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Country Mut. Ins. Co. v. Murray

AUGUST 8, 1968.










Appeal from the Circuit Court of Winnebago County, Seventeenth Judicial Circuit; the Hon. ARTHUR V. ESSINGTON, Judge, presiding. Affirmed in part, reversed in part, and remanded with directions.


Country Mutual Insurance Company, plaintiff, appeals from an adverse judgment on its complaint for a declaratory judgment to determine coverage under an automobile liability policy. It further appeals from judgment on counterclaims, requiring it to pay a personal injury judgment of Lucille V. Leonardson previously secured against Charles Shepard, Jr., and medical payments under the policy, and to defend Shepard in a second personal injury suit brought by Donald Murray, Jr. arising out of the same accident. Shepard has also appealed from a judgment by the trial court denying reimbursement for costs of defense of the Leonardson suit.

There is evidence that William Leuellen and Ila Leuellen, husband and wife, resided at Davis Junction, Illinois. In April, 1963, they were the owners of a 1962 Ford which they insured for liability with the Country Mutual Insurance Company. The certificate of title to this vehicle was held by C.I.T. Finance Company, through whom they had financed its purchase. A disability policy was written in conjunction therewith, providing for payment of installments due in the event of physical disability of William Leuellen. The automobile liability policy lapsed because of nonpayment of premium. During the year 1964 William Leuellen went on public aid as a result of physical disability. The disability policy thereafter paid the loan installments.

In December, 1964, the Leuellens insured a 1954 Ford with Country Mutual. Being a recipient of public aid, William Leuellen was not allowed to drive a vehicle worth more than $400, and the value of the 1962 Ford which they still owned obviously exceeded this limitation. Consequently, the 1962 Ford was garaged, and was not driven by the Leuellens.

Charles Shepard, Jr., a son of Ila Leuellen, resided in Rockford, Illinois. In early February, 1965, he purchased a 1957 Ford from a dealer in Rockford, and financed this purchase through General Finance Loan Corporation, which thereafter retained the certificate of title to this car.

At the trial, evidence was introduced concerning an oral agreement then made between Shepard and the Leuellens whereby Shepard purchased the Leuellens' 1962 Ford, and as a down payment delivered his 1957 Ford to the Leuellens. The balance of $1,200 was to be paid at the rate of $65 per month.

Shepard took possession of the 1962 Ford and operated it thereafter in and about Rockford, Illinois. He made two monthly payments of $65 to the Leuellens in March and April of 1965.

The Leuellens had disposed of their 1954 Ford, and on February 11, 1965, secured a transfer of insurance from that vehicle to the 1957 Ford. The transfer application reflected the purchase date on the 1957 Ford to have been February 4, 1965, and in a space provided under the heading, "In whose name is title issued" there was inserted the word "insured." The transfer application was signed by William Leuellen. Mrs. Leuellen then operated the 1957 Ford around Davis Junction.

Neither Shepard nor the Leuellens notified the Secretary of State concerning the transactions described above. The certificate of title to the 1962 Ford remained in the possession of C.I.T. Finance Company and reflected the titleholder to be Leuellen. The disability carrier continued to pay the monthly finance installment thereon. The terms of the disability insurance contract were not introduced into evidence however. At the same time General Finance Corporation retained the certificate of title to the 1957 Ford which continued to list Shepard as titleholder.

On or about April 12, 1965, the motor in the 1957 Ford broke down. Mrs. Leuellen contacted Shepard and asked to rescind the agreement. Shepard agreed and the 1962 Ford was allegedly returned to Davis Junction and thereafter used by Mrs. Leuellen. The 1957 Ford was towed to Rockford, where Shepard tore it down for repairs. It was in this inoperative state on April 24, 1965.

On this latter date, Shepard was driven to Davis Junction, where he visited his mother, Mrs. Leuellen. There he borrowed the 1962 Ford and later that evening was involved in a serious collision while driving this vehicle.

Later, on April 28, 1965, Mrs. Leuellen sought to secure a transfer of insurance from the 1957 Ford to the 1962 Ford. Notice of the accident was first given to Country Mutual on May 5, 1965.

On May 7, 1965, Shepard and the Leuellens gave a signed statement to the insurance company, detailing the series of transactions related above, as well as Shepard's account of the occurrence of April 24, 1965. Shepard's statement included an admission that he "hadn't returned the 1962 Ford to mother yet when the accident occurred" which plaintiffs urged as impeachment of his trial testimony that the 1962 Ford was not in his possession and control at the time of the accident.

In that accident, Lucille Leonardson had been an occupant in the car Shepard was driving, and sustained severe injuries in the collision between her host's car and one driven by Donald Murray, Jr.

She brought suit against Charles Shepard, Jr., and on October 25, 1966, her complaint was served on Shepard. The complaint contained an allegation that Shepard was driving the 1962 Ford with the permission of its owners, William Leuellen and Ila Leuellen. Country Mutual refused Shepard's tendered defense of this personal injury suit.

On January 27, 1967, Country Mutual filed a suit for declaratory judgment against Donald Murray, Jr., Lucille V. Leonardson, William Leuellen, Ila Leuellen and Charles Shepard, Jr. Therein it sought to be relieved of (1) any duty to defend the Leonardson action against Shepard, (2) its obligation to pay any judgment rendered in that suit against Shepard, (3) any obligation under the policy with reference to the claim of Donald Murray, Jr.

While the declaratory judgment suit was pending, the personal injury action of Lucille Leonardson reached trial stage. Shepard, defended by his personally employed attorneys, was found guilty of wilful and wanton misconduct and a verdict for $25,000 in favor of the plaintiff, Lucille Leonardson, and against Shepard was awarded by the jury.

Thereafter, Country Mutual's original declaratory judgment action was expanded to include a counterclaim wherein Lucille Leonardson then sought to compel Country Mutual to pay the judgment she had secured against Shepard, plus a claim for medical bills submitted under the medical payment portion of the policy. Country Mutual's motion to dismiss this counterclaim was denied, as was a similar motion directed at a counterclaim filed by the Leuellens and Shepard, asking that Country Mutual reimburse Shepard for attorneys' fees he incurred in defending the suit brought by Lucille Leonardson.

All counterclaimants subsequently filed motions for summary judgment, and these motions were denied. The series of actions and cross actions were then tried by the court, sitting without a jury, resulting in the entry of the orders and judgments from which these appeals have been taken.

A motion of Lucille Leonardson seeking reimbursement for printing costs occasioned by the appeal was ordered by this court to be taken with the case, together with the motion in opposition thereto.

In dispute is the application of the portion of the Leuellen policy which provides:


"If the automobile described in the Declarations is disposed of and another acquired in its place by the Named Insured, this policy shall without notice transfer to the newly acquired automobile.

"The terms of the two preceding paragraphs apply provided notice of delivery of such automobile to the Named Insured or spouse is given to the Company within the policy period then current or, if delivery is less than thirty (30) days prior to the end of such period, then within thirty (30) days after delivery. . . ."


The first point we have considered is Country Mutual's contention that the counterclaims of Leonardson, Shepard and the Leuellens should have been dismissed by the trial court. The record discloses that Leonardson's initial responsive pleading to Country Mutual's declaratory action was an answer denying the insurer's prayer for declaratory relief. After her personal injury claim against Shepard had been reduced to judgment, she sought and was granted leave to file her counterclaim seeking judgment for the money damages awarded to her in the common-law suit. Shepard, following his unsuccessful defense of the personal injury suit, filed his counterclaim for his attorneys' fees in defending that action.

Plaintiff argues that the Declaratory Judgment Act prescribes the only manner in which the court may act in this ...

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