Appeal from the Circuit Court of Winnebago County. No. 96--MR--141 Honorable Janet Clark Holmgren, Judge, Presiding.
The opinion of the court was delivered by: Presiding Justice Bowman
IN THE COURT OF APPEALS OF THE STATE OF ILLINOIS
Plaintiff, American Family Mutual Insurance Company (American Family), brought an action for declaratory judgment in the circuit court of Winnebago County against defendants, Steven Hinde, American Family's policyholder, and his son, John Hinde, (collectively Hinde) to determine whether American Family was required to arbitrate an underinsured motorist claim arising out of an accident occurring on June 22, 1991, in which John Hinde was struck and seriously injured by a car while crossing a street. Both parties moved for summary judgment. The court entered summary judgment in favor of Hinde, finding that the policy limits of the underinsured tortfeasor had been exhausted pursuant to a settlement with Hinde and that, therefore, American Family was required to arbitrate Hinde's underinsured motorist claim.
American Family appeals, contending that the trial court erred in ruling that the underinsured tortfeasor's policy had been exhausted by a settlement where a portion of the settlement funds was contributed by third-party defendants and a dramshop defendant in a companion case.
The following facts are taken from the record. On July 19, 1991, Hinde filed a personal injury claim against Timothy Estrada (Estrada), the operator of the car that struck John Hinde. Subsequently, Hinde filed an action pursuant to the Dramshop Act (Ill. Rev. Stat. 1989, ch. 43, par. 135 (now 235 ILCS 5/6-21 (West 1996))) against the owners and operators of the tavern (collectively the dramshop) where Estrada had become intoxicated on the night of the accident. On October 14, 1992, Estrada filed a third-party action for contribution against Adam Hueckstaedt (Hueckstaedt) and Douglas Lyons (Lyons), two of the individuals crossing the street with John Hinde on the night of the accident. On January 20, 1994, all of these matters were consolidated.
A joint mediation of the consolidated cases occurred on February 24, 1995. Pursuant to the mediation, a memorandum of agreement was prepared and signed by representatives of all the parties. On March 1, 1995, and March 2, 1995, Estrada submitted to Hinde a written offer of $25,000, the bodily injury limits of liability under his insurance coverage. On March 6, 1995, Hinde's attorney, Thomas Laughlin, communicated the offer to American Family, indicating Hinde's intent to accept the monies and provide a release to Estrada unless American Family contacted Laughlin within 30 days to direct Hinde not to do so. This communication was sent to comply with section 143a--2(6) of the Illinois Insurance Code (215 ILCS 5/143a--2(6) (West 1992)), which allows an underinsured motorist's carrier to tender to its insured the amount of the proposed settlement between the underinsured tortfeasor and the insured so as to retain its subrogation rights against the underinsured tortfeasor. Laughlin also informed American Family that Hinde intended to provide releases to all parties, including the dramshop, whose contribution to the settlement was being arranged with Janet Lanpher, attorney for Estrada's insurance carrier.
Additionally, on that same date, Laughlin wrote to American Family to demand the balance of American Family's $100,000 underinsured policy limits. On April 6, 1995, American Family sent a letter to Laughlin but provided no direct response regarding the $25,000 offer Hinde had received. Laughlin wrote American Family on April 18, 1995, again communicating the offer to American Family, and informed American Family that Hinde would wait another 30 days before accepting the offer. American Family did not respond to this correspondence.
On June 6, 1995, Hinde accepted the $25,000 offer. The offer was apportioned as follows: $16,500 from Estrada, $1,000 from third-party defendant Lyons, $2,500 from third-party defendant Hueckstaedt, and $5,000 from Estrada by the dramshop. On or about June 14, 1995, Lanpher informed Laughlin that she was experiencing difficulties in obtaining the contribution payments from the third-party defendants. According to Lanpher, Estrada's insurance carrier would not issue the $25,000 settlement until the third-party defendants and the dramshop had made their payments to the carrier. Lanpher agreed to allow Laughlin to collect the funds from the third-party defendants and from the dramshop on behalf of Estrada. In a letter dated June 16, 1995, to Lanpher and copied to counsel for the third-party defendants and the dramshop, Laughlin informed Lanpher that he was asking counsel for the other parties to the settlement to forward their settlement drafts directly to him. Additionally, Laughlin asked Lanpher to order the settlement draft from Estrada's insurer.
On July 16, 1995, Lanpher submitted a settlement check by correspondence in the amount of $16,500 from Estrada's insurance carrier. Lyons and Hueckstaedt were delayed in providing their funds until Estrada executed releases. On August 22, 1995, the dramshop submitted its settlement check by correspondence. The final funds were received and dispersed on or about September 29, 1995.
Hinde had commenced his claim for underinsured motorist coverage from American Family in June 1995. Both Hinde and American Family conducted discovery and prepared for arbitration of his claim. In a letter dated August 5, 1996, American Family informed Hinde that it "has come to our attention" that the $25,000 limits of Estrada's policy have not been exhausted, since Estrada paid only $16,500 of the $25,000 settlement and the third-party defendants and the dramshop paid the remainder. American Family pointed out that the underinsured motorist endorsement of Hinde's insurance policy required exhaustion before the underinsured motorist coverage would apply. That endorsement provided: "We will pay under this coverage only after the limits of liability under all bodily injury liability insurance policies applicable to the underinsured motor vehicle and its operator have been exhausted by payment of judgments or settlements."
American Family stated that since Estrada's policy limits had not been exhausted, it did not intend to participate in an arbitration of Hinde's claim. Instead, according to the letter, American Family intended to file a complaint for declaratory judgment. On September 3, 1996, American Family filed its complaint, seeking a declaration that it owed no underinsured motorist coverage to Hinde and, therefore, had no duty to arbitrate Hinde's claim. Based upon these assertions, American Family moved for summary judgment.
Hinde filed a response and a cross-motion for summary judgment, contending that whether the settlement payment was made piecemeal or jointly through Estrada, the $25,000 settlement satisfied the exhaustion clause of the policy. Hinde also contended that recent amendments to the Illinois Insurance Code, allowing an underinsured tortfeasor's policy limits to be exhausted by settlement for less than the full amount, were procedural and, therefore, should apply to the settlement. Further, Hinde argued that the equitable defenses of waiver, estoppel, and laches barred American Family from asserting that the exhaustion clause had not been satisfied.
The court found that the payments made pursuant to the settlement satisfied the exhaustion clause and that the sources of the payments were irrelevant as long as the bodily injury limits of the underinsured tortfeasor's policy were met, as had occurred in the present case. The court did not address Hinde's statutory amendment argument but did find that the amendment did not apply in the instant case. The court also did not address Hinde's equitable contentions. Thereafter, American Family filed a timely notice of appeal.
On appeal, American Family contends that the trial court erred in granting summary judgment in favor of Hinde. Based on its interpretation of its policy language, American Family maintains that Estrada's $25,000 bodily injury limits of liability under the terms of his insurance policy were not exhausted by settlement, since ...