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Continental Casualty Co. v. Aetna Ins. Co.

OPINION FILED MARCH 14, 1980.

CONTINENTAL CASUALTY COMPANY, PLAINTIFF-APPELLANT,

v.

AETNA INSURANCE COMPANY, DEFENDANT-APPELLEE.



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

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

This is an appeal from the entry of summary judgment for defendant in an action by plaintiff seeking a declaration that defendant was a co-insurer of a loss paid by plaintiff.

It appears from the parties' written stipulation of facts that defendant had issued a multi-peril policy expiring January 15, 1976, which insured property of Harvey C. Wagley et al. (hereafter Wagley) for damages resulting from fire to a limit of $1,350,000; that on January 8, when Stephen Burns (Wagley's insurance broker) learned that the policy renewal premium would be $6,062 — more than twice the premium of the existing policy — he asked Corroon & Black (an insurance agency) to issue a binder extending the coverage on the expiring policy while he (Burns) obtained premium quotations from other insurance companies; that Corroon & Black (which was agent for both plaintiff and defendant, as well as other insurance companies) issued a binder extending defendant's coverage from January 15, 1976; and that no premiums were charged by or paid to defendant for this binder.

The stipulation also discloses that on January 14, 1976, Gil Gawin (a Corroon & Black insurance analyst) obtained from George Erickson (an employee of plaintiff) a premium quotation for coverage on the Wagley property of $4,580 per year with policy limits of $1,500,000; that on January 26, Erickson confirmed the quotation in writing to Gawin; that Burns then instructed Gawin, on January 29, to issue a policy with plaintiff on the Wagley property; that pursuant thereto, Corroon & Black, on January 30, issued a binder with plaintiff covering the property beginning on January 15; that this coverage was in replacement of and not a supplement to the original policy issued by defendant — which had expired on January 15; that the Wagley property was damaged by fire on January 31, and Wagley made a claim only to plaintiff — which paid damages of $158,023.93.

When defendant refused a demand for a contribution to that loss, plaintiff brought the instant action seeking a declaration (1) that the binder issued by defendant to Wagley, which covered the same property as did plaintiff's binder, was in force and effect at the time of the fire; and (2) that plaintiff is entitled to a contribution from defendant of 50% of the amount paid on the fire loss. In its answer, defendant asserted that its binder was substituted for and replaced by plaintiff's binder, thereby making plaintiff the sole insurer of the property at the time of the loss. Plaintiff then moved for summary judgment, asserting that the doctrine of cancellation by replacement and substitution operated to cancel the Aetna binder on January 30, 1976, and that it therefore had no obligation to contribute to the loss paid by plaintiff. The motion was supported by an affidavit of Corroon & Black, by Bruce O'Neil (its senior vice-president), and excerpts from O'Neil's deposition. The affidavit states that Corroon & Black is the agent of both plaintiff and defendant; that it acted on behalf of each in issuing their respective binders; that on January 30, 1976, it bound plaintiff for the period of January 15, 1976, through February 15, 1977; that the intent of the transaction was to replace the coverage of defendant with that of plaintiff; and that, but for the fact that the fire occurred one day after the issuance of plaintiff's binder, Corroon & Black would have in its regular course of business formally canceled defendant's binder effective back to January 15, 1976.

In the excerpts of his deposition, O'Neil stated that he had attended a meeting between executives of Corroon & Black and plaintiff, at which Erickson (an underwriter for plaintiff) acknowledged that plaintiff had bound the Wagley risk on January 30, 1976, and that Lowell Haberer (branch manager of plaintiff) had acknowledged coverage for the loss. O'Neil stated also that no formal document was prepared canceling the binder issued by defendant, although normally it would have been prepared three or four days later; that such notice of cancellation was a clerical function; and that in the ordinary course of business, a cancellation notice to defendant would have canceled the binder back to January 15, 1976 — the maturity date of the original policy; that plaintiff had accepted the risk on January 30; that under the common practices of the insurance industry, when a company accepts a binder the preceding company is off the risk; and that when plaintiff accepted the binder and risk, it did not indicate that it was accepting only 50% of the risk.

It appears that with the consent of the parties, the court held an evidentiary hearing limited to the question of intent as to the binder with defendant. At this hearing, O'Neil testified that he was a senior vice-president and senior property underwriter at Corroon & Black, with 28 years experience in the insurance business; that Corroon & Black acts as an agent for certain insurance companies with authority to issue and cancel binders; that under the general practice of the insurance industry, a new policy issued prior to the expiration of a 30-day binder supersedes the binder; that under the practice of the industry, when new coverage is procured, it goes into effect the date on which the coverage is agreed upon; that the acts of Corroon & Black with respect to the disposition of unexpired binders binds the companies for whom it is agent; that notice of cancellation of an unexpired binder has no effect upon the date the binder is canceled; and that when coverage with plaintiff was obtained, with the effective date of January 15, plaintiff agreed to accept the risk 100% — thereby replacing the binder with defendant in its entirety.

Stephen Burns (insurance broker for Wagley), testifying for defendant, stated that he had authority to use his best judgment in arranging Wagley's insurance coverage subject to Wagley's approval; that as Wagley's broker, he believed that the agreement he reached with Corroon & Black for plaintiff to accept the risk of January 15, 1976, automatically put defendant off the risk; that no acts he performed on behalf of Wagley in connection with the risk were overruled by Wagley; that it was his intention that the binder with defendant would be canceled when coverage was obtained with plaintiff; and that he did not receive a notice of cancellation of the binder with defendant, nor did he expect it as he believed the binder was canceled "flat."

Gilbert Gawin (a Corroon & Black insurance analyst), testifying as a witness for defendant, stated that he reached an understanding with Burns that the binder with defendant would be canceled upon the procurement of coverage with plaintiff because the latter had assumed the risk as of January 15, 1976 — the effective date of the binder with defendant; and that Wagley was never charged a premium for the issuance of the binder with defendant because there was no coverage in effect for the period of the binder.

The trial court found from the evidence it heard that it was the intent of defendant's agent to cancel the binder of defendant by the substitution of the binder with plaintiff. Accordingly, summary judgment was entered in favor of defendant, and this appeal followed.

OPINION

It is plaintiff's initial contention that the trial court improperly based its entry of summary judgment on the doctrine of automatic cancellation by substitution and replacement. By this doctrine, the procurement of any insurance by an insured, or his authorized agent, for a term commencing before the expiration of existing insurance with an intent to have the new insurance take the place of the old and with no intent to thereby acquire additional insurance, constitutes an effective cancellation of the existing insurance.

Plaintiff, relying on Lee v. Ohio Casualty Insurance Co. (1978), 58 Ill. App.3d 1, 373 N.E.2d 1027, argues that the doctrine is not the law in Illinois and, alternatively, it maintains that even were we to hold it to be the law, there was a material question of fact as to whether an intent to cancel automatically was established because (1) certain statements by Corroon & Black officials indicated an intent to cancel at a time subsequent to the loss; (2) plaintiff's binder had not formally issued at the ...


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