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06/22/87 Lester J. Salvator, v. Admiral Merchants Motor

June 22, 1987





Peasley Trucking, Defendant)

509 N.E.2d 1349, 156 Ill. App. 3d 930, 109 Ill. Dec. 337 1987.IL.865

Appeal from the Circuit Court of Livingston County; the Hon. William T. Caisley, Judge, presiding.


PRESIDING JUSTICE SPITZ delivered the opinion of the court. LUND and KNECHT, JJ., concur.


This appeal results from a summary judgment on liability being granted to the plaintiff against Admiral Merchants Motor Freight (Admiral) and a subsequent jury verdict for compensatory and punitive damages.

The basis of plaintiff's claim is that Admiral had a duty to defend him in a lawsuit in which he and Admiral were defendants in the State of Oregon as a result of an accident that occurred there when plaintiff was driving, that Admiral failed to defend him and failed to pay the resulting default judgment within a reasonable time, that he lost his driver's license and his means of livelihood as a result of Admiral's failure to resolve the dispute in a reasonable manner, and that the conduct of Admiral was outrageous and caused him to suffer extreme mental distress. Admiral asserted that its independent contractor agreement with plaintiff contained no duty to defend and that no such duty existed at common law. Admiral further alleged that plaintiff failed to adequately notify it of his expectation that it would defend him until it was too late to raise any duty to defend the cause of action. On cross-motions for summary judgment, the trial court granted plaintiff's motion on the issue of liability.

Regarding damages, Admiral moved to dismiss the punitive count, contending that punitive damages are not available in a breach of contract action absent compelling circumstances not present here. The lower court denied the motion. Admiral further sought a ruling that the type of compensatory damages sought by plaintiff, alleged medical problems and lost wages, were not available in a duty to defend case. The lower court ruled adversely to Admiral on this issue also.

Upon a trial before a jury on damages only, a compensatory award of $138,450 was assessed against Admiral and a punitive award of $50,000 was also granted. Judgment was entered on the verdict. Admiral's post-trial motion, reraising all of the foregoing contentions, was denied. Defendant Admiral filed a timely notice of appeal. The other defendant, John Peasley, d/b/a Peasley Trucking, was dismissed from certain allegations in the case and settled with Wymore in the remaining ones. It is not involved in this appeal.

The following facts can be adduced from the record, and are not in dispute. On July 8, 1981, plaintiff, Lester J. Salvator, signed an independent contractor operating agreement in which the defendant, Admiral Merchants Motor Freight (Admiral), agreed to "maintain at its own expense public liability, property damage and cargo insurance as concerns shippers and the general public." At the time that the independent contractor operating agreement (agreement) was signed, Salvator believed that the agreement provided public liability and property damage insurance. Unknown to Salvator at the time of signing was the fact that defendant Admiral was apparently "self-insured" for the first $25,000 of coverage, meaning that they would be responsible for the first $25,000 of losses incurred. Glenn Brett, vice-president of Admiral, stated that they did not advise anyone outside of their own company of their self-insured status. The first time that plaintiff would have been in a position to know that defendant was self-insured would have been when a claim was made. The agreement itself was drafted by someone on behalf of defendant.

On July 14, 1981, an accident occurred in the State of Oregon while plaintiff was operating under the terms of the agreement. The accident involved a truck owned by Wymore Transfer Company. Within 30 minutes of the accident plaintiff reported the occurrence to Glenn Brett.

Thereafter, defendant, primarily through Glenn Brett, received several items of correspondence from Geisy, Greer, Gunn, Inc., an insurance adjuster which defendant had hired to evaluate the claim. By a letter dated July 17, 1981, defendant was notified of the extent of the damages to the Wymore vehicle. By a letter dated August 17, 1981, the adjusters received invoices for repairs made to the Wymore vehicle which totaled $11,729.20. This letter was forwarded to defendant. The adjusters sent a letter to defendant, dated August 19, 1981, stating that "the claim for repair damage appears reasonable, as does the claim for down time." The adjusters also stated that "this appears to be a case of liability against the insured operator for an improper turn and failure to yield right-of-way prior to changing lanes." The adjusters recommended prompt payment of the net property damage claim. By a letter dated August 27, 1981, the adjusters requested payment of Wymore's property damage claim, and made reference to the fact that a similar request had been made by a letter dated August 19, 1981. By a letter dated October 6, 1981, and received by defendant, the adjusters indicated that Wymore had not as yet received payment of their claim, and advised defendant that there was an 18% annual interest charge on the unpaid balance and that the charge would be assessed if payment was not received within a reasonable period of time. By a letter dated November 11, 1981, from the adjusters to defendant, the adjusters indicated that Farmers Insurance Group (Farmers), the insurance company for Wymore, was proceeding to pay the damage under the terms of its own policy. Defendant was also advised that a subrogation claim was being forwarded to his office. The letter lists the amount of property damage experienced by Wymore as $11,729.20. Defendant's adjusters then indicate that their handling of the matter had been concluded except for the forwarding of Admiral's payment of the property damage claim. By a letter dated January 25, 1982, to defendant from the adjusters, defendant was notified of a certain correspondence from Farmers Insurance.

This letter from Farmers makes a claim for payment of $11,599.90. By a letter dated February 2, 1982, from Farmers to defendant, Farmers requests payment of $11,599.90 in regard to their subrogation claim. This letter was received by Brett on February 5, 1982, as evidenced by the file stamp in the lower right-hand corner of the document. By a letter dated March 31, 1982, from Farmers to defendant, Farmers again requested payment of $11,599.90 in regard to its subrogation claim. The letter indicates that Farmers' insured "is quite anxious to receive his $1,000.00 deductible." By a letter dated April 27, 1982, from Farmers to defendant, Farmers advised defendant that they had received no response concerning their previous correspondence and if they did not hear from him within 15 days of the date of the letter, it was their intention to turn the matter over to their attorney for collection. Brett received this letter on April 29, 1982, as evidenced by his initials and the date in the lower right-hand corner.

On June 3, 1982, a letter was sent to Wymore from a credit and collection service on behalf of Admiral, stating, in part:

"We have been asked by Admiral Merchants Motor Freight, Inc. to assist them in effecting a reconciliation of their various creditors on claims incurred prior to May 1, 1982.

. . . We have attached a balance sheet for Admiral Merchants Motor Freight, Inc. reflecting the condition of the company as of December 31, 1981. You will note that the balance sheet reflects a substantial loss.

Although Admiral Merchants is currently unable to pay all claims in full, it has authorized us to make the following offers based upon each creditor's principal claim corresponding in amount with that recorded on Admiral Merchant's books and records:

a) Payment in full by a five-year non-interest bearing promissory note, payable 10% of the principal at the end of the second year following the issuance of the promissory note, 10% at the end of the third year, 20% at the end of the fourth year, with a final payment (being 60% of the fact amount) at the end of the fifth year;


b) At your election twenty cents ($0.20) on the dollar in full and final settlement of your claim, payable within sixty (60) days after approval of the principal amount of your claim.

It is the opinion of the undersigned that any action taken by creditors in an effort to gain an advantage over other creditors will result in the debtor seeking protection under Chapter 11 of the United States Bankruptcy Code."

By a letter dated June 15, 1982, Wymore notified Salvator and Admiral that if certain sums were not paid within 10 days of the date of the letter, legal proceedings would be instituted.

Subsequently, Wymore filed suit in the circuit court of the State of Oregon for the County of Multnomah against both Admiral and Salvator, as codefendants. The summons and complaint were served on Admiral on July 27, 1982, and on Salvator on July 28, 1982. Neither Admiral nor Salvator appeared in response to the complaint and summons. Subsequently, Wymore filed a motion for order of default. On October 21, 1982, the trial court entered an order of default and a default judgment in the amount of $11,871.44 against both Admiral and Salvator.

By a letter dated October 25, 1982, Admiral was notified that the default judgment was taken, and that unless payment was made within 30 days, further legal action would be taken.

By a letter dated December 20, 1982, Admiral was informed that Wymore would request that Salvator's license be suspended if payment of the judgment was not received by December 26, 1982.

On April 13, 1983, Robert M. Travers, attorney for Salvator, sent a letter to Admiral. This letter stated that as a result of the defendant's failure to avoid a judgment in Oregon or to provide proof of financial responsibility to the Secretary of State in Oregon, an order of suspension had been entered against Salvator effective April 25, 1983. A copy of the order of suspension from the Secretary of State for the State of Illinois was attached to this exhibit. The letter also stated that plaintiff is a teamster, that his sole source of income is from truck driving, and that if his license was suspended "we will look to your company for damages." The notice of suspension attached to this exhibit states:

"You are not permitted to secure a new drivers license or renewal registration plates until you have satisfied the above stipulated judgment or made arrangements with the approval of the Trial Court, to pay the judgment in installments and file proof of your financial responsibility for the future. This suspension will remain in effect until you have been notified that your privilege to ...

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