APPEAL from the Circuit Court of La Salle County; the Hon. C.
HOWARD WAMPLER, Judge, presiding.
MR. JUSTICE BARRY DELIVERED THE OPINION:
This is an appeal from a judgment entered on a verdict directed at the close of complainant's case in favor of defendant, State Farm Fire and Casualty Corp., on a second amended cross complaint by Frank Thompson, a/k/a Eddie Jackson, its insured, to recover damages deriving from defendant's alleged breach of its automobile insurance policy. The action was originally commenced by plaintiff, Leona Brown, in two counts, one against State Farm and the other against her nephew, Thompson (hereinafter referred to by his alias, "Jackson"). The court dismissed plaintiff Brown's cause against State Farm and she voluntarily dismissed her count against Jackson when he filed the second amended cross complaint against State Farm. That pleading alleged that the cross complaint was filed for the benefit of Mrs. Brown, as assignee, she being the surety on Jackson's obligation for the purchase price of the insured vehicle. Both Jackson and Brown, therefore, are aligned as plaintiffs with State Farm as defendant. Mrs. Brown also appeals the court's order dismissing her original complaint against State Farm.
Plaintiffs' evidence showed that on September 30, 1969, Jackson, as principal, with his aunt, Leona Brown, as surety, executed a retail installment contract for the purchase by Jackson of a new Ford automobile for $3,330.39. The retailer assigned the contract without recourse to First National Bank of Ottawa, which also received a promissory note of plaintiffs. Plaintiffs purchased from defendant, State Farm, a policy of insurance on the vehicle with collision and property damage coverages, among others. The policy was issued to Jackson with a loss payable clause to the bank. The collision coverage provisions at paragraph D obligated defendant to pay for all loss occasioned to the Ford by collision, but only in excess of a deductible amount of $100. At page 7 of the policy, it was provided in respect to collision coverage D, that the defendant-insurer should have the option in the case of damage to settle the collision claim of its insured in any one of three ways; to wit, (1) by paying for the loss in money not in excess of the actual cash value of the property (immediately before the collision), or (2) by repairing the damaged vehicle, or (3) by replacing it with property of like kind and quality considering depreciation and the deductible.
Under coverage B of the policy, defendant-insurer promised insured that it would pay also for all property damage insured should become legally obligated to pay which was caused by accident arising out of the use of the insured Ford, including under "Supplementary Payments" in respect to coverage B, the cost of premiums on bonds to release attachments. At coverage H, defendant-insurer undertook to pay the reasonable expense of towing the insured vehicle to the nearest garage for repairs.
On December 9, 1969, which defendant admits by its pleading to have been within the policy period, Jackson, while operating his insured vehicle became involved in a collision at Paducah, Kentucky, with a vehicle operated by Harlan Smith, who was also insured by defendant. Smith immediately procured a Kentucky attachment on the Jackson vehicle as security for his loss, court costs and storage. State Farm was immediately notified of the loss by Mrs. Brown.
After notification by Mrs. Brown, for Jackson, defendant denied coverage on the Jackson vehicle, refused to pay Smith his deductible amount under coverage B of Jackson's policy, or to pay the premium on a bond for the release of the Kentucky attachment, or to tow the Ford vehicle anyplace. The Jackson auto remained in Kentucky under the attachment which was also security for accumulating storage costs. As late as March 12, 1970, defendant wrote Mrs. Brown demanding that she pay it, State Farm, as subrogee, for the sums it paid Harlan Smith under his collision coverage. Under this view taken by State Farm, that Jackson was at fault, it was, of course, defendant's obligation, as Jackson's insurer, to pay Smith's full claim including his deductible for which the attachment had been issued and was maintained.
Because of defendant's denial of coverage under Jackson's policy, and the consequent failure to pay Smith his deductible, the Jackson vehicle remained unavailable and under attachment in Kentucky until February 7, 1970, when First National Bank of Ottawa repossessed by reason of plaintiffs' default on the installment contract. Accordingly, the bank then advanced to Smith in Kentucky the sum of $190 for release of his attachment, paid an additional $86.40 for transportation of the Jackson vehicle back to Ottawa where it was repaired in July, 1970, for $453.62. All of these advancements by the bank were added back to plaintiffs' account where interest was accruing. In December, 1970, the bank authorized the repaired vehicle to be sold for $2,100. Thereafter, on January 27, 1971, defendant for the first time acknowledged coverage by paying to the bank $500.62 which the bank accepted in settlement of defendant's liability under the Jackson policy, without the consent or authorization of plaintiffs. These sums in the aggregate of $2,600.62 were credited by the bank to plaintiffs' account, leaving a deficiency balance in excess of $1,000, some of which appears to represent an interest liability from the time of the collision. There was evidence that the fair cash market value of the Jackson vehicle on January 1, 1970, was $2,700; that three weeks was an adequate period for making repairs; and that the vehicle would depreciate $630 from window price during the first three months. The evidence is not clear as to the balance due the bank at the time of the collision.
• 1, 2 The settlement effected by State Farm with First National Bank of Ottawa on January 27, 1971, without the consent of the insured does not operate as a release of the insurer's liability to Jackson as its insured. At most, it fixes the extent of the bank's right to participate in the proceeds of what may be due under the policy; the amounts paid to the bank by the insurer operated in such circumstances, only as a credit against amounts due from the insurer to the insured. A mortgagee of property for whose benefit the property is insured, even where the proceeds are payable to him as his interest may appear, is without authority in case of loss to effect a full settlement of the claims of the mortgagor without the latter's consent. (See Annot., 130 A.L.R. 598, 604 (1941); 44 Am.Jur.2d Insurance § 1703 (1969).) The rights of the mortgagor and mortgagee become fixed as of the date of the loss on December 9, 1969, so far as the insurer is concerned (Annot., 46 A.L.R. 2d 992, 993 (1956)), and the subsequent foreclosure or repossession by the bank did not terminate Jackson's insurable interest. 43 Am.Jur.2d Insurance § 487 (1969); 8 Ill. L. & Pr. Chattel Mortgages § 120 (1954).
• 3, 4 Mrs. Brown, as surety on the insured's obligation to the bank (see South Side Bank & Trust Co. v. Yorke, 15 Ill. App.3d 948, 305 N.E.2d 367 (1st Dist. 1973); Ill. Rev. Stat., ch. 26, § 3-415), had a legal right at any time to discharge her principal's obligation to the bank and to become subrogated to the bank's right to proceed against the insurer for amounts due under Jackson's policy. The bank cannot impair or diminish the surety's right to become subrogee, and to the extent it does so by executing a release to the insurer without her consent for amounts less than are due, it discharges her as surety pro tanto. (Chicago Bridge & Iron Co. v. Reliance Insurance Co., 46 Ill.2d 522, 264 N.E.2d 134 (1970); cf. Watkins Products, Inc. v. Walter, 11 Ill. App.3d 417, 296 N.E.2d 859 (5th Dist. 1973).) As an alternative remedy, however, she may take an assignment from the mortgagor-insured of any excess claim of his against the insurer and proceed against the insurer, in her own name by right of statute (Ill. Rev. Stat., ch. 110, § 22), or in the name of the insured, by right of common law (6 Am.Jur.2d Assignments § 127 (1963)), as his assignee, for the excess liability. The claim of an insured under a policy is assignable after the loss occurs. Ginsburg v. Bull Dog Auto Fire Insurance Association, 328 Ill. 571, 160 N.E. 145 (1928).
Where, as here, the contract of insurance with Jackson gave the insurer, in respect to collision coverage D, three separate options for making settlement, without specifying the time within which the elections must be made, all the cases which have considered the question have held that the election must be made by the insurer within a reasonable time after the loss. Annot., 29 A.L.R.2d 720, 727 (1953).
In Dosland v. Preferred Risk Mutual Insurance Co., 242 Iowa 1220, 49 N.W.2d 823, 29 A.L.R.2d 712 (1951), plaintiff-insured's automobile was damaged on December 5, 1949, and at no time prior to March 3, 1950, did the insurer authorize repairs. Plaintiff thereupon commenced an action against the insurer for the full value of the automobile immediately prior to the collision. The court, reasoning that automobiles are relatively short-lived, that they depreciate rapidly in value, and that the time required to repair them is normally measured in days or weeks, stated at 242 Iowa 1220, 1227, N.W.2d 49 823, 828:
"What is a reasonable time [for the insurer to make its election] has been said to be a question compounded of law and fact. Each case must turn upon its own circumstances. The delay may be so brief or so long as to be clearly reasonable or unreasonable. Between these extremes the question may be doubtful. In such case it is a question of fact. Here the claimed election to repair the car for plaintiff was made almost three months after the collision. Under the circumstances we conclude the question whether that was within a reasonable time was a question of fact for the jury."
A verdict for plaintiff in that case was sustained.
In Smith v. Farm Bureau, 98 N.H. 420, 101 A.2d 778 (1953), the court in interpreting a collision coverage provision of a policy giving the insurer an election as to the manner of settling a collision loss, after citing Dosland, held that such election must ...