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August 23, 1994


Appeal from the Circuit Court of Kane County. No. 91-L-0086. Honorable Michael F. O'Brien, Judge, Presiding.

Released for Publication September 29, 1994.


The opinion of the court was delivered by: Mclaren

JUSTICE McLAREN delivered the opinion of the court:

Plaintiff, Michelle M. Garcia, appeals following the circuit court's denial of her motion to reconsider the dismissal with prejudice of counts III and IV of her amended complaint which sought statutory penalties for the unreasonable and vexatious delay of defendant's insurer, Horace Mann Insurance Company (insurer) and its agent-adjuster, Gerald Shannon (agent), in paying her medical expenses. We reverse and remand for further proceedings.

On February 1, 1991, plaintiffs, Michelle M. Garcia and Aaron Tovar, filed a two-count negligence complaint against defendant Andrea Lovellette following a car accident. The complaint alleged that Lovellette negligently drove the car off the road and, as a result, Garcia sustained injuries. Plaintiffs later amended the complaint andadded counts III and IV seeking penalties under section 155 of the Illinois Insurance Code (Code)(215 ILCS 5/155 (West 1992)) against defendant's insurer and Gerald Shannon, individually and as agent of the insurer, for their unreasonable and vexatious delay in paying Garcia's medical bills pursuant to a specific medical payment provision in the policy issued to defendant Lovellette by the insurer. Garcia (plaintiff) has maintained both here and in the trial court that she is an "insured" passenger or occupant of the vehicle under that policy provision and is therefore entitled to pursue the statutory remedy.

The trial court granted the motion of the insurer and the agent to dismiss counts III and IV with prejudice. After plaintiff's motion to reconsider was denied, she timely appealed. Tovar and Lovellette are not parties to this appeal.

Plaintiff argues she was a passenger, and, as a passenger, was an "insured" as defined in the medical payments section of the policy; according to plaintiff, she therefore has standing to sue the insurer under the Code for unreasonable and vexatious delay in making such payments. She relies in part on Monroe v. United States Fidelity & Guaranty Co. (1992), 237 Ill. App. 3d 261, 177 Ill. Dec. 785, 603 N.E.2d 855 (passenger had standing as an "insured," as defined in policy, to bring action for declaratory relief against driver's insurer based on violation of underinsured motorist statute). The insurer argues that plaintiff is an injured third-party claimant and not an insured to whom it owes a contractual duty of good faith and fair dealing (see, e.g., Scroggins v. Allstate Insurance Co. (1979), 74 Ill. App. 3d 1027, 30 Ill. Dec. 682, 393 N.E.2d 718) and that, as a third party, plaintiff cannot bring a section 155 claim against it (see Loyola University Medical Center v. Med Care HMO (1989), 180 Ill. App. 3d 471, 480, 129 Ill. Dec. 360, 535 N.E.2d 1125). The insurer further argues that its insurance policy informs the named insured that it does not "give any person or organization the right to include us to any suit against you to determine your liability." According to the insurer, this is a "no direct action clause" consistent with the Illinois public policy prohibiting direct actions by an injured claimant "against the alleged tortfeasor's insurer. " (Emphasis added.) The insurer relies on Zegar v. Sears Roebuck & Co. (1st Dist. 1991), 211 Ill. App. 3d 1025, 156 Ill. Dec. 454, 570 N.E.2d 1176.

This case is one of first impression for this court. We must determine (1) whether plaintiff is an "insured" for purposes of the statutory remedy and, if so, (2) whether her "direct action" against the insurer would violate Illinois public policy. The policy issued to Lovellette initially defines an insured as "the person, persons or organization defined as insured in the specific coverage" and states that the meaning of "insured" varies in separate coverage sections. Forexample, in the indemnification section (I) for bodily injury "A" and property damage "B" coverages, when reference is made to the policyholder's car, "insured" is defined as:

"1. you

2. your relatives;

3. any other person while using your car if its use is within the scope of your consent; and

4. any other person or organization liable for the use of your car by one of the above insureds."

Among other things, that section provides that the insurer will pay damages for which an insured "becomes legally liable to pay" for bodily injury to others and for the destruction or loss of use of property resulting from the ownership, maintenance or use of the car and ...

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