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Degraw v. State Security Ins. Co.

OPINION FILED JUNE 22, 1976.

JOSEPH DEGRAW, PLAINTIFF-APPELLEE, CROSS-APPELLANT,

v.

STATE SECURITY INSURANCE COMPANY, DEFENDANT-APPELLANT. — (COUNTY INSURANCE SERVICE, INC., DEFENDANT-CROSS-APPELLEE; LEO R. COX, DEFENDANT-CROSS-APPELLEE AND CROSS-APPELLANT.)



APPEAL from the Circuit Court of Cook County; the Hon. GEORGE J. SCHALLER, Judge, presiding.

MR. PRESIDING JUSTICE STAMOS DELIVERED THE OPINION OF THE COURT:

Rehearing denied July 29, 1976.

This action was commenced by Joseph DeGraw against State Security Insurance Company (hereinafter referred to as "State"), County Insurance Service, Inc. (hereinafter referred to as "County"), and Leo Cox, whereby DeGraw sought payment of a judgment previously entered against him and in favor of one Jerry Stastny in the amount of $55,000. The trial court entered judgment on the jury's verdict which had found in favor of DeGraw as against State, and in favor of County and Cox as against DeGraw. DeGraw's damages were assessed in the amount of $55,500 plus costs. Pursuant to DeGraw's motion, this judgment was subsequently modified to $69,651.70 plus costs to include the interest which had accrued on the Stastny judgment previously entered against DeGraw.

On appeal, State seeks reversal of the judgment entered against it; on cross-appeal, DeGraw asks that the judgments in favor of County and Cox be reversed; and in the event the judgment in favor of Cox is reversed, Cox on his cross-appeal seeks reversal of the dismissal of his counterclaim against State and the entry of judgment in his favor on the said counterclaim. *fn1

I.

This controversy arose from an automobile accident involving vehicles driven by DeGraw and one Jerry Stastny on October 15, 1965. Thereafter, Stastny joined DeGraw as a party defendant in an action commenced in Kane County, Illinois. (Stastny v. Dave's Lounge, Inc., et al., No. 65-3056.) That suit was filed on behalf of Stastny individually, his three children, and the estate of his wife who was killed in the accident.

DeGraw asked State to defend him in the action brought by Stastny, and, in the event of an adverse judgment, to indemnify him within the terms of an automobile liability insurance policy which he believed was in effect on the date of the accident. State provided DeGraw with a defense, but under a reservation of rights agreement, signed by DeGraw, wherein it was provided that State neither waived its right to deny coverage, nor admitted liability, as a result of its legal representation of DeGraw.

When State declined to pay any portion of the $55,000 judgment entered against DeGraw, DeGraw (hereinafter referred to as "plaintiff") brought this action against State demanding that it pay the full amount of the judgment, together with interest thereon, and $500 for his personal medical expenses which he alleged was also covered by the insurance policy. Joined with State as defendants were Cox, plaintiff's insurance broker, and County, a producer of insurance which placed insurance with various companies for local brokers. The counts alleged against each defendant sounded in both tort and contract. In addition, "bad faith" on the part of State during its legal representation of plaintiff in the Stastny action was alleged.

The principal issues presented for review are the following: (1) whether sufficient evidence was adduced at trial to establish State's liability to plaintiff; (2) whether the jury correctly found in favor of both County and Cox; (3) whether the legal representation granted plaintiff by State was conducted in such a manner as to justify a verdict against State for an amount exceeding the limits of the insurance policy; (4) whether the trial court committed prejudicial error by excluding a written statement and certain answers to interrogatories by plaintiff; and (5) whether certain rulings by the trial court with respect to tendered instructions constituted reversible error.

II.

Much of the evidence adduced at trial pertained to the business relationship established among defendants. In 1965, State primarily engaged in extending substandard or "high risk" automobile insurance coverage. County placed insurance with various companies, including State, pursuant to its receipt of applications for insurance submitted by individual brokers. In 1964, County and State entered into a written agreement wherein their business relationship was delineated. Although County was not authorized to solicit applications for insurance on behalf of State, County was granted the authority to bind certain risks for State and to collect premiums. *fn2 However, County's power to bind certain risks was limited to applications for the issuance of a new insurance policy by State, but did not extend to requests for the renewal of an existing policy. It was further agreed by State and County that the terms of the written agreement would remain in confidence.

The president of County testified that his company communicated daily by telephone with State's underwriting department to ascertain what risks would be accepted by State. This frequency of communication was deemed necessary since the type of risk considered acceptable by State often varied. As established through the ordinary course of business between County and State, it was the witness' belief that if 3-4 days elapsed after a written order was submitted by County to State for the issuance of a new policy or for the renewal of an existing policy, the failure of State to notify County within that 3-4 day period of its rejection of the order would indicate to County that the risk had been accepted and that a policy would be issued. If less than 3-4 days remained before the date on which the coverage was desired, the order would be transmitted to State by telephone with a written request to follow. By this latter procedure, County would know whether the risk would be accepted by State prior to the date on which the coverage was desired. In the event of a rejection of an order by State, County would then attempt to secure coverage through another insurance company.

The testimony of State's underwriting manager, who was also its vice-president, conflicted in part with the testimony of Company's president. This witness emphasized that the written agreement between County and State in respect of County's power to bind referred solely to applications and not to renewal requests. The witness further stated that, if a renewal request was rejected by State, County would usually be advised of that decision within 2-3 days, if possible, after the request was received by State. Under some circumstances, however, more than 2-3 days would be required for State to evaluate the risk. Consequently, the witness believed that County could not assume that a policy would be issued until notified of State's decision, notwithstanding the lapse of time from the date on which State received the order.

In 1965, Cox was an insurance broker who occasionally utilized County's services for placing high risk automobile insurance with State. Cox was not an agent for State, and as a result, he corresponded with County pertaining to policies issued by State for his clients. Pursuant to conversations he had with County's president, it was Cox' understanding that County was authorized to bind both applications and renewal requests with State. Although Cox did not enter into a written business agreement with either County or State, he conducted his business in accordance with an understanding that he would be notified by County within 2-3 days after he submitted a renewal request if that order was rejected by State. After 3-4 days had elapsed, Cox would assume that the risk was covered if he had not been advised to the contrary.

The chronology of events underlying this controversy is undisputed. Due to the large number of events and the significance of the date on which each occurred, these facts will be set out in tabular form. All dates listed occurred in 1965.

DATE DESCRIPTION OF EVENT

APRIL 12 Plaintiff secured an automobile insurance policy from State through County and Cox. The policy was scheduled to terminate on October 12.

SEPTEMBER 1 Cox mailed a letter to plaintiff suggesting that plaintiff renew his policy.

OCTOBER 1 While driving his automobile, plaintiff ...


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