Court Opinion

ID: 9517170
Source: CourtListenerOpinion
Date Created: 2023-08-07 00:06:58.006191+00
Date Added: 2024-06-11T09:43:43.010271
License: Public Domain

Mr. JUSTICE BARRY, specially concurring in part and dissenting in part: I agree with the majority that State Farm should be burdened with this liability; however, I do so following the guidelines of the landmark case of Olympia Fields Country Club v. Bankers Indemnity Insurance Co., 325 Ill. App. 649, 60 N.E.2d 896 (1st Dist. 1945), and followed by a 1966 case in our district, Palmer v. Sunberg, 71 Ill. App. 2d 22, 217 N.E.2d 463.I also agree that there is no need for us to consider as an issue whether the trial court was correct in holding that Nancy Smith was not covered by the State Farm policy. (Parenthetically, however, it should be noted that the State Farm policy intended to cover Nancy was issued to her father-in-law, Stuart Smith, “at the suggestion of the State Farm agent 6 ° who may have in fact been a State Farm employee.) I find nothing in the record however that allows the majority to draw the unjustified conclusion that the plaintiff and Mrs. Smith relied upon a specific amount in making the settlement, that is the State Farm policy limits of $30,000. It may well be that the plaintiff would have settled for that amount prior to judgment, but the fact is the court found the damages were in the amount of $100,000. In Palmer, at page 27, it is clearly expressed that the duty to defend and the ultimate liability of the insurer are distinct obligations. The majority has made it abundantly apparent that we may consider State Farm to have definitely breached its duty to defend and State Farm does not deny in this court that the plaintiff’s claim set forth a potential claim within its policy’s coverage. That duty cannot be wrongfully avoided or refused “[e]ven if the allegations of the suit are groundless 6 ° (Palmer, at 28.) Therefore we cannot consider whether State Farm would have been relieved of responsibility. State Farm is estopped from raising a defense of non-coverage and must accept the responsibilities of the consequence of that refusal. As said by the majority, “State Farm thus had effectively become a primary insurer * # *,” and in Palmer, at page 32, it is stated: “Since the insurer breached its contract by refusing to tender a defense to Sunberg, the court concluded the insurer is now estopped from asserting an exclusion under the policy as a defense to coverage and is liable for the judgment rendered against its insured.” (Emphasis added.) I am now compelled to give detailed consideration to Childress v. State Farm Mutual Automobile Insurance Co., 97 Ill. App. 2d 112, 239 N.E.2d 492 (1968), which the defendant cites as its primary authority. Contrary to the instant case wherein the injured party is the plaintiff, Gerald Childress, through whom coverage was sought, was the plaintiff, and was deceased. The injured parties as 1962 judgment creditors, filed a petition to intervene as parties plaintiff at the hearing of the Childress’ (estate) motion to reconsider summary judgment previously granted the defendant in response to a third amended complaint; the trial court denied the intervention as being untimely, as it was filed five years after the commencement of the original action. The 1962 judgment was a default judgment, entered against the Childresses for *750,000. Fault liability was questionable in that Jack, son of Gerald Childress and driver of the Childress car, was paid *4,000 by the insurance carrier insuring the other car involved in the accident. There was no allegation that State Farm insured the Childress car involved; Gerald, as owner of another car not involved in the accident had only that other car insured by State Farm. Most significantly non-waivers of the Childresses, reserving the right to deny coverage were requested by and granted to State Farm. Of ultimate and distinguishing significance is the stated holding at pages 120-121 in Childress, to the effect that the trial court was affirmed for two reasons: The lack of any contractual duty from the defendant to plaintiff, and the covenant insulating the plaintiff from all damages. There is no lack of contractual duty in the instant case. (See Krutsinger v. Illinois Casualty Company, 10 Ill. App. 2d 344,135 N.E.2d 180 (3d Dist. 1956), aff'd, 10 Ill. 2d 518, 141 N.E.2d 16 (1957).) Obviously for this important reason, Childress is very distinguishable. It should also be specially noted that in the instant case William Elas is not one seeking coverage or protection under a policy. Morover, there was a default in Childress so that as a party plaintiff he was apparently not burdened with any cost of defense, while the insured here was exposed to such expense. The posture of the case before us suggests the pivotal issue to be the question of the rights of the injured plaintiff, William Elas, acquired from the insured by virtue of the settlement and judgment. Under the pertinent facts here, that is an absolute refusal to defend and participate, should those rights be limited to only the limits of coverage purchased by Nancy Smith’s father-in-law for her, and perhaps the costs of defense? A fair reading of the words of the settlement would suggest that it was not a hold harmless agreement, but an assignment, that it was intended that the injured party acquire all of the rights, including future rights, of insured Nancy Smith against State Farm as they were expressly reserved. The insured thereby insulated herself from liability and execution by plaintiff, and by the same settlement insured and plaintiff were aware not only of the possibility of holding defendant insurance company liable for at least its policy limits, but also of the possibility of any and all liability of defendant to the insured and, ultimately plaintiff by the settlement, for a judgment in excess of policy limits on the cause of action acquired against defendant for its wrongful breach of its affirmative duty to defend the insured.1  The consequences of the breach of contract by failing to defend are stated in 7 Am. Jur. 2d Automobile Insurance §167 (1963), as follows: “§167. — New and positive obligations of insurer as result of unjustified refusal. By its unjustified refusal to defend an action against the insured, an automobile liability insurer becomes subject to the following new and positive obligations: (1) liability for the amount of the judgment rendered against the insured or of the settlement made by him; (2) liability for the expenses incurred by the insured in defending the suit; (3) liability for any additional damage traceable to its refusal to defend. The first and most obvious of these positive obligations created by an insurer’s unjustified refusal to defend is its obligation to pay the amount of the judgment rendered against the insured or of any settlement made by the insured of the action brought against him by the insured party.” (Emphasis added.) In my view the insured buys all of the rights of “insulation” coverage and “any additional damage traceable ” * *” thereto, and here, subsequent to the breach, the insured assigned all of those rights resulting from the breach to the plaintiff. The damages resulting from such breach may not be inconsequential. I do not believe it is too far fetched to assume that the pressure of the possibility of losing one’s home, or world possessions otherwise, or health, by virtue of a refusal of coverage could be very real. Perhaps I should again note here that in Childress there was a default and therefore no cost of defense of which the court was made aware. I do not agree with the majority that a settlement acts as a bar against recovery of damages in excess of limits of coverage, that is against the company paying the entire judgment award. The text of 7 Am. Jur. 2d Automobile Insurance, §167 (1963) does not so qualify or limit the “obligation to pay the amount of the judgment ” ” nor does Palmer, nor does any holding in Childress. (Emphasis added.) I view the settlement as not determinative. As indicated by the majority, the cases more than adequately support the right of the insured to protect herself; “the insurer has no right to insist that the insured be bound by the provisions of the insurance contract inuring to its benefit, 000 when it has already breached the contract by violating the provisions inuring to the benefit of the insured, i.e., the defense provisions. In this instance it may properly be said to be estopped.” (Sims v. Illinois National Casualty Company, 43 Ill. App. 2d 184, 197, 193 N.E.2d 123, 129.) The court in Childress, at 97 Ill. App. 2d 112, 119, 239 N.E.2d 492, 496, recalling its review of authorities in another case stated, “We there determined that the majority view in this country and the sounder rule in justice and logic was that payment or nonpayment of the judgment by the insured and his ability or inability to pay it, whether the insured was living or deceased, was not a condition precedent to recovery or a defense, and need neither be alleged nor proved.” By analogy, the same logic should apply to whether there is, or whether there is not, this kind of settlement. Confronted with the absolute refusal of the insurer to participate at a time when settlement negotiations must proceed, it would appear that the insured is confronted with two choices, either to arrange to pay or to commence bankruptcy. To limit the liability of the defendant to policy limits, plus possibly cost of defense if proven, as does the majority here, establishes a precedent that will burden insureds and reward casualty insurance companies for failure to fulfill their contractural obligations. It gives no consideration to the possibility that the settlement contract may be tested with a finding adverse to the insured,2 it gives no consideration to the insured who finds the best way out is to pay an extra few hundred or a few thousand dollars for a release or for a covenant, and it could well not be feasible for an insured to initiate an action against the company for whatever that smaller amount might be. Considering that though this minor’s settlement was disclosed, it would seem the position of the majority would encourage collusion and promote an advantage to those avoiding the admission of such settlements in other and future cases. Given the general policy of encouraging settlements, it would seem much more fair and equitable to reach a result that would urge the companies to deal squarely with its insureds in situations of this kind. No doubt State Farm could have settled this case within its limits; on the other hand State Farm has had the use of that money for several years. Given these circumstances it would seem that we would be best off following Sims, where the court stated at page 199, “often an insurer is faced with a dilemma as to whether to defend or to refuse to defend. In cases of doubt the answer is simple. It can (1) seek a declaratory judgment as to its obligations and rights or (2) defend under a reservation of rights.” Neither was done in this case. In fact State Farm did not even request a reservation of rights from the insured, and did not participate at all, though requested to so do both before and after the settlement in question. Obviously we must consider this an arbitrary rejection of participation considering the absolute duty to defend. As the court said in Childress, at page 119, “an insurance company may so conduct itself as to be liable for an entire judgment * * * irrespective of its policy limits, where it acts with fraud or with bad faith in conducting or failing to conduct the defense, investigation, trial or settlement negotiations, or where it is negligent in these respects.” (Emphasis added.) Given the applicable law, these facts and the obligation of the insurance company as the fiduciary of the policy holder insured, I conclude that the court erred in granting the defendant’s motion for summary judgment since the defendant did not here deny that the plaintiff's claim was one potentially within policy coverage, that State Farm should be hable for the entire judgment of *100,000 awarded by the trial court, and as indicated by the majority, nothing herein contained should operate to limit the right of the insured to recover costs and expenses of conducting a defense in addition.   See Brown v. State Farm Fire ir Casualty Corp., 33 Ill. App. 3d 889,338 N.E.2d 427 (3d Dist. 1975).    That is, for failure of consideration, to wit, a legal disability as to a right to assign insured’s cause of action against its insurer for breach to the injured (judgment creditor) who bargained for such right in its settlement contract.