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07/07/88 Allen Mulholland, Adm'r of v. State Farm Mutual

July 7, 1988

ALLEN MULHOLLAND, ADM'R OF THE ESTATE OF LORENE MULHOLLAND, ET AL., PLAINTIFFS-APPELLEES

v.

STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, DEFENDANT-APPELLANT



APPELLATE COURT OF ILLINOIS, FIFTH DISTRICT

527 N.E.2d 29, 171 Ill. App. 3d 600, 122 Ill. Dec. 657 1988.IL.1065

Appeal from the Circuit Court of St. Clair County; the Hon. Stephen M. Kernan, Judge, presiding.

APPELLATE Judges:

JUSTICE CALVO delivered the opinion of the court. WELCH and KARNS, JJ., concur.

DECISION OF THE COURT DELIVERED BY THE HONORABLE JUDGE CALVO

Plaintiff, Allen Mulholland, filed a complaint for a declaratory judgment to compel the defendant, State Farm Mutual Automobile Insurance Company (State Farm), to proceed with arbitration of an underinsured motorist claim. Defendant appeals the order of the trial court granting plaintiff's motion for summary judgment. The two issues in the case are (1) whether plaintiff's settlement with an insured tortfeasor without the written consent of defendant bars plaintiff's claim for underinsured motorist coverage, and (2) whether plaintiff must resolve his pending litigation against an insured tortfeasor before he can proceed to arbitration of the underinsured motorist claim. The second issue is only pertinent if we find in favor of plaintiff on the first issue.

An automobile driven by Dana Rudy collided with a truck driven by Donald Vance and owned by AAA Food Service, Inc., on February 16, 1982. Lorene Mulholland, Randall Mulholland, and Elizabeth Connoyer, passengers in the Rudy vehicle on the date of the collision, sustained injuries in the accident, and Lorene and Elizabeth subsequently died of their injuries. On the date of the collision, Rudy owned an All-state Insurance Company automobile liability policy with limits of $50,000 per person and $100,000 per occurrence. AAA Food Service owned a Bolt Republican Insurance Company automobile liability policy with a single limit of $500,000 which covered its driver, Vance. Plaintiff and his wife, Lorene, owned an automobile liability policy issued by defendant that also covered their son, Randall. The policy included underinsured motorist coverage with a limit of $250,000.

Plaintiff notified defendant of a potential underinsured motorist claim on March 8, 1982. On May 12, 1982, plaintiff, as administrator of the estate of Lorene Mulholland, Cyril Connoyer, as administrator of the estate of Elizabeth Connoyer, and Randall Mulholland filed suit against AAA Food Service, Vance and Rudy. On November 12, 1982, plaintiff executed a covenant not to sue Rudy, a 16-year-old with no assets other than the Allstate insurance policy. In exchange, Rudy paid plaintiff, as administrator of Lorene Mulholland's estate, the $50,000 limit of her Allstate policy and Lorene's funeral expenses. Rudy also paid $7,500 to Randall Mulholland, and the balance of the $100,000 occurrence limit of her policy to Cyril Connoyer, as administrator of Elizabeth Connoyer's estate. The court approved the settlement. Plaintiff, however, neither notified defendant of the potential settlement nor obtained defendant's consent prior to consummating the settlement. Plaintiff notified defendant of the settlement with Rudy and of the pending suit against AAA Food Service on March 3, 1983.

On February 6, 1986, plaintiff filed a complaint for declaratory judgment which defendant subsequently answered. Plaintiff then filed a motion for summary judgment to compel arbitration of the underinsured motorist claim and to establish the policy limits of the underinsured motorist coverage. Defendant also filed a motion for summary judgment alleging that plaintiff's failure to obtain defendant's consent to the settlement barred plaintiff's claim, and in the alternative, that the underinsured motorist coverage did not apply until resolution of the claim against AAA Food Service. The court granted plaintiff's and denied defendant's motions for summary judgment on July 22, 1986. Defendant thereafter filed a post-trial motion requesting reconsideration of the court's summary judgment order. On September 6, 1986, the court granted defendant's post-trial motion with respect to the issue of the limits of the underinsured coverage, but denied the motion in all other respects.

Defendant argues first that plaintiff cannot claim any underinsured motorist coverage because he did not obtain defendant's written consent to the settlement with Rudy as required under the policy. Plaintiff's insurance policy with defendant provided as follows:

"We [State Farm] will pay damages for bodily injury an insured is legally entitled to collect from the owner or driver of an underinsured motor vehicle.

THERE IS NO COVERAGE UNDER COVERAGES U [uninsured] and W [underinsured]:

1. FOR ANY INSURED WHO, WITHOUT OUR WRITTEN CONSENT:

a. SETTLES WITH ANY PERSON OR ORGANIZATION WHO MAY BE LIABLE FOR THE BODILY INJURY ; AND

b. HURTS OUR RIGHT TO RECOVER FROM SUCH PERSON OR ORGANIZATION." (Emphasis in original.)

The trial court found that "such provisions are reasonable and enforceable in order that insureds not jeopardize an insurer's subrogation rights." The court went on to hold, however, that plaintiff's actions did not "hurt" defendant. Thus, according to the court, the second part of the two-part test in the policy provision was not fulfilled, and therefore, plaintiff's underinsured claim was not barred.

The court stated that the meaning of the word "hurt" in the policy was unclear. Because the court found that "hurt" was ambiguous, it held that the term should be "construed strictly against . . . State Farm." (See Dora Township v. Indiana Insurance Co. (1980), 78 Ill. 2d 376, 379, 400 N.E.2d 921, 922.) The court found that the settlement did not hurt defendant, because plaintiff settled with a 16-year-old tortfeasor for the limits of her insurance coverage. Defendant argued, however, that because Rudy owned some insurance, she at least appeared to be in a better financial position than an uninsured tortfeasor. Defendant argued further that the settlement with Rudy hurt plaintiff's potential recovery from AAA Food Service because the party primarily at fault -- Rudy -- would be excluded from the suit. Defendant contended that if Rudy was included in the suit, under the theory of joint and several liability plaintiff could collect the full amount of the judgment from AAA Food Service even if it was found to be only 1% negligent. Nevertheless, the court held that plaintiff's failure to obtain consent did not hurt defendant because the "parties [did] not dispute, and there [was] nothing in the record to indicate that the 16-year-old had any other assets than her automobile insurance policy."

A party is entitled to summary judgment "if the pleadings, depositions, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." (Ill. Rev. Stat. 1985, ch. 110, par. 2-1005 (c).) The court should deny summary judgment if it

"is presented with any set of facts about which reasonable men might disagree, . . . and [if] . . . the facts although not in dispute, are subject to conflicting inferences and the parties disagree as to what their intention was as shown by the facts." (Lesser v. Village of Mundelein (1975), 36 Ill. App. 3d 433, 437, 344 N.E.2d 29, 33.)

We find that there was no genuine issue of material fact on the issue of consent, and therefore, the trial court properly entered summary judgment in favor of plaintiff.

We, like the trial court, fail to see how defendant was "hurt" or prejudiced by the settlement. Plaintiff settled with Rudy for the limits of her insurance policy. Moreover, there was no evidence in the record that Rudy had any other significant assets. Defendant argues that because Rudy owned some insurance she appeared to be in a better financial position than an uninsured tortfeasor. Defendant, however, failed to show that Rudy actually was in a better position; that is, that she had other assets from which to collect a judgment.

Defendant contends that it was also prejudiced by the settlement because the settlement destroyed its subrogation rights against Rudy. Defendant states that the value of plaintiff's claim in a trial against all three tortfeasors would be higher than in a trial against only Vance and AAA Food Service. Defendant asserts that discovery revealed that Rudy was primarily at fault. Thus, according to defendant, the entire verdict could be collected from Vance and AAA Food Service under the theory of joint and several liability, even if they are found to be only 1% negligent. Because Vance's and AAA Food Service's policy limit of $500,000 is well above plaintiff's $250,000 underinsured coverage limit, defendant contends that plaintiff's entire claim could be collected elsewhere without resort to the underinsurance coverage.

Defendant's argument, however, sidesteps the fact that its subrogation rights against Rudy survived the settlement. It is true that even though defendant has not yet made any payment to plaintiff under the policy, defendant's subrogation rights need not presently exist in order for those rights to be prejudiced. (Gattorna v. American States Insurance Co. ...


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