Case Title: Country Mutual Insurance Co. v. Teachers Insurance Co.

Citation: 

Docket Number: 89412

State: illinois

Court: Illinois Supreme Court

Date: 2001-03-22T00:00:00Z

Document:
Docket No. 89412Agenda 32September 2000.
COUNTRY MUTUAL INSURANCE COMPANY, Appellant, v. TEACHERS
INSURANCE COMPANY et al. (Teachers Insurance Company, Appellee).
Opinion filed March 22, 2001.
JUSTICE McMORROW delivered the opinion of the court:
The issue presented to us in this appeal is whether
plaintiff, Country Mutual Insurance Company (Country Mutual), the insurer of a
school board, or defendant Teachers Insurance Company (Teachers), the insurer of
a teacher, is primarily liable for damages resulting from an automobile accident
involving the teacher which occurred while the teacher was acting within the
scope of her employment. The appellate court held that the public policy
expressed in section 1020.20 of the School Code (105 ILCS 5/1020.20 (West
1998)) required the school board's insurer to provide primary coverage and
granted summary judgment to Teachers. 312 Ill. App. 3d 566. For the reasons that
follow, we reverse the judgment of the appellate court granting summary judgment
to Teachers and remand the cause to that court for further proceedings.
 
BACKGROUND
The facts in this case are not in dispute. On December 8,
1995, Jo Chapman, a teacher at Sandoval Community High School District No. 501
(Sandoval), was driving her automobile while acting within the scope of her
employment. Jamie Johnston, a student at Sandoval, was a passenger in the
vehicle. Chapman's vehicle slid on an icy roadway and ran off the road,
allegedly injuring Johnston. Johnston subsequently brought suit against Chapman
and Sandoval, claiming that Chapman's negligence in driving the vehicle
resulted in Johnston's injuries.
At the time of the accident, Chapman's vehicle was insured
by defendant Teachers Insurance Company (Teachers), with Chapman as the named
insured under the policy. Teachers' insurance policy with Chapman provides
that Teachers will pay damages which Chapman becomes liable to pay because of
bodily injury to others and that Teachers will defend any suit brought against
Chapman for such damages.
Sandoval was insured by plaintiff, Country Mutual Insurance
Company (Country Mutual), on a business automobile insurance policy. Country
Mutual's policy with Sandoval provides:
"It is agreed that such insurance as is afforded by
    the policy for bodily injury liability and for property damages liability
    with respect to an insured automobile is extended to insure any member of
    the Board of Education or any employee, teacher, volunteer, personnel or any
    student teacher of the named insured, but only while acting within the
    course or scope of his duties, as such, or under the direction of the Board
    of Education, subject to the following provisions:
* * *
2. The insurance afforded by this endorsement with
    respect to any hired or non-owned automobile shall be excess insurance over
    any other valid and collectible insurance."
On August 20, 1995, Country Mutual issued an endorsement
adding to the "who is insured" portion of its policy with Sandoval,
which states:
"Any employee of yours is an insured
    while using a covered auto you don't own, hire or borrow in your
    business or your personal affairs." (Emphasis in original.)
Chapman tendered the claim that Johnston filed against her to
Teachers. Teachers then tendered the defense to Country Mutual. Teachers argued
that Country Mutual's policy provided primary coverage for Chapman's
accident. In response, Country Mutual filed suit for declaratory judgment in the
circuit court of Jefferson County, naming Teachers, Ruth Johnston, Jo Chapman
and Sandoval as defendants. Country Mutual alleged that its policy does not
provide primary coverage and that it does not owe a duty to defend Chapman in
the action against her. Teachers answered Country Mutual's complaint for
declaratory judgment and filed a counterclaim against Country Mutual for
declaratory judgment, alleging that Country Mutual's insurance policy did
provide primary coverage for the accident. Teachers requested that Country
Mutual be ordered to reimburse it for all amounts paid as a result of the
underlying claim, as well as costs of the defense of the claim.
Both Teachers and Country Mutual filed motions for summary
judgment. In its motion for summary judgment, Country Mutual contended that: (1)
the unambiguous language of the policy that it issued to Sandoval establishes
that it provides only excess coverage, rather than primary coverage, for Chapman's
accident; and (2) the policy that Teachers issued to Chapman provides primary
coverage. Country Mutual also argued that Illinois law sets forth the general
principle that the automobile liability policy of the owner of a vehicle
generally provides primary coverage.
Teachers, in its motion for summary judgment, argued that:
(1) Country Mutual is obligated to indemnify Chapman pursuant to the Local
Governmental and Governmental Employees Tort Immunity Act (Tort Immunity Act)
(745 ILCS 10/2302 (West 1998) (stating that a local public entity may elect
to indemnify its employee for court costs, a judgment, and/or a settlement
stemming from an action brought against that employee that arose while the
employee was acting within the scope of his or her employment)); and (2) the
August 1995 endorsement to the policy that Country Mutual issued to Sandoval
establishes that Country Mutual is the primary carrier for Chapman's accident.
The circuit court of Jefferson County found that Teachers'
insurance policy provided primary coverage for the accident and granted Country
Mutual's summary judgment motion. Teachers then filed a motion to reconsider.
In this motion, Teachers repeated the arguments that it made in its motion for
summary judgment. Teachers also argued for the first time that section 1020.20
of the School Code (105 ILCS 5/1020.20 (West 1998)) establishes that Sandoval
had an obligation to indemnify and protect Chapman. Country Mutual filed a brief
in response to Teachers' motion to reconsider, contending that Teachers'
argument regarding section 1020.20 did not address the issue before the
court, as it failed to consider the language in the insurance policies to
determine which policy provides primary coverage. Country Mutual also repeated
its argument that the language in the policies provides that Teachers' policy
is primary.
The circuit court denied Teachers' motion to reconsider. In
doing so, the court relied on State Farm Mutual Automobile Insurance Co. v.
Universal Underwriters Group, 182 Ill. 2d 240 (1998), to find that the
insurer of a vehicle is responsible to provide primary automobile liability
coverage when the vehicle is involved in a loss. Teachers appealed.
On appeal, Teachers argued that Sandoval is obligated by the
School Code (105 ILCS 5/11 et seq. (West 1998)) and the Tort Immunity
Act (745 ILCS 10/2301 (West 1998)) to indemnify and defend the action brought
against Chapman, regardless of the insurance policy issued to Chapman by
Teachers. The appellate court agreed that, pursuant to section 1020.20 of the
School Code, Sandoval was statutorily obligated to defend and indemnify Chapman
or her personal insurer for the claim, pursuant to section 1020.20 of the
School Code. The court then held that, based on the public policy expressed in
section 1020.20, Country Mutual's insurance policy provided primary
coverage for the claim. Accordingly, the court reversed the summary judgment
entered in favor of Country Mutual and entered summary judgment in favor of
Teachers. 312 Ill. App. 3d 566. We granted Country Mutual's petition for leave
to appeal. 177 Ill. 2d R. 315(a).
 
ANALYSIS
An insurance policy is a contract between an insurer and an
insured (Copley v. Pekin Insurance Co., 111 Ill. 2d 76, 85 (1986)), and
the rights and obligations of an insurer are primarily determined by the terms
of that contract (Bituminous Casualty Corp. v. Iowa National Mutual Insurance
Co., 132 Ill. App. 3d 868 (1985)). When rendering its judgment in this case,
however, the appellate court did not base its decision on the terms of Country
Mutual's policy or Teachers' policy when determining which insurer is
primarily liable for Chapman's accident. Rather, the court relied exclusively
on the School Code and considered only the parties' arguments that related to
the School Code. Specifically, the court determined that it could not base its
decision on the insurance policies at issue in this case because to construe
Country Mutual's policy as providing only excess coverage for Chapman's
accident would be contrary to public policy. See, e.g., Illinois
Farmers Insurance Co. v. Cisco, 178 Ill. 2d 386, 392 (1997), citing Menke
v. Country Mutual Insurance Co., 78 Ill. 2d 420, 423 (1980) (the terms of an
insurance policy are to be applied as written unless those terms contravene
public policy). The court found this public policy in sections 1020 and 1020.20
of the School Code.
Section 1020 of the School Code, entitled "Powers of
school board," states:
"The school board has the powers enumerated in the
    Sections of this Article following this Section. This enumeration of powers
    is not exclusive, but the board may exercise all other powers not
    inconsistent with this Act that may be requisite or proper for the
    maintenance, operation, and development of any school or schools under the
    jurisdiction of the board. This grant of powers does not release a school
    board from any duty imposed upon it by this Act or any other law." 105
    ILCS 5/1020 (West 1998).
Section 1020.20 states:
"To indemnify and protect school districts, members
    of school boards, employees *** against civil rights damage claims and
    suits, constitutional rights damage claims and suits and death and bodily
    injury and property damage claims and suits, including defense thereof, when
    damages are sought for negligent or wrongful acts alleged to have been
    committed in the scope of employment or under the direction of the
    board." 105 ILCS 5/1020.20 (West 1998).
Prior to 1996, section 1020 set forth the
"duties," rather than "powers" of school boards, providing
that "[t]he school board has the duties enumerated in the Sections
following this Section and preceding Section 1021." (Emphasis added.)
105 ILCS 5/1020 (West 1994). Section 1020 was amended in 1996 to change
the word "duties" to "powers." See 105 ILCS 5/1020 (West
1996), amended by Pub. Act No. 89159, eff. January 1, 1996.
The appellate court held that the1996 amendment to section 1020
did not change a school district's mandatory duty to indemnify and defend its
employees. The court concluded that the legislative history of the 1996
amendment established that "the purpose of the amendment was not to do away
with any duties owed by school districts but to expand the powers of school
districts to include any powers necessary and proper for the maintenance,
operation, and development of schools, provided those powers are not in conflict
with any other provisions of the School Code." 312 Ill. App. 3d at 571.
Thus, the appellate court found that sections 1020 and 1020.20 express a
public policy that a school board is required to indemnify its employees for
damage claims due to negligence that occurs during the scope of employment.
On appeal to this court, the parties dispute the meaning of
section 1020.20. Country Mutual contends that section 1020.20 does not
place a mandatory duty on school boards to indemnify their employees for damages
claims due to negligence that occur in the scope of employment. Country Mutual
argues that the change from "duties" to "powers" in section
1020 eliminates a school board's duty to indemnify its employees and
gives school boards the authority to indemnify. Conversely, Teachers
alleges that the legislature did not intend to remove a school board's duty to
indemnify its employees. Teachers argues that the appellate court was correct in
holding that the change from "duties" to "powers" merely
expanded the powers of school boards to include any powers necessary and proper
for the maintenance, operation and development of schools. Thus, Teachers
contends that school boards have a duty to indemnify their employees for damage
claims due to negligence that occurs in the scope of employment.
"The cardinal rule of statutory construction, to which
all other canons and rules are subordinate, is to ascertain and give effect to
the true intent and meaning of the legislature." Kunkel v. Walton,
179 Ill. 2d 519, 533 (1997). Where a statute's meaning is unclear from the
statutory language, the court may examine the statute's legislative history. Kunkel,
179 Ill. 2d  at 534.
According to Black's Law Dictionary, the term
"duty" is defined as "[a]ny action, performance, task, or
observance owed by a person in an official or fiduciary capacity." Black's
Law Dictionary 522 (7th ed. 1999). The term "power," in contrast, is
defined as "[t]he ability to act or not act." Black's Law Dictionary
1189 (7th ed. 1999). Given these definitions, it initially appears that when the
legislature changed the word "duties" to "powers," it
removed a school board's obligation to indemnify its employees for damage
claims due to negligence and, instead, merely gave school boards the ability to
indemnify them. However, when the legislature amended section 1020 to change
the word "duties" to "powers," it also added a sentence to
the section that provides: "This grant of powers does not release a school
board from any duty imposed upon it by this Act or any other law." 105 ILCS
5/1020 (West 1998). Thus, while the legislature arguably seemed to have
removed a school board's duty to indemnify by changing the word
"duties" to "powers," it also appears to have then reimposed
that duty by adding that the school board is not "released" from any
duty. We therefore turn to the legislative history of the l996 amendment to
section 1020 for guidance in determining the legislature's intent.
Our examination of the legislative debates of the bill that
amended section 1020 convinces us that the legislature did not intend to
eliminate or change a school district's duty to indemnify and defend its
employees when it changed the word "duties" to "powers."
When discussing the bill that amended section 1020, Senator Klemm noted that
the bill
"gives school boards the authority to exercise all
    that's necessary and proper for the maintenance and operation and
    development of their schools, provided that this authority is not in
    conflict with any provision of the School Code, in that it clarifies that
    this authority does not release school districts from any duty imposed byby
    the law right now." 89th Ill. Gen. Assem., Senate Proceedings, May 24,
    1995, at 16 (statements of Senator Klemm).
As the senator spoke, "the law right now" stated
that school districts had a duty to indemnify and defend their employees for
damage claims due to negligence occurring within the scope of employment.
Similarly, during another legislative debate, Representative Cowlishaw explained
the purpose of adding the sentence in section 1020 that reads, "This
grant of powers does not release a school board from any duty imposed upon it by
the Act or any other law." She stated that "there were some concerns
about our being very careful that school boards realized they still had to do
everything that the School Code requires *** [and] when that sentence was added
that's when all opposition was removed." 89th Ill. Gen. Assem., House
Proceedings, May 19, 1995, at 242 (statements of Representative Cowlishaw).
Representative Cowlishaw also stated that
"In other words we give by this Bill, school boards
    the authority to exercise all powers necessary and proper, for the
    maintenance operation and development of schools, provided those powers are
    not in conflict with any provision of the School Code." 89th Ill. Gen.
    Assem., House Proceedings, May 19, 1995, at 241 (statements of
    Representative Cowlishaw).
We believe the foregoing statements make clear that the
legislature did not intend the 1996 amendment to remove a school district's
duty to indemnify and defend its employees. Instead, section 1020 was amended
for the purpose of providing school districts with greater authority. Thus, we
hold that section 1020.20 imposes a duty on school districts to indemnify and
defend their employees for damage claims due to negligence that occurs in the
scope of employment.
After the appellate court in the case at bar determined that
the School Code expresses a public policy that school boards indemnify their
employees for damage claims due to negligence that occurs in the scope of the
employment, the court then held that this public policy would be contravened if
Country Mutual's insurance policy were to be construed as requiring only
excess coverage. Accordingly, the appellate court held that, "despite the
language in [Country Mutual's] insurance policy," which arguably states
that it will provide only excess coverage in situations such as the one at bar,
the court was required to construe that policy to afford primary coverage for
Chapman's accident. 312 Ill. App. 3d at 571. In support of this position, the
appellate court relied on State Farm Mutual Automobile Insurance Co. v.
Universal Underwriters Group, 182 Ill. 2d 240 (1998).
In State Farm, a car dealership customer was involved
in an accident while test-driving the dealership's vehicle. State Farm,
182 Ill. 2d  at 241. The driver's insurance company, State Farm Mutual
Automobile Insurance Company (State Farm), paid the damages that arose from the
accident and subsequently submitted a claim to the dealership's insurance
carrier, Universal Underwriters Group (Universal), for reimbursement of those
damages, claiming that the dealership's carrier afforded primary coverage. The
policy issued by Universal to the dealership stated that any " person
or organization required by law to be an INSURED while using an AUTO covered by
this Coverage Part within the scope of YOUR permission' " was
insured under the policy. State Farm, 182 Ill. 2d  at 242.
The parties disputed whether the driver was required by law
to be an insured pursuant to the Universal policy and section 7601 of the
Illinois Vehicle Code. Section 7601 provides that " [n]o person
shall operate, register or maintain registration of, and no owner shall permit
another person to operate, register or maintain registration of, a motor vehicle
designed to be used on a public highway unless the motor vehicle is covered by a
liability insurance policy.' " State Farm, 182 Ill. 2d  at
242-43, quoting 625 ILCS 5/7601(a) (West 1996).
This court agreed with State Farm that Illinois law required
a dealership's liability policy to provide coverage for customers who
test-drive the dealership's vehicles. We noted that the Illinois Vehicle Code
requires that an insurance policy " 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.' "
(Emphasis in original.) State Farm, 182 Ill. 2d  at 244, quoting 625 ILCS
5/7317 (West 1996). Thus, we found that a liability insurance policy must
cover not only the named insured, but also any other person who uses the named
insured's vehicle with his or her permission. State Farm, 182 Ill. 2d 
at 244.
We further rejected Universal's argument that, even if its
policy covered the accident, it provided only excess coverage according to the
language of the policy. We stated:
"Even assuming, arguendo, that Universal is
    correct in its interpretation of the language of its garage policy, to give
    effect to that language would violate the public policy of this state, as
    defined by the General Assembly in the [Illinois Vehicle] Code. As explained
    above, the Code mandates that the insurance policy issued by Universal
    provide omnibus coverage. In the absence of any statutory language
    qualifying that mandate, the statute must be construed to require primary
    coverage." State Farm, 182 Ill. 2d  at 246.
The appellate court in the instant case relied on this
language in holding that the public policy of Illinois required Country Mutual
to provide primary coverage for Chapman's accident. 312 Ill. App. 3d at 572.
The appellate court erred when it relied on State Farm, as that case is
inapposite to the facts at bar.
Unlike State Farm, the statute in question in the
matter at bar does not involve insurance. Sections 1020 and 1020.20
address the duties of school boards. They do not pertain to insurance or
insurance policies. In fact, nowhere in these portions of the School Code is a
school board's insurer mentioned. Thus, although sections 1020 and 1020.20
establish a public policy that school boards indemnify their
employees for accidents that arise while those employees are acting within the
scope of their employment, nothing in those sections defines an insurance
company's duties. Simply stated, sections 1020 and 1020.20 do not
establish a public policy that a school board's insurer indemnify any
employee. Unlike the situation in State Farm, no public policy would be
violated by giving effect to the language of both Country Mutual's and
Teachers' insurance policies to determine which company is liable for primary
coverage. To construe Country Mutual's policy as excess would not contravene
the public policy that a school board has a duty to indemnify its employees for
accidents that arise in the scope of employment.
Therefore, while we agree with the appellate court's
conclusion that section 1020.20 imposes a duty on school districts to
indemnify their employees for accidents arising within the scope of employment,
we do not agree with the appellate court's ultimate determination that
construing Country Mutual's policy to provide only excess coverage for Chapman's
accident would contravene the public policy expressed in section 1020.20. We
therefore determine that the appellate court erred in holding that public policy
demands that Country Mutual's insurance policy be construed to provide primary
coverage for Chapman's accident. The decision of the appellate court granting
summary judgment in favor of Teachers is reversed.
Because no controlling expression of public policy applies in
the matter at bar, this case involves a strict contract dispute. The terms of
the insurance contracts will therefore control which company is primarily liable
for Chapman's accident. As noted previously, the appellate court did not
examine Country Mutual's and Teachers' insurance policies to determine which
policy provided primary coverage for Chapman's accident. Because this issue
was not fully briefed to this court by both parties, or determined in the
appellate court, we remand this cause to the appellate court for resolution of
this issue. People v. Landwer, 166 Ill. 2d 475, 499-500 (1995).
 
CONCLUSION
For the foregoing reasons, the judgment of the appellate
court granting summary judgment in favor of Teachers is reversed. The cause is
remanded to the appellate court for further proceedings consistent with this
opinion.
 
Appellate court judgment reversed;
cause remanded.