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09/29/89 Federal Insurance Company v. Economy Fire & Casualty

September 29, 1989

FEDERAL INSURANCE COMPANY ET AL., PLAINTIFFS-APPELLANTS

v.

ECONOMY FIRE & CASUALTY COMPANY, DEFENDANT-APPELLEE



APPELLATE COURT OF ILLINOIS, FIRST DISTRICT, FIRST DIVISION

545 N.E.2d 541, 189 Ill. App. 3d 732, 136 Ill. Dec. 1017 1989.IL.1566

Appeal from the Circuit Court of Cook County; the Hon. Arthur L. Dunne, Judge, presiding.

APPELLATE Judges:

PRESIDING JUSTICE MANNING delivered the opinion of the court. CAMPBELL and QUINLAN, JJ., concur.

DECISION OF THE COURT DELIVERED BY THE HONORABLE JUDGE MANNING

Plaintiffs appeal from an order granting summary judgment to the defendant in a declaratory judgment action. For the reasons stated below, we affirm the judgment of the circuit court.

The record discloses the following. On October 6, 1979, Jay T. Michel (Jay), an employee of Michel Masonry Company (Michel Masonry), was involved in an accident while driving an automobile owned by Michel Masonry. A passenger in the car, Marirose Johnson, filed suit for personal injury against Jay, Michel Masonry and the drivers of the other two automobiles involved in the accident.

Jay's father, Elwood Michel, had a personal estate protector umbrella policy with Economy Fire and Casualty Company (Economy) for excess coverage. In December 1980 Economy denied coverage to Jay. National Grange Insurance Company and Federal Insurance Company (Federal) defended the claim against Jay and Michel Masonry and settled for the limits of their policies. Economy refused to participate in either the defense or the settlement of the suit. Pursuant to the settlement, Jay obtained a full release from the plaintiff and assigned to her any rights he may have against Economy for its failure to defend.

Johnson and Federal filed a declaratory action against Economy, alleging that it had breached a duty to defend and indemnify Jay pursuant to the insurance policy. Plaintiffs claim that the allegations of the original complaint triggered Economy's obligation to defend Jay and Michel Masonry and that Economy's refusal of coverage was wrongful.

The parties filed cross-motions for summary judgment. Plaintiffs' motion alleged that Economy had a duty to defend Jay pursuant to his father's policy and that it wrongfully failed to defend or participate in the settlement. They claim that since Economy neither defended under a reservation of rights, nor sought a declaratory judgment as to coverage, it was estopped from denying coverage; and consequently, plaintiffs were entitled to summary judgment.

Economy based its motion for summary judgment on the fact that it had no duty to defend Jay because he was not an insured under the policy. The court denied plaintiffs' motion and granted Economy's motion for summary judgment.

The plaintiffs' appeals have been consolidated, and they argue that Economy should be estopped from denying coverage since: (1) it failed to defend under a reservation of rights or to file a declaratory action as to coverage, and (2) it improperly asserted the attorney-client privilege to the communication which formed the basis of its decision to deny coverage.

When reviewing a trial court's entry of summary judgment, the reviewing court's sole function is to determine whether the trial court properly concluded that there were no genuine issues of material fact; and if there were none, whether judgment for the movant was correct as a matter of law. Coomer v. Chicago & North Western Transportation Co. (1980), 91 Ill. App. 3d 17, 414 N.E.2d 865; Van Vactor v. Blue Cross Association (1977), 50 Ill. App. 3d 709, 365 N.E.2d 638; Ill. Rev. Stat. 1987, ch. 110, par. 2-1005.

In determining whether an insurer owes a duty to defend the insured, courts look to the four corners of the complaint brought against the insured. (Maryland Casualty Co. v. Peppers (1976), 64 Ill. 2d 187, 193, 355 N.E.2d 24.) When an insurer contracts to defend its insured, it must do so unless it is clear from the face of the complaint that the allegations fail to state facts which bring the case within, or potentially within, the policy's coverage. Conway v. Country Casualty Insurance Co. (1982), 92 Ill. 2d 388, 393, 442 N.E.2d 245; Clemmons v. Travelers Insurance Co. ...


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