Appeal from the Circuit Court of Moultrie County; the Hon.
Worthy B. Kranz, Judge, presiding.
JUSTICE TRAPP DELIVERED THE OPINION OF THE COURT:
Plaintiff, Royal Globe Insurance Company (Globe), appeals from the order of the circuit court filed in behalf of the Kendalls and the First National Bank of Sullivan (Bank), as trustee, which granted a motion to dismiss Globe's declaratory judgment. The finding of the trial court makes the order appealable. So far as the record shows, the complaint for declaratory judgment continues to pend as to other defendants.
In summary, the complaint alleged that the insureds, Tutt and Anderson, leased real estate from the Kendalls and the Bank, as trustee, for purposes of operating a restaurant, and that Globe issued a comprehensive liability policy on the premises. A fire occurred on April 12, 1975, and on January 2, 1979, lessors filed a suit against the lessees, Tutt and Anderson, alleging negligence which caused the fire. Globe's complaint alleged that the policy contained a provision that the insurance did not apply to, or cover property owned, occupied, or rented by the insured.
The lessors filed a motion to dismiss, alleging that on February 13, 1979, attorneys retained by Globe appeared and filed an answer and a jury demand in behalf of the lessees, Tutt and Anderson. The attorneys also issued interrogatories directed to the underlying action by lessors for damages. The motion further alleged that on December 21, 1979, Globe, for the first time, asserted a "reservation of rights" upon the policy exclusion.
A copy of Globe's "reservation" was included as an exhibit in the motion to dismiss. The document also advised of Globe's obligation to pay the reasonable cost for defense of the underlying suit for damages, and informed Tutt that he could proceed either with the attorneys who had appeared, or choose other attorneys.
After briefs were filed and argument heard, the trial court entered its order that "The Court is of the opinion that prejudice to the insureds would be presumed" and granted the motion to dismiss Globe's action for declaratory judgment.
The statement of the trial judge of the rationale in dismissing the action for declaratory judgment effects a conclusive presumption of prejudice to the insured. From this conclusion it is argued here that coverage exists because Globe is estopped to raise the defense of noncoverage by reason of the appearance of the attorneys. We find that the rationale of the trial court is not supported by the cases.
In argument, defendants here urge that the trial court's judgment is to be supported by the opinion in Gibraltar Insurance Co. v. Varkalis (1970), 46 Ill.2d 481, 263 N.E.2d 823. We turn, however, to the later opinion in Maryland Casualty Co. v. Peppers (1976), 64 Ill.2d 187, 355 N.E.2d 24. There, the trial court found that there was noncoverage of liability under a policy issued by St. Paul, but that the issue was whether or not St. Paul was estopped to raise that defense when it had undertaken the defense for the insured but thereafter withdrew the answer filed and withdrew as counsel. The trial court determined that there was no coverage, but that St. Paul must defend. On review, the appellate court held that St. Paul was obligated to provide both coverage and the defense.
The supreme court reversed the appellate court upon the issue of coverage, finding that the record failed to demonstrate that the insured was induced to surrender his defense when the attorneys obtained by St. Paul entered appearance for the insured, and that by reason of such fact St. Paul was not estopped to deny coverage. In analyzing the doctrine of estoppel as applicable to the facts in Peppers, the court said:
"It is generally held that an insurer may be estopped from asserting a defense of noncoverage when the insurer undertakes the defense of an action against the insured. However, it is also the general rule that the undertaking must result in some prejudice to the insured." (64 Ill.2d 187, 195, 355 N.E.2d 24, 29.)
In further explication, the court continued:
"Whether an insured is prejudiced by an insurer's conduct in entering an appearance and assuming the defense of an action is a question of fact. Prejudice will not be conclusively presumed from the mere entry of appearance and assumption of the defense. [Citations.] If, however, by the insurer's assumption of the defense the insured has been induced to surrender his right to control his own defense, he has suffered a prejudice which will support a finding that the insurer is estopped to deny policy coverage." (Emphasis added.) 64 Ill.2d 187, 196, 355 N.E.2d 24, 29.
In King v. Aetna Insurance Co. (1961), 31 Ill. App.2d 462, 176 N.E.2d 689, Aetna provided counsel who entered appearance and answered a complaint against its insured, a tenant, for fire loss brought by the landowners. Aetna subsequently withdrew and refused to defend. In his action for declaratory judgment the insured contended that there had been a waiver of the defense of noncoverage as a matter of law by reason of Aetna's appearance when it knew, or should have known, that coverage was excluded. The reviewing court determined that prejudice is not necessarily presumed or inferred, but rather that there must be an allegation and proof of detriment, observing that the requirement was particularly so at the pleading stage or before trial.
In Apex Mutual Insurance Co. v. Christner (1968), 99 Ill. App.2d 153, 240 N.E.2d 742, the court stated that delay in raising an issue of noncoverage is not unreasonable if that delay was not so long as to ...