APPEAL from the Circuit Court of Cook County; the Hon. IRWIN
COHEN, Judge, presiding.
MR. JUSTICE O'CONNOR DELIVERED THE OPINION OF THE COURT:
Defendant MFA Insurance Company (MFA) appeals from a declaratory judgment finding that defendant Lee Crowther is entitled to full rights and benefits under the Homeowner's Insurance Policy issued to him by MFA and from the garnishment judgment entered in favor of plaintiff Robert Bishop against MFA in the amount of $175,000, plus interest and costs.
The facts underlying this appeal are: In 1973, MFA issued its Homeowner's Insurance Policy to Lee Crowther and his wife on their home in Joliet, Illinois. In the autumn of that year, Lee Crowther entered into a contract with Kofoid and Pilon to build a family-room addition to their single-family home. The roofing and gutter work on the addition was to be performed by Crowther, Inc., of which defendant Lee Crowther was a principal or shareholder and vice-president. Crowther, Inc., assigned plaintiff Robert Bishop, a loaned employee, to apply the shingles. While engaged in this work, he fell from a ladder and was injured. He brought suit under the Illinois Structural Work Act against Lee Crowther individually and Kofoid and Pilon. MFA defended the suit against Lee Crowther under a reservation of rights based on the business pursuits and workmen's compensation benefits exclusions in the Homeowner's policy. Before trial, plaintiff and Lee Crowther entered into the following agreement which was disclosed to all parties and to the court:
"The undersigned, for the mutual consideration herein contained, agree as follows:
1. Robert Bishop hereby agrees that in the event of verdict and judgment against Lee Crowther individually or Lee Crowther and Kofoid and Tilon, in case No. 74 L 19065, that he, Robert Bishop, will not execute said judgment against any personal assets of Lee Crowther, but rather will execute said judgment as it pertains to Lee Crowther only against the applicable proceeds of Lee Crowther's policy of insurance through MFA Insurance Company.
2. Lee Crowther agrees that in the event of verdict and judgment against him and in favor of Robert Bishop in Case No. 74 L 19065 that he will fully cooperate with Robert Bishop and his attorneys only after verdict in endeavoring to collect said judgment from MFA Insurance Company whether by means of garnishment, declaratory judgment, or any other means of collection."
After a jury trial, Kofoid and Pilon were found not liable and Lee Crowther liable to plaintiff Robert Bishop in the amount of $175,000. Lee Crowther appealed and this court affirmed the judgment against him. (Bishop v. Crowther (1980), 92 Ill. App.3d 1, 415 N.E.2d 599.) The supreme court denied leave to appeal. 85 Ill.2d 555.
After the judgment in the trial court, plaintiff filed a garnishment proceeding against MFA upon the Homeowner's Insurance Policy and MFA filed a declaratory judgment proceeding for a declaration that it was not liable under the policy exclusions relating to business pursuits and workmen's compensation benefits. The court below found that the claimed exclusions did not apply and that the covenant not to execute did not relieve MFA from its obligation to pay the judgment against Lee Crowther. It entered a garnishment judgment for plaintiff and against MFA in the amount of the judgment recovered by plaintiff from Lee Crowther, plus interest and costs.
On appeal, MFA argues that the covenant not to execute bars plaintiff's recovery, as do the business pursuits and workmen's compensation benefits exclusions of the policy. We disagree.
The policy issued by MFA provides:
"COVERAGE E — PERSONAL LIABILITY. This Company agrees to pay on behalf of the Insured all sums which the Insured shall become legally obligated to pay as damages because of bodily injury * * * caused by an occurrence."
MFA argues that by the covenant not to execute, Crowther was no longer "obligated to pay" damages to Bishop and therefore MFA is relieved of its obligation to pay under its policy.
In plaintiff's injury suit, the attorneys representing the insured there under MFA's reservation of rights and who are the same attorneys who represent MFA in this appeal argued that because of the covenant not to execute plaintiff had failed to establish damages. This court affirmed the judgment in Bishop's favor and rejected that argument, saying (92 Ill. App.3d 1, 8-9):
"Plaintiff and defendant entered into a covenant providing that plaintiff would not seek to execute any judgment against any personal assets of defendant, but reserved the right to execute against assets relating to his insurance. Crowther asserts that a legal consequence of this covenant is that no damages are enforceable against him individually. He further maintains that plaintiff failed to establish an element of his cause of action: proof of damages. We disagree. Defendant's argument fails to distinguish between such concepts as liability, damages, judgment and execution. Defendant's liability and the amount of damages were both established by the judgment. The execution determines which of defendant's assets will be used to satisfy the judgment. An agreement limiting execution to specific assets does not negate damages.
Thornton v. Paul (1977), 51 Ill. App.3d 337, 366 N.E.2d 1048, aff'd in part, rev'd in part on other grounds (1978), 74 Ill.2d 132, 384 N.E.2d 335, involved a similar covenant. Thornton concerned a tavern owner striking a patron with a club. The insurer refused to defend the civil suit because its policy excluded intentional torts. Plaintiff and defendant entered into an agreement in which plaintiff agreed to limit the source of collection of any judgment to defendant's insurer. This agreement was not disclosed to either the court or the insurance company until after a default judgment was entered and garnishment proceedings instituted against the insurer. The insurer filed a section 72 petition to vacate the default based upon the undisclosed covenant. The appellate court denied the petition, stating (51 Ill. App.3d 337, 341):
`An agreement per se between the claimant and the insured where the carrier is denying coverage, stipulating that the plaintiff will not execute against property of the insured other than the limits of the insurance policy in the event of a recovery against defendants in the principal action, has been approved and is not contrary to public policy. Krutsinger v. Illinois Casualty Co. (1957), 10 Ill.2d 518, 141 N.E.2d 16; Maryland Casualty Co. v. Peppers (1976), 64 Ill.2d 187, 355 N.E.2d 24; Elas [(1976), 39 Ill. App.3d 944, 352 N.E.2d 60].'
The court also noted that the covenant merely exempted from execution certain of defendant's assets and was not relevant to the question of either liability or damages. Accordingly, we reject defendant's argument that damages were not established."
The supreme court denied leave to appeal. 85 Ill.2d 555.
While it is true that in this court's opinion affirming the judgment in favor of Bishop the argument that Crowther was not "legally obligated to pay" was directed to the existence of damages and here it is directed to the coverage of the policy, the arguments are essentially the same.
• 1 It seems apparent that if an agreement not to execute except as to insured's insurance does not violate public policy, to deny it efficacy would be an exercise in empty rhetoric. We hold that the agreement does not per se relieve MFA of liability under its policy.
Defendant relies heavily on Childress v. State Farm Mutual Automobile Insurance Co. (1968), 97 Ill. App.2d 112, 239 N.E.2d 492, appeal denied (1968), 39 Ill.2d 627, in support of its argument that the covenant here precluded plaintiff's recovery because Crowther was no longer "legally obligated to pay." From a reading of the opinion, it does not appear that the court there considered the public policy aspect. In addition, in Elas v. State Farm Mutual Automobile Insurance Co. (1976), 39 Ill. App.3d 944, 352 N.E.2d 60, appeal denied (1976), 63 Ill.2d 556, the court stated (39 Ill. App.3d 944, 948):
"Ample authority exists holding that when an insurer refuses to defend the suit against its insured, the insured may settle with other parties in the case and protect himself or herself against further liability without waiving the insured's rights or the rights of the injured plaintiff to continue the proceedings against the insurer. De Luxe Motor Stages v. Hartford Accident & Indemnity (1st Dist. 1967), 88 Ill. App.2d 188, 193, 232 N.E.2d 141; Krutsinger v. Illinois Casualty Co. (1956), 10 Ill. App.2d 344, 135 N.E.2d 180, aff'd, 10 Ill.2d 518, 527, 141 N.E.2d 16 (1957); 7A Appleman, § 4690, at 492, and § 4714, at 591-92.
Defendant cites Childress v. State Farm Mutual Automobile Insurance Co. (4th Dist. 1968), 97 Ill. App.2d 112. 239 N.E.2d 492, as authority to the contrary. The rationale of that case may seem obscure, but the court there seems to rely principally on the asserted fact that there was no contractual relationship between the insured and the insurer. Be that as it may, there was clearly a contractual relationship in the case before us, and we do not believe that Childress is convincing authority in face of the general rule to which we have referred in this opinion."
Thus, not only did Childress not consider the public policy aspect, but, as pointed out in Elas, it failed to recognize the general rule that even a settlement does not waive the rights of either the insured or of the injured plaintiff to continue the proceedings against the insurer. Consequently, we ...