ownership, maintenance, or use of any covered auto, regardless if the use is in furtherance of
garage business.

Section VI(H) of the Garage Coverage Form defines “Garage Operations” as follows:

“Garage operations” means the ownership, maintenance, or use of locations for garage

business and that portion of the roads or other accesses that adjoin these locations.

“Garage operations” includes the ownership, maintenance, or use of the “autos” indicated

in Section I of this Coverage form as covered “autos.” “Garage operations” also include

all operations necessary or incidental to a garage business.
(See Def. Ex. 2). The Plaintiffs do not dispute that the vehicle in question was a “covered auto”
as defined by the Policy. (See Def. Ex. 1). However, the Plaintiff contends that the insurance
policy must be read as a whole, and that the sentence that defines “garage operations” as the
ownership, maintenance, or use of covered “autos” must be read in the context of the other
sentences in the paragraph defining “garage operations.” Therefore, TIG contends, there must be
a determination as to whether Southwick and/or Stables were granted use of the vehicle in
furtherance of “garage business.”

In Illinois, “in construing an insurance policy, a court must ascertain the intent of the
parties to the contract.” Indiana Ins. Co. v. PANA Community Unit School Dist. No. 8, 314 F.3d
895, 900. (7th Cir. 2002). Further, in order to determine the meaning of the policy’s words and
the intent of the parties, the court construes the policy, “as a whole with due regard to the risk
undertaken, the subject matter that is insured, and the purposes of the entire contract.” Id.
Additionally, in contemplating what the provisions in an insurance agreement may mean, the
Court considers them in the factual context of the case. Id. at 901 (citing Putzbach v. Allstate
Ins. Co., 494 N.E.2d 192, 195 (Ill. 1986)). The entire insurance policy, rather than an isolated

part, should be read to determine whether an ambiguity exists. See Cobbins v. Gen. Accident

4.


(See Def. Ex. 3). Section 3 of the provisions defining “insureds” is an “omnibus clause.” The
““nitial permission rule” defines the scope of an omnibus provision under Mlinois law.

The initial permission rule provides that if the named insured has initially given permission to
use the insured vehicle, departure from the authorized use does not terminate the initial

permission. Country Mut. Ins, Co. v. Federated Mutual Ins. Co., 735 N.E.2d 1045, 1049

(Ill. App. Ct. 2000) (citing Maryland Casualty Co. v. Iowa National Mutual Ins. Co., 297 N.E.2d

163, 167-68 (1973)). Any person subsequently given permission to drive the car by that first

permittee is covered under the policy. American Country Insurance Company v. Wilcoxon, $37

N.E.2d 284, 287 (II. 1989). The rule applies even if the first permitee deviates from the
authority given to him by the insured, and “even where it cannot be established that the initial
permitee granted permission to the third person driving the vehicle.” St. Paul Fire and Marine
Insurance Company v. Gurthie, 773 N.E.2d 763, 765 (Hl. 2002) (quoting Kuhn v. State Farm
Mutual Automobile Insurance Co., 45 N.E.2d 45, 49 (Ill. App. 1990)). See also United States
Fidelity & Guaranty Co, v, McManus, 356 N.E.2d 78 (1976) (“a further grant of permission from
the initial permitee need not be shown in order to invoke the coverage.”). Under Illinois law, it is
clearly irrelevant whether Southwick, Stables, and Pahnke deviated from the permitted use of the
vehicle; coverage is still provided under Illinois law. Therefore, TIG cannot plead any set of

facts that would preclude coverage under the policy.”

2 Plaintiff contends that the omnibus coverage and the “initial permission rule” are
inapplicable to garage liability policies. However, Defendants are correct when they assert
that the Illinois Supreme Court has held that garage liability insurance “must contain an
omnibus clause insuring those driving a vehicle with the owner’s permission.” See State Farm
Mutual Ins, Co. v. Universal Underwriters, 695 N.E.2d 848, 850-51. Additionally, Plaintiff's
arguments that this case should be distinguished on the grounds that Pahnke was not a test-
driver or using the car as a loaner vehicle lacks merit. Illinois case law make no distinctions

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Count II of its Complaint, TIG argues that even if the use of the vehicle was in furtherance of
garage business, Southwick, Stables, and Pahnke exceeded the scope of permission granted to
them by Carey’s, Therefore, TIG seeks a declaration from this Court that, according to the policy

terms, there is no duty to defend or indemnify Carey’s, Southwick, or Stables.

If. DISCUSSION

A. _Legal Standard for a Motion to Dismiss

In ruling on a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6), the
Court “must accept all well pleaded allegations as true. In addition, the Court must view these

allegations in the light most favorable to the plaintiff.” Gomez v. Illinois State Board of

Education, 811 F.2d 1030, 1039 (7th Cir. 1987). A party’s claim should only be dismissed if it is

clear that no set of facts in support of the claim would entitle the party to relief. Ledford v.

Sullivan, 105 F.3d 354, 356 (7th Cir. 1997) (quoting Hishon v. King & Spaulding, 467 U.S. 69,

73 (1984)). Additionally, where, as here, Plaintiff attaches the insurance policy to its pleading,

that instrument becomes a part of the complaint for all purposes, and is properly considered as
part of the complaint. See Tiemey v. Vahle, 304 F.3d 734, 738 (7th Cir. 2002).

B. Analysis

J, Must the Use of the Auto be “In Furtherance of Garage Business?”

As stated, TIG contends that it is under no obligation to provide coverage for the
Defendants, because the use of the covered vehicle involved in the Medina suit was not used in
furtherance of garage business. Defendants, however, contend that whether the vehicle was used

in furtherance of garage business is irrelevant, as the policy clearly provides coverage for the

3.



Fire & Life Assurance Corp,, 290 N.E.2d 873, 876 (Ill. 1972). However, the structure of
Plaintiff's own policy language in Section VI(H), even when read in context of the entire policy,
leads to the conclusion that the policy includes coverage for all maintenance, ownership and use
of covered autos, even if not in furtherance of garage business. Plaintiffs included the phrase
“for garage business” when describing the coverage for the location used for garage business.
Additionally, TIG was clear to use the qualifying phrase “incidental to garage business” when
stating the coverage provided for garage operations, By failing to use qualifying language, it is
clear that the ownership, maintenance or use of covered autos need not be in furtherance of or
incidental to garage business.

Assuming, arguendo, that Plaintiff's interpretation that the use of covered autos must be
incidental to garage business is reasonable, this means that there are two reasonable
interpretations of the coverage of autos under the policy. If the words in an insurance policy are
susceptible to more than one reasonable interpretation, they are ambiguous. Indiana Insurance,
314 F.3d 895, 902 (7th Cir. 2002) (citing United States Fid, & Guar. Co. v. Wilkin Insulation
Co., 578 NE.2d 92 0 (Il. 1991)). Any ambiguity will be construed against the insurer who
drafted the policy. Indiana Insurance, 314 F.3d at 902 (citing Outboard Marine Corp. v. Liberty
Mut. Ins, Co., 607 N.E.2d 1204, 1212 (Il. 1992)). See also Employers Ins. of Wausau v. Ehlco
Liquidating Trust, 708 N.E.2d 1122, 1130 (Ill. 1999) (“[T]he court must construe the policy in
favor of the insured and against the insurer that drafted the policy.”). Consequently, even if the
policy’s definition of “covered autos” is ambiguous, it must be construed against TIG and in

favor of Defendants. Therefore, TIG cannot claim any set of facts that would allow it to

5.


Il. CONCLUSION

For the foregoing reasons, Defendants’ motion to dismiss Plaintiff's Complaint is granted in its

entirety. This case is closed.

Enter:

Qubtl oa.

David H. Coar
United States District Judge

Dated: March 17, 2004

on these grounds, and policies cover “any person using the vehicle with the named insured’s
permission.” Id. at 850, Finally, Plaintiff's contention that the initial permission rule only
applies in cases where permission is extended in social situations (i.e, parent to son, from
friend to friend), was rejected in Farmers Auto. ins. Ass’n v. Iowa Mut. Ins. Co., 221 N.E.2d
795, 797 (Ill. App. Ct. 1996). (“The defendant argues that the ‘initial permission rule’ should
be applied only to cases where the relationship between the vehicle owner and the user is that
of employer-employee or a social relationship... We can conceive of no justification for such a
distinction.”) Additionally, the court in Farmer’s Auto stated, “The rule is based on the
theory that the insurance contract is as much for the benefit of the public as for the insured and
that it would be undesirable to permit litigation as to the details of the permission and use, Id.

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Minute Order Porm (06/977)

Ve United States District Court, Northern District of Illinois

seresartratcr | David H.Coar_ | Suge a

CASE NUMBER 03 C 1022 DATE 3/17/2004
CASE TIG Insurance Company, Inc. vs. Carey’s Car Credit Inc., et. al.
TITLE

[in the following box (a) indicate the party filing the motion, e.g., plaintiff, defendant, 3rd party plaintiff, and (b) state briefly the nature
of the motion being presented.]

MOTION:
Defendants’ Motion to Dismiss [Doc. No. 5]
DOCKET ENTRY:
(6) a Filed motion of [ use listing in “Motion” box above.]
(2) o Brief in support of motion due
(3) a Answer brief to motion due. . Reply to answer brief due___.
(4) o Ruling/Hearingon__setfor___at
(5) oO Status hearing[held/continued to] [set for/re-set for]on___setfor___at
(6) oO Pretrial conference[held/continued to] [set for/re-set for}on____setfor__——sat__—.
(7) oO Trial{set for/re-set for} on at
(8) QO [Bench/Jury trial] [Hearing] held/continuedto__at
(9) o This case is dismissed [with/without] prejudice and without costs[by/agreement/pursuant to}
OFRCP4(m) O Local Rule 41.1. OOFRCP41(a)(1) 1 FRCP41(a)(2).
ao) wf [Other docket entry] For the reasons set forth in the attached memorandum opinion and order,

Defendants’ Motion to Dismiss [Doc. No. 5] is granted in its entirety. This case is closed.

‘Dadi

ad [For further detail see order attached to the original minute order.]

No notices required, advised in open court.

No notices required.

Notices mailed by judge’s staff,

Notified counsel by telephone.

X | Docketing to mail notices.
x Mail AO 450 form.

Copy to judge/magistrate judge.
courtroom
sif (Ie) deputy's
initials
Date/time received in
central Cletk's Office

hee
Sad ea


successfully contend that the ownership, maintenance or use of covered autos must be in
furtherance of garage business.
2. Did Southwick, Stables, and Pahnke Exceed the Scope of Permission Given by
Carey's?
In Count II of the Complaint, TIG asserts that the permission that Carey’s granted to
Smith and Southwick for the use of the covered vehicle was strictly for farm operations on farm
premises. TIG claims that Smith and Pahnke did not conform their use of the vehicle to the
purpose for which Carey’s loaned the vehicle, thereby exceeding the scope of permission given
by Carey’s. Therefore, Plaintiff contends, even if the first permitted use of the vehicle need not
be in furtherance of garage business, Southwick, Stables, and Pahnke exceeded the scope of
permitted use granted by Carey’s, thereby foreclosing coverage for Defendants under the Policy.
The Policy includes the following section defining insureds:

a. The following are “insureds” for covered “autos”:
(1) You for any covered “auto.”
(2) Your customers, if your business is shown in the declaration as an “auto” dealership.
(3) Anyone else while using with your permission a covered “auto” you own, hire, or
borrow except:
(a) The owner or anyone else from whom you hire or borrow a covered “auto.”
This exception does not apply if the covered “auto” is a “trailer” connected to a
covered “auto” you own.
(b) Your “employee” if the covered “auto” is owned by that “employee” or a
member of his or her household.
(c) Someone using a covered “auto” while he or she is working in a business of
selling, servicing, repairing, parking or storing “autos” unless that business is your
“garage operations.”
(d) A partner (if you are a partnership) or a member (if you are a limited liability
company), for a covered “auto” owned by him or her or a member of his or her
household.
(4) Anyone liable for the conduct of an “insured” described above but only to the extent
of that liability.


IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS

EASTERN DIVISION
TIG INSURANCE COMPANY, INC.,
Plaintiff,
No. 03 C 1022
CAREY’S CAR& CREDIT, INC., d/b/a HONORABLE DAVID H. COAR

CAREY’S CAR & CREDIT CENTER,
SMITH’S SOUTHWICK, INC., d/b/a
SOUTHWICK FARMS, and SMITH
STABLES, INC., d/b/a SOUTHWICK
FARMS,

werner wren wren www

Defendants.

yHeneTed

WAR 1 8 2004
MORANDUM OPINION iD ORDER

Before this Court is Carey’s Car & Credit, Inc., individually and d/b/a Carey’s Car & Credit
Center (“‘Carey’s”), Smith’s Southwick, Inc., individually and d/b/a Southwick Farms
(“Southwick”), and Smith Stables, Inc., individually and d/b/a Southwick Farms (“Stables”)
(collectively, “Defendants”) motion to dismiss TIG Insurance’s Company’s (“TIG”) Complaint
for failure to state a claim upon which relief can be granted. For the reasons set forth below,

Defendants’ motion to dismiss is granted in its entirety.

I, FACTUAL BACKGROUND
TIG seeks declaratory judgment relief arising from a controversy concerning the Parties’
rights, statuses and liabilities under an insurance policy issued by TIG to Carey’s (the “Policy”).

The Policy issued to Carey’s by TIG, effective from February 1, 2002 to February 1, 2003, limits

-l-

jy



liability to $1,000,0000 for each claim and in the aggregate, excess a $1,000 deductible per
accident. ( See Def. Ex. 1). The policy contains a “Garage Operations” provision which
provides:

" We will pay all sums an “insured” legally must pay as damages because of “bodily
injury” or “property damage” to which this insurance applies, caused by an “accident”
and resulting from “garage operations” involving the ownership, maintenance, or use of
covered “autos.” (See Def. Ex. 2).

The declaratory judgement action arises out of a wrongful death suit filed in the Circuit
Court of Cook County, Hlinois, Case No. 02 L 013065 (the “Medina suit”). (Pl. Comp. { 14).
Some time prior to August 8, 2002, Carey’s, a used car dealership, loaned a tractor/trailer to
Southwick and/or Stables. (P1. Comp. { 18). Carey’s loaned the tractor/trailer to Southwick
and/or Stables on the condition that the vehicle was to be used strictly for farm operations on
farm premises. (P1. Comp. 4 19). Pahnke operated this vehicle in the course of his employment
with Southwick and/or Stables. (P]. Comp. { 20). On August 8, 2002, while driving the vehicle,
Pahnke collided with Mariela Medina’s vehicle, killing Mariela Medina and injuring three other
passengers. (Pl. Comp. 21). TIG is currently defending Carey’s, Southwick, Stables, and
Jason Pahnke (“Pahnke”) under a reservation of rights in the Medina suit.’ (Pl. Comp. { 15).
TIG contends that the various terms and conditions of the Policy operate to preclude coverage for

the Defendants. (P1. Comp. J 26). In Count I of its Complaint, TIG argues that Southwick and

Stables’ use of the covered auto was not in furtherance of garage business. Additionally, in

' On January 30, 2004, default judgment was entered in favor of TIG against Pahnke in
this Court, for failure to answer the Complaint pursuant to Rule 55(a) of the Federal Rules of
Civil Procedure. Therefore, Pahnke is no longer a defendant in this declaratory judgment
action.

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