West American Insurance v. Yorkville National Bank

SUPREME COURT CASES

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State: Illinois

Court: 3rd District Appellate

Docket No: 3-07-0104 Rel

Case Date: 02/27/2009

Preview:No. 3-07-0104 _____________________________________________________________________________ Filed February 27, 2009 IN THE APPELLATE COURT OF ILLINOIS THIRD DISTRICT A.D., 2009 ______________________________________________________________________________ WEST AMERICAN INSURANCE CO., ) Appeal from the Circuit Court of the ) Thirteenth Judicial Circuit, Plaintiff-Appellant, ) LaSalle County, Illinois, Cross-Appelllee, ) ) v. ) ) No. 04-MR-57 YORKVILLE NATIONAL BANK, ) BERNARD J. WIEGMANN, and ) SHERYL H. KUZMA, ) The Honorable ) James A. Lanuti, Defendants-Appellees, ) Judge Presiding. Cross-Appellants. ) ______________________________________________________________________________ JUSTICE McDADE delivered the opinion of the court: ______________________________________________________________________________ This appeal arises from a declaratory judgment action filed in the circuit court of LaSalle County to resolve insurance coverage issues. Plaintiff, West American Insurance Company, appeals arguing that the court erred in determining that it owed a duty to provide coverage to the defendant, Yorkville National Bank. Defendant cross-appeals arguing that the court erred in determining defendant is not entitled to sanctions under section 155 of the Insurance Code (215 ILCS 5/155 (West 2004)). For the reasons that follow, we reverse the finding that West American had a duty to provide coverage, affirm the determination that Yorkville National Bank was not entitled to sanctions for alleged vexatious and unreasonable delay, and remand for further

proceedings. FACTS The insurance coverage case has its roots in an underlying defamation suit brought by Sheryl Kuzma (Kuzma) against defendant and its vice president, Bernard Wiegmann. Kuzma filed her complaint on September 24, 2001. Specifically, she alleged that her professional reputation had been irreparably damaged following utterances by Wiegmann in his official capacity. In March 2004, a jury returned a $2.2 million verdict in favor of Kuzma and against defendant and Wiegmann. The parties subsequently negotiated a settlement for the reduced amount of $1.75 million. At the time of the defamation, defendant was insured under a policy issued by plaintiff, West American Insurance Company. The defendant was a client of Zeiter-Dickson Insurance Agency (Zeiter-Dickson). Richard Dickson, one of the founding partners of Zeiter-Dickson, originally placed defendant with the West American Commercial General Liability policy (the policy). The policy cites defendant as the named insured and provides that plaintiff will pay certain damages that the insured becomes legally obligated to pay. As a condition of coverage, the policy requires defendant to notify plaintiff of any lawsuit. Specifically, the policy's notice provision states: "If a claim is made or `suit' is brought against any insured, you must: (1) Immediately record the specifics of the claim or `suit' and the date received; and (2) Notify us as soon as practicable. You must see to it that we receive written notice of the claim or 2

`suit' as soon as practicable." Although Kuzma filed her complaint on September 24, 2001, defendant did not forward plaintiff written notice of the suit until January 19, 2004. At this time discovery was already closed and the matter had been set for a jury trial to begin on March 15, 2004. On March 9, 2004, plaintiff filed a complaint for declaratory judgment in the circuit court of LaSalle County. The complaint asserted that defendant breached the notice provision of the policy by failing to provide written notice of the suit for more than 27 months after the suit was filed and a mere eight weeks before the matter was scheduled for trial. Thus, plaintiff sought a judgment that it had no obligation to provide coverage to defendant in connection with the Kuzma suit. Defendant responded arguing that plaintiff received oral notice of the suit on six separate occasions prior to being tendered written notice on January 19, 2004. Defendant asserted that these six instances of oral notice constituted "actual notice" thereby triggering plaintiff's duty to provide coverage. Defendant's first allegation of "actual notice" involves a conversation in late 2001 or early 2002 between Richard Dickson, who at the time was an agent of Zeiter-Dickson, and James Liggett, who was serving as defendant's president. Liggett states that he told Dickson that defendant was involved in a defamation suit and that the current D&O carrier would not cover the suit. He then asked Dickson whether defendant would have coverage under the Zeiter-Dickson policy. Dickson allegedly responded probably not. The second allegation of "actual notice" involves a conversation in late 2002 between Liggett and Joel Ottosen, another agent of ZeiterDickson. Liggett stated that this conversation was very similar to the one he had with Dickson in that he inquired as to whether the policy would provide coverage. Ottosen denies that this 3

conversation ever occurred. The third and fourth allegations of "actual notice" involve two conference calls in 2001 and 2002 between Liggett, Ottosen and Daniel Kramer, who at the time was serving as defendant's in-house counsel. During the alleged calls Liggett again inquired as to whether defendant would have any coverage under the policy. No notes or confirming correspondence exist memorializing these conversations. Ottosen also denies that either of these conversations ever took place. The fifth and sixth instances of claimed "actual notice" occurred during defendant's Board of Directors meetings on September 16, 2002, and November 18, 2002. Dickson was present at both of these meetings. According to the minutes of the meetings, Liggett disclosed to the board that defendant had been sued for defamatory comments made by Wiegmann. He also disclosed the parties to the litigation and that there were some additional legal expenses involved with the lawsuit. Following a bench trial, the circuit court granted a declaratory judgment in favor of defendant, ruling that plaintiff owed defendant a duty to provide coverage in connection with the Kuzma suit. As to defendant's failure to comply with the policy's notice provision the court stated: "[E]ven though the policy says they have to submit and tender the complaint in writing to be covered, that [is] not the law. The law is once the insurance company receives actual notice of the lawsuit, they have a duty to defend it. The only way they get out of that is by, according to the Supreme Court, contact[ing] the insured to ascertain whether the insurer's assistance is desired. So it would seem under Cincinnati [Cincinnati v. West American Insurance 4

Co., 183 Ill. 2d 317, 701 N.E.2d 499 (1998)] that once an insurance company receives actual notice that a lawsuit has been filed they have an obligation to proceed. To either defend it or contact the insured to find out if they want them to defend it." The court concluded that at least two, and possibly four, of the six allegations of oral notice were sufficient to give plaintiff "actual notice" of the Kuzma suit. Specifically, the court stated: "Cincinnati, I think, and I don't think you need expert testimony for this, Cincinnati kind of indicates to me that the burden is on Dickson. The lawsuit has been filed. You've been told about the lawsuit. You don't have to have it officially tendered to have a duty to defend. At that point you have an obligation to follow-up, I think, and say you've been sued, let me see the complaint, tell me what it's about. You just asked me if you were covered in a lawsuit, I better get the information so I can decide. And it's stipulated in the record that he was an agent of the agency at the time this happened. He was the person they'd been doing business with for years. This happened outside the board of director's meetings. He was specifically questioned in the bank office about this lawsuit. He 5

found out about the lawsuit two more times while he was at the board of directors meetings and apparently never made any inquiry to the bank to follow-up. I think under Cincinnati, the knowledge of Dickson is imputed to the company and under Cincinnati, once the company knows there's a lawsuit, they've got an obligation to follow-up." Upon finding plaintiff had a duty to provide coverage, the court directed plaintiff to pay stipulated damages in the amount of $1,982,778.78. While this amount represented the total amount of damages including any penalties under section 155, the court found that plaintiff's actions after receiving notice were not vexatious and unreasonable. Thus, the court denied defendant's motion for sanctions under section 155 of the Insurance Code (215 ILCS 5/155 (West 2004)). Both parties filed notices of appeal from the circuit court judgment. STANDARD OF REVIEW The parties disagree on the standard of review. Plaintiff asserts our review is de novo, calling our attention to the fact that where, as here, the material facts of a case are undisputed, the insured's diligence in forwarding the requisite notice to the insurer becomes solely a question of law. See Grasso v. Mid-Century Insurance Co., 181 Ill. App. 3d 286, 289, 536 N.E.2d 977, 979 (1989) Defendant counters by arguing that the question of whether the six alleged instances of oral notice constitute "actual notice" is a factual determination and therefore will not be reversed unless such determination is against the manifest weight of the evidence. While defendant's assertion is true, it ignores the fact that we first must determine whether defendant's 6

written notice 27 months after the suit was filed violated the policy's notice provision, and if so, what effect that has on defendant's right to coverage. Defendant does not dispute the fact that it did not provide written notice until 27 months after suit was filed. Instead, defendant argues that "actual notice trumps technical policy language." Because this argument presents a disputed question of law, our review as to this issue is de novo. Gines v. Ivy, 358 Ill. App. 3d 607, 609-10, 832 N.E.2d 937, 938 (2005). ANALYSIS Appeal We note at the outset that this appeal requires us to consider the appropriate application of the supreme court's decisions in Cincinnati Cos. v. West American Insurance Co., 183 Ill. 2d 317, 701 N.E. 2d 499 (1998), and the line of cases exemplified by Country Mutual Insurance Co. v. Livorsi Marine, Inc., 222 Ill. 2d 303, 8586 N.E. 2d 338 (2006). Cincinnati addressed the narrow question

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