APPELLATE COURT OF ILLINOIS, SECOND DISTRICT
509 N.E.2d 1097, 157 Ill. App. 3d 34, 109 Ill. Dec. 258 1987.IL.843
Appeal from the Circuit Court of Du Page County; the Hon. S. Bruce Scidmore, Judge, presiding.
JUSTICE NASH delivered the opinion of the court. REINHARD and UNVERZAGT, JJ., concur.
DECISION OF THE COURT DELIVERED BY THE HONORABLE JUDGE NASH
Plaintiff, American States Insurance Company, appeals from a declaratory judgment that it owed a duty to defend or indemnify its insured, defendant, Action Fire Equipment, Inc., in an action brought against defendant by Nicholson's Tavern. Plaintiff contends that: (1) the trial court erred in denying its motion for summary judgment; (2) the declaratory judgment was against the manifest weight of the evidence; (3) defendant failed to comply with the notice requirements of the insurance policy; and (4) sanctions should be entered against defendant.
Action Fire, which sells and services automatic fire extinguishing systems and hand-held fire extinguishers, purchased insurance policies from American State from 1974 through 1983. In January 1976, plaintiff added an endorsement to its policies which excluded coverage for "the failure of any automatic fire extinguisher system." On June 18, 1981, a fire occurred at Nicholson's Tavern, which had a dry chemical fire suppression system serviced by Action Fire. Defendant received notice of the fire on July 9, 1981, but did not report the occurrence to plaintiff until suit for damages was filed against defendant by the tavern owners in December 1982.
Plaintiff commenced this action seeking a declaratory judgment that it was not obligated to defend or to indemnify defendant against the claims of Nicholson's Tavern premised upon the exclusion endorsement and defendant's failure to promptly notify plaintiff of the occurrence. In its answer, defendant admitted that the exclusion endorsement was attached to the 1981-82 policy in force at the time of the tavern fire.
Plaintiff filed a motion for summary judgment alleging that defendant had been aware of the exclusion endorsement and that it relieved plaintiff as insurer of any duty to defend under the terms of the policy. Defendant also moved for summary judgment supported by an affidavit by Thomas Vincent, president of Action Fire, stating that a dry chemical fire suppression system is not an "automatic fire extinguisher system" within the meaning of the exclusion endorsement. The trial court denied both motions for summary judgment.
Defendant's amended answer admitted that the exclusion endorsement had been attached to the 1979-80 and 1980-81 insurance policies, but denied that it had been properly attached to the policy issued for the period from 1981 to 1982. Defendant alleged that the page containing the endorsement in that policy had been reversed so that it appeared to be a blank sheet until examined by defendant in preparation for trial.
At the bench trial Thomas Vincent, defendant's general manager of special hazards and former president, stated that he referred to Action Fire's fire protection systems as "fire extinguishing systems" and "automatic fire extinguishing systems" over the course of 13 years of operation. Vincent testified that he was informed in 1976 by John Sutorius, his insurance agent, that American State's insurance premiums had increased to $1,112 and that an exclusion for automatic fire extinguishing equipment had been added to the policy. Sutorius advised that he had inquired of American States about the exclusion and was told that it was standard practice, but was unable to discover the exclusion covered. Vincent testified that he told Sutorius to straighten the matter out because he wanted complete coverage and that Sutorius told him, "on't worry. You have insurance. They charge you for it on the front of the policy. They can't go inside of it and take it away from you. This is something that will have to be tested in Court."
Vincent testified that he did not ask Sutorius to try to have the exclusion removed from the policy or request that Sutorius obtain a policy which did not contain the exclusion. He acknowledged, however, that in a prior deposition he had stated that he told Sutorius to have plaintiff remove the exclusion or obtain a policy with a different insurance company. Vincent also testified that his primary reason for seeking a new policy was because of the increased premiums and that he was unsure whether he had asked Sutorius to obtain a policy without the exclusion. Vincent said he and Sutorius later learned of insurance companies whose policies did not have the exclusion, but which charged higher premiums, and he did not obtain these policies because of the higher cost.
Vincent also testified that he told Sutorius in 1974 and 1976 to ensure that Action Fire had complete coverage and Sutorius did not raise the issue of the exclusionary endorsement again after the 1976 Discussions. Vincent stated that he relied on Sutorius to obtain full coverage for him and therefore believed he had full coverage after his conversations with Sutorius. He also testified that he did not know if the exclusion endorsement was present in American States' subsequent policies because he did not read them and that he did not examine the current policy until the claim was made against him and then found that the exclusion endorsement was face down and sideways between two sheets of the policy. Vincent further stated that his wife had found a letter from Sutorius which advised that American States' new exclusion endorsement would exclude Action Fire's fire extinguishing systems from coverage, but he had not read it.
John Sutorius testified that he was an insurance broker who does business with American States. He stated that when he first became aware of the revised exclusion endorsement in 1976, he contacted American States and was told that it would not consider removing the endorsement. Sutorius called Thomas Vincent a few days later and notified him that plaintiff had made a change in its policy and the exclusion endorsement now covered the failure of any automatic fire extinguisher system. Sutorius testified that he told Vincent that the policy would not provide coverage if defendant's system failed during a fire and the building burned down. He also informed Vincent that other insurance companies also excluded such coverage and advised him to contact his attorney about its effect. Sutorius ...