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Casualty Indemnity Exchange v. Village of Crete

decided: April 9, 1984.

CASUALTY INDEMNITY EXCHANGE, AN INSURANCE CORPORATION, PLAINTIFF-APPELLEE,
v.
VILLAGE OF CRETE, A MUNICIPAL CORPORATION, DEFENDANT-APPELLANT



Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 82 c 3342 -- Thomas R. McMillen, Judge.

Cudahy and Flaum, Circuit Judges, and Bartels, Senior District Judge.*fn*

Author: Cudahy

CUDAHY, Circuit Judge.

A liability insurer brought this diversity action against its insured regarding the insured's breach of the notice provision in the insurance policy. Defendant Village of Crete had contracted with one Luther Railing for the demolition and removal of a water tower. Under the contract, Railing was required to obtain liability insurance for the project and to name the village as a co-insured; Railing obtained the insurance from plaintiff Casualty Indemnity Exchange ("CIE"). On July 31, 1980, during the demolition work, Railing was killed in an accident. A year later, Railing's wife as administrator of his estate brought a wrongful death action against the village and other parties. The village was served with a summons on August 6, 1981. However, the village first notified plaintiff CIE of the Railing accident and lawsuit in a letter dated January 18, 1982. CIE filed this action seeking a declaratory judgment that the village breached the policy's notice provision and that CIE is not obliged to defend or indemnify the village in actions arising out of the Railing accident.

I

The liability insurance policy required the insured to notify CIE of any claim or occurrence "as soon as practicable." The Village of Crete has conceded that it first notified CIE of the Railing accident on January 18, 1982, almost eighteen months after the accident and more than five months after the village was served with a summons in the wrongful death case. The district judge concluded that the notice was untimely as a matter of law and therefore granted plaintiff's motion for summary judgment.

On appeal, the village refers us to a handwritten notation on CIE's copy of the insurance binder. The village argues that the notation raises the possibility that CIE received actual notice of the Railing accident shortly after it occurred. Under Illinois law, if the insurer receives timely notice of an occurrence from a third party, this actual notice may satisfy the policy requirement. See, e.g., Illinois Valley Minerals Corp. v. Royal-Globe Insurance Co., 70 Ill. App. 3d 296, 26 Ill. Dec. 629, 388 N.E.2d 253, 256-57 (1979). However, the village has waived any factual issues relating to the notation. The notation was on the copy of the binder attached to the complaint in this case and thus was available to the village from the beginning. The village never opposed the summary judgment motion on the basis of the notation and apparently never called the district court's attention to the notation. Under these circumstances, the village may not raise this factual issue on appeal for the first time.

We turn next to whether the village's notice to CIE complied with the notice provision of the insurance policy. Illinois courts have interpreted the phrase "as soon as practicable" in notice provisions to mean that the insured must notify the insurer of an occurrence within a reasonable time, and whether the notice was given in a reasonable time generally depends on all the facts and circumstances of each case. See, e.g., Simmon v. Iowa Mutual Casualty Co., 3 Ill. 2d 318, 121 N.E. 2d 509, 511 (1954); Illinois Valley Minerals Corp. v. Royal-Globe Insurance Co., supra, 388 N.E.2d at 255. However, if there are no disputed material facts, the court may in appropriate circumstances decide the issue of reasonable notice as a matter of law. Illinois Valley Minerals, supra, 388 N.E.2d at 256; INA Insurance Co. v. City of Chicago, 62 Ill. App. 3d 80, 19 Ill. Dec. 519, 379 N.E.2d 34, 36 (1978); International Harvester Co. v. Continental Casualty Co., 33 Ill. App. 2d 467, 179 N.E.2d 833, 837 (1962).

There is no dispute here that the village first notified CIE of the Railing accident almost eighteen months after it occurred and more than five months after the wrongful death suit was filed against the village. The village has not contended on appeal that its delay was excusable. The village knew that the policy existed; the village itself had required the contractor to obtain liability insurance naming the village as an insured party. See INA Insurance Co. v. City of Chicago, supra, 379 N.E.2d at 37. Nor was the incident here, involving a death, so trivial that a reasonable person would not have anticipated that a claim might be brought. Cf. National Bank of Bloomington v. Winstead Excavating, 94 Ill. App. 3d 839, 50 Ill. Dec. 414, 419 N.E.2d 522, 524 (1981). The Illinois courts have held comparable unexcused delays to be unreasonable as a matter of law. INA Insurance Co. v. City of Chicago, supra, 379 N.E.2d at 36 (18 months); Illinois Valley Minerals, supra, 388 N.E.2d at 256 (6 month delay). See also Sisters of Divine Providence v. Interstate Fire & Casualty Co., 117 Ill. App. 3d 158, 72 Ill. Dec. 731, 453 N.E.2d 36, 39 (1983) (2 -1/2 year delay); United States Fidelity & Guaranty Co. v. Maren Engineering Corp., 82 Ill. App. 3d 894, 38 Ill. Dec. 277, 403 N.E.2d 508, 511 (1980) (2 year delay); International Harvester, supra, 179 N.E.2d at 836-37 (21 month delay); Allstate Insurance Co. v. Hoffman, 21 Ill. App. 2d 314, 158 N.E.2d 428, 433 (1959) (23 month delay). Thus, where the notice was first given eighteen months after the accident and where the village offers no excuse for its delay, it appears that the notice was unreasonably late.

The village argues, however, that summary judgment was inappropriate because there was a genuine issue of fact as to whether the delayed notice prejudiced CIE in any way. One major purpose of notice provisions is to permit the insurer to investigate an incident promptly, and the village tells us that its general liability insurer investigated the Railing accident shortly after it occurred. The results of that investigation could be made available to CIE. We agree that there is a factual dispute as to whether CIE was prejudiced. The issue here, however, is whether the question of prejudice is material to this case. That issue is one of law, and in our view, the district court properly decided that the issue of prejudice was not relevant.

In cases involving late notice, the role of prejudice under Illinois law is not precisely defined, but we think it is clear that the absence of prejudice alone does not entitle the insured to coverage. In Simmon v. Iowa Mutual Casualty Co., 3 Ill. 2d 318, 121 N.E.2d 509, 511 (1954), the Illinois Supreme Court held that lack of prejudice to the insurer may be a factor in determining whether reasonable notice had been given, but that absence of prejudice is not a condition which would nullify the notice requirement. As the Illinois Appellate Court has applied Simmon, it appears that lack of prejudice is a factor to be considered only where the insured had a good excuse for the late notice or where the delay was relatively brief. Illinois Valley Minerals, supra, 388 N.E.2d at 256; INA Insurance Co. v. City of Chicago, supra, 379 N.E.2d at 37; McFarlane v. Merit Insurance Co., 58 Ill. App. 3d 616, 16 Ill. Dec. 176, 374 N.E.2d 951, 953 (1978); City of Chicago v. United States Fire Insurance Co., 124 Ill. App. 2d 340, 260 N.E.2d 276, 280-81 (1970). Lack of prejudice alone does not constitute a defense under Illinois law. United States Fidelity & Guaranty Co. v. Maren Engineering Corp., supra, 403 N.E.2d at 511. The village could not prevail here even if it showed that CIE was not prejudiced by the delay, for there was no excuse for the eighteen month delay.*fn1

In arguing that prejudice was a material issue in this case, the village relies on M.F.A. Mutual Insurance Co. v. Cheek, 66 Ill. 2d 492, 6 Ill. Dec. 862, 363 N.E.2d 809, 813 (1977), which held that where the insured breaches the duty to cooperate, the insurer is relieved of liability only if the breach results in substantial prejudice to the insurer. However, the prejudice requirement does not, under Illinois law, carry over from the duty of cooperation to the duty of notice. In M.F.A. Mutual, the appellate court had expressly distinguished the case from Simmon and required that prejudice be shown in a cooperation clause case, M.F.A. Mutual Insurance Co. v. Cheek, 34 Ill. App. 3d 209, 340 N.E.2d 331, 337 (1975), and in affirming that judgment, the Illinois Supreme Court carefully limited its discussion to cooperation clause cases. 363 N.E.2d at 812-13. See also Illinois Valley Minerals, supra, 388 N.E.2d at 257 (rejecting analogy between notice and cooperation clause cases).*fn2

Therefore, we conclude that the district court properly held that prejudice was not material in this case and properly ...


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