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March 28, 1994


Appeal from the Circuit Court of Cook County. Honorable Arthur L. Dunne, Judge Presiding.

Released for Publication May 5, 1994.

Buckley, O'connor, Manning

The opinion of the court was delivered by: Buckley

JUSTICE BUCKLEY delivered the opinion of the court:

Plaintiff, American States Insurance Co., brought a declaratory judgment action against defendants, National Cycle, Inc. ("National Cycle"), and Paul Richard Campbell ("Campbell"), seeking a declaration that it had no duty to defend or indemnify National Cycle for the claims asserted by Campbell due to National Cycle's breach of the notice requirement of an insurance policy. Plaintiff then filed a motion for summary judgment. The trial Judge granted plaintiff's motion on the grounds that National Cycle had given "inadequate notice" and, as a result, "there is no question prejudice occurred."

Allegedly, on September 4, 1987, Campbell was seriously injured when he rode his motorcycle through a pothole in a Chicago street and then slid into a parked car. On August 31, 1988, Campbell filed a lawsuit against the City of Chicago. On September 7, 1988, Campbell filed an amended complaint naming as additional defendants Ace Cycle World, Inc. ("Ace Cycle") and National Cycle. National Cycle buys, sells, and services motorcycles and motorcycle accessories and Ace Cycle installed a certain accessory on Campbell's motorcycle. National Cycle was served with the amended complaint and summons on September 16, 1988.

National Cycle apparently retained an attorney and proceeded to defend itself. On February 6, 1990, the trial court issued a good faithfinding of settlement between Campbell and Ace Cycle, dismissed Ace Cycle from the lawsuit and ordered that the action continue solely against National Cycle. Subsequently, on June 7, 1990, the trial court allowed Campbell leave to voluntarily dismiss his lawsuit against National Cycle without prejudice. One week later, on June 13, 1990, Campbell refiled his lawsuit against National Cycle and, on June 15, 1990, National Cycle was served with Campbell's refiled complaint. On that same date, National Cycle's attorney sent notice of the lawsuit and tendered the defense of the action to plaintiff.

Plaintiff retained counsel to defend National Cycle and filed its appearance on August 7, 1990. Subsequently, three and a half months later, on November 21, 1990, plaintiff sent National Cycle a "reservation of rights" letter in which it expressly reserved all rights and defenses under the policy. Specifically, plaintiff asserted that it may not be obligated "to furnish you with coverage or pay any judgment therein as a result of your failure to abide by the terms and conditions of the policy by providing late notice and failing to notify of the previous suit filed in this matter."

Plaintiff is National Cycle's excess liability insurance carrier. The portion of the umbrella liability policy issued by plaintiff to National Cycle which is relevant to this appeal is paragraph D. Paragraph D titled "Notice of Occurrence" provides:

"Upon the happening of an occurrence reasonably likely to involve the company hereunder, written notice shall be given as soon as practicable to the company or any of its authorized agents. Such notice shall contain particulars sufficient to identify the Insured and the fullest information obtainable at the time. The Insured shall give like notice of any claim made on account of such occurrence." (Emphasis added.)

On April 10, 1991, plaintiff filed a declaratory judgment action seeking a declaration that it was not obligated to defend or indemnify National Cycle due to National Cycle's breach of the policy's notice provision in paragraph D.

In National Cycle's answer to plaintiff's complaint for declaratory judgment, National Cycle admitted that it first notified plaintiff of this second lawsuit on June 15, 1990. Additionally, National Cycle admitted that at no time prior to June 15, 1990, had it informed plaintiff of either the original lawsuit or of the occurrence on September 4, 1987, of which Campbell complained. Plaintiff then moved for summary judgment solely on the ground that National Cycle breached the notice provision of the policy. National Cycle responded that (1) plaintiff was estopped to deny coverage because it had undertaken National Cycle's defense without a reservation ofrights, (2) the timeliness of its notice to plaintiff was a question of fact, and (3) plaintiff was not prejudiced.

On November 7, 1991, at the hearing on plaintiff's summary judgment motion, the trial Judge determined that there was no question but that National Cycle did not send notice to plaintiff until June 15, 1990. Additionally, the Judge concluded that plaintiff was clearly prejudiced "because a case was settled apparently with [Ace Cycle] who was originally a co-defendant in the case * * * with no notice, as far as I can tell, to [plaintiff] the excess carrier." Finally, the Judge found that plaintiff did not waive its rights to contest coverage by filing a reservation of rights several months after it filed an appearance in the case. The Judge expressed his concern, however, that notice to an additional primary carrier may have constituted notice to the plaintiff. Therefore, the Judge set a briefing schedule in order for the parties to address the issue of additional primary policies. The Judge also reopened discovery in order to allow National Cycle to take the deposition of its president, Barry Willey.

Subsequently, in its sur-reply in opposition to plaintiff's motion for summary judgment, National Cycle asserted that Willey's testimony elicited during a deposition on December 6, 1991, raised a question of fact "regarding the nature, extent, and adequacy of notice which must preclude Plaintiff's Motion for Summary Judgment." Specifically, based upon Willey's deposition testimony, National Cycle asserted that its first notice of the occurrence was when it received the summons and complaint in September 1988, and that within three to six months of that service it notified Bill Matsock, an agent of the plaintiff. National Cycle maintained further that Willey testified that he had several conversations with Matsock regarding the status of the case. National Cycle attached Willey's affidavit in which he averred that he had sent a copy of the summons and complaint to Matsock by certified mail, return receipt requested in 1988.

On March 9, 1992, at the hearing to reconsider plaintiff's motion for summary judgment, National Cycle asserted that Willey's uncontradicted affidavit raised a question of fact as to when plaintiff was notified. Plaintiff objected arguing that the court had already made a ruling on the question of notice and that the only issue before the court was whether National Cycle had given notice to any additional primary carriers. Plaintiff also asserted that National Cycle's argument was improper in light of the fact that it had already judicially admitted that notice had not been given to plaintiff until June 15, 1990. Moreover, plaintiff argued that the proper time to contest this issue was at the time it had filed its motion for summary judgment and that once a party admits a fact such as late notice itcannot "come back and change [its] mind." Plaintiff asserted that to allow such action "constitutes nothing more than an invitation to commit perjury."

At the Conclusion of the hearing, the Judge granted plaintiff's motion for summary judgment on the ground that National Cycle had given inadequate notice "some two and a half years after the fact" in June 1990, and that plaintiff was clearly ...

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