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City of Chicago v. United States Fire Ins. Co.

MAY 15, 1970.




Appeal from the Circuit Court of Cook County; the Hon. EDWARD J. EGAN, Judge, presiding. Judgment affirmed. RYAN, J.

This is a suit for declaratory judgment on an insurance policy. The City of Chicago brought the action to establish its right to be defended under a certain policy of insurance issued by the United States Fire Insurance Company. At the conclusion of plaintiff's evidence, the trial court granted defendant's motion for judgment. The City appeals.

The defendant insurance company issued an insurance policy covering liability for events arising out of a certain highway construction project. During the policy period, on August 2, 1962, Patrick J. Daly, a welder on the project, fell from a scaffold and was injured. On March 14, 1963, Daly sued the City and alleged damages of $700,000. The City first notified the insurance company of the accident and the suit on September 1, 1967.

At the time of the accident, Daly was an employee of Bethlehem Steel Company who was a subcontractor to the O'Neil Construction Company. The highway project was being built for and under the direction of the City of Chicago. The injured party was working on the Canal Street overpass of the Dan Ryan Expressway.

There seems to be no dispute as to the facts involved in this appeal. The City knew of the accident through its engineer and a policeman who was summoned to the scene. Formal statutory notice, previous to the filing of the lawsuit against the City, was served on the City by the injured party on January 9, 1963. Summons was served on the City on March 15, 1963. The City filed its appearance about April 11, 1963, and thereafter participated in legal procedures without notifying the defendant insurance company until September 1, 1967.

The City explains that this delay in notification occurred because the insurance policy was misfiled with the City's Engineering Department instead of the City Comptroller who maintains an index of all policies filed with him. Apparently, at the time of the accident and the lawsuit, no one in the City's employ checked for this policy beyond the City Comptroller's office. Later, in August of 1967, the head of the City's Torts Division checked with the Department of Engineering and located the policy which is the subject matter of this lawsuit.

The insurance company declined to defend the City due to the City's failure to notify the insurance company of the accident or the lawsuit as required by the terms of the policy and this suit for declaratory judgment resulted.

The relevant provisions of the insurance policy are as follows:

"9. Notice of Accident. When an accident occurs written notice shall be given by or on behalf of the insured to the company or any of its authorized agents as soon as practicable. Such notice shall contain particulars sufficient to identify the insured and also reasonably obtainable information respecting the time, place and circumstances of the accident, the names and addresses of the injured and of available witnesses.

"10. Notice of Claim or Suit — Coverages A, B, and D. If claim is made or suit is brought against the insured, the insured shall immediately forward to the company, every demand, notice, summons or other process received by him or his representative.

". . .

"13. Action Against Company — Coverages A, B, and D. No action shall lie against the company unless, as a condition precedent thereto, the insured shall have fully complied with all the terms of this policy, nor until the amount of the insured's obligation to pay shall have been finally determined either by judgment against the insured after actual trial or by written agreement of the insured, the claimant and the company."

It is the contention of the City that late notice of the claim and of the lawsuit does not relieve the insurance company of its obligation to furnish a defense in the case for three reasons: First, because this policy was issued to protect a municipality in the discharge of a governmental function and is therefore subject to the public policy of conserving public assets. Second, because the delay was excusable under the circumstances, since the policy was misfiled. Third, because the defendant was not prejudiced by the delay since there was available to the defendant insurance company extensive investigations of the accident made by two other insurance companies, the injured man's employer, the injured man's lawyers and the City.

As to the first contention, contrary to the City's position, we deem it of no significance that the insured in this case is a municipal corporation. The City's argument misapprehends the issue in this case. The City of Chicago, to the extent that it is a named insured under a liability policy, is a contracting party. The fact that it is a municipal rather than a private corporation does not alter its status as an entity contracting with another entity. The City entered into an insurance contract containing several commonly used and clearly understood clauses. The insurance company, as a part of its insurance contract, was entitled to insist on notice of an accident "as soon as practicable" and notice of claim or suit "immediately." The City argues, however, that these contract terms do not apply to it since they operate to violate the principle of conserving public assets. In this connection, we have considered the numerous Illinois cases cited by the City on this point. All of these cases are distinguishable from the instant case as they deal with either laches or rights created by statutes and not with specific obligations under a contract. We do not find any principles of law in these decisions which hold that a city is not bound by its legitimate contracts which are freely and properly made and which do not violate public policy. If cities are not to be bound by such contracts for reasons of public policy, such decisions must be made by the people acting through their state legislature and not through the courts. Presumably, municipalities could be prohibited from entering into insurance contracts which require them to give notice of accidents or lawsuits and it could be ...

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