American Access Casualty Company v. Reyes , 982 N.E.2d 261 ( 2012 )

ILLINOIS OFFICIAL REPORTS
Appellate Court
American Access Casualty Co. v. Reyes, 2012 IL App (2d) 120296
Appellate Court AMERICAN ACCESS CASUALTY COMPANY, Plaintiff and
Caption Counterdefendant-Appellee, v. ANA REYES, BRIGIDO JASSO,
Individually and as Independent Administrator of the Estate of Sergio
Jasso, Deceased, and ROCIO JASSO, Defendants (State Farm Insurance
Company, Defendant and Counterplaintiff-Appellant).
District & No. Second District
Docket No. 2-12-0296
Filed December 28, 2012
Held The automobile liability policy issued by plaintiff naming defendant, the
(Note: This syllabus titleholder of the insured vehicle, as the named insured but excluding her
constitutes no part of from coverage was invalid due to the violation of the public policy
the opinion of the court mandating insurance coverage; therefore, the entry of summary judgment
but has been prepared finding plaintiff had no duty to provide a defense for defendant in an
by the Reporter of action arising from injuries she caused was reversed and the cause was
Decisions for the remanded for a determination of whether the policy provided coverage.
convenience of the
reader.)
Decision Under Appeal from the Circuit Court of Kane County, No. 10-MR-56; the Hon.
Review Thomas E. Mueller, Judge, presiding.
Judgment Reversed and remanded.
Counsel on Dennis A. Brebner and Keith J. Rhine, both of Yudkin & Brebner, LLC,
Appeal of Waukegan, for appellant.
Keely Hillison, of Parrillo, Weiss & O’Halloran, of Chicago, for appellee.
Panel JUSTICE JORGENSEN delivered the judgment of the court, with
opinion.
Presiding Justice Burke and Justice Schostok concurred in the judgment
and opinion.
OPINION
¶1 The facts in this automobile-insurance-coverage case are undisputed. In September 2007,
plaintiff, American Access Casualty Company, issued an automobile insurance policy to
defendant Ana Reyes. The policy’s statement of declarations listed Reyes as the “named
insured,” as well as the titleholder to the insured vehicle, a 1999 Chrysler 300M. However,
in the policy’s section identifying the “operators” of the vehicle, the policy listed two
persons: (1) Reyes, with the notation “EXCLUDED” instead of a driver’s license number;
and (2) Jose M. Cazarez, with an “out of country/international” driver’s license number.1
Further, Reyes executed an endorsement providing that plaintiff would not afford any
coverage under the policy to any claim or suit that occurred as the result of Reyes operating
any vehicle. Finally, the policy contained a provision excluding bodily injury and property-
damage liability coverage for “any automobile while in control of an excluded operator.”
¶2 On October 30, 2007 (one month after the above policy took effect), Reyes drove her car
in Elgin and struck pedestrians Rocio and Sergio Jasso. Rocio was seriously injured and
Sergio (a minor) died as a result of his injuries. Rocio and Sergio’s father, Brigido Jasso,
sued Reyes, alleging negligence.
¶3 Thereafter, in response to the negligence suit, plaintiff filed the instant action, seeking
a declaration that, because Reyes was driving at the time of the October 30, 2007, accident,
its policy provided no coverage for and no duty to defend any claims and litigation arising
therefrom. State Farm (which apparently provided uninsured motorist coverage to the
pedestrians) answered plaintiff’s complaint and filed a countercomplaint for declaratory
judgment, asking that plaintiff be estopped from excluding coverage for Reyes, because
plaintiff’s attempt to “specifically exclude Ana Reyes the titleholder, payer on the insurance
policy, [and] resid[ent] at the address of where the vehicle is garaged and located with full
1
In the insurance application, Reyes was asked to list all household residents age 14 and over
and any other operators of the vehicle. Only she and Cazarez appear on the application. The
application defines Cazarez as a household resident and “friend” and lists him as the primary driver
of the vehicle.
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access to the vehicle is contrary to law and public policy and cannot be enforced. Ana Reyes’
exclusion would result in no one insured under the policy.”
¶4 On October 20, 2011, the court granted plaintiff summary judgment on its complaint. On
February 11, 2012, the court denied State Farm’s motion to reconsider, which raised, for the
first time, an allegation that Cazarez is an illegal alien and contended that, by allowing him
to be a member of her household, Reyes was in violation of federal law and, moreover, that
plaintiff, by providing insurance coverage to Cazarez, was “harboring and shielding from
detection an illegal alien.”2
¶5 State Farm appeals, arguing that the insurance policy between plaintiff and Reyes violates
public policy because it excludes Reyes, the only named insured and owner of the insured
vehicle. Further, State Farm argues that plaintiff could not validly provide coverage for
Cazarez because he does not have a valid license and is an illegal alien.
¶6 For the following reasons, we conclude that the provision excluding Reyes from liability
coverage conflicts with relevant statutory requirements and, thus, violates public policy.
Accordingly, we reverse and remand.
¶7 I. ANALYSIS
¶8 As they are purely legal, we review de novo the issues on appeal. 735 ILCS 5/2-1005(c)
(West 2008) (summary judgment reviewed de novo); Founders Insurance Co. v. Munoz, 237
Ill. 2d 424, 432 (2010) (de novo review applied to legal issues). The primary issue presented
is whether the exclusion of the only named insured and automobile owner from coverage as
a driver under a liability insurance policy contravenes public policy. An insurance policy is
a contract, and, therefore, the rules applicable to contract interpretation govern interpretation
of an insurance policy. Founders Insurance, 237 Ill. 2d at 433. As such, unless it contravenes
public policy, an unambiguous insurance policy provision will be applied as written.
Id.“Statutes are an expression of public policy.” St. Paul Fire & Marine Insurance Co. v.
Smith, 337 Ill. App. 3d 1054, 1058 (2003).
¶9 Section 7-601(a) of the Illinois Safety and Family Financial Responsibility Law provides
that “[n]o person shall operate, register or maintain registration of, and no owner shall permit
another person to operate, register or maintain registration of, a motor vehicle designed to
be used on a public highway unless the motor vehicle is covered by a liability insurance
policy.” 625 ILCS 5/7-601(a) (West 2006). The insurance mandated by section 7-601(a) must
meet certain requirements, including, pursuant to section 7-317(b)(2) of the Safety and
Family Financial Responsibility Law, that a motor vehicle owner’s “liability insurance”
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.” (Emphasis added.) 625 ILCS 5/7-317(b)(2) (West 2006). In other words, the statute
mandates that a liability insurance policy insure the named insured and permissive users. The
2
We note that State Farm provided no evidence to support its allegations regarding Cazarez’s
immigration status.
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principal purpose of these mandatory liability insurance requirements is “to protect the public
by securing payment of their damages.” Progressive Universal Insurance Co. of Illinois v.
Liberty Mutual Fire Insurance Co., 215 Ill. 2d 121, 129 (2005). A private limiting agreement
may not rewrite a statute that exists for the protection of the public; if the insurance provision
conflicts with the law, it will be deemed void and the statute will continue to control. Id.; see
also Founders Insurance, 237 Ill. 2d at 442 (an insurance policy provision that conflicts with
section 7-317(b)(2) violates public policy and will be deemed void).
¶ 10 However, “[j]ust as public policy demands adherence to statutory requirements, it is in
the public’s interest that persons not be unnecessarily restricted in their freedom to make
their own contracts.” Progressive, 215 Ill. 2d at 129. Therefore, we exercise “sparingly” the
power to declare a private contract void as against public policy. Id. We will not invalidate
an agreement on public policy grounds unless it is “clearly contrary” to what our statutes or
court decisions have declared to be public policy, or unless it is “manifestly injurious to the
public welfare. Whether an agreement is contrary to public policy depends on the particular
facts and circumstances of the case.” Id. at 130. For the following reasons, and mindful that
our power to declare a private contract void as against public policy should be used only
sparingly, we conclude that the blanket exclusion here, precluding all liability coverage for
Reyes, the only named insured, is “clearly contrary” to section 7-317(b)(2) and, thus, public
policy.
¶ 11 Again, section 7-317(b)(2) mandates that an owner’s “liability insurance” policy “[s]hall
insure the person named therein.” 625 ILCS 5/7-317(b)(2) (West 2006).3 In the policy at
issue here, Reyes is the only person “named therein,” i.e., she is the sole named insured.
Plaintiff argues that, consistent with section 7-317(b)(2)’s mandate, Reyes is covered under
the policy, for it provides Reyes with uninsured-motorist, bodily-injury, property-damage,
and medical-payment coverage in the event that she is injured in an accident in which she is
not the driver. However, simply put, none of that equates to liability coverage. The policy
exclusion operates to deny coverage when Reyes drives the vehicle, i.e., when she would be
liable for an accident. Thus, contrary to section 7-317(b)(2)’s mandate, the liability insurance
policy does not cover the named insured.
¶ 12 We acknowledge two things. First, named-driver exclusions have been upheld by our
courts. However, in those cases, the excluded drivers were not the sole named insured. See,
e.g., Dungey v. Haines & Britton, Ltd., 155 Ill. 2d 329, 336 (1993) (enforcing a named-driver
exclusion wherein a husband was excluded from coverage under his wife’s policy); see also
American Service Insurance Co. v. Arive, 2012 IL App (1st) 111885, ¶ 17 (enforcing a
named-driver exclusion wherein a son was excluded from coverage under his parents’
policy); Smith, 337 Ill. App. 3d at 1056-57 (same and further holding, generally, that a
named-driver exclusion in an automobile liability policy does not violate public policy);
Rockford Mutual Insurance Co. v. Economy Fire & Casualty Co., 217 Ill. App. 3d 181, 186-
3
The statute separately, in subsection (b)(1), provides that a liability insurance policy shall
designate the vehicle that is covered, before subsection (b)(2) provides that it shall insure the person
named therein (i.e., the named insured). See 625 ILCS 5/7-317(b)(1), (b)(2) (West 2006).
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87 (1991) (same and further holding, generally, that public policy is not violated when a
claimant must seek relief from his or her own uninsured motorist coverage because an
exclusionary provision rendered uninsured the other vehicle).4 Thus, although the
aforementioned cases establish that named-driver exclusions are permissible, they do not
hold that a policy may completely exclude the sole named insured and automobile owner
without running counter to section 7-317(b)(2) and, accordingly, public policy.
¶ 13 Plaintiff notes that, in addition to mandating coverage for the named insured, section 7-
317(b)(2) also mandates coverage for permissive drivers. Accordingly, plaintiff questions
why, given that courts have upheld named-driver exclusions as applied to permissive drivers,
a named-driver exclusion that applies to the named insured should be treated any differently.
Our answer to that question is found in another section of the statute. Specifically, section
7-602 of the Safety and Family Financial Responsibility Law provides:
“If the insurance policy represented by the insurance card does not cover any driver
operating the motor vehicle with the owner’s permission, or the owner when operating
a motor vehicle other than the vehicle for which the policy is issued, the insurance card
shall contain the warning of such limitations in the coverage provided by the policy.” 625
ILCS 5/7-602 (West 2006).
The court in Smith held that the aforementioned provision reflects the legislature’s intent to
create a limited exception to the mandatory insurance laws for named-driver exclusions.
Smith, 337 Ill. App. 3d at 1059-60. That limited exception reflected in section 7-602,
however, specifically references exclusions for permissive drivers. It does not contain a
corollary provision for the named insured. Further, the provision references an exclusion for
the “owner,” but that exclusion is limited: an owner may be excluded when the owner
operates a vehicle other than that for which the policy is issued. Accordingly, while section
7-602 reflects the legislature’s intent to permit, via named driver exclusions for permissive
drivers, an exception to section 7-317(b)(2)’s requirements, it does not reflect that named
insureds may, without limitation, be excluded from liability coverage.
¶ 14 This leads to our second acknowledgment: insurers may, without running afoul of public
policy, legitimately contract to limit the scope of their coverage; in other words, not every
limitation on liability coverage violates public policy. Founders Insurance, 237 Ill. 2d at 442
(“Insurers are not required to cover every possible loss and may legitimately limit their
risks.”); Progressive, 215 Ill. 2d at 136 (“Nowhere, however, does the law expressly forbid
parties to an insurance contract from excluding certain risks from liability coverage.”).
Indeed, two supreme court decisions, while factually distinguishable from the present case,
reflect that in specific circumstances policy exclusions that limit liability coverage for named
insureds might not run counter to public policy.
¶ 15 First, in Progressive, which did not involve a named-driver exclusion, our supreme court
effectively held that exclusionary provisions that act to limit coverage even of named
4
Our supreme court, too, has held that the effects of policy exclusions rendering some
motorists uninsured is “substantially offset” by the requirement of uninsured motorist coverage. See
Progressive, 215 Ill. 2d at 139.
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insureds are permissible. In that case, the exclusionary provision precluded coverage for
bodily injury or property damage resulting from an accident if the covered vehicle was being
used to carry persons or property for compensation, which included food delivery. After the
named insured’s son struck and severely injured a pedestrian while driving the named
insured’s minivan to deliver pizzas for his employer, the insurer argued that it had no duty
to defend or indemnify the son, because his conduct fell within the terms of the
aforementioned policy exclusion. In upholding the exclusionary provision, the court held
that, as it applied equally to both named insureds and permissive drivers, the provision did
not conflict with section 7-317(b)’s mandate that any liability policy must cover both named
insureds and permissive drivers.5 Progressive, 215 Ill. 2d at 134. In so doing, the court
acknowledged the potentiality that, pursuant to the exclusionary provision at issue, even the
named insured, could, under the circumstances described in the provision, be rendered
uninsured. “Accordingly, if [the named insured] used the van to deliver pizzas, she would
have no more right to insist that [the insurer] defend and indemnify her than [her son] has.
The policy would provide no coverage.” (Emphasis added.) Id. Thus, in Progressive, the
named insured, acting as the driver, would have been excluded from coverage if she were
driving to deliver property or persons for compensation. Id. The named insured was not,
however, the subject of a blanket policy exclusion. Rather, she was covered by liability
insurance unless she drove the vehicle for a specific purpose.
¶ 16 Similarly, our supreme court recently upheld exclusionary provisions that, under certain
circumstances, precluded liability coverage over even the named insureds. Founders
Insurance, 237 Ill. 2d at 427. Like Progressive, the court in Founders Insurance did not
consider a named-driver exclusion. Rather, the exclusion at issue provided that coverage
would be excluded where the person using the vehicle did not have a reasonable belief that
he or she was entitled to do so. In upholding the provision, the court held that, even where
the driver was the owner of the vehicle, he or she did not have a reasonable belief that,
without a driver’s license or if on a suspended license, he or she was entitled to drive the car.
Id. at 438, 445. The court held that insurance companies could, without violating the public
policy set forth in section 7-317(b)(2), “limit their risk by excluding insureds and permissive
users alike who lack the most basic requirement for driving in this state: a valid license.” Id.
at 445. Accordingly, as the exclusions at issue applied only to persons “insured” under the
policies, which included both named insureds and permissive drivers, the exclusions could
act to exclude coverage for named insureds as drivers where they met the conditions of the
exclusions. Id. Again, however, the exclusion operated to exclude liability coverage over
named insureds only when specific circumstances were met.
¶ 17 The provision at issue here is markedly different from those in Progressive and Founders
Insurance. There is not a mere restriction or limitation on Reyes’ liability coverage: she has
none. The provision constitutes a full exclusion of the named insured from liability coverage,
5
In so doing, the court distinguished its prior decision in State Farm Mutual Automobile
Insurance Co. v. Smith, 197 Ill. 2d 369, 374 (2001), wherein it invalidated, as contrary to section 7-
317(b)’s requirement that the policy cover both the named insured(s) and permissive drivers, an
exclusion that acted to preclude coverage of only permissive drivers (indeed, an entire class thereof).
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as opposed to an exclusion of coverage only in limited circumstances specified in the
insurance contract (e.g., using the vehicle for a fee (Progressive) or where the user does not
have a reasonable belief that he or she is entitled to do so (Founders Insurance)). We do not
know from the record why plaintiff and Reyes contracted to exclude her from liability
coverage. The reason for the exclusion, however, is irrelevant to our decision here because,
even if Reyes were excluded for a legitimate reason, section 7-317(b)(2) requires that the
owner’s liability insurance policy cover the named insured and, here, coverage is not merely
limited, but completely nonexistent.
¶ 18 We note that there exist sound public policy reasons for requiring coverage over the sole
named insured. Those reasons were summarized in a Louisiana court decision, where that
state’s supreme court held that a similar mandatory liability insurance statute, which
permitted parties to “exclude from coverage any named person which is a resident of the
same household as the named insured,” did not permit the exclusion of the named insured.
(Internal quotation marks omitted.) Williams v. U.S. Agencies Casualty Insurance Co., 2000-
1693, at 4 (La. 2/21/01); 779 So. 2d 729, 731, superseded by La. Rev. Stat. Ann. § 32:900(L)
(2001). In so holding, the court stated:
“Our interest in protecting the driving public far outweighs an insured’s desire to
exclude himself from coverage in order to avail himself of a lower premium. To allow
an insured to exclude himself from coverage and drive as an uninsured motorist, runs
afoul of the overall purpose and intent of Louisiana’s compulsory insurance law. In the
instant case, [the named insured], *** purchased liability insurance coverage, purported
to exclude himself as a driver of his own vehicle, and then caused an accident resulting
in injury. This court will not uphold such actions at the expense of the injured person
whom our statutory insurance law is designed to protect. Clearly, the legislature did not
intend that citizens such as these plaintiffs would suffer injury, and a tortfeasor would
escape liability because he waived the mandatory liability coverage which is required by
statute. We find that an automobile insurance policy may not exclude the named insured
of a vehicle from coverage for the negligent operation of the insured vehicle.” Id. at 6-7,
779 So. 2d at 732.
¶ 19 Nevertheless, we can also imagine scenarios where contractual, named-driver exclusions
over even the named insured could further the statute’s public policy goal of protecting the
public by securing payment of damages. Specifically, insurance companies make
underwriting decisions and calculate policy premiums based on the characteristics and risks
presented by the policyholder. Progressive, 215 Ill. 2d at 135. In situations where those
factors render obtaining a policy cost-prohibitive, exclusions of named individuals may allow
the vehicle owner, who must pursuant to section 7-601(a) obtain a liability insurance policy
if anyone is to operate, register, or maintain registration over the vehicle, to obtain affordable
insurance. Smith, 337 Ill. App. 3d at 1061-62. Without the ability to exclude certain drivers,
including the named insured (who might own the vehicle but present risks that render
obtaining insurance cost prohibitive), insurance might not be obtained. Id. However, we may
not ignore section 7-317(b)(2)’s plain language that the liability policy must cover the person
named therein. Instead, it is the role of the legislature to specify, as it did with permissive
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drivers in section 7-602, that named-driver exclusions may include the sole named insured.6
¶ 20 Accordingly, we find that the exclusion here is invalid because Reyes, the sole named
insured, is not covered by liability insurance. We render no opinion as to whether the policy
otherwise covers the October 30, 2007, accident. Therefore, we reverse the summary
judgment entered in plaintiff’s favor and remand the cause for a determination of whether,
setting aside the exclusionary provision, the policy provides coverage for the 2007 accident.
¶ 21 We add two final points. First, State Farm argues that the exclusion of Reyes from
coverage under the policy is invalid if the purpose behind her purchase of the policy was to
benefit Cazarez. State Farm asserts that: (1) because Cazarez has only an international
driver’s license, not an Illinois driver’s license, the policy insures a person who is unable to
legally operate the vehicle; and (2) Cazarez is an illegal alien and, by providing insurance to
him, plaintiff is harboring and shielding an illegal alien from detection, in violation of federal
law. Simply put, these arguments are red herrings and we will not address their merits.
Setting aside the lack of proof for these allegations, neither Cazarez’s immigration status nor
the propriety of plaintiff’s coverage over him is relevant to the issue on appeal. Plaintiff’s
complaint sought a declaration regarding its contractual obligations to defend or indemnify
Reyes in connection with the October 30, 2007, accident where Reyes was the driver. As
Cazarez was not the driver involved in the accident, his coverage is irrelevant to the issue
before us.
¶ 22 Second, in its response brief, plaintiff seeks sanctions pursuant to Illinois Supreme Court
Rule 375(b) (eff. Feb. 1, 1994) against State Farm for pursuing a frivolous appeal and
requests that we award plaintiff costs and attorney fees. Rule 375(b) permits the imposition
of sanctions when an appeal is frivolous, not taken in good faith, or taken for an improper
purpose, such as to harass or needlessly increase the cost of litigation. If the appeal is not
warranted by existing law or a good-faith argument for modifying existing law, or is not
reasonably well grounded in fact, it may be deemed frivolous and sanctionable. We decline
plaintiff’s request to impose Rule 375(b) sanctions against State Farm. As we agree with
State’s Farm’s first argument, this appeal is not frivolous.
¶ 23 II. CONCLUSION
¶ 24 For the foregoing reasons, the judgment of the circuit court of Kane County is reversed
and the cause is remanded.
¶ 25 Reversed and remanded.
6
Which is, in fact, what happened in Louisiana. Specifically, in an amendment intended to
supersede the Williams decision, the Louisiana legislature altered the relevant statute to read that “an
insurer and an insured may by written agreement exclude from coverage the named insured and the
spouse of the named insured. The insurer and an insured may also exclude from coverage any other
named person who is a resident of the same household as the named insured at the time that the
written agreement is entered into ***.” La. Rev. Stat. Ann. § 32:900(L) (2001); Hawkins v. Redmon,
2009-2418, at 9 (La. 7/6/10); 42 So. 3d 360, 365.
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