Northern Ins. Co. of NY v. City of Chicago

• Decision Date: 02 November 2001
• Docket Number: No. 1-99-3334.,1-99-3334.
• Citation: 759 N.E.2d 144,325 Ill. App.3d 1086,259 Ill.Dec. 664
• Parties: NORTHERN INSURANCE COMPANY OF NEW YORK, Plaintiff-Appellant, v. The CITY OF CHICAGO, a Municipal Corporation, Defendant-Appellee.
• Court: United States Appellate Court of Illinois

759 N.E.2d 144

325 Ill. App.3d 1086

259 Ill.Dec. 664

NORTHERN INSURANCE COMPANY OF NEW YORK, Plaintiff-Appellant, v. The CITY OF CHICAGO, a Municipal Corporation, Defendant-Appellee.

No. 1-99-3334.

Appellate Court of Illinois, First District, Sixth Division.

November 2, 2001.

Peter C. Morse, David J. Roe, Morse & Bolduc, Chicago, for Appellant.

Mara S. Georges, Corporation Counsel of the city of Chicago, Lawrence Rosenthal, Deputy Corporation Counsel, Benna Ruth Solomon, Chief Assistant Corporation Counsel, Jean Dobrer, Assistant Corporation Counsel, Chicago, for Appellees.

Justice BUCKLEY delivered the opinion of the court:

Northern Insurance Company of New York (Northern) brought this declaratory judgment action against its insured, the City of Chicago (City). Northern's complaint alleged that, because the City failed to provide timely notice of a pending action, Northern owed no duty to defend or indemnify the City. The trial court granted the City's motion for summary judgment and awarded the City $24,000 plus costs and expenses. Northern appeals, arguing that the trial court erred in granting the City's summary judgment motion because the City failed to provide timely notice of an underlying action and that the trial court should have stricken the City's summary judgment motion. The City disagrees, arguing that Northern is estopped from asserting a late-notice defense. For the following reasons, we reverse and grant summary judgment in favor of Northern.

BACKGROUND

In May 1993, Vixen Construction, Inc. (Vixen), contracted with the State of Illinois to repair the streets, sidewalks and parking meters along North Lincoln Avenue in Chicago. Pursuant to an ordinance, Vixen applied for a construction permit. To receive a permit, construction companies must present proof of insurance and agree to indemnify the City against losses arising from the construction. Such insurance coverage must include the City, its officers, employees, and agents as additional insureds. The City issued Vixen's permit on May 14, 1993.

In July 1994, Northern issued two policies to Vixen. The policies provided coverage between July 1994 and July 1995 and named the City as an additional insured. The policies provided in part that Northern would "pay those sums that the insured becomes legally obligated to pay as damages" and that Northern would "have the right and duty to defend any `suit' seeking those damages." More specifically, the policies provided:

"2. Duties in the Event of Occurrence, Offense, Claim or Suit

a. [Vixen or the City] must see to it that [Northern is] notified as soon as practicable of an `occurrence' or an offense which may result in a claim.

* * *

b. If a claim is made or `suit' is brought against any insured, [Vixen or the City] must:

* * *

2. Notify [Northern] as soon as practicable. [Vixen or the City] must see to it that [Northern receives] written notice of the claim or `suit' as soon as practicable.

* * *

d. No insured will, except at their own cost, voluntarily make a payment, assume any obligation or incur any expense, other than for first aid, without [Northern's] consent." (Emphasis added.)

After Vixen completed construction, Karim Sadny allegedly tripped and fell on North Lincoln Avenue in December 1994. Sadny filed suit against the City (Sadny v. City of Chicago, No. 95-L-14597 (Cir. Ct. Cook Co.)), alleging that the sidewalk was defective. The City was served with a summons and copy of Sadny's complaint on October 11, 1995.

For the next two years and two months, the City dealt with Sadny's suit on its own and made no attempt to discover who Vixen had contracted to be its, and the City's, insurer. On December 17, 1997, the City's counsel sent Vixen a facsimile requesting to view the certificates of insurance and any relevant contract between Vixen and the City about the North Lincoln Avenue project.

When the City had not received any information from Vixen by February 25, 1998, it sought copies of the contract and insurance certificates from the State of Illinois pursuant to the Freedom of Information Act (5 ILCS 140/1 et seq. (West 1998)). In March 1998, the State provided the City with a copy of the contract but no longer had possession of the insurance certificates.

On March 30, 1998, the City finally identified Northern as its insurer, informed Northern of Sadny's suit, and requested that Northern defend and indemnify the City. On August 18, 1998, Northern sent the City a letter denying this request for two reasons: first, the City had failed to provide an insurance certificate naming it as an additional insured on Vixen's policies, and second, assuming that Vixen's policy covered the City as an additional insured, the City had failed to notify Northern "as soon as practicable of an `occurrence' or an offense which * * * result[ed] in a claim" as required under the policy.

In September 1998, the City sent Vixen a subpoena for its insurance certificate. Vixen informed the City that it no longer had documentation relating to the North Lincoln Avenue construction project.

On January 5, 1999, the City sent a letter advising Northern that it had settled Sadny's suit for $24,000. In addition to renewing its request for indemnification, the City demanded an additional $4,200 for costs in defending the suit. Less than 30 days later, on February 2, 1999, Northern filed for declaratory judgment against the City.

The City filed an answer and a cross-complaint against Northern and Vixen for declaratory relief and sanctions. In March 1999, Northern moved for summary judgment, arguing that the City's untimely notice excused its failure to defend or indemnify the City. The City also moved for summary judgment, arguing, inter alia, that Northern's failure to either defend the City under a reservation of rights or to file a timely declaratory judgment action estopped it from asserting the untimeliness of the City's notice as a defense. Northern filed a motion to strike the City's summary judgment motion. Following a hearing, the trial court ordered the City to file affidavits supporting its summary judgment motion. Both the City and Northern filed replies to each others' summary judgment motions.

On July 15, 1999, the court heard arguments on the parties' summary judgment motions. The court granted the City's motion and ordered Northern to pay $24,000 plus costs and expenses in the City's favor. Northern appeals.

ANALYSIS

As mentioned above, Northern raised the City's failure to produce a certificate indicating that it was an additional insured on the Vixen policies as a ground for denying coverage in August 1998. It must be noted at the outset of our decision that, to this day, the record remains silent as to any evidence of an insurance certificate naming the City as an additional insured. Accordingly, we could reverse the trial court's decision on the basis that there is no proof that Northern had the duty to defend or indemnify the City, since the certificate—an agreement to provide insurance—has never been presented to this, or any, court. See Employers Insurance of Wausau v. Ehlco Liquidating Trust, 186 Ill.2d 127, 143, 237 Ill.Dec. 82, 708 N.E.2d 1122 (1999) (insurer's duty to defend rests on whether it had actual notice of suit falling within scope of policy coverage); United States Fire Insurance Co. v. Hartford Insurance Co., 312 Ill.App.3d 153, 154-55, 244 Ill.Dec. 530, 726 N.E.2d 126 (2000). However, Northern specifically states in its appellate brief that it chooses not to argue the issue of whether the City was an additional insured. Therefore, for purposes of this appeal, we shall assume that the City was so insured and instead address the applicable issues of delay and estoppel.

Primarily, Northern argues that the trial court improperly granted summary judgment in the City's favor because the City failed to provide timely notice of Sadny's suit as required under the insurance policy. The City disagrees, arguing that because Northern failed to either defend the suit under a reservation of rights or seek a timely declaratory judgment, Northern is estopped from raising the City's late notice as a defense and summary judgment was proper.

In ruling on a motion for summary judgment, the court must construe the pleadings, depositions and affidavits strictly against the movant and in favor of the opposing party. Dowd & Dowd, Ltd. v. Gleason, 181 Ill.2d 460, 483, 230 Ill.Dec. 229, 693 N.E.2d 358 (1998). Summary judgment is appropriate where the pleadings, depositions, admissions and affidavits, taken together in the light most favorable to the nonmovant, show that there is no genuine issue of material fact and that the movant is entitled to judgment as a matter of law. 735 ILCS 5/2-1005(c) (West 1998); Majca v. Beekil, 183 Ill.2d 407, 416, 233 Ill.Dec. 810, 701 N.E.2d 1084 (1998). We review the trial court's grant of summary judgment de novo. In re Estate of Rennick, 181 Ill.2d 395, 401, 229 Ill.Dec. 939, 692 N.E.2d 1150 (1998).

A. The City's Delay in Giving Notice to Northern was Unreasonable

The insurance contract controls the insured's duties. Northbrook Property & Casualty Insurance Co. v. Applied Systems, Inc., 313 Ill.App.3d 457, 464, 246 Ill.Dec. 264, 729 N.E.2d 915 (2000). When such a contract includes a provision requiring the insured to notify the insurer of a suit against it, this provision is not just a technical requirement but a "condition precedent to the triggering of the insurer's contractual duties." Northbrook Property, 313 Ill.App.3d at 464, 246 Ill.Dec. 264, 729 N.E.2d 915. When the insured fails to comply with this provision to give notice, the insurer may be relieved from its duty to defend and indemnify the insured under the policy. Northbrook Property, 313 Ill. App.3d at 464, 246 Ill.Dec. 264, 729 N.E.2d 915; INA Insurance Co. of Illinois v. City of Chicago, 62 Ill.App.3d 80, 83, 19 Ill.Dec. 519, 379 N.E.2d 34 (1978).

Illinois courts have dealt on several...