Travelers Ins. Companies v. P.C. Quote, Inc.

• Decision Date: 22 March 1991
• Docket Number: No. 1-90-0522,1-90-0522
• Citation: 570 N.E.2d 614,211 Ill.App.3d 719,156 Ill.Dec. 138
• Parties: , 156 Ill.Dec. 138 The TRAVELERS INSURANCE COMPANIES, a foreign corporation, Plaintiff-Appellant, v. P.C. QUOTE, INC., a corporation, and Compumat, Inc., Defendants-Appellees.
• Court: United States Appellate Court of Illinois

Page 614

570 N.E.2d 614

211 Ill.App.3d 719, 156 Ill.Dec. 138

The TRAVELERS INSURANCE COMPANIES, a foreign corporation Plaintiff-Appellant, v. P.C. QUOTE, INC., a corporation, and Compumat, Inc. Defendants-Appellees.

No. 1-90-0522.

Appellate Court of Illinois First District, Sixth Division.

March 22, 1991.

O'Connor, Schiff & Myers, Chicago (Loretta M. Griffin and R. Scott Sender, of counsel), for plaintiff-appellant.

Lundblad, Baker & Martier, Chicago (Mary K. Bartz and Robert S. Baker, of counsel), for defendants-appellees.

Justice LaPORTA delivered the opinion of the court:

The Travelers Insurance Companies (Travelers) has appealed the trial court's order granting summary judgment against it in Travelers declaratory judgment action against P.C. Quote, its insured, and Compumat, a company suing P.C. Quote. Compumat filed a breach of contract suit against P.C. Quote in February 1988, but in September 1988, Travelers filed its declaratory judgment suit, contending that its general liability insurance policy coverage of P.C. Quote did not include the right to have Travelers defend the insured against a suit for breach of contract. The trial court granted P.C. Quote's motion for summary judgment against Travelers and ordered the insurance company to defend P.C. Quote in its pending litigation with Compumat.

In its appeal Travelers raises these issues: 1) whether the trial court erred when it interpreted the liability provisions of the insurance policy to hold that a breach of contract claim is a covered occurrence under the policy, and 2) whether the Combination Crime Form provision of the policy can be construed as an indemnity policy for first party claims made by the insured.

In February 1987, Travelers contracted to provide general liability insurance to P.C. Quote, a company in the business of conveying stock market quotes by personal computer. In February 1988, P.C. Quote was sued in a breach of contract action by Compumat on allegations that one of P.C. Quote's employees, whether through actual or apparent authority, had ordered and then caused to be picked up 10 computers worth $46,988.82, and that P.C. Quote failed to pay for the computers. The complaint further alleged that P.C. Quote's employee, Jim Airdo, ordered the computers in September 1987, and that "defendant, or one authorized by defendant, caused to be picked up the ten computer systems from plaintiff, and delivered to or for the benefit of defendant." The first count of the complaint alleged that Airdo acted as an agent for the defendant with actual authority. The second count of the complaint in the alternative alleged Airdo's actions were done with apparent authority, i.e., that the company knowingly permitted Airdo to represent to third parties that he was an agent of the company.

Travelers refused to represent P.C. Quote in the lawsuit and filed a declaratory judgment action contending that the general liability insurance policy did not extend to coverage of breach of contract suits. Compumat Inc. was also named as a defendant as a necessary party to the suit. The complaint seeks construction of the language in several portions of the insurance policy.

Specifically, the comprehensive liability policy provides in pertinent part, that Travelers: "... will pay on behalf of the insured, all sums which the insured shall become legally obligated to pay as damages because of bodily injury or property damage to which this insurance applies, caused by an occurrence, and the company shall have the right and the duty to defend any suit against the insured seeking damages on account of such bodily injury or property damage." An occurrence is defined as: "an accident, including continuous or repeated exposure to conditions, which results in bodily injury or property damage neither expected nor intended from the standpoint of the insured."

Incidental contracts, also covered under the general liability coverage, include several types of contracts not at issue here. However, an endorsement which modifies the definition of "incidental contract" includes: "... any oral or written contract or agreement relating to the conduct or the named insured's business."

The complaint also sought interpretation of the Combination Crime Form portion of the insurance policy which provides coverage for employee dishonesty, defining employee dishonesty as "loss of money, securities and other property which the insured shall sustain through any fraudulent or dishonest act or acts committed by any of the employees, acting alone or in collusion with others."

Travelers prayed in the complaint that the court find that under the terms of the insurance policy, Travelers was not required to defend P.C. Quote in its suit against Compumat.

The parties filed cross motions for summary judgment and on September 8, 1989, the trial court denied all motions for summary judgment and ordered Travelers to represent P.C. Quote in the breach of contract action. Travelers moved the court to reconsider or clarify its decision. On January 19, 1990, after hearing arguments, the trial court issued a new order, granted P.C. Quote's motion for summary judgment on the declaratory judgment action and ordered Travelers to defend P.C. Quote in the breach of contract suit. Travelers now appeals that order.

Both Travelers and P.C. Quote agree that the policy language permits coverage by Travelers where there is an "occurrence" which results in property damage sustained by the insured which is "neither expected nor intended." An endorsement to the insurance policy which further defines the insurer's liability provides a second potential avenue of coverage for P.C. Quote for "incidental contracts," defined as "relating to the conduct of the named insured's business." A third potential type of coverage is found in the policy's Combination Crime Form which provides coverage to P.C. Quote for losses "which the insured shall sustain" through dishonest acts committed by its employees. P.C. Quote argues that the underlying breach of contract action falls within its allowable coverage at all three different points in its insurance policy.

Preliminarily we note the general rule that the purpose of an insurance contract is indemnity and therefore the policy should be liberally construed with uncertainty resolved in favor of the insured. (Reliance Insurance Co. v. Martin (1984), 126 Ill.App.3d 94, 96, 81 Ill.Dec. 587, 467 N.E.2d 287; Illinois Produce International, Inc. v. Reliance Insurance, Co. (N.D. Illinois 1975), 388 F.Supp. 29, 35.) However the general rules which favor the insured must yield to the paramount rule of reasonable construction which guides all contract interpretations. Harvey Wrecking Co. v. Certain Underwriters at Lloyd's, London (1968), 91 Ill.App.2d 449, 456, 235 N.E.2d 385. See also Bohnen International, Inc. v. Liberty Mutual Insurance Co. (1983), 120 Ill.App.3d 657, 666, 76 Ill.Dec. 244, 458 N.E.2d 644.

When considering whether an insurance company must defend its insured in a suit filed against it, the court must look to the complaint itself. If the complaint alleges facts within the coverage of the policy or potentially within the coverage of the policy, the duty to defend has been established. (Clemmons v. Travelers Insurance Co. (1981), 88 Ill.2d 469, 476, 58 Ill.Dec. 853, 430 N.E.2d 1104.) Though the action is for declaratory judgment, a court need not wear blinders and be limited to the allegations of the complaint. (Bay State Insurance Co. v. Wilson (1983), 96 Ill.2d 487, 492, 71 Ill.Dec. 726, 451 N.E.2d 880.) The court in ruling on a motion for summary judgment can look beyond the complaint. (State Farm Fire Casualty Co. v. Shelton (1988), 176 Ill.App.3d 858, 862-863, 126 Ill.Dec. 286, 531 N.E.2d 913.) In order to sustain a claim for potential coverage, the threshold requirements of the allegations of the complaint are minimal. Management Support Associates v Union Indemnity Insurance Co. (1984), 129 Ill.App.3d 1089, 1096, 85 Ill.Dec. 37, 473 N.E.2d 405.

In Clemmons the underlying complaint alleged that the driver of a car owned by the American National Red Cross caused an accident which resulted in injuries. The insurance company contended that it did not have to defend the driver because the driver did not have permission from the Red Cross to drive the car. The reviewing court found that it was unnecessary for the complaint to allege permission in order to trigger the duty to defend. The court noted that it was possible that the driver had permission. It was enough to allege facts potentially within the coverage of the policy.

The rules of law stated in Clemmons were followed in Shelton, the case relied on by the trial court when it ruled in favor of P.C. Quote. The trial court found Shelton to be very close to our case factually. In Shelton the appellate court found that the trial court erred when it ruled that an insurance company had no duty to defend its insured because the insured had been convicted of voluntary manslaughter. The court considered at length the circumstances under which a declaratory action should be allowed if an underlying suit was still pending. Shelton, 176 Ill.App.3d at 861, 126 Ill.Dec. 286, 531 N.E.2d 913.

The Shelton court noted that, when considering a declaratory judgment action, the court must not determine disputed factual issues that are crucial to the insured's liability in the underlying lawsuit. The court held that the insurer had a duty to defend its insured in the underlying personal injury action because in part it alleged negligence, which was covered under the insurance policy. The Shelton court ruled that the trial court's grant of declaratory judgment in favor of the insurer was premature. Shelton, 176 Ill.App.3d at 861, 126 Ill.Dec. 286, 531 N.E.2d 913.

Initially we consider whether Travelers has a duty to defend since the breach of contract action involves an "occurrence." The policy defines an...