Progressive Direct Ins. Co. v. Jungkans

• Decision Date: 27 June 2012
• Docket Number: No. 2–11–0939.,2–11–0939.
• Citation: 972 N.E.2d 807,2012 IL App (2d) 110939,362 Ill.Dec. 92
• Parties: PROGRESSIVE DIRECT INSURANCE COMPANY, Plaintiff–Appellee, v. Kyle JUNGKANS, Defendant–Appellant.
• Court: United States Appellate Court of Illinois

2012 IL App (2d) 110939

972 N.E.2d 807

362 Ill.Dec. 92

PROGRESSIVE DIRECT INSURANCE COMPANY, Plaintiff–Appellee,

v.Kyle JUNGKANS, Defendant–Appellant.

No. 2–11–0939.

Appellate Court of Illinois,

Second District.

June 27, 2012.

Michael W. Rathsack, Law Offices of Michael W. Rathsack, Chicago, Kathleen T. Zellner, Douglas H. Johnson, Kathleen T. Zellner & Associates, P.C., Downers Grove, for appellant.

Bill Porter, Reagan F. Goins, Chilton, Yambert & Porter, LLP, Geneva, for appellee.

OPINION

Justice McLAREN delivered the judgment of the court, with opinion.

¶ 1 Defendant, Kyle Jungkans, was injured while he was riding in a car driven by Billy Watts. He settled with Watts and Watts' insurer, State Farm Insurance Companies (State Farm), for State Farm's policy limit, then sought underinsured motorist (UIM) coverage under his policy with plaintiff, Progressive Direct Insurance Company. Plaintiff denied coverage, on the basis that defendant's failure to notify it in advance of the settlement violated the policy's cooperation clause. Plaintiff filed an action for a declaratory judgment (735 ILCS 5/2–701 (West 2010)). The trial court granted plaintiff summary judgment (735 ILCS 5/2–1005(c) (West 2010)). Defendant appeals. We reverse the judgment and enter judgment for defendant.

¶ 2 Defendant's policy with plaintiff included UIM coverage, with limits of $250,000 per person and $500,000 per occurrence. On September 24, 1999, defendant was seriously injured while riding in a car driven by Watts. Jennifer Walker owned the car, and her policy with State Farm had limits of $100,000 per person and $300,000 per occurrence. Defendant sued Watts for negligence. On November 6, 2009, he settled with Watts for the policy limit of $100,000. Defendant and Watts signed a release discharging Watts and Walker from future liability for the accident. Defendant did not notify plaintiff of the release until November 30, 2009.

¶ 3 Defendant then sought UIM coverage from plaintiff. Plaintiff denied the coverage, asserting that, by releasing Watts, defendant had violated the policy's cooperation clause and had cut off plaintiff's right of subrogation against Watts and State Farm. Plaintiff filed a complaint for a declaratory judgment to this effect, attaching a copy of the policy. The two pertinent policy provisions follow. The first is the cooperation clause:

“NOTICE AND CONSENT REQUIREMENTS

An insured person must notify us in writing at least 30 days before entering into any settlement with the owner or operator of an uninsured motor vehicle or an underinsured motor vehicle, or any liability insurer. In order to preserve our right of subrogation, we may elect to pay any sum offered in settlementby, or on behalf of, the owner or operator of an uninsured motor vehicle or an underinsured motor vehicle. If we do this, the insured person agrees to assign to us all their rights against the owner or operator of the uninsured motor vehicle or underinsured motor vehicle, to the extent of our payment.

Any judgment or settlement for damages against an owner or operator of an uninsured motor vehicle or an underinsured motor vehicle that arises out of a lawsuit brought without our written consent is not binding on us.” (Emphases in original.)

The second pertinent provision reads:

“OUR RIGHTS TO RECOVER PAYMENT

We are entitled to the rights of recovery that the insured person to whom payment was made has against another, to the extent of our payment. That insured person may be required to sign documents related to the recovery and must do whatever else we require to help us exercise those recovery rights, and do nothing after an accident or loss to prejudice those rights.

However, we may not assert rights of recovery against the owner or operator of an uninsured motor vehicle or an underinsured motor vehicle, if the person seeking coverage under Part III—Uninsured/Underinsured Motorist Coverage provides us with written notice at least 30 days prior to entering into a settlement that an offer of settlement has been made by, or on behalf of, the owner or operator of an uninsured motor vehicle or an underinsured motor vehicle, and if we do not elect to pay to, or on behalf of, that person an amount equal to the amount offered in full settlement by, or on behalf of, the owner or operator of the uninsured motor vehicle or underinsured motor vehicle.

When an insured person has been paid by us and also recovers from another, the amount recovered will be held by the insured person in trust for us and reimbursed to us to the extent of our payment. If we are not reimbursed, we may pursue recovery of that amount directly against that insured person.

If an insured person recovers from another without our written consent, the insured person's right to payment under any affected coverage will no longer exist.

* * *

These provisions will be applied in accordance with state law.” (Emphases in original.)

¶ 4 Plaintiff's complaint contended that, by releasing Watts without first timely notifying plaintiff, defendant violated the cooperation clause and destroyed plaintiff's right of subrogation, and that, as a result, defendant had forfeited any UIM payments.

¶ 5 Defendant moved to dismiss the complaint (see 735 ILCS 5/2–619(a)(9) (West 2010)). As pertinent here, he argued that, even if he had violated the cooperation clause, plaintiff still could not recover. That was because, since the time of the accident, Watts had no significant assets, so that plaintiff had suffered no substantial prejudice from losing its subrogation right.

¶ 6 Defendant's motion attached several documents. The first, a letter dated January 22, 2010, from Edward R. Kirby & Associates, Inc. (Kirby), a private investigator, to defendant's attorney, Kathleen T. Zellner & Associates, P.C. (Zellner), stated that Kirby's “limited investigation” had shown that Watts' only “readily identifiable” assets were three 1995 motor vehicles. Moreover, there was an unsatisfied 2005 judgment against him for $5,249; two paternity suits had been filed against him; and, on January 8, 2010, he had been sentenced to four years in prison for aggravated driving under the influence of alcohol, apparently based on the accident that had injured defendant. The letter concluded, “Given that [Watts] is currently incarcerated and we find no immediate assets, we are discontinuing any further investigation at this time.”

¶ 7 Defendant's motion attached another letter from Kirby to Zellner, dated February 18, 2010, stating that a “limited investigation” had revealed that Walker had no “assets of note” other than two vehicles, including the car involved in the accident. Finally, the motion attached a letter dated January 14, 2010, from Asia Bell, a claims representative for State Farm, to Zellner. It stated:

“Per our conversation * * * today * * *, Billy Watts has no other insurance with State Farm and per our policyholder Ms. Walker neither one of them [has] any assets. State Farm has reimbursed [plaintiff] the $5,000 in [ sic ] which they paid for medical payments.”

¶ 8 After the trial court denied defendant's motion to dismiss, he filed an answer that included several “affirmative defenses,” including that plaintiff had not been prejudiced by his settlement with Watts and that the settlement had not extinguished its subrogation right.

¶ 9 The parties filed cross-motions for summary judgment. Plaintiff's motion argued that, because defendant had violated the cooperation clause, he could not recover UIM benefits. Plaintiff asserted that, under Home Insurance Co. v. Hertz Corp., 71 Ill.2d 210, 215, 16 Ill.Dec. 484, 375 N.E.2d 115 (1978), because the unlimited release did not specifically designate an amount to cover plaintiff's subrogation interest, plaintiff could not bring an action against Watts unless, before the release was executed, Watts or State Farm had known of plaintiff's interest. However, there was no evidence that either one had known. Addressing defendant's no-prejudice argument, plaintiff contended that a judgment against Watts would not have been limited to Watts' assets at the time of Kirby's investigation. Further, it was not for defendant to say whether plaintiff would pursue a subrogation action.

¶ 10 Defendant's motion for summary judgment conceded that he had violated the cooperation clause. However, he contended that the Hertz rule favored him because, before the release was signed, Walker (whom defendant characterized as a tortfeasor) and State Farm had indeed known of plaintiff's subrogation interest. Defendant relied on affidavits by Walker and Bell. Walker's affidavit stated that, as of November 6, 2009, she knew that plaintiff had the right to sue her. Bell's affidavit stated as follows. She had processed the settlement of the claim between defendant and Watts. State Farm reimbursed plaintiff “for the $5000.00 in [ sic ] which they [ sic ] paid for medical payments for [defendant].” Bell “had knowledge of [plaintiff's] subrogation rights with regard to [defendant's] claim prior to the release being executed on November 6, 2009.”

¶ 11 In response to defendant's motion for summary judgment, plaintiff asserted in part that, under Farmers Automobile Insurance Ass'n v. Suligoy, 180 Ill.App.3d 896, 898, 129 Ill.Dec. 953, 536 N.E.2d 1003 (1989), the “knowledge issue” was an affirmative defense that defendant had failed to raise in his answer and thus had forfeited. Also, plaintiff asserted, Bell's affidavit was insufficient to prove that she had known, pre-release, of plaintiff's specific right of subrogation against Watts. Defendant replied that Bell's affidavit implied that she had known of the specific right involved in this case, and he added that he had raised the “knowledge issue” in his affirmative defenses.

¶ 12 The trial court granted summary judgment to plaintiff (and thus denied summary judgment to defendant), explaining first that Walker's affidavit was irrelevant because she was...