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Songer v. State Farm Fire & Casualty Co.





APPEAL from the Circuit Court of Clay County; the Hon. BILL J. SLATER, Judge, presiding.


After a fire destroyed his house and its contents, plaintiff, Robert J. Songer brought this action in the Circuit Court of Clay County for a declaratory judgment to determine the rights and liabilities of defendant State Farm Fire and Casualty Company and defendant Country Mutual Insurance Company under their respective policies issued to the plaintiff. The trial court declared, among other things, that Country Mutual was responsible for a pro rata share of the loss, the amount to be determined in a pending companion suit. However, the trial court reserved the question of whether Country Mutual was liable for plaintiff's attorney's fees.

Country Mutual appealed. We dismissed the appeal without prejudice for lack of a final and appealable judgment. Country Mutual was granted leave to obtain a final judgment on the question of attorney's fees.

On remand, the trial court found that Country Mutual was vexatious and without reasonable cause in having refused to pay its pro rata share of the loss. The court further found that the matter of attorney's fees was controlled by section 155 of the Illinois Insurance Code (Ill. Rev. Stat. 1975, ch. 73, par. 767) as it existed prior to the amendment effective October 1, 1977, which removed the maximum fee recovery limitation of $1,000. Accordingly, the trial court ordered that the plaintiff recover $1,000 of his attorney's fees from Country Mutual.

Before us now is Country Mutual's original contention that its policy was cancelled by substitution prior to the loss. Country Mutual also argues that its refusal to pay was not unreasonable and vexatious, and that it should not be held liable for any part of plaintiff's attorney's fees. Plaintiff disputes these contentions and argues that the trial court erred in applying the attorney's fees statute as it existed prior to the amendment removing the $1,000 limitation.

On April 17, 1973, plaintiff procured from Country Mutual a special farmowner's policy that contained fire insurance coverage of $10,000 for his house and $4,000 for household and personal effects. On January 30, 1974, plaintiff increased the coverage amounts under the policy to $12,500 and $5,000, respectively. On April 17, 1974, plaintiff renewed the policy for a year.

Under "General Conditions," the policy provided, "[o]ther insurance may be prohibited or the amount of insurance may be limited by endorsement attached hereto." Another general condition stated that "[t]his Company shall not be liable for a greater proportion of any loss than the amount hereby insured shall bear to the whole insurance covering the peril involved, whether collectible or not."

Under conditions relating to the fire insurance coverage, as well as certain other coverages, the policy stated, "[u]nless otherwise provided in writing added hereto, other insurance covering any property which is insured hereunder is prohibited." Immediately following this, the policy provided that "[t]his Company shall not be liable for a greater proportion of any loss from any peril or perils than (a) the amount of insurance under this policy bears to the whole amount of fire insurance covering the property, whether collectible or not * * *."

No provision in the policy expressly relieved Country Mutual of liability in the event that the insured obtained other insurance on the property. The policy provided for cancellation at any time at the request of the insured or upon 10-day written notice of cancellation from the company.

Dissatisfied with his Country Mutual policy, plaintiff contacted an agent for State Farm, Weldon McVay, and inquired about the cost and extent of the fire insurance coverage available from State Farm. McVay gave plaintiff a binder dated June 6, 1974, for $32,000 coverage on his dwelling and $16,000 on personal property, and submitted plaintiff's application to State Farm for a homeowner's policy. Both plaintiff and McVay testified that McVay advised plaintiff not to cancel his Country Mutual policy until he was sure that he had insurance with State Farm. Plaintiff testified that he would have rejected the State Farm policy had the premium been higher than McVay's representation or higher than the Country Mutual premium.

On June 20, 1974, plaintiff's house was destroyed by fire. Plaintiff contacted McVay, who had not yet learned whether State Farm had acted on plaintiff's application. Plaintiff did not receive the policy until a few days after the fire. He gave no notice of intended cancellation to Country Mutual at any time.

Plaintiff submitted proof of loss to both insurers. State Farm paid a pro rata share of the loss, under a provision similar to those in the Country Mutual policy. Robert Strothman, a property claims specialist for Country Mutual, testified that he told plaintiff that the Country Mutual policy was void under the other insurance provision. Subsequently, in a letter dated September 10, 1974, Country Mutual's property claims manager denied liability for plaintiff's loss without assigning a reason. A letter dated February 13, 1975, informed plaintiff that Country Mutual did not desire to continue his policy beyond the anniversary date, April 17, 1975. At trial, counsel for Country Mutual stipulated that the policy "ran its term without him [plaintiff] applying for a refund." Nor does it appear that Country Mutual tendered a partial refund of plaintiff's premium.

The trial court found that plaintiff's loss was $42,684.85 and that State Farm's liability was $31,133.26. It found that the plaintiff did not intend to cancel the Country Mutual policy until after State Farm had issued and delivered its policy to him, which issuance and delivery was not accomplished until after the date of the fire. The court further found that the Country Mutual policy was still in effect on the date of the fire, and the issuance of the State Farm binder prior to the fire and the subsequent issuance and delivery of the State Farm policy after the fire did not effect a cancellation of the Country Mutual policy under the doctrine of cancellation by substitution or any other theory.

• 1 It is undisputed that the plaintiff intended to replace the Country Mutual policy with the State Farm policy. However, the record amply supports the court's finding the plaintiff intended to do so only if State Farm in fact issued the policy and the plaintiff was satisfied with its cost and terms. Something more than intent is required to effect an automatic cancellation in this situation. (Continental Casualty Co. v. Aetna Insurance Co. (1980), 82 Ill. App.3d 402, 402 N.E.2d 756.) Under strikingly similar facts, it was held specifically that pre-existing policies were not cancelled where the insureds (1) purchased their new policy from a new agent, (2) did not surrender their pre-existing policies, (3) did not immediately notify their original agent or insurers of a desire to cancel the pre-existing policies, and (4) did not intend to cancel ...

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