Auto-Owners Insurance Co. v. Yocum , 987 N.E.2d 494 ( 2013 )

ILLINOIS OFFICIAL REPORTS
Appellate Court
Auto-Owners Insurance Co. v. Yocum, 2013 IL App (2d) 111267Appellate Court AUTO-OWNERS INSURANCE COMPANY, Plaintiff and
Caption Counterdefendant-Appellant and Cross-Appellee, v. MERLE YOCUM,
MERLE YOCUM TRUCKING, GARY E. DOWDING, HARMON
GRAIN, LLC, and MICHIGAN MILLERS MUTUAL INSURANCE
COMPANY, Defendants and Counterplaintiffs-Appellees and Cross-
Appellants.–AUTO-OWNERS INSURANCE COMPANY, Plaintiff and
Counterdefendant-Appellant, v. MERLE YOCUM, MERLE YOCUM
TRUCKING, GARY E. DOWDING, HARMON GRAIN, LLC, and
MICHIGAN MILLERS MUTUAL INSURANCE COMPANY,
Defendants and Counterplaintiffs-Appellees.
District & No. Second District
Docket Nos. 2-11-1267, 2-12-0092 cons.
Filed March 29, 2013
Held In an action by defendant’s insurer seeking a declaratory judgment that
(Note: This syllabus the insurer had no duty to defend or indemnify an underlying lawsuit
constitutes no part of arising from a fatal collision involving one of defendant’s vehicles,
the opinion of the court summary judgment was properly entered for defendant and against the
but has been prepared insurer, notwithstanding the insurer’s contention that the policy was
by the Reporter of cancelled just before the accident, since the record showed that although
Decisions for the the insurer did cancel the policy due to defendant’s failure to pay the
convenience of the premium, at that time, defendant’s account contained an excess premium
reader.)
arising from defendant’s cancellation of coverage for two vehicles not
involved in the claim, and under the circumstances, the insurer should
have applied those funds to the payment of the premium and the policy
should not have been cancelled.
Decision Under Appeal from the Circuit Court of Ogle County, No. 09-MR-2; the Hon.
Review Robert T. Hanson, Judge, presiding.
Judgment Affirmed.
Counsel on Robert Marc Chemers, Richard M. Waris, Donald P. Eckler, David N.
Appeal Larson, and Scott L. Howie, all of Pretzel & Stouffer, Chtrd., of Chicago,
for appellant.
Edward M. Kay, Amy R. Paulus, Kathleen A. Johnson, and Donald R.
Sampen, all of Clausen Miller P.C., of Chicago, for appellees.
Panel JUSTICE SCHOSTOK delivered the judgment of the court, with opinion.
Justices McLaren and Zenoff concurred in the judgment and opinion.
OPINION
¶1 Defendants Merle Yocum and Merle Yocum Trucking (collectively Yocum) had an
automobile insurance policy with the plaintiff, Auto-Owners Insurance Company. On
September 22, 2005, defendant Gary Dowding, while driving a truck owned by Yocum and
hauling a trailer owned by defendant Harmon Grain, LLC (Harmon), was in an automobile
accident with a car driven by Joseph Kerwin III. Kerwin died. Kerwin’s representative filed
a wrongful death suit against Yocum, Dowding, and Harmon. Yocum, Dowding, and
Harmon tendered their defense to Auto-Owners. Defendant Michigan Millers Mutual
Insurance Company (Millers) insured Harmon and asserted a claim against Auto-Owners for
equitable contribution. Auto-Owners filed a declaratory judgment action seeking a
declaration that it had no duty to defend or indemnify in the underlying suit because Yocum’s
policy had been effectively cancelled prior to the date of the accident. Both parties filed
cross-motions for summary judgment. On November 17, 2011, following a hearing, the trial
court denied Auto-Owners’ motion and granted summary judgment in favor of the
defendants. The trial court also denied the defendants’ claim for sanctions under section 155
of the Illinois Insurance Code (Insurance Code) (215 ILCS 5/155 (West 2008)). Auto-
Owners appeals, and the defendants cross-appeal, from the trial court’s order. We affirm.
¶2 I. BACKGROUND
¶3 Yocum purchased an automobile insurance policy from Auto-Owners, effective from
June 23, 2004, through June 23, 2005. Two vehicles were covered under the policy. When
the policy was issued, Yocum was required to pay approximately two months’ premium up
front. Thereafter, Yocum was required to make additional premium payments on a monthly
basis. At the end of 2004, Yocum had failed to make a timely monthly premium payment on
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two occasions. Both times, Auto-Owners sent a notice of cancellation, requiring payment by
a certain date and warning that the policy would be cancelled if payment was not received.
Both times, Yocum made the required payment before the cancellation date.
¶4 On April 14, 2005, Auto-Owners issued an endorsement effective March 22, 2005,
adding a third vehicle to the policy. This increased the policy premium. On May 16, 2005,
the policy was renewed for the period of June 23, 2005 through June 23, 2006. When Yocum
did not make the premium payment due May 3, 2005, Auto-Owners sent a notice of
cancellation on June 3, 2005, requesting $876.72, which was $342.22 for the remaining
premium on the 2004-05 policy, plus late fees ($20), plus two months’ premium for the
2005-06 policy ($257.25 per month for a total of $514.50). Yocum paid the requested
amount on June 23, 2005, and ultimately received a reinstatement notice informing him to
disregard the prior cancellation notice.
¶5 On June 29, 2005, two of the vehicles on Yocum’s policy were damaged in a traffic
accident, and they were no longer being used. As a result, Yocum requested that those two
vehicles be removed from the policy. Ultimately, Auto-Owners issued an endorsement on
August 30, 2005, effective as of June 30, 2005, reflecting the reduced number of vehicles on
the policy and the reduced policy premium. The original monthly premium was $257.25, and
the reduced monthly premium was $104. The auto policy provided that “[p]remium
adjustments will be made at the time of such changes or when we [Auto-Owners] become
aware of the changes, if later.” There is no documentary evidence of Yocum’s request to
remove the two vehicles, other than the endorsement.
¶6 Yocum failed to make the monthly premium payment in July 2005 and Auto-Owners
mailed him a notice of cancellation dated August 3, 2005. The notice required Yocum to pay
$539.50 (two premium payments of $257.25 plus additional fees of $25) by August 25, 2005,
and stated that the policy would be cancelled on that date if payment were not received. The
notice also stated that “if you wish, you may pay any amount greater than the Minimum Due
up to your Account Balance.” Yocum did not make any payments or request any extensions
to do so. On August 31, 2005, Auto-Owners sent Yocum a notice of cancellation, stating that
the policy was cancelled effective August 25, 2005. On September 7, 2005, Auto-Owners
issued a check to Yocum in the amount of $238.66, a refund for unearned premium. The
check was sent to Yocum’s insurance agent, who received it on September 12, 2005.
¶7 On September 22, 2005, Dowding, an employee of Yocum, was in an automobile
accident while driving a truck that was owned by Yocum and had been covered by the 2005-
06 Auto-Owners policy at issue. The accident resulted in Kerwin’s death. At the time of the
accident, Dowding was pulling a trailer, owned by Harmon and insured by Millers. Yocum
and Dowding were additional insureds under the Millers policy, but on an excess basis. On
February 28, 2007, Kerwin’s representative filed a wrongful death suit against Yocum,
Dowding, and Harmon. Yocum, Dowding, and Harmon tendered their defense to Auto-
Owners. Additionally, Millers asserted a claim against Auto-Owners for equitable
contribution. Auto-Owners denied coverage to the defendants on the ground that the policy
had been cancelled. Millers defended the underlying case and eventually settled the suit in
July 2009 for $2 million.
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¶8 In an affidavit, Yocum attested as follows. He never received a cancellation notice from
Auto-Owners dated August 3 or August 31, 2005. The first time he knew that his policy was
cancelled was after the September 22, 2005, accident. Since he had paid the $876.72 on June
23, 2005, he believed that his insurance was in effect at the time of the accident. On June 29,
2005, he was involved in a collision and two of his vehicles were badly damaged. As a result
of the accident, he called his insurance agent to request that the two vehicles be dropped from
his policy because they were no longer being used. He understood that this lowered his total
annual premium from $3,300 to $1,248. He believed that the amount paid in June 2005 was
sufficient to provide coverage, because he had dropped the two vehicles from the policy. He
did not receive a premium refund check until after the September 2005 accident. He
informed his insurance agent of the accident, but Auto-Owners denied any coverage. Yocum
therefore requested that Millers handle his defense.
¶9 On July 10, 2007, Auto-Owners filed a declaratory judgment action in Cook County. On
November 20, 2008, the defendants’ motion to transfer venue was granted. Auto-Owners
refiled its complaint in Ogle County. On April 24, 2009, Auto-Owners filed an amended
complaint. In its amended complaint, Auto-Owners noted that Yocum, Dowding, and
Harmon had been named in a wrongful death suit filed by Kerwin’s representative and had
tendered their defense to Auto-Owners. Auto-Owners further noted that Millers had asserted
a claim against Auto-Owners for equitable contribution based on its alleged coverage of
mutual insureds involved in the Kerwin suit. Additionally, Harmon and Millers had filed a
small claims suit against Yocum and Auto-Owners to recover for damage to the load of
beans in the Harmon trailer at the time of the accident. The defendants had each sought
coverage from Auto-Owners for defense and indemnification in these suits. Auto-Owners
denied coverage to each on the basis that prior to the September 22, 2005, accident the policy
had been cancelled for nonpayment of premium, effective August 25, 2005. Auto-Owners
sought a declaration that the policy was properly cancelled and that it owed no duty to defend
or indemnify in the underlying suits.
¶ 10 On May 6, 2009, the defendants filed an answer, which included multiple affirmative
defenses. The affirmative defenses were based on arguments that there had been no
nonpayment of premium because there was a credit on Yocum’s account, which should have
been used to satisfy the premium payment due. On January 13, 2010, the defendants filed a
four-count counterclaim against Auto-Owners, alleging claims based on breach of contract,
waiver and estoppel, and equitable contribution. Additionally, the defendants alleged a claim
for sanctions, under section 155 of the Insurance Code (215 ILCS 5/155 (West 2008)), for
bad faith and vexatious and unreasonable delay. The defendants argued that there was no
reasonable basis for Auto-Owners to refuse to defend and provide indemnity coverage in the
Kerwin suit.
¶ 11 On June 16, 2010, Auto-Owners filed a motion for summary judgment pursuant to
section 2-1005 of the Code of Civil Procedure (Code) (735 ILCS 5/2-1005 (West 2008)).
Auto-Owners argued that its cancellation notice clearly informed Yocum that $539.50 was
due by August 25, 2005. It also stated that the “excess premium (if any) above the earned
premium [would] be refunded.” The cancellation notice was mailed to Yocum when the
payment was not received. Auto-Owners argued that it was entitled to cancel the policy and
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properly did so. Auto-Owners acknowledged the defendants’ argument that no premium was
due because the policy change in June, removing two vehicles, resulted in a reduced
premium. Auto-Owners argued that there was no evidence that it knew of the requested
change in June. Auto-Owners also argued that Yocum should have contacted it had he
believed that there was an issue with the requested amount. Auto-Owners further argued that
the only logical inference was that it did not know of the requested policy change until it was
implemented on August 30, 2005, after the policy was cancelled. It then credited Yocum the
premium retroactive to June 30, 2005.
¶ 12 On December 1, 2010, the defendants filed a cross-motion for summary judgment. The
defendants argued that Auto-Owners was aware, at the time the policy was cancelled, that
there was a credit on Yocum’s account due to the fact that Yocum had removed two vehicles
from his policy at the end of June. The defendants argued that, based on the prior course of
dealing, Yocum reasonably believed that the credit would be applied to satisfy his July
premium payment.
¶ 13 The defendants further argued that, because there was no nonpayment of premium, there
was no basis to cancel Yocum’s policy and, by doing so, Auto-Owners breached its duty of
good faith and fair dealing. The defendants also argued that Auto-Owners waived its right
to claim that there was no coverage, because Yocum had requested the change to his policy
in June 2005 and no refund was issued prior to the accident. Accordingly, the defendants
contended that it was reasonable for Yocum to believe that there was a credit on his account
and that he still had coverage. Finally, the defendants argued that Auto-Owners’ failure to
provide a defense to the Kerwin suit was vexatious and unreasonable. The defendants argued
that, once Yocum requested coverage, Auto-Owners should have realized its failure to apply
the premium credit to Yocum’s policy and provided the coverage for which Yocum had paid.
¶ 14 On July 12, 2011, a hearing was held on the parties’ motions for summary judgment. The
parties’ arguments were consistent with their written motions. At the close of the hearing,
the trial court took the matter under advisement. On November 17, 2011, the trial court
issued a written order. The trial court denied Auto-Owners’ motion for summary judgment
and granted the defendants’ cross-motion for summary judgment. The trial court noted that
the policy stated that “[p]remium adjustments will be made at the time of such changes or
when we become aware of the changes, if later.” The trial court also noted that the changes
to Yocum’s auto policy, although not completed until August 30, 2005, were made effective
June 30, 2005, and that “[t]here was no explanation for the delay in processing the change
request.” The trial court found that, if the adjustment to the policy had been made promptly,
Auto-Owners would have realized that there was a premium credit on Yocum’s account at
the time the July 23, 2005, premium was due. Relying on Leach v. Federal Life Insurance
Co., 296 Ill. App. 88 (1938), the trial court found that Auto-Owners was obligated to apply
the premium credit on Yocum’s account to the premium amount due and that, therefore, the
defendants were entitled to judgment as a matter of law. Finally, the trial court found that the
defendants were not entitled to section 155 sanctions, because Auto-Owners had not acted
in bad faith and there was a bona fide dispute as to whether the policy was properly
cancelled. Thereafter, Auto-Owners filed a notice of appeal docketed in this court as case
number 2-11-1267.
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¶ 15 On December 9, 2011, the defendants filed a motion, pursuant to section 2-1203(a) of
the Code (735 ILCS 5/2-1203(a) (West 2008)), to modify the judgment to include an award
of damages. On December 14, 2011, the trial court granted the motion and entered judgment
in favor of the defendants in the amount of $926,979.97, plus a per diem interest of $113.29
through the judgment date. Thereafter, the defendants filed a notice of cross-appeal, and
Auto-Owners filed a second notice of appeal, which was docketed in this court as case
number 2-12-0092. On February 17, 2012, this court granted Auto-Owners’ motion to
consolidate these cases on appeal.
¶ 16 II. ANALYSIS
¶ 17 On appeal, Auto-Owners argues that the trial court erred in denying its motion for
summary judgment and in granting summary judgment in favor of the defendants. Summary
judgment is appropriate where the pleadings, affidavits, depositions, and admissions on file,
when viewed in the light most favorable to the nonmoving party, show that there is no
genuine issue of material fact and that the moving party is entitled to a judgment as a matter
of law. 735 ILCS 5/2-1005(c) (West 2008). By filing cross-motions for summary judgment,
parties agree that only a question of law is involved and invite the court to decide the issues
based on the record. Martin v. Keeley & Sons, Inc., 2012 IL 113270, ¶ 25. We review de
novo a trial court’s decision on a motion for summary judgment. Outboard Marine Corp. v.
Liberty Mutual Insurance Co., 154 Ill. 2d 90, 102 (1992).
¶ 18 Auto-Owners argues that it is entitled to summary judgment because it followed the
proper procedures, under both the policy and the Insurance Code, for cancelling the policy
for nonpayment of the premium. Auto-Owners further argues that it had no obligation to use
the premium refund due to Yocum to satisfy his July premium payment. In arguing the latter,
Auto-Owners relies on Hernandez v. State Farm Insurance Co., 170 Ill. App. 3d 1090(1988).
¶ 19 In Hernandez, the plaintiff (insured) had obtained from the defendant (insurer) two
insurance polices providing uninsured motorist coverage. Id. at 1092. At the commencement
of the policy, the insured paid premiums for the first month of coverage and for an additional
month (the reserve). Id. He paid additional premiums once a month. Id. The insured missed
a monthly premium payment due March 3. Id. The insurer sent a notice stating that premiums
for two months were due April 3. Id. The insured paid one month’s worth of premium on
March 25. Id. The insurer then sent a notice stating that an additional monthly premium was
due April 15. Id. at 1093. The insured never made this payment. Id. On April 21, the insurer
sent a notice stating that, due to nonpayment of the premium, the policy would be cancelled
as of May 4. Id. On May 15, the insured gave his insurance agent a check in the amount of
two monthly premiums. The insurer returned the check uncashed, stating that the policy had
been canceled as of May 4. Id. The insured subsequently filed a declaratory judgment action,
arguing that the policy was in effect on May 12, when his son was injured in a collision with
an uninsured motorist. Id. at 1091. The trial court granted summary judgment in favor of the
insured. Id. at 1092. The insurer appealed. Id.
¶ 20 On appeal, the reviewing court reversed and granted summary judgment in favor of the
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insurer. The reviewing court held:
“We conclude that the existence of the reserve did not negate the obligation of [the
insured] to pay the April premium. Although the April coverage was ultimately paid for
by application of the reserve, [the insured] did not pay the premium prior to the
cancellation date. Thus, the 10-day notices of cancellation were properly sent for
nonpayment of the April premium. The reserve ensured coverage only to May 3, 1980.
Consequently, the May 15, 1980, payment of two premiums was made 11 days after the
policies had been cancelled and was, therefore, untimely.” Id. at 1094-95.
Auto-Owners argues that this determination supports the proposition that it was not obligated
to apply Yocum’s premium refund to the premium amount due.
¶ 21 Auto-Owners’ reliance on Hernandez is misplaced. The holding in Hernandez stands for
the proposition that it is proper for an insurer to send a cancellation notice before a reserve
is fully used. In other words, the insurer in Hernandez did not have to wait until the reserve
was used up, then send a 10-day notice of cancellation, and essentially provide free insurance
for those 10 days. The holding in Hernandez in no way supports the proposition that the
reserve need not be applied to the premium due. In fact, the opposite occurred in Hernandez.
The reserve ensured coverage until May 3, and that was the date when the insurer cancelled
the coverage for nonpayment of the premium.
¶ 22 In determining whether Auto-Owners had an obligation to apply the premium refund
owed to Yocum to his July premium, we find persuasive Leach, 296 Ill. App. 88, the case
on which the trial court relied. In Leach, an insured filed a complaint in equity to require his
insurer to maintain a disability insurance policy previously issued to the insured. Id. at 89.
The insurer had claimed that the policy lapsed due to nonpayment of a premium that was due
April 30, 1936. Id. The insured argued that, at the time the payment was due, a disability
benefits claim was pending and those benefits should have been applied to pay the April
premium. Id. Following a hearing, the trial court ruled in favor of the insured. Id. The insurer
appealed. The reviewing court affirmed the trial court’s determination. Id. at 95.
¶ 23 The insurance policy at issue in Leach provided benefits for accidental loss of life, limb,
or sight, and loss of time through sickness or accident. Id. at 90. The policy was issued to the
insured on April 30, 1930. Id. An annual premium of $110.50 was due April 30 of each year.
Id. The policy provided a 31-day grace period for payment in the case of default. Id. Under
the terms of the policy, the insured was to receive $150 per month for loss of time, which
was to be paid after the insured gave notice of loss to the insurer, furnished affirmative proof
of loss, and permitted examination of the insured by the insurer’s physician. Id. The policy
further provided that any disability payments would be “ ‘paid at the expiration of each thirty
days during the continuance of the period’ ” for which the insurer was liable. Id.
¶ 24 In Leach, the insured was hospitalized on December 18, 1935. Id. at 91. On January 25,
1936, the insured provided to the insurer preliminary proof of loss, which included
certificates from his physician and his employer as to his illness. Id. at 92. On March 2, 1936,
the insured provided proof of termination of his disability, advising that the disability ended
as of February 12, 1936. Id. At no time after he filed his claim was the insured ever advised
that his proof of loss was insufficient. Id. at 93. The insurer’s physician examined the insured
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on March 10, 1936, and in early April the insurer received permission from the insured to
inspect other medical records. Id. On June 4, 1936, the insurer approved the insured’s claim
and issued a check to him for $310. Id. This was four days after the grace period ended for
payment of the April 30 premium. Id.
¶ 25 In affirming the trial court, the reviewing court noted as follows:
“ ‘[I]f money is absolutely due by [an insurer] to [an insured] policyholder when a
premium falls due, the [insurer] should apply the same towards the premium and thereby,
if possible, avoid forfeiture of the policy. This includes any excess of premiums paid,
dividends, profits, benefit payments and the like, but the offsetting of such credits will
only be required where the company actually has in its hands at the time funds which are
absolutely due and payable.’ ” Id. at 94 (quoting Long v. Monarch Accident Insurance
Co. of Springfield, Massachusetts, 30 F.2d 929, 930 (4th Cir. 1929)).
The reviewing court held that, under the policy at issue, the insurer was to pay the insured
within 30 days of proof of loss, that final proof of loss was submitted on March 2, and that
the insurer became liable to the insured to the extent of $310 by April 2. The reviewing court
noted that there was no evidence to justify the insured’s failure to make the disability
payment when due. The reviewing court concluded that the “[insurer] having wrongfully
withheld the disability payments was obligated to pay the [April 30] premium out of [the
insured’s] money in its hands.” Id. at 95.
¶ 26 In the present case, the auto policy provided that “[p]remium adjustments will be made
at the time of such changes or when we [Auto-Owners] become aware of the changes, if
later.” Auto-Owners sent an endorsement on August 30, 2005, making the removal of two
vehicles from Yocum’s policy effective as of June 30, 2005. Based on the foregoing policy
language, this could be construed as an acknowledgment that it was aware of the change on
June 30. In its appellant brief, Auto-Owners concedes that Yocum had requested the change
to his policy on June 30. At the very latest, however, Auto-Owners was aware of the change
by August 30, when it sent the endorsement letter. This was one day before it sent the
cancellation notice on August 31. The removal of the two vehicles reduced the monthly
premium from $257.25 to $104. Yocum had paid $514.50 toward the premium on his policy
on June 23, 2005. Accordingly, the record clearly demonstrates that, at the time the July
premium was due, there was excess premium on Yocum’s account. Auto-Owners therefore
never had any basis to cancel the policy based on nonpayment of the premium. Auto-Owners
had sufficient funds in its hands at the time the July premium was due and should have
applied those funds toward the payment of that premium. Id. at 94-95.
¶ 27 Auto-Owners argues that Leach is a dated decision and insufficient support for the trial
court’s determination. It further argues that Leach does not cite any of the sections of the
Insurance Code that govern cancellation of a policy for nonpayment of a premium, let alone
reconcile them with the requirement that excess funds in an insurer’s hands must be used to
pay an insured’s premium. These arguments are unavailing. First, despite the fact that Leach
is a dated decision, it is still binding authority on all circuit courts and persuasive authority
in this court. Peerless Enterprises, Inc. v. Kruse, 317 Ill. App. 3d 133, 143 (2000). Further,
although Leach does not cite the Insurance Code, Auto-Owners has failed to provide any
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authority to support its insinuation that Leach is somehow at odds with that Code.
Accordingly, this argument is forfeited. Elder v. Bryant, 324 Ill. App. 3d 526, 533 (2001)
(arguments without supporting authority are forfeited).
¶ 28 On cross-appeal, the defendants argue that the trial court erred in denying their request
for sanctions pursuant to section 155 of the Insurance Code (215 ILCS 5/155 (West 2008)).
Section 155 provides:
“(1) 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, other costs, plus an amount not
to exceed any one of the following amounts:
(a) 60% of the amount which the court or jury finds such party is entitled to recover
against the company, exclusive of all costs;
(b) $60,000[.]” Id.Accordingly, section 155 allows for an award of attorney fees and costs for an insurer’s
“unreasonable and vexatious” refusal to comply with its policy obligations. Cramer v.
Insurance Exchange Agency, 174 Ill. 2d 513, 523-24 (1996).
¶ 29 “An insurer will not be liable for attorney fees and costs under section 155 of the
[Insurance] Code merely because it litigated and lost the issue of insurance coverage.”
American States Insurance Co. v. CFM Construction Co., 398 Ill. App. 3d 994, 1003 (2010).
“[W]here a bona fide dispute concerning coverage exists, costs and sanctions [under section
155] are inappropriate.” State Farm Mutual Automobile Insurance Co. v. Smith, 197 Ill. 2d
369, 380 (2001). In determining whether an insurer’s conduct is vexatious and unreasonable,
a trial court must consider the totality of the circumstances, including the insurer’s attitude,
whether the insured was forced to sue to recover, and whether the insured was deprived of
the use of his property. Statewide Insurance Co. v. Houston General Insurance Co., 397 Ill.
App. 3d 410, 426 (2009). The parties agree that the trial court’s denial of section 155
sanctions should be reviewed for an abuse of discretion. We therefore address the issue based
on the agreed-upon standard of review. Cable America, Inc. v. Pace Electronics, Inc., 396
Ill. App. 3d 15, 19 (2009).
¶ 30 In arguing that the trial court erred in denying their request for section 155 sanctions, the
defendants rely on Peerless. In Peerless, an insured obtained automobile insurance coverage
on July 2, 1993, and was involved in an accident on July 13, 1993. Peerless, 317 Ill. App.
3d at 136, 138. The reviewing court affirmed the trial court’s finding that the insurer acted
vexatiously and unreasonably when it denied insurance coverage for the insured. Id. at 144.
In so ruling, the reviewing court noted the general policy that, when there is a dispute over
potential insurance coverage, an insurer must either defend the suit under a reservation of
rights or seek a declaration of no coverage. Id. at 145. The insurer in Peerless had done
neither of those, but had merely refused to defend the insured. Id. The reviewing court also
noted that there was no evidence to support the insurer’s claim that the insured had cancelled
the policy, effective the date of its inception on July 2, 1993. Rather, the evidence indicated
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that the cancellation was to be effective on July 22, 1993, the date it was requested, which
was nine days after the accident occurred. Id.
¶ 31 The present case is distinguishable from Peerless. Here, Auto-Owners did not simply
refuse to provide coverage; it filed a declaratory judgment action seeking a declaration of no
coverage. Additionally, unlike the insurer in Peerless, Auto-Owners sent a notice of
cancellation and intended the cancellation to take effect prior to the accident at issue.
Moreover, although a notice of cancellation was sent to Yocum on August 3, Auto-Owners
was never contacted as to any errors in the premium due. The trial court found that Auto-
Owners had not acted in bad faith and that there was a bona fide dispute as to whether the
policy was properly cancelled. Based on the record before us, we cannot say that the trial
court abused its discretion in making that determination.
¶ 32 III. CONCLUSION
¶ 33 For the foregoing reasons, we affirm the judgment of the circuit court of Ogle County.
¶ 34 Affirmed.
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