The opinion of the court was delivered by: Justice Cook
IN THE COURT OF APPEALS OF THE STATE OF ILLINOIS
Appeal from Circuit Court of Macoupin County No. 96MR1
Honorable Thomas P. Carmody, Judge Presiding.
Mary A. Marshall appeals a March 25, 1998, declaratory judgment order finding there was no coverage under an automobile liability policy because the insured had violated the policy's cooperation clause. We vacate that order because the trial court entered a final order of declaratory judgment on July 24, 1996, and the subsequent order was of no effect.
On August 16, 1993, Marshall was the driver of a vehicle that was involved in an automobile accident in Gillespie, Illinois. The driver of the other vehicle was Lucas D. Weller, 18 years old, who was driving a vehicle owned by Catherine S. Dillard and insured by Western States Insurance Company. The accident was investigated by the Gillespie police department. According to the police accident report, southbound traffic on Francis Street, the direction Weller was traveling, was required by a traffic sign to yield to westbound traffic on Oak Street, the direction Marshall was traveling. Neither driver was ticketed. According to Marshall, Weller was driving a manual transmission vehicle despite the fact that he had a cast on one leg.
On November 29, 1994, Marshall filed a personal injury action suit against Weller and Dillard (case No. 94-L-65). The count against Dillard alleged that Weller was acting as Dillard's agent at the time of the accident. Western States retained attorney Randall Mead to represent Weller and Dillard in that case.
On January 5, 1996, Western States filed this complaint for declaratory judgment (case No. 96-MR-1), alleging that Weller had breached the cooperation clause of the insurance policy it had issued to Dillard and seeking an order that it not be required to provide him with a defense or pay any claim on his behalf. In an affidavit, dated October 8, 1997, attorney Mead stated that Marshall had served interrogatories on him, that he sent those interrogatories on to Weller on March 9, 1995, but that Weller did not respond to that letter or to follow-up letters on March 30, 1995, July 21, 1995, October 12, 1995, or October 27, 1995. Mead stated that he had not had any contact with Weller "since I filed the Answer on his behalf" in case No. 94-L-65. Mead's secretary, Dawn Boyer, filed an affidavit in which she stated that she "spoke by telephone with Mr. Weller's residence at least six times, over the course of several months." On several occasions she spoke with Weller's mother, who told her that Weller was an over-the-road trucker and was not home. Boyer believes the mother told her that when Weller was not on the road he lived with his parents in Gillespie. She believes she spoke to other family members, including Weller's father, but "because of the passage of time, it is difficult to remember precisely."
A private process server was unsuccessful in serving the complaint for declaratory judgment on Weller. On May 13, 1996, the court authorized service by publication, and Weller was served in that manner. Marshall and Dillard were named in the complaint, for notice purposes only, and filed answers. On July 24, 1996, the court entered a "Default Judgment Order" stating that Western States was relieved of any further obligation to provide coverage or a defense to Weller, or to make any payment on Weller's behalf to Marshall or any other person.
On October 28, 1996, Mead moved to withdraw as counsel for Weller in cause No. 94-L-65. That motion was granted on November 21, 1996, in a docket entry which stated that notice was given Weller in care of his employer, Honda of Illinois, 3101 Danson Avenue, Springfield, Illinois, and that Weller's current address was 2104 South Holmes, Springfield, Illinois, 62704.
On January 2, 1997, the trial court entered summary judgment in favor of Dillard in cause No. 94-L-65. On April 2, 1997, after a bench trial at which Weller failed to appear, the court entered judgment in favor of Marshall and against Weller in the amount of $62,500. Thereafter, on May 16, 1997, Marshall moved to amend her answer in the declaratory judgment action and to file a counterclaim for declaratory judgment against Western States. Over Western States' objection, the motion was granted, the court stating:
"The Complaint for Declaratory Judgment did not allege that plaintiff [Western States] was prejudiced in a substantial manner by reason of the breach. Nor did the default judgment entered by the court in this cause find or declare that defendant's breach of the insurance contract prejudiced plaintiff in a substantial way. Since the declaratory judgment action did not address the essential issue of prejudice as required by the law applicable in this State, Defendant Marshall must be given the opportunity to litigate that question."
The court once again entered summary judgment in favor of Western States in the declaratory judgment action, on March 25, 1998, stating among other things that Mead was diligent and had acted in good faith in his efforts to secure the cooperation of Weller, that Mead was not required to take "extraordinary measures" to secure the cooperation of his client, that Western States was substantially and materially prejudiced and could not even evaluate the case accurately without Weller's information and input, and that once opposing counsel knew that Mead could not obtain the cooperation of his client to answer interrogatories, Mead was "at a psychological disadvantage from that point forward." Marshall seeks to appeal from the order of March 25, 1998.
When an insurer questions whether an insured's claim falls within the scope of coverage, the insurer essentially has two options: (1) secure a declaratory judgment as to its rights and obligations before or pending trial or (2) defend the insured under a reservation of rights. State Farm Fire & Casualty Co. v. Martin, 296 Ill. App. 3d 466, 469-70, 694 N.E.2d 1058, 1061 (1998). Similar rules apply when the insurer raises the defense that the insured has breached a condition of the policy. Employers Insurance of Wausau v. Ehlco Liquidating Trust, 292 Ill. App. 3d 1036, 1049-50, 687 N.E.2d 82, 91-92 (1997) (insurer might not be estopped by its failure to defend, however, when insured has breached a policy condition such as by failing to give timely notice). An insurer may not raise a policy defense when it has defended and lost the underlying claim without a reservation of rights. Nationwide Mutual Insurance Co. v. Filos, 285 Ill. App. 3d 528, 534-35, 673 N.E.2d 1099, 1104 (1996); see also 7A Am. Jur. 2d Automobile Insurance §403 (1997) (discovery of non-cooperation during trial). It would be unfair to the insured to allow the insurer to defend the underlying claim while at the same time it is formulating policy defenses to deny coverage. Nationwide, 285 Ill. App. 3d at 534-35, 73 N.E.2d at 1104. It would also waste the time of the courts and the litigants to go through a trial expected to be dispositive only then to discover the insurer is claiming a second bite at the apple in the form of a policy defense.
It is appropriate for an insurer to file a declaratory judgment action alleging that its insured has violated the cooperation clause of an automobile liability policy. M.F.A. Mutual Insurance Co. v. Cheek, 66 Ill. 2d 492, 495, 363 N.E.2d 809, 811 (1977). The plaintiffs in the underlying tort action are necessary parties to that declaratory judgment action. M.F.A., 66 Ill. 2d at 495, 363 N.E.2d at 811; Williams v. Madison County Mutual Automobile Insurance Co., 40 Ill. 2d 404, 407, 240 N.E.2d 602, 604 ...