APPEAL from the Circuit Court of Cook County; the Hon. JAMES
TRAINA, Judge, presiding.
MR. JUSTICE SIMON DELIVERED THE OPINION OF THE COURT:
After an automobile accident near her land, the insured was sued. The insurer received notice of the suit, made its investigation, and refused to defend, taking the position that the policy did not cover the accident. The insurer also refused to settle the case on the insured's behalf. The insured was represented at trial by her own lawyer and lost.
The assigns of the insured now sue the insurer, claiming that it is estopped from denying coverage because it failed to defend the case under a reservation of rights or seek a declaratory judgment that there was no coverage. They also seek to go to trial before a jury on the issue of whether the refusal to settle was negligent, fraudulent, or in bad faith. We conclude that the circuit court erred in entering summary judgment in favor of the insurer. The insurer was obliged to defend where the allegations of the complaint did not clearly show that the claim was beyond the policy coverage, and the question of negligence, fraud or bad faith was for a trier of fact to determine.
The pleadings, affidavits and depositions on file reveal that on May 2, 1965, a car driven by Richard LaPorte smashed into a vehicle containing several persons referred to in this opinion as the La Rotunda plaintiffs. The collision occurred on a bridge that carried Route 83 over the Des Plaines River and some railroad tracks. Explanations for the accident varied, but those in the La Rotunda vehicle said that their visibility had been obscured by smoke drifting over the bridge from low land between the tracks and the river.
This land was owned by Irla Habada as beneficiary of a land trust. She and her husband lived about 1.5 miles away in Hinsdale. She had purchased the land, 22.5 acres in all, in 1960. At the time, the Habada's home in Hinsdale was insured by defendants Royal Globe and London and Lancashire (Royal Globe). Because the newly purchased land was vacant, Mrs. Habada did not obtain additional insurance, but she did discuss the purchase with her insurance agent, who also happened to be president of her bank, though he was not the agent from whom the Habadas had initially purchased the defendants' policy. The policy for the home was in effect on the day of the accident.
The 22.5 acres was covered with trees and was often flooded. The previous owner had kept some old cars on the property, and when Mrs. Habada purchased it the Cook County sheriff was allowed to place his junked vehicles there as well. About 1962 Mr. Habada allowed a man to purchase the worn-out cars and begin a junkyard. Approximately half the 22.5 acres was leased, but the lease was oral and there was no clear line of demarcation setting its boundaries. Mr. Habada often dumped rubbish and fill on the lowest sections of the land; by 1965 he regularly allowed wrecking companies to dump waste and refuse on the property as landfill and accepted up to $5 for each load, but some loads were accepted without charge. A bulldozer on the site flattened out the fill to build up the river bank, yet parts of the land remained heavily wooded. Apparently, some of the refuse from the dumping operations and perhaps from the junkyard found its way into the wooded section.
A fire which had been burning on the land for several days was still burning on the day of the accident. It was not in the junkyard, but the record is not clear whether the fire was in the landfill area or in the woods. The Habadas were raking leaves in the front yard of their house when the accident occurred. They heard the sirens of the rescue vehicles but thought little about them since accidents were common on the bridge. The next day Mr. Habada spoke with the junkyard operator, who had witnessed the crash. He said that smoke from the fire had not blown across the highway. The Habadas later learned that the weather bureau said that winds that day blew from a direction which would not have obscured the highway. If it had, they themselves would have seen the smoke, since they were downwind from the fire, and the bridge was between their house and the fire.
It came as a surprise, then, when the junkyard operator, Mr. Habada and the Habadas' daughter, who had, after the accident, been named the beneficiary of the land trust, were sued by the La Rotunda plaintiffs on March 1, 1967. The complaint did not name Mrs. Habada. It alleged that Mr. Habada and the junkyard operator ran a junkyard and a refuse dump, negligently burned refuse and allowed the smoke to drift over the highway, causing the accident.
Mrs. Habada sent the complaint and summons to her attorney, but not to her insurance agent. She "guessed" that she discussed the suit with her insurance agent within 2 years after the suit was filed, but could not remember if she ever showed him the complaint. On May 5, 1971, the Habadas' lawyer wrote Royald Globe, informing it of the suit and requesting that it undertake the defense of the Habadas as agreed in the policy. The delay in formally notifying the insurer was attributed by the Habadas to a misunderstanding on their part over whether the policy covered the accident.
On June 8, 1971, Royal Globe responded with an initial refusal to defend the suit pending its own investigation. The insurer then opened a claim file and sent an investigator to Hinsdale. His report on July 1, 1971, noted that the junkyard only comprised part of the Habada land, that much fill had been dumped on other parts of the parcel and that the prevailing winds in the area would have blown the smoke away from, not across, the highway. The report stated that debris and rubbish had been placed among the trees on a section of heavily wooded land adjacent to the junkyard though not a part of it and that the fire in question was fueled by these materials. On July 13, 1971, Royal Globe formally refused to defend its insured, citing a business use of the property and late notice of the claim.
A series of repeated tenders and refusals followed:
— July 27, 1971: Mrs. Habada tendered the defense, stating that the land had been vacant, not involved in a business, and that notice had been sent as soon as the named insured was brought into the suit as part of discovery.
— September 14, 1971: Royal Globe announced a reappraisal of its position in light of the new question of coverage.
— October 18, 1971: Royal Globe refused the defense, stating that the land could not be construed as vacant because of the junkyard, and that service on Mr. Habada constituted service on the named insured requiring immediate notice.
— November 1, 1971: Mrs. Habada again tendered the defense, and informed the insurer of an offer from the La Rotunda plaintiffs to settle for $5000, an offer explicitly not ...