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June 28, 1995


Appeal from the Circuit Court of Du Page County. No. 92-AR-1872. Honorable Robert R. Thomas, Judge, Presiding. This Opinion Substituted by the Court for Withdrawn Opinion of May 18, 1995, Previously

As Corrected June 28, 1995.

The Honorable Justice Rathje delivered the opinion of the court: McLAREN, P.j., and Inglis, J., concur.

The opinion of the court was delivered by: Rathje

JUSTICE RATHJE delivered the opinion of the court:

Moss & Hillison, n/k/a Moss, Hillison and Mordini (Moss & Hillison), appeals the order of the circuit court imposing sanctions on it pursuant to Supreme Court Rule 137 (Official Reports Advance Sheet No. 26 (December 22, 1993), R. 137, eff. February 1, 1994) for a statement it made in a response to a summary judgment motion. It contends that the trial court abused its discretion in sanctioning it when it conducted a reasonable inquiry and did not file a false pleading. Plaintiff, Ernesto L. Rios, cross-appeals from the trial court's refusal to award sanctions stemming from the garnishment answer signed by an attorney from Moss & Hillison.

This case arose from an automobile accident involving plaintiff and defendant, Tony Valenciano. Defendant was insured by Allied American Insurance Company (Allied). Plaintiff filed the complaint on June 8, 1992. Defendant failed to appear at trial, and a default judgment was entered against him on July 16, 1992. Plaintiff filed a garnishment action against Allied seeking to recover under defendant's insurance policy. Moss & Hillison represented Allied. Allied denied that it had any of defendant's property or was indebted to him. It also filed a pleading entitled "Affirmative Matters," which stated that defendant failed to comply with condition 3 of the insurance policy, which provided, in relevant part:

"If claim is made or suit is brought against the insured, he shall immediately forward to the company every demand, notice, summons or other process received by him or his representative, or agent or served on him, his representative or agent.

The company will not be obligated to pay, and shall not pay under [the liability coverage], unless the company received actual notice of a lawsuit before a judgment had been entered in said suit."

Allied stated that it "did not receive actual notice of said suit before a judgment had been entered." This pleading was signed by John D. Moss.

In response, plaintiff stated that Allied received actual notice of the suit in the form of a certified letter, dated June 9, 1992, from plaintiff to Allied who enclosed a copy of the complaint and stated that summons was placed for service on defendant. Plaintiff attached a copy of the letter and the certified mail receipt. The cause proceeded to arbitration, and the arbitrators entered an award of $4,031.50 against Allied.

Allied rejected the award, and plaintiff filed a motion for summary judgment in the trial court. Plaintiff argued that Allied was legally obligated to pay because it received actual notice of the lawsuit from plaintiff. Moreover, defendant stated in an affidavit that, on receipt of the service of the summons and the complaint, he promptly tendered those documents to his Allied agent, Matteo Cacucciolo, at the agent's office in Aurora. According to the affidavit, two days after the accident, defendant notified Cacucciolo that he had been involved in an accident. Defendant received the summons and complaint on June 15, 1992. When he delivered the documents to Cacucciolo, defendant was informed that Allied would "take care of" it and "the lawyers would handle everything." Each time defendant was notified of matters occurring in the suit, he delivered the papers to his insurance agent, Cacucciolo, at Cacucciolo's office. Each time, Cacucciolo assured defendant that Allied "would handle everything." When defendant received notice that his driver's license had been suspended as a result of his failure to pay the judgment entered against him, defendant went to Allied's office in Chicago, where he was informed that the company had no record of his claim and would not take any action on his behalf. As such, plaintiff argued there was no question of fact that Allied had notice of the suit prior to the entry of the default judgment.

In response, Allied argued that defendant's affidavit was insufficient in that it contained hearsay and conclusory allegations. Specifically, Allied complained that the statement that defendant went to an "agent" of Allied was an unfounded conclusory allegation. Allied maintained that defendant never notified Allied that he had been served with the summons and the complaint and that without that notification it had no duty to defend. The response was signed by Robert Hillison.

In reply, plaintiff argued that notice of a suit by the plaintiff is sufficient actual notice to trigger the insurance company's duty to indemnify the insured. Plaintiff also appended a copy of a document which indicated that Matteo C. Insurance Agency reported the accident to Allied on December 21, 1991. Allied never responded to plaintiff's allegation that Allied had actual notice of the suit from plaintiff, nor to the argument that notice of a suit may be provided by other than the insured. Allied merely argued at the hearing that the cases plaintiff cited concerned notice of accident provisions, not notice of suit provisions. In addition, Allied never denied that Matteo Cacucciolo was its agent.

The court granted summary judgment in favor of plaintiff and awarded him $4,031.50. The order was made immediately appealable. Allied did not appeal the judgment. Plaintiff then filed a motion for Rule 137 sanctions against Allied or, in the alternative, against Moss & Hillison, for the failure to make a reasonable inquiry into the facts before responding to the garnishment. Plaintiff asserted that the facts available to Allied, including plaintiff's notice of the suit sent to Allied before the entry of the judgment, established that Allied was obligated to indemnify defendant under the insurance policy. Plaintiff further alleged that the response to the garnishment, the rejection of the arbitration award, and the response to the motion for summary judgment allegedly were not well grounded in fact, warranted by existing law or a good-faith argument for a change in existing law, or made in good faith, but were interposed for an improper purpose. In addition to the letter from plaintiff to Allied, plaintiff appended a copy of a letter from Allied to plaintiff, dated June 15, 1992, ...

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