APPEAL from the Circuit Court of La Salle County; the Hon.
WILLIAM P. DENNY, Judge, presiding.
MR. JUSTICE BARRY DELIVERED THE OPINION OF THE COURT:
Defendant insurer, Country Casualty Insurance Company, appeals from a judgment entered in the circuit court of La Salle County in favor of plaintiff insured, Philip A. Conway. The case proceeded to a bench trial on a stipulation of facts, which revealed the following.
On December 4, 1973, plaintiff Conway was involved in an automobile collision with a vehicle driven by Hayfa Assalley. Assalley subsequently filed a personal injury suit against Conway in the circuit court of La Salle County, seeking to recover damages for injuries sustained in the accident. At the time of the accident Conway was an insured under a family combination insurance policy issued by the defendant insurer. The bodily injury liability limit of the policy was $10,000. At no time was Conway in arrears in his premium payments.
Prior to the initiation of litigation by Ms. Assalley on February 19, 1975, the defendant insurer had been reimbursing her for expenditures made that were a direct result of her injuries, and compensating her for lost income under an advanced payment program. Through October 24, 1974, $9,736,79 had been paid to Ms. Assalley as advanced payments.
Subsequently, an agreement was reached between Ms. Assalley and the defendant insurer, with Conway's approval, whereby the insurer would pay to Ms. Assalley $10,742.35, representing $742.35 property damage and the bodily injury liability limit of $10,000. Accordingly, on March 11, 1975, the insurer paid Ms. Assalley $900.21 in full payment. However, Ms. Assalley did not release the plaintiff Conway from liability in exchange for this payment, and she continued to pursue her personal injury suit against him.
Thereafter, on March 24, 1975, the defense of the Assalley/Conway lawsuit was tendered to the insurer by the law firm of Herbolsheimer, Lannon and Henson. The insurer, however, took the position that because it had already paid the policy limits to Ms. Assalley, it had been discharged of its obligation to defend Mr. Conway. The insurer informed the Herbolsheimer firm of its decision not to afford a defense for Conway in a letter dated April 22, 1975. Accordingly, the Herbolsheimer firm handled Conway's defense, and negotiated a settlement with Ms. Assalley on January 3, 1977. Under the terms of the settlement, Conway personally paid $10,000 to Ms. Assalley in exchange for a release. The firm of Herbolsheimer, Lannon and Henson thereafter submitted to Mr. Conway a statement for monies advanced and services rendered in defense of the Assalley lawsuit in the amount of $2,386.95. Country Casualty Insurance Company did not contest this amount.
Plaintiff Conway subsequently brought the instant action against the defendant insurer, seeking to recover the $10,000 he personally paid in exchange for the release of the tort plaintiff, and the reasonable costs of defense. Following a bench trial, judgment was entered for plaintiff. In an amended order, the court awarded plaintiff $10,000 (representing cost of settlement) plus $2,386.95 (representing legal fees) and prejudgment interest in the amount of $2,667.72. *fn1
The defendant insurer raises three issues on appeal: First, whether the trial court erred in holding that the insurer's payment of the bodily injury liability limits of the policy to the tort plaintiff did not discharge its duty to afford a defense for the plaintiff insured; second, if a duty to defend existed notwithstanding the payment of the policy limits, whether the trial court erred in awarding to the plaintiff insured damages for the money expended by him in obtaining a settlement with the tort plaintiff; and finally, if judgment for the plaintiff was proper, whether the trial court erred in awarding prejudgment interest on any portion of the damages awarded.
The first issue which we will consider is whether the payment of the bodily injury liability limits of $10,000 by the defendant insurer to Ms. Assalley discharged it of its duty to afford a defense for plaintiff insured Conway. In resolving this issue we are naturally guided by the terms of the policy. Under section I of the insurance policy issued by defendant, the insurer obligated itself to do the following:
"To pay on behalf of the Insured all sums which the Insured shall become legally obligated to pay as damages because of:
A. bodily injury, including death resulting therefrom, sustained by any person, hereinafter called `bodily injury';
B. injury to or destruction of property, including loss of use thereof, hereinafter called `property damage';
caused by accident arising out of the ownership, maintenance or use, including loading or unloading, of a Vehicle as defined herein or of any Non-Owned vehicle and the Company shall defend any suit alleging such bodily injury or property damage and seeking damages which are payable under the terms of this policy, even if any of the allegations of the suit are groundless, false or fraudulant; but the Company may make such investigation and settlement of any claim or suit as it deems expedient.
The Company shall not be obligated to pay any claim or judgment or to defend any suit or prosecute or maintain any appeal after the applicable limits of the Company's liability have been ...