International Surplus Lines Ins. Co. v. Pioneer Life Ins. Co. of Illinois
| Decision Date | 29 November 1990 |
| Docket Number | No. 1-88-3617,1-88-3617 |
| Citation | 209 Ill.App.3d 144,568 N.E.2d 9,154 Ill.Dec. 9 |
| Parties | , 154 Ill.Dec. 9 INTERNATIONAL SURPLUS LINES INSURANCE COMPANY, Plaintiff-Appellee, v. PIONEER LIFE INSURANCE COMPANY OF ILLINOIS, Defendant-Appellant. |
| Court | United States Appellate Court of Illinois |
Francis J. Higgins and J. William Hayton, Bell, Boyd & Lloyd, Chicago, for defendant-appellant.
Edward F. Ruberry, Jeffrey A. Goldwater, Carlos Del Carpio, Timothy I. McArdle (Brinton, Bollinger & Ruberry, of counsel), Chicago, for plaintiff-appellee.
Plaintiff, International Surplus Lines Insurance Company (ISLIC), brought this action ISLIC cross-appeals from that portion of order awarding Pioneer recovery of punitive damages based on vicarious liability and the costs and attorney fees for Pioneer's Illinois counsel.
[154 Ill.Dec. 10] against defendant, Pioneer Life Insurance Company of Illinois (Pioneer), seeking a declaration that it was not liable to Pioneer (its insured) for punitive damages paid by Pioneer in the settlement of a lawsuit brought against Pioneer in Arizona entitled Jimenez v. Pioneer Life Insurance Company of Illinois (Jimenez ). Pioneer appeals from the judgment for ISLIC. Pioneer also appeals the denial of its petition for fees paid to its Arizona attorneys.
The Jimenez suit, filed against Pioneer in Arizona in March 1983, resulted from Pioneer's denial of a claim under a health insurance policy issued to Mr. and Mrs. Jimenez through Pioneer's agent, Lifeco Brokerage Corp., an Arizona corporation. The complaint alleged bad faith denial by Pioneer of a medical claim, misrepresentation of coverage, consumer fraud and breach of contract. The plaintiffs sought both compensatory and punitive damages. ISLIC was notified of the claim on March 18, 1983.
In May 1985, Pioneer received and transmitted to ISLIC a $450,000 settlement offer from the plaintiffs. ISLIC did not participate in the negotiations. Rather, on August 8, 1985, ISLIC filed this declaratory judgment action in the circuit court of Cook County, seeking an adjudication that it was not liable to reimburse Pioneer for any punitive damages. On August 27, 1985, following negotiations with the Jimenez's attorneys, in which ISLIC did not participate, a settlement agreement was reached in the original suit. The total settlement was $350,000, of which $40,000 represented compensatory damages, $40,000 represented punitive damages for Pioneer's direct liability, and $270,000 represented punitive damages for Pioneer's vicarious liability for the acts of its agent.
On November 7, 1985, ISLIC filed a motion for judgment on the pleadings on the ground that Illinois law applied to this action, and that Illinois case law and public policy prohibited insuring against liability for punitive damages. Following a hearing, the trial court ruled that Illinois law, rather than Arizona law, governed the dispute between ISLIC and Pioneer, that in Illinois punitive damages based on vicarious liability are insurable, but that punitive damages for direct liability are not recoverable. The judge set the matter for trial to determine whether the allocation in the settlement agreement of $40,000 to direct liability and $270,000 to vicarious liability for punitive damages was proper.
The case was subsequently transferred to another judge. Following a trial, that judge ruled that of the total $310,000 attributed to punitive damages, Pioneer was directly liable for $270,000 (87%) and vicariously liable for $40,000 (13%), thereby reversing the allocation provided for in the settlement agreement. The court therefore ruled that ISLIC was liable to Pioneer only for the $40,000 which the court had determined was attributable to Pioneer's vicarious liability. The court also denied Pioneer's petition for attorney fees for counsel in Arizona but granted the petition for costs and attorney fees paid to Pioneer's Illinois attorney. This appeal and cross-appeal followed.
OPINIONPioneer contends that the trial court erred in ruling that Illinois law governed this action, and in holding against Pioneer on the ground that public policy of this State limits the insurability of punitive damages to those based on vicarious liability. Pioneer maintains that by the express terms of the policy, Arizona law, under which punitive damages are insurable (Price v. Hartford Accident & Indemnity Co. (1972) 108 Ariz. 485, 502 P.2d 522), applies in this case.
Contracts of insurance are subject to the same rules of construction as are applicable to other types of contracts. When construing an insurance contract, the primary objective is to give effect to the intent of the parties as expressed by the terms of the agreement. (International Minerals & Chemical Corp. v. Liberty Mutual Insurance Co. (1988), 168 Ill.App.3d 361, 370, 119 Ill.Dec. 96, 522 N.E.2d 758.) If the language is ambiguous, it is to be construed in favor of the insured and against the insurer, as the drafter of the document; however, if the language of the policy is clear and unambiguous, it will be applied as written. (U.S. Fire Insurance Co. v. Schnackenberg (1981), 88 Ill.2d 1, 57 Ill.Dec. 840, 429 N.E.2d 1203; International Minerals & Chemical Corp, 168 Ill.App.3d at 371, 119 Ill.Dec. 96, 522 N.E.2d 758.) When interpreting an insurance contract, the court should neither distort the meaning of words so as to reach a desired result, nor search for or invent ambiguities where none exists. Rather, the court should examine the policy as a whole and interpret words according to their plain and ordinary meanings. (Western Casualty & Surety Co. v. Brochu (1985), 105 Ill.2d 486, 86 Ill.Dec. 493, 475 N.E.2d 872; International Minerals & Chemical Corp., 168 Ill.App.3d at 371, 119 Ill.Dec. 96, 522 N.E.2d 758.) Finally, when an insurer attempts to limit liability by excluding coverage under certain circumstances, it has the burden of showing that the claim falls within the exclusionary language on which it relies. Strzelczyk v. State Farm Mutual Automobile Insurance Co. (1985), 138 Ill.App.3d 346, 93 Ill.Dec. 20, 485 N.E.2d 1230, aff'd (1986), 113 Ill.2d 327, 100 Ill.Dec. 808, 497 N.E.2d 1170.
The policy provision at issue in this appeal is the "Punitive Damages Extension" endorsement attached to the master policy. In the master policy, coverage for punitive damages is expressly excluded. However, the separate attachment endorsement states:
"In consideration of the premium charged hereunder, it is understood and agreed that the term 'loss' shall include punitive damages, but only where permitted by law."
It is Pioneer's position that when given its plain and ordinary meaning, the word "where" in the endorsement refers to a geographic location; and that 'geographic location' or 'place' was the intended meaning of the phrase "where permitted by law" in the endorsement. Pioneer argues that the phrase, and indeed the punitive damages extension endorsement itself, would be rendered meaningless if the law of Illinois were to govern regardless of in which State the punitive damages were imposed or awarded. Pioneer contends that "where permitted by law" constitutes an unambiguous choice of law provision because it was intended and agreed by the parties that coverage for punitive damages would be determined under the law of the State in which the claim for the award of punitive damages arose.
ISLIC's response to this critical issue is that the words "only where permitted by law" do not act as a choice of law provision. Both ISLIC and Pioneer maintain that the phrase is not ambiguous. Citing Webster's Ninth New Collegiate Dictionary, ISLIC asserts that " 'where' means and is synonymous with 'at, in or to what situation, position, direction, circumstances or respect.' " It is ISLIC's position that "[t]his phrase plainly acts to alert the insured that punitive damages fall within the definition of loss only under those circumstances where the law permits; and that in Illinois, punitive damages arising from the insured's direct misconduct are not insurable in Illinois." We disagree.
Words in contracts are to be given their plain and ordinary meanings (International Minerals & Chemical Corp. v. Liberty Mutual Insurance Co. (1988), 168 Ill.App.3d 361, 119 Ill.Dec. 96, 522 N.E.2d 758.) In our opinion, "where" is most commonly understood as referring to a place or location. Our opinion is supported by Webster's Third New International Dictionary (Merriam-Webster, Inc. 1987, at 1342) as well as Black's Law Dictionary ((5th ed.) 1971, at 1768). Whether used as an adverb or noun, its primary definition is "at or in what place," "to the place at" and "the place in which something mentioned is or occurs." "If" and "in the event of" appear as only secondary definitions.
Words are also to be read in their factual context and in the context of the policy as a whole. (International Minerals & Chemical Corp., 168 Ill.App.3d, at 371, 119 Ill.Dec. 96, 522 N.E.2d 758.) Here, the disputed phrase is not contained in the "Exclusions" section of the master policy wherein punitive damages are expressly excluded. Rather, the phrase appears in a separate endorsement, extending coverage to punitive damage claims. It is significant that an additional, higher premium was charged for this supplemental coverage. Had ISLIC intended to limit coverage of punitive damages to those based on vicarious...
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