State Farm Mut. Auto. Ins. Co. v. Smith

• Decision Date: 20 September 2001
• Docket Number: No. 90388.,90388.
• Parties: STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, Appellant, v. Ruby SMITH et al. (Jeremy Fisher et al., Appellees).
• Court: Illinois Supreme Court

757 N.E.2d 881

197 Ill.2d 369

259 Ill.Dec. 18

STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, Appellant, v. Ruby SMITH et al. (Jeremy Fisher et al., Appellees).

No. 90388.

Supreme Court of Illinois.

September 20, 2001.

Frank C. Stevens and John R. Adams, of Taylor, Miller, Sprowl, Hoffnagle & Merletti, Chicago, for appellant.

Francis P. Kasbohm, of Fraterrigo, Beranek, Feiereisel & Kasbohm, of Chicago, for appellees.

Justice McMORROW delivered the opinion of the court:

The primary issue in this appeal is whether, in an automobile liability insurance policy, an "automobile business exclusion" violates the public policy of Illinois.

BACKGROUND

On September 21, 1995, Maurice Barnes, accompanied by Ruby Smith, drove his vehicle to Harrah's Casino Cruises—Joliet (Harrah's). Barnes gave his vehicle to the valet service at Harrah's for parking. When Barnes and Smith left Harrah's, Jeremy Fisher, a valet driver employed by Harrah's, retrieved Barnes' automobile. Smith has alleged that, as she entered the passenger door, the vehicle rolled backwards, striking her and knocking her to the ground. Smith¹ brought an action against Barnes, Fisher, and Harrah's alleging various acts of negligence.

At the time of the accident, Barnes' vehicle was insured by State Farm Mutual Automobile Insurance Company (State Farm). On August 26, 1997, Fisher and Harrah's tendered their defense to State Farm. State Farm refused the tender on October 15, 1997. Subsequently, State Farm filed an action for declaratory judgment in the circuit court of Cook County, arguing that it had no duty to defend or indemnify Fisher or Harrah's based upon an automobile business exclusion clause in the State Farm insurance policy. State Farm moved for summary judgment on its action for declaratory judgment. Fisher and Harrah's responded to State Farm's motion for summary judgment and filed a cross-motion for summary judgment, arguing that State Farm could not rely on the automobile business exclusion. The circuit court held that the automobile business exclusion applied, and State Farm had no duty to defend or indemnify Fisher and Harrah's. Accordingly, the circuit court granted State Farm's motion for summary judgment.

Fisher and Harrah's appealed, arguing primarily that the automobile business exclusion in State Farm's insurance policy violates the public policy of Illinois, as stated in section 7-317(b)(2) of the Illinois Vehicle Code (see 625 ILCS 5/7-317(b)(2) (West 1998)), and as determined by this court in State Farm Mutual Automobile Insurance Co. v. Universal Underwriters Group, 182 Ill.2d 240, 231 Ill.Dec. 75, 695 N.E.2d 848 (1998). The appellate court concluded that Universal Underwriters' holding that "`a liability insurance policy issued to the owner of a vehicle must cover the named insured and any other person using the vehicle with the named insured's permission'" was controlling. 315 Ill. App.3d 1159, 1165, 249 Ill.Dec. 143, 735 N.E.2d 747, quoting Universal Underwriters, 182 Ill.2d at 244, 231 Ill.Dec. 75, 695 N.E.2d 848. Thus, the appellate court held that the automobile business exclusion violates the public policy of Illinois and, therefore, was unenforceable. 315 Ill. App.3d at 1165, 249 Ill.Dec. 143, 735 N.E.2d 747.

We granted State Farm's petition for leave to appeal. 177 Ill.2d R. 315(a). For the reasons that follow, we affirm the judgment of the appellate court.

ANALYSIS

Courts will apply terms in an insurance policy as written unless those terms contravene public policy. Illinois Farmers Insurance Co. v. Cisco, 178 Ill.2d 386, 392, 227 Ill.Dec. 325, 687 N.E.2d 807 (1997). Statutes are an expression of public policy. Cates v. Cates, 156 Ill.2d 76, 110, 189 Ill.Dec. 14, 619 N.E.2d 715 (1993). Statutes in force at the time an insurance policy was issued are controlling, and a statute's underlying purpose cannot be circumvented by a restriction or exclusion written into an insurance policy. Cummins v. Country Mutual Insurance Co., 178 Ill.2d 474, 483, 227 Ill.Dec. 539, 687 N.E.2d 1021 (1997). Accordingly, insurance policy provisions that conflict with a statute are void. Illinois Farmers Insurance, 178 Ill.2d at 392, 227 Ill.Dec. 325, 687 N.E.2d 807.

I. Validity of Automobile Business Exclusion

The automobile business exclusion in the State Farm insurance policy at issue in the case at bar states:

"THERE IS NO COVERAGE:

1. WHILE ANY VEHICLE INSURED UNDER THIS SECTION IS:

* * *

b. BEING REPAIRED, SERVICED OR USED BY ANY PERSON EMPLOYED OR ENGAGED IN ANY WAY IN A CAR BUSINESS. * * *

* * *

Car business—means a business or job where the purpose is to sell, lease, repair, service, transport, store or park land motor vehicles or trailers." (Emphases in original.)

The appellate court held that this exclusion is unenforceable, because it directly conflicts with the mandatory language of the Illinois Vehicle Code, with this court's decision in Universal Underwriters, and with the policy of mandatory automobile liability insurance legislation. 315 Ill.App.3d at 1165, 249 Ill.Dec. 143, 735 N.E.2d 747.

Section 7-601(a) of the mandatory insurance act in the Illinois Vehicle Code requires that vehicles be insured through a liability insurance policy. 625 ILCS 5/7-601(a) (West 1998). Section 7-317(b)(2) of the safety responsibility law in the Illinois Vehicle Code states that a motor vehicle liability policy "[s]hall insure the person named therein and any other person using or responsible for the use of such motor vehicle or vehicles with the express or implied permission of the insured." 625 ILCS 5/7-317(b)(2) (West 1998). In Universal Underwriters, this court concluded that section 7-601(a), together with section 7-317(b)(2), mandates that "a liability insurance policy issued to the owner of a vehicle must cover the named insured and any other person using the vehicle with the named insured's permission." Universal Underwriters, 182 Ill.2d at 244, 231 Ill. Dec. 75, 695 N.E.2d 848.

On the basis of section 7-317(b)(2) and this court's decision in Universal Underwriters, Fisher and Harrah's argue that the automobile business exclusion in State Farm's insurance policy violates the public policy of Illinois. According to Fisher and Harrah's, the automobile business exclusion violates the Illinois public policy that a vehicle owner's insurance carrier cover any person driving the owner's vehicle with the express or implied permission of the owner. They argue that, when a vehicle owner gives his vehicle to a person engaged in an automobile business—a business whose purpose is to sell, lease, repair, service, transport, store or park land motor vehicles or trailers—the owner is giving that person express or implied permission to use the vehicle. The automobile business exclusion thus violates Illinois' requirement that a vehicle owner's liability insurance policy cover any person using the owner's vehicle with the express or implied permission of the owner.

We agree that the automobile business exclusion in State Farm's insurance policy violates the public policy of Illinois as stated in the Illinois Vehicle Code. Section 7-317(b)(2) is clear. It mandates that a motor vehicle liability policy, or a liability insurance policy, cover the named insured and any other person using the vehicle with the named insured's permission. 625 ILCS 5/7-317(b)(2) (West 1998); Universal Underwriters, 182 Ill.2d at 244, 231 Ill.Dec. 75, 695 N.E.2d 848. When a vehicle owner gives his vehicle to a person engaged in an automobile business, the owner is also giving that person the express or implied permission to use the vehicle. Therefore, a provision written into an insurance policy that excludes coverage for persons engaged in an automobile business necessarily excludes coverage for persons who are using an insured's vehicle with the insured's express or implied permission. The exclusion thus violates section 7-317(b)(2) of the Illinois Vehicle Code. As stated, an insurance policy provision which conflicts with a statute is void. Illinois Farmers Insurance, 178 Ill.2d at 392, 227 Ill.Dec. 325, 687 N.E.2d 807. Accordingly, we hold that the automobile business exclusion in State Farm's insurance policy is void. State Farm, therefore, cannot rely on that exclusion to deny Fisher's and Harrah's tender.

State Farm asserts that we should follow the Supreme Court of Delaware's decision in Universal Underwriters Insurance Co. v. Travelers Insurance Co., 669 A.2d 45 (Del.1995). In Travelers, the Supreme Court of Delaware held that an automobile business exclusion did not conflict with Delaware's mandated insurance program. The Delaware Motor Vehicle Financial Responsibility Law required that every insurance policy provide liability insurance for the named insured and any other person using the insured's vehicle with the insured's express or implied permission. Travelers, 669 A.2d at 47-49. In reaching its conclusion that the automobile business exclusion did not conflict with this statute, the Supreme Court of Delaware stated that "recognition of the exclusion may advance the cause of full recovery through responsible insurance by removing an incentive for auto related businesses to forgo purchasing insurance to cover their activities. [Automobile] [b]usinesses * * * should assume direct responsibility for the conduct of their employees through the purchase of insurance which reflects these unusual risks. Private vehicle owners * * * who turn their vehicles over to a business for service or other uses benefitting the business owner should not bear the responsibility of protecting the public from a business use of the vehicle." Travelers, 669 A.2d at 48-49.

The Travelers court focused its discussion on policy issues concerning general problems that may arise if the automobile business exclusion were not enforced. However, the court offered no explanation as to why the automobile business exclusion did not violate the terms of Delaware's mandated insurance...