Court Opinion

ID: 3147804
Source: CourtListenerOpinion
Date Created: 2015-10-22 18:37:29.706188+00
Date Added: 2024-06-11T15:07:31.650090
License: Public Domain

FIRST DIVISION
                                                       April 18, 2011

                            No. 1-09-3070

               IN THE APPELLATE COURT OF ILLINOIS
                     FIRST JUDICIAL DISTRICT

AMERICAN SERVICE INSURANCE COMPANY,         )     Appeal from the
                                            )     Circuit Court of
     Plaintiff-Appellant,                   )     Cook County.
                                            )
v.                                          )     No. 05 CH 17501
                                            )
UNITED AUTOMOBILE INSURANCE COMPANY,        )     The Honorable
                                            )     Kathleen M. Pantle,
     Defendant-Appellee.                    )     Judge Presiding.

     JUSTICE LAMPKIN delivered the judgment of the court, with
opinion.
     Presiding Justice Hall and Justice Hoffman concurred in the
judgment and opinion.

                            O P I N I O N

     Plaintiff, American Service Insurance Company (ASI), appeals

the trial court’s order denying its motion for summary judgment

and granting the cross-motion for summary judgment filed by

defendant, United Automobile Insurance Company (UAIC).      In so

doing, the trial court determined that, because UAIC had

rescinded its policy, defendant owed no duty to defend or

indemnify a claim resulting from a February 2, 2004, car accident

in which plaintiff’s insured was injured.       On appeal, plaintiff

contends the trial court erred in denying its motion for summary
1-09-3070

judgment because defendant improperly rescinded its policy where

defendant’s insured did not make any material misrepresentations

on her insurance application and had no duty to notify defendant

of changes to her application responses.    Plaintiff further

contends defendant waived its right to rescind coverage of the

insured by failing to promptly act after learning of an accident

prior to the accident at issue.    Based on the following, we

affirm.

FACTS

     On April 9, 2003, Janice Baker applied for an insurance

policy with UAIC vis-a-vis Lincoln Insurance Agency, an

independent agency.   The application was completed by telephone.

In the application, Baker was asked, “[I]s there any operator in

the household under 25 years of age?”    Baker answered “no.”   When

asked the “Names of all Operators,” Baker listed herself and her

husband, John Webb.   “Operator” was not defined in the policy.

Baker testified at her deposition that she understood the term

“operator” to mean a driver.    The application was signed by

Baker’s agent.

     UAIC issued a policy to Baker providing bodily injury and

property damage liability from April 9, 2003, to April 9, 2004,

on a 1986 Chevrolet Monte Carlo.    The policy excluded Baker’s

husband, John, from coverage.    The declarations page contained

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the following disclosure:

            “Coverage afforded is only with respect to the

     coverages indicated herein by a specific premium charge

     or charges.    The limit of the company’s liability

     against each such coverage shall be stated herein,

     subject to all terms of this policy.    Insured warrants

     that there are no other drivers in the household other

     than those listed in the application or endorsement.”

The policy provided coverage to Baker, as the named insured, and

“any other person using such automobile to whom the named insured

has given permission, provided the use is within the scope of

such permission.”

     In addition, the conditions section of the policy provided:

            “If there has been a misrepresentation or false

     warranty, made with actual intent to deceive or which

     materially affects either the risk or hazard assumed by

     the Company, made by the insured or in his behalf in

     the negotiation for this policy, or breach of condition

     of such policy, and if said misrepresentation or false

     warranty or breach of condition is stated in the policy

     or endorsement or rider attached thereto, or in written

     application for this policy, then this policy shall be

     null and void and of no benefit, provided, however,

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     that the Company, during the lesser of the first year

     of the policy or the first term of the policy, rescinds

     the policy and declares this policy void.    If the

     policy has been in effect more than the lesser of one

     year or the first policy term, then the Company shall

     not rescind this policy.    Notwithstanding any other

     provision in this policy, this policy shall provide no

     coverage or benefit to any person who makes a

     fraudulent statement or omission or engages in

     fraudulent conduct with respect to any accident or loss

     for which coverage or a benefit is sought under this

     policy or any renewal of this policy.”

     Further, the conditions section of the insurance policy

contained a paragraph entitled “Declarations,” which provided:

            “By acceptance of this policy, the insured named

     in item 1 [Baker] of the Declarations agrees that the

     statements contained in the Application, a copy of

     which is attached to and forms part of this policy,

     have been made by him or on his behalf and that said

     statements and the statements of the Declarations and

     any subsequent Application accepted by the Company are

     offered as an inducement to the Company to issue or

     continue this policy and that the same are his

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     agreements and representations, and that this policy is

     issued and continued in reliance upon the truth of such

     statements and representations and that this policy

     embodies all agreements existing between himself and

     the Company or any of its agents relating to this

     insurance.” (Emphasis added.)

     On May 4, 2003, the UAIC policy was amended to change the

covered vehicle to a 1993 Ford Thunderbird.     An amended

declarations page was issued providing that “this declaration

page with ‘policy provisions’ and all other applicable

endorsements complete your policy.”     Two drivers were listed,

Baker and John.   Baker was listed as the principle driver and

John was listed as “excluded.”

     On May 14, 2003, Baker’s son, Devin Webb, received his

learner’s driving permit.   On June 10, 2003, Devin was driving

Baker’s insured vehicle with her permission and was involved in a

car accident with a light pole.    The accident resulted in

property damage, but no bodily injuries.     On June 17, 2003, Baker

called UAIC to report the accident.     Baker and Devin agreed to

provide recorded statements to UAIC.

     In her recorded statement, Baker informed UAIC that her son

was driving the insured vehicle with her permission when he was

involved in the accident.   Baker said that her son had lived with

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her at 9004 S. Ada Street in Chicago, Illinois, for 7 1/2 years.

Baker said that, since “April 4, 2003,”1 Devin operated her

vehicle two times per week.     Devin did not have a driver’s

license; Devin had a “blue slip.”       When asked why Devin was not

disclosed to “the agent,” Baker replied that Devin is “not an

operator” but that she thought she “mentioned him.”

     In his recorded statement, Devin reported living with Baker,

having a “blue slip,” and driving Baker’s car “every other day”

since April 9, 2003.     Devin said he usually drove with his mother

as a passenger because of his “blue slip”; however, when the

accident occurred, Devin was driving alone.

     UAIC informed Baker that Devin was a “DNOP,” or a driver not

on the policy, and there was a “coverage issue” that needed to be

resolved.     It is uncontested that Baker continued to make premium

payments for her insurance.

     William Raniere, in-house counsel for UAIC, testified at his

deposition that UAIC first became aware Devin lived in Baker’s

home and was 17 years old after Baker reported the June 10, 2003,

accident.

     Devin obtained his driver’s license on August 14, 2003.

Sometime prior to February 1, 2004, Baker requested that the

     1
         We assume the date is a typographical error because the

insurance application was completed on April 9, 2003.

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insured vehicle on her policy be amended to a 1991 Ford Taurus.

Devin’s name was not added to the policy.

     On February 2, 2004, Devin was involved in another accident

while driving Baker’s insured vehicle.     LaTonya Terrell and Bruce

Jones, Devin’s uncle, were passengers in the car with Devin.

LaTonya sustained bodily injuries.     The accident involved a

parked car, which was damaged as well.

     On March 15, 2004, after Baker contacted UAIC to report the

second accident, UAIC rescinded her policy effective April 9,

2003, as a result of a material misrepresentation in the

application.   Baker’s insurance premiums were returned

thereafter.

     At her deposition, Baker testified that Devin did not drive

her vehicle prior to April 9, 2003.     Baker attested that she was

not in the car with Devin during the June 10, 2003, accident.

Baker further testified that she and Devin were sued by the owner

of the parked car involved in the February 2, 2004, accident.

Baker said UAIC refused to defend that lawsuit and refused to

indemnify Baker for the judgment.     Baker said the accident was

reported to the Illinois Secretary of State, who subsequently

suspended her driver’s license and Devin’s driver’s license for

lack of insurance coverage.

     At his deposition, Devin testified that he never drove

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Baker’s car prior to receiving his learner’s permit.   After

receiving his learner’s permit, Devin said he only drove the car

while Baker was a passenger.   Devin testified that, after his

license was suspended following the February 2, 2004, accident,

he continued to drive when necessary and was arrested three times

for driving on a suspended license.

     LaTonya was insured by ASI with coverage against uninsured

motorists.   LaTonya filed an uninsured motorist claim because

Baker’s policy had been rescinded by UAIC.   On October 13, 2005,

ASI filed a complaint requesting declaratory relief against

LaTonya and UAIC such that:    (1) Devin was an insured under the

UAIC policy when the February 2, 2004, accident occurred; and (2)

ASI owed no duty to provide uninsured motorist coverage or any

other coverage to LaTonya as a result of the February 2, 2004,

accident.

     On March 10, 2006, UAIC filed a counterclaim and third-party

complaint against ASI, LaTonya, Devin, Janice, John, Billy

Terrell, and American Ambassador Insurance, a/s/o Stephen Thomas.

UAIC requested declaratory relief such that:   (1) the UAIC policy

was rescinded and thus there was no coverage for the February 2,

2004, accident; (2) a judgment against American Ambassador

Insurance, a/s/o Stephen Thomas, that UAIC was not obliged to pay

or defend any claims resulting from the February 2, 2004,

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accident; and (3) UAIC was not obliged to pay out any sums under

its policy.

       On October 15, 2009, the trial court granted summary

judgment in favor of UAIC and denied summary judgment in favor of

ASI.    The trial court concluded that UAIC properly rescinded its

policy where there was a material misrepresentation on Baker’s

application because Baker failed to disclose Devin as a minor

household driver.    Moreover, Baker failed to comply with her duty

of good faith and fair dealing when she failed to update UAIC

with the material information that Devin obtained his driver’s

permit 35 days after the insurance application was completed.

The court further concluded that UAIC did not waive its right to

rescind the policy.    This appeal followed.

DECISION

       Summary judgment is appropriate when “the pleadings,

depositions, and admissions on file, together with the

affidavits, if any, show that there is no genuine issue as to any

material fact and that the moving party is entitled to a judgment

as a matter of law.”    735 ILCS 5/2-1005(c) (West 2002).   When

cross-motions for summary judgment have been filed, the parties

agree that no genuine issue as to any material fact exists and

only a question of law is at issue; therefore, the parties invite

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the trial court to decide the issues based on the record.

Greenwich Insurance Co. v. RPS Products, Inc., 379 Ill. App. 3d

78, 84, 824 N.E.2d 1102 (2008).    We review an order granting

summary judgment de novo.    Morris v. Margulis, 197 Ill. 2d 28,

35, 754 N.E.2d 314 (2001).

I. Material Misrepresentation

     ASI contends there could be no material misrepresentation

justifying the rescission of the insurance policy because Baker

was asked to list all operators, drivers, users, and co-owners on

her application and Devin was not an operator, driver, user, or

co-owner at the time as he did not receive his learner’s permit

until after the application was submitted and the policy was

issued.

     Prior to rescinding an insurance policy, an insurer must

satisfy the following criteria set by section 154 of the Illinois

Insurance Code (Code):

            “No misrepresentation or false warranty made by

     the insured or in his behalf in the negotiation for a

     policy of insurance, or breach of a condition of such

     policy shall defeat or avoid the policy or prevent its

     attaching unless such misrepresentation, false warranty

     or condition shall have been stated in the policy or

     endorsement or rider attached thereto, or in the

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     written application therefor.      No such

     misrepresentation or false warranty shall defeat or

     avoid the policy unless it shall have been made with

     actual intent to deceive or materially affects either

     the acceptance of the risk or the hazard assumed by the

     company.”   215 ILCS 5/154 (West 2002).

     Materiality is determined by considering whether a

reasonably careful and intelligent person would have regarded the

facts omitted as substantially increasing the chances of the

events insured against so as to cause a rejection of the

application or different conditions such as higher premiums.

Ratliff v. Safeway Insurance Co., 257 Ill. App. 3d 281, 288, 628

N.E.2d 937 (1993).    A material misrepresentation may result where

an insured fails to disclose material information or provide

complete information in response to a question.        Cohen v.

Washington National Insurance Co., 175 Ill. App. 3d 517, 520, 529

N.E.2d 1065 (1988).    “An insurance applicant has the duty to act

in good faith, and an insurer is entitled to truthful responses

so that it may determine whether the applicant meets its

underwriting criteria.    Thus, the applicant must disclose all

information and let the insurer determine the materiality of the

*** information.”     Garde v. Country Life Insurance Co., 147 Ill.

App. 3d 1023, 1032, 498 N.E.2d 302 (1986).        An insurance policy

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may be voided even if the insured’s misrepresentation was     a

mistake or made in good faith.     Ratliff, 257 Ill. App. 3d at 288.

     It has been found that the nondisclosure of a 20-year-old

driver residing in the same household as the insured is a

misrepresentation materially affecting the risk assumed by the

insurer.    Id.   “ ‘It is a matter of common knowledge that the

rate frequency of accidents for drivers between the ages of

sixteen and twenty-four is substantially greater than that for

all drivers who are twenty-five years of age or more.’

[Citation.]”      Id.

     In the case before us, the insurance application contained a

section entitled “Questions Pertaining To Applicant And All

Members of Household.”    That section contained 12 questions.     In

relevant part, the application asked “is there any operator in

the household under 25 years of age?”    Baker responded, “no.”

The section also contained several blank lines to provide the

“names of all operators.”    Baker was listed as an operator; John

was listed as an operator with the word “exclude” where his

driver’s license number was requested; Devin was not listed as an

operator.    At the bottom of the application, a disclosure

entitled “applicant’s statement” appeared:

            “The applicant hereto states that he read this

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     application and attests that all answers given by him

     to the questions asked herein are truthful to the best

     of his knowledge and belief and that said answers were

     made as inducement to the insurance company to issue a

     policy, and it is a special condition of this policy

     that the policy shall be null and void and of no

     benefit or effect whatsoever as to any claim arising

     thereunder in the event that the attestations or

     statements in this application shall prove to be false

     or fraudulent in nature.

            It is understood that a copy of this application

     shall be attached to and form a part of the policy of

     insurance when issued and that it is intended that the

     company shall rely on the contents of this application

     in issuing any policy of insurance or renewal thereof.”

Moreover, as stated earlier, the policy provided:

            “Notwithstanding any other provision in this

     policy, this policy shall provide no coverage or

     benefit to any person who makes a fraudulent statement

     or omission or engages in fraudulent conduct with

     respect to any accident or loss for which coverage or a

     benefit is sought under this policy or any renewal of

     this policy.”

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     Although not defined in the policy, it is clear from Baker’s

recorded statement and her deposition testimony that she

understood the term “operator” to mean driver.     Even assuming it

was not a material misrepresentation to omit Devin as an operator

on the April 9, 2003, application, Baker had an obligation, as a

condition of the policy, to inform UAIC once Devin did begin

driving the vehicle.     See 215 ILCS 5/154 (West 2002).   The

application, the policy, and the declarations page each reveal

the importance of accurate information, including the names and

ages of all eligible drivers.     Moreover, the amended declarations

page issued as a result of the May 4, 2003, request to update the

vehicle information states that the “insured warrants that there

are no other drivers in the household other than those listed in

the application or endorsement.”2

     In their recorded statements, both Baker and Devin

recognized that he regularly drove the vehicle after the

application was submitted.     The record does not reveal the exact

date upon which Devin began driving the vehicle, whether before

the application date or immediately after; however, the record

clearly demonstrates that Devin began operating the vehicle once

     2
         The amended declarations page updating the insured vehicle

to a Ford Taurus, which occurred sometime before February 1,

2004, did not contain the same language.

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he obtained his learner’s permit on May 14, 2003.   Baker never

contacted UAIC to update the drivers included in the policy and

did not disclose Devin as a driver on either occasion when she

deemed it necessary to alert UAIC that the insured vehicle had

been changed, on May 4, 2003, and sometime before February 1,

2004, or even after Devin had obtained his driver’s license on

August 14, 2003.

     Barely one month after its completion, the application no

longer accurately reflected the eligible operators in Baker’s

household as a result of Baker’s omissions.   The amended

declaration pages also failed to accurately reflect the eligible

operators.   UAIC, therefore, could no longer rely on the

application’s contents.   The policy terms disclaimed that the

UAIC policy was “issued and continued in reliance” on the truth

of Baker’s representations on the application and any subsequent

application.   In order to allow for an accurate underwriting

process, UAIC found it necessary to ask the applicant whether

there were any operators under the age of 25 in the household.

Moreover, UAIC found it necessary to disclaim on the amended

declaration page that there were no other drivers in the

household other than those listed.    “ ‘An insurer is interested

in ascertaining the true owner of a car particularly where the

policy covers any person who may be driving the car with the

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owner’s consent.   ***   The status, number and character of the

persons who are likely to be driving the car with the owner’s

permission are also material to risk.’ ”    Safeway Insurance Co.

v. Duran, 74 Ill. App. 3d 846, 850-51, 393 N.E.2d 688 (1979)

(quoting Government Employees Insurance Co. v. Dennis, 90 Ill.

App. 2d 356, 365, 232 N.E.2d 750 (1967)).    There is no doubt

Baker had been sufficiently notified that Devin’s status as an

operator, i.e., driver, was of great relevance.

     As previously stated, it is well established that drivers

under the age of 25 are involved in accidents with much greater

frequency.   Devin fell into the increased-risk category because

he was 17 years old when he obtained his learner’s permit.    Once

Devin began operating Baker’s vehicle, the insurance policy

failed to adequately provide for UAIC’s increased risk exposure.

Raniere’s deposition testimony demonstrated that the addition of

Devin as a driver on Baker’s policy would have resulted in an

increased premium of $845.

     We, therefore, conclude that Baker generated material

misrepresentations when she failed to notify UAIC that Devin was

operating the insured vehicle.    The facts demonstrate that Devin

was not merely a passive user; thus, even if his use was

permitted, the insurance coverage did not extend to his regular

operation of the vehicle.    The policy provided that a

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misrepresentation would cause the policy to be “null and void and

of no benefit” and that a fraudulent statement or omission in

relation to a benefit “sought under this policy or any renewal of

this policy” would result in “no coverage or benefit.”

Consequently, UAIC was within its rights to rescind Baker’s

policy.

II. Waiver of Rescission Rights

     ASI contends UAIC waived any right it had to rescind Baker’s

policy because UAIC failed to promptly act on those rights when

UAIC first learned Devin was driving the insured vehicle, instead

waiting nine months until Devin’s second accident before

rescinding the policy.   ASI further contends the trial court

improperly relied upon section 154 of the Code to conclude UAIC

acted to rescind the policy within the applicable one-year time

period.

     Rescission is the cancellation of a contract thereby

restoring the parties to their initial status.   Illinois State

Bar Ass’n Mutual Insurance Co. v. Coregis Insurance Co., 355 Ill.

App. 3d 156, 165, 821 N.E.2d 706 (2004) (citing Horan v. Blowitz,

13 Ill. 2d 126, 132, 148 N.E.2d 445 (1958)).   Section 154 of the

Code provides:

     “With respect to a policy of insurance as defined in

     subsection (a), (b), or (c) of Section 143.13, except

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     life, accident and health, fidelity and surety, and

     ocean marine policies, a policy or policy renewal shall

     not be rescinded after the policy has been in effect

     for one year or one policy term, whichever is less.”

     215 ILCS 5/154 (West 2002).

“[A] material representation under section 154 *** renders the

policy voidable, not void ab initio, and an insurer can waive

this right if it does not invoke it promptly.”    Coregis, 355 Ill.

App. 3d at 167.    In Coregis, this court noted that, while not

applicable to the facts of that case, the legislature “has since

spoken as to the outer limit of what constitutes promptness by

imposing a one-year time limit within which an insurer must act

to void a policy based upon a material misrepresentation under

section 154.”     Id. at n.4.

     Contrary to ASI’s argument, UAIC rescinded Baker’s insurance

policy within the proscribed time period.    The policy was first

issued on April 9, 2003, and it was rescinded on March 15, 2004.

ASI’s construction of section 154 impermissibly restricts the

statute.    The statute does not merely create a bar for when an

insurance policy can no longer be rescinded.    As stated in

Coregis, the legislature created a time period, namely, one year,

that satisfies “prompt” rescission.

     Moreover, Baker’s policy itself supports UAIC’s rescission.

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The conditions section of the insurance policy said:

            “Notice to any agent or knowledge possessed by any

     agent or by any other person shall not effect a waiver

     or a change in any part of this policy or stop the

     Company from asserting any right under the terms of

     this policy; nor shall the terms of this policy be

     waived or changed, except by endorsement issued to form

     a part of this policy, signed by a duly authorized

     representative of the Company.”

The insurance policy expressly reserved UAIC’s rescission rights

despite its knowledge in June 2003 that Devin was driving the

insured vehicle.

     We, therefore, conclude that UAIC did not waive its

rescission rights.

CONCLUSION

     Because Baker materially misrepresented the fact that Devin

was an operator of her insured vehicle and UAIC acted within the

one-year time limit, UAIC properly rescinded Baker’s insurance

policy.   As a result, we affirm the judgment of the trial court

granting summary judgment in favor of UAIC.

     Affirmed.

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              REPORTER OF DECISIONS - ILLINOIS APPELLATE COURT

                    AMERICAN SERVICE INSURANCE COMPANY,

                            Plaintiff-Appellant,

                                     v.

                    UNITED AUTOMOBILE INSURANCE COMPANY,

                            Defendant-Appellee.

                            No. 1-09-3070

                        Appellate Court of Illinois

                       First District, FIRST DIVISION

                               April 18, 2011

        JUSTICE LAMPKIN delivered the judgment of the court, with opinion.

            Presiding Justice Hall and Justice Hoffman concurred in the

                               judgment and opinion.

                   Appeal from the Circuit Court of Cook County.

                   The Hon. Kathleen M. Pantle, Judge Presiding.

                               COUNSEL FOR APPELLANT

                        Newman Raiz, LLC, Chicago, IL 60603

                 OF COUNSEL: James P. Newman and William H. Ransom

                                COUNSEL FOR APPELLEE

                      Shelist Law Firm LLC, Chicago, IL 60610

                           OF COUNSEL: Samuel A. Shelist

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