Appeal from the Circuit Court of McHenry County; the Hon.
Roland A. Herrmann, Judge, presiding.
JUSTICE HOPF DELIVERED THE OPINION OF THE COURT:
This appeal arises out of an action for declaratory judgment brought pursuant to section 57.1 of the Civil Practice Act (Ill. Rev. Stat. 1979, ch. 110, par. 57.1, now codified at Ill. Rev. Stat. 1981, ch. 110, par. 2-701). This action was brought by the plaintiff, Mitchell Buick & Oldsmobile Sales, Inc., against National Dealer Services, Inc. (National Dealer), concerning an insurance coverage for certain bad check losses sustained by the plaintiff. Following a bench trial in the circuit court of McHenry County, the court found the losses covered under the false pretense provision of the defendant's policy, and judgment was entered in favor of the plaintiff in the amount of $12,331.
The defendant now raises the following contentions before this court: (1) that plaintiff failed to establish a prima facie case of deceptive practices necessary to support a false pretense claim under the policy; (2) that plaintiff's failure to comply with the notice requirement under the policy defeated its claim for coverage; (3) that plaintiff's alleged losses fell within the specific policy exclusion justifying a denial of coverage under the policy; and (4) that plaintiff's failure to reply to defendant's affirmative defenses operated to admit the truth of the matter as alleged.
The policy in question was issued by defendant-company, National Dealer, to plaintiff, a car dealership, in January 1978. It was sold to the plaintiff through its primary owner, John A. Mitchell, by Mr. Kluever, an insurance broker for Key Insurance Agency. Mitchell testified that at the time he bought the policy he believed Kluever was also an agent for the defendant, National Dealer. The notice provision of that policy reads as follows:
"In the event of LOSS the INSURED shall:
(a) protect the COVERED AUTOMOBILE, whether or not this insurance applies to the LOSS, and any further LOSS or damage due to the INSURED'S failure to protect shall not be recoverable under this insurance; reasonable expenses incurred in affording such protection shall be deemed incurred at the Company's request;
(b) give notice thereof as soon as practicable to the Company or any of its authorized agents and also, in the event of theft or larceny, to the police;
(c) File with the Company, within 60 days after LOSS, his sworn proof of LOSS in such form and including such information as the Company may reasonably require and, upon the Company's request, shall exhibit the damaged property and submit the examination under oath * * *."
Under the coverage portion the policy provided in relevant part:
"1. The Company will pay for LOSS to COVERED AUTOMOBILES under:
COVERAGE F FALSE PRETENSE (BROAD FORM TRICK and DEVICE):
(1) caused by theft or larceny and arising out of the INSURED's voluntarily parting with evidence of TITLE to or possession of a COVERED AUTOMOBILE, if induced to do so by any criminal scheme, trick, device, or false pretense; * * *."
However, under the exclusion portion, the policy also read:
"This insurance does not apply:
(w) under coverage F, to any LOSS when credit (including the post-dating of checks) has been extended toward the purchase price of the COVERED AUTOMOBILE unless induced so to do by any criminal scheme, criminal trick, criminal device, or criminal false pretense;
(y) under coverage F, unless the INSURED shall as soon as practicable after LOSS, obtain a warrant for the arrest of the person or persons procuring evidence of TITLE to or possession of such COVERED AUTOMOBILE * * *."
On August 31, 1978, plaintiff sold four used vehicles to C.F. Payne Motors (Payne) for $14,800. Payne, a one-man used car operation headquartered in Boaz, Alabama, had done business with plaintiff's company for over 25 years. As was their customary practice, Payne paid for each automobile by check and in exchange received a title and possession from plaintiff. All four of Payne's checks were returned for insufficient funds. Subsequently, Mitchell contacted Payne to discuss this matter. Payne told him he was having a bit of problems but that he would deliver certified funds to cover the checks in a few weeks. In the meantime Mitchell had accepted several other checks on vehicles sold to Payne during the first two weeks of September. All of these checks were also returned for lack of sufficient funds.
When another check was returned for insufficient funds Mitchell called Payne and Payne explained that he was having some problem with his bank honoring some drafts but he assured Mitchell that everything would be cleared up in a week or two. Mitchell told Payne he would give him until the end of September to try to get things straightened out. In the interim, the plaintiff accepted two additional checks from Payne on two more ...