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May 31, 1994


Appeal from the Circuit Court of Cook County. Honorable Everette C. Braden, Presiding Judge.

Released for Publication August 2, 1994.

Manning, Campbell, Buckley

The opinion of the court was delivered by: Manning

JUSTICE MANNING delivered the opinion of the court:

This is an appeal by plaintiff Norma Hannigan from a judgment of the trial court denying her motion for declaratory judgment against defendant Country Mutual Insurance Company, and granting defendant's motion to dismiss plaintiff's suit. Plaintiff sought to have the trial court determine that she was entitled to underinsured motorist coverage, and that her right to arbitration under an insurance policy with defendant had not lapsed. Defendant filed a motion to dismiss that action and the trial court granted that motion.

According to the record, in December 1986, plaintiff purchased an automobile insurance policy from defendant. The policy covered plaintiff for public liability while operating an automobile. The policy included a provision in section 2 covering uninsured-underinsured motorists coverage. An underinsured motor vehicle was defined as "any type of motor vehicle or trailer for which the sum of all liability bonds or policies at the time of an accident are less than the limit of this insurance." The insurance policy also contained a provision which provided that if the insured had paid the premium for uninsured or underinsured motorist coverage the insurer would "pay damages which insured is legally entitled to recover from the owner or operator of an uninsured or underinsured motor vehicle because of bodily injury sustained by the insured and caused by an accident." The policy further provided that the insurer would "pay only after all liability bonds or policies have been exhausted by judgments or payments." Moreover, the policy contained a clause under section 2 which provided as follows:

"No suit, action or arbitration proceeding for recovery of any claim may be brought against us until the insured has fully complied with all terms of this policy. Further, any suit, action orarbitration will be barred unless commenced within two years after the date of the accident. Arbitration proceedings will not commence until we receive your written demand for arbitration."

On February 25, 1988, plaintiff's automobile was involved in an accident with an automobile driven by Frank Affrunti. Plaintiff sustained personal injuries resulting from the accident and filed a civil suit against Affrunti on August 29, 1989. Plaintiff received answers to her interrogatories served upon Affrunti on July 5, 1990, and became aware of the fact that Affrunti had an insurance policy in effect at the time of the accident and that the limits on the policy were $30,000. Plaintiff made a demand upon Affrunti for the policy limits. The action was later settled for $27,500.

On April 25, 1991, plaintiff made a written demand upon defendant for arbitration. On May 23, 1991, defendant denied plaintiff's claim for arbitration and underinsured coverage.

On October 4, 1991 plaintiff filed an action for declaratory judgment against defendant. On January 3, 1992, defendant filed a motion to dismiss plaintiff's action pursuant to section 2-619 of the Code of Civil Procedure. In its motion defendant alleged that plaintiff failed to file suit and make a demand for arbitration within the two-year period after the accident as required by the provision of the policy. Plaintiff filed a response to defendant's motion to dismiss alleging that she did not discover the inadequacy of Affrunti's policy until after the two-year limitation period had run. Plaintiff contended that the two-year limitation period should have begun on the date she discovered that she suffered a compensable loss, which she maintained was the date she discovered Affrunti's underinsurance. On May 13, 1992, the court granted defendant's motion to dismiss and denied plaintiff's motion for declaratory judgment. This appeal followed.

Plaintiff first argues that the court erred in denying her motion for declaratory judgment and granting defendant's motion to dismiss. Specifically, plaintiff contends that the trial court's reliance upon the case of Shelton v. Country Mutual Insurance Co. (1987), 161 Ill. App. 3d 652, 515 N.E.2d 235, 113 Ill. Dec. 426, is unpersuasive as the facts in the instant case are factually distinguishable.

In Shelton, plaintiff was insured under a policy with defendant Country Mutual which contained a provision requiring that any legal action against defendant be brought within two years after the date of the accident. Plaintiff was subsequently involved in an automobile accident with the driver of a vehicle whose vehicle was insured by State Farm Insurance Company. The vehicle was insured to a maximum liability of $25,000. State Farm paid this amount to theinsured party on November 19, 1984. On January 21, 1985, plaintiff's attorney served notice of an attorney's lien on Country Mutual, plaintiff's own insurer, for underinsured motorist benefits. No further action was taken against Country Mutual at that time. On October 7, 1985, Country Mutual denied the claim by plaintiff's attorney because the two-year statute of limitation had passed.

Plaintiff filed an action for declaratory judgment alleging that the Country Mutual policy contained underinsured motorist benefits of $50,000, which she asserted covered the injuries incurred as a result of her accident. Country Mutual subsequently filed its section 2-619 motion to dismiss, alleging that plaintiff failed to comply with the policy requirements that the lawsuit be filed within two years of the date of the accident. The trial court granted that motion. Plaintiff appealed, arguing that when the limitations clause and the exhaustion clause of the insurance policy are read together the terms become ambiguous and contradict each other. The appellate court held that the exhaustion clause and the limitations clause did not conflict. The court reasoned that the exhaustion clause in no way conditioned when a suit could be filed against Country Mutual, but instead established only when Mutual would pay a claim. Shelton, 161 Ill. App. 3d at 657. The court further held that the two-year limitation period contained in the insurance policy did not violate public policy. Shelton, 161 Ill. App. 3d at 658.

The law is clear that the language of an insurance policy, when uncertain, ambiguous, or subject to more than one interpretation, is to be construed in favor of the insured and most strongly against the insurer. ( Anderson v. Vrahnos (1986), 149 Ill. App. 3d 251, 500 N.E.2d 110, 102 Ill. Dec. 488.) When an insurance policy is ambiguous, the insured should be deemed covered. ( Z.R.L. Corp. v. Great Central Insurance Co. (1987), 156 Ill. App. 3d 856, 859, 510 N.E.2d 102, 109 Ill. Dec. 481.) However, our supreme court has added that an insurance policy in which no ambiguity appears is to be read as any other contract, that is, according to the plain and ordinary meaning of its terms. ( Dora Township v. Indiana Insurance Co. (1980), 78 Ill. 2d 376, 400 N.E.2d 921, 36 Ill. Dec. 341.) Further, in interpreting the provisions of an insurance contract, the entire document should be ...

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