United Farm Family Mut. Ins. Co. v. Frye

• Decision Date: 21 April 2008
• Docket Number: No. 4-07-0495.,4-07-0495.
• Citation: 887 N.E.2d 783
• Parties: The UNITED FARM FAMILY MUTUAL INSURANCE COMPANY, an Indiana Corporation, Plaintiff-Appellee, v. Joseph A. FRYE, as Personal Representative of the Estate of Joseph Frye, Deceased; and Jamie Thompson, as Special Representative of the Estate of Wilma F. Frye, Deceased, Defendants-Appellants.
• Court: United States Appellate Court of Illinois

887 N.E.2d 783

The UNITED FARM FAMILY MUTUAL INSURANCE COMPANY, an Indiana Corporation, Plaintiff-Appellee, v. Joseph A. FRYE, as Personal Representative of the Estate of Joseph Frye, Deceased; and Jamie Thompson, as Special Representative of the Estate of Wilma F. Frye, Deceased, Defendants-Appellants.

No. 4-07-0495.

Appellate Court of Illinois, Fourth District.

April 21, 2008.

Justice KNECHT delivered the opinion of the court:

In July 2003, husband Joseph Frye (Joseph-deceased) and wife Wilma F. Frye, both residents of Indiana, died as a result of injuries sustained in an automobile collision on an Illinois roadway. The accident occurred while the parties were in an automobile insured under a policy issued in Indiana by plaintiff, United Farm Family Mutual Insurance Company (Farm Bureau), an Indiana corporation.

In July 2005, defendant, Joseph A. Frye (Joseph-estate), personal representative of the estate of Joseph-deceased, filed a wrongful-death action against Jamie Thompson, special representative of Wilma's estate, in the Pike County circuit court. Farm Bureau hired counsel, Larry Kuster, to represent Wilma's estate in the wrongful-death action.

In February 2006, Farm Bureau filed its complaint for declaratory judgment. In its complaint, Farm Bureau asserted it had no duty to defend or indemnify Wilma's estate in the wrongful-death action. Farm Bureau also asserted the estate of Joseph-deceased could not recover as an uninsured motorist (UIM).

In March 2007, the Pike County circuit court granted Farm Bureau's motion. Defendant Joseph-estate appealed. On appeal, Joseph-estate argues (1) the policy issued to Joseph-deceased and Wilma is internally inconsistent and inherently ambiguous; (2) the estate of Joseph-deceased is entitled to UIM coverage under Illinois public policy; and (3) Farm Bureau should be estopped from raising coverage defenses for its delay in filing the declaratory-judgment action. We affirm.

I. BACKGROUND

Wilma and Joseph-deceased, wife and husband, resided together in Munster, Indiana. They secured an automobile insurance policy from Farm Bureau to cover the period of June 16, 2003, through December 16, 2003 (Policy). The 2001 Saturn insured by the Policy was licensed and registered in Indiana, and it was principally located in Indiana but occasionally driven outside that state. Joseph-deceased and Wilma purchased the Policy in Indiana.

On July 3, 2003, Wilma and Joseph-deceased were involved in an automobile accident, which resulted in their deaths. The accident occurred in Pike County, Illinois. The Policy provided coverage to Joseph-deceased and Wilma under the medical-expense-and-physical-damage coverages. Payments pursuant to the Policy coverages totaled over $62,000, for medical expenses, death benefits, and property damage.

In June 2005, Joseph-estate demanded the policy limits from Farm Bureau under the liability and UIM coverages in the Policy. In July 2005, Joseph-estate filed a wrongful-death complaint on behalf of the estate of his father, Joseph-deceased, against Wilma's estate in Pike County, in an effort to secure for the estate the $100,000 policy limit for liability. In the complaint, Joseph-estate alleged Wilma caused the collision when attempting a U-turn.

Farm Bureau provided Wilma's defense in the pending wrongful-death action. In August 2005, Larry Kuster entered an appearance on behalf of Wilma's estate. Farm Bureau, in providing the defense, did not make a reservation of rights. Also, in August 2005, Wilma's estate moved to dismiss the wrongful-death case. This motion was denied in December 2005. Wilma's estate petitioned this court for interlocutory appeal; we denied the request. Frye v. Thompson, No. 4-06-0090 (February 23, 2006) (leave to appeal denied).

In February 2006, Farm Bureau filed its complaint for declaratory judgment. Farm Bureau set forth two claims. In the first claim, Farm Bureau maintained it had no duty to defend or indemnify Wilma's estate because the Policy excludes liability coverage for claims between insured spouses. Farm Bureau relied upon the household exclusion in the Policy:

"EXCLUSIONS—What we will not cover.

This insurance does not apply to:

* * *

15. bodily injury to the insured or to any person related to the insured by blood, marriage[,] or adoption and who is a resident of the same household as the insured."

In the second claim of its complaint, Farm Bureau asserted it had no duty to defend or indemnify Wilma's estate under the UIM coverage, because the Policy excludes coverage for vehicles that are insured under the Policy (owned-vehicle exclusion).

"INSURING AGREEMENT—What we will pay under Coverage K.

We will pay damages for bodily injury an insured is legally entitled to collect from the owner or driver of an uninsured or underinsured motor vehicle. The bodily injury must be caused by an accident arising out of the ownership, maintenance[,] or use of an uninsured or underinsured motor vehicle."

The Policy defines "uninsured motor vehicle" as, in part, "a land motor vehicle licensed for highway use" but excludes a land motor vehicle "insured under the liability coverage of this policy."

Upon Farm Bureau's motion for summary judgment, the circuit court entered declaratory judgment in Farm Bureau's favor. This appeal followed.

II. ANALYSIS

Joseph-estate sets forth three main arguments on appeal: (1) the Policy is internally inconsistent and inherently ambiguous; (2) Illinois public policy requires the estate of Joseph-deceased be compensated under the UIM coverage; and (3) Farm Bureau should be estopped from raising coverage defenses because it delayed filing the declaratory-judgment action. We begin with the second argument.

A. Indiana Law Applies

Joseph-estate's second argument turns on whether Illinois or Indiana law applies. To answer this question, we begin by ascertaining whether a conflict between the laws of these states exists. See McGrew v. Pearlman, 304 Ill.App.3d 697, 701, 237 Ill.Dec. 702, 710 N.E.2d 125, 128 (1999). One does.

Illinois and Indiana have considered the legality of using the owned-vehicle exclusion to deny UIM coverage and reached different conclusions. In Illinois, courts have refused to enforce the owned-vehicle exclusion. For example, in Squire v. Economy Fire & Casualty Co., 69 Ill.2d 167, 179, 13 Ill.Dec. 17, 370 N.E.2d 1044, 1049 (1977), the court concluded the Illinois Insurance Code "requires coverage of insured persons regardless of the motor vehicle the uninsured motorist is driving, and regardless of the vehicle in which the insured person is located when injured." The Squire court based its holding on section 143a of the Insurance Code (215 ILCS 5/143a (West 2002)), which requires liability insurance policies to cover insureds "who are legally entitled to recover damages from owners or operators of uninsured motor vehicles." See also Squire, 69 Ill.2d at 179, 13 Ill.Dec. 17, 370 N.E.2d at 1049.

Indiana courts, however, have concluded owned-vehicle exclusions do not violate Indiana law. In United Farm Bureau Mutual Insurance Co. v. Hanley, 172 Ind. App. 329, 360 N.E.2d 247 (1977), the court was faced with an argument similar to the one Joseph-estate makes here. Two sons of the insured were, with permission, in the vehicle of another. One son was driving; the other was a passenger. Both sons were insureds under the policy. They were in an accident that left the driving son dead and the other injured. See Hanley, 172 Ind.App. at 330, 360 N.E.2d at 248. The injured son sought compensation for his injuries under the liability coverage and the UIM coverage of the policy. Because the household exclusion applied, the injured son was barred from recovering under the liability portion of the policy. The injured son then argued the UIM provisions were triggered. Hanley, 172 Ind.App. at 333, 360 N.E.2d at 248. The Hanley court found recovery barred, upon concluding the combination of the exclusions did not violate Indiana law. The Hanley court noted decisions in Illinois "awarded [UIM] coverage to insureds who were otherwise excluded from liability coverage by operation of the household exclusion," but it called this the minority view and refused to follow it. Hanley, 172 Ind.App. at 335, 360 N.E.2d at 250.

Joseph-estate concedes under normal conflict-of-law analysis, Indiana law would apply. We agree. Absent a choice-of-law provision, we look to Illinois choice-of-law rules to ascertain the applicable law. See Westchester Fire Insurance Co. v. G. Heileman Brewing Co., 321 Ill.App.3d 622, 628, 254 Ill.Dec. 543, 747 N.E.2d 955, 961 (2001). Under Illinois choice-of-law rules for insurance contracts, Illinois courts use the "most significant contacts" test. Westchester Fire Insurance, 321 Ill.App.3d at 628, 254 Ill.Dec. 543, 747 N.E.2d at 961. Insurance policies "are `"governed by the location of the subject matter, the place of delivery of the contract, the domicile of the insured or of the insurer, the place of the last act to give rise to a valid contract, the place of performance, or other place bearing a rational relationship to the general contract."'" Westchester Fire Insurance, 321 Ill.App.3d at 629, 254 Ill.Dec. 543, 747 N.E.2d at 961, quoting Lapham-Hickey Steel Corp. v. Protection Mutual Insurance Co., 166 Ill.2d 520, 526-27, 211 Ill. Dec. 459, 655 N.E.2d 842, 845 (1995), quoting Hofeld v. Nationwide Life Insurance Co., 59 Ill.2d 522, 528, 322 N.E.2d 454, 457-58 (1975). All of these considerations lean toward applying Indiana law.

Joseph-estate argues, however, Illinois public policy requires the application of Illinois law here. He contends Illinois courts have called the owned-vehicle exclusion "illegal and unenforceable" and the enforcement of an "illegal" exclusion would violate Illinois public policy. Joseph-estate further maintains Illinois has an interest in protecting the individuals who are injured on its roadways.

To determine Illinois public policy,...