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Childress v. State Farm Mut. Auto. Ins. Co.

JULY 29, 1968.




Appeal from the Circuit Court of Champaign County; the Hon. BIRCH E. MORGAN, Judge, presiding. Judgment affirmed.


This appeal is to review orders entered in the circuit court of Champaign County granting the motion for summary judgment of defendant State Farm Mutual Automobile Insurance Company, denying plaintiff's motion to reconsider, and denying the petition of Robert and Marilyn Heien to intervene. The suit was by the estate of a decedent to recover for the amount of a judgment entered against decedent in a proceeding arising out of an injury sustained by a third party, which judgment was allegedly recovered due to negligence and bad faith of the insurance company in defending or failing to defend the original suit.

While the facts are long and detailed, a chronological recital of them is necessary to a full determination of this appeal.

Jack Childress, son of Gerald Childress, on December 16, 1956, had an automobile accident with a car in which Marilyn Heien, a passenger, was injured. Jack Childress filed suit against the driver of the second car, which was settled by the insurance carrier of that car paying $4,000 to Jack Childress and the balance of its policy limit of $10,000 to the other passengers in the second car. Thereafter Marilyn Heien and Robert Heien, her father, filed suit for her injuries and expenses against Jack Childress, alleging his negligent operation of his car, and against his father, Gerald Childress, alleging that the father was negligent in allowing his son Jack, who was then a minor, to drive an automobile.

The car driven by Jack Childress was insured by Country Mutual Insurance Company. He had no insurance coverage with State Farm Mutual Automobile Insurance Company but his father, Gerald, as owner of another car not involved in the accident, was insured by State Farm. Joseph R. Carson, attorney for the Childresses, served notice on Country Mutual that they could settle the Heien suit within the policy limits.

Some four years after the accident, the Heiens' attorney notified State Farm that it might have liability in the case as the carrier of insurance on the car of Gerald Childress. State Farm requested nonwaivers from the Childresses, reserving the right to deny coverage. Some months later, Carson, as attorney for the Childresses, mailed the executed nonwaivers to State Farm.

Thereafter, on May 31, 1961, Country Mutual paid their policy limits to the Heiens, at which time a "covenant" prepared by the Heiens' attorney was entered into between the Heiens, the Childresses and Country Mutual. This instrument provided that Marilyn Heien and Robert Heien agree:

". . . to limit their collection of any judgment resulting from the pending litigation to funds other than the said insurance policy of Country Mutual Insurance Company and to funds other than the personal assets of Gerald Childress and Jack Childress, expressly reserving, however, the right to pursue any pending litigation against the said individuals and to collect any judgments received therein from any insurer other than Country Mutual Insurance Company and the right to collect from Jack Childress or Gerald Childress any funds in excess of the policy limits of such other insurer or insurers which the said persons may recover for failure of the said company or companies to settle the said causes of action within the policy limits."

Such instrument further obligated the Childresses, if judgments were returned against them, to actively pursue any remedies existing against any insurance company other than Country Mutual to discharge such judgments, including any excess liability for failure to settle within the policy limits.

On December 14, 1961, State Farm sent a notice to the Childresses and Carson, their attorney, denying liability in the case and notifying that it would not defend the suit by the Heiens. The notice, sent by certified mail — return receipt requested to Gerald Childress, was not actually received by him but was returned to State Farm since the mail carrier delivering the letter found that no one answered the door when he attempted to deliver it. Although a note was left by the carrier for Gerald Childress to call at the post office for the letter, Gerald did not do so. However, the Childresses' attorney, Carson, told Gerald of the notice and that State Farm would not defend. Carson asked Gerald Chidress if he wished Carson to continue to represent him on trial of the case and advised Gerald Childress that he did not need a lawyer as the "covenant" fully protected him. Upon reply that Childress did not want him to continue, Carson, after notice, withdrew as attorney for the Childresses. On January 29, 1962, a default was entered, the case tried before a jury, and a verdict and judgment rendered for Marilyn Heien for $500,000 and for Robert Heien for $250,000.

Thereafter, on March 16, 1962, the present suit was filed by Gerald Childress and Jack Childress against State Farm, seeking recovery of the damages of $750,000 for claimed negligence and claimed contractual breaches of duty and bad faith. The complaint consisted of a separate count for each plaintiff and alternately alleged that the State Farm policy provided protection to Gerald Childress or was ambiguous and capable of construction to extend coverage to the Childresses. It further alleged that State Farm accepted the offers of the Childresses to investigate, negotiate, settle, deny or defend the claims by accepting the non-waiver agreements it provided to the Childresses and that it undertook the investigation and defense, and had the entire investigation and trial file of Country Mutual. The complaint further alleged that by accepting the offers in the non-waiver agreement, State Farm assumed defense and was obligated to defend and use care, skill and good faith in the defense, whether or not coverage was afforded by its policy. It then alleged that State Farm was negligent by acts of commission or omission; acted in bad faith or breached an express contractual duty in failing to settle within the policy limits, failing to appear at evidence depositions, failing to use diligence in the court proceeding, and failing to appear and defend at the trial.

Upon motion to dismiss the complaint, the trial court dismissed the complaint and entered judgment. Upon appeal to this court, the judgment was reversed and remanded (Childress v. State Farm Mut. Automobile Ins. Co., 50 Ill. App.2d 461, 200 N.E.2d 537 (4th Dist 1964)), holding that plaintiffs' complaint was sufficient to charge negligence, the plaintiffs in this court then having abandoned reliance upon policy coverage and having relied upon negligent performance or nonperformance of a duty gratuitously assumed, no consideration having been given for defendant's alleged assumption of defense, nor any allegation that defendant agreed to make any payment or had any duty to make any payment.

Thereafter, the action was dismissed as to plaintiff Jack Childress on his own motion. Gerald Childress subsequently died and his wife, Lorene Childress, was appointed administratrix and substituted as party-plaintiff for the decedent. A count was added in the complaint against Joseph R. Carson, which still is pending on motion. The claim against Carson is not before this court, as the trial court certified there was no just cause to delay appeal on the orders here appealed.

A third amended complaint was filed, alleging substantially the same facts and charges as in the prior pleadings, and reasserting the prior alternatively pleaded charges of negligence and breaches of contractual duty. By this third amended complaint, plaintiff seeks recovery of the amount of the judgments and interest as the proximate result of one or more ...

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