Case Name: DENNIS K. JOHNSON, Plaintiff-Appellee, v. STATE FARM FIRE AND CASUALTY COMPANY, Defendant-Appellant
Court: Illinois Appellate Court
Jurisdiction: Illinois
Decision Date: 2004-02-18
Citations: 346 Ill. App. 3d 790
Docket Number: No. 4-03-0539
Parties: DENNIS K. JOHNSON, Plaintiff-Appellee, v. STATE FARM FIRE AND CASUALTY COMPANY, Defendant-Appellant.
Judges: 
Reporter: Illinois Appellate Court Reports, Third Series
Volume: 346
Pages: 790–798

Head Matter:
DENNIS K. JOHNSON, Plaintiff-Appellee, v. STATE FARM FIRE AND CASUALTY COMPANY, Defendant-Appellant.
Fourth District
No. 4 — 03—0539
Argued November 12, 2003.
Opinion filed February 18, 2004.
MYERSCOUGH, J., dissenting.
Stephen W Thomson (argued), of Thomson Law Offices, P.C., of Edwardsville, for appellant.
Stephen O. Willoughby (argued), of Willoughby & Associates, P.C., of Decatur, for appellee.

Opinion:
JUSTICE STEIGMANN
delivered the opinion of the court;
In March 2000, plaintiff, Dennis K. Johnson, filed a complaint for declaratory judgement and breach of contract against defendant, State Farm Fire and Casualty Company. Johnson alleged that State Farm breached its contract to provide him coverage under a personal liability umbrella policy for a prior judgment against him in favor of a third party, Safeco Insurance Company of America, which arose out of an indemnity contract between Johnson and Safeco. In October 2000, State Farm filed a motion for summary judgment, asserting that the umbrella policy did not cover Johnson's contractual liability to Safeco. In October 2001, Johnson filed a motion for summary judgment, asserting that (1) facts alleged in an underlying complaint and counterclaim from which his liability to Safeco arose triggered his right to coverage under the umbrella policy, and (2) State Farm was estopped from asserting noncoverage.
Following a November 2001 hearing, the trial court granted Johnson's summary judgment motion and denied State Farm's motion for summary judgment. The court later awarded Johnson $43,975.92 in damages, plus costs.
State Farm appeals, arguing that (1) it was not estopped from asserting its claim that no duty to indemnify existed under the umbrella policy when it provided Johnson's defense in the underlying lawsuit; (2) it had no duty to indemnify Johnson for the prior judgment in Safeco's favor, where that judgment arose out of Johnson's breach of his contractual indemnity agreement with Safeco; and (3) because the underlying complaint and counterclaim did not allege any event that would qualify as an "accident," they failed to trigger the umbrella policy and State Farm's duty to defend Johnson. Because we agree with State Farm's first and second arguments, we reverse the grant of summary judgment to Johnson.
I. BACKGROUND
In January 1988, the trial court appointed Johnson and Douglas White as coexecutors of the estate of Adella Vallerius. White was Vallerius's grandson. In June 1988, Johnson and White filed a bond with the court that jointly and severally bonded them as principals to faithfully discharge their duties. Safeco was the corporate surety on the bond. In consideration of Safeco's suretyship, Johnson agreed to indemnify Safeco (hereinafter the indemnity agreement). In September 1988, White was arrested for murdering Vallerius. In January 1989, the court removed Johnson and White as coexecutors and appointed the Alton Bank and Trust Company as successor administrator of Vallerius's estate.
During his term as a coexecutor, White misappropriated funds from the estate and damaged Vallerius's residence and vehicle. In January 1990, Alton Bank filed a complaint against Johnson, White, and Safeco (as surety), alleging that Johnson and White breached their fiduciary duty to Vallerius's estate. In March 1990, Safeco filed a counterclaim against Johnson, seeking recovery under the indemnity agreement. Johnson had both a homeowner's policy and an umbrella policy issued by State Farm. In August 1990, Johnson filed a claim under his homeowner's policy regarding the then-pending lawsuit. State Farm provided Johnson's defense under a reservation of rights, allowed Johnson to select his own attorney, and paid the attorney fees. In October 1994, the trial court approved a settlement agreement between Alton Bank and Safeco, in which Alton Bank assigned Safeco its claims against Johnson and White.
In January 1997, the trial court found in Safeco's favor on its counterclaim against Johnson and awarded Safeco $43,975.92, plus costs. The court's judgment was based, in pertinent part, on Johnson and Safeco's indemnity agreement. Johnson appealed that judgment, and in April 1998, the Fifth District affirmed. Alton Banking & Trust Co. v. White, No. 5—97—0235 (April 17, 1998) (unpublished order under Supreme Court Rule 23).
In September 1999, State Farm informed Johnson that he had no right to indemnification of the January 1997 judgment against him and denied coverage under both the homeowner's policy and the umbrella policy. In March 2000, Johnson filed a complaint for declaratory judgment and breach of contract against State Farm. Johnson sought a declaration that State Farm had a duty to indemnify him under his umbrella policy and alleged that by denying him such coverage, State Farm breached its contract with him. (Johnson does not dispute State Farm's denial of coverage under his underlying homeowner's policy.)
In October 2000, State Farm filed a motion for summary judgment, asserting, in pertinent part, that (1) it did not have a duty to defend Johnson in the underlying lawsuit; and (2) it did not have a duty to indemnify Johnson for the January 1997 judgment. In October 2001, Johnson filed a motion for summary judgment, asserting that (1) the facts alleged in the underlying complaint and counterclaim showed that the umbrella policy provided coverage for his liability; and (2) State Farm was estopped from asserting noncoverage.
In January 2001, following a hearing, the trial court granted Johnson's summary judgment motion and denied State Farm's summary judgment motion. This appeal followed.
II. ANALYSIS
State Farm argues that the trial court erred by granting summary judgment in Johnson's favor. Specifically, it contends that (1) State Farm was not estopped from asserting its claim that no duty to indemnify existed under the umbrella policy when it provided Johnson's defense in the underlying lawsuit; (2) it had no duty to indemnify Johnson for the prior judgment in Safeco's favor, where that judgment arose out of Johnson's breach of his contractual indemnity agreement with Safeco; and (3) because the underlying complaint and counterclaim did not allege any event that would qualify as an "accident," they failed to trigger the umbrella policy and State Farm's duty to defend Johnson. Because we agree with State Farm's first and second contentions, we reverse the grant of summary judgment to Johnson.
A. Standard of Review
In appeals from summary judgment rulings, we conduct de novo review. The reviewing court must construe all evidence strictly against the movant and liberally in favor of the nonmoving party. Where the pleadings, depositions, and affidavits show no genuine issue of material fact, the moving party is entitled to judgment as a matter of law. 735 ILCS 5/2 — 1005(c) (West 2000). If reasonable persons could draw different inferences from undisputed facts, summary judgment should be denied. Atlantic Mutual Insurance Co. v. American Academy of Orthopaedic Surgeons, 315 Ill. App. 3d 552, 559, 734 N.E.2d 50, 56 (2000).
B. Estoppel
State Farm first contends that it was not estopped from asserting its claim that it had no duty to indemnify Johnson under the umbrella policy. We agree.
When an insurer's position is that a complaint potentially alleging coverage is not covered under a policy that includes a duty to defend, the insurer may not simply refuse to defend the insured. Instead, the insurer must either (1) defend the lawsuit under a reservation of rights or (2) seek a declaratory judgment that no coverage exists. An insurer is estopped from raising a policy defense to coverage only if it fails to take either of these two actions. Employers Insurance of Wausau v. Ehlco Liquidating Trust, 186 Ill. 2d 127, 150-51, 708 N.E.2d 1122, 1134-35 (1999).
In this case, after receiving notice of Johnson's claim under his homeowner's policy, State Farm provided a defense in the underlying lawsuit under a reservation of rights. Further, a separate duty to defend does not arise under the umbrella policy if State Farm provided a defense to the insured under a separate State Farm policy, such as Johnson's homeowner's policy. Under these circumstances, we conclude that State Farm was not estopped from asserting that it had no duty to indemnify Johnson under the umbrella policy.
C. Duty To Indemnify
State Farm next contends that it had no duty to indemnify Johnson for the prior judgment in Safeco's favor. We agree.
The umbrella policy provided in pertinent part, as follows:
"COVERAGES
1. Coverage L: — Personal Liability. If you are legally obligated to pay damages for a loss, we will pay your net loss minus the retained limit *.
2. Defense and Settlement
c. When the claim or suit is covered by this policy, but not covered by another policy available to you:
a. we will defend that suit against you[.]
DEFINITIONS
6. '[L]oss' means an accident that results in personal injury or property damage during the policy period. This includes injurious exposure to conditions."
A duty to indemnify is not as broad as a duty to defend. The duty to indemnify arises only when the insured becomes legally obligated to pay damages in the underlying action that gives rise to a claim under the policy. Travelers Insurance Co. v. Eljer Manufacturing, Inc., 197 Ill. 2d 278, 293, 757 N.E.2d 481, 491 (2001). Once an insured has incurred liability as a result of the underlying claim, an insurer's duty to indemnify arises only if "the insured's activity and the resulting loss or damage actually fall within the * policy's coverage." (Emphasis in original.) Outboard Marine Corp. v. Liberty Mutual Insurance Co., 154 Ill. 2d 90, 128, 607 N.E.2d 1204, 1221 (1992).
The supreme court has provided guidance on how to construe an insurance policy:
"In construing an insurance policy, the primary function of the court is to ascertain and enforce the intentions of the parties as expressed in the agreement. [Citation.] To ascertain the intent of the parties and the meaning of the words used in the insurance policy, the court must construe the policy as a whole, taking into account the type of insurance for which the parties have contracted, the risks undertaken and purchased, the subject matter that is insured and the purposes of the entire contract. [Citation.] If the words in the policy are plain and unambiguous, the court will afford them their plain, ordinary meaning and will apply them as written." Crum & Forster Managers Corp. v. Resolution Trust Corp., 156 Ill. 2d 384, 391, 620 N.E.2d 1073, 1078 (1993).
The umbrella policy defines the term "loss" as "an accident that results in personal injury or property damage during the polity period" (emphasis added). Because the policy does not expressly define the term "accident," "we must interpret this term by affording it its plain, ordinary, and popular meaning." (Emphasis in original.) Outboard Marine Corp., 154 Ill. 2d at 115, 607 N.E.2d at 1215. "Accident" is defined as "an unforseen and unplanned event or circumstance" or "an unfortunate event resulting esp. from carelessness or ignorance." Merriam-Webster's Collegiate Dictionary 7 (10th ed. 2000).
In this case, the underlying allegation was that Johnson is liable to Vallerius's estate because he and White breached their fiduciary duties as coexecutors when White misappropriated estate funds and damaged Vallerius's residence and vehicle. Affording the word "ac cident" its plain, ordinary, and popular meaning, we conclude that it does not encompass the events described above. Although an accident is an "unfortunate event," not all unfortunate events are "accidents." Johnson may have been a victim of White's misdeeds; however, that does not render the character of those misdeeds "accidental."
Moreover, if we view the underlying judgment as arising out of Johnson's contractual indemnity agreement with Safeco, we reach the same result. Johnson signed an agreement indemnifying Safeco for "any loss and expense" for which Safeco "shall become liable by reason of such suretyship." Johnson's complaint alleges that his liability rose out of this contractual obligation. Such liability, by its very nature, is not an "accident." We thus conclude that State Farm had no duty to indemnify Johnson for his liability to Safeco. Accordingly, we reverse the trial court's granting of Johnson's summary judgment motion and remand for further proceedings.
III. CONCLUSION
For the reasons stated, we reverse the trial court's judgment and remand for further proceedings.
Reversed and remanded.
APPLETON, J., concurs.