7 September 2000

NO. 4-00-0174

IN THE APPELLATE COURT

OF ILLINOIS

FOURTH DISTRICT

__________________________________________________________________________

JUSTICE GARMAN delivered the opinion of the court:

Defendant, Federated Mutual Insurance Company (Federated), appeals an order of the circuit court of Sangamon Countygranting summary judgment to plaintiff, Country Mutual InsuranceCompany (Country Mutual), in a declaratory judgment action.

In January 1997, Country Mutual issued an automobileinsurance policy, naming Scott Clark as one of its insureds. OnFebruary 17, 1997, Scott's father, Patrick, delivered Scott's 1996Chevrolet truck (Leased Truck) to Smoky Jennings Chevrolet(Jennings) for the purpose of obtaining repairs. Patrick took fromJennings a 1995 GMC Sierra pickup truck (Loaned Truck) to be usedwhile the Leased Truck was being repaired. Several days later,Scott was involved in an automobile accident while driving theLoaned Truck. In January 1998, the driver of the other vehicle,Susanne Howard, filed a lawsuit against Scott and Jennings. Country Mutual tendered the defense of Scott to Federated,Jennings' insurer, on the basis that Federated's policy obligatedit to provide primary coverage for the claims made by Howard. Federated denied coverage and Country Mutual provided a defense toScott in Howard's lawsuit under a reservation of rights. Thereafter, Country Mutual filed its complaint for declaratory judgment. Federated filed a counterclaim requesting declaratory judgment inits favor.

Both parties filed motions for summary judgment. Federated's motion alleged that, at the time that he took theLoaned Truck from Jennings' place of business, Patrick signed an"Assumption of Liability Agreement" (Agreement). That documentprovided in part that the Loaned Truck was to be driven and usedexclusively by and for the accommodation of Patrick and that theLoaned Truck "will be preserved and fully protected from all loss,injury[,] or damage, and any loss, damage, injury, and all expenseof maintenance shall be borne by [Patrick] and [Patrick] herebyagrees to indemnify and hold harmless said dealer for all such, andfor any claim or claims of personal injury or property damage toothers or to [Patrick] arising out of the use or operation of [theLoaned Truck]." The Agreement also stated that Patrick representedthat (1) the Leased Truck was covered by public liability,collision, and property damage insurance, (2) such insurance isapplicable to the Loaned Truck, and (3) in the event such insurance"be ineffectual" on the date of any accident, Patrick agreed toassume full liability for all loss, damage, or injury to the LoanedTruck, and all liability that may arise out of any accident orcollision for damages or injuries to the person or property of anythird person.

Federated alleged that, under the terms of Jennings'policy, Scott was not an "insured." It cited provisions of itspolicy excluding from coverage Jennings' customers who used acovered vehicle without Jennings' permission. Federated maintainedthat since Scott lacked permission from Jennings to use the LoanedTruck, he was not an "insured" under Federated's policy.

In its motion for summary judgment, Country Mutualalleged that Scott was an insured under Federated's policy, becausehe had Jennings' permission to use the Loaned Truck. CountryMutual alleged that it was Scott who made the arrangements withJennings to borrow the Loaned Truck while the Leased Truck wasbeing repaired. Country Mutual also alleged that, under Illinoislaw, once a named insured gives permission to an initial permitteeto use the covered vehicle, that permission extends to subsequentusers of the vehicle absent theft or tortious conversion. AsCountry Mutual's policy provides only excess coverage to Scott ona vehicle not owned by him, and Federated's policy provides primarycoverage to vehicles owned by Jennings, Federated's coverage isprimary. Country Mutual also alleged that, under the law, aliability policy issued to the owner of a vehicle must cover thenamed insured and any other person using the vehicle with the namedinsured's permission.

Attached to Country Mutual's motion were affidavits ofScott and Patrick. In his affidavit, Scott stated that (1) sinceJanuary 30, 1996, he has been employed by Clark Grain Farms; (2) inFebruary 1996, Patrick assigned to him the Leased Truck for his useand Scott secured insurance in his name from Country Mutual on theLeased Truck; (3) in January 1997, he struck a deer while driving,causing damage to the Leased Truck; (4) prior to February 17, 1997,he called Jennings' employee, Doug Brown, and scheduled anappointment to drop off the Leased Truck and arranged to obtain avehicle from Jennings to use while the Leased Truck was beingrepaired; (5) on February 17, 1997, he was busy at work and heasked Patrick to take the Leased Truck to Jennings and pick up theLoaned Truck; and (6) Patrick gave the keys to the Loaned Truck tohim and he continued to drive the Loaned Truck and was driving itat the time of his accident with Howard.

Patrick's affidavit stated that (1) on January 30, 1996,he leased the Leased Truck from Jennings; (2) Jennings hadpreviously leased trucks to him for use in his business and wasinformed by him that the Leased Truck would be used in his businessand would be operated by his employees; (3) he assigned the LeasedTruck to Scott, his employee, for his use; Scott was to personallypay for its maintenance and insurance; (4) on February 17, 1997, atScott's request, he delivered the Leased Truck to Jennings forrepairs; (5) on that date, at Scott's request, he picked up theLoaned Truck for Scott's use while the Leased Truck was beingrepaired; (6) he explained to Jennings' service departmentpersonnel that he was dropping off the Leased Truck and picking upthe Loaned Truck for Scott; (7) on that date, he delivered theLoaned Truck to Scott for his use and gave the keys to him; and (8)Scott had his express permission to use the Loaned Truck.

On November 30, 1999, the trial court entered a writtenorder denying Country Mutual's motion for summary judgment andawarding summary judgment to Federated on the complaint andcounterclaim. In doing so, the court noted that Scott was not an"insured" under Federated's policy because he had insurance equalto or greater than the amount required by law. The court alsostated that whether Scott had permission to use the Loaned Truckwas of no consequence. Neither Patrick nor Scott was an "insured"under Federated's policy.

On December 17, 1999, Country Mutual filed a motion tovacate the trial court's order and for rehearing and reconsideration of the motions for summary judgment. It alleged that thecustomer exclusion clause of Federated's policy was unenforceableunder Illinois law, citing cases involving persons who test-drivevehicles belonging to car dealerships. On January 26, 2000, thetrial court entered a written order, allowing Country Mutual'smotion to vacate its order granting summary judgment to Federated. In the order, the court cited a decision of this court in PekinInsurance Co. v. State Farm Mutual Automobile Insurance Co., 305Ill. App. 3d 417, 420-21, 711 N.E.2d 1227, 1230 (1999), holdingthat persons who test-drive vehicles owned by automobile dealersmust be covered by the dealers' insurance policies and that priorprecedent established that the vehicle owner's insurance is primaryand the operator's insurance constitutes excess coverage. Thetrial court in the instant case found that this decision alsoapplied to loaned vehicles. As to the issue of permissive use, thecourt noted that the affidavits of Scott and Patrick establishedthat Scott arranged to take the Leased Truck to Jennings for repairand to use the Loaned Truck on a temporary basis and that he sentPatrick to make the exchange. Although Patrick signed theAgreement, which provided that the Loaned Truck was for his ownexclusive use, the language of Federated's policy extends coverageto those who drive the Loaned Truck with Patrick's permission. Thetrial court found that the Agreement was unenforceable, citing thePekin case as authority for holding that Federated, as Jennings'insurer, had the primary responsibility to cover damages resultingfrom the accident. This appeal followed.

Summary judgment is proper only where the pleadings,depositions, and affidavits demonstrate that no genuine issue ofmaterial fact exists and that the movant is entitled to judgment asa matter of law. (735 ILCS 5/2-1005(c) (West 1998). Accordingly,where reasonable persons could draw different inferences from theundisputed material facts or where a dispute exists as to amaterial fact, summary judgment should be denied and the issuedecided by the trier of fact. Espinoza v. Elgin, Joliet & EasternRy. Co., 165 Ill. 2d 107, 114, 649 N.E.2d 1323, 1326 (1995). Indetermining whether the trial court properly granted summaryjudgment, the standard of review is de novo. Espinoza, 165 Ill. 2dat 113, 649 N.E.2d at 1326.

Federated argues on appeal that Scott was not a permissive user of the Loaned Truck and therefore was not an "insured"under Jennings' insurance policy. It relies on the Agreementsigned by Patrick, in which he stated that the Loaned Truck was forhis exclusive use. It also notes that the Agreement stated thatthe Leased Truck was covered by insurance and that this insurancewould also cover the Loaned Truck. Accordingly, Federated'sposition is that the Agreement bound Patrick to provide insurancecoverage for the Loaned Truck. Thus, according to Federated, theinsurance policy it issued to Jennings provides only excesscoverage and Scott's insurer, Country Mutual, must provide primarycoverage.

Jennings' policy contains what is known as an "omnibusclause" that extends coverage to persons who use the owner'svehicle with the permission of the named insured. State FarmMutual Automobile Insurance Co. v. Universal Underwriters Group,182 Ill. 2d 240, 243-44, 695 N.E.2d 848, 850 (1998). The omnibusclause in Jennings' policy contains exceptions to coverage forJennings' customers and provides in pertinent part as follows:

"a. The following are 'insureds' forcovered 'autos':

(1) You for any covered 'auto'.

(2) Anyone else while using withyour permission a covered 'auto' you own,hire or borrow except:

* * *

(d) Your customers,if your business is shownin the Declarations as an'auto' dealership. However, if a customer ofyours:

(i) Has no otheravailable insurance(whether primary, excessor contingent), they arean 'insured' but only upto the compulsory or financial responsibilitylaw limits where the covered 'auto' is principally garaged.

(ii) Has otheravailable insurance(whether primary, excessor contingent) less thanthe compulsory or financial responsibility lawlimits where the covered'auto' is principallygaraged, they are an 'insured' only for theamount by which the compulsory or financial responsibility law limitsexceed the limit of theirother insurance."

The parties do not dispute any of the material facts ofthe case. The affidavits presented to the trial court by CountryMutual with its motion for summary judgment establish that Scotthimself made the arrangements for repair of the Leased Truck anduse of the Loaned Truck while he was without a vehicle. Patrickmade the exchange as an accommodation to Scott. Patrick'saffidavit establishes for summary judgment purposes that hecommunicated to Jennings' service department personnel that he wasdropping off the Leased Truck and picking up the Loaned Truck forScott. Patrick's affidavit also establishes that he gave Scottpermission to drive the Loaned Truck.

Illinois courts follow the "initial permission" rule,which states that if the named insured has initially givenpermission to another to use the insured vehicle, departure fromthe authorized use does not terminate the initial permission. Maryland Casualty Co. v. Iowa National Mutual Insurance Co., 54Ill. 2d 333, 341-42, 297 N.E.2d 163, 167-68 (1973). The rule isbased on the theory that the insurance contract is as much for thebenefit of the public as for the insured and that it is undesirableto permit litigation over the details of the permission and use ofthe covered vehicle. Maryland Casualty, 54 Ill. 2d at 342, 297N.E.2d at 168.

In Brile v. Estate of Brile, 296 Ill. App. 3d 661, 695N.E.2d 1309 (1998), an employee, at the direction of his employer,rented a truck to transport business materials to another state. The employer had agreed to pay all expenses, including the truckrental. Without the employer's knowledge, the employee took hisson with him on the trip. While the son was driving the truck, anaccident occurred and the employee and the son were killed. Theemployer's insurer refused to provide a defense against a wrongfuldeath action brought on behalf of the employee's estate against theson's estate. The insurer claimed that the son was not an"insured" under the policy, because he did not have permission fromthe employer to drive the truck. The employee's estate filed adeclaratory judgment action against the insurer. The trial courtgranted summary judgment to the insurer. Brile, 296 Ill. App. 3dat 663-64, 695 N.E.2d at 1310-11.

On appeal, the appellate court noted that the omnibusclause in the employer's policy covered anyone who, with theemployer's permission, used a covered auto owned, hired, orborrowed by the employer. The court rejected the insurer'sargument that, since the son lacked permission from the employer todrive the truck, he was not an insured under the policy. The courtnoted prior cases holding that, under such omnibus clauses, afurther grant of permission from the initial permittee need not beshown for coverage to apply. Since the employee had the employer'spermission to rent the vehicle for the benefit of the employer, thepermission given by the employer extended to the son. Brile, 296Ill. App. 3d at 666, 695 N.E.2d at 1312-13.

The Brile court relied on an earlier opinion by theSupreme Court of Illinois in Western States Mutual Insurance Co. v.Verucchi, 66 Ill. 2d 527, 363 N.E.2d 826 (1977). In that case, theowner of a car gave his son permission to drive the car on thenight in question. The owner had previously instructed his sonnever to permit anyone else to drive the car. A friend of the sondrove the car and was involved in an accident. In a declaratoryjudgment action, the owner's insurer maintained that the friend wasnot an insured under the owner's policy because he lacked permission to drive the car. The circuit court found the owner's insurerhad the duty to provide primary coverage.

The appellate court held that the owner's insurer was notliable and that the driver's insurer was primarily liable. Onfurther appeal, the supreme court reversed this holding, citingprecedent that applied the initial permission rule in similarsituations. Thus, where an insurer elects to include in its policya broad provision extending liability coverage to persons operatinga car with the owner's permission, a further grant of permissionneed not be shown to invoke coverage, unless the insurer can provethat the operator of the car obtained possession by a theft ortortious conversion. Verucchi, 66 Ill. 2d at 531, 363 N.E.2d at827-28.

Accordingly, we hold that Scott was a permissive user ofthe Loaned Truck and was therefore an "insured" under Jennings'insurance policy.

Jennings' policy expressly provides primary insurance toa person who qualifies as an insured under the policy. CountryMutual's policy states that any insurance it provides with respectto a vehicle not owned by the insured will be excess over any othercollectible insurance. Country Mutual argues that these policyprovisions are compatible and that Federated must provide primarycoverage to Scott. However, Federated's policy language quotedabove provides that Federated is the excess insurer in the eventthat Jennings' customers are covered by other insurance.

In addition to relying on this court's decision in Pekin,Country Mutual cites cases involving accidents during test drivesof vehicles. For example, in Universal Underwriters, the questionwas whether a car dealer's garage insurance policy covered theliability of a separately insured customer who was involved in anaccident while test-driving one of the dealer's vehicles. StateFarm, the driver's insurance company, paid claims arising from theaccident and submitted a claim to the auto dealer's insurer,Universal, which denied coverage. A declaratory judgment actionensued in which the trial court granted summary judgment to StateFarm. The appellate court affirmed. On further appeal, thesupreme court affirmed, finding that under Illinois law, an autodealer's liability insurance policy must provide coverage for test-drivers and that the test-driver in that case was an "insured"under Universal's policy. The court found that section 7-317(b) ofthe Illinois Vehicle Code (Vehicle Code) (625 ILCS 5/7-317(b) (West1996)) requires that omnibus clauses be included in every policy ofmotor vehicle liability insurance. The court noted that thegeneral custom in the auto insurance industry is that the owner'sinsurance provides primary coverage. In the absence of anylanguage qualifying the mandate of section 7-317 of the VehicleCode, the statute must be construed to require primary coverage. Any provision in a policy to the contrary would violate the publicpolicy of the state as expressed in the Vehicle Code. The courtthus rejected Universal's argument that it need only provide excesscoverage. Accordingly, the supreme court found that the test-driver in that case was an "insured" under the auto dealer'spolicy. Universal Underwriters, 182 Ill. 2d at 245-46, 695 N.E.2dat 850-51.

Section 7-317(b)(2) of the Vehicle Code (625 ILCS 5/7-317(b)(2) (West 1998)) requires a vehicle owner's insurance policyto insure the person named therein and any other person using orresponsible for the use of the insured vehicle with the express orimplied permission of the insured.

The language in Federated's policy purporting to excludeScott from coverage because of the existence of his separateinsurance coverage is identical to the language in the insurancepolicy at issue in Pekin. There, Saylor was test-driving a vehiclebelonging to Sullivan Chevrolet when she was involved in anaccident. The driver sued Saylor, and her insurance company, StateFarm, tendered her defense to Pekin, Sullivan's insurer. Pekinaccepted the defense with a reservation of rights. It filed adeclaratory judgment action seeking to hold State Farm responsiblefor the costs of Saylor's defense. Both parties filed motions forsummary judgment. Pekin alleged that Saylor's insurance policysatisfied the minimum requirements of Illinois law, and she wasthus excluded from coverage under the language of Sullivan'spolicy. State Farm argued that Pekin was primarily obligated todefend Saylor regardless of its policy language, relying on thesupreme court's decision in Universal Underwriters. The trialcourt granted summary judgment to State Farm, finding that Pekinwas required to provide primary coverage to Saylor. Pekin, 305Ill. App. 3d at 417-18, 711 N.E.2d at 1228.

On appeal, Pekin argued that the trial court failed toconsider the plain language of Sullivan's insurance policy and thatit and Sullivan were free to define their obligations as theywished. This court found Universal Underwriters controlling. Thelanguage in Sullivan's policy excluding Saylor from coverage wasunenforceable because it contradicted the mandatory language ofsection 7-317(b) of the Vehicle Code. Thus, Sullivan's policy mustinsure Saylor regardless of the language contained therein. Wealso determined that, pursuant to Universal Underwriters, Pekin'spolicy must provide primary coverage to any person permitted by theowner to use the vehicle. Pekin, 305 Ill. App. 3d at 420-21, 711N.E.2d at 1230.

Federated seeks to draw a distinction between situationsinvolving test drives and those involving loaner vehicles. Itargues that test drives tend to be of short duration and driversare often accompanied by agents of the owner, whereas loanedvehicles may be driven for several days and are potentially subjectto greater risks that are beyond the owner's control. In addition,according to Federated, given financial responsibility laws, it isa near certainty that a vehicle left with the auto dealer forservice or repair is insured. The same is not true in a test drivesituation where it is unknown whether the driver owns a vehicle.

We disagree with Federated's argument. Since autoinsurance policies are as much for the benefit of the public as forthe insured, it would appear that there is a greater need forprimary coverage by the owner's insurer in loaned vehicle situations, as the public is at greater risk in such cases. In anyevent, Federated's argument must be rejected, because the supremecourt has held that public policy requires the insurer of thevehicle owner to provide primary coverage to a driver who haspermission to use the owner's car. No exceptions have been made tothis requirement.

Federated cites section 6-305 of the Vehicle Code (625ILCS 5/6-305 (West 1998)), which sets forth requirements forrenting a vehicle to another person. Subsection (h) of thatsection excepts persons licensed as new car dealers from therequirements of section 6-305 as follows:

"(h) A person licensed as a new cardealer under [s]ection 5-101 of this Codeshall not be subject to the provisions of this[s]ection regarding the rental of privatepassenger motor vehicles when providing, freeof charge, temporary substitute vehicles forcustomers to operate during a period when acustomer's vehicle, which is either leased orowned by that customer, is being repaired,serviced, replaced[,] or otherwise made unavailable to the customer in accordance withan agreement with the licensed new car dealeror vehicle manufacturer, so long as the customer orally or in writing is made aware thatthe temporary substitute vehicle will becovered by his or her insurance policy and thecustomer shall only be liable to the extent ofany amount deductible from such insurancecoverage in accordance with the terms of thepolicy." 625 ILCS 5/6-305(h) (West 1998).

Country Mutual argues that this section does not apply toliability insurance, noting the language that says the customerwill only be liable for any deductible under his or her insurancepolicy. Since there are no deductibles for liability insurance,Country Mutual insists that this section refers only to propertyloss coverage on the vehicle. We agree with Country Mutual thatthe language of this section merely requires a new car dealer tomake the customer aware of insurance coverage that already exists. The customer is not agreeing to provide any particular coverageunder this section.

Finally, Federated argues that Jennings and Patrickcontractually agreed that Patrick's insurance would constitute theprimary coverage in the event of a loss and we should give effectto this agreement. The language in the Agreement to this effect iscontrary to the public policy of this state as articulated by oursupreme court. An insurer may not provide in its insurance policythat it will extend only excess coverage to a driver who uses theowner's vehicle with permission. The insured and its customer maynot be allowed to do so by contract, thus accomplishing for theirinsurers what the insurers may not themselves accomplish. Thelanguage of the Agreement, to the extent that it contravenes publicpolicy, is unenforceable.

For the reasons stated, we affirm the trial court's grantof summary judgment to Country Mutual.

Affirmed.

STEIGMANN and KNECHT, JJ., concur.