Title: State Farm Mutual Automobile Insurance Co. v. Smith
Citation: N/A
Docket Number: 90388
State: Illinois
Issuer: Illinois Supreme Court
Date: September 20, 2001

Docket No. 90388-Agenda 25-May 2001.
STATE FARM MUTUAL AUTOMOBILE INSURANCE 
COMPANY, Appellant, v. RUBY SMITH et al. (Jeremy Fisher et
al., Appellees).
Opinion filed September 20, 2001.
 
	JUSTICE McMORROW delivered the opinion of the court:
	The primary issue in this appeal is whether, in an automobile
liability insurance policy, an "automobile business exclusion"
violates the public policy of Illinois.

BACKGROUND
	On September 21, 1995, Maurice Barnes, accompanied by
Ruby Smith, drove his vehicle to Harrah's Casino Cruises-Joliet
(Harrah's). Barnes gave his vehicle to the valet service at Harrah's
for parking. When Barnes and Smith left Harrah's, Jeremy Fisher,
a valet driver employed by Harrah's, retrieved Barnes' automobile.
Smith has alleged that, as she entered the passenger door, the
vehicle rolled backwards, striking her and knocking her to the
ground. Smith(1) brought an action against Barnes, Fisher, and
Harrah's alleging various acts of negligence.
	At the time of the accident, Barnes' vehicle was insured by
State Farm Mutual Automobile Insurance Company (State Farm).
On August 26, 1997, Fisher and Harrah's tendered their defense
to State Farm. State Farm refused the tender on October 15, 1997.
Subsequently, State Farm filed an action for declaratory judgment
in the circuit court of Cook County, arguing that it had no duty to
defend or indemnify Fisher or Harrah's based upon an automobile
business exclusion clause in the State Farm insurance policy. State
Farm moved for summary judgment on its action for declaratory
judgment. Fisher and Harrah's responded to State Farm's motion
for summary judgment and filed a cross-motion for summary
judgment, arguing that State Farm could not rely on the
automobile business exclusion. The circuit court held that the
automobile business exclusion applied, and State Farm had no
duty to defend or indemnify Fisher and Harrah's. Accordingly, the
circuit court granted State Farm's motion for summary judgment.
	Fisher and Harrah's appealed, arguing primarily that the
automobile business exclusion in State Farm's insurance policy
violates the public policy of Illinois, as stated in section
7-317(b)(2) of the Illinois Vehicle Code (See 625 ILCS
5/7-317(b)(2) (West 1998)), and as determined by this court in
State Farm Mutual Automobile Insurance Co. v. Universal
Underwriters Group, 182 Ill. 2d 240 (1998). The appellate court
concluded that Universal Underwriters' holding that " 'a liability
insurance policy issued to the owner of a vehicle must cover the
named insured and any other person using the vehicle with the
named insured's permission' " was controlling. 315 Ill. App. 3d
1159, 1165, quoting Universal Underwriters, 182 Ill. 2d  at 244.
Thus, the appellate court held that the automobile business
exclusion violates the public policy of Illinois and, therefore, was
unenforceable. 315 Ill. App. 3d at 1165.
	We granted State Farm's petition for leave to appeal. 177 Ill.
2d R. 315(a). For the reasons that follow, we affirm the judgment
of the appellate court.



ANALYSIS 
	Courts will apply terms in an insurance policy as written
unless those terms contravene public policy. Illinois Farmers
Insurance Co. v. Cisco, 178 Ill. 2d 386, 392 (1997). Statutes are an
expression of public policy. Cates v. Cates, 156 Ill. 2d 76, 110
(1993). Statutes in force at the time an insurance policy was issued
are controlling, and a statute's underlying purpose cannot be
circumvented by a restriction or exclusion written into an
insurance policy. Cummins v. Country Mutual Insurance Co., 178 Ill. 2d 474, 483 (1997). Accordingly, insurance policy provisions
that conflict with a statute are void. Illinois Farmers Insurance,
178 Ill. 2d  at 392.
I. Validity of Automobile Business Exclusion
	The automobile business exclusion in the State Farm
insurance policy at issue in the case at bar states:
			"THERE IS NO COVERAGE:
				1. WHILE ANY VEHICLE INSURED UNDER
THIS SECTION IS:
				***
					b. BEING REPAIRED, SERVICED OR USED
BY ANY PERSON EMPLOYED OR ENGAGED
IN ANY WAY IN A CAR BUSINESS. ***
* * *
				Car business-means a business or job where the
purpose is to sell, lease, repair, service, transport, store
or park land motor vehicles or trailers." (Emphases in
original.)
The appellate court held that this exclusion is unenforceable,
because it directly conflicts with the mandatory language of the
Illinois Vehicle Code, with this court's decision in Universal
Underwriters, and with the policy of mandatory automobile
liability insurance legislation. 315 Ill. App. 3d at 1165.
	Section 7-601(a) of the mandatory insurance act in the Illinois
Vehicle Code requires that vehicles be insured through a liability
insurance policy. 625 ILCS 5/7-601(a) (West 1998). Section
7-317(b)(2) of the safety responsibility law in the Illinois Vehicle
Code states that a motor vehicle liability policy "[s]hall 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." 625 ILCS 5/7-317(b)(2) (West
1998). In Universal Underwriters, this court concluded that
section 7-601(a), together with section 7-317(b)(2), mandates that
"a liability insurance policy issued to the owner of a vehicle must
cover the named insured and any other person using the vehicle
with the named insured's permission." Universal Underwriters,
182 Ill. 2d  at 244.
	On the basis of section 7-317(b)(2) and this court's decision
in Universal Underwriters, Fisher and Harrah's argue that the
automobile business exclusion in State Farm's insurance policy
violates the public policy of Illinois. According to Fisher and
Harrah's, the automobile business exclusion violates the Illinois
public policy that a vehicle owner's insurance carrier cover any
person driving the owner's vehicle with the express or implied
permission of the owner. They argue that, when a vehicle owner
gives his vehicle to a person engaged in an automobile business-a
business whose purpose is to sell, lease, repair, service, transport,
store or park land motor vehicles or trailers-the owner is giving
that person express or implied permission to use the vehicle. The
automobile business exclusion thus violates Illinois' requirement
that a vehicle owner's liability insurance policy cover any person
using the owner's vehicle with the express or implied permission
of the owner.
	We agree that the automobile business exclusion in State
Farm's insurance policy violates the public policy of Illinois as
stated in the Illinois Vehicle Code. Section 7-317(b)(2) is clear. It
mandates that a motor vehicle liability policy, or a liability
insurance policy, cover the named insured and any other person
using the vehicle with the named insured's permission. 625 ILCS
5/7-317(b)(2) (West 1998); Universal Underwriters, 182 Ill. 2d  at
244. When a vehicle owner gives his vehicle to a person engaged
in an automobile business, the owner is also giving that person the
express or implied permission to use the vehicle. Therefore, a
provision written into an insurance policy that excludes coverage
for persons engaged in an automobile business necessarily
excludes coverage for persons who are using an insured's vehicle
with the insured's express or implied permission. The exclusion
thus violates section 7-317(b)(2) of the Illinois Vehicle Code. As
stated, an insurance policy provision which conflicts with a statute
is void. Illinois Farmers Insurance, 178 Ill. 2d  at 392.
Accordingly, we hold that the automobile business exclusion in
State Farm's insurance policy is void. State Farm, therefore,
cannot rely on that exclusion to deny Fisher's and Harrah's tender.
	State Farm asserts that we should follow the Supreme Court
of Delaware's decision in Universal Underwriters Insurance Co.
v. Traveler's Insurance Co., 669 A.2d 45 (Del. 1995). In
Travelers, the Supreme Court of Delaware held that an automobile
business exclusion did not conflict with Delaware's mandated
insurance program. The Delaware Motor Vehicle Financial
Responsibility Law required that every insurance policy provide
liability insurance for the named insured and any other person
using the insured's vehicle with the insured's express or implied
permission. Travelers, 669 A.2d  at 47-49. In reaching its
conclusion that the automobile business exclusion did not conflict
with this statute, the Supreme Court of Delaware stated that
"recognition of the exclusion may advance the cause of full
recovery through responsible insurance by removing an incentive
for auto related businesses to forgo purchasing insurance to cover
their activities. [Automobile] [b]usinesses *** should assume
direct responsibility for the conduct of their employees through the
purchase of insurance which reflects these unusual risks. Private
vehicle owners *** who turn their vehicles over to a business for
service or other uses benefitting the business owner should not
bear the responsibility of protecting the public from a business use
of the vehicle." Travelers, 669 A.2d  at 48-49.
	The Travelers court focused its discussion on policy issues
concerning general problems that may arise if the automobile
business exclusion were not enforced. However, the court offered
no explanation as to why the automobile business exclusion did
not violate the terms of Delaware's mandated insurance program.
Because the court offered no explanation, we find Travelers
unpersuasive and decline to follow it.
	The Illinois legislature has decided that the public policy of
Illinois requires that an insurance company that issues a liability
insurance policy or motor vehicle liability policy to an insured
must cover the insured and any other person who has received the
insured's express or implied permission to use the vehicle. As our
appellate court noted in the case at bar, "[t]he purpose of
mandatory automobile liability insurance is not only to protect the
owner against liability or some other insurance company; rather,
its principal purpose is to protect the public by securing payment
of their damages." 315 Ill. App. 3d at 1163. See also Insurance
Car Rentals, Inc. v. State Farm Mutual Automobile Insurance Co.,
152 Ill. App. 3d 225, 232 (1987); Continental Casualty Co. v.
Travelers Insurance Co., 84 Ill. App. 2d 200, 206 (1967). This
court may not establish a public policy which is contrary to the
public policy that the Illinois legislature has determined is
appropriate for the state of Illinois. See Michigan Avenue National
Bank v. County of Cook, 191 Ill. 2d 493, 522 (2000), quoting
People v. Garner, 147 Ill. 2d 467, 475-76 (1992) ("[C]ourts may
not legislate, rewrite or extend legislation. If the statute as enacted
seems to operate in certain cases unjustly or inappropriately, the
appeal must be to the General Assembly, and not to the court").
	We note that our holding in the case at bar is in conformity
with the holdings of a majority of those jurisdictions which have
considered the issue presented. See, e.g., Scott v. Salerno, 297 N.J.
Super. 437, 445, 688 A.2d 614, 618 (1997) ("[i]n view of the
strong public policy of [New Jersey] to provide coverage to
anyone using an automobile with the owner's permission, the
exclusion from that coverage of anyone using the automobile
while parking or storing that automobile *** is void and
unenforceable"); Louisiana Farm Bureau Casualty Insurance Co.
v. Darjean, 554 So. 2d 1376, 1377-78 (La. 1989) (automobile
business exclusion violates the Louisiana legislature's intent that
"an owner's or operator's policy of liability insurance '[s]hall
insure the person named therein and any other person, as insured,
using any such motor vehicle ... with the express or implied
permission of such named insured' " (emphases omitted));
Farmland Mutual Insurance Co. v. Moore Cadillac-Oldsmobile,
Inc., 283 S.C. 33, 35, 320 S.E.2d 719, 720 (1984) ("Aetna's
attempt to exclude coverage to those engaged in the automobile
business is an impermissible attempt to re-define the term
'insured' to narrow the coverage required by the statute," which
includes in its definition of "insured" any person using the named
insured's vehicle with the insured's express or implied consent);
DeWitt v. Young, 229 Kan. 474, 479, 625 P.2d 478, 482 (1981)
(automobile business exclusion violates the public policy of
Kansas as found in Kansas' mandatory insurance coverage statute,
which states that every motor vehicle liability insurance policy
must insure any person using the named insured's vehicle with the
insured's express or implied consent); Exchange Casualty &amp;
Surety Co. v. Scott, 56 Cal. 2d 613, 622, 364 P.2d 833, 838, 15 Cal. Rptr. 897, 902 (1961) (holding that an insurance policy's
provision excluding coverage for "any person *** operating an
automobile sales agency, repair shop, service station, storage
garage or public parking place" conflicted with a California statute
requiring that a motor vehicle liability policy cover the named
insured and any other person using the vehicle with the express or
implied permission of the insured).
	In holding that the automobile business exclusion is
unenforceable, we reject State Farm's argument that an
amendment to section 7-601(a) "allows automobile insurers in
Illinois to employ an automobile business exclusion." In January
1997, the General Assembly amended section 7-601(a) and added
the sentence: "Nothing herein shall deprive an insurer of any
policy defense available at common law." Pub. Act 89-669, §10,
eff. January 1, 1997, amending 625 ILCS 5/7-601(a) (West 1994).
According to State Farm, the legislature included this sentence to
allow insurers to retain the policy defenses they have under
common law. Because Illinois courts have previously applied the
automobile business exclusion, State Farm argues that the
exclusion is "an exception recognized by the common law."
	Even assuming that the amendment has retroactive effect and
is applicable to the case at bar, we disagree with State Farm's
interpretation of the amendment. We interpret the sentence
"[n]othing herein shall deprive an insurer of any policy defense
available at common law" to mean that nothing in the mandatory
insurance act prohibits an insurance company from asserting
traditional common law defenses. We construe the phrase "policy
defense available at common law" to refer to customary common
law contract defenses, such as fraud or misrepresentation, illegality
or justiciability. Exclusions written into an insurance policy by the
insurance company are not "policy defenses available at common
law." Rather, they are contractual provisions and, therefore, do not
fall within the meaning of the amendment. As such, the
amendment is not relevant to the case at bar.
	We also reject State Farm's argument that a public policy
which requires a liability insurance policy to cover "any other
person using the vehicle with the named insured's permission"
prohibits virtually every possible exclusion that an insurer may
include in its policy. State Farm contends that section 625 ILCS
5/7-602 (West 1998), which discusses the requirements for
insurance cards, specifically authorizes the use of policy
exclusions because it states that an insurance card must contain a
disclaimer stating " '[e]xamine policy exclusions carefully.' " 625
ILCS 5/7-602 (West 1998).
	Our decision in this case examines only the automobile
business exclusion. We have been called upon to determine
whether that exclusion violates the public policy of Illinois. As
stated, we have concluded that the automobile business exclusion
conflicts with section 7-317(b)(2) of the Illinois Vehicle Code.
The permissibility of other possible policy exclusions is not before
us today, and we express no opinion as to any other exclusion. We
simply hold that the exclusion at issue in this case-the automobile
business exclusion-violates the public policy of Illinois, as
determined by the General Assembly.
	In light of our determination that the automobile business
exclusion cannot be enforced by State Farm, we need not consider
the remaining arguments offered by Fisher and Harrah's that the
automobile business exclusion does not apply to the facts of this
case and that the exclusion is ambiguous.
	In conclusion, we hold that State Farm cannot enforce the
automobile business exclusion written into the policy it issued to
Barnes. Therefore, we reverse the circuit court's entry of summary
judgment in favor of State Farm. Other than the automobile
business exclusion, State Farm has offered no basis-either in its
complaint for declaratory judgment, its motion for summary
judgment, or its reply to the cross motion for summary judgment
filed by Fisher and Harrah's-for refusing to defend and indemnify
Fisher and Harrah's. Therefore, we remand the cause to the circuit
court for entry of summary judgment in favor of Fisher and
Harrah's.



II. Costs and Attorney Fees
	Fisher and Harrah's contend that State Farm advanced its
coverage position in bad faith. Thus, Fisher and Harrah's argue
that, pursuant to section 155 of the Illinois Insurance Code (215
ILCS 5/155 (West 1998)), they are entitled to reimbursement of
attorney fees, as well as sanctions against State Farm. Section
155(1) of the Illinois Insurance Code states:
			"In any action by or against a company wherein there is
in issue the liability of a company on a policy or policies
of insurance or the amount of the loss payable thereunder,
or for an unreasonable delay in settling a claim, and it
appears to the court that such action or delay is vexatious
and unreasonable, the court may allow as part of the
taxable costs in the action reasonable attorney fees, [and]
other costs ***[.]" 215 ILCS 5/155(1) (West 1998).
Fisher and Harrah's argue that State Farm engaged in vexatious
and unreasonable conduct in denying Fisher's and Harrah's tender.
	As the appellate court in this case noted, where a bona fide
dispute concerning coverage exists, costs and sanctions are
inappropriate. 315 Ill. App. 3d at 1167. In this case, the circuit
court determined that State Farm correctly relied on the
automobile business exclusion in denying Fisher and Harrah's
tender. The appellate court, as well as this court, determined that
the automobile business exclusion is void as against public policy.
Therefore, we hold that there existed a bona fide dispute
concerning State Farm's potential coverage in the case at bar.
Therefore, costs and sanctions are inappropriate and are denied.



CONCLUSION
	For the foregoing reasons, the judgment of the appellate court
is affirmed.
Appellate court judgment affirmed;
cause remanded.

1.      1Smith is not a participant in this appeal.