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October 28, 1994



Rehearing Denied November 30, 1994. Released for Publication December 16, 1994.

Murray, Gordon, Cousins, Jr.

The opinion of the court was delivered by: Murray

PRESIDING JUSTICE MURRAY delivered the opinion of the court:

Empire Fire & Marine Insurance Company (Empire) appeals the denial of its summary judgment motion and the grant of Clarendon Insurance Company's *fn1 (Clarendon) cross-motion for summary judgment in a declaratory judgment action regarding insurance coverage in relation to an August 4, 1989, auto accident. The facts giving rise to this appeal are as follows:

A multi-vehicle automobile accident occurred on August 4, 1989, while defendant Florence Nicpon (Nicpon), a "car hiker" for defendant Lakeshore Auto Sales, Inc. (Lakeshore), was returning a 1987 Dodge Dakota from Lakeshore's location in Zion, Illinois, to defendant Schaumburg Toyota, Inc. (Schaumburg) in Schaumburg. Lakeshore had intended to purchase the 1987 Dodge Dakota from Schaumburg, but allegedly rejected the vehicle due to its failure to conform to representations made by Schaumburg based upon a defective paint job. Allegedly Schaumburg agreed that Lakeshore could return the vehicle. Nicpon, a "car hiker" who had worked for Lakeshore for the past several months, was then assigned to return the Dakota to Schaumburg.

Nicpon, while leading a group of three other car hikers, allegedly crossed the median on Palatine Road resulting in a number of collisions and injuring, among others, Judith Arnold (Arnold) and Ramona Cimballo (Cimballo). Arnold and Cimballo filed lawsuits to recover for personal injury damages sustained during this accident. The Arnold suit (Docket No. 90 L 5301) claimed, in count I, that Lakeshore owned the Dodge Dakota and that Nicpon was an agent, servant or employee of Lakeshore. Alternatively, in count II, the Arnold suit claimed that Schaumburg owned the vehicle and that Nicpon was its agent, servant or employee. The Cimballo suit (Docket No. 90 L 19944) named only Nicpon and Lakeshore as defendants. Cimballo alleged that she was injured as a result of a collision with a Dodge Dakota, which was in the possession and control of Lakeshore and operated by Nicpon, who was Lakeshore's employee.

Subsequently, Empire, Lakeshore's insurer, tendered the entire defense of the Arnold and Cimballo lawsuits to Clarendon, Schaumburg's insurer, claiming that Clarendon's policy of insurance provided primary coverage for all defendants named in both suits. Clarendon rejected the tender. Empire then filed a declaratory judgment action and moved for summary judgment, claiming that, as a matter of law, Clarendon's policy of insurance provided primary coverage for all defendants. Clarendon filed a cross-motion for summary judgment, claiming that, as a matter of law, its policy of insurance did not cover Nicpon or Lakeshore and, therefore, they had no duty to defend these parties. After a hearing on the motions, the trial court issued an order denying Empire's motion, but granting Clarendon's cross-motion for summary judgment, finding that the Dodge Dakota was not a "covered auto" under Clarendon's policy of insurance. It is from this order that Empire appeals.

On appeal, Empire does not deny that Lakeshore and Nicpon tendered the defense of the law suits to it and that they are insureds under its policy of insurance. Rather, Empire contends that the Dodge Dakota being returned to Schaumburg from Lakeshore was a "covered auto" under both the Empire and Clarendon insurance policies and that, pursuant to Clarendon's policy provisions, the Clarendon policy afforded primary coverage. In support of this position, Empire contends that Nicpon was an "insured" under Clarendon's policy of insurance because she was working in furtherance of Schaumburg's "garage operations" and that ownership of the Dakota and the attendant risk of loss remained with Schaumburg because Lakeshore properly rejected the vehicle as a nonconforming good. Finally, Empire argues that its tender of the defense of the underlying cases was sufficient to trigger coverage under Clarendon's policy of insurance for Nicpon and Lakeshore.

Clarendon, on the other hand, argues that it owes no duty to defend Nicpon or Lakeshore in either underlying action because, as the trial court properly determined, the Dakota was not a "covered auto" at the time of the accident pursuant to the provisions of its policy of insurance. Clarendon's policy provision states that a "covered auto" is one that is in the actual possession or control of the insured (Schaumburg) or its bailee. Clarendon argues that, since the allegations in the complaints charge that Nicpon was Lakeshore's agent and that Lakeshore owned, possessed or controlled the Dakota, the allegations in the complaints take Nicpon and Lakeshore outside the parameters of Clarendon's policy of insurance. Clarendon also denies that Nicpon was acting in furtherance of Schaumburg's garage operations.

It is Clarendon's position that it was proper for the trial court to interpret its policy provisions and determine that Lakeshore and Nicpon were not insureds. In so doing, Clarendon claims the trial court correctly determined that Empire's motion for summary judgment should be denied and Clarendon's motion should be granted.

In the alternative, however, Clarendon argues that a second basis exists for upholding the trial court's ruling. Clarendon contends that its duty to defend Lakeshore and Nicpon was never triggered because Lakeshore and Nicpon looked only to Empire for a defense and they never tendered or authorized the tender of the defense of the underlying actions to Clarendon.

It should also be noted that two motions have been filed with this court and have been taken with the case. First, a motion by Ramona Cimballo for leave to file a brief in support of Empire, and, second, a motion by Empire for leave to file an additional brief on the issues of waiver and estoppel.

For reasons that follow we affirm the trial court's denial of summary judgment to Empire, but reverse the trial court's order granting summary judgment to Clarendon. The motions before this court and taken with the case are also denied at this time.

Settled law in Illinois recognizes that an insurer owes an insured two duties, the duty to defend and the duty to indemnify. The two duties are not coextensive. An insurer's duty to defend or, if a conflict of interest exists, to provide for a defense, is determined by the allegations contained within the complaint. ( Maryland Casualty Co. v. Peppers (1976), 64 Ill. 2d 187, 355 N.E.2d 24; Central Mutual Insurance Co. v. Kammerling (1991), 212 Ill. App. 3d 744, 571 N.E.2d 806, 156 Ill. Dec. 826.) The insurer's obligation is triggered when the insured, or someone acting on behalf of the insured, tenders the defense of an action which alleges facts that fall within, or potentially within, the policy's coverage. Institute of London Underwriters v. Hartford Fire Insurance Co. (1992), 234 Ill. App. 3d 70, 599 N.E.2d 1311, 175 Ill. Dec. 297.) This duty exists even if the allegations in the complaint are groundless, false or fraudulent ( Insurance Co. of Pennsylvania v. Protective Insurance Co. (1992), 227 Ill. App. 3d 360, 592 N.E.2d 117, 169 Ill. Dec. 630) and if only one of several theories of recovery alleged in the complaint potentially falls within the policy's coverage ( United States Fidelity & Guaranty Co. v. Wilkin Insulation Co. (1991), 144 Ill. 2d 64, 578 N.E.2d 926, 161 Ill. Dec. 280). If an insurer is in doubt as to its duty to defend, it should seek a declaratory judgment as to its rights and obligations, or defend under a reservation of rights, or both. ( Insurance Co. of Pennsylvania v. Protective Insurance Co., 227 Ill. App. 3d at 365.) However, a declaratory judgment action to ...

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