Conway v. Country Cas. Ins. Co.

• Decision Date: 02 July 1981
• Docket Number: No. 80-505,80-505
• Parties: , 53 Ill.Dec. 175 Philip A. CONWAY, Plaintiff-Appellee, v. COUNTRY CASUALTY INSURANCE COMPANY, a Mutual Association, Defendant-Appellant.
• Court: United States Appellate Court of Illinois

Page 559

423 N.E.2d 559

97 Ill.App.3d 768, 53 Ill.Dec. 175

Philip A. CONWAY, Plaintiff-Appellee, v. COUNTRY CASUALTY INSURANCE COMPANY, a Mutual Association Defendant-Appellant.

No. 80-505.

Appellate Court of Illinois, Third District.

July 2, 1981.

George C. Hupp, Sr., Hupp, Irion & Reagan, Ottawa, for defendant-appellant.

R. J. Lannon, Jr., and Robert M. Hansen, Herbolsheimer, Lannon, Henson & Duncan, P. C., LaSalle, for plaintiff-appellee.

BARRY, Justice.

Defendant insurer, Country Casualty Insurance Company, appeals from a judgment entered in the circuit court of LaSalle County in favor of plaintiff insured, Philip A. Conway. The case proceeded to a bench trial on a stipulation of facts, which revealed the following.

On December 4, 1973, plaintiff Conway was involved in an automobile collision with a vehicle driven by Hayfa Assalley. Assalley subsequently filed a personal injury suit against Conway in the circuit court of LaSalle County, seeking to recover damages for injuries sustained in the accident. At the time of the accident Conway was an insured under a family combination insurance policy issued by the defendant insurer. The bodily injury liability limit of the policy was $10,000. At no time was Conway in arrears in his premium payments.

Prior to the initiation of litigation by Ms. Assaley on February 19, 1975, the defendant insurer had been reimbursing her for expenditures made that were a direct result of her injuries, and compensating her for lost income under an advanced payment program. Through October 24, 1974, $9,736.79 had been paid to Ms. Assalley as advanced payments.

Subsequently, an agreement was reached between Ms. Assalley and the defendant insurer, with Conway's approval, whereby the insurer would pay to Ms. Assalley $10,742.35, representing $742.35 property damage and the bodily injury liability limit of $10,000. Accordingly, on March 11, 1975, the insurer paid Ms. Assalley $900.21 in full payment. However, Ms. Assalley did not release the plaintiff Conway from liability in exchange for this payment, and she continued to pursue her personal injury suit against him.

Thereafter, on March 24, 1975, the defense of the Assalley/Conway lawsuit was tendered to the insurer by the law firm of Herbolsheimer, Lannon and Henson. The insurer, however, took the position that because it had already paid the policy limits to Ms. Assalley, it had been discharged of its obligation to defend Mr. Conway. The insurer informed the Herbolsheimer firm of its decision not to afford a defense for Conway in a letter dated April 22, 1975. Accordingly, the Herbolsheimer firm handled Conway's defense, and negotiated a settlement with Ms. Assalley on January 3, 1977. Under the terms of the settlement, Conway personally paid $10,000 to Ms. Assalley in exchange for a release. The firm of Herbolsheimer, Lannon and Henson thereafter submitted to Mr. Conway a statement for monies advanced and services rendered in defense of the Assalley lawsuit in the amount of $2,386.95. Country Casualty Insurance Company did not contest this amount.

Plaintiff Conway subsequently brought the instant action against the defendant insurer, seeking to recover the $10,000 he personally paid in exchange for the release of the tort plaintiff, and the reasonable costs of defense. Following a bench trial, judgment was entered for plaintiff. In an amended order, the court awarded plaintiff $10,000 (representing cost of settlement) plus $2,386.95 (representing legal fees) and prejudgment interest in the amount of $2,667.72. ¹

The defendant insurer raises three issues on appeal: First, whether the trial court erred in holding that the insurer's payment of the bodily injury liability limits of the policy to the tort plaintiff did not discharge its duty to afford a defense for the plaintiff insured; second, if a duty to defend existed notwithstanding the payment of the policy limits, whether the trial court erred in awarding to the plaintiff insured damages for the money expended by him in obtaining a settlement with the tort plaintiff; and finally, if judgment for the plaintiff was proper, whether the trial court erred in awarding pre-judgment interest on any portion of the damages awarded.

The first issue which we will consider is whether the payment of the bodily injury liability limits of $10,000 by the defendant insurer to Ms. Assalley discharged it of its duty to afford a defense for plaintiff insured Conway. In resolving this issue we are naturally guided by the terms of the policy. Under Section I of the insurance policy issued by defendant, the insurer obligated itself to do the following:

"To pay on behalf of the Insured all sums which the Insured shall become legally obligated to pay as damages because of:

A. bodily injury, including death resulting therefrom, sustained by any person, hereinafter called 'bodily injury';

B. injury to or destruction of property, including loss of use thereof, hereinafter called 'property damage';

caused by accident arising out of the ownership, maintenance or use, including loading or unloading, of a Vehicle as defined herein or of any Non-Owned vehicle and the Company shall defend any suit alleging such bodily injury or property damage and seeking damages which are payable under the terms of this policy, even if any of the allegations of the suit are groundless, false or fraudulent; but the Company may make such investigation and settlement of any claim or suit as it deems expedient.

The Company shall not be obligated to pay any claim or judgment or to defend any suit or prosecute or maintain any appeal after the applicable limits of the Company's liability have been exhausted by payment of any judgments or settlements."

It is the insurer's position that because it had paid the full amount of its coverage under the policy to the tort plaintiff, subsequent to March 11, 1975, there remained no "damages which are payable under the terms of the policy." As a consequence, under the policy provisions quoted above the obligation to defend was terminated.

In support of its position, defendant principally relies upon Denham v. LaSalle-Madison Hotel Co. (7th Cir. 1948), 168 F.2d 576, and Oda v. Highway Insurance Co. (1963), 44 Ill.App.2d 235, 194 N.E.2d 489. In Denham, the LaSalle-Madison Hotel Company was the insured under a casualty policy issued by the plaintiff insurer, which indemnified the insured against liability for damage to or loss of property by a guest or invitee of the hotel. As the result of a fire, approximately 250 persons suffered property damage, and made claims against the hotel in excess of $100,000. The policy provided that "(t) he limit of underwriter's liability for any one occurrence or catastrophe during the Policy period is $10,000 * * * for all loss of and damage to property of any claimant or claimants." The insurer tendered $10,000, and took the position that this action terminated its contractual obligation to afford a defense for the hotel. The pertinent policy language provided:

"It is further agreed that as respects insurance afforded by this policy, Underwriters shall

"(1) Defend the Assured in his name and behalf any suit against the Assured alleging such loss and seeking damages on account thereof, even if such suit is groundless, false or fraudulent * * *."

In accepting the insurer's contention, the count concluded:

"Numerous cases are cited wherein the courts have considered a similar provision. It would serve no useful purpose to enter into an analysis of such cases as they all depend upon the phraseology of the particular provision under consideration. By analogy, however, they are of no benefit to the defendant's contention. True, paragraph (1) gives some color to the defendant's argument, but that paragraph is limited to the phrase which proceeds it, 'as respects insurance afforded by this policy.' Upon plaintiff's tender of $10,000, its liability for the payment of losses was extinguished. It was only obligated to defendant 'as respects insurance afforded by this policy,' and there being no further insurance afforded, we are of the view that its obligation to defend was likewise terminated. Defendant's theory would produce the incongruous situation that plaintiff would have a continuing obligation to defend, notwithstanding its obligation to pay has been exhausted. We are of the view that no such liability was intended by the provision in question and that it cannot reasonably be so construed." 168 F.2d at 584.

The appellate court in Oda relied upon Denham in holding that the insurer's payment of the policy limits discharged its duty to defend the insured. However, the policy language in Oda which related to the duty to afford a defense was unlike the language of the policy in Denham, and is more similar to the language of the insurance policy in the instant case. The policy in Oda provided that the insurer was obligated to " 'defend any suit against the insured alleging such injury, sickness, disease or destruction and seeking damages on account thereof, even if such suit is groundless, false or fraudulent; but the Company may make such investigation, negotiations and settlement of any claim or suit as it deems expedient.' " 44 Ill.App.2d at 243, 194 N.E.2d at 494.

Although the Oda court apparently did not believe the difference in policy language warranted a departure from the Denham holding, such was not the case in Landando v. Bluth (N.D.Ill.1968), 292 F.Supp. 975, which is cited to us by the instant plaintiff. In Landando, defendant Bluth was insured under an automobile liability insurance policy issued by the Security Insurance Company. The bodily injury liability limit of this policy was $25,000. The provision of the policy detailing the insurer's obligation to afford a defense is identical to that of the policy in the instant case except it did not contain a paragraph relieving the insurer of its duty to defend in the situation...