Chandler v. Doherty, 4-98-0078
| Decision Date | 04 November 1998 |
| Docket Number | No. 4-98-0078,4-98-0078 |
| Citation | 702 N.E.2d 634,234 Ill.Dec. 294,299 Ill.App.3d 797 |
| Parties | , 234 Ill.Dec. 294 Verna B. CHANDLER and James E. Chandler, Plaintiffs, v. Otis L. DOHERTY, Defendant (Verna B. Chandler and James E. Chandler, Garnishors-Appellees, v. American Fire & Casualty Company, Garnishee, Citation Respondent-Appellant). |
| Court | United States Appellate Court of Illinois |
Robert Marc Chemers, Daniel G. Wills (argued), Pretzel & Stouffer, Chartered, Chicago, for American Fire & Casualty Company.
Michael R. Cornyn (argued), Thomas, Mamer & Haughey, Champaign, Reino C. Lanto, Jr., Rantoul, for Verna B. Chandler.
American Fire & Casualty Company (American Fire) refused to defend Otis Doherty when Doherty was sued in the circuit court of Champaign County by Verna and James Chandler for injuries received in an automobile accident. Verna was driving the Chandlers' car when it collided with the car driven by Doherty. Doherty had an auto insurance policy with American Fire. A default judgment was entered against Doherty. The Chandlers then sued American Fire to collect the judgment. The trial court granted summary judgment to the Chandlers, holding American Fire breached its contract with Doherty by failing to defend the Chandlers' complaint, which alleged facts raising the potential for coverage. The trial court ruled extrinsic facts are not allowed to defeat the duty to defend where American Fire did not file a declaratory judgment action.
American Fire appeals, contending all parties involved knew the car being driven by Doherty was not covered under its policy, thus absolving it from a duty to defend. Further, American Fire contends even if it did have a duty to defend, the trial court's award of interest on the judgment obtained by the Chandlers from the date that judgment was rendered is error. We affirm.
In 1984, Doherty purchased a new Chevrolet Celebrity and obtained insurance with American Fire from the Facer agency in Rantoul. American Fire issued an automobile liability policy for the Chevrolet with Doherty as named insured with an effective policy period of March 28, 1987, to March 28, 1988, with single limits of liability of $300,000 for each accident. The policy included an exclusion from coverage, which stated:
"B. We do not provide Liability Coverage for the ownership, maintenance or use of:
* * *
2. Any vehicle, other than your covered auto, which is:
a. owned by you; or
b. furnished or available for your regular use."
In 1986, Doherty received a 1962 Volkswagen automobile as a gift. He replaced the Volkswagen's body with the replica fiberglass body of a 1927 Bugatti; referred to by all parties as "the replicar." Doherty drove the replicar only for recreational purposes such as in parades or for display.
Doherty went to the Facer agency prior to May 1987 to see about adding the replicar to his policy with American Fire. He was told American Fire would not insure the car because it was modified. Doherty did not obtain coverage for the replicar elsewhere. He ultimately succeeded in obtaining insurance with American Fire for the replicar three months after the accident with the Chandlers.
On May 17, 1987, while Doherty was driving the replicar, he was involved in a collision with a car driven by Verna Chandler. Doherty reported the accident to Facer shortly afterward and was told the replicar was not on his policy with American Fire.
On November 15, 1988, the Chandlers filed an action seeking damages from Doherty for personal injuries they allegedly sustained in the accident. In their complaint, the Chandlers alleged Doherty negligently operated "his motor vehicle," thereby causing the collision. Notice of the action was given to Facer on December 20, 1988, in a letter from counsel for Doherty, who requested a defense from American Fire. In that letter, counsel stated if he did not receive a response to the tender within 10 days he would assume coverage was being declined and he would file a declaratory action against American Fire.
On December 23 Facer forwarded the letter to American Fire. American Fire responded on March 3, 1989, by advising Doherty his policy indicated the 1962 Volkswagen was not added to the policy until August 7, 1989, several months after the date of loss and "unfortunately we will be unable to provide you any coverage for this accident." Doherty's counsel was also advised there was no coverage for the replicar. Neither Doherty nor American Fire filed a declaratory judgment action regarding American Fire's coverage.
Doherty did not appear and defend the Chandlers' lawsuit. A default judgment on liability only was entered against him on November 30, 1990. Notice of default was served upon Doherty on April 3, 1991. On April 8, Doherty sent a letter to American Fire with a copy of the notice of default and a letter he received from the Chandlers' attorney advising him it appeared American Fire was wrongfully refusing to defend him. American Fire never responded to Doherty's request for representation.
On August 19, 1993, a jury awarded the Chandlers damages in the amount of $1,618,678 and judgment was entered against Doherty in that amount.
On December 16, 1993, counsel for Doherty demanded American Fire pay the judgment. American Fire responded on March 2, 1994, advising there would be no payment and stating the replicar was not an insured vehicle.
In later citation proceedings, Doherty assigned any rights he had under the American Fire policy to the Chandlers on October 4, 1994. On August 21, 1995, the Chandlers filed their amended complaint for citation and affidavit for order of garnishment against American Fire. American Fire initially answered the amended complaint on February 14, 1996. Both American Fire and the Chandlers filed motions for summary judgment and American Fire filed a motion for leave to withdraw its answer and a motion to dismiss.
After an exchange of memoranda supporting their respective summary judgment motions, counsel for the Chandlers and for American Fire argued their motions before the trial court on October 31, 1996. In a memorandum opinion, the trial court granted partial summary judgment for the Chandlers on December 1, 1997, finding "American breached its contract with Doherty by failing to defend when the complaint alleged facts raising the potential for coverage." The trial court denied the Chandlers' motion for summary judgment in respect to their cause of action for bad faith. The court also denied American Fire's summary judgment motion and its motion to dismiss. The court entered a judgment order January 17, 1998, in favor of the Chandlers in the amount of the $300,000 policy limit plus statutory interest at 9% on the sum of $1,618,678 from August 19, 1993, the date the judgment was entered against Doherty.
The trial court found no reason to delay enforcement or appeal of its order pursuant to Supreme Court Rule 304(a) (155 Ill.2d R. 304(a)). Timely notice of appeal was filed on January 27, 1998.
American Fire argues it had no duty to defend Doherty as a matter of law because the car he was driving in the accident with the Chandlers was not an insured vehicle under the policy and there was a policy exclusion specifically addressing that circumstance. Further, American Fire contends Doherty, as well as American Fire, knew this was the case at all relevant times. Thus, it was error for the trial court to grant summary judgment to the Chandlers.
A trial court's grant of summary judgment is subject to a de novo review upon appeal. Outboard Marine Corp. v. Liberty Mutual Insurance Co., 154 Ill.2d 90, 102, 180 Ill.Dec. 691, 607 N.E.2d 1204, 1209 (1992); Sandstrom v. De Silva, 268 Ill.App.3d 932, 935, 206 Ill.Dec. 340, 645 N.E.2d 345, 347 (1994). Under Illinois law an insured contracts for and has a right to expect two separate and distinct duties from an insurer: (1) the duty to defend him if a claim is made against him; and (2) the duty to indemnify him if he is found legally liable for the occurrence of a covered risk. Conway v. Country Casualty Insurance Co., 92 Ill.2d 388, 394, 65 Ill.Dec. 934, 442 N.E.2d 245, 247 (1982); Empire Fire & Marine Insurance Co. v. Clarendon Insurance Co., 267 Ill.App.3d 1022, 1026, 204 Ill.Dec. 889, 642 N.E.2d 790, 793 (1994). The duty to defend an insured is much broader than the duty to indemnify. Crum & Forster Managers Corp. v. Resolution Trust Corp., 156 Ill.2d 384, 393-94, 189 Ill.Dec. 756, 620 N.E.2d 1073, 1079 (1993). In Illinois, an insurer may be required to defend its insured even when there will ultimately be no obligation to indemnify. Zurich Insurance Co. v. Raymark Industries, Inc., 118 Ill.2d 23, 52, 112 Ill.Dec. 684, 514 N.E.2d 150, 163 (1987).
Under Illinois law, a liability insurer's duty to defend arises when the insured tenders defense of a suit against him that alleges facts which, when taken as true, raise the potential for coverage occurring during the effective policy period. Empire Fire & Marine, 267 Ill.App.3d at 1026, 204 Ill.Dec 889, 642 N.E.2d at 793. It is the law of this state that in determining whether it has a duty to defend a suit, an insurer is limited to comparing the bare allegations of the complaint with the face of the policy of insurance. Crum & Forster, 156 Ill.2d at 393, 189 Ill.Dec. 756, 620 N.E.2d at 1079; Outboard Marine, 154 Ill.2d at 107-08, 180 Ill.Dec. 691, 607 N.E.2d at 1212; United States Fidelity & Guaranty Co. v. Wilkin Insulation Co., 144 Ill.2d 64, 73, 161 Ill.Dec. 280, 578 N.E.2d 926, 930 (1991); Thornton v. Paul, 74 Ill.2d 132, 144, 23 Ill.Dec. 541, 384 N.E.2d 335, 339 (1978); Maryland Casualty Co. v. Peppers, 64 Ill.2d 187, 193, 355 N.E.2d 24, 28 (1976).
The threshold a complaint must meet to present a claim for potential coverage, and thereby raise a duty to defend, is minimal. West Bend Mutual Insurance Co. v....
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