Founders Ins. Co. v. Munoz

• Decision Date: 20 May 2010
• Docket Number: 108612.,No. 108605,108605
• Citation: 341 Ill.Dec. 485,930 N.E.2d 999,237 Ill.2d 424
• Parties: FOUNDERS INSURANCE COMPANY, Appellant,v.Albert L. MUNOZ et al., Appellees.Safeway Insurance Company, Appellant,v.Flavio Fernandez et al., Appellees.
• Court: Illinois Supreme Court

237 Ill.2d 424
930 N.E.2d 999
341 Ill.Dec. 485

FOUNDERS INSURANCE COMPANY, Appellant,
v.
Albert L. MUNOZ et al., Appellees.
Safeway Insurance Company, Appellant,
v.
Flavio Fernandez et al., Appellees.

Nos. 108605, 108612.

Supreme Court of Illinois.

May 20, 2010.

930 N.E.2d 1000

Shari S. Shelmadine, Chicago, for appellant in 108605.

Peter C. Morse, Cynthia Ramirez, Morse, Bolduc & Dinos, Chicago, for appellees in 108605 and 108612.

David M. Hundley, Chicago, for amicus curiae Ill. Trial lawyers Ass'n in 108605.

Parrillo, Weiss & O'Halloran, Chicago (Michael J. O'Halloran, Keely Patricia Hillison, of counsel), for appellant in 108612. OPINION Chief Justice FITZGERALD delivered the judgment of the court, with opinion.

In these consolidated appeals, we consider the validity of an automobile policy exclusion that precludes liability coverage when the person using the vehicle does not have a “reasonable belief” that he or she is “ entitled” to do so. In each of the six underlying cases, the trial court ruled that the coverage exclusion was applicable to a driver who did not have a valid license. The appellate court, however, held that the coverage exclusion is ambiguous, and reversed the trial court's no-coverage ruling in five of the six cases. 389 Ill.App.3d 744, 757, 329 Ill.Dec. 64, 905 N.E.2d 902 (2009). The appellate court affirmed the trial court's no-coverage ruling in the sixth case, but on different grounds. 389 Ill.App.3d at 756-57, 329 Ill.Dec. 64, 905 N.E.2d 902.

For the reasons set forth below, we hold that the policy exclusion precludes liability coverage in each of the six cases, and

930 N.E.2d 1001

affirm in part and reverse in part the judgment of the appellate court.BACKGROUND

The present litigation arises out of six automobile accidents. Five of the accidents implicate coverage under uniform automobile policies issued by Founders Insurance Company. The sixth accident implicates coverage under an automobile policy issued by Safeway Insurance Company. We examine first the Founders policy and the five associated accidents.

Founders Cases

Part I of the Founders automobile policy details the liability coverage, stating in relevant part that Founders agrees:

“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,

or

B. property damage

arising out of the operation, maintenance or use of the owned automobile or any non-owned automobile 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 * * *.”

“Persons insured,” for purposes of Part I liability coverage with respect to an owned automobile, include “the named insured” and “any other person using such automobile with the permission of the named insured, provided the actual use thereof is within the scope of such permission.” ¹

The Founders policy also contains several exclusions to Part I liability coverage. Relevant here is exclusion (p) under which Part I coverage does not apply “to bodily injury or property damage arising out of the use by any person of a vehicle without a reasonable belief that the person is entitled to do so.”

Five of the underlying automobile accidents involved vehicles insured through Founders and driven by either the named insured, or a permissive user of the insured vehicle. At the time of the accidents, none of the five drivers had a valid license, i.e., either the driver never obtained a license or the license was suspended. Each of these five accidents also involved a vehicle insured through Allstate Insurance Company, which made payments to its insureds for bodily injury and/or property damage resulting from the accidents. Thereafter, Allstate, as subrogee of its insureds, filed a complaint against each of the persons driving a vehicle insured through Founders seeking to recoup the monies Allstate paid to its insureds.

In response to each of Allstate's subrogation actions, Founders filed a complaint for declaratory judgment in the Cook County circuit court, naming as defendants Founders' own insured, the driver of the vehicle if the driver was not the named insured, and Allstate, as subrogee of its insureds.² In each complaint, Founders sought a declaration that it owes no duty

930 N.E.2d 1002

to defend or indemnify its named insured or the driver in connection with the Allstate lawsuit, and that Allstate is not entitled to recover any monies under the Founders policy. Founders maintained that under exclusion (p), because the driver did not have a valid license at the time of the accident, he could not have had a “reasonable belief” that he was “entitled” to drive the vehicle.

In each case, the parties filed cross-motions for summary judgment. Allstate argued that the reasonable- belief exclusion violates public policy as expressed by Illinois' mandatory insurance statute, and is an improper attempt by Founders to penalize its insureds for conduct (driving without a valid license) that the legislature has already penalized. Allstate also argued that the exclusion is ambiguous and must be construed in favor of coverage. In response, Founders argued that the reasonable-belief exclusion unambiguously applies to unlicensed drivers, and that an insurer may limit its risks without violating Illinois' mandatory insurance statute.

In each of the five cases, the trial court granted Founders' motion for summary judgment and denied Allstate's motion for summary judgment. The trial court found that because the driver did not possess a valid license, he did not have a reasonable belief that he was entitled to drive the vehicle. Allstate appealed the trial court's ruling in each case.

Safeway Case

The sixth underlying automobile accident implicates coverage under a Safeway policy very similar to the Founders policy. Part I of the Safeway policy provides liability coverage for bodily injury or property damage, and defines “persons insured,” with respect to the owned automobile, as “the named insured” or “any other person using the owned automobile to whom the named insured has given permission, provided the use is within the scope of such permission.” The Safeway policy also contains several coverage exclusions. Relevant here is exclusion ( o), under which Part I liability coverage does not apply to “any person operating an automobile without a reasonable belief that he or she is entitled to do so.”

The accident at issue involved two vehicles, one of which was insured through Safeway and driven by a permissive user whose license was suspended. The other vehicle involved in the accident was insured through Allstate. After Allstate made payments to its insured for property damage and bodily injury resulting from the accident, Allstate filed a subrogation action against the driver of the vehicle insured through Safeway. In response, Safeway filed a complaint for declaratory judgment in the Cook County circuit court against its insured, the driver of the vehicle insured through Safeway, and Allstate, as subrogee of its insureds.³ Safeway sought a declaration that, pursuant to exclusion ( o), because the driver did not have a valid license at the time of the accident, Safeway is not obligated to defend or indemnify the driver in connection with the Allstate lawsuit.

Safeway and Allstate filed cross-motions for summary judgment making essentially the same arguments that Founders and Allstate raised in the other five cases. The trial court granted Safeway's motion and denied Allstate's motion. Allstate appealed.

930 N.E.2d 1003

Appellate Review

The six cases were consolidated for review in the appellate court.⁴ The appellate court held that the coverage exclusion in the Founders and Safeway policies was ambiguous because the word “entitled” could reasonably refer to permission or consent, or to legal authority, i.e., licensure. 389 Ill.App.3d at 755, 329 Ill.Dec. 64, 905 N.E.2d 902. Because Founders and Safeway, as drafters of the policies, created the ambiguity, the appellate court construed the exclusion against the insurers and in favor of coverage. 389 Ill.App.3d at 756, 329 Ill.Dec. 64, 905 N.E.2d 902. The appellate court concluded: “[A]lthough coverage is excluded for persons using the insured vehicle without a reasonable belief that he or she was a permissive driver, the exclusion does not necessarily encompass unlicensed drivers.” 389 Ill.App.3d at 756, 329 Ill.Dec. 64, 905 N.E.2d 902. With the exception of the Munoz case, the appellate court reversed the grant of summary judgment in each case. 389 Ill.App.3d at 757, 329 Ill.Dec. 64, 905 N.E.2d 902. As to the Munoz case, the appellate court affirmed the trial court's grant of summary judgment in favor of Founders, relying on the named-driver exclusion in the policy which expressly precludes coverage for any claim or suit arising out of the operation of any automobile by Munoz. 389 Ill.App.3d at 757, 329 Ill.Dec. 64, 905 N.E.2d 902.

Founders and Safeway each filed a petition for leave to appeal (Nos. 108605 and 108612, respectively), which we allowed (210 Ill. 2d R. 315) and consolidated for review. Allstate has requested cross-relief in the Munoz case. See 155 Ill. 2d R. 318(a). We also allowed the Illinois Trial Lawyers Association to file a brief amicus curiae. See 210 Ill. 2d R. 345.

ANALYSIS

The parties to these six cases chose to litigate Founders' and Safeway's declaratory judgment actions by means of cross-motions for summary judgment. By doing so, they agree that no factual issues exist and that the disposition of these cases turns only on our resolution of purely legal issues. See Exelon Corp. v. Department of Revenue, 234 Ill.2d. 266, 285, 334 Ill.Dec. 824, 917 N.E.2d 899 (2009). Accordingly, our review proceeds de novo. See Hobbs v. Hartford Insurance Co. of the Midwest, 214 Ill.2d 11, 17, 291 Ill.Dec. 269, 823 N.E.2d 561 (2005); Crum & Forster Managers Corp. v. Resolution Trust Corp., 156 Ill.2d...