American Service Insurance Co. v. Pasalka

SECOND DIVISION
January 26, 2006
No. 1-04-3571
AMERICAN SERVICE INSURANCE COMPANY, ) Appeal from the
) Circuit Court of
Plaintiff-Appellant, ) Cook County.
)
v. )
)
KAROLINA PASALKA, CLARENCE DAVIS, )
LAURA SANDIFER, MATILDA BRUCE, MACIEJ )
A. CHOWANIEC, BEATA M. BOGDAN, JOHN )
GRAY, PETIO NEYKOV, CINDY L. GRAHAM, )
JEROME BROWN, DELTA COBBS, PEDRO )
ROSALES, JESUS ROSALES, SILVIA TORRES, )
THELMA NEAL, BENJAMIN GONZALES, JR., )
DEBRA TROTTER, MELISSA F. HUBERT, JAMES )
PATTON, BONNIE MESSANA, LUBA BUREK, )
RAYMOND BUCKLEY, IVARI NINEMAE, GRETE )
KUUK, TUULI TALV, KRISTAL LAMB, ESTER )
CASTANEDA LOPEZ, DANIELLE GRIFFIN, )
and TAWNEQUE WATFORD, ) Honorable
) Aaron Jaffe,
Defendants-Appellees. ) Judge Presiding.
JUSTICE WOLFSON delivered the opinion of the court:
The public policy of this State requires that an uninsured motorist provision be
written into every auto insurance policy. In this case, the policies provided that no
demand for arbitration of an uninsured motorist claim could be made more than two
years after the accident. What happens, then, when the tortfeasor=s insurance company
does not go into liquidation until more than two years after the accident?
The plaintiff, American Service Insurance Company (ASI), denied uninsured
motorist coverage to its insureds because they failed to file their claims for arbitration
within two years of the accidents, pursuant to a limitation in their policies. In each case,
the insureds were involved in accidents with other drivers who were insured at the time
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of the accidents. However, the insurance companies covering the other drivers became
insolvent more than two years after the accidents.
ASI contends the trial court erred in entering summary judgment for its insureds
where they violated their policies by filing claims more than two years after the
accidents. The insureds contend there was no reason to file claims for uninsured
motorist coverage before the insurers became insolvent. They say the policies= two-
year limitation was either ambiguous or unenforceable as a violation of public policy.
We affirm the grant of summary judgment, with a slight modification.
FACTS
ASI brought the underlying declaratory judgment action against 22 of its
policyholders and their passengers. Each of the policies provided coverage for "all
sums which the insured or his/her legal representative shall be legally entitled to recover
as compensatory damages *** from the owner or operator of an uninsured motor
vehicle."
Under the policies, an uninsured motor vehicle includes:
"a motor vehicle with respect to which there is a bodily injury
liability insurance policy applicable at the time of the accident
but the Company writing such policy is and is declared
insolvent subsequent to the date of the accident."
The time limitation provision in the uninsured motorist coverage portion of the
policy states, in part:
"No suit, action or arbitration proceedings for recovery of any
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claim may be brought against this Company until the insured
has fully complied with all the terms of this policy. Further,
any suit, action or arbitration will be barred unless
commenced within two (2) years after the date of the
accident."
The insolvent insurers at issue are the Gallant Insurance Company (Gallant),
Valor Insurance Company (Valor), Reliance Insurance Company (Reliance), and the
Legion Indemnity Insurance Company (Legion). An order of liquidation was entered for
Gallant/Valor on August 9, 2002, for Legion on April 9, 2003, and for Reliance on
October 3, 2001. Each of the defendants was involved in an accident with a driver
insured by Gallant, Valor, Reliance, or Legion. Each defendant filed a personal injury
complaint within two years of the accident date. Following the liquidation of the
insurers, the defendants sent correspondence to ASI demanding uninsured motorist
arbitration. All of the defendants sent their demands for arbitration within two years of
the date of insolvency; most were sent within one year of the insolvency. Demands
were sent anywhere from two years to nearly seven years after the accident date.
In its complaint for declaratory judgment, ASI contended the claimants were not
entitled to benefits under their policies, based on their failure to demand arbitration
within two years of the accident date. ASI also asserted the equitable doctrine of laches
and contended certain defendants failed to provide timely notice of the occurrence to
ASI. The policies= notice provision provides:
"In the event of an accident or loss, written notice containing
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particulars sufficient to identify the insured and also
reasonably obtainable information with respect to the time,
place and circumstances thereof, and the names and
address of the injured and of available witnesses, shall be
given by or on behalf of the insured directly to the Company
as soon as practicable."
The trial court granted the defendants= motion for summary judgment. The court
found the time limitation provision in the insurance policies was ambiguous. The court
construed the provision in favor of the insureds, finding they "could not possibly have
anticipated an uninsured motorist coverage claim that did not exist at the time of the
accident." The court held the defendants were entitled to coverage and directed ASI to
appoint an arbitrator and proceed to arbitration according to the policy provisions.
ASI filed a motion to clarify and reconsider the court=s order, based on the court=s
failure to address the issues of laches and notice of occurrence, and the application of
the court=s order to those defendants who had not been served and had not filed an
appearance in the case. The court denied the motion and entered an order finding that
the summary judgment order "applie[d] to all party defendants."
On appeal, ASI contends: (1) the trial court erred in entering summary judgment
in favor of the defendants on the issue of the time limitation provision; (2) the order
granting summary judgment was not a final order; (3) summary judgment was not
properly entered in favor of parties not yet served; (4) summary judgment was not
properly entered in favor of parties who had not moved for it, including parties who had
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not answered or appeared in the action; and (5) the trial court failed to address the
issues of laches and the failure of certain defendants to provide notice of occurrence.
DECISION
I. Two-Year Time Limitation
"Summary judgment is appropriate when there is no genuine issue of material
fact and the moving party=s right to judgment is clear and free from doubt." Espinoza v.
Elgin, Joliet & Eastern Ry. Co., 165 Ill. 2d 107, 113, 649 N.E.2d 1323 (1995). Our
review of the trial court=s grant of partial summary judgment is de novo. Zekman v.
Direct American Marketers, Inc., 182 Ill. 2d 359, 374, 695 N.E.2d 853 (1998). The
construction of the provisions of an insurance policy is subject to de novo review.
Krusinski Construction Co. v. Northbrook Property & Casualty Insurance Co., 326 Ill.
App. 3d 210, 218, 760 N.E.2d 530 (2001).
The defendants contend, and the trial court held, that the time limitation provision
in the policies is ambiguous. Our primary objective in construing the language of an
insurance policy is to ascertain and give effect to the intent of the parties to the contract.
Crum & Forster Corp. v. Resolution Trust Corp., 156 Ill. 2d 384, 391, 620 N.E.2d 1073
(1993). If the terms of the policy are clear and unambiguous, they must be given their
plain and ordinary meaning. Gillen v. State Farm Mutual Automobile Insurance Co.,
215 Ill. 2d 381, 393, 830 N.E.2d 575 (2005). If the terms are susceptible to more than
one meaning, they are ambiguous and will be construed strictly against the insurer.
American States Insurance Co. v. Koloms, 177 Ill. 2d 473, 479, 687 N.E.2d 72 (1997).
Any unresolved ambiguity will be construed against the insurer. Gillen, 215 Ill. 2d at
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393.
We see no ambiguity in the provision at issue. The policy provision could not be
clearer. Under the uninsured motorist portion of the policy, each policyholder is
required to make his or her demand for arbitration within two years of the date of the
accident. There is only one logical meaning to be gleaned from the provision. Where,
as here, an insured fails to demand arbitration within two years of the accident date,
under the contract ASI may deny coverage.
But that is not the end of the inquiry. We next consider whether the time
limitation provision violates the public policy behind uninsured motorist insurance
coverage. Although the trial court did not base its decision on a public policy argument,
we may affirm on any basis appearing in the record. Redland Insurance Co. v. Lerner,
356 Ill. App. 3d 94, 98, 824 N.E.2d 1096 (2005).
Where provisions in an insurance contract do not violate law or public policy,
courts must enforce them without rewriting them or injecting terms not agreed to by the
parties. Coronet Insurance Co. v. Ferrill, 134 Ill. App. 3d 483, 485, 481 N.E.2d 43
(1985). Courts will not enforce a contract, however, if it is in fundamental conflict with
public policy. Ferrill, 134 Ill. App. 3d at 485.
Section 143a of the Illinois Insurance Code requires insurers to provide
uninsured motorist coverage, and such coverage shall be applicable when the
tortfeasor=s insurer becomes insolvent, subject to the "terms and conditions" established
by the insurer. 215 ILCS 5/143a (West 2002). "It is well-settled law that the purpose
behind the statutorily mandated uninsured motorist provision is that the insured be
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placed in substantially the same position as if the wrongful uninsured driver had been
minimally insured." Hoglund v. State Farm Mutual Automobile Insurance Co., 148 Ill. 2d
272, 277, 592 N.E.2d 1031 (1992).
That is, the intent of the legislature in enacting section 143a was to ensure that
persons injured by an uninsured motorist are protected at least to the extent that
compensation is made available to persons injured by a motorist insured for the
minimum legal limits. Severs v. Country Mutual Insurance Co., 89 Ill. 2d 515, 519, 434
N.E.2d 290 (1982). "The purpose underlying a statute cannot be circumvented by the
insertion of a contrary or restricting provision in an insurance policy." Severs, 89 Ill. 2d
at 520.
Although no Illinois court has decided the precise question before us, courts have
invalidated similar provisions in the context of uninsured motorist benefits.
In Ferrill, 134 Ill. App. 3d at 484, a provision in the policy required an insured to
notify Coronet of an uninsured motorist claim within one year of the insolvency of the
tortfeasor=s insurer. The insurer rejected the policyholder=s uninsured motorist claim
because the insured filed his claim more than one year after the tortfeasor=s insurer was
declared insolvent. Ferrill, 134 Ill. App. 3d at 485. The court held Coronet previously
had received notice of the accident giving rise to the claim. Ferrill, 134 Ill. App. 3d at
486. The one-year limit served no notice purpose other than to limit Coronet=s liability.
Ferrill, 134 Ill. App. 3d at 486-87.
The court held the challenged one-year notice provision as applied
"impermissibly limits the time within which the policyholder may assert the insolvency of
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his opponent=s insurer to one year, whether the policyholder knows of it or not." Ferrill,
134 Ill. App. 3d at 487. The court found application of the discovery rule would give full,
fair, and reasonable effect to the policy terms as written. Ferrill, 134 Ill. App. 3d at 488.
Under this rule, the one year notice period requirement would not begin to run until the
claimant knew or reasonably should have known of the insolvency of the other
motorist=s insurer. Ferrill, 134 Ill. App. 3d at 488.
In Moses v. Coronet Insurance Company, 192 Ill. App. 3d 921, 922, 549 N.E.2d
739 (1989), the court considered the same policy limitation as in Ferrill and found it
invalid. The court held the one-year limitation provision was overly restrictive and
violated the public policy set forth in the Insurance Code. Moses, 192 Ill. App. 3d at
925. Where "an insurer attempts to place limits on the uninsured motorist provisions of
its insurance policy, the limitations must be liberally construed in favor of the
policyholder and strongly against the insurer." Moses, 192 Ill. App. 3d at 923-24. The
court said section 143a of the Insurance Code, which required the policy to contain an
uninsured motorist provision, does not state a limit as to when an uninsured motorist
claim may be brought. Therefore, the court applied the 10-year statute of limitations
applicable to contract actions and directed Coronet to proceed to arbitration of the
plaintiffs= claims. Moses, 192 Ill. App. 3d at 924-25, 926.
In Burgo v. Illinois Farmers Insurance Co., 8 Ill. App. 3d 259, 261, 290 N.E.2d
371 (1972), the uninsured motorist provision required the policyholder to demand
arbitration within one year of the date of the accident. The court held that if the practical
effect of the one-year limitation provision was to deny the insured the contracted
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uninsured motorist coverage required by statute, then the provision is void and without
effect. Burgo, 8 Ill. App. 3d at 263.
"[T]here is a possibility that the uninsured status of a tort-
feasor may not be determined until several years after the
accident. In this situation the insured would be defeated by
the one-year provision without having the opportunity to
invoke the coverage he had been paying for, because the
insured plaintiff had no way of knowing the tort-feasor
defendant would become an uninsured motorist. *** The
one-year limitation in the policy is a dilution or diminution of
the uninsured motorist statute and is an attempt to defeat the
intent and the purpose of the statute." Burgo, 8 Ill. App. 3d
at 263-64.
Here, the provision required the insureds to demand arbitration within two years
of the accident date. There is no exception made for an insured who could not discover
the insolvency of the tortfeasor=s insurer before the two-year limitation has passed.
Where the company becomes insolvent after the deadline, the insured is denied the
insurance coverage for which he or she has contracted and paid premiums. The
provision clearly is intended to defeat uninsured motorist coverage. As applied to these
insureds, it violates section 143a of the Insurance Code and the public policy of Illinois
to provide uninsured motorist coverage in every automobile insurance policy.
ASI contends courts in other cases have enforced similar time limitations and
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refused to find a public policy violation. The cases relied on by ASI, however, involve
underinsured motorist claims rather than uninsured motorist claims.
In Hannigan v. Country Mutual Insurance Co., 264 Ill. App. 3d 336, 338, 636
N.E.2d 897 (1994), the plaintiff made a written demand for arbitration on her insurer
based on a claim of underinsurance. The insurer denied plaintiff=s claim because it was
made more than two years after the accident date, in violation of an express provision in
the insurance policy. Hannigan, 264 Ill. App. 3d at 338.
The Plaintiff contended she did not discover the inadequacy of the tortfeasor=s
insurance until after the two-year limitation period had run. Hannigan, 264 Ill. App. 3d at
338. The court held the language of the policy was clear and unambiguous. The
plaintiff failed to meet the requirement of serving notice of arbitration on her insurer
within two years after the date of the accident. Hannigan, 264 Ill. App. 3d at 340. The
court did not address, nor did the plaintiff raise, a public policy argument like the one
made in this case.
In Shelton v. Country Mutual Insurance Company, 161 Ill. App. 3d 652, 654, 515
N.E.2d 235 (1987), the issue was whether the plaintiff=s underinsured motorist claim
was barred by the two-year limitation provision in the policy. The other driver=s policy
had a limit of $25,000, which was paid about 16 months after the accident.
Approximately two months later, the plaintiff=s attorney sent Country Mutual a "Notice of
Attorney=s Lien" asserting that she had hired him to prosecute her claim for
underinsured motorist benefits. Shelton, 161 Ill. App. 3d at 654. No further course of
action was pursued on the plaintiff=s claim. Country Mutual denied the claim on the
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basis that the two-year limitation had passed.
The court found the two-year limitation provision was not ambiguous and did not
violate public policy. Shelton, 161 Ill. App. 3d at 659-60. The court distinguished the
cases involving uninsured motorist claims. The rationale in uninsured motorist
coverage cases, relating to placing the accident victim in at least as good a position as
he would have been had the tortfeasor obtained the minimum insurance required by
law, was not applicable to underinsurance cases. Shelton, 161 Ill. App. 3d at 659-60.
In Vansickle v. Country Mutual Insurance Co., 272 Ill. App. 3d 841, 651 N.E.2d
706 (1995), the court upheld the two-year limitation provision. The court held an
insured can sufficiently allege a cause of action for underinsured motorist benefits if she
has sufficient facts to proceed against the tortfeasor. Vansickle, 272 Ill. App. 3d at 843.
The only other requirements are that the insured=s damages and the underinsured
motorist coverage exceed the tortfeasor=s liability insurance. Vansickle, 272 Ill. App. 3d
at 843. The court said, "[i]nsurance companies that utilize suit limitation provisions must
expect to be subjected to lawsuits which allege the likelihood of liability under the UM-
UIM coverage." Vansickle, 272 Ill. App. 3d at 843.
Following Vansickle, the court in Parish v. Country Mutual Insurance Co., 351 Ill.
App. 3d 693, 697, 814 N.E.2d 166 (2004), held that although the plaintiffs may not have
been aware of the extent of their damages until after the expiration of the two-year limit,
"they should have been aware of the tortfeasor=s limited insurance coverage from Geico
and the possibility their damages could exceed the tortfeasor=s limited coverage over
the period of months or years necessary to resolve their claim."
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In contrast to the underinsurance cases, where the insureds had knowledge of
the extent of the tortfeasors= insurance coverage prior to expiration of the deadline, or at
least had the ability to learn of the extent of coverage, the insureds in this case could
not have known the tortfeasors= insurers would become insolvent. The insolvencies did
not occur until after the limitations period had passed.
ASI compares this case to Urban v. Loham, 227 Ill. App. 3d 772, 592 N.E.2d 292
(1992), and Burton v. Ramos, 341 Ill. App. 3d 122, 792 N.E.2d 362 (2003). Those
cases do not apply here. Both cases involved setoff of insurance from a state insurance
guaranty fund. In neither case was the issue of the validity of the time limitation in the
insurance policy before the court. ASI contends the insureds should have
preserved their rights by sending a notice of claim and demand for arbitration before the
two-year deadline had passed, even though the tortfeasor=s insurer had not yet been
declared insolvent. We do not agree. To require every insured to file an uninsured
motorist claim in the event the tortfeasor=s insurer becomes insolvent at some time in
the future is neither logical nor practical. ASI=s suggestion would place a burden on
policyholders and their counsel to file numerous unnecessary and questionable claims.
The solution to what occurred in this case is in the hands of the people who prepare
insurance contracts.
We have no quarrel with an insurer=s right to limit its exposure, but there is
nothing reasonable about a limitation that blatantly attempts to defeat the protection
mandated by statute. For the defendants in this case, coverage was illusory. We find
the uninsured motorist notice of claim provision, as applied to these defendants under
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the circumstances in this case, was unenforceable.
While there is no case in Illinois directly addressing this issue, courts in other
states have issued decisions consistent with our view. See, e.g., Faeth v. State Farm
Mutual Automobile Insurance Co., No. 118/03-1552, slip op. at 15 (Iowa December 23,
2005) (application of the contractual limitation on a claim for uninsured motorist
coverage, which serves to extinguish an uninsured-motorist claim before it accrues, is
unreasonable and unenforecable); Kraly v. Vannewkirk, 69 Ohio St. 3d 627, 635, 635
N.E.2d 323 (1994) (an insurance provision establishing a limitations period that expires
before or shortly after the accrual of the right of action for uninsured motorist coverage
is per se unreasonable and violative of public policy).
II. Final Order/Summary Judgment Issues
ASI contends the trial court=s order was not a final order because it did not
dispose of all the issues before the court, including laches and breach of notice of
occurrence, and contends the court lacked jurisdiction over those defendants who had
not been served. ASI further contends the court erred in entering summary judgment in
favor of those parties who had not been served, and in favor of parties who had not
moved for summary judgment.
ASI cites no supporting legal authority for these
contentions. Under Supreme Court Rule 341(e)(7), an appellant=s
brief "shall contain" "[a]rgument, which shall contain the
contentions of the appellant and the reasons therefor, with
citation of the authorities and the pages of the record relied
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on." 188 Ill. 2d R. 341(e)(7). A party=s failure to raise
arguments or cite supporting authority is a violation of Supreme
Court Rule 341, and we may consider those issues waived. Owens
v. Snyder, 349 Ill. App. 3d 35, 45 (2004); Estate of Carolyn J.
Jackson, 354 Ill. App. 3d 616, 620 (2004).
Waiver aside, we find the trial court=s order was a final
order. An order is final if it terminates the litigation between the parties on the merits
or disposes of the rights of the parties either on the entire controversy or on some
definite part of it. Waters v. Reingold, 278 Ill. App. 3d 647, 651, 663 N.E.2d 126 (1996).
ASI contends the trial court failed to dispose of all the issues in ASI=s complaint.
Specifically, the court did not consider the allegations of laches and certain defendants=
failure to notify ASI of the occurrence "as soon as practicable." Where an order
granting summary judgment does not dispose of all the issues as to plaintiffs and
defendants, the order is not a final order upon which the cause may be dismissed. In re
Estate of Albergo, 275 Ill. App. 3d 439, 656 N.E.2d 97 (1995). But see Diggs v.
Suburban Medical Center, 191 Ill. App. 3d 828, 836, 548 N.E.2d 373 (1989) (an order
granting summary judgment is a final order).
The trial court=s written order does not mention the issues of laches or notification
of occurrence. It is not clear whether these issues were raised in the summary
judgment hearing because the record contains no transcript of the oral arguments prior
to the entry of summary judgment. In the absence of a complete record supporting
ASI=s claim of error, we presume the trial court considered the issues. Foutch v.
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O=Bryant, 99 Ill. 2d 389, 391-92, 459 N.E.2d 958 (1984). "Any doubts which may arise
from the incompleteness of the record will be resolved against the appellant." Foutch,
99 Ill. 2d at 392.
We agree that the trial court=s order did not apply to the
defendants who were not served and had not appeared in the
action, because those defendants were not "parties." Where a
named insured has not been served and has not appeared, the court
has no jurisdiction over the named insured, and he is not bound
by an adjudication. Safeway Insurance Co. v. Harvey, 36 Ill.
App. 3d 388, 392, 343 N.E.2d 679 (1976). "Basic notions of due
process forbid the entry of a decree affecting the interests of a
party not before the court." Safeway, 36 Ill. App. 3d at 392.
However, there is no reason to invalidate the entry of summary
judgment in favor of those defendants who were served and made
parties to this action.
Finally, we see no error in the court=s order entering summary judgment for all
"party defendants," even though some of the defendants had not moved for summary
judgment. The issue of the time limitation provision was identical as to each of the
defendants. ASI had a sufficient opportunity to respond to the motions for summary
judgment that were filed, and ASI makes no claim of prejudice or lack of notice prior to
the court=s entry of summary judgment.
CONCLUSION
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We affirm the entry of summary judgment in favor of the defendants who were
properly served. The entry of summary judgment does not apply to defendants Talv,
Lopez, Griffin, and Watford.
Affirmed with modifications.
GARCIA, P.J., and HALL, J., concur.
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