APPEAL from the Circuit Court of Cook County; the Hon. IRWIN
COHEN, Judge, presiding.
PRESIDING JUSTICE WHITE DELIVERED THE OPINION OF THE COURT:
Appellee, Margaret Johnson, administrator of the estate of Lincoln W. Mills, deceased, obtained a default judgment against R&D Enterprises, a Georgia corporation (R & D). Appellee then brought a garnishment action against Carolina Casualty (Carolina), the insurer of R&D. The trial court held Carolina liable under the policy despite the fact that R&D had breached certain policy conditions.
Carolina appeals from that judgment raising the following issues for our review: (1) whether an insurer is liable under a policy to a judgment creditor where the insured, the judgment debtor, breached the conditions of the insurance policy; (2) whether Illinois law or public policy bars insurer from asserting insured's breach of policy conditions as a defense in the garnishment proceedings instituted by judgment creditor; (3) whether a garnishment action was the proper method of recovery under the facts of this case. We will address these issues in the order presented.
Lincoln Mills was killed as a result of an accident that occurred on the Dan Ryan Expressway in Chicago on July 20, 1973, and involved a car driven by Mills and a truck owned by R&D. On August 5, 1974, appellee, as administrator of the estate of Lincoln W. Mills, filed a personal injury lawsuit seeking damages arising out of the accident. R&D was served by substituted service on the Illinois Secretary of State (Ill. Rev. Stat. 1973, ch. 95 1/2, par. 10-301) and a copy of the complaint and summons was mailed to R&D by certified mail. On September 9, 1975, a default judgment in the sum of $12,500 was entered in favor of appellee and against R&D.
Appellee then instituted garnishment proceedings against appellant Carolina. The receipt of garnishment papers was the first notice that Carolina had of this entire matter. Carolina answered, denying having in its possession any funds or assets of R&D due to R&D's breach of certain policy conditions which required R&D to (a) give written notice to Carolina when an accident occurs, (b) notify Carolina if a claim is made or suit brought, and (c) cooperate with Carolina in the conduct of suits. Additionally, the policy provided that "no action shall lie against the company unless as a condition precedent thereto, the insured shall have fully complied with all the terms of this policy."
In the garnishment proceeding the trial court found that: (1) the commercial insurance policy issued by Carolina to R&D was in force and effect at the time of the occurrence; (2) the policy was issued by a company licensed to do business in Illinois, but it was not certified to the State; and (3) R&D failed to cooperate in the defense of the suit and failed to give the insurance company notice of the occurrence to the prejudice of the company.
Carolina first contends that as an insurer it is not obliged to provide indemnification to an insured nor pay a judgment rendered against an insured where there has been a prejudicial noncompliance with the conditions of the insurance policy. (M.F.A. Mutual Insurance Co. v. Cheek (1977), 66 Ill.2d 492, 363 N.E.2d 809.) In such circumstances, it is argued, those defenses which the insurer has against the insured are also available against an injured third party seeking recovery under the policy. (Gallaway v. Schied (1966), 73 Ill. App.2d 116, 219 N.E.2d 718.) This is the law in Illinois absent some provision of the law which bars the insurer from raising those defenses.
Here it is uncontested that R&D did breach the conditions of the policy in question, and the trial court found that this was to the prejudice of Carolina. However, in finding for the appellee the trial court ruled that the policy defenses available to Carolina are enforceable only against R&D, the insured, and not against an injured third party as a matter of public policy. Appellant contends this was error and that neither law nor public policy of Illinois bars the insurer from asserting its defenses against the insured's judgment creditors.
The Illinois Motor Carrier of Property Law (Ill. Rev. Stat. 1973, ch. 95 1/2, par. 18-701), entitled, "Security for the protection of the public," provides:
"No motor carrier of property shall operate any motor vehicle for which a certificate or permit is required by this Chapter unless it has on file with the Commission and in effect good and sufficient indemnity bonds or insurance policies * * * executed by a surety, indemnity or insurance company authorized under the laws of this State to transact such business within this State."
Essentially, this statute makes it compulsory for all common carriers of property to file a bond or a certificate of insurance with the Illinois Commerce Commission. The purpose behind this requirement is indicated by the heading of the paragraph "Security for the protection of the public." In Illinois Casualty Co. v. Krol (1944), 324 Ill. App. 478, 58 N.E.2d 473, a case decided under the Illinois Truck Act which preceded the Illinois Motor Carrier of Property Law, the court reasoned that the purpose of a compulsory insurance requirement for common carriers was to provide for the protection of the general public. To implement that policy, Krol held that while an insurer could raise policy defenses against its insured, such defenses were unavailable in an action brought by an injured third party. The court stated:
"We think it is a fair construction of the statute to hold that one of the compelling reasons for enacting the Illinois Truck Act was the necessity of more stringent regulations for the protection of the general public in the use of highways; that one of the methods of effecting this purpose, as adopted by the legislature, is to require the operator of trucks to carry a policy of insurance indemnifying him from his liability, * * * such insurance is for the protection of the public, and therefore policy defenses which may be good as against the insured, do not relieve the insurance carrier of its liability to parties injured in their persons or property by reason of the insured's unlawful operation of its trucks." (324 Ill. App. 478, 482.)
The Motor Carrier of Property Law includes substantially the same subject matter as the Truck Act; we find, therefore, the holding in Krol relevant to the issue before us.
The policy behind the Motor Carrier of Property Law (Ill. Rev. Stat. 1973, ch. 95 1/2, par. 18-701) makes paramount the protection of the public in the use of the highways. To relieve California of liability in this case and, thereby, deprive an innocent third party of recovery ...