Vega v. Gore, No. 2-99-0680

2nd District, 24 May 2000

JUSTICE INGLIS delivered the opinion of the court:

Defendant and garnishee, Valor Insurance Company (Valor), appeals the judgment of the circuit court of WinnebagoCounty denying its cross-motion for summary judgment and granting the motion for summary judgment of plaintiff andgarnishor, Herlindo Vega. We reverse and remand.

On June 7, 1996, plaintiff was involved in an automobile collision with defendant Jacqueline Gore (defendant), in whichplaintiff sustained property damage and personal injuries. Defendant was insured by Valor at that time.

On June 28, 1996, plaintiff notified both defendant and Valor that he was making a claim against defendant's insurance forproperty damage and personal injuries sustained in the collision. Valor acknowledged its receipt of plaintiff's claim, and onJuly 15, 1996, Valor denied defendant's liability for the collision. Thereafter, plaintiff submitted further information toValor that included copies of the police report of the collision, medical records, and medical bills. On May 23, 1997, Valoragain denied defendant's liability.

On October 17, 1997, plaintiff filed a personal injury and property damage action against defendant but was unable to effectpersonal service on defendant after diligent efforts. Plaintiff subsequently served defendant through the Secretary of Statepursuant to section 10--301 of the Illinois Vehicle Code (625 ILCS 5/10--301 (West 1996)).

On March 3, 1998, plaintiff obtained an order of default against defendant. The March 3 order indicated that defendant hadbeen served through the Secretary of State and further provided that a hearing would be held on March 26, 1998, in order toprove up damages. On March 5, 1998, plaintiff mailed, by certified mail with return receipt requested, a copy of the order todefendant at defendant's last known address. The record indicates that defendant did not receive this letter. On March 24,plaintiff mailed, by certified mail with return receipt requested, a copy of the March 3 order to Valor. The return receiptindicated that Valor received the copy of the order on March 27, 1998, one day after the scheduled hearing on damages.

On March 26, 1998, plaintiff attended the prove-up hearing on damages. The trial court entered a default judgment andawarded plaintiff damages of $20,000. On April 15, 1998, plaintiff mailed a copy of the March 26 order to Valor bycertified mail, return receipt requested. Valor received the copy of the order on April 16, 1998.

On July 14, 1998, plaintiff filed his garnishment action against Valor, seeking to collect the proceeds of his judgmentagainst defendant from Valor. Valor contended that because it had not been timely notified of the existence of the personalinjury suit, plaintiff could not collect the policy proceeds.

Plaintiff and Valor filed cross-motions for summary judgment. On May 20, 1999, the trial court granted plaintiff's motionfor summary judgment and denied Valor's motion. The trial court found that Valor had "received notice of lawsuit No. 97[--]AR[--]697 in sufficient time to locate and defend it, but did not do so." The trial court entered judgment in favor ofplaintiff and against Valor in the amount of $20,000 plus costs. Valor timely appeals.

Valor contends that the trial court erroneously granted plaintiff's motion for summary judgment and denied Valor's motionfor summary judgment. Summary judgment will be granted if there is no genuine issue of material fact and the movingparty is entitled to judgment as a matter of law. 735 ILCS 5/2--1005(c) (West 1996); Travelers Insurance Co. v. EljerManufacturing, Inc., 307 Ill. App. 3d 872, 878 (1999). We review the trial court's decision de novo. Preferred AmericaInsurance v. Dulceak, 302 Ill. App. 3d 990, 993 (1999).

At issue on appeal is the effect of the notice provision of defendant's insurance policy, which provides that Valor "will notbe obligated to pay, and shall not pay under Part I, unless the company received actual notice of a lawsuit before a judgmenthas been entered in said suit." Valor argues that, by allowing plaintiff to garnish the insurance fund, the trial court erred bydetermining that Valor had sufficient notice "to locate and defend" plaintiff's suit, even though neither party disputed thefact that Valor did not receive notice of the default judgment before it was entered. We agree with Valor's argument.

Generally, in order to prevail in a garnishment action, a judgment creditor must present a claim that the insured himselfcould have maintained. Rice v. AAA Aerostar, Inc., 294 Ill. App. 3d 801, 806 (1998). Thus, where an insured breaches theconditions of the insurance policy, the judgment creditor is generally prohibited from garnishing the proceeds of theinsurance policy. Rice, 294 Ill. App. 3d at 806.

There are, however, a number of public policy considerations that will prevent the insurer from avoiding payment under thepolicy, especially where an innocent third party has been injured by the insured. The insurer may be liable for a judgmenteven where there has not been compliance with the terms of the policy provisions so long as the insurer received actualnotice of the suit. Rice, 294 Ill. App. 3d at 807. "Actual notice" means that an insurer is given sufficient notice to allow it tolocate and defend the suit. Cincinnati Cos. v. West American Insurance Co., 183 Ill. 2d 317, 329 (1998). Notice is sufficientwhere the insurer knows both that a cause of action has been filed and that the complaint falls within or potentially fallswithin the scope of coverage of the insurer's policy. Cincinnati Cos., 183 Ill. 2d at 329-30.

An insurer nevertheless may be relieved of its duty to indemnify where it is able to demonstrate prejudice accruing fromlack of notice of a lawsuit. Rice, 294 Ill. App. 3d at 807-08. An insurer may demonstrate prejudice where it does not receivenotice of a suit until after a default judgment is entered, as the insurer is deprived of the opportunity to present evidence andengage in cross-examination of the opposing witnesses on the issues of liability and damages. American Country InsuranceCo. v. Cash, 171 Ill. App. 3d 9, 11 (1988); Reisman v. Delgado, 117 Ill. App. 3d 331, 335-36 (1983).

In this case, plaintiff notified Valor of the occurrence in 1996. Valor investigated and denied liability. On October 17, 1997,plaintiff filed his personal injury action against defendant. The record indicates that plaintiff was unable to discoverdefendant's whereabouts and, sometime before March 3, 1998, obtained substitute service on defendant through theSecretary of State. On March 3, 1998, plaintiff received a default judgment against defendant and, on March 5, 1998,mailed a copy of the default judgment to defendant's last known address. The March 3 order provided that the trial courtwould hear evidence of damages on March 26, 1998. On March 24, 1998, plaintiff mailed a copy of the March 3 order toValor; the record indicates that this is plaintiff's first attempt to provide Valor with notice of his lawsuit. On March 26,1998, the trial court entered default judgment against defendant in the amount of $20,000. Valor received its first notice ofthe existence of plaintiff's lawsuit on March 27, 1998, when it received the copy of the March 3 order via certified mail.

Plaintiff thus falls afoul of the notice provision of the insurance contract; Valor did not receive actual notice of the lawsuituntil after judgment had been entered. Under the terms of the insurance contract, Valor is not obligated to indemnify theloss. The question remains, however, whether plaintiff may be held responsible for the terms of defendant's contract withValor, to which plaintiff was not privy, thus denying plaintiff recovery.

The logical and reasonable inferences drawn from the facts suggest that plaintiff's submission of the March 3 order to Valorwas designed to present Valor with the fait accompli of a default judgment entered against its insured by the time Valorwould have received the notice in the mail. Certainly this is what actually occurred. We note that the record contains noindication that, at any time before March 24, 1998, plaintiff attempted to notify Valor of the pendency of his suit. We alsonote that, sometime before March 3, 1998, plaintiff definitively knew that defendant was nowhere to be found and wouldnot be in a position to fulfill her contractual duties and notify Valor of the existence of plaintiff's suit. Further, plaintiffknew that Valor was defendant's insurer, having provided Valor with notice of the occurrence of the claim in 1996.Moreover, plaintiff was the only party in this action with the knowledge of where and when he would file his lawsuit. (Weemphasize that, although plaintiff afforded Valor notice of the occurrence, this is separate and distinct from notice of thelawsuit.) Thus, reconciling the fact that plaintiff mailed a notice to defendant on March 5 (which plaintiff certainly knewthat defendant would never receive) with the fact that plaintiff mailed a notice to Valor on March 24, two days before thedamages hearing, leads to the conclusion that plaintiff deliberately and knowingly failed to reasonably notify Valor so thatit could locate and defend the suit in time to meaningfully participate in any hearing on the merits.

The undisputed facts in this case show that Valor did not receive timely notice of the lawsuit. Further, plaintiff was the onlyparty in a position to give Valor that notice and could have done so at any time between October 17, 1997, and March 24,1998, but did not do so. Because defendant was nowhere to be found, a fact which plaintiff knew, it is unreasonable to putthe burden of discovering the existence of the lawsuit on Valor.

Further, we conclude that Valor demonstrated prejudice as a result of the entry of judgment prior to receiving notice. Wenote that, at best, Valor had the bare knowledge of the existence of the lawsuit--the names of the parties, the court in whichthe action was filed, and the action's docket number--but had no knowledge of plaintiff's actual legal and factual claimsbecause plaintiff did not tender a copy of his complaint to Valor at any time prior to filing the garnishment action.Accordingly, based on the specific facts of this case, we hold that the trial court erred as a matter of law in determining thatValor had actual notice sufficient to allow it to locate and defend against plaintiff's suit.

Plaintiff argues that "[i]n some cases notice of suit even after a default is entered might enable the insurer to satisfactorilydefend the suit, if the insurer would be able to persuade the court to vacate the default." Rice, 294 Ill. App. 3d at 808.Plaintiff argues that Valor could have attempted to vacate the default judgment pursuant to section 2--1301(e) of the Codeof Civil Procedure (735 ILCS 5/2--1301(e) (West 1998)). We disagree. Neither plaintiff nor our own research hasuncovered a case requiring an insurer to attempt to open up a judgment after its entry in order to enforce the plain andunambiguous provisions of its insurance contract. We decline plaintiff's invitation to impose such a requirement where, asin this case, the plaintiff is the only entity in a position to ensure that proper notice is given.

The cases on which plaintiff relies are distinguishable. In Rice, the plaintiff had made statements to the insurer threateningto file a lawsuit. Rice, 294 Ill. App. 3d at 808. The court held that this was insufficient to afford the insurer actual notice ofthe suit. Moreover, the court refused to impose the burden of discovering whether a lawsuit had been filed on the insurereven where the insurer had actual notice of the occurrence. Rice, 294 Ill. App. 3d at 808.

Further, plaintiff's reliance on the court's dictum in Rice is misplaced. Although the court was able to envision "some cases"in which the insurer may be able to receive actual notice after default judgment had been entered, this statement does notconstitute a holding in the case. Rice, 294 Ill. App. 3d at 808. In any event, the case at bar does not fall into the realmenvisioned by the Rice court because, due to defendant's absence, only plaintiff was in a position to tender notice to Valor.

Plaintiff also relies on Illinois Founders Insurance Co. v. Barnett, 304 Ill. App. 3d 602 (1999). This case reviews, amongother things, whether the facts adduced at trial established that the insurer received actual notice of the lawsuit. Barnett, 304Ill. App. 3d at 608. The different standard of review renders this case inapposite to the case at bar. Further, the issue inBarnett was the factual determination of whether the insured's timely notification of the insurer's longtime broker andinvestigator constituted actual notice (Barnett, 304 Ill. App. 3d at 608) and not the legal effect of the entry of a defaultjudgment on the insurer's policy defenses. Last, in Barnett, the insured in fact gave the insurer timely actual notice of thesuit by tendering copies of the complaint to the insurer's agents, unlike the case at bar, where only notice of a defaultjudgment was tendered to Valor after the default judgment had already been entered.

Based on our resolution of the issue of notice, we need not consider Valor's other contentions. The judgment of the circuitcourt of Winnebago County is reversed, and this cause is remanded with directions that judgment be entered in favor ofValor and against plaintiff.

Reversed and remanded with directions.

THOMAS and HUTCHINSON, JJ., concur.