Wallace v. Woolfolk, No. 5-99-0100

5th District, 18 April 2000

JUSTICE CHAPMAN delivered the opinion of the court:

On October 31, 1996, Marla Wallace was injured in an automobile accident when the vehicle in which she was riding, as apassenger with Richard Norman, collided with a vehicle driven by Wenona Woolfolk. The vehicle operated by Woolfolkwas insured by Gallant Insurance Company. Wallace filed a two-count complaint against Woolfolk and Norman. As asanction for Woolfolk's failure to appear at her discovery deposition, the court struck Woolfolk's answer, jury demand, andcounterclaim for contribution. Subsequently, Woolfolk failed to attend the mandatory arbitration. The arbitrator entered anaward of $9,919.61 in favor of Wallace and against Woolfolk. Pursuant to Supreme Court Rule 91(a) (145 Ill. 2d R. 91(a)),the trial court barred Woolfolk from rejecting the award and entered judgment. Marla Wallace subsequently filed anonwage garnishment action against Woolfolk's insurer, Gallant Insurance Company (Gallant). Gallant responded with theaffirmative defense of Woolfolk's noncooperation. The court struck Gallant's affirmative defense as legally insufficient andsanctioned Gallant in the amount of $850 for filing it without conducting a proper investigation. Gallant appeals. We affirm.

Two issues are raised on appeal: first, whether Gallant's affirmative defense was improperly stricken as legally insufficientand, second, whether the court abused its discretion in entering the sanctions order.

In Illinois, the burden of proof is on the insurance company to establish by a preponderance of the evidence that it acted ingood faith to secure the attendance of its insured at trial and that the insured's failure to appear was due to her refusal tocooperate. See Lappo v. Thompson, 87 Ill. App. 3d 253, 254, 409 N.E.2d 26, 28 (1980); Mazzuca v. Eatmon, 45 Ill. App. 3d929, 360 N.E.2d 454 (1977). An insurer is not liable for a judgment rendered against its insured if the insured willfullyfailed to cooperate by refusing to appear at trial after receiving adequate notice. However, the insurer is liable if it was notsufficiently diligent in attempting to secure the insured's appearance or if the insured's failure to attend was not due to arefusal to cooperate. See Harvey v. Johnson, 30 Ill. App. 3d 750, 755, 332 N.E.2d 680, 683 (1975). Good faith is evaluatednot only in terms of what the insurer did to secure cooperation, but also in terms of what the insured failed to do. SeeLappo, 87 Ill. App. 3d at 254, 409 N.E.2d at 28.

To determine whether the trial court erred in striking Gallant's affirmative defense of noncooperation, we need to review therecord to determine just what measures were taken to assure Woolfolk's cooperation in this matter.

On July 19, 1997, Woolfolk was served with Wallace's complaint. The case was assigned to the mandatory arbitrationdocket. On August 11, 1997, the law firm of Gallop, Johnson & Neuman (Gallop) sent its first letter to Woolfolk, notifyingher that Gallant had hired Gallop to defend her. Gallant does not allege either that Woolfolk received this letter or thatGallop tried to find out whether she did.

On August 15, 1997, Wallace served interrogatories and a request for production on Woolfolk, by mailing them to Gallop.On August 19, 1997, an agreed order granted Woolfolk 30 days in which to respond to Wallace's complaint. On September17, 1997, Gallop filed a motion to dismiss Wallace's claim. On September 18, 1997, Gallop allegedly mailed Woolfolkproposed answers to discovery. The letter from Gallop to Woolfolk does not appear in the record, but the date of mailingthe proposed answers is referenced in a Gallop letter dated October 29, 1997.

On September 23, 1997, the case was set for arbitration for January 14, 1998. The record shows that on October 17, 1997,defendant Norman filed a notice to Woolfolk to be present at the arbitration. In an October 29, 1997, letter, Gallop askedWoolfolk to contact Gallop about proposed interrogatory answers that it had sent to her five weeks earlier. This letteradvised Woolfolk that her failure to cooperate could result in her being held personally liable for any verdict renderedagainst her. On November 4, 1997, the clerk filed Wallace's motion to compel Woolfolk to respond to discovery requests.On November 13, 1997, the trial judge entered a pretrial management schedule, advising the parties of discovery deadlines.Gallant does not allege that Gallop informed Woolfolk of this schedule.

The record also shows the following:

The time for any posttrial relief passed, and the judgment became final. Wallace served an affidavit of garnishment uponGallant. Gallant filed an affirmative defense to the garnishment, alleging Woolfolk's noncooperation. Wallace moved tostrike the affirmative defense because it pled conclusions and not facts. The trial judge ordered Gallop to produce copies ofall notices to Woolfolk. Gallop produced five letters and a memorandum of a telephone call to Woolfolk. The trial courtstruck Gallant's affirmative defense and ordered Gallant to pay the judgment.

Gallant argues that the trial court improperly struck its affirmative defense. Gallant submits that it reserved its right to denyWoolfolk indemnification at the earliest appropriate opportunity when it sent the letter dated January 13, 1998, the day aftershe missed her deposition and the day after the entry of the default order. Gallant argues that Gallop took all reasonable andproper steps to secure Woolfolk's attendance at her deposition, including warning her of the consequences ofnoncooperation, telephoning her to remind her of her deposition six days later, and sending a follow-up letter. Gallant notesthat Woolfolk said she would attend the deposition; thus, Gallant argues, there was no need to send her a reservation-of-rights letter at that point. Gallant contends, therefore, that its affirmative defense should not have been stricken as legallyinsufficient. The efforts expended by Gallop in attempting to secure Woolfolk's cooperation consisted of six letters, sent byordinary mail, and a telephone call. The record shows that months before the arbitration trial, Woolfolk was not respondingto Gallop's letters.

Merely sending letters to its insured was not enough to satisfy Gallant's duty to seek its insured's cooperation. Gallant doesnot allege, and does not show, that Woolfolk was ever told of her November 25, 1997, deposition; Woolfolk was notified oftrial by ordinary mail just days before trial, even though Woolfolk advised Gallop that she did not receive the other noticessent by ordinary mail; Woolfolk's failure to respond to mailings to her address were not followed up; court-ordereddeadlines were missed, apparently without Woolfolk ever knowing they existed; and discovery was not answered. Theseinstances demonstrate Gallop's repeated failure to communicate with Woolfolk. Thus, it seems that Gallant, through theGallop law firm, failed to adequately notify its insured of matters occurring prior to the arbitration trial.

We reject Gallant's argument that it could not send the reservation-of-rights letter to Woolfolk prior to January 13, 1998.Gallop knew early on that Woolfolk either was not receiving her mail or was ignoring it. Gallop failed to allege factsshowing reasonable diligence in getting Woolfolk to cooperate early on in the litigation. Gallop did nothing to secure hercooperation with discovery and other matters with regard to the litigation. The fact that it felt that its insured had failed tocooperate in the early stages of the litigation did not excuse Gallop's delay in sending its reservation-of-rights letter.

Gallop could have done much more to secure Woolfolk's cooperation. Though six letters were sent to Woolfolk prior to thedefault judgment, no response from her was received. During this time Gallop had reason to know that its insured eitherwas not receiving these letters or was ignoring them. Gallop made no attempt to remedy either of these possibilities.Moreover, it was not until the default was entered that Gallop sent Woolfolk a reservation-of-rights letter. Consequently,under the circumstances, Gallant failed to establish that Woolfolk refused to cooperate or that Gallop exercised a reasonabledegree of diligence in attempting to secure her cooperation. We cannot find, therefore, that the trial court erred in strikingGallant's affirmative defense.

After Gallant appealed, the plaintiff Wallace submitted a motion for sanctions against Gallant. Wallace sought attorney feesbecause Gallant allegedly pleaded noncooperation without first investigating what its insured Woolfolk did or failed to do.Wallace also alleged that Gallant's conduct in the enforcement proceeding was in bad faith and was a deliberate harassment.After a hearing, the trial court found Gallant in violation of Supreme Court Rule 137 (134 Ill. 2d R. 137), for failing toinvestigate whether its affirmative defense was well-grounded. The court ordered Gallant to pay Wallace's attorney fees of$850, the time spent for responding to the affirmative defense.

Rule 137 provides in pertinent part as follows:

"The signature of an attorney or party constitutes a certificate by him that he has read the pleading, motion[,] or otherpaper; that to the best of his knowledge, information, and belief formed after reasonable inquiry it is well grounded infact and is warranted by existing law or a good-faith argument for the extension, modification, or reversal of existinglaw, and that it is not interposed for any improper purpose, such as to harass or to cause unnecessary delay or needlessincrease in the cost of litigation." 134 Ill. 2d R. 137.

Gallant argues that its affirmative defense was well-grounded in fact at the time that it was posited. Gallant claims thatnothing stated in the original affirmative defense was false and that it did all that was possible in the short time it had torespond to the nonwage garnishment action. Gallant argues that the sanction should be reversed unless the noncooperationaffirmative defense was both baseless and made without reasonable inquiry. Gallant claims that the following threestatements, cited in its affirmative defense, on information and belief, were true:

1. That Ms. Woolfolk was notified of her deposition.
2. That Ms. Woolfolk failed to cooperate with defense counsel.
3. That defense counsel tried to notify Ms. Woolfolk of the deposition, outstanding written discovery, and arbitration.

Without reiterating the arguments made in the first issue on appeal, we cannot agree with Gallant's claim that thesestatements are true.

As for the first statement, Gallop relies on a January 6, 1998, memorandum that indicated Woolfolk agreed to attend aJanuary 12, 1998, deposition. Gallop argues that this proves Woolfolk had been notified. Obviously, this memorandum wasnot persuasive to the trial court, and we cannot disagree with its finding.

As for the statement that Woolfolk failed to cooperate, Gallop failed to demonstrate that it exercised a reasonable degree ofdiligence in securing her cooperation or that she refused to cooperate. Finally, although Gallop telephoned Woolfolk onceand sent six letters to Woolfolk prior to the default judgment, Gallop had reason to know that Woolfolk was not receivingthe notices. In addition, the record demonstrates that Gallop did not advise Woolfolk of all discovery deadlines.

The decision to impose sanctions under Rule 137 is committed to the sound discretion of the trial court, and that decisionwill not be disturbed absent an abuse of discretion. See Dowd & Dowd, Ltd. v. Gleason, 181 Ill. 2d 460, 487, 693 N.E.2d358, 372 (1998). The purpose of Rule 137 is to penalize litigants who plead frivolous or false matters or bring suit withoutany basis in law. See Spiegel v. Hollywood Towers Condominium Ass'n, 283 Ill. App. 3d 992, 1001, 671 N.E.2d 350, 358(1996).

This case is very similar to the recent decision in Buckner v. Causey, No. 1-99-0312 (1st Dist. December 30, 1999). In thatcase, Gwendolyn Buckner obtained a judgment against Wayne Causey. Buckner then commenced a garnishmentproceeding against Causey's insurer, Warrior Insurance Group, also known as Gallant Insurance Company. Gallantanswered, claiming in part that Causey's failure to cooperate in the defense of Buckner's action was a breach of its liabilityinsurance policy that relieved Gallant of any obligation to satisfy the judgment against Causey.

In Buckner, the court found that Gallant failed to establish that Causey failed to cooperate in the defense of plaintiff'saction. The trial court ordered Gallant to indemnify Causey for the plaintiff's underlying judgment, and the court awardedCausey relief under section 155 of the Illinois Insurance Code (215 ILCS 5/155 (West 1996)).

In the instant case, we cannot find that the trial judge abused its discretion in ordering that Gallant pay sanctions in thiscause. The decision of the trial court is affirmed.

Affirmed.

WELCH and KUEHN, JJ., concur.