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Federal Mutual Insurance Co. v. Pense

OPINION FILED MAY 9, 1980.

FEDERAL MUTUAL INSURANCE COMPANY, PLAINTIFF-APPELLANT,

v.

GERALD PENSE, DEFENDANT-APPELLEE.



APPEAL from the Circuit Court of St. Clair County; the Hon. RICHARD P. GOLDENHERSH, Judge, presiding.

MR. JUSTICE KARNS DELIVERED THE OPINION OF THE COURT:

This is an appeal from the judgment entered upon a jury verdict in the Circuit Court of St. Clair County denying the plaintiff, Federal Mutual Insurance Company, recovery from the defendant, Gerald Pense, of the amount paid by the insurer to one of its policyholders who was involved in an automobile accident with defendant.

In February of 1973, the insurer issued to Nell West an automobile insurance policy providing for income continuation in the event of accidental injury. The insuring provision provided that the insurer would pay the insured 85% of income lost within one year immediately after the date of an accident as a result of total disability caused by the accident.

A condition of the policy stated that as soon as practical the insured should give the insurer written proof of claim, and, upon each request from the company, execute authorization to enable the insurer to obtain medical reports, copies of records and loss of earnings information. The policy provided that the injured person was required to submit to physical examinations by physicians selected by the insurer whenever the insurer might reasonably require and that the insurer might require that the injured person, as a condition for receiving income continuation payments, furnish the insurer reasonable proof of his inability to work. Another provision generally provided that payments were to be made within 30 days after the insurer received "reasonable proof" of the fact and amount of loss incurred.

The policy also provided, in the event that payments were made under the policy, that the insurer was subrogated to the rights of the insured.

The parties agree that defendant's negligence was the proximate cause of the collision on April 7, 1973, in which Nell West was injured, and that the insurer paid Nell West $2,882 under the income continuation provision of the policy.

Nell West testified that she was employed as a housekeeper at the time of the accident. She was treated by her physician, Dr. Cox. While it is unclear exactly how she initially made her claim, she testified that she had numerous telephone conversations with a secretary at the insurer's office whom she informed that she was unable to work. During the period of about a year following the accident, she received income continuation payments in the form of 11 monthly checks for $262. On December 11, 1973, she executed a subrogation agreement authorizing the insurer to bring this action seeking recovery of the income continuation benefits paid.

Dr. Wayne Cox testified that he saw and treated Nell West at numerous times following the accident. He was of the opinion that she was unable to work at her job as a housekeeper from April 7, 1973, through May of 1974. He further testified that his office had submitted insurance reports concerning Nell West. He identified a report indicating that Nell West had been totally disabled from the time of the accident until the date of the report, May 4, 1973. However, the insurer did not offer this report into evidence.

On cross-examination, Dr. Cox identified reports that his office had sent to the insurer, dated October 26, 1973, and February 14, 1974. These reports each stated that Nell West was "totally disabled (unable to work)" from April 7, 1973, to June 11, 1973, and "partially disabled" thereafter to the date of the report. Defendant subsequently submitted these reports as his sole evidence.

In an attempt to rebut the reports, the insurer called Dennis Bini, the claims adjustor who "set up the file" on Nell West. However, defense counsel objected that questioning about notations in the file concerning telephone conversations was outside the scope of proper rebuttal. After an in camera inspection of the contents of the file, the court sustained the objection and also sustained an objection to a question about the claims procedures followed by the insurer in the adjustment of Nell West's claim.

On appeal, the insurer contends that the jury instructions imposed an improperly strict burden concerning the payment of the policyholder's claim as a prerequisite to recovery from the defendant. Specifically, the insurer contends that the court erred in refusing plaintiff's instruction number 12, which stated the insurer had the burden of proving that it "was responding to a reasonable anticipation of liability under its policy * * *" in making the income continuation payments to Nell West. Instead, the court gave plaintiff's instruction 13, which the insurer offered without waiving its submission of instruction 12. Plaintiff's instruction 13 contained the same language as did instruction 12, together with an additional paragraph requiring proof that "it was reasonable for the plaintiff Federal Mutual Insurance Company to make the income continuation payments to Nell West." We do note that neither instruction made any reference to the insured's actual condition of disability.

The insurer argues that plaintiff's instruction 12 stated the applicable law, as enunciated in St. Paul Fire & Marine Insurance Co. v. Michelin Tire Corp. (1973), 12 Ill. App.3d 165, 298 N.E.2d 289, which held that an indemnitee who settles without notice to the prospective indemnitor need prove only that, by settling, he was responding to a reasonable anticipation of personal liability rather than acting as a mere volunteer. In support of the application of this standard, the insurer submits that a stricter standard would result in benefits being withheld from insureds and thus foster litigation between insureds and insurance companies. The insurer further suggests that this court should encourage the payment of benefits upon "minimal substantiation," and that "an insurer should be allowed to recover from third persons the monies that it pays out upon the showing of a claim by its insured which probably comes under the terms of the policy and then upon minimal substantiation thereof."

Initially, we observe that the relationship between the parties in the instant case differs from that in St. Paul Fire & Marine Insurance Co. and other similar cases where an insurer or other indemnitee settles a tort claim brought by an injured party and then seeks to establish the primary liability of the prospective indemnitor and obtain reimbursement. Rather, the instant case involves payments by the insurer in response to a contractual claim by the injured policyholder, followed by an attempt by the insurer to recover from the admitted tortfeasor the amount of the payments or some part thereof. The parties have cited no authorities concerning the required level of care by an insurer in a directly comparable situation, and we are aware of none. The requirement that the insurer's payment of the income continuation benefits be "reasonable" was certainly consistent with the terms and conditions of the insurance policy itself.

• 1 In any event, we do not agree that requiring proof that it was reasonable for the insurer to make the payments actually did impose a stricter standard than that applied in St. Paul Fire & Marine. The differences in the proof required to establish a reasonable anticipation of tort liability, on one hand, and the reasonableness of payments under a contract of insurance, on the other, appear to lie in the character of the subject matter involved, rather than in the strictness of the standard to be met. By presenting the case as it did and submitting plaintiff's instruction No. 12, the insurer apparently conceded that it had a burden of proving that, at the time of the claim, it had some reasonable basis for making the payments, and that proof at the time of trial that Nell West in fact had been disabled ...


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