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Krutsinger v. Illinois Casualty Co.





APPEAL from the Appellate Court for the Third District; — heard in that court on appeal from the Circuit Court of Champaign County; the Hon. CHARLES E. KELLER, Judge, presiding.


Rehearing denied March 19, 1957.

This is an action against an insurance company on the ground that it failed to satisfy judgments entered against its insured. The company contended that various circumstances relieved it of liability under its policy. The trial court found against these contentions and entered judgments for the plaintiffs. The Appellate Court affirmed, (10 Ill. App.2d 344,) and the case is here on leave to appeal.

The original action was commenced in the circuit court of Champaign County on June 2, 1953, on behalf of Lolita, Kenneth and Karen Krutsinger, minors, by Dolores Krutsinger, their mother and next friend. Four of the six defendants operated taverns in Champaign or Urbana, and the other two operated package liquor stores. Among the defendants were Mandel, Mildred and Norman Barnett, who operated a package liquor store as partners. The complaint alleged that the defendants had violated sections 12 and 14 of article VI of the Liquor Control Act, (Ill. Rev. Stat. 1955, chap. 43, pars. 131, 135,) by selling alcoholic beverages to the plaintiffs' father, Leslie Krutsinger, a known habitual drunkard, and thereby injuring their means of support. Actual and exemplary damages in the amount of $15,000 were sought by each plaintiff.

The defendants were insured by six different insurance carriers, including Illinois Casualty Company, the defendant in the present action, during the period alleged in the complaint. All but one of the defendants had been insured during some part of that period by Illinois Casualty. That company had issued a policy to the Barnetts that provided coverage of $50,000 for loss of means of support. The policy was in effect from September 29, 1951, until July 7, 1952, when the company terminated all its policies in Champaign County.

The policy contained the usual provisions that the insured should give the company immediate written notice of any claim or suit and should transmit to the company any summons or other process served upon him. The insurer reserved to itself the exclusive right to defend or settle any suit or claim, and the policy prohibited the insured from interfering with any suit or making any settlement except at his own cost.

Summons in the original action was served on the Barnetts on June 6, 1953. On June 25, 1953, Robert J. Milum, of the agency from which the Barnetts had purchased their insurance, wrote a letter to Illinois Casualty Company. The letter stated the pendency of the dramshop action "filed on a habitual drunkenness count which runs from August 1951 up to the present time," its return day, and that notification was made of possible liability as to five of the six defendants, including the Barnetts. It also stated accurately the period during which the defendants were covered by policies issued by Illinois Casualty, and named the present insurers where they were known. On June 19 Illinois Casualty's general counsel telephoned John A. Appleman, who represented the plaintiffs. He said that he had received Milum's letter and requested Appleman not to default "any of these people," pending further investigation. Appleman agreed.

About a week later an attorney for Illinois Casualty went to Champaign and obtained a copy of the complaint. He learned that answers had already been filed. Illinois Casualty's general counsel testified that he concluded that the liability asserted was not within the Illinois Casualty's policy coverage and that for that reason, plus the fact that answers covering the entire period had been filed by other lawyers, his law firm did not enter into the defense of the Barnetts.

Illinois Casualty did not confer with the attorneys for the defendants or with other insurers to make arrangements for sharing the burden of defense. Other attorneys, however, were active. They filed amended answers, investigated the facts, and explored the possibility of settlement. The case was originally set for trial on February 15, 1954, continued to February 23, and then reset for April 5.

In February of 1954 Illinois Casualty was advised that negotiations for settlement were in progress, but declined to participate in them. Negotiations then proceeded as to periods other than those covered by Illinois Casualty policies. On March 26, 1954, plaintiffs served notice that they would ask leave to file an amended complaint instanter and seek a short rule upon the defendants to plead thereto. On that day the attorneys for the Barnetts and other defendants mailed a copy of the notice and the proposed amended complaint to Illinois Casualty, stating that five defendants "expect you to defend the action pending for the periods covered by the insurance issued by Illinois Casualty Company," and giving notice that the cause was set for April 5 at 9:30 A.M. Leave to amend was granted. The amended complaint limited the plaintiffs' action to claims for damages in the aggregate amount of $26,000 under section 14 of division VI of the Liquor Control Act (par. 135) and omitted the claim for punitive damages. On March 29, an attorney for the defendants wired Illinois Casualty's attorneys: "Defendants ruled to plead to amended complaint at 9:30 A.M., April First." Illinois Casualty did not seek an extension of time within which to plead, nor did it file a pleading. Instead, the attorneys for Illinois Casualty wrote to attorneys for the defendants, expressing the view that the amended complaint stated an entirely different cause of action than that contained in the original complaint and declining to defend the case.

Upon Illinois Casualty's refusal to participate in the settlement negotiations, the other parties proceeded to consider a settlement of claims for periods not covered by Illinois Casualty policies, and a covenant not to proceed against personal assets of the defendants in the collection of any judgments that might be recovered. An agreement was reached, and a petition was filed in the county court of Champaign County by the guardian of the minor plaintiffs, seeking approval of the agreement. The petition recited that Illinois Casualty had refused to cooperate toward a common settlement; that the other insurance carriers had offered to contribute $4800 upon any judgments that might be rendered against the defendants in the circuit court, apportioned as follows: $1800 to Karen Krutsinger, $1600 to Kenneth Krutsinger and $1400 to Lolita Krutsinger; that this offer was based on the condition that the plaintiffs would agree to look solely to Illinois Casualty for the remaining portion of any judgments rendered in their favor by the circuit court. By an accompanying stipulation, undated at the time but later dated May 5 and filed May 13, entered into by the guardian of the Krutsinger minors and their mother, on the one hand, and on the other by all the defendants in the dramshop case, the latter agreed to pay the sums stated. The county court approved the proposed agreement, conditioned upon the success of plaintiffs in the litigation.

The stipulation was executed on April 2. Thereupon one of the attorneys for the defendants sent the following telegram to Illinois Casualty's attorneys: "Illinois Casualty Company has sole burden of defending Krutsinger case Circuit Court Champaign County. No other defense being made."

On April 2, 1954, the Barnetts and the other defendants who were insured by Illinois Casualty received a letter from Illinois Casualty's attorneys dated April 1. The letter asserted numerous breaches of conditions of the policy and concluded with a proposed certification that the insured had read and understood the letter; that he desired Illinois Casualty to proceed with the defense of the action, and that his signature "constitutes my acceptance of all the terms of said letter." The attorney for the defendants promptly telephoned Illinois Casualty's attorneys that "the people will not sign a non-waiver agreement." At that time the stipulation, although signed, had not been delivered. He advised Illinois Casualty that "it is not too late to talk if Illinois Casualty wants to get in here on a full release basis." On April 3 the attorney for the defendants filed an answer denying the allegations of the amended complaint.

The case proceeded to trial, and on April 5, 1954, verdicts were rendered in favor of the Krutsingers and against defendants for $6000 (Karen), $4000 (Lolita) and $4800 (Kenneth.) Credits were allowed, in accordance with the stipulation, and ...

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