State Auto Prop. & Cas. Ins. Co. v. Brumit Servs., Inc.

• Decision Date: 11 December 2017
• Docket Number: No. 17-1700,17-1700
• Citation: 877 F.3d 355
• Parties: STATE AUTO PROPERTY AND CASUALTY INSURANCE COMPANY, Plaintiff-Appellant, v. BRUMIT SERVICES, INC., an Illinois Corporation, et al., Defendants-Appellees.
• Court: U.S. Court of Appeals — Seventh Circuit

877 F.3d 355

STATE AUTO PROPERTY AND CASUALTY INSURANCE COMPANY, Plaintiff-Appellant,

v.BRUMIT SERVICES, INC., an Illinois Corporation, et al., Defendants-Appellees.

No. 17-1700

United States Court of Appeals, Seventh Circuit.

Argued October 26, 2017

Decided December 11, 2017

Robert M. Chemers, Attorney, PRETZEL & STOUFFER, CHARTERED, Chicago, IL, Plaintiff-Appellant.

Stephen C. Buser, Attorney, LAW OFFICES OF STEPHEN C. BUSER, Columbia, IL, for Defendants-Appellees.

Before Flaum, Ripple, and Manion, Circuit Judges.

Manion, Circuit Judge.

In this insurance dispute, insurer State Auto Property and Casualty Insurance Company seeks a declaratory judgment that it has no duty to defend insured Brumit Services, Inc., because the latter failed to provide prompt notice of an accident that eventually led to a lawsuit. The district court concluded that the insured’s 21-month delay in notifying the insurer was reasonable and awarded judgment to the insured. We disagree. Brumit’s failure to provide prompt notice of the accident was inexcusable under Illinois law. Therefore, we reverse the judgment of the district court.

I. Background

Carl Brumit owns Brumit Services, Inc., a small business that performs residential concrete construction work. The company has two employees and operates out of Brumit’s home. On behalf of the company, Brumit purchased a Business Auto Liability insurance policy from State Auto to cover the truck he used for the business.¹ Like most auto insurance policies, Brumit’s policy provided that State Auto would defend and indemnify Brumit in the event he was sued for an accident causing bodily injury or property damage. However, State Auto had "no duty to provide coverage" unless Brumit complied with his duties under the policy, one of which was that Brumit "must give [State Auto] prompt notice of the ‘accident’ or ‘loss.’ "

On September 6, 2013, Brumit was in the parking lot of a Phillips 66 gas station in Columbia, Illinois, with the covered truck. When he backed out of his parking space, he unwittingly struck 68-year-old Delores Menard with the truck’s tail-gate. Menard fell and suffered scrape wounds

on her elbow and knee. She was treated by an EMT and declined a trip to the hospital, instead choosing to drive herself home. For his part, Brumit was unaware that he had hit Menard until a by-stander alerted him as he was driving away. He then came back to the scene, called for an ambulance, and provided the police officer at the scene with a statement. He observed that Menard was sitting down and "may have had a scratch on her knee."

After everyone parted ways, Brumit thought the incident so minor that he was not required to report it to State Auto. But on June 22, 2015, he was served with a lawsuit in Illinois state court in connection with the accident. Menard alleged in the state court complaint that the accident caused her to "sustain severe, permanent and permanently disabling injury; including injuries to her back and spine and the soft tissue structures thereof." She sought damages in excess of $50,000. Her husband also sued Brumit, alleging, among other things, loss of consortium.

The next day, Brumit notified State Auto that he had been sued. State Auto then sought a declaratory judgment in the district court that it had no duty to defend Brumit in the lawsuit because Brumit had breached the policy’s notice requirement. The parties filed cross-motions for summary judgment; the district court granted Brumit’s motion and denied State Auto’s. State Auto Prop. & Cas. Ins. Co. v. Brumit Servs., Inc. , 245 F.Supp.3d 1048 (S.D. Ill. 2017). The court concluded that Brumit’s 21-month delay in notifying State Auto about the accident was reasonable as a matter of law. This appeal followed.

II. Analysis

A. Standard of Review and Governing Law

This case comes to us on cross-motions for summary judgment with no disputed facts, so we review the district court’s legal conclusions de novo . "Where facts are not disputed, if a district court grants one party’s motion for summary judgment and denies the other party’s cross-motion, this court can reverse and award summary judgment to the losing party below." Glass v. Dachel , 2 F.3d 733, 739 (7th Cir. 1993). The parties agree that Illinois law applies. Our job is to apply Illinois law to the undisputed facts of this case.

B. Overview of Applicable Law

"In construing an insurance policy, we must ascertain and give effect to the intentions of the parties, as expressed in the policy language." West Am. Ins. Co. v. Yorkville Nat’l Bank , 238 Ill.2d 177, 345 Ill.Dec. 445, 939 N.E.2d 288, 293 (2010). "Unambiguous words in the policy are to be given their plain, ordinary, and popular meaning." Id. By contrast, ambiguous terms should be construed liberally in favor of coverage. Id. In short, Illinois courts construe insurance policies just like other contracts; the rule suggesting that courts should construe ambiguous provisions in favor of coverage is analogous to the general canon that a contract ought to be construed against the party that drafted it.

The Illinois Supreme Court has repeatedly held that notice provisions in insurance policies are reasonable. As the court explained in Barrington Consolidated High School v. American Insurance Co. , 58 Ill.2d 278, 319 N.E.2d 25, 27 (1974), "[a] provision in an insurance liability policy requiring an insured to give the insurer notice of an accident is a reasonable policy requirement, one which affords the insurer an opportunity to make a timely and thorough investigation and to gather and preserve possible evidence." These "are not merely technical requirements but are conditions precedent to an insurer’s contractual duties." Farmers Auto Ins. Ass’n v. Burton , 359 Ill.Dec. 599, 967 N.E.2d 329, 333 (Ill. App. Ct. 2012). Therefore, as the policy in this case provides, breach of a notice requirement absolves the insurance company of any obligation to defend or indemnify the insured. Id. , 359 Ill.Dec. 599, 967 N.E.2d at 334 (citing Country Mut. Ins. Co. v. Livorsi Marine, Inc. , 222 Ill.2d 303, 305 Ill.Dec. 533, 856 N.E.2d 338, 343 (2006) ).

When a notice provision becomes the subject of a dispute, Illinois courts have read such provisions as requirements that the insured provide notice within a reasonable time. See id. (citing Yorkville , 345 Ill.Dec. 445, 939 N.E.2d at 293–94 ). The Illinois Supreme Court considers five factors in assessing the reasonableness of a delay in giving notice: "(1) the specific language of the policy’s notice provision; (2) the insured’s sophistication in commerce and insurance matters; (3) the insured’s awareness of an event that may trigger insurance coverage; (4) the insured’s diligence in ascertaining whether policy coverage is available; and (5) prejudice to the insurer." Yorkville , 345 Ill.Dec. 445, 939 N.E.2d at 293–94. No one factor trumps the others in this totality-of-the-circumstances analysis. See Livorsi Marine , 305 Ill.Dec. 533, 856 N.E.2d at 346 (explaining that an insurer need not be prejudiced in order to insist on reasonable notice of an accident).

C. Application of the Yorkville Factors

The district court held that each Yorkville factor weighed in favor of Brumit’s position that his 21-month delay in notifying State Auto was reasonable. We disagree. Instead, we conclude that each factor tilts in favor of the unreasonableness of the delay. We discuss each factor in turn.

1. Policy Language

We begin with the language of the policy. Its terms are unmistakably clear: State Auto will have "no duty" to defend an insured unless the insured provided "prompt notice" of the accident at issue, and the insured "must" report any accident. The notice provision is "couched in mandatory terms." Am. Standard Ins. Co. of Wis. v. Slifer , 395 Ill.App.3d 1056, 335 Ill.Dec. 653, 919 N.E.2d 372, 377 (2009) ; see also Andrews v. Foxworthy , 71 Ill.2d 13, 15 Ill.Dec. 648, 373 N.E.2d 1332, 1335 (1978) ("The use of the words ‘shall’ or ‘must’ is generally regarded as mandatory."). Because nobody can dispute that an accident occurred when Brumit backed his truck into Menard, the mandatory language in the policy imposed "a contractual obligation to promptly report" the accident. Slifer , 335 Ill.Dec. 653, 919 N.E.2d at 377.

Despite the unambiguous language, the district court concluded that it wouldn’t make sense for State Auto to want to know about "each and every accident its insureds are involved in," because its "phones would never stop ringing." State Auto , 245 F.Supp.3d at 1057. It cited the Illinois Supreme Court’s recognition that "[i]t cannot be plausibly said that by the notice provision the insurer intended that every occurrence or accident had to be reported to it." Barrington Consol. High Sch. , 319 N.E.2d at 28. However, the district court took that statement out of context; the Illinois Supreme Court was referring to the distinction between accidents covered by the policy and those not covered. See id. (the provision "obviously refers to an occurrence or accident covered by the policy"). Of course, the insurance company wouldn’t want to know about an accident if "there was no ground for ... a reasonable person to believe that a claim under the policy would be made." Id. But where such a ground does exist, the insured has a duty to report the accident. It is not our job to determine how many phone calls an insurance company is equipped to receive.

Here, any reasonable driver would recognize that the accident might lead to a claim. Although everyone at the scene on the day of the accident apparently viewed it as minor, it is fairly common for individuals involved in automobile accidents to experience injuries that don’t manifest themselves until days, weeks, or even months after the accident. Brumit even testified that he was aware such latent injuries might arise, indicating that he knew Menard might later claim to be injured as a result of the accident. Even more directly, every reasonable driver...