Lagunas v. American Heartland Insurance Co. , 2023 IL App (1st) 220627-U ( 2023 )

2023 IL App (1st) 220627-UTHIRD DIVISION
AUGUST 30, 2023
No. 1-22-0627
NOTICE: This order was filed under Supreme Court Rule 23 and is not precedent except in the
limited circumstances allowed under Rule 23(e)(1).
______________________________________________________________________________
IN THE
APPELLATE COURT OF ILLINOIS
FIRST JUDICIAL DISTRICT
______________________________________________________________________________
)
FERNANDO LAGUNAS, ) Appeal from the
) Circuit Court of
Plaintiff-Appellant, ) Cook County.
)
v. ) No. 19 CH 05881
)
AMERICAN HEARTLAND INSURANCE COMPANY, ) Honorable
) Alison C. Conlon,
Defendant-Appellee. ) Judge Presiding.
)
______________________________________________________________________________
JUSTICE REYES delivered the judgment of the court.
Presiding Justice McBride and Justice R. Van Tine concurred in the judgment.
ORDER
¶1 Held: Affirming the denial of the insured’s motion for summary judgment and grant of
the insurer’s motion for summary judgment where (1) the insured settled with a
driver who may have been liable for the insured’s injuries in violation of
automobile policy’s exclusion barring such settlement without the insurer’s
consent, and (2) the insured’s settlement substantially prejudiced the insurer’s
right to recover against the other driver.
¶2 Plaintiff Fernando Lagunas was injured in a motor vehicle accident involving two other
drivers, Keona Baker (Baker) and Patrick Stephens (Stephens), one of whom (Stephens) was
uninsured. Plaintiff filed an uninsured motorist claim with his insurance company, defendant
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American Heartland Insurance Company, followed by a demand for arbitration with the
American Arbitration Association (AAA) which he ultimately did not pursue. Plaintiff, at
defendant’s direction, also filed suit against the other two drivers. In the course of that litigation,
plaintiff settled his claim with Baker and executed a release releasing her and her insurer from
any liability for his injuries. Upon learning of the settlement, defendant denied plaintiff’s
uninsured motorist claim, based on an exclusion in plaintiff’s insurance policy which barred
coverage if plaintiff settled with anyone “who may be legally liable” to plaintiff without
defendant’s written consent.
¶3 Plaintiff filed a complaint for declaratory judgment, asking the circuit court to declare
that Baker was not legally liable to plaintiff and, therefore, he was entitled to uninsured motorist
coverage. Defendant filed a counterclaim for declaratory judgment, asking the circuit court to
declare that plaintiff’s claim was properly excluded and that defendant was not required to pay
plaintiff under the policy. On the parties’ cross-motions for summary judgment, the circuit court
granted defendant’s motion and denied plaintiff’s motion, finding that the exclusion barred
plaintiff’s claim. In addition, the circuit court found that plaintiff was barred from recovery since
he did not proceed with AAA arbitration. Plaintiff appealed and, for the following reasons, we
affirm.
¶4 BACKGROUND
¶5 The Insurance Policy and the Incident at Issue
¶6 In October 2013, defendant issued plaintiff an automobile insurance policy consisting of
bodily injury coverage of $20,000 per person/$40,000 per accident and property damage
coverage of $15,000 per accident. The policy also included uninsured motorist coverage of
$20,000 per person/$40,000 per accident. As relevant to the instant case, the policy contained an
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exclusion stating that uninsured motorist coverage did not apply if the insured settled with any
person “who may be legally liable” for the injury without defendant’s written consent. The
policy further provided that any payment under the uninsured motorist portion of the policy
would be reduced by any sums paid on account of the injury by the owner of the uninsured
vehicle or by any other person jointly or severally liable for the injury. In addition, the policy
stated that if defendant paid the insured pursuant to an uninsured motorist claim, defendant
would be subrogated to the insured’s rights of recovery against any person or organization
legally responsible for the injury and would be entitled to the proceeds of any settlement or
judgment, to the extent of its payment. The policy expressly provided that the insured “shall do
nothing after loss to prejudice such rights.” The policy also included an arbitration provision
which required that any dispute as to the applicability or extent of uninsured motorist coverage
be submitted to the AAA for binding arbitration.
¶7 On March 3, 2014, plaintiff was injured during an accident involving two other vehicles,
driven by Stephens and Baker. According to plaintiff’s complaint, Stephens drove his vehicle
southbound through a red light at the intersection of Lake Street and Cicero Avenue, striking the
rear end of Baker’s vehicle, which was completing a left turn from Cicero Avenue onto
westbound Lake Street. After striking Baker’s vehicle, Stephens continued through the
intersection and struck plaintiff’s vehicle,1 which was stopped at the intersection, waiting for
traffic to clear in order to travel eastbound on Lake Street. Plaintiff suffered injuries from the
1
We note that, in his motion for summary judgment and in his arbitration demand, plaintiff
contended that Baker’s vehicle was forced to strike plaintiff’s vehicle after Stephens’ vehicle collided
with hers. We further note that plaintiff’s complaint was not verified, and plaintiff’s motion for summary
judgment was not supported by any affidavit or deposition testimony which attested to the facts of the
accident, despite plaintiff’s reference to “deposition testimony and affidavits” in his appellate brief. In its
answer, defendant admitted the allegations of plaintiff’s complaint as to the facts of the accident “upon
information and belief.”
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collision.
¶8 Stephens was not covered by automobile insurance, while Baker had an insurance policy
with AMCO Insurance Company (AMCO). 2
¶9 Plaintiff sought coverage from defendant pursuant to the uninsured motorist portion of
his policy. In June 2014, defendant mailed plaintiff a letter notifying him that it was denying
coverage for his claim and would be handling the matter under a reservation of rights, as plaintiff
failed to properly report the loss and failed to cooperate with the investigation. Slightly over one
week later, defendant mailed plaintiff another letter, notifying him that it could not accept
plaintiff’s uninsured motorist claim “at this time.” The letter explained that Baker had provided
insurance information in the accident report, so “[y]ou must file suit against all parties involved
in this loss and if [Baker] is found negligent and has a valid policy,” then the loss would not
constitute an uninsured motorist claim. If both parties were found to have no valid insurance
policies in effect, then plaintiff would be required to certify their status with the Illinois
Department of Transportation before defendant would take any further action with respect to an
uninsured motorist claim. Defendant also requested documentation as to the extent of plaintiff’s
injuries and medical bills.
¶ 10 On March 13, 2015, plaintiff made a demand for arbitration of his uninsured motorist
claim with the AAA. 3 Approximately one week later, defendant mailed plaintiff a letter notifying
him that defendant could not accept plaintiff’s uninsured motorist claim “at this time,” as
Stephens had not been certified as uninsured and plaintiff had failed to file suit against Baker.
2
AMCO is an affiliate of Nationwide Insurance Company. Accordingly, the record contains
references to “Nationwide” as well as to AMCO.
3
While plaintiff paid his portion of the administrative fee at the time he filed the arbitration
demand, there is no indication that defendant paid its portion, nor did plaintiff pay defendant’s portion.
Consequently, the AAA file was closed in October 2015 and all files were purged in April 2017.
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The letter noted that plaintiff claimed that Baker’s insurer had denied any liability, but “[AMCO]
has not denied coverage and suit must be filed against [Baker].” The letter also indicated that
plaintiff had failed to return required paperwork, and again stated that plaintiff had breached the
policy’s conditions regarding notice and cooperation.
¶ 11 In September 2015, plaintiff filed a personal injury suit against Baker and Stephens,
requesting $30,000 in damages; defendant was not a party to this suit. 4 Baker filed an appearance
in June 2016,5 and the parties engaged in discovery, which included a July 2016 letter from
plaintiff’s counsel to Baker’s counsel listing special damages that plaintiff incurred from the
accident. The letter also stated that plaintiff’s counsel “expect[ed] to have a settlement demand
for [Baker’s counsel] shortly.” The case was transferred to the First Municipal District for
mandatory arbitration, which occurred in April 2017. Stephens was not present at the arbitration,
but the panel of arbitrators issued an award finding for plaintiff and against Stephens in the
amount of $15,000 plus $474 in court costs; with respect to Baker, the panel of arbitrators found
for Baker and against plaintiff. In May 2017, plaintiff rejected the award.
¶ 12 In September 2017, plaintiff voluntarily dismissed his suit against Baker and Stephens
without prejudice and with the right to refile within one year pursuant to section 2-1009 of the
Code of Civil Procedure (Code) (735 ILCS 5/2-1009 (West 2016)).
¶ 13 In March 2018, plaintiff, Baker, and AMCO executed a release stating that plaintiff, in
exchange for $5000, would release Baker and AMCO from all claims arising from the accident.
4
The record does not contain a copy of plaintiff’s complaint against Baker and Stephens. Instead,
the record contains a portion of the electronic case summary for plaintiff’s case against Baker and
Stephens from the circuit court clerk’s office, which indicates that in September 2015, plaintiff filed a
“personal injury (motor vehicle) complaint” against Baker and Stephens and requested $30,000 in
damages.
5
According to the electronic case summary available on the circuit court clerk’s website, it does
not appear that Stephens ever filed an appearance in the action.
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The release also stated that the parties “understood and agreed that this settlement [was] the
compromise of a doubtful and disputed claim” and that the “parties hereby released deny any and
all liability with respect to the *** accident and intend merely to avoid litigation and buy their
peace.”
¶ 14 On August 22, 2018, plaintiff’s counsel mailed defendant a letter demanding $20,000
under plaintiff’s uninsured motorist coverage, and on August 28, 2018, defendant mailed a letter
to plaintiff’s counsel stating that his claim was denied. Defendant’s letter informed plaintiff’s
counsel that it learned of the settlement with Baker and AMCO and cited the exclusion stating
that uninsured motorist coverage did not apply if an insured settled a claim with someone who
may be legally liable without defendant’s written consent.
¶ 15 The Instant Litigation
¶ 16 In May 2019, plaintiff filed a complaint for declaratory judgment against defendant,
asking the circuit court to declare that (1) Baker was not a “person who may be legally liable” for
plaintiff’s injuries and, therefore, (2) plaintiff was entitled to recover under his uninsured
motorist coverage. In his complaint, plaintiff alleged that the settlement he received from Baker
was a “nuisance value settlement” from AMCO, which “denie[d] any legal liability for Plaintiff’s
injuries.” Plaintiff further alleged that the arbitration panel found that Baker was not a legally
liable party and that Stephens was the sole legally liable party.
¶ 17 Defendant filed a counterclaim for declaratory judgment, which it later amended, asking
the circuit court to find that plaintiff’s claim was properly excluded and defendant owed no
coverage under the policy, as plaintiff settled his claims with Baker and her insurer without
defendant’s consent.
¶ 18 The parties proceeded to discovery, in which plaintiff admitted (1) that he filed suit
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against Stephens and Baker; (2) that Baker was insured with AMCO at the time of plaintiff’s
accident; (3) that plaintiff settled his claims with Baker and AMCO for $5000; (4) that plaintiff
executed a release in connection with the settlement; (5) that plaintiff did not seek defendant’s
written consent prior to executing the release or settling his claims with Baker and AMCO; and
(6) that plaintiff alleged in his complaint against Stephens and Baker that Baker “was a person
who may be legally or was legally liable for [plaintiff’s] injuries.”
¶ 19 After discovery, the parties filed cross-motions for summary judgment. In its motion,
defendant argued that plaintiff was prohibited from settling with any potential tortfeasors, such
as Baker, and plaintiff’s claim was therefore excluded under the express terms of the policy.
Defendant further argued that plaintiff allowed his arbitration action with the AAA to “die” when
he allowed arbitration proceedings to close, and thus, defendant had no duty to arbitrate
plaintiff’s claim. Defendant requested that the circuit court declare that plaintiff’s claim was
excluded, and that defendant had no duty to defend, indemnify, or arbitrate the claim.
¶ 20 In his summary judgment motion, plaintiff argued that the policy’s exclusion was
ambiguous and thus the circuit court should construe it liberally in favor of coverage. Plaintiff
further argued that the exclusion did not apply since Baker was not legally liable for plaintiff’s
injury, as (1) he sued Baker only because defendant sent plaintiff a letter directing him to sue
her, (2) the panel of arbitrators found that Baker was not legally liable for plaintiff’s injury, and
(3) Baker and AMCO denied liability in the release. Finally, plaintiff argued that his settlement
with Baker and AMCO did not substantially prejudice defendant, so its basis for denying
coverage was unfounded.
¶ 21 After a hearing on the cross-motions for summary judgment, the circuit court granted
defendant’s motion and denied plaintiff’s motion. First, the circuit court concluded that the
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policy’s exclusion was not ambiguous, finding that plaintiff failed to set forth two reasonable
competing interpretations of the exclusion.
¶ 22 Next, the circuit court concluded that there was no genuine issue of material fact as to
whether Baker may have been legally liable for the accident. The circuit court reasoned that
under Illinois Supreme Court Rule 137(a) (eff. Jan. 1, 2018), plaintiff and his counsel could not
have properly filed suit against Baker if there were no basis to establish her liability, since the
rule requires that attorneys certify that a pleading is well grounded in fact and warranted by
existing law. In addition, the court noted that plaintiff’s counsel sent Baker’s counsel a list of
special damages prior to making a settlement demand and found that “[i]t is beyond dispute that
one sends demands to those whom one believes may be liable to one’s client.” The circuit court
further noted that plaintiff accepted a $5000 settlement payment from Baker. While the court
acknowledged that the release contained exculpatory language, it observed that such language
was common in a release regardless of a party’s level of liability and did not create a genuine
issue of material fact. The circuit court also found unpersuasive plaintiff’s reliance on the
arbitration award, as “that finding is non-binding and has no evidentiary value” and was rejected
by plaintiff in any event.
¶ 23 In addition, the circuit court found that there was no genuine issue of material fact that
plaintiff’s settlement substantially prejudiced defendant as, after the settlement, defendant lost
the right to sue Baker to recover some or all of the money that plaintiff demanded from
defendant.
¶ 24 The circuit court also found the fact that plaintiff did not proceed with AAA arbitration
was a second and independent basis to conclude that coverage did not apply, as the policy
expressly required any dispute about uninsured motorist coverage to be arbitrated. Accordingly,
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the circuit court granted defendant’s motion for summary judgment, finding that defendant did
not have any obligations to plaintiff under the policy and entering judgment in defendant’s favor.
¶ 25 This appeal follows.
¶ 26 ANALYSIS
¶ 27 On appeal, plaintiff contends that the circuit court erred in denying his motion for
summary judgment and granting defendant’s motion for summary judgment where (1) Baker was
not a person “who may be liable” for plaintiff’s injuries and (2) defendant did not establish that it
was substantially prejudiced by plaintiff’s settlement with Baker. Plaintiff also claims that the
AAA arbitration could be reopened at any time, so the circuit court erred in finding summary
judgment appropriate on that alternate basis.
¶ 28 Prior to addressing the merits, however, we first address defendant’s request to strike the
portions of plaintiff’s opening brief that describe the accident. Defendant argues that these
descriptions contain no citation to the record and, in fact, are unsupported by the record, as
plaintiff did not attach an affidavit in support of his motion for summary judgment or verify his
complaint.
¶ 29 Illinois Supreme Court Rule 341(h)(6) (eff. Oct. 1, 2020) requires that a statement of
facts contain “appropriate reference to the pages of the record on appeal.” The first two pages of
the opening brief’s statement of facts, which includes a description of the accident, do not cite to
the record and thus violate Rule 341(h)(6). See id. The Illinois Supreme Court Rules have the
force of law (Grant v. Rancour, 2020 IL App (2d) 190802, ¶ 16), and we may strike a brief in
violation of the rules (Carter v. Carter, 2012 IL App (1st) 110855, ¶ 12). These violations,
however, do not hinder or preclude our review, and we therefore decline to strike plaintiff’s brief
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¶ 30 Standard of Review
¶ 31 We now address the merits of plaintiff’s appeal. Plaintiff appeals from the circuit court’s
order granting summary judgment. When considering an appeal from an order granting summary
judgment, we must determine whether “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
2020). The purpose of summary judgment is not to try an issue of fact but to determine whether
one exists. Monson v. City of Danville, 2018 IL 122486, ¶ 12. “Although summary judgment is
encouraged in order to aid the expeditious disposition of a lawsuit, it is a drastic means of
disposing of litigation.” Id. Thus, a court must construe the evidence in the record strictly against
the moving party and should grant summary judgment only if the moving party’s right to a
judgment is clear and free from doubt. Id. “On appeal from an order granting summary
judgment, a reviewing court must consider whether the existence of a genuine issue of material
fact should have precluded the dismissal or, absent such an issue of fact, whether summary
judgment is proper as a matter of law.” Id.¶ 32 The parties in the instant appeal filed cross-motions for summary judgment. “When
parties file cross-motions for summary judgment, they agree that only a question of law is
involved and invite the court to decide the issues based on the record.” Pielet v. Pielet, 2012 IL
112064, ¶ 28. The mere filing of such cross-motions, however, neither establishes that there is no
issue of material fact nor obligates a court to render summary judgment. Id.¶ 33 An order granting summary judgment is reviewed de novo. Id. ¶ 30. Additionally, we
review de novo issues involving contract construction. Valerio v. Moore Landscapes, LLC, 2021
IL 126139, ¶ 20. De novo review means that we perform the same analysis that a trial judge
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would perform. Merca v. Rhodes, 2011 IL App (1st) 102234, ¶ 40. On de novo review, we may
affirm the circuit court’s judgment on any basis in the record. R&J Construction Supply Co. v.
Adamusik, 2017 IL App (1st) 160778, ¶ 19.
¶ 34 Keona Baker’s Potential Liability
¶ 35 Plaintiff first argues that the circuit court erred when it found that there was no genuine
issue of material fact that Baker may have been legally liable to plaintiff for his injuries, as
Baker’s vehicle never collided with plaintiff’s vehicle, Baker and AMCO denied liability in the
release, and a panel of arbitrators found that Baker was not liable to plaintiff. 6 We do not find
this argument persuasive.
¶ 36 First, even assuming arguendo that Baker’s vehicle did not make contact with plaintiff’s
vehicle, 7 this fact does not preclude a finding of liability. Indeed, this is apparent by the fact that
plaintiff filed a personal injury complaint against Baker and Stephens, in which he admittedly
alleged that Baker “was a person who may be legally or was legally liable for [plaintiff’s]
injuries.” To the extent that plaintiff suggests that he only filed suit against Baker at the direction
of defendant, plaintiff and his counsel could not have properly filed suit against Baker in the
absence of any basis for liability, and that the signature of plaintiff’s counsel certified that the
pleading was “well grounded in fact and [was] warranted by existing law.” Ill. S. Ct. R. 137(a)
(eff. Jan. 1, 2018). Thus, by his own conduct, plaintiff has demonstrated that he considered
6
We note that, below, plaintiff also claimed that the insurance policy was ambiguous. Plaintiff,
however, does not raise this argument on appeal, including only a single passing reference to “the
ambiguity of the settlement agreement” in his brief. It is well settled that “[p]oints not argued are
forfeited” and, therefore, we have no need to further address any purported ambiguity. Ill. S. Ct. R.
341(h)(7) (eff. Oct. 1, 2020); PML Development LLC v. Village of Hawthorn Woods, 2023 IL 128770, ¶
48 n.2.
7
As noted, while plaintiff alleged in his complaint that Stephens’ vehicle struck his vehicle, and
defendant admitted this allegation “upon information and belief,” plaintiff claimed otherwise in his
motion for summary judgment, and there is no affidavit or other evidence as to the course of events.
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Baker to be a potentially liable party.
¶ 37 In addition, after filing suit against Baker, plaintiff continued acting as though Baker was
a potentially liable party, sending Baker’s counsel a letter listing plaintiff’s damages and stating
that plaintiff’s counsel “expect[ed] to have a settlement demand for [Baker’s counsel] shortly.”
As the circuit court observed, “[i]t is beyond dispute that one sends demands to those whom one
believes may be liable to one’s client.” Furthermore, not only did plaintiff make a demand upon
Baker, plaintiff accepted $5000 from Baker and AMCO in settlement of his claims against Baker
and released them from any further liability. As the circuit court noted, the fact that Baker denied
liability within the release is unsurprising, as “such language is commonly incorporated
regardless of the released party’s level of liability.” Thus, regardless of whether Baker ultimately
would have been found to have been a liable party, the facts clearly establish that Baker, at a
minimum, “may be liable” for plaintiff’s injuries as provided in the insurance policy. We
therefore conclude that the circuit court did not err when it found as a matter of law that Baker
may have been legally liable to plaintiff. 735 ILCS 5/2-1005(c) (West 2022); Monson, 2018 IL
122486, ¶ 12.
¶ 38 We reject plaintiff’s contention that the arbitration award demonstrates that Baker was
not liable to plaintiff and, therefore, the exclusion is inapplicable. First, plaintiff fails to explain
why defendant would have been bound by the arbitration panel’s finding. If plaintiff is asserting
that defendant was collaterally estopped from litigating Baker’s potential liability, then this
assertion fails. The doctrine of collateral estoppel prevents a party from relitigating an issue that
has been resolved in prior proceedings. Pepper Construction Co. v. Palmolive Tower
Condominiums, LLC, 2016 IL App (1st) 142754, ¶¶ 73, 76. Further, “arbitration awards have the
same *** collateral estoppel effect as court judgments.” Id. ¶ 73. The doctrine only applies,
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however, if the following elements are satisfied: (1) the issue decided in the prior proceeding is
identical with the one presented in this case, (2) there was a final judgment on the merits in the
prior proceeding, and (3) the party against whom estoppel is asserted was a party to the prior
proceeding. Camberos v. Palacios, 2021 IL App (2d) 210078, ¶ 20. Since defendant here was not
a party to the mandatory arbitration, collateral estoppel would not have applied, and defendant
would not have been bound by the panel’s finding. See id.¶ 39 Moreover, plaintiff fails to explain why the parties involved in the mandatory arbitration
would have been bound by the panel’s finding. In Illinois, arbitration is a mandatory yet non-
binding procedure. Ill. S. Ct. R. 86 (eff. Jan. 1, 1994); Norris v. National Union Fire Insurance
Co. of Pittsburgh, 368 Ill. App. 3d 576, 589 (2006). Since arbitration is non-binding, no party
that participates in good faith may be forced to accept an arbitration award. Stemple v. Pickerill,
377 Ill. App. 3d 788, 791 (2007). Rather, any party may accept the award or reject it and demand
a trial before the circuit court. Babcock v. Wallace, 2012 IL App (1st) 111090, ¶ 5 (citing Ill. S.
Ct. R. 93 (eff. Jan. 1, 1997)); Stemple, 377 Ill. App. 3d at 791. Here, plaintiff rejected the
arbitration award. Thus, plaintiff fails to explain why the parties involved, let alone defendant,
would have been bound by the panel’s finding. See Ill. S. Ct. R. 86 (eff. Jan. 1, 1994); Babcock,
2012 IL App (1st) 111090, ¶ 5 (citing Ill. S. Ct. R. 93 (eff. Jan. 1, 1997)); Norris, 368 Ill. App.
3d at 589. We therefore cannot find that the circuit court erred in finding that Baker was a party
who “may be liable” for plaintiff’s injury for purposes of the insurance policy.
¶ 40 Substantial Prejudice
¶ 41 Plaintiff further argues that, even if he did breach the policy when he settled with Baker
and AMCO, the circuit court erred when it found as a matter of law that plaintiff’s settlement
substantially prejudiced defendant’s rights of recovery, as (1) there was no right of recovery
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from Baker in any event and (2) defendant could still recover from Stephens. In Marsh v.
Prestige Insurance Group, 58 Ill. App. 3d 894, 897 (1978), this court found that, even if an
insured settles with a potential tortfeasor, the insurer cannot deny payment under an exclusion
prohibiting such settlements unless the settlement substantially prejudiced the insurer’s rights of
recovery. While defendant challenged this proposition below, suggesting that a showing of
prejudice is unnecessary, it does not appear to do so on appeal. Thus, in the case at bar, we
consider whether plaintiff’s settlement with Baker and AMCO substantially prejudiced
defendant’s rights. See id.¶ 42 The purpose of an exclusion prohibiting settlement with potential tortfeasors is to protect
the insurer’s subrogation rights. Id. “ ‘Subrogation simply means substitution of one person for
another; that is, one person is allowed to stand in the shoes of another and assert that person’s
rights against the defendant.’ ” Trogub v. Robinson, 366 Ill. App. 3d 838, 842 (2006) (quoting D.
Dobbs, Law of Remedies § 4.3(4), at 604 (2d ed. 1993)). “ ‘Thus, a subrogee merely succeeds to
the legal rights or claims of a subrogor.’ ” Id. (quoting 73 Am. Jur. 2d Subrogation § 1, at 542
(2001)). “[I]f an insured settles with a third party who is primarily responsible for the loss and
releases him from liability[,] such release destroys the insured’s right to subrogation and may be
interposed as a complete defense to the action on the policy.” Hoel v. Crum & Forster Insurance
Co., 51 Ill. App. 3d 624, 268 (1977) (citing Tuthill v. State Farm Insurance Co., 19 Ill. App. 3d
491, 498-99 (1974)).
¶ 43 In this case, we find that plaintiff’s settlement with Baker and AMCO substantially
prejudiced defendant’s rights. The policy provided that if defendant paid an insured pursuant to
an uninsured motorist claim, defendant would be subrogated to the insured’s rights of recovery
against any person or organization legally responsible for the injury and would be entitled to the
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proceeds of any settlement or judgment, to the extent of its payment. The policy also expressly
provided that the insured “shall do nothing after loss to prejudice such rights.”
¶ 44 Despite the clear provisions of the policy, plaintiff settled with Baker and AMCO for
$5000 and released them from all further liability for plaintiff’s injuries. As discussed above,
Baker was a potentially liable party for purposes of the insurance policy and, therefore,
plaintiff’s settlement with her prevented defendant from ever recovering from Baker or AMCO,
her insurer. Consequently, this settlement substantially prejudiced defendant’s potential right to
recovery. See Tuthill, 19 Ill. App. 3d at 501 (finding that “it surely cannot be argued” that the
insurer was not prejudiced by settlement, where the actions of the insured “completely foreclosed
any and all rights of subrogation and reimbursement” that the insurer may have had against the
other driver); but see Hoel, 51 Ill. App. 3d at 629 (while noting that the insurers would be
“substantially prejudiced if they could not be subrogated to a possible recovery from a third party
for payments which they were required to make to their insured under the terms of their policy,”
nevertheless finding a question of fact as to whether the other driver was a party responsible for
the accident).
¶ 45 We find unpersuasive plaintiff’s reliance on Marsh v. Prestige Insurance Group, 58 Ill.
App. 3d 894 (1978), in support of his argument concerning prejudice. In that case, the defendant
insurer had issued the plaintiff an automobile policy which contained an exclusion stating that
uninsured motorist coverage did not apply if the plaintiff settled with anyone who may have been
legally liable for the plaintiff’s injuries, as well as a provision barring the plaintiff from taking
any action “ ‘to prejudice such rights.’ ” Id. at 895. Thereafter, the plaintiff was involved in an
accident with two other drivers; one of the drivers was an unknown hit-and-run motorist, and the
other was known and insured. Id. The plaintiff settled with the insured motorist. Id. The plaintiff
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then sued to compel arbitration under the policy’s uninsured motorist provision, and the
defendant moved for summary judgment, arguing that the exclusion applied. Id. The circuit court
granted the motion. Id.¶ 46 On appeal, this court reversed, finding that although the plaintiff settled with someone
who may have been legally liable, there was a question of material fact as to whether the
settlement substantially prejudiced the defendant’s rights of recovery. Id. at 896. The Marsh
court observed that the record demonstrated that the settlement was entered into nearly four years
after the accident, and there was no indication as to whether the hit-and-run motorist could be
located or whether there were any actions for personal injuries which could be pursued “long
after the statute of limitations had apparently run.” Id.¶ 47 We find that Marsh is distinguishable from the case at bar. First, unlike the unknown hit-
and-run motorist in Marsh, the identities of both Baker and Stephens were known and plaintiff
commenced a personal injury lawsuit against them within the statute of limitations. 8 See id.Further, although plaintiff’s suit against Baker and Stephens was dismissed without prejudice in
September 2017, pursuant to section 2-1009 of the Code (735 ILCS 5/2-1009 (West 2016)),
plaintiff had the right to refile within one year. Prior to the settlement in March 2018, plaintiff
had approximately six months to refile his suit against Baker. Thus, unlike in Marsh, the record
here indicates that prior to plaintiff’s settlement, defendant still had a potential subrogation right
to recover against Baker. See Marsh, 58 Ill. App. 3d at 896.
¶ 48 Finally, we find unpersuasive plaintiff’s contention that defendant was not prejudiced due
to its ability to recover from Stephens. Under plaintiff’s policy, plaintiff was required not to
prejudice defendant’s rights of recovery against any person. Moreover, any recovery from Baker
8
As noted, it does not appear that Stephens ever filed an appearance in the action.
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would have reduced the amount which defendant was required to pay out under the uninsured
motorist provision of the insurance policy. Thus, plaintiff’s settlement substantially prejudiced
defendant’s rights of recovery even though defendant still could have recovered from Stephens.
¶ 49 Accordingly, we find that the circuit court did not err when it found that plaintiff’s
settlement substantially prejudiced defendant as a matter of law. See 735 ILCS 5/2-1005(c)
(West 2022); Monson, 2018 IL 122486, ¶ 12. The circuit court therefore properly entered
summary judgment in defendant’s favor.
¶ 50 In light of our conclusion, we need not consider any alternative contentions as to the
impact of the closure of the AAA proceedings. See Adamusik, 2017 IL App (1st) 160778, ¶ 19.
¶ 51 CONCLUSION
¶ 52 For the foregoing reasons, the judgment of the circuit court of Cook County is affirmed.
¶ 53 Affirmed.
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