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Associated Indemnity v. Ins. Co. of N. Amer.





APPEAL from the Circuit Court of Cook County; the Hon. ARTHUR L. DUNNE, Judge, presiding.


Associated Indemnity Corporation (Associated) filed a complaint in the circuit court of Cook County for declaratory judgment against Insurance Company of North America (INA). Associated requested: (1) a finding that INA unjustifiably refused to conduct Robert Blond's defense in an underlying personal injury action; (2) an order that INA reimburse Associated for the expenses Associated has incurred in defending Blond to date; and (3) an adjudication that INA's insurance policy provides Blond primary coverage for an automobile accident which serves as the basis for the underlying personal injury litigation.

In granting INA summary judgment, the trial court rejected Associated's contention that INA had a duty to conduct Blond's defense in the underlying litigation. The trial court held that because Blond was acting as an independent contractor at the time of the accident he was excluded from coverage under INA's insurance policy. Associated appeals, contending: (1) that the trial court erred as a matter of law; and (2) that there are unresolved material questions of fact precluding the entry of summary judgment.

The pertinent facts disclose that in 1972, Wilson Driveway, Inc. (Wilson), was an Illinois corporation operating out of the City of Chicago. Wilson offered a service whereby it would hire individuals to pick up a customer's automobile in the Chicago area and drive it, pursuant to the customer's request, to any location in the United States. Wilson's customers included out-of-State automobile dealerships whose brokers occasionally travelled to the Chicago area, and purchased automobiles for them from used car lots and car auctions. Following such a purchase, the broker would call Wilson and request that the automobile be picked up and driven to the out-of-State dealer.

Wilson did not employ any full-time automobile drivers; rather, it advertised for drivers on a car by car basis. The driver selected by Wilson and the customer who owned the particular automobile involved would enter into a form contract entitled an "Owner-Driver Agreement." A copy of this contract is not part of the record on appeal. While it appears from the record that such an agreement was utilized in all cases, the record is unclear as to who possessed the authority to execute these contracts on behalf of out-of-State customers.

The driver would pay Wilson a certain sum for the right to deliver the automobile to the out-of-State customer. The customer would generally reimburse the driver that amount upon the automobile's delivery. The driver was not paid any wages by Wilson; rather, his compensation was his right to use the customer's automobile for transportation to the customer's location.

Before Wilson would ship an automobile, it had to be inspected and a "Condition Report" filled out. If the automobile failed to meet specified standards it would not be shipped. Wilson was authorized to have minor repairs made to the automobile without consulting the customer. Minor repairs were those costing less than $25. More costly repairs required that the customer be contacted and his permission obtained.

Wilson and the driver it selected would calculate the number of miles the driver would be allowed in delivering the automobile, and determine the route that would be taken. If the driver desired to change the selected route after leaving Chicago, he had to call Wilson and request approval. In his contract with the customer, the driver was authorized to have repairs costing less than $25 made along the route. More expensive repairs required the customer's express permission.

Robinson was an automobile dealership *fn1 operating out of Renton, Washington. Sometime in early 1972, Mr. Van Palmer, a Washington based automobile broker, flew to Chicago and purchased for Robinson, at an automobile auction, a Ford Club Wagon. Palmer called Wilson and requested that the automobile be picked up and delivered to Robinson.

The automobile was picked up and driven to Wilson's downtown parking lot. On April 28, 1972, Robert Blond, Wilson's downtown office manager, and Fred Abrahamson, another Wilson office manager who was also Wilson's corporate secretary-treasurer, used Robinson's automobile to conduct some local business for Wilson. Their use of the automobile had nothing whatsoever to do with the automobile's delivery to Robinson.

Blond and Abrahamson intended to drive to the Chicago offices of a Wilson customer, Pan American Auto (American). The trip's purpose was two-fold: (1) to deliver transit stickers to American for use on automobiles they shipped through Wilson; and (2) to introduce Blond to a high-level American employee. Blond and Abrahamson planned to spend most of the afternoon at American and then return to Wilson's downtown office from where they would then head home. While on route to American, Blond, the driver of the automobile, struck a pedestrian, Marilyn Bartunek. The accident occurred at a downtown Chicago intersection.

Blond has a $100,000 individual automobile liability insurance policy issued by Associated. According to "PART I" of that policy, Blond is insured whenever driving a non-owned automobile so long as his operation of the automobile "is with the permission, or reasonably believed to be with the permission, of the owner." Associated admits that Blond's operation of Robinson's automobile falls within the scope of this clause and, therefore, that Associated's insurance policy affords Blond coverage for the accident.

Associated's policy provides that it will pay all sums which Blond becomes legally obligated to pay as a result of personal injuries caused by his use of a non-owned automobile. Also, Associated shall defend Blond against any suit which alleges such bodily injury and which seeks damages payable under terms of the policy, even though the allegations of the suit are "groundless, false or fraudulent." Finally, paragraph 16 of the section of the policy entitled "Conditions," provides that coverage with respect to a non-owned automobile is excess coverage over any other valid and collectible insurance.

Wilson, the employer of Blond, is insured under a liability policy issued by Casualty Insurance Company. The parties agree that this policy and the coverages it affords are not relevant to the issues raised in this appeal.

Robinson is insured under a "Multiple Liability Policy" issued by INA. This policy includes a "Garage Insurance" section which provides that INA

"* * * will pay on behalf of the Insured all sums which the Insured shall become legally obligated to pay as damages because of

G. bodily injury

to which this insurance applies, caused by an occurrence and arising out of garage operations, including only the automobile hazard for which insurance is afforded as indicated in the Declarations, and the Company shall have the right and duty to defend any suit against the Insured seeking damages on account of such bodily injury * * *, even if any of the allegations of the suit are groundless, false or fraudulent, * * *.


Automobile Hazard 1.

(1) The ownership, maintenance or use * * * of any automobile for the purpose of garage operations, and (2) the occasional use for other business purposes and the use for non-business purposes of any automobile owned by or in charge of the Named Insured and used principally in garage operations, and (3) the ownership, maintenance or use of any automobile owned by the Named Insured while furnished for the use of any person.

`garage' means an automobile sales agency * * *; `garage operations' means the ownership, maintenance or use of the premises for the purposes of a garage and all operations necessary or incidental thereto; * * *.


Under the Garage Bodily Injury and Property Damage Liability Coverages:

(3) with respect to the automobile hazard:

(a) any person while using with the permission of the Named Insured, any automobile to which the insurance applies under the automobile hazard, provided his actual operation or * * * use thereof is within the scope of such permission * * *."

INA's insurance policy also contains an "independent contractor" exclusion clause:

"None of the following is an Insured:

(ii) any person or organization * * *, with respect to operations performed by independent contractors for the Named Insured;"

and an escape clause:

"1. If there is other valid and collectible insurance, whether primary, excess or contingent, available to the garage customer and the limits of such insurance are sufficient to pay damages up to the amount of the applicable financial responsibility limit, no damages are collectible under this policy.

2. If there is other valid and collectible insurance available to the garage customer, whether primary, excess or contingent, and the limits of such insurance are insufficient to pay damages up to the amount of the applicable financial responsibility limit, then this insurance shall apply to the excess of damages up to such limit.

3. If there is no other valid and collectible insurance, whether primary, excess or contingent, available to the garage customer, this insurance shall apply but the amount of damages payable under this policy shall ...

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