American Service Insurance Company v. Franchini

SECOND DIVISION
DECEMBER 15, 2009
1-09-0367
AMERICAN SERVICE INSURANCE COMPANY, ) Appeal from the
) Circuit Court of
Plaintiff-Appellee, ) Cook County.
)
v. ) No. 07 CH 13990
)
DAVID FRANCHINI and CAROLINA FRANCHINI, ) Honorable
) Peter Flynn,
Defendants-Appellants. ) Judge Presiding.
PRESIDING JUSTICE CUNNINGHAM delivered the opinion of the court:
Defendants David and Carolina Franchini (collectively, the Franchinis), who are brother and
sister, appeal from an order of the circuit court of Cook County denying their motion for leave to file
a late counterclaim to the declaratory judgment action filed against them by plaintiff American
Service Insurance Company (ASI). David Franchini (David) was the policyholder on an automobile
insurance policy written by ASI. Carolina Franchini (Carolina) was driving David’s automobile
when she collided with an automobile owned by Takena and Nathan Wright (the Wrights) and driven
by Takena Wright. The Wrights subsequently sued the Franchinis for personal injuries and damages
arising from that collision. The declaratory judgment action brought by ASI sought a declaration that
David1 had defrauded ASI by failing to inform ASI in his insurance application that Carolina lived
with him and frequently drove his automobile. On that basis, ASI sought to have its insurance policy
1
ASI also named the Wrights as defendants, but a default judgment was obtained against
them and they are not parties to this appeal.
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with David declared void ab initio, eliminating any obligation that ASI had under the policy with
respect to the collision between the automobiles driven by Carolina and Takena. In their proposed
counterclaim, the Franchinis sought a declaration that ASI had engaged in unreasonable and
vexatious conduct by denying insurance coverage to them without thoroughly investigating the
matter. The circuit court of Cook County denied the Franchinis leave to file the proposed
counterclaim, and this appeal ensued. We affirm.
BACKGROUND
The relevant underlying facts are undisputed. On October 30, 2004, ASI issued a personal
automobile insurance policy to David on his 1997 Ford Expedition. The policy period was October
31, 2004, to October 31, 2005. During this period, on March 8, 2005, Carolina was driving David’s
automobile with his permission when she collided with the Wrights’ automobile, driven by Takena,
at an intersection in Ottawa, Illinois. The Franchinis reported the accident to ASI that same day.
On March 7, 2007, the Wrights filed a complaint against the Franchinis, seeking $25,000 for
personal injuries to Takena and property damage to their automobile arising out of the March 8, 2005
collision between David’s automobile and the Wrights’ automobile.
On April 5, 2005, ASI rescinded its insurance policy issued to David, based on his alleged
fraud. Nonetheless, ASI later provided legal representation for the Franchinis in the lawsuit filed
against them by the Wrights on March 7, 2007. However, ASI reserved the right to cease that
representation if it determined that David had made material misrepresentations when he applied
for the insurance policy with ASI prior to the automobile collision. There is evidence in the record
that shortly after the accident, Carolina told an ASI investigator that she lived with David and
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frequently drove David’s automobile prior to the accident. Subsequently, in her deposition, Carolina
denied having made this statement and denied that she had driven David ’s automobile on any other
occasion, either before or after the accident. She also denied living with David at the time of the
accident. However, an Illinois traffic control report filed after the accident lists the same home
address for Carolina and David .
On March 4, 2007, ASI filed this declaratory judgment action in the circuit court of Cook
County against Carolina and David individually. Carolina and David first represented themselves
pro se, filing separate answers, with no counterclaim, on July 20, 2007 (Carolina), and July 23, 2007
(David ). The Franchinis, both Carolina and David, later obtained the representation of the law firm
of Sanchez, Daniels & Hoffman, LLP, on November 16, 2007, and were granted leave to file an
amended answer or otherwise plead on or before December 7, 2007, but they did not do so, nor did
they seek leave to file a counterclaim. The law firm of Jump & Associates was later substituted as
counsel for the Franchinis on February 25, 2008. No amended pleadings or counterclaim was filed
by the successor law firms. Indeed, throughout the proceedings in the circuit court, the Franchinis
relied upon their original pro se responsive pleadings. The Franchinis did not seek leave to file a
counterclaim until May 14, 2008, over 19 months after ASI filed its declaratory judgment action and
almost 10 months after the Franchinis filed their pro se responsive pleadings.
ASI opposed the attempt by the Franchinis to file the counterclaim on May 8, 2008. ASI
asserted that it was untimely and that it failed to state a cause of action. The trial court did not
specifically rule on the timeliness argument advanced by ASI, but did find that the counterclaim
failed to allege facts establishing any vexatious or unreasonable conduct by ASI in its defense of the
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Franchinis. In other words, the counterclaim failed to state a cause of action under section 155 of
the Insurance Code. 215 ILCS 5/155 (West 2006). The trial court also noted that ASI had
represented to the court that it had reached a tentative settlement with the Wrights in the underlying
lawsuit by the Wrights against the Franchinis, and that upon successful resolution of that settlement,
ASI would seek dismissal of its declaratory judgment action against the Franchinis. However, after
the Franchinis sought leave to file the counterclaim in question, ASI ceased its settlement
negotiations with the Wrights. The trial court later denied the Franchinis’ motion for leave to file
the counterclaim2 in question. Subsequently, during the pendency of the Franchinis’ motion for
reconsideration of the trial court’s denial of leave to file a counterclaim, ASI voluntarily dismissed
its complaint for declaratory judgment against the Franchinis in anticipation of a settlement with the
Wrights. The Franchinis appeal from the circuit court’s denial of leave to file the counterclaim
against ASI pursuant to section 155 of the Illinois Insurance Code. 215 ILCS 5/155 (West 2006).
ANALYSIS
The Franchinis based their proposed counterclaim upon section 155 of the Illinois Insurance
Code, which provides for monetary sanctions in insurance coverage actions involving issues of
liability under an insurance policy, the amount of the loss, or unreasonable delay in settling a claim
if “it appears to the court that such action or delay is vexatious and unreasonable.” 215 ILCS 5/155
(West 2006). Preliminarily, we note that the Franchinis’ counterclaim was not timely filed, coming
2
The Franchinis’ proposed counterclaim had a second count seeking a declaration that
ASI was bound to represent them under David’s insurance policy. The trial court held that this
count was inherently part of the ASI declaratory judgment action and thus was superfluous in a
counterclaim. The Franchinis have not appealed that ruling, and we will not consider it further.
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as it did over 19 months after ASI filed its declaratory judgment action against the Franchinis.
Counterclaims should be part of the answer or response filed by a defendant. 735 ILCS 5/2-608(b)
(West 2006). No counterclaim accompanied the Franchinis’ July 20 and July 23, 2007 responses
to the declaratory judgment complaint filed by ASI. Nor did they seek leave to file an amended
response or a counterclaim when they subsequently obtained the services of the Sanchez law firm,
or when they substituted the Jump law firm as counsel. Under these circumstances it is within the
discretion of the trial court whether to allow the late filing of a counterclaim for relief under section
155 of the Illinois Insurance Code, and the trial court’s exercise of its discretion will only be
overturned if it is found to have abused its discretion. Siwek v. White, 388 Ill. App. 3d 152, 158-60,
905 N.E.2d 278, 284-85 (2009).
It is insufficient for a party to merely assert that the other party’s actions were “vexatious
and unreasonable” without also alleging facts supporting such a claim. American Alliance Insurance
Co. v. 1212 Restaurant Group, L.L.C., 342 Ill. App. 3d 500, 511, 794 N.E.2d 892, 901 (2003). It
is instructive to review examples of conduct which Illinois courts have held to constitute vexatious
and unreasonable actions or delay. In one example, an insurance company forced an insured to sue
to establish recovery where the company unsuccessfully filed five sets of affirmative defenses,
ultimately resulting in dismissal of those defenses with prejudice. Siwek, 388 Ill. App. 3d at 160,
905 N.E.2d at 285. In another example, an insurance company delayed payment solely on the basis
of a clearly erroneous legal construction. Janes v. Western States Insurance Co., 335 Ill. App. 3d
1109, 1116-17, 783 N.E.2d 37, 42-44 (2001). In yet another example, an insurance company failed
to notify its insured that the company possessed a conflict of interest in defending the underlying tort
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action, and continued to represent its insured for three years despite efforts by the insured to obtain
other counsel. Williams v. American Country Insurance Co., 359 Ill. App. 3d 128, 141-42, 833
N.E.2d 971, 982 (2005). Lastly, an insurance company was found to have breached its duty to
defend when it failed to respond to its insured’s demands for coverage and also failed to file a
declaratory judgment action to determine coverage or to defend its insured under a reservation of
rights. La Grange Memorial Hospital v. St. Paul Insurance Co., 317 Ill. App. 3d 863, 869, 740
N.E.2d 21, 29-30 (2000).
The allegations of vexatious and unreasonable conduct by ASI asserted in the Franchinis’
proposed counterclaim fall far short of the types of specific and egregious acts illustrated by the cases
cited. The Franchinis erroneously state that ASI denied them a defense and indemnification because
ASI alleged that David had misrepresented information on his insurance application. But in fact,
despite evidence of such a misrepresentation by David, ASI defended the Franchinis against the
lawsuit filed by the Wrights, while reserving its right to cancel coverage should fraud or material
misrepresentation by David be established. ASI also filed this declaratory judgment action to have
a court of law determine whether there had been such fraud or material misrepresentation. These
actions by ASI are precisely those endorsed by our supreme court in Employers Insurance of Wausau
v. Ehlco Liquidating Trust, 186 Ill. 2d 127, 153, 708 N.E.2d 1122, 1136 (1999), and in La Grange,
317 Ill. App. 3d at 869, 740 N.E.2d at 29, as those which a responsible insurance company should
take. These same actions by ASI negate the claims of the Franchinis that ASI failed to investigate
Carolina’s residency before denying insurance coverage and ignored documents establishing that
Carolina did not live with David. As we have noted, from the first days after the collision between
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the automobiles belonging to David and the Wrights, there was evidence that Carolina had been
living with David and driving his automobile on a regular basis. One ASI investigator reported that
Carolina had admitted to him that she had been living with David and driving his automobile. The
Illinois traffic control report filed as a result of the accident also showed that the Franchinis lived at
the same address. Faced with Carolina’s subsequent deposition testimony denying these earlier
statements, ASI did the responsible thing by proceeding with the Franchinis’ defense with a
reservation of its right to deny coverage if its investigation revealed fraud or material
misrepresentation. ASI also sought a declaratory judgment regarding David’s coverage. Contrary
to the allegations of the Franchinis in their proposed counterclaim, the fact that they were required
to defend themselves in ASI’s declaratory judgment action was a necessary part of the procedural
process by which ASI sought to have a court of law determine its obligations to David under the
policy of insurance. ASI alleged, and the Franchinis do not deny, that different rates may have
applied to David’s insurance policy had he disclosed that Carolina regularly drove his automobile.
We find no abuse of discretion in the trial court’s determination that the allegations in the
Franchinis’ proposed counterclaim did not state a claim upon which relief could be granted under
section 155 of the Illinois Insurance Code. Accordingly, the trial court properly refused to allow the
late filing of the Franchinis’ counterclaim.
We affirm the judgment of the circuit court of Cook County.
Affirmed.
THEIS and KARENZIS, JJ., concur.
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