Appeal from the Appellate Court for the Third District; heard
in that court on appeal from the Circuit Court of Peoria County,
the Hon. John A. Gorman, Judge, presiding.
JUSTICE SIMON DELIVERED THE OPINION OF THE COURT:
The Travelers Insurance Company refused to defend Dennis Reed when Reed was sued in the circuit court of Peoria County by Anthony Clemmons for injuries received in an automobile accident. Clemmons had been a passenger in a car driven by Reed when it collided with another automobile. The car Reed was driving was insured by Travelers and owned by the American National Red Cross. A default judgment was entered against Reed; Clemmons then sued Travelers to collect the judgment from it. The circuit court granted summary judgment to Clemmons, holding that Travelers' failure to defend Reed estopped it from denying that its policy coverage extended to Reed's accident. The appellate court affirmed (88 Ill. App.3d 201), and this court granted leave to appeal pursuant to Rule 315 (73 Ill.2d R. 315).
A chronology of the events in this case begins with the accident in the early morning hours of August 26, 1975, in which Clemmons was injured. Dennis Reed worked as a blood distributor for the Peoria chapter of the Red Cross on the night shift. The Red Cross left an automobile at his disposal for orders for blood which required immediate delivery. This car, driven by Reed and carrying Clemmons as a passenger, struck another vehicle after running a stop sign. The accident occurred at 12:12 a.m. during Reed's regular hours; however, Reed had received no orders that night requiring immediate delivery.
Within a week of the accident, Travelers advised Clemmons that it would pay his medical bills, up to $2,000, under the comprehensive automotive liability policy issued to the Red Cross. The policy obligated the insurer to pay all damages due to bodily injury arising out of the use of the Red Cross car; this coverage extended to those persons using the automobile with the named insured's permission.
Shortly thereafter, Travelers informed Clemmons that it was denying liability and would refuse to defend any suits against Reed. Travelers took the position that Reed had been operating the Red Cross automobile without permission and outside the scope of his employment and was therefore not covered by the policy.
On June 21, 1977, Clemmons filed a complaint charging Reed with negligent driving. The Red Cross was not included as a defendant. Soon after Reed was served on February 2, 1979, Travelers received a note from Reed, together with the summons served on him and a copy of the Clemmons complaint. On February 23, 1979, Travelers advised Reed in writing that it refused the tender of Reed's defense and that he would have to answer the Clemmons complaint by March 2, 1979. Reed did not. On May 4, 1979, the court entered a default judgment against Reed for $100,000.
Clemmons then filed the present action against Travelers, seeking a declaration that the insurer had wrongfully refused to defend Reed and that it was therefore required to pay Clemmons the amount of his judgment against Reed. Travelers, contending Reed was not covered by the policy, denied that it had a duty to defend him. The circuit court's summary judgment in Clemmons' favor was for the full amount of his judgment plus interest.
The substantive issue is whether Travelers was estopped from denying that Reed was covered by the policy it issued to the Red Cross. Discussion of that problem must begin with Murphy v. Urso (1981), 88 Ill.2d 444, decided this term, a case remarkably similar to this case in its facts and procedural course. Both are auto accident insurance cases involving attempts by injured passengers to collect from insurers default judgments imposed against the drivers of the vehicles in which they were injured. Travelers, the insurer in each case, issued a policy to the owner of the vehicle involved covering both the named insured and those using the vehicle with the permission of the named insured. In each case the driver of the vehicle was or had been employed by the named insured. In Murphy the named insured denied that the vehicle was being used within the scope of the employment or with its permission at the time of the accident. In this case the insurer advanced the same denial.
In each case the driver was served but did not appear. In each case Travelers offered the driver no defense. In each case a default judgment was entered against the driver which the plaintiff seized upon to garnishee Travelers under its insurance policy. In each case Travelers tried to deny coverage but was held estopped in the circuit court by its failure to defend the putative insured.
Murphy restated the general rule of estoppel that applies when an insurance policy grants the insurer the right and duty to defend suits brought against the insured. When a complaint against the insured alleges facts within or potentially within the scope of the policy coverage, the insurer taking the position that the complaint is not covered by the policy must defend the suit under a reservation of rights or seek a declaratory judgment that there is no coverage. (Sims v. Illinois National Casualty Co. (1963), 43 Ill. App.2d 184, 199.) If the insurer does not, it is later estopped from denying coverage in a suit to collect the judgment. Murphy addressed an exception to the general rule, explaining that when there is a conflict of interest between the insurer and the putative insured, the insurer may decline to take over the insured's defense itself, and may do so without making a reservation of rights or seeking a declaratory judgment on coverage, but the insurer remains liable for the costs of the putative insured's defense. Murphy v. Urso (1981), 88 Ill.2d 444, 451-52.
Travelers' first argument is that it did not have a duty to defend Reed, the putative insured, because the complaint filed by Clemmons against Reed did not raise an issue of potential policy coverage. Clemmons alleged the time, location and cause of the accident, identified the Red Cross as the owner of the car involved and Reed as the driver. However, the problem, according to Travelers, is that Clemmons did not allege that Reed was driving the automobile with the permission of the Red Cross. (Cf. Murphy v. Urso (1981), 88 Ill.2d 444.) Although a line of cases stretching back to Hays v. Country Mutual Insurance Co. (1963), 28 Ill.2d 601, 606, and Soukup v. Halmel (1934), 357 Ill. 576, 579, holds that permission is essential to prove a cause of action under a policy like the one here, it is not necessary for a complaint to allege permission in order to trigger the duty to defend. "If the complaint alleges facts within the coverage of the policy or potentially within the coverage of the policy the duty to defend has been established." (Emphasis added.) (Maryland Casualty Co. v. Peppers (1976), 64 Ill.2d 187, ...