State Farm Fire and Cas. Co. v. Martinez

• Decision Date: 05 August 2008
• Docket Number: No. 1-06-1902.,1-06-1902.
• Citation: 893 N.E.2d 975
• Parties: STATE FARM FIRE AND CASUALTY COMPANY, Plaintiff-Appellee, v. Marcelo MARTINEZ, Father and Next Friend of Daniela Almendarez, Defendant-Appellant.
• Court: United States Appellate Court of Illinois

893 N.E.2d 975

STATE FARM FIRE AND CASUALTY COMPANY, Plaintiff-Appellee, v. Marcelo MARTINEZ, Father and Next Friend of Daniela Almendarez, Defendant-Appellant.

No. 1-06-1902.

Appellate Court of Illinois, First District, Second Division.

August 5, 2008.

Timothy J. Storm, Wauconda, IL, for Appellant.

Smith Amundsen L.L.C., Chicago, IL, for Appellee.

Justice HALL delivered the opinion of the court:

In underlying action, Humbelina Flores and her husband Aurelio Flores sought insurance coverage for a personal injury action under a homeowners insurance policy that State Farm Fire & Casualty Company (State Farm) issued to Martin Torres and his wife Maria Torres. State Farm filed this declaratory judgment action contending that the Floreses are not covered under the Torreses' homeowners policy because under the terms of the policy they do not qualify as insureds since they are not residents of the Torreses' "household" as that term is defined in the case law. We agree.

The facts surrounding this controversy are as follows. On November 26, 2002, Marcelo Martinez commenced the underlying personal injury action against Humbelina Flores, Maria Torres, and her husband Martin Torres, seeking damages for injuries his minor daughter Daniela Almendarez suffered when she was bitten by a dog owned by the Floreses while a guest in their home. The home is located at 2109 South 50th Avenue, in Cicero, Illinois, and was insured under a homeowners insurance policy that State Farm issued to Martin and Maria Torres.

According to the declarations, State Farm issued a homeowners policy to its named insureds, Martin and Maria Torres, effective between August 13, 2001, and August 13, 2002, providing a $100,000 liability limit for each occurrence and identifying a mailing address of 2109 South 50th Avenue, in Cicero, Illinois.

The Torreses held legal title to the home but had never lived in the home. They actually lived at a separate address located at 3628 57th Avenue, in Cicero, Illinois. The Torreses agreed to take legal title to the home to assist Humbelina in purchasing the home because her credit was bad. Maria Torres and Humbelina Flores are blood sisters.

On December 30, 2002, State Farm agreed to provide Humbelina with a defense in the underlying personal injury action subject to a reservation of rights. The ground for the reservation was that there was a question as to whether Humbelina qualified as an insured under the Torreses' homeowners policy.

On the same date, State farm also agreed to provide Maria and Martin Torres with a defense in the underlying personal injury action subject to a reservation of rights. One of the grounds for the reservation was that there was a question as to whether the home where the dog-bite incident occurred qualified as a "residence premises" or an "insured location" under the policy.

In her answer to the personal injury complaint, Humbelina acknowledged owning the dog, but denied all allegations of wrongdoing. In their answer to the complaint, the Torreses admitted they owned the home where the incident occurred but denied owning the dog and denied all allegations of wrongdoing.

Shortly thereafter, on February 7, 2003, State Farm verbally declined to accept Humbelina's tender of defense. This decision was subsequently confirmed in a letter dated February 11, 2003, that State Farm sent to Humbelina's attorney.

The parties then proceeded to take pretrial discovery depositions. At his discovery deposition, Martin Torres testified that since Humbelina had a poor credit rating he and his wife agreed to help her purchase the home where the incident occurred.

According to Martin Torres, Humbelina provided the down payment for purchase of the home while he and his wife took joint legal title to the home with the intention of eventually conveying it to Humbelina. Martin Torres also stated that he and his wife never lived or intended to live in the home and had allowed the Floreses to live there rent-free because they were family.

Martin Torres testified that the Floreses had been living in the home for about eight years and were responsible for maintaining the property. Humbelina made all the mortgage payments to the bank.

Martin Torres claimed that he and his wife transferred the home to Humbelina about a year prior to his discovery deposition. According to Martin Torres, he and his wife did not receive any consideration for the transfer.

Martin Torres further testified that at the time he obtained the homeowners insurance policy for the home, he did not tell State Farm that his sister-in-law and her family would be living in the home. Maria Torres' discovery deposition testimony was similar to her husband's testimony.

Shortly after giving their discovery depositions, the Torreses obtained summary judgment in their favor on all claims asserted against them in the personal injury complaint. On September 21, 2004, Marcelo Martinez filed an amended complaint on behalf of his daughter, naming the Floreses as the only defendants.

On or about October 27, 2004, the underlying personal injury action was dismissed with prejudice pursuant to a settlement agreement. Under the agreement, the Floreses consented to a judgment against them in the amount of $150,000, along with an assignment to Marcelo Martinez of any right of recovery against State Farm. In return, Marcelo Martinez agreed to release the Floreses, and he covenanted not to execute the judgment against their personal assets but to satisfy the judgment out of the proceeds of the Torreses' homeowners insurance policy.

State Farm then filed the instant declaratory judgment action on February 22, 2005, seeking a determination that it was not contractually obligated to provide a defense or insurance coverage to the Floreses in the underlying personal injury action because neither of them qualified as an insured under the Torreses' homeowners insurance policy. On April 14, 2005, State Farm filed an amended complaint for declaratory judgment based on a certified copy of the homeowners policy.

The parties subsequently filed cross-motions for summary judgment concerning State Farm's obligation to defend and indemnify the Floreses in the underlying personal injury action. After hearing argument on the cross-motions for summary judgment, the trial court granted State Farm's motion. The trial court concluded that State Farm did not have a duty to defend the Floreses in the underlying personal injury action because they did not qualify as insureds under the Torreses' homeowners insurance policy because they were not members of the Torreses' "household" as that term was defined in the case law. The trial court denied the motion to reconsider and this appeal followed.

ANALYSIS

Summary judgement is appropriate where the pleadings, depositions, and admissions on file, together with any affidavits, when viewed in the light most favorable to the nonmovant, reveal 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 2000); Gawryk v. Firemen's Annuity & Benefit Fund of Chicago, 356 Ill.App.3d 38, 41, 291 Ill.Dec. 852, 824 N.E.2d 1102 (2005). When, as in this case, the parties file cross-motions for summary judgment, they agree that no genuine issue as to any material facts exists and that only a question of law is involved, and they invite the court to decide the issues based on the record. Gawryk, 356 Ill.App.3d at 41, 291 Ill.Dec. 852, 824 N.E.2d 1102. Our review is de novo. Abrams v. City of Chicago, 211 Ill.2d 251, 258, 285 Ill.Dec. 183, 811 N.E.2d 670 (2004).

In addition, an insurance policy is a contract and its construction is also reviewed de novo as a question of law. Andreou & Casson, Ltd. v. Liberty Insurance Underwriters, Inc., 377 Ill.App.3d 352, 358, 315 Ill.Dec. 710, 877 N.E.2d 770 (2007).

Marcelo Martinez first contends that State Farm is estopped from raising coverage defenses because it breached its duty to defend when it initially agreed to provide Humbelina with a defense to the underlying personal injury action and then abandoned that defense without filing a timely declaratory judgment action. We disagree.

In a case such as this, where an insurer believes that a policy may not provide coverage, it has two options: it can seek a declaratory judgment to determine its obligation to defend or it can defend under a reservation of rights. Royal Insurance Co. v. Process Design Associates, Inc., 221 Ill.App.3d 966, 973, 164 Ill.Dec. 290, 582 N.E.2d 1234 (1991). In this case, State Farm chose the latter option.

An insurer who notifies its insured that it is defending the insured under a reservation of rights and identifies the policy provisions that may preclude coverage is not estopped from subsequently denying coverage. See Earl v. Thompson,...