Sims v. Illinois Nat. Cas. Co.

• Decision Date: 11 October 1963
• Docket Number: Gen. No. 10446
• Citation: 193 N.E.2d 123,43 Ill.App.2d 184
• Parties: Virgil SIMS, for the use of Edward Lee Ruark, Plaintiff-Appellant, v. ILLINOIS NATIONAL CASUALTY CO., of Springfield, Illinois, Garnishee, a/k/a Illinols National Insurance Co. of Springfield, Illinois, Garnishee, Defendant-Appellee.
• Court: United States Appellate Court of Illinois

Page 123

193 N.E.2d 123

43 Ill.App.2d 184

Virgil SIMS, for the use of Edward Lee Ruark, Plaintiff-Appellant, v. ILLINOIS NATIONAL CASUALTY CO., of Springfield, Illinois Garnishee, a/k/a Illinols National Insurance Co of Springfield, Illinois, Garnishee Defendant-Appellee.

Gen. No. 10446.

Appellate Court of Illinois, Third District.

Oct. 11, 1963.

Cassidy & Cassidy, Peoria, for appellant.

Proctor & Wilhelm, Lewistown, George P. Proctor, Lewistown, of counsel, for appellee.

ROETH, Justice.

On October 22, 1952, Edward Lee Ruark was riding in a truck owned and being driven by one, Virgil Sims. This truck was involved in a collision with another motor vehicle owned by one, Ghlee Watson and being driven by one, Sherman Kinsel, as his servant. Ruark was severely injured. It so happened that Illinois National Casualty Company, now Illinois National Insurance Company, had prior thereto issued separate policies of automobile liability insurance to each, Virgil Sims and Ghlee Watson. The insurance company commenced an investigation of the collision either the same day or shortly thereafter. As early as October 27, 1952, an area supervisor in the home office of the insurance company concluded that the insurance company would not have to defend against or pay any claims asserted by Ruark against its policy holder Sims and he so advised the adjuster and investigator in the area. This decision was, sometime between October 23, 1952, and December 5, 1952, relayed to Sims had later to his personal attorney.

On March 12, 1954, Ruark commenced a suit against Sims, Watson and Kinsel to recover damages for his personal injuries sustained in the collision. The insurance company was advised of the suit and received a copy of the complaint. The insurance company employed counsel for Watson and Kinsel, who appeared, answered and conducted the trial of the case on their behalf as defendants. Sims was required to employ his own personal attorney to defend the suit, who likewise appeared, answered and conducted the trial on his behalf, since the insurance company would not depart from its initial position that it would not defend Sims. A trial of the case before a jury resulted in a not guilty verdict as to Watson and Kinsel and a guilty verdict as to Sims with damages fixed at $13,034.86. Judgments were entered on these verdicts and no appeal was taken. Subsequently a garnishment action was commenced against the insurance company as insurer of Sims and it is that garnishment suit that forms the basis of this appeal.

The pleadings in the personal injury suit are important. The complaint filed by Ruark, a single count complaint, alleges that on the day of the collision 'he was riding as passenger in a truck then owned by Virgil Sims, one of the defendants herein, which said truck with the said plaintiff, as passenger, was then and there being operated and driven by said defendant (Sims)'. The complaint then alleges that the truck came in contact with the vehicle of Watson driven by Kinsel as a result of which he sustained his injuries. It is further alleged that he, Ruark, was exercising ordinary care for his own safety and that each of the defendants was negligent, which negligence concurred in producing his injury. Sims, by his personal counsel as above, filed an answer denying most of the material allegations of the complaint. Counsel for Watson and Kinsel, retained by the insurance company, filed a separate but joint answer on behalf of Watson and Kinsel in which they admitted that Ruark was riding as a passenger in the truck but further alleged that 'the said Ruark was then and there an employee of said Virgil Sims and was then and there acting in the course of his employment'.

It is also important to note the policy provisions of the policy issued to Sims. The liability coverage is $20,000.00. Under the title 'Insuring Agreements' we find the following:

'Coverage A--Bodily Injury Liability.

'To pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of bodily injury, sickness or disease, including death at any time resulting therefrom, sustained by any person, caused by accident and arising out of the ownership, maintenance or use of the automobile.'

Following this, coverages B through J provide for varying types of coverage. Following these coverages there is:

'II Defense, Settlement, Supplementary Payments.

'As respects the insurance afforded by the other terms of this policy under coverages A and B the company shall:

'(a) defend any suit against the insured alleging such injury, sickness, disease or destruction and seeking damages on account thereof, even if such suit is groundless, false or fraudulent; but the company may make such investigation, negotiation and settlement of any claim or suit as it deems expedient;'

The policy also incorporates certain 'Exclusions', the material one here being:

'This policy does not apply:

'(d) under coverages A and C, to bodily injury to or sickness, disease or death of any employee of the insured while engaged in the employment, other than domestic, of the insured or in domestic employment if benefits therefor are either payable or required to be provided under any workmen's compensation law;'

It is the contention of counsel for the plaintiff in the garnishment action that under the foregoing factual situation, the defendant was obligated, under the terms of its policy of insurance with Sims, to defend Sims in the suit by Ruark and that having breached its contract in this regard it is liable for the full amount of the judgment with interest.

It is the contention of counsel for the defendant insurance company that the plaintiff has failed to maintain the burden of proof in the garnishment action which was to show that the recovery by Ruark was within the policy coverage.

In 7 Am.Jur.2d, Automobile Insurance Sec. 160, the general rule is stated as follows:

'Under the provisions of the usual or standard automobile liability insurance policies, the insurer, in line with its right to settle claims against the insured which are within the coverage of the policy and its right under the policy to the exclusive control over litigation against the insured, is bound by the provisions of the policy issued by it to defend the insured against all actions brought against him which are, judging by the allegations in such actions, within the coverage of the policy, even if any of the allegations of the suit are groundless, false, or fraudulent. So, generally, an automobile liability insurer need not defend an action against the insured if it is under no legal obligation to defend, but, on the other hand, the wrongful refusal by the insurer to comply with its obligation to defend an action against the insured as required by the policy is a breach of its contract for which the insured may recover. More specifically, while the insurer may, without incurring liability for a breach of its contract with the insured, refuse to defend on the ground that the action is not within the coverage of the policy if such refusal is justifiable, the rule is otherwise if such refusal is unjustifiable. If the refusal is unjustified, even though based on an honest mistake of the insurer, the insurer becomes liable, because of a breach of its contract, for all damages to the insured resulting from the breach and, also, loses certain of its rights under the policy.' (emphasis ours).

This general rule is the subject of an exhaustive annotation in 49 A.L.R.2d 696 which is supplemented in the A.L.R. Supplement Service. It appears from the annotation that the rule is practically universally recognized. Recognition of the rule in Illinois will be found in Kinnan v. Charles B. Hurst Co., 317 Ill. 251, 148 N.E. 12; Rom v. Gephart, 30 Ill.App.2d 199, 173 N.E.2d 828; Gould v. Country Mutual Casualty Company, 37 Ill.App.2d 265, 185 N.E.2d 603. A consideration of the foregoing general rule poses the initial and all important question as to how the determination of whether the claim is within or without the coverage is to be made by the insurer. The answer to this question should in turn determine whether or not the refusal to defend is justified.

In 7 Am.Jur.2nd, Automobile Insurance, Sec. 162, it is said:

'As a general rule, and in accordance with the usual or standard policy provision itself, the obligation of an automobile liability insurer to defend an action brought against the insured by a third party is to be determined by the allegations of the complaint or petition in such action. As to the test for determining whether particular allegations require the insurer to defend the action brought against the insured, the general rule is that the insurer is under a duty to defend a suit against the insured where the complaint or petition in such suit alleges a state of facts within the coverage of the policy, but is free of such obligation where the alleged facts fail to bring the case within the policy coverage.'

This statement is likewise the subject of an exhaustive annotation in 50 A.L.R.2d 458, which is supplemented by A.L.R. Supplement Service. At the outset of the annotation the rule is announced as follows:

'It appears to be well settled that, generally speaking, the obligation of a liability insurance company under a policy provision requiring it to defend an action brought against the insured by a third party is to be determined by the allegations of the complaint in such action.'

Cited in support of this statement are cases from Illinois and many other states indicating a wide acceptance of the rule. In Appleman Insurance Law & Practice, Vol. 7A, Sec. 4683, page 436, the rule is stated as follows:

'An insurer's duty to defend an action against the insured is measured, in the first instance, by the allegations in the plaintiff's pleadings, and if such pleadings state facts bringing the injury within the coverage of the policy, the...