Founders Insurance Company v. Munoz

Docket Nos. 108605, 108612 cons.
IN THE
SUPREME COURT
OF
THE STATE OF ILLINOIS
_____________________
FOUNDERS INSURANCE COMPANY, Appellant, v. ALBERT L.
MUNOZ et al., Appellees.–SAFEWAY INSURANCE COMPANY,
Appellant, v. FLAVIO FERNANDEZ et al., Appellees.
Opinion filed May 20, 2010.
CHIEF JUSTICE FITZGERALD delivered the judgment of the
court, with opinion.
Justices Freeman, Thomas, Kilbride, Garman, Karmeier, and
Burke concurred in the judgment and opinion.
OPINION
In these consolidated appeals, we consider the validity of an
automobile policy exclusion that precludes liability coverage when the
person using the vehicle does not have a “reasonable belief” that he or
she is “entitled” to do so. In each of the six underlying cases, the trial
court ruled that the coverage exclusion was applicable to a driver who
did not have a valid license. The appellate court, however, held that
the coverage exclusion is ambiguous, and reversed the trial court’s no-
coverage ruling in five of the six cases. 389 Ill. App. 3d 744, 757
(2009). The appellate court affirmed the trial court’s no-coverage
ruling in the sixth case, but on different grounds. 389 Ill. App. 3d at
756-57.
For the reasons set forth below, we hold that the policy exclusion
precludes liability coverage in each of the six cases, and affirm in part
and reverse in part the judgment of the appellate court.
BACKGROUND
The present litigation arises out of six automobile accidents. Five
of the accidents implicate coverage under uniform automobile policies
issued by Founders Insurance Company. The sixth accident implicates
coverage under an automobile policy issued by Safeway Insurance
Company. We examine first the Founders policy and the five
associated accidents.
Founders Cases
Part I of the Founders automobile policy details the liability
coverage, stating in relevant part that Founders agrees:
“To pay on behalf of the insured all sums which the insured
shall become legally obligated to pay as damages, because of:
A. bodily injury,
or
B. property damage
arising out of the operation, maintenance or use of the owned
automobile or any non-owned automobile and the Company
shall defend any suit alleging such bodily injury or property
damage and seeking damages which are payable under the
terms of this policy ***.”
“Persons insured,” for purposes of Part I liability coverage with
respect to an owned automobile, include “the named insured” and
“any other person using such automobile with the permission of the
named insured, provided the actual use thereof is within the scope of
such permission.”1
1
Insurance clauses, like this one, which extend coverage to permissive
users are typically referred to as “omnibus clauses.” Progressive Universal
Insurance Co. of Illinois v. Liberty Mutual Fire Insurance Co., 215 Ill. 2d
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The Founders policy also contains several exclusions to Part I
liability coverage. Relevant here is exclusion (p) under which Part I
coverage does not apply “to bodily injury or property damage arising
out of the use by any person of a vehicle without a reasonable belief
that the person is entitled to do so.”
Five of the underlying automobile accidents involved vehicles
insured through Founders and driven by either the named insured, or
a permissive user of the insured vehicle. At the time of the accidents,
none of the five drivers had a valid license, i.e., either the driver never
obtained a license or the license was suspended. Each of these five
accidents also involved a vehicle insured through Allstate Insurance
Company, which made payments to its insureds for bodily injury
and/or property damage resulting from the accidents. Thereafter,
Allstate, as subrogee of its insureds, filed a complaint against each of
the persons driving a vehicle insured through Founders seeking to
recoup the monies Allstate paid to its insureds.
In response to each of Allstate’s subrogation actions, Founders
filed a complaint for declaratory judgment in the Cook County circuit
court, naming as defendants Founders’ own insured, the driver of the
vehicle if the driver was not the named insured, and Allstate, as
subrogee of its insureds.2 In each complaint, Founders sought a
declaration that it owes no duty to defend or indemnify its named
insured or the driver in connection with the Allstate lawsuit, and that
Allstate is not entitled to recover any monies under the Founders
policy. Founders maintained that under exclusion (p), because the
driver did not have a valid license at the time of the accident, he could
not have had a “reasonable belief” that he was “entitled” to drive the
vehicle.
In each case, the parties filed cross-motions for summary
121, 128 (2005).
2
The five declaratory judgment actions, all in the circuit court of Cook
County, are: Founders Insurance Co. v. Munoz, No. 05–CH–21653;
Founders Insurance Co. v. LeVan, No. 06–CH–6573; Founders Insurance
Co. v. Honchar, No. 07–CH–5104; Founders Insurance Co. v. Vallarta, No.
07–CH–5400; and Founders Insurance Co. v. Tecpanecatl, No.
07–CH–17596.
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judgment. Allstate argued that the reasonable-belief exclusion violates
public policy as expressed by Illinois’ mandatory insurance statute,
and is an improper attempt by Founders to penalize its insureds for
conduct (driving without a valid license) that the legislature has
already penalized. Allstate also argued that the exclusion is ambiguous
and must be construed in favor of coverage. In response, Founders
argued that the reasonable-belief exclusion unambiguously applies to
unlicensed drivers, and that an insurer may limit its risks without
violating Illinois’ mandatory insurance statute.
In each of the five cases, the trial court granted Founders’ motion
for summary judgment and denied Allstate’s motion for summary
judgment. The trial court found that because the driver did not possess
a valid license, he did not have a reasonable belief that he was entitled
to drive the vehicle. Allstate appealed the trial court’s ruling in each
case.
Safeway Case
The sixth underlying automobile accident implicates coverage
under a Safeway policy very similar to the Founders policy. Part I of
the Safeway policy provides liability coverage for bodily injury or
property damage, and defines “persons insured,” with respect to the
owned automobile, as “the named insured” or “any other person using
the owned automobile to whom the named insured has given
permission, provided the use is within the scope of such permission.”
The Safeway policy also contains several coverage exclusions.
Relevant here is exclusion (o), under which Part I liability coverage
does not apply to “any person operating an automobile without a
reasonable belief that he or she is entitled to do so.”
The accident at issue involved two vehicles, one of which was
insured through Safeway and driven by a permissive user whose
license was suspended. The other vehicle involved in the accident was
insured through Allstate. After Allstate made payments to its insured
for property damage and bodily injury resulting from the accident,
Allstate filed a subrogation action against the driver of the vehicle
insured through Safeway. In response, Safeway filed a complaint for
declaratory judgment in the Cook County circuit court against its
insured, the driver of the vehicle insured through Safeway, and
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Allstate, as subrogee of its insureds.3 Safeway sought a declaration
that, pursuant to exclusion (o), because the driver did not have a valid
license at the time of the accident, Safeway is not obligated to defend
or indemnify the driver in connection with the Allstate lawsuit.
Safeway and Allstate filed cross-motions for summary judgment
making essentially the same arguments that Founders and Allstate
raised in the other five cases. The trial court granted Safeway’s
motion and denied Allstate’s motion. Allstate appealed.
Appellate Review
The six cases were consolidated for review in the appellate court.4
The appellate court held that the coverage exclusion in the Founders
and Safeway policies was ambiguous because the word “entitled”
could reasonably refer to permission or consent, or to legal authority,
i.e., licensure. 389 Ill. App. 3d at 755. Because Founders and
Safeway, as drafters of the policies, created the ambiguity, the
appellate court construed the exclusion against the insurers and in
favor of coverage. 389 Ill. App. 3d at 756. The appellate court
concluded: “[A]lthough coverage is excluded for persons using the
insured vehicle without a reasonable belief that he or she was a
permissive driver, the exclusion does not necessarily encompass
unlicensed drivers.” 389 Ill. App. 3d at 756. With the exception of the
Munoz case, the appellate court reversed the grant of summary
judgment in each case. 389 Ill. App. 3d at 757. As to the Munoz case,
the appellate court affirmed the trial court’s grant of summary
judgment in favor of Founders, relying on the named-driver exclusion
in the policy which expressly precludes coverage for any claim or suit
3
The declaratory judgment action was captioned Safeway Insurance Co.
v. Fernandez, 07–CH–24429.
4
The cases proceeded in the appellate court as: Founders Insurance Co.
v. Munoz, No. 1–07–0792, consolidated with Founders Insurance Co. v.
Vallarta, No. 1-08–0208; Founders Insurance Co. v. Honchar, No.
1–08–0415; Safeway Insurance Co. v. Fernandez, No. 1–08–2042; Founders
Insurance Co. v. LeVan, No. 1–08–2059; and Founders Insurance Co. v.
Tecpanecatl, No. 1–08–2283.
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arising out of the operation of any automobile by Munoz. 389 Ill.
App. 3d at 757.
Founders and Safeway each filed a petition for leave to appeal
(Nos. 108605 and 108612, respectively), which we allowed (210 Ill.
2d R. 315) and consolidated for review. Allstate has requested cross-
relief in the Munoz case. See 155 Ill. 2d R. 318(a). We also allowed
the Illinois Trial Lawyers Association to file a brief amicus curiae. See
210 Ill. 2d R. 345.
ANALYSIS
The parties to these six cases chose to litigate Founders’ and
Safeway’s declaratory judgment actions by means of cross-motions
for summary judgment. By doing so, they agree that no factual issues
exist and that the disposition of these cases turns only on our
resolution of purely legal issues. See Exelon Corp. v. Department of
Revenue, 234 Ill. 2d. 266, 285 (2009). Accordingly, our review
proceeds de novo. See Hobbs v. Hartford Insurance Co. of the
Midwest, 214 Ill. 2d 11, 17 (2005); Crum & Forster Managers Corp.
v. Resolution Trust Corp., 156 Ill. 2d 384, 390 (1993). The legal
issues presented are: (1) whether the coverage exclusion
unambiguously applies to drivers without a valid license and, if so, (2)
whether such an exclusion contravenes Illinois public policy.
Because an insurance policy is a contract, the rules applicable to
contract interpretation govern the interpretation of an insurance
policy. Nicor, Inc. v. Associated Electric & Gas Insurance Services
Ltd., 223 Ill. 2d 407, 416 (2006); Hobbs, 214 Ill. 2d at 17. Our
primary function is to ascertain and give effect to the intention of the
parties, as expressed in the policy language. Hobbs, 214 Ill. 2d at 17;
Crum & Forster, 156 Ill. 2d at 391. If the language is unambiguous,
the provision will be applied as written, unless it contravenes public
policy. Nicor, 223 Ill. 2d at 416-17; Hobbs, 214 Ill. 2d at 17. The rule
that policy provisions limiting an insurer’s liability will be construed
liberally in favor of coverage only applies where the provision is
ambiguous. Rich v. Principal Life Insurance Co., 226 Ill. 2d 359, 372
(2007); Menke v. Country Mutual Insurance Co., 78 Ill. 2d 420, 424
(1980). A policy provision is not rendered ambiguous simply because
the parties disagree as to its meaning. Rich, 226 Ill. 2d at 372. Rather,
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an ambiguity will be found where the policy language is susceptible to
more than one reasonable interpretation. Hobbs, 214 Ill. 2d at 17;
Lapham-Hickey Steel Corp. v. Protection Mutual Insurance Co., 166
Ill. 2d 520, 530 (1995). While we will not strain to find an ambiguity
where none exists (Hobbs, 214 Ill. 2d at 17), neither will we adopt an
interpretation which rests on “gossamer distinctions” that the average
person, for whom the policy is written, cannot be expected to
understand (Canadian Radium & Uranium Corp. v. Indemnity
Insurance Co. of North America, 411 Ill. 325, 334 (1952)). When
construing the language of an insurance policy, we must assume that
every provision was intended to serve a purpose. Thus, an insurance
policy must be considered as a whole; all of the provisions, rather than
an isolated part, should be examined to determine whether an
ambiguity exists. Rich, 226 Ill. 2d at 371; Crum & Forster, 156 Ill. 2d
at 391.
The policy provision at issue here precludes liability coverage
when the person using or operating the vehicle does not have a
“reasonable belief” that he or she is “entitled” to do so. Based on this
language, Founders and Safeway argue that a person who has not
been issued a driver’s license, or whose license has been suspended or
revoked, cannot have a reasonable belief that he or she is entitled to
drive merely because he or she owns the vehicle or was granted
permission to use the vehicle, and that under Century National
Insurance Co. v. Tracy, 339 Ill. App. 3d 173 (2003), this policy
exclusion has an established legal meaning in this state. Founders and
Safeway further argue that when the policies are read as a whole, the
coverage exclusion does not encompass a reasonable belief that the
person is a permissive driver because the exclusion does not apply
unless the driver is already a permissive user or a named insured.
Allstate responds that the term “entitled,” as used in the coverage
exclusion, can only reasonably refer to entitlement based on ownership
of the vehicle or permission from the owner. Allstate explains: “If the
operator is the owner, he obviously has a reasonable belief that he is
entitled to use his or her property, regardless of whether the owner
has a legal right to drive the vehicle on the public roadways. Similarly,
if the owner gives an operator permission to use his vehicle, the
operator would have a reasonable belief he is entitled to use the
vehicle.” Allstate argues in the alternative that even if such
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interpretation is not the only reasonable one, it is at least a reasonable
interpretation of an ambiguous policy provision.
Allstate further responds that the exclusion does not have an
established legal meaning in Illinois or in our sister states. According
to Allstate, 16 states have found the exclusion refers to permission
from the owner; 7 states have found the exclusion ambiguous; and 7
states have found that permission is one of several factors to consider
when determining whether the coverage exclusion applies.
As a preliminary matter, we note that we have reviewed the out-
of-state cases Allstate cites, but we do not find them particularly
helpful to our analysis. Many of the cases quote only the coverage
exclusion and are unclear as to whether the policy also contained an
omnibus clause like the one contained in the Founders and Safeway
policies. Also, we do not necessarily agree with Allstate’s
characterization of the legal significance of the cases it cites. For
example, Allstate cites Mikelson v. United Services Automobile Ass’n,
107 Haw. 192, 111 P.3d 601 (2005), for the proposition that Hawaii
has found the reasonable-belief exclusion ambiguous. In fact, the
Hawaii Supreme Court “express[ed] no opinion as to whether such an
exclusion is ambiguous or not ambiguous,” concluding that the
defendant failed to present argument as to one of the two bases on
which the trial court found the exclusion inapplicable and thus waived
the point on appeal. Mikelson, 107 Haw. at 209 n.17, 111 P.3d at 618
n.17. Allstate also cites Maryland Casualty Co. v. Rynearson, No.
87C–SE–33–1–CV (Del. Super. Ct. August 18, 1989) (mem. op.),
Ohio Casualty Insurance Co. v. Safeco Insurance Co., 768 S.W.2d
602 (Mo. App. 1989), Dairyland Insurance Co. v. General Accident
Insurance Co., 435 So. 2d 1263 (Ala. 1983), and Bowlus School
Supply, Inc. v. Swartz, 766 P.2d 204 (Kan. App. 1988), for the
proposition that Delaware, Missouri, Alabama and Kansas have all
found that the reasonable-belief exclusion refers to permission from
the owner. Though Allstate is correct that these courts only
considered whether the person using the vehicle had permission to do
so, the courts’ recitation of the facts did not indicate that the drivers
lacked valid licenses. The issue we address in the present appeal was
not raised in these cases. Allstate further cites Lobeck v. State Farm
Mutual Automobile Insurance Co., 582 N.W.2d 246 (Minn. 1998),
for the proposition that Minnesota, too, has held that the reasonable-
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belief exclusion refers to permission. Lobeck, however, did not involve
an unlicensed driver or a reasonable-belief exclusion; it involved a
licensed driver and a policy exclusion for liability arising out of the use
of any vehicle “if that use is without permission.” Lobeck, 582
N.W.2d at 249.
Rather than engaging in a detailed discussion of out-of-state cases
of limited and questionable applicability, we will conduct our own
review of the policy language, applying the rules of contract
construction set forth above. We begin with the language of the policy
and, in particular, the word “entitled.”
Where a term in an insurance policy is not defined, we afford that
term its plain, ordinary and popular meaning, i.e., we look to its
dictionary definition. Valley Forge Insurance Co. v. Swiderski
Electronics, Inc., 223 Ill. 2d 352, 366 (2006). The word “entitle”
means:
“to give a right or legal title to: qualify (one) for something:
furnish with proper grounds for seeking or claiming something
.” Webster’s Third New International Dictionary
758 (1993).
Under this popular definition, the word “entitle,” depending on usage,
could connote entitlement based on permission or ownership, as
Allstate argues. See 389 Ill. App. 3d at 754 (observing that the term
“entitle” could connote being authorized, permitted or directed). We
are not concerned, however, with possible connotations, but only that
connotation which arises out of the term’s use in the Founders and
Safeway policies. Each policy, when considered as a whole, does not
support the connotation urged by Allstate.
Under both policies, an “insured person” includes the named
insured and any person using the owned vehicle with the permission
of the named insured. As Founders and Safeway note, unless the
person qualifies as an “insured person,” the coverage exclusions never
come into play because the person is not covered by the policy in the
first instance. This means that the term “entitled,” as used in the
subject exclusion, cannot refer to entitlement based on permission or
ownership because the issue of whether the person using the vehicle
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has a reasonable belief that he or she is entitled to do so only arises
after issues of permission or ownership have been satisfied. If we were
to adopt Allstate’s interpretation, the coverage exclusion would serve
no real purpose, since it would encompass permission and ownership
issues already considered at the outset when determining if the person
qualifies as an “insured person.” We must assume, however, that
every provision in an insurance policy was intended to serve a
purpose. Rich, 226 Ill. 2d at 371; Crum & Forster, 156 Ill. 2d at 391.
Because Allstate’s reading of the coverage exclusion is inconsistent
with the policy as a whole, and would render the exclusion
superfluous, we reject Allstate’s argument that its interpretation is a
reasonable one.
The question remains whether the “average, ordinary, normal,
reasonable person” for whom these policies were written (Gillen v.
State Farm Mutual Automobile Insurance Co., 215 Ill. 2d 381, 395
(2005)) would understand that the exclusion applies to unlicensed
drivers. We agree with Founders and Safeway that the answer is
“yes.”
Illinois law with respect to driving privileges is clear. With limited
exception not relevant here, no person shall drive a motor vehicle in
this state unless such person has a “valid license.” 625 ILCS
5/6–101(a), (b) (West 2008). A person driving on a revoked or
suspended license is guilty of a Class A misdemeanor. 625 ILCS
5/6–303(a) (West 2008). Irrespective of whether a person owns the
vehicle, or is a permissive user, without a valid license, a person
cannot have a reasonable belief that he or she is entitled to drive in this
state. Without a valid license, a person has not been given the “right”
to drive; has not been “qualified” to drive; has not been “furnished
with proper grounds” for doing so. See Webster’s Third New
International Dictionary 758 (1993). Accordingly, each of the six
drivers at issue here, who either never obtained a license or whose
license was suspended, could not, as a matter of law, have a
reasonable belief that he was entitled to drive simply because he
owned the car or was given the keys.
Support for this conclusion is found in Century National
Insurance Co. v. Tracy, 339 Ill. App. 3d 173 (2003). There, James
Tracy, who did not possess a valid license, was driving a pickup truck,
owned by the family business, when he was involved in an accident
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with another vehicle, sustaining personal injuries. James collected
$50,000 from the other driver’s insurer and then sought to recover an
additional amount pursuant to the underinsured-motorist coverage
provisions of the Century National policy which insured the pickup
truck. Century National sought declaratory relief, citing the policy’s
reasonable-belief exclusion. Much like Founders and Safeway in the
present case, Century National argued that because James did not
have a valid license at the time of the accident, he could not
reasonably believe he was entitled to drive the pickup truck. The
appellate court affirmed the trial court’s ruling in favor of Century
National, stating that “the trial court was correct in holding that,
without a valid driver’s license, an individual cannot reasonably
believe that he or she is entitled to use a motor vehicle in Illinois.”
Tracy, 339 Ill. App. 3d at 176. Although James argued that he was an
insured under the policy as a co-owner of the business, the appellate
court rejected this argument:
“The public policy of Illinois is well known and well
understood: a driver must possess a valid driver’s license to
operate a motor vehicle in Illinois. *** James did not possess
a valid license at the time of the accident and had not
possessed one for 14 years prior to the accident. Nothing in
the insurance policy could overcome James’s legal inability to
drive. Therefore, a finding that James reasonably believed that
he could use the vehicle, even though he did not have a valid
driver’s license, would violate Illinois public policy.” Tracy,
339 Ill. App. 3d at 177.
Like James Tracy, the drivers in the present litigation could not
overcome their legal inability to drive by relying on an ownership
interest in the vehicle or permission from the owner to use the vehicle.
Allstate argues that if the coverage exclusion is intended to apply
to a person’s legal inability to drive, Safeway and Founders could
have included a provision so stating. Allstate notes that an earlier form
of the Safeway policy contained an “Unlicensed Driver Exclusion.”
Allstate argues that Safeway chose to replace an express and
presumably clear policy provision with an overly broad and ambiguous
exclusion, opening the door for denial of coverage in other instances
where drivers of insured vehicles may not be in full compliance with
other provisions of the Illinois Vehicle Code. Allstate notes, for
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example, that the Illinois Vehicle Code prohibits persons from driving
while intoxicated (625 ILCS 5/11–501(a) (West 2008)); driving a
vehicle that is too large or too heavy (625 ILCS 5/15–101 (West
2008)); or driving a vehicle that is unsafe or that does not have proper
lighting (625 ILCS 5/12–101 (West 2008)). Allstate argues that
Founders and Safeway could seek to deny coverage based on these
code violations, claiming that the driver could not have had a
reasonable belief that he or she was entitled to drive under these
circumstances. Allstate posits that coverage might even be denied
where the driver is old and feeble.
Safeway responds that its policy language was changed in
response to the Tracy decision, and that it intended the new exclusion
to be interpreted in the same manner as the identical policy language
at issue in Tracy. Safeway also maintains that it “does not deny
coverage for drunk driving or speeding, and Safeway does not deny
coverage to anyone for being old or feeble.” Founders similarly states
that it “does not seek by its exclusion to preclude coverage for
intoxicated drivers” and has not, at any point, sought to utilize its
exclusion in the circumstances Allstate describes, nor does Founders
foresee doing so in the future.
We need not consider an earlier form of the Safeway policy, or
speculate why that form was amended, as that is not the contract to
which the parties to the present litigation have bound themselves. We
also need not speculate as to the myriad of other factual scenarios to
which the exclusion might apply. The issue before us is much
narrower. The issue is whether, as a matter of law, a person without
a valid driver’s license can have a reasonable belief that he or she is
entitled to drive. That the exclusion could conceivably apply in other
factual circumstances does not mean that the exclusion is ambiguous
as to unlicensed drivers.
Finally, Allstate argues that even if the reasonable-belief exclusion
unambiguously applies to unlicensed drivers, this court should hold
that the exclusion violates Illinois public policy because it operates as
an improper penalty and is therefore void. In support, Allstate cites
Hertz Corp. v. Garrott, 238 Ill. App. 3d 231 (1992).
In the Hertz case, our appellate court held that a provision in a car
rental agreement, which disclaimed all liability coverage where the
driver engaged in a prohibited use–operating the vehicle while
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intoxicated–was void as against public policy, and that the liability
provision in the rental agreement, which provided coverage beyond
the required statutory minimum, would be given full force and effect.
Hertz, 238 Ill. App. 3d at 236.5 In so holding, the appellate court
quoted with approval a Delaware Supreme Court opinion which
invalidated a policy provision that excluded coverage for an insured
convicted of operating a motor vehicle while under the influence of
alcohol:
“ ‘[T]he fixing of penalties for antisocial conduct is, in the first
instance, a government responsibility through legislative
response. The Delaware General Assembly has expressly
determined the consequences which result from a conviction
for driving under the influence. These sanctions include the
criminal penalties of fine and/or imprisonment [citation] and
license revocation through administrative action [citation]. We
do not believe that the General Assembly, in addition to the
imposition of these substantial penalties, also intended, by
implication, to work a forfeiture of insurance protection
purchased in conformity with State law.’ ” Hertz, 238 Ill. App.
3d at 238-39, quoting Bass v. Horizon Assurance Co. 562
A.2d 1194, 1197 (Del. 1989).
The Hertz court opined that, similar to the Delaware case, the car
rental company, a private entity, did not have the ability to impose a
sanction upon private citizens for driving while intoxicated, in the
name of public policy, “when such sanctions work a hardship upon the
general public and, at the same time, benefit the rental agency and/or
its insurer.” Hertz, 238 Ill. App. 3d at 239.
The present cases do not involve a liability exclusion based on the
intoxication of the driver. Indeed, as already indicated, Founders and
Safeway disavow any intention of attempting to apply the present
exclusion to intoxicated drivers. Allstate argues, however, that just as
the car rental company in Hertz could not penalize an intoxicated
driver with loss of coverage where the legislature has already fixed
5
Although the intoxicated driver in the Hertz case was unlicensed, the
appellate court opinion addressed only the intoxication provision in the car
rental agreement.
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sanctions for driving while intoxicated, Founders and Safeway cannot
usurp the role of the legislature and penalize unlicensed drivers with
loss of coverage where the legislature has fixed sanctions for driving
without a valid license.
We do not agree with Allstate that excluding liability coverage for
unlicensed drivers necessarily amounts to a usurpation of the
legislature’s authority to fix penalties for criminal conduct. Insurers
are not required to cover every possible loss and may legitimately limit
their risks. Progressive, 215 Ill. 2d at 136. Allstate maintains,
however, that Founders and Safeway are not merely limiting their
risks; they are denying coverage to a group of persons–unlicensed
drivers–which is contrary to section 7–317(b)(2) of the Illinois Vehicle
Code (625 ILCS 5/7–317(b)(2) (West 2008)). Allstate posits that this
court’s holdings in State Farm Mutual Automobile Insurance Co. v.
Smith, 197 Ill. 2d 369 (2001), and Progressive support its conclusion
that the reasonable-belief exclusion conflicts with section 7–317(b)(2)
and should be deemed void.
Section 7–317(b)(2), which is part of the Illinois Safety and Family
Financial Responsibility Law, contains an omnibus clause provision.
That is, it mandates that a motor vehicle liability policy shall cover the
named insured and any other person using the vehicle with the
insured’s permission. 625 ILCS 5/7–317(b)(2) (West 2008). We agree
with Allstate that an insurance policy provision which conflicts with
section 7–137(b)(2) violates Illinois public policy and will be deemed
void. “[A] statute that exists for protection of the public cannot be
rewritten through a private limiting agreement.” Progressive, 215 Ill.
2d at 129. We disagree, however, that under our analyses in Smith and
Progressive the reasonable-belief exclusion conflicts with the statute.
In Smith, the named insured left his vehicle with a valet service for
parking. When the valet service later returned the vehicle to him, the
insured’s passenger sustained personal injuries when the vehicle rolled
backwards as she was entering the car. State Farm, which insured the
vehicle, disclaimed liability coverage based on a “car business”
exclusion. Under that exclusion, no coverage existed while any
insured vehicle was “being repaired, serviced or used by any person
employed or engaged in any way in a car business.” A car business
included a business or job where the purpose was to park motor
vehicles.
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We held that the car-business exclusion conflicted with section
7–317(b)(2) and thus violated Illinois public policy:
“When a vehicle owner gives his vehicle to a person engaged
in an automobile business, the owner is also giving that person
the express or implied permission to use the vehicle.
Therefore, a provision written into an insurance policy that
excludes coverage for persons engaged in an automobile
business necessarily excludes coverage for persons who are
using an insured’s vehicle with the insured’s express or
implied permission. The exclusion thus violates section
7–317(b)(2) of the Illinois Vehicle Code.” Smith, 197 Ill. 2d
at 374.
Allstate argues that the reasonable-belief exclusion at issue here,
like the car-business exclusion at issue in Smith, contravenes Illinois
public policy because the exclusion seeks to bar coverage for persons
who are required by statute to be covered under an automobile
liability policy–the named insured and any permissive user. If Allstate
is correct, then virtually any limitation on liability coverage would
violate public policy. But this court, in the Progressive opinion, has
already rejected such an argument.
In Progressive, we considered whether a food-delivery exclusion
violated section 7–317(b)(2) (625 ILCS 5/7–317(b)(2) (West 2000)).
Based on this exclusion, the insurer, Progressive Universal Insurance
Company of Illinois, disclaimed any duty to defend or indemnify the
insured’s son who, while making pizza deliveries in the insured
vehicle, struck and injured a pedestrian. The injured party’s insurer,
Liberty Mutual Fire Insurance Company, argued that our holding in
Smith applied with equal force to the food-delivery exclusion and that
such exclusion should be found void as against public policy. We
rejected this argument, noting a significant factual distinction between
the car-business exclusion in Smith and the food-delivery exclusion at
issue in Progressive. Progressive, 215 Ill. 2d at 133.
The car-business exclusion only applied to permissive users. Thus,
conduct which would have been covered if undertaken by the insured
would not be covered if undertaken by a permissive user of the
insured vehicle. This disparity in coverage was inconsistent with the
statutory requirement that liability policies must cover both the named
insured and anyone using the vehicle with the insured’s permission.
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Progressive, 215 Ill. 2d at 133. The pizza-delivery exclusion,
however, applied equally to the named insured and permissive users;
no one was exempt from the food-delivery exclusion, and thus no
possibility existed that liability coverage afforded the insured would
not be extended to a permissive user of the vehicle. Progressive, 215
Ill. 2d at 134.
In Progressive, we expressly rejected the argument that the only
valid coverage exclusions are those authorized by the legislature:
“That permissive users must be covered along with the
named insured in no way compels the conclusion that
exclusions are never permissible. Inclusion of permissive users
goes to the issue of who must be covered. It says nothing of
what risks must be covered. To hold that requiring coverage
for permissive users means that insurers are forbidden from
excluding certain types of risks from coverage requires a leap
in reasoning that neither the language of the statute nor the
rules of statutory construction will support.” (Emphasis in
original.) Progressive, 215 Ill. 2d at 137.
We determined that, through adoption of section 7–317(b)(2), the
legislature simply intended to make certain that the common practice
of entrusting one’s vehicle to another person does not preclude an
injured party from obtaining payment for otherwise covered losses.
Progressive, 215 Ill. 2d at 137. We observed that the legislature could
have barred insurers from excluding certain risks from coverage, but
did not do so, and concluded that the legislature must have intended
that coverage exclusions may be included in liability policies, as
evinced by the statutory requirement that insurance cards “contain a
disclaimer admonishing policyholders to ‘[e]xamine policy exclusions
carefully.’ ” Progressive, 215 Ill. 2d at 138, quoting 625 ILCS
5/7–602 (West 2000).
The reasonable-belief exclusion at issue here, like the food-
delivery exclusion at issue in Progressive, applies equally to the named
insured and anyone using the vehicle with the insured’s permission.
Pursuant to our analysis in Progressive, we hold that the exclusion
does not violate Illinois public policy as set forth in section
7–317(b)(2) of the Vehicle Code. Founders and Safeway may limit
their risk by excluding insureds and permissive users alike who lack
the most basic requirement for driving in this state: a valid license. We
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recognize that, depending upon the circumstances of a particular case,
the reasonable-belief exclusion, like any exclusion, may result in no
insurance coverage from which injured third parties may be
compensated. Such coverage gaps, however, implicate policy
concerns that are properly considered by the legislature, not this court.
See Progressive, 215 Ill. 2d at 140 n.3.
In light of our holding, we need not consider Allstate’s arguments
underlying its request for cross-relief in the Munoz case. Munoz did
not possess a valid license. Thus, even if, as Allstate argues, the
named-driver exclusion should not apply against Munoz (see 389 Ill.
App. 3d at 756-57), the reasonable-belief exclusion does apply, and
Founders is under no duty to defend or indemnify Munoz.
CONCLUSION
For the reasons set forth above, we affirm the appellate court
judgment in the Munoz case affirming the trial court’s grant of
summary judgment in favor of Founders. We reverse the appellate
court’s judgment in the LeVan, Honchar, Vallarta, and Tecpanecatl
cases that reversed the trial court’s grant of summary judgment in
favor of Founders. We also reverse the appellate court judgment in the
Fernandez case that reversed the trial court’s grant of summary
judgment in favor of Safeway. Allstate’s motions for summary
judgment in these six cases were properly denied by the trial court.
No. 108605–Affirmed in part and reversed in part.
No. 108612–Reversed.
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