APPEAL from the Circuit Court of Jefferson County; the Hon.
CHARLES L. QUINDRY, Judge, presiding.
MR. JUSTICE EBERSPACHER DELIVERED THE OPINION OF THE COURT:
This is an appeal by defendant, Coronet Insurance Company (hereinafter Coronet), from a judgment entered by the circuit court of Jefferson County on a motion for summary judgment by plaintiff, Aetna Casualty and Surety Company (hereinafter Aetna). Aetna has filed a cross-appeal contending the judgment was of an insufficient amount. In August, 1966, John B. Hogie was driving a Chevrolet Corvette, which belonged to his roommate, Fred Link. An accident occurred. In the accident, Hogie's passenger, Pamela Hamilton, was injured. She sued Hogie alleging negligence. At the time of the accident, the automobile owned by Fred Link was insured by Coronet. Hogie was insured by Aetna. Coronet learned of the accident from Fred Link on the day it occurred, immediately made an investigation of the accident, and took statements from both Link and Hogie. Hogie maintained at the time that he had Link's permission to use the automobile.
The Coronet policy provided that the named insured, Link, and "any other person using such automobile with the permission of the named insured," are insured. The policy also provided that Coronet would pay on behalf of the insured all sums which the insured should become legally obligated to pay as damages because of bodily injury and property damage sustained by any person arising out of the ownership, maintenance, or use of the automobile, and that Coronet "shall defend any suit alleging such bodily injury or property damage and seeking damages which are payable under the terms of this policy, even if any of the allegations of the suit are groundless, false, or fraudulent." Aetna's policy covering Hogie contained similar provisions.
Hamilton sued Hogie for her injuries. Coronet refused to defend on the ground Hogie did not have Link's permission to drive the automobile, and therefore, was not an "insured person" under the policy.
Hogie's insurer, Aetna, did defend the suit on behalf of Hogie, and arrived at a settlement figure of $35,000. Before accepting the settlement, Aetna contacted Coronet to allow them to assert their position if they wished to do so and they refused.
After settlement, Aetna subrogated to Hogie's rights and commenced this suit to recover from Coronet the moneys paid by it to Hamilton and to its attorneys. At trial, Aetna asked for summary judgment against Coronet. Aetna's theory was that Coronet's duty to defend was broader than its ultimate duty to compensate. Coronet refused to defend Hogie because it was believed he might not be an "insured" within the meaning of the policy, and Aetna maintained that the refusal was a breach of the contract.
Aetna maintains that because Coronet refused to defend Hogie, Coronet is thus precluded from raising any of its defenses under the policy which it might otherwise have had and raised against Hogie.
Coronet maintains that summary judgment which is granted only when no material fact remains to be litigated, is inappropriate here. They reason that the duty to defend is predicated upon it being shown that Hogie was an "insured" under the policy and that the question of whether Hogie was an "insured" is very much in dispute. Therefore, Coronet believes it is entitled to a trial where the question of whether Hogie truly was an "insured" can be litigated. Coronet wants to explore the elements of consent, and whether the two men were "members of the same household."
The trial court granted the summary judgment upon an implicit finding that Coronet admitted refusing to defend, and further, that the refusal was wrongful in itself regardless of whether Hogie was ultimately found to be an insured. Therefore, Coronet, because of its wrongful refusal, was estopped to prove any defenses it might have had against Hogie's claims to be covered by Coronet.
The trial court found Coronet liable in the amount of $30,000, which was the policy liability limit, and also found Coronet was liable for attorney fees incurred by Aetna in the amount of $1,918.74, for a total of $31,918.74.
In its cross-appeal, Aetna claims that Hogie would have been entitled to recover the entire settlement of $35,000 plus attorney's fees in the amount of $1,918.74 from Coronet had he defended himself. Therefore, Aetna claims the entire amount should be paid to it as Hogie's subrogee.
The issues thus presented for review in this appeal are: (1) whether the trial court erred in granting summary judgment for Aetna; (2) whether Aetna, as subrogee to the rights of Hogie, was entitled to recover the damages paid as well as the costs of Hogie's defense; and (3) whether a recovery of the damages paid by Aetna should have also included that portion paid in excess of the policy limits of Coronet.
• 1 Resolution of the first issue involves principles which have been articulated, along with an exhaustive treatment of their rationale, in Sims v. Illinois National Casualty Co., 43 Ill. App.2d 184, 193 N.E.2d 123; McFadyen v. North River Insurance Co., 62 Ill. App.2d 164, 209 N.E.2d 833; Country Mutual Insurance Co. v. Murray, 97 Ill. App.2d 61, 239 N.E.2d 498. (See also Palmer v. Sunberg, 71 Ill. App.2d 22, 217 N.E.2d 463; Fragman Construction Co. v. Preston Construction Co., 1 Ill. App.3d 1002, 274 N.E.2d 614.) As shown by these cases, in Illinois, the insurer is obligated to defend an action brought against a putative insured where the complaint in that action sets forth a situation which would potentially be covered by the policy. Unless the complaint alleges facts which, if true, would exclude coverage, the potentiality of coverage is present and the insurer has a duty to defend. Underlying this rule is the principle that the duty to defend is broader than the duty to pay. If in a case there is potential coverage but the insurer believes that it has a valid exclusionary coverage defense then the insurer must: (1) secure a declaratory judgment of its rights while defending the potential insured under a reservation of rights, or (2) defend the potential insured under a reservation of rights and adjudicate its coverage in a supplemental suit. (Country Mutual Insurance Co. v. Murray, 97 Ill. App.2d 61, 73, 239 N.E.2d 498, 505.) In such a case, where the insurer fails to take either course of action, its failure to defend is unjustified and in a subsequent action by the insured against the insurer, it will be estopped from raising exclusionary defenses.
• 2 In the case at bar, it is undisputed by Coronet that Hogie was potentially covered under its policy and the only issue in this respect was Coronet's exclusionary coverage defense that Hogie did not have Link's permission to use the automobile. Since potential coverage was present, Coronet's refusal to defend was unjustified and ...