Universal Cas. Co. v. Lopez

Decision Date17 September 2007
Docket NumberNo. 1-05-3376.,No. 1-05-3377.,1-05-3376.,1-05-3377.
Citation876 N.E.2d 273
PartiesUNIVERSAL CASUALTY COMPANY, Plaintiff-Appellant, v. Alejandro LOPEZ; Elsa Alarcon; Susan Goodman; Randy L. Finfer; Barbara R. Weiss; Minda H. Smith; and Allstate Insurance Company, Defendants-Appellees. American Service Insurance Company, Plaintiff-Appellant, v. Sergio Ruiz; Jose D. Gonzalez; and Beth Kim, Indiv. and as Mother and Next Friend of Andrea Kim, Defendants-Appellees.
CourtUnited States Appellate Court of Illinois

James P. Newman and Donald Patrick Eckler, of Newman Raiz, LLC, Chicago, for Appellants.

Peter C. Morse, Jeffrey A. Siderius and John M. Kotleski of Morse & Bolduc, Chicago, for Appellees.

Presiding Justice CAHILL delivered the opinion of the court:

Plaintiff insurers appeal from a trial court's denial of motions for declaratory judgments. Plaintiffs alleged fraudulent misrepresentation in defendants' applications for automobile insurance. Plaintiffs rescinded the insureds' policies and returned their premiums after drivers who were not disclosed as household members on the insureds' applications for insurance were in accidents while driving cars owned by the insureds.

The other defendants in these cases are the drivers and passengers in other cars who were injured in the accidents (third-party defendants).

These actions were filed in separate complaints and considered at separate bench trials. We have consolidated these cases and now affirm the judgments of the circuit court.

The facts are slightly different in each case, but the legal issue is the same: whether the insureds had made material misrepresentations on their applications for insurance, voiding coverage. Universal Casualty Company alleged in its complaint that Alejandro Lopez, its insured, and Elsa Alarcon lived in the City of North Chicago. It alleged that at the time of the accident Alarcon was driving a car owned by Lopez. It alleged that Lopez applied for insurance on November 26, 2001, while Alarcon lived in his household. Universal claimed that although Lopez was obligated to name and identify all drivers in his household, he failed to disclose Alarcon. Universal alleged Lopez's "fraudulent misrepresentation" voided the insurance policy. Universal claimed that had it known Alarcon lived with Lopez, it would not have issued the policy.

Neither Lopez nor Alarcon answered the complaint. The trial court entered an order of default against them on May 11, 2004. But the third-party defendants did appear and answer. They denied knowledge and information sufficient to form a belief as to Universal's claims of misrepresentation. In response to interrogatories, Universal disclosed a police report from the accident that listed Alarcon's address as Lopez's address. Universal also disclosed a summons in the underlying tort suit addressed to Alarcon at Lopez's address.

At a bench trial on May 16, 2005, Universal introduced documents, including the 2004 judgment of default against Lopez and Alarcon. Universal moved for a directed verdict, arguing that Lopez and Alarcon had admitted the allegations in the complaint by defaulting. The trial court denied the motion, pending completion of the trial.

Universal called Ronald Clark, its claims supervisor, as a witness. Clark testified that although Alarcon was not listed as an operator on Lopez's policy, he believed Alarcon lived at Lopez's address. On cross-examination, Clark admitted he never spoke with Lopez or Alarcon. He said he did not believe there were attempts to reach Lopez and Alarcon by telephone. He admitted that Alarcon's address on the police report of the collision would not establish that she was a driver in the Lopez household at the time of the application. Clark admitted he had no knowledge of whether Alarcon was a driver of Lopez's car before the accident, either as a household member or a permissive driver. Clark said Universal's only evidence of Alarcon's address was the police report.

The trial court entered a written opinion and order, ruling in Universal's favor. The court found that Clark's testimony "revealed that Clark did not have personal knowledge of Alarcon's residency at the time Universal contracted with Lopez." The trial court concluded that although Clark's testimony was "weak," it showed that Universal's decision to contract with Lopez would have been different had it known that Alarcon lived with Lopez. The trial court noted that the third-party defendants "offered no evidence to rebut Clark's testimony."

The third-party defendants filed a post-trial motion to reconsider, arguing that Universal had presented no evidence of a material misrepresentation, but had relied entirely on the default judgment against Lopez. The trial court granted the third-party defendants' motion to reconsider, vacated its earlier judgment and found that Universal had the duty to defend and indemnify Lopez and Alarcon.

American Service Insurance Company made essentially the same claims as Universal against its insured, Sergio Ruiz, and Jose Gonzalez. It alleged that Ruiz and Gonzalez were both residents of Palatine and that a car owned by Ruiz and driven by Gonzalez was involved in an accident on September 27, 2003. It alleged Ruiz violated the terms of his policy by failing to disclose Gonzalez as a driver when he applied for the insurance.

Ruiz and Gonzalez did not answer the complaint. The trial court entered a judgment of default against them on February 19, 2004. The third-party defendants, the Kims, answered the complaint.

Before trial, the court allowed the Kims to file an affidavit under section 2-610(b) of the Code of Civil Procedure (735 ILCS 5/2-610(b) (West 2002)) to support their claims of insufficient knowledge to admit or deny American's allegations. The Kims also filed a motion for summary judgment (735 ILCS 5/2-1005 (West 2002)). They attached affidavits of the defaulted Ruiz, Ruiz's wife, Gonzalez and Margarita Abame, a Ruiz family friend. The affidavits averred that Gonzalez did not live with Ruiz on the date of the application and that Gonzalez did not move into Ruiz's residence until after the application was made. The affiants stated that the only time Gonzalez drove Ruiz's car was on the date of the accident. The trial court denied the motion for summary judgment. American also filed a motion for summary judgment that the court denied.

The only witness to testify at trial was Donald Santo, American's claims adjustor. He testified that American conducted an investigation after the accident. An accident report signed by Ruiz gave Gonzalez's address as 1804 Green Lane, Palatine, Illinois — the same address given by Ruiz on his insurance application. On cross-examination, Santo admitted that the accident report established Gonzalez's address only at the time of the accident, not at the time of Ruiz's application for insurance.

The third-party defendants then called Santo again as an adverse witness. Santo said an "undisclosed driver evaluation" was prepared by American's underwriters. He said an underwriter thought something was wrong while investigating the accident and made a phone call after which the underwriter concluded that Gonzalez moved into the Ruiz household on July 12, 2003, four days before Ruiz applied for insurance. Santo admitted that the underwriters' evaluation showed the date of the accident as the "only time" Gonzalez drove Ruiz's car.

The trial court entered a written opinion and order, finding that Santo's testimony on cross-examination established that he did not have personal knowledge that Gonzalez lived with Ruiz at the time of contract formation. The trial court noted that the third-party defendants did not, through cross-examination of Santo or other means, present evidence refuting the alleged misrepresentation by Lopez. Even so, the court concluded that American had not met its burden of proof of misrepresentation:

"While the defendants' defaults serve as evidence, the admissions extend only so far as the allegation[s] in the complaint are well pleaded. [Citation.] * * * Conclusions of fact are not well pleaded facts. [Citation.]

Nowhere does American's complaint allege that Gonzalez lived with Ruiz at the time Ruiz executed his contract of insurance with American. The complaint alleges * * * that both lived in Palatine, Illinois, but does not provide addresses. [The complaint] alleges that `[h]ad [American] known that GONZALEZ was a resident of the RUIZ household at all relevant times' it would not have entered the contract. In addition, [the complaint] alleges that `[u]pon learning that GONZALEZ was an undisclosed resident of the RUIZ household at all relevant times' it would have rescinded the contract and returned payment. These are the allegations admitted by way of the defendant's default. These admissions are not, however, sufficient to carry American's burden.

Because the claimants have met their burden in establishing coverage, and American failed to meet its burden of establishing by a preponderance of the evidence that Ruiz misrepresented at the time of contract formation the identity of all resident drivers then living in his home. American's defense, then, fails and it must live up to its financial obligations under that agreement."

American filed and the trial court denied a motion to reconsider.

The parties disagree on the standard of review. Plaintiffs argue that where, as here, no evidence is presented that contradicts the documentary evidence, the propriety of the trial court's ruling is purely a question of law to be reviewed de novo, citing In re the Estate of Green, 359 Ill. App.3d 730, 733, 296 Ill.Dec. 369, 835 N.E.2d 403 (2005). The third-party defendants argue that a trial court's decision to grant or deny a motion for declaratory judgment rests within the sound discretion of the trial court and will not be reversed absent an abuse of discretion, citing Muhammad v. Muhammad-Rahmah, 363 Ill. App.3d...

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