GUILLEN EX REL. GUILLEN v. Potomac Ins. Co.

• Citation: 751 N.E.2d 104,323 Ill. App.3d 121,256 Ill.Dec. 51
• Decision Date: 24 May 2001
• Docket Number: No. 1-00-2314.,1-00-2314.
• Parties: Denise GUILLEN, a Minor, by Suamy GUILLEN, Her Father and Next Friend, Plaintiff-Appellant and Cross-Appellee, v. POTOMAC INSURANCE COMPANY OF ILLINOIS, Defendant-Appellee and Cross-Appellant.
• Court: United States Appellate Court of Illinois

751 N.E.2d 104

323 Ill. App.3d 121

256 Ill.Dec. 51

Denise GUILLEN, a Minor, by Suamy GUILLEN, Her Father and Next Friend, Plaintiff-Appellant and Cross-Appellee, v. POTOMAC INSURANCE COMPANY OF ILLINOIS, Defendant-Appellee and Cross-Appellant.

No. 1-00-2314.

Appellate Court of Illinois, First District, Fourth Division.

May 24, 2001.

Rehearing Denied June 26, 2001.

Anthony C. Valiulis, Wendy B. Kahn, Much, Shelist, Freed & Denenberg, Chicago, for Appellant.

Quinlan & Crisham, Ltd. (Thomas M. Crisham, John P. O'Malley, of counsel), Chicago, for Appellee.

Justice SOUTH delivered the opinion of the court:

This lawsuit arises from an insurance policy issued by Potomac Insurance Company of Illinois (Potomac), to Ezequiel and Maria Ortiz (insureds/defendants). The initial policy was issued for the period of October 12, 1991 to October 12, 1992, which contained no lead exclusion provision. Two additional policies were issued during the periods of October 12, 1992 to October 12, 1993, and October 12, 1993 to October 12, 1994. The October 12, 1993, policy contained a lead exclusion provision which provides in pertinent part:

"This insurance does not apply to:

1. `Bodily injury', `property damage', `personal injury', or `advertising injury' arising out of, resulting from, or in any way caused or contributed to by the actual, alleged or threatened ingestion, inhalation, absorption of, exposure to or presence of lead in any form emanating from any source, or

2. Any loss, cost or expense arising out of, resulting from or in any way related to any:

a. claim, suit, request, demand, directive or order by any person * * * that any `insured' or others test for, monitor, clean up, remove, contain, treat, detoxify, neutralize or in any way respond to, or assess the effects of lead in any form, or to any

b. claim or suit on behalf of any person, * * * for damages because of testing for, monitoring, cleaning up, removing, containing, treating, or detoxifying or neutralizing, or in any way responding to, or assessing the effects of lead in any form.

We shall not be obligated to investigate, defend or indemnify any `insured' or any person or entity claiming any right under the policy, for the matters excluded in this endorsement."

This exclusion included all subsequent Potomac policies.

In May 1996, plaintiff, Denise Guillen, a minor, by Suamy Guillen, her father and next friend, filed a negligence complaint against the insureds. The insureds owned property located at 2700-02 North Sacramento in Chicago, Illinois. Plaintiff lived at the property between October 1993 to September 1995. The complaint alleged that while a tenant in one of the insureds' buildings, the minor plaintiff was poisoned due to exposure to lead. Plaintiff asserted that she sustained substantial and permanent injury due to this lead poisoning, which has affected her educational, social, behavioral, vocational, and intellectual development. This complaint was based upon negligence, as well as violations of the Chicago Municipal Code (Chicago Municipal Code § 5-12-110 (amended November 6, 1991), § 13-196-540(d) (1990), §§ 7-4-030, 7-4-110 (added November 5, 1993)) and the Lead Poisoning Prevention Act (410 ILCS 45/1, et seq. (West 1996)).

Insureds tendered plaintiff's claims to Potomac. However, Potomac denied coverage and refused to defend insureds due to the lead hazard exclusion added to the October 12, 1993, policy. Potomac did not file a declaratory judgment action.

In July 1997, the insureds entered into a settlement agreement with plaintiff. Insureds agreed to pay plaintiff "$600,000, to be satisfied solely through the assignment to Plaintiff * * * of * * * all of their rights to payment, if any, from General Accident Insurance. * * * By this paragraph, Defendants are not assigning to Plaintiff any of their rights to insurance protection or coverage otherwise provided to Defendants under the Policy, but only their rights to payments, if any, under the Policy arising out of the claims asserted against Defendant in the Action or settlement thereof, and only to the extent permitted by law or otherwise." The settlement agreement also contained a mutual release provision which stated:

"5. Mutual Releases. Plaintiff hereby releases Defendants * * * from all claims, whether in law or in equity, that Plaintiff now or could in the future have against them arising out of any matter occurring prior to the date of this agreement and which were asserted in the Action or are in any way related to the allegations made in the Action. This release, however, does not include claims arising out of a failure of a party to perform in conformity with the terms of this agreement.

Defendants * * * hereby release Plaintiff from all claims, whether in law or in equity, that they now or could in the future have against Plaintiff arising out of any matter occurring prior to the date of this agreement and which were asserted in the Action or are in any way related to the allegations made in the Action. This release, however, does not include claims arising out of a failure of a party to perform in conformity with the terms of this agreement."

In March 1998, plaintiff filed an amended complaint for declaratory judgment against Potomac. Plaintiff alleged that proper notice of the addition of the lead exclusion was not given to the insureds and, therefore, did not become a part of the policy or preclude coverage of the underlying case. Plaintiff further alleged that since Potomac wrongfully refused to defend the insureds, it was estopped from asserting any defenses under the policy. Plaintiff further argues that Potomac has a duty to indemnify the insureds and to honor the settlement agreement entered into with the minor plaintiff.

In May 1998, Potomac filed an answer to plaintiffs amended complaint raising 14 affirmative defenses.

The parties filed cross-motions for summary judgment. In Potomac's motion for summary judgment, it asserted that on July 28, 1993, 75 days prior to renewal, it had provided written notice of the addition of the lead exclusion to the insureds. As such, it maintained that there was no duty to defend the insureds since the lead exclusion barred coverage for plaintiffs' lawsuit. Furthermore, Potomac argues that it has no duty to indemnify the insureds because it is not "legally obligated to pay damages to the plaintiff, because no judgment exists against the defendants and they have not paid any money pursuant the settlement agreement."

On June 23, 2000, the circuit court found that Potomac had breached its duty to defend the insureds and was estopped from raising any policy defenses. However, it granted summary judgment in favor of the Potomac on the issue of Potomac's duty to indemnify. Both parties have filed timely cross-appeals.

Plaintiff raises one issue on appeal: whether the trial court erred by permitting Potomac to raise its claimed defenses that there was a failure of a condition precedent under the policy or that its insureds were not "legally obligated to pay" the $600,000 they agreed to pay minor plaintiff even though the trial court concluded that Potomac breached its duty to defend and was estopped from raising any defenses.

Potomac raises three issues on appeal: (1) whether plaintiff, as assignee, has proven all elements of a prima facie claim for indemnification under Potomac's policies where the assignors had no rights under the policies to assign to plaintiff; (2) whether the trial court erred in determining that Potomac had not maintained proof of mailing of the notification of the adoption of the lead exclusion endorsement to the policy; and (3) whether the trial court erred in concluding that Potomac breached a defense obligation under its policies and was therefore estopped.

The insureds have also submitted a joint reply and cross-appellee's brief to the court. In their brief, insureds support plaintiff's argument on appeal and additionally maintain that because the insureds' "legal obligation to pay" the minor plaintiff is a condition precedent to coverage under the policy, the estoppel doctrine bars insurer from raising it as a defense. The issues raised by the parties on appeal are essentially subissues to two primary issues. First, we must determine whether the insurer, Potomac, had a duty to defend its insureds and, if so, whether that duty was breached. Second, we must determine whether Potomac had a duty to indemnify its insureds.

In Illinois, an insurer's duty to defend is separate and distinct from its duty to indemnify, with the duty to defend being broader than the duty to indemnify. Outboard Marine Corp. v. Liberty Mutual Insurance Co., 154 Ill.2d 90, 125, 180 Ill. Dec. 691, 607 N.E.2d 1204, 1220 (1992). In determining whether there is a duty to defend, a court looks to the allegations in the underlying complaint and compares those allegations to the relevant provisions in the insurance policy. Outboard Marine, 154 Ill.2d at 107-08, 180 Ill.Dec. 691, 607 N.E.2d at 1212. If the facts alleged in the underlying complaint fall within or potentially fall within the coverage of the policy, the insurer's duty to defend is triggered. Outboard Marine, 154 Ill.2d at 108, 180 Ill.Dec. 691, 607 N.E.2d at 1212.

If an insurer takes the position that the complaint is not covered by the language contained in the policy, it must either defend the suit under a reservation of rights or seek a declaratory judgment that there is no coverage. Clemmons v. Travelers Insurance Co., 88 Ill.2d 469, 475, 58 Ill.Dec. 853, 430 N.E.2d 1104, 1107 (1981). If the insurer fails to take either of these steps, it will be estopped from asserting any policy defenses to coverage. Clemmons, 88 Ill.2d at 475, 58 Ill.Dec. 853, 430 N.E.2d at 1107.

Our review of the trial court's entry of summary judgment is de novo. Outboard Marine, 154 Ill.2d at 102,

180 Ill.Dec. 691,

607 N.E.2d at 1209. The construction of an insurance policy is also a question...