy." The letter informed Williams that an investigation revealed that Williams was cited with criminal battery and that his policy provided an exclusion for intentional injury. In his answer to Davila's complaint, Williams' attorney denied that Williams was an agent of Yellow Cab.

In an affidavit, Williams averred that the defense provided by American was inadequate and represented a conflict of interest. Williams averred that on July 21, 1999, he complained about the inadequacy to American and requested appointment of alternative counsel. Williams averred that Johnson & Bell failed to conduct discovery to assist in his defense. Williams averred that American denied this request.

On October 1, 1999, Williams filed the instant declaratory action against American. In count I of the complaint, Williams alleged that American failed to warn Williams of an actual or potential conflict of interest in defending the underlying action. Williams further alleged that there was a conflict of interest in that proof of intentional conduct on the part of Williams would shift responsibility from American to Williams. In count II, Williams alleged that American breached its duty to defend by failing to provide him with access to the East Bank Health Club, in order to locate a potential witness. Williams also listed numerous acts and omissions that constituted breaches of American's duty to defend. Williams sought a court order requiring American to provide Williams independent counsel and access to the East Bank Health Club.

On November 1, 1999, American filed a motion to dismiss Williams' declaratory judgment complaint. American alleged that Williams had not pled the type of conflict of interest that would require American to give up the right to control Williams' defense. Namely, American alleged that the intentional acts exclusion of the insurance policy could not give rise to a conflict of interest where the underlying case sounded in negligence. American further alleged that it owed no duty to give Williams access to the East Bank Health Club. The trial court denied American's motion to dismiss with respect to count I, and granted the motion with respect to count II. The dismissal of count II has not been raised on appeal. On December 13, 1999, Davila was granted leave to intervene in Williams' declaratory action. The parties then filed cross-motions for summary judgment. Williams alleged that his battery conviction created a coverage defense, therefore presenting a conflict of interest. American's motion maintained that Illinois law has recognized that a conflict of interest arises out of the intentional acts exclusion of an insurance policy only where the underlying complaint alleges both negligence and battery and where punitive damages were sought. Following argument on the motions, the trial court entered an order stating that, in light of the recent decision in American Family Mutual Insurance Co. v. Savickas, 193 Ill.2d 378, 250 Ill.Dec. 682, 739 N.E.2d 445 (2000), it could not address the cross-motions until a duty to defend had been determined. The court invited briefs in support of or in opposition to the applicability of Savickas to the case at bar.

American subsequently filed a counterclaim alleging that Williams' battery conviction established that his conduct was intentional and that he was excluded from coverage under the intentional acts exclusion of his policy. The policy provided:

"B. EXCLUSIONS

1. EXPECTED OR INTENDED INJURY

`Bodily injury' or `property damage' expected or intended from the standpoint of the `insured.'"

Williams responded that American was estopped from denying coverage by reason of prejudice to Williams caused by American directly defending the underlying suit. American then filed a second motion for summary judgment based on its counterclaim. American also filed a motion to dismiss the declaratory action claiming that it was moot where American had agreed, by letter dated January 25, 2001, to relinquish control of the underlying suit under certain conditions.

On June 29, 2001, the trial court granted American's motion for summary judgment as to the counterclaim and its motion to dismiss. The court relied upon the holding in Savickas. In Savickas, the supreme court held a murder conviction collaterally estopped an insured from later contesting the applicability of the intentional acts exclusion of his policy. As all the elements for collateral estoppel had been met, the trial court held that Williams was estopped from denying his conduct was intentional because of his criminal conviction. Applying the holding in Savickas to the facts of this case, the trial court held that American had no duty to defend or indemnify Williams.

On July 21, 2001, Davila filed a motion to reconsider. Williams did not file a motion to reconsider. The trial court denied Davila's motion. Davila now appeals that ruling.

We also note that on June 21, 2000, Yellow Cab filed a motion for summary judgment in the underlying suit contending that Williams was not Yellow Cab's agent at the time of the occurrence. The trial court in that case granted Yellow Cab's motion. Davila appealed that ruling to this court. In an opinion, this court reversed the ruling of the trial court and remanded the case. Davila v. Yellow Cab Co., 333 Ill.App.3d 592, 267 Ill.Dec. 348, 776 N.E.2d 720 (2002)(Davila I). In Davila I, we held that the dispositive issue was not whether Williams acted intentionally but whether his intentional, negligent or criminal acts were performed within the scope of employment. Davila I, 333 Ill. App.3d at 600,267 Ill.Dec. 348,776 N.E.2d 720. Therefore, because material questions of fact existed as to whether Williams was an employee or agent of Yellow Cab, the summary judgment ruling on the issue of agency was erroneous.

II. ANALYSIS

Davila argues that the trial court erred in granting summary judgment to American. Specifically, Davila maintains that the trial court erred in failing to address whether American was estopped from asserting its coverage defenses where American participated in the defense of the underlying suit when it had a conflict of interest with Williams. Davila also maintains that although the three threshold requirements for application of the collateral estoppel doctrine under Savickas are present...