No. 2--06--0777 Filed: 8-8-08

______________________________________________________________________________

IN THE

APPELLATE COURT OF ILLINOIS

SECOND DISTRICT

______________________________________________________________________________

ILLINOIS INSURANCE GUARANTY ) Appeal from the Circuit Court

FUND, in the Place and Stead of Statewide ) of Kane County.

Insurance Company, in Liquidation, )

)

Plaintiff-Appellant, )

)

v. ) No. 05--MR--346

)

PAT SANTUCCI and STATE FARM )

MUTUAL AUTOMOBILE INSURANCE )

COMPANY, a/s/o Linda Duff, ) Honorable

) Michael J. Colwell,

Defendants-Appellees. ) Judge, Presiding.

______________________________________________________________________________

JUSTICE McLAREN delivered the opinion of the court:

Plaintiff, the Illinois Insurance Guaranty Fund (IIGF), in the place and stead of Statewide

Insurance Company, in liquidation, appeals from the trial court's order granting the motion for

summary judgment brought by defendants, Pat Santucci and State Farm Mutual Automobile

Insurance Company, as subrogee of Linda Duff. Plaintiff's complaint sought a declaration that it

did not owe a duty to defend and/or indemnify Santucci with regard to an accident that occurred

when two horses collided with a vehicle that was owned by Duff and insured by State Farm. We

reverse because the underlying claim was not a covered claim under the Illinois Insurance Code

(Insurance Code) (215 ILCS 5/534.3(a) (West 2004)).

FACTS
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In November 2001, Santucci lived at 45 West Plank Road, Hampshire, Illinois. The

Plank Road property consisted of 23 acres containing three outbuildings, a barn, and a house

trailer. Santucci lived in the house trailer. He personally owned a number of horses that he kept

at his property. He operated a business, P.S. Coyote, Inc., on the premises that was engaged in

construction (excavation and water and sewer work). Santucci was the president of that

business. P.S. Coyote, Inc., had no involvement with the horses.

On or about November 29, 2001, two of Santucci's horses escaped from his Plank Road

property and collided with Duff's vehicle. Duff was insured by State Farm. Santucci did not

have a homeowner's policy on the property at the time of the collision. However, on the date of

the collision, Statewide insured P.S. Coyote under a commercial general liability policy.

In December 2003, State Farm, as Duff's insurer and subrogee, filed a two-count

complaint against Santucci, seeking recompense for damages to Duff's vehicle as a result of the

horse/vehicle collision. Count I alleged that Santucci boarded and harbored the horses at his

property on Plank Road and that Santucci violated the Illinois Domestic Animals Running at

Large Act (Domestic Animals Act) (510 ILCS 55/1 et seq. (West 2004)). Count II of the

complaint alleged that Santucci was negligent in that he failed to: (a) "provide an adequate

enclosure for the horses to prevent them from escaping the property where harbored"; (b)

"inspect and reasonably maintain the enclosure where the horse was [sic] boarded in order to

determine whether any defects existed in the enclosure that posed a risk of the horses' escape";

(c) "find and repair any defects or breeches [sic] in the enclosure where the horse was harbored

or boarded when the Defendant knew or in the exercise of reasonable care would have known of

and repaired said defect"; and (d) "erect and maintain fences of a height and strength sufficient

to prevent the horse from jumping over the fence." State Farm also alleged that Santucci owed a
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duty to provide, maintain, and repair the horse enclosure so as to prevent his horses from

escaping and running at large. State Farm further alleged that Santucci breached his duty and

that, as a result, Duff's vehicle was damaged. P.S. Coyote was not a party defendant or

referenced in any regard in the complaint.

About February 2002, Statewide learned of the claim for the damages to Duff's vehicle

and began investigating to determine whether coverage should be provided. On January 6, 2004,

Statewide informed Santucci that it agreed to defend him in the State Farm case, without a

reservation of rights. On the same day, a Cook County trial court found Statewide insolvent and

ordered liquidation of the company pursuant to article VIII of the Insurance Code (215 ILCS

5/187 et seq. (West 2004)). On May 24, 2004, following liquidation, the IIGF took over the

defense of Santucci's case pursuant to a reservation of rights.

On August 30, 2005, the IIGF filed a complaint for declaratory judgment against

Santucci. The complaint alleged that the IIGF did not have a duty to defend and/or indemnify

Santucci with regard to the State Farm action, because Santucci did not qualify as an insured

under the Statewide/P.S. Coyote policy for the allegations contained in the State Farm

complaint. 

In his answer and affirmative defense to the IIGF's complaint, Santucci alleged that,

when he returned to his Plank Road property on the date of the horse incident, he was acting in

his capacity as president of P.S. Coyote. Santucci alleged that "he inadvertently left open and/or

failed to lock the gate that enclosed the horses." Santucci argued that, because he was acting in

his "corporate capacity," the Statewide policy issued to P.S. Coyote should provide him with a

defense in the State Farm suit even though P.S. Coyote was not a named party in the complaint.
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The IIGF filed a motion for summary judgment, arguing that: (1) the Statewide policy

did not apply to Santucci in his individual liability; and (2) Statewide was obligated by statute

only for "covered claims," which are defined as losses within the scope of a liquidated

company's policy against an insured. The IIGF also argued that, since State Farm's complaint

was against Santucci individually, and not as a P.S. Coyote officer, Santucci did not qualify as an

insured under the Statewide policy, and the claim was not covered.

Santucci and State Farm (collectively, Santucci) filed a cross-motion for summary

judgment, arguing that: (1) the IIGF waived its denial of coverage when Statewide previously

agreed to defend Santucci in the State Farm case without a reservation of rights; (2) P.S. Coyote

was liable for Santucci's horses; and (3) a conflict of interest existed between the IIGF and

Santucci that estopped the IIGF from seeking to abandon its defense of him. Santucci attached

portions of his deposition to the motion for summary judgment. Santucci stated during his

deposition that, on the night of the incident, he was acting as president of P.S. Coyote when he

left the gate open and returned equipment used by that company to the site. Further, he stated

that the Plank Road property and trailer were used 80% of the time for P.S. Coyote business.

The IIGF replied to Santucci's cross-motion for summary judgment. The trial court

granted Santucci's cross-motion for summary judgment and denied the IIGF's motion for

summary judgment. The IIGF filed this timely appeal.

ANALYSIS

Summary judgment is proper where there are no genuine issues of material fact and the

moving party is entitled to judgment as a matter of law. 735 ILCS 5/2--1005(c) (West 2004).

The trial court must consider the pleadings, depositions, admissions, exhibits, and affidavits on

file and construe them in favor of the nonmoving party. Murray v. Chicago Youth Center, 224
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Ill. 2d 213, 228 (2007). We review the trial court's decision to grant summary judgment de

novo. Murray, 224 Ill. 2d at 228. Although summary judgment is encouraged as an aid to

expedite the disposition of a lawsuit, it is nevertheless "a drastic means of disposing of litigation

and, therefore, should be allowed only where the right of the moving party is clear and free from

doubt." Bagent v. Blessing Care Corp., 224 Ill. 2d 154, 163 (2007).

The IIGF argues that the trial court erred by denying its motion for summary judgment

and granting Santucci's cross-motion for summary judgment. According to the IIGF, Santucci's

claim is not a "covered claim," because Santucci is not a "person insured" under section 534.3(a)

of the Insurance Code (215 ILCS 5/534.3(a) (West 2004)), as he was not covered by the

Statewide policy. The IIGF concludes, therefore, that it is not obligated to defend Santucci in

the underlying case.

"A court's primary objective in construing the language of an insurance policy is to

ascertain and give effect to the intentions of the parties as expressed by the language of the

policy." Valley Forge Insurance Co. v. Swiderski Electronics, Inc., 223 Ill. 2d 352, 362 (2006).

We give the policy's words their plain, ordinary, and popular meaning. Valley Forge Insurance,

223 Ill. 2d at 366.

Every state in the nation has established an insurance guaranty fund to protect insureds in

the event that an insurance company becomes insolvent. Hasemann v. White, 177 Ill. 2d 414,

417 (1997). The IIGF was created as a not-for-profit association designed to limit the losses

arising out of insurance companies' insolvencies. Gines v. Ivy, 358 Ill. App. 3d 607, 609 (2005).

Every insurance company that is authorized to do business in Illinois is a member of, and

contributes to, the IIGF. Hasemann, 177 Ill. 2d at 417.
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However, the IIGF limits its obligations only to "covered claims." Section 537.2 of the

Insurance Code provides in part:

"The Fund shall be obligated to the extent of the covered claims existing prior to

the entry of an Order of Liquidation against an insolvent company and arising within 30

days after the entry of such Order, or before the policy expiration date if less than 30

days after the entry of such Order, or before the insured replaces the policy or on request

effects cancellation, if he does so within 30 days after the entry of such Order."

(Emphasis added.) 215 ILCS 5/537.2 (West 2004).

Section 534.3(a) defines "covered claim," providing in pertinent part:

" 'Covered claim' means an unpaid claim for a loss arising out of and within the

coverage of an insurance policy to which this Article applies and which is in force at the

time of the occurrence giving rise to the unpaid claim, including claims presented during

any extended discovery period which was purchased from the company before the entry

of a liquidation order or which is purchased or obtained from the liquidator after the entry

of a liquidation order, made by a person insured under such policy or by a person

suffering injury or damage for which a person insured under such policy is legally liable,

and for unearned premium ***[.]" (Emphasis added.) 215 ILCS 5/534.3(a) (West 2004).

The Statewide policy was issued to P.S. Coyote, a corporation engaged in the

construction business. The Statewide policy defined an insured, in relevant part, as follows:

"If you are designated in the Declarations as:

* * *

(d) an organization other than a partnership, joint venture or limited liability

company, you are an insured. Your 'executive officers' and directors are insureds, but
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only with respect to their duties as your officers or directors. Your stockholders are also

insured[s], but only with respect to their liability as stockholders."

To determine whether an insurer's duty to defend has arisen, a court must compare the

allegations of the underlying complaint to the language of the insurance policy. General Agents

Insurance Co. of America, Inc. v. Midwest Sporting Goods Co., 215 Ill. 2d 146, 154-55 (2005).

The allegations in the underlying complaint must be liberally construed in favor of the insured.

General Agents Insurance Co. of America, 215 Ill. 2d at 155. If the allegations fall within, or

potentially within, the policy's coverage, the insurer has a duty to defend the insured against the

underlying complaint. General Agents Insurance Co. of America, 215 Ill. 2d at 155.

In the instant case, the underlying complaint had two counts: count I alleged that

Santucci violated the Domestic Animals Act (510 ILCS 55/1 et seq. (West 2004)). Count II of

the complaint alleged generally that Santucci was negligent by failing to: (a) provide an adequate

enclosure for the horses; (b) inspect and maintain the enclosure; (c) repair any defects in the

enclosure; and (d) erect and maintain sufficiently strong fences that would prevent the horses'

escape. 

After reviewing Statewide's definition of "insured" and the underlying complaint, we

determine that Santucci was not a "person insured" within the meaning of section 534.3(a) of the

Insurance Code. 215 ILCS 5/534.3(a) (West 2004). First, the "person insured" under the

Statewide policy was P.S. Coyote and, according to the policy, its executive directors and

officers with respect to their duties. Second, the complaint names Santucci, individually, but

does not name either P.S. Coyote or Santucci in his capacity as an officer or director of the

corporation. Third, the horses were owned by Santucci individually, and not by P.S. Coyote.

Santucci contends that he was "wearing his corporate hat" when he allegedly left the gate open
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allowing the horses to escape. However, this does not change the fact that neither P.S. Coyote

nor Santucci, as an officer or director thereof, was named in the complaint.

Citing United States Fidelity & Guaranty Co. v. Wilkin Insulation Co., 144 Ill. 2d 64, 73-

74 (1991), for the broad rules applicable to duty-to-defend cases, Santucci argues that the IIGF

had a duty to defend because, under the negligence count, it was possible that P.S. Coyote would

be named as a defendant. Defendant ignores that we are bound not by the general rules of the

duty to defend in insurance law cases, but by the Insurance Code itself, which limits recovery to

"covered claims." See 215 ILCS 5/537.2 (West 2004). Therefore, the broad rules of duty-todefend standards found in United States Fidelity & Guaranty do not apply here.

Next, as a matter of first impression in Illinois, Santucci contends that the IIGF's policy

defenses were waived because Statewide accepted Santucci's tender without a reservation of

rights and the IIGF also agreed to defend Santucci (albeit subject to a reservation of rights) but

then waited 15 months before filing its complaint seeking declaratory relief. Santucci first

argues that the IIGF is bound by Statewide's agreement to defend him without a reservation of

rights. Santucci correctly notes that, in typical insurance coverage cases, in the absence of a

reservation of rights, an insurer waives all questions of policy coverage when it assumes an

insured's defense. See American States Insurance Co. v. National Cycle, Inc., 260 Ill. App. 3d

299, 305-06 (1994). However, Santucci ignores that the IIGF is not an insurance company and

that Statewide's decision to defend without a reservation of rights does not bind the IIGF.

Rather, by statute, the IIGF assumed the policy obligations of Statewide only to the extent that

those obligations were statutorily defined "covered claims." See 215 ILCS 5/537.2, 534.3(a)

(West 2004). We have already determined that Santucci's claim was not a "covered claim,"

because he was not a "person insured" under the Insurance Code.
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Further, the Insurance Code expressly limits the IIGF's liability as follows:

"The Fund shall not be bound by a settlement, release, compromise, waiver, or

final judgment executed or entered within 12 months prior to an order of liquidation and

shall have the right to assert all defenses available to the Fund including, but not limited

to, defenses applicable to determining and enforcing its statutory rights and obligations to

any claim." 215 ILCS 5/537.7(b) (West 2004).

In this case, Statewide assumed the defense of Santucci on or about January 6, 2004, and

was found insolvent that same day. Therefore, pursuant to section 537.7(b) of the Insurance

Code, the IIGF cannot be bound by any purported waiver, as Statewide's waiver of its

reservation of rights fell within the 12 months prior to the order of liquidation. Statewide's

failure to reserve its rights does not constitute waiver under established case law or the statute.

We find support for our decision here in the decisions of our sister states. Most state

insurance guaranty statutes, including that of Illinois, are very similar to the State PostAssessment Insurance Guaranty Association Model Bill, proposed by the National Association

of Insurance Commissioners. See Urban v. Loham, 227 Ill. App. 3d 772, 776 (1992); 19A J.

Appleman & J. Appleman, Insurance Law & Practice §10801, at 365 n.2 (1982). Accordingly,

in a construction of the IIGF provisions, decisions of other states construing similar laws are

entitled to respect and consideration. Loham, 227 Ill. App. 3d at 776. With this in mind, we

consider Lopez v. Texas Property & Casualty Insurance Guaranty Ass'n, 990 S.W.2d 504 (Tex.

App. 1999).

In Lopez, an insurer assumed the defense of a driver of a vehicle through the time of

judgment, and then the insurance company was placed in liquidation. Lopez, 990 S.W.2d at 505.

The insurer never issued a reservation of rights, and the insured argued that the Texas Guaranty
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Association was estopped from denying coverage, because the insurer had waived its reservation

of rights. Lopez, 990 S.W.2d at 505. The Court of Appeals of Texas held that, under general

contract law, waiver would have occurred; however, pursuant to the Texas Insurance Code, there

could be no coverage, because the insured was not a covered person. Lopez, 990 S.W.2d at 506.

Thus, the Texas Insurance Code prevailed over general insurance contract waiver rules. Lopez,

990 S.W.2d at 506.

Like Lopez, we determine that article XXXIV of the Insurance Code, containing the IIGF

provisions (215 ILCS 5/532 et seq. (West 2004)), prevails over general insurance contract

waiver rules. Therefore, Santucci's waiver argument is not applicable in this IIGF case.

Nor do the IIGF's own acts--agreeing to defend Santucci and conducting that defense for

over a year--constitute waiver under established general insurance case law. The IIGF agreed to

defend Santucci's claim under a reservation of rights. It is axiomatic that, where an insurer

agrees to defend an insured under a reservation of rights, it preserves its right to seek a

declaratory judgment denying coverage. IMC Global v. Continental Insurance Co., 378 Ill. App.

3d 797, 809 (2007). In such a case, estoppel cannot apply to the insurer. See IMC Global, 378

Ill. App. 3d at 809. In this case, the IIGF agreed to defend Santucci under a reservation of rights.

Therefore, under general insurance law, it cannot be estopped from asserting its defenses.

Lastly, Santucci contends that a conflict of interest between him and the IIGF estops the

IIGF from abandoning its defense of him. Santucci contends that, when the IIGF filed its

declaratory judgment action, it was obligated to advise him to file a contribution claim against

P.S. Coyote. According to Santucci, a conflict arose because, although it was in his interest to

file a contribution claim, doing so would have been averse to the interest of the IIGF, which
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would have had to defend the claim. Santucci concludes that the IIGF's failure to advise him of

his rights now estops it from denying coverage.

The IIGF asserts, however, that there was no proper basis for any such contribution

claim. Santucci does not contend otherwise, instead saying only that the propriety of any such

claim "is an issue to be decided by the trial court in the State Farm lawsuit." We fail to see how

Santucci can fault the IIGF for failing to advise him to file a claim when he cannot say that the

claim would have been proper. In any event, Santucci cites no relevant authority in support of

his argument, and thus we address it no further. See 210 Ill. 2d R. 341(h)(7).

Because there are no genuine issues of material fact and the IIGF is entitled to judgment

as a matter of law, we reverse the trial court's order granting summary judgment in Santucci's

favor and denying the IIGF's summary judgment motion.

For these reasons, the judgment of the circuit court of Kane County is reversed.

Reversed.

GILLERAN JOHNSON, P.J., and GROMETER, J., concur.