APPEAL from the Circuit Court of Du Page County; the Hon.
BRUCE FAWELL, Judge, presiding.
MR. JUSTICE VAN DEUSEN DELIVERED THE OPINION OF THE COURT:
Plaintiff, Mary Clingman Novak (hereinafter plaintiff), sustained injuries as a result of an accident which occurred on June 21, 1975. She also incurred substantial medical expenses.
On December 9, 1975, plaintiff filed a four-count complaint against several defendants. Count III was directed solely against her employer, Palisades School and Palisades School District (hereinafter Palisades).
Defendant Palisades tendered its defense to its liability insurer, Insurance Co. of North America (hereinafter INA). On March 22, 1976, INA refused to defend Palisades. In substance, INA's refusal to defend was based upon a policy exclusion which provided, in pertinent part:
"This insurance does not apply to and INA shall not be liable to make any payment in connection with any claim made or suit brought against the Insured, * * *
(d) based on or attributable to any failure or ommission on the part of the Insured to effect or maintain insurance."
On August 18, 1978, Palisades filed its third-party action against INA. Palisades prayed for a declaratory judgment that (1) its liability policy with INA encompassed coverage for the negligence of Palisades alleged by plaintiff; (2) INA had a duty to defend Palisades for the action filed against Palisades by plaintiff, and INA is responsible for any liability which Palisades may have to plaintiff. Palisades also filed an amended third-party complaint in which Palisades added an allegation that, by its attorney, it forwarded to INA a complete copy of plaintiff's second amended count III and requested that INA review it and advise Palisades as to whether INA would continue its refusal to defend. Palisades further alleged that INA refused and continued to refuse to defend Palisades in plaintiff's action. In its answer, INA admitted that it continued to refuse to defend Palisades, but made no reference to a receipt or review of plaintiff's second amended count III.
On July 24, 1979, plaintiff accepted a settlement offer from Palisades for $26,250.
In August 1979, INA and Palisades filed cross-motions for summary judgment. On September 13, 1979, the trial court granted INA's motion for summary judgment, dismissing Palisades' third-party complaint with prejudice, and denying Palisades' motion for summary judgment. Third-party plaintiff Palisades brings this appeal.
The controlling issue presented on this appeal is whether the claim filed by plaintiff against Palisades was "based on or attributable to" Palisades' "failure to effect or maintain insurance" and thus is excluded from coverage under Palisades' policy with INA.
The law in Illinois with respect to a liability insurer's duty to defend is well established (see Reis v. Aetna Casualty & Surety Co. (1978), 69 Ill. App.3d 777, 784), and the parties before this court are in agreement as to the principles of law applicable to the issues in this case. Therefore, we set forth the rules but briefly.
• 1 As a general rule, the duty of an insurer to defend an action brought against the insured is to be determined solely from the allegations of the complaint. (Thornton v. Paul (1978), 74 Ill.2d 132, 144.) "The insurer can safely and justifiably refuse to defend only when the allegations of the complaint clearly show that the claim is beyond policy coverage." (Emphasis in original.) (Reis, 69 Ill. App.3d 777, 784.) But where the complaint alleges facts within, or potentially within, policy coverage, the insurer is obliged to defend even if the allegations are groundless, false or fraudulent (Thornton, 74 Ill.2d 132, 144) and the insurer, from that time on, is unjustified in not defending the insured (Reis, 69 Ill. App.3d 777, 784, and cases cited therein).
INA contends that plaintiff did not allege, in her first complaint (count III) or in any subsequent amendments thereto, facts within, or potentially within, INA's coverage of Palisades.
In count III of her original complaint against Palisades, plaintiff made the following allegations: that Palisades, as her employer, was the administering agency of a group insurance program embodied in American Benefit Society Group Policy No. 22617-GTG and the policy was underwritten by John Hancock Mutual Life Insurance Company; that plaintiff was a policy holder under the policy by virtue of her employment by Palisades; that on or about June 20, 1975, plaintiff declined to avail herself of other insurance coverage; that on or about June 21, 1975, while the policy with American Benefit Society was in full force and effect, she was injured in an accident and incurred medical expenses; and that both she and Palisades kept and performed all terms and conditions of the policy. Plaintiff further alleged that it was the duty of American Benefit Society to pay her medical expenses; but, she feared that, as a result of a liquidation order entered against American Benefit Society by the State of Illinois Insurance Department, the assets of the company, which at that time may have been sufficient to pay her medical expenses, would be distributed to others. Finally, plaintiff alleged that Palisades had the duty to keep her fully informed as to the validity and force and effect of the Group Insurance Policy; that Palisades knew or should have known that the Group policy issued by American Benefit Society was issued without ...