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Fassola v. Montgomery Ward Insurance Co.





APPEAL from the Circuit Court of Will County; the Hon. CHARLES P. CONNOR, Judge, presiding.


This is an appeal by defendant insurer Montgomery Ward Insurance Company (hereinafter Insurer) from a judgment entered against it in a small claims action arising out of its automobile insurance policy issued to plaintiff Louis Fassola. Insurer raises an issue with respect to the Department of Insurance Regulations, specifically on the proper method for valuation of older automobiles (those no longer listed in regularly used valuation source books) when it is determined that there is a total loss. The Insurer contends that the trial court erred in concluding that their method of valuation was improper. It also raises an issue as to the correctness of the court's award of costs and attorney fees to plaintiff Fassola, based upon a finding of vexatious delay on the part of the Insurer. Ill. Rev. Stat. 1979, ch. 73, par. 767.

The facts in the record indicate that on October 15, 1980, plaintiff Louis Fassola, driving his 1973 Dodge Dart, was struck by a car driven by Kim Hrusosky. Both Fassola and Hrusosky were insured by Montgomery Ward Insurance Company. Fassola was covered under a family car policy which was in effect at the time of the accident. Fassola testified at trial concerning the condition of his automobile prior to the accident. He testified that his Dodge Dart was very reliable and that he drove it to work everyday. He stated that he had regular twice-a-year tuneups for it and had recently had a new water pump installed in it. It started regularly in the winter and required little, other than regular maintenance. It fully satisfied his work-related transportation needs. Fassola also indicated that prior to the accident the car had a crease in the left door, which did not hinder its functioning, nor allow weather in. The car also had some rust spots on the body. The record is clear that his 1973 Dodge Dart provided him with reliable and economical transportation and that he valued it for those reasons, not for its appearance.

In the accident, Fassola's Dodge Dart sustained considerable front end damage, including damage to the grille, radiator, fan, headlights, and front fenders. Insurance Adjuster John Ouradnik, who examined the damaged vehicle on behalf of the Insurer, testified that he determined that the cost for repairing the accident damage would be $771. Ouradnik also testified at trial that he conducted a market survey of the value of a '73 Dodge Dart and determined from it that the average value of such an auto was approximately $700. Because the car was no longer listed in the "red book" (the regularly used valuation source book), the market survey was required in this case. In describing how he undertook the survey, Mr. Ouradnik stated:

"Market survey, contact dealers, used car lots, describe the car to them, see what they have in like kind and quality, similar to the condition of this vehicle."

Based upon the assessment of the costs of repair ($771) and the market value of the auto ($700), it was determined to be a total loss.

Illinois Department of Insurance Regulations set forth the procedure for adjusting and settling claims for total losses. Rule 9.19, § 6B9 provides that an insurer must base the settlement on the "basis of actual cash value, or replacement with other of like kind and quality." Subsection (ii)(a) of Rule 9.19, § 6B9, states:


(a) A cash settlement must be based upon the retail value of the automobile as published in a generally recognized source that is uniformly and regularly used by the company. Any deviation from this procedure must be supported by documentation that gives detailed information about the automobile's condition. Any deduction from retail valuations must be measurable, discernible, itemized and specified concerning dollar amount, and they shall be appropriate in amount.

If the retail value of the specific automobile is not published in a generally recognized source, which is used uniformly and regularly by the company, the company must secure at least two written retail value dealer quotations and base the settlement upon them. Any deviation from this practice must be supported by documentation giving particular information about the automobile's condition. The source of the dealer quotations must be maintained in the claim file * * *."

In the instant case, the Insurer had conducted a market survey of '73 Dodge Darts in similar condition to Mr. Fassola's and had found the retail value to be $700. However, that was not the value placed by the Insurer on Fassola's Dodge Dart. To arrive at the Insurer's "retail value" for purposes of settlement, Mr. Ouradnik took another step. From the $700 figure obtained as retail value from the market survey, he then subtracted the costs which would have had to have been incurred in order to fix the old damage, that is, the damage existing prior to the accident. He testified that this was his general procedure in arriving at market value of an older model auto prior to an accident. He then testified that to fix the crease in the door, the rust spots, and the bent bumper it would have cost $548.12. Thus, Ouradnik, using this method of valuation, determined that Mr. Fassola's reliable and well-maintained Dodge Dart was worth a mere $151.88. Subsequently, based upon this figure, Montgomery Ward offered Mr. Fassola $250 in settlement. The offer was rejected, and Mr. Fassola indicated that he would retain counsel to get a fair settlement.

Mr. Fassola's attorney then contacted the Insurer and demanded $450 plus costs. The Insurer explained how the $250 figure was arrived at by them and informed counsel for Mr. Fassola that the company's offer was firm. A letter was also written to Mr. Fassola by a company representative, one Maureen McGrath, which also explained to him the $250 offer and the procedure in arriving at that figure. We quote, in relevant part, from the letter, dated October 30, 1980:

"Upon determining your car to be a total loss I performed a market survey for the value of your car. I received quotes from three separate dealers and the average of their quotes was $700. When our appraiser inspected your vehicle, he found that there was old damage in the amount of $548 on your car. The figures I had obtained in my market survey were for a 1973 Dodge Dart in ...

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