Appeal from the Circuit Court of Winnebago County. No. 97--AR--697 Honorable Timothy R. Gill, Judge, Presiding.
The opinion of the court was delivered by: Justice Inglis
Defendant and garnishee, Valor Insurance Company (Valor), appeals the judgment of the circuit court of Winnebago County denying its cross- motion for summary judgment and granting the motion for summary judgment of plaintiff and garnishor, Herlindo Vega. We reverse and remand.
On June 7, 1996, plaintiff was involved in an automobile collision with defendant Jacqueline Gore (defendant), in which plaintiff sustained property damage and personal injuries. Defendant was insured by Valor at that time.
On June 28, 1996, plaintiff notified both defendant and Valor that he was making a claim against defendant's insurance for property damage and personal injuries sustained in the collision. Valor acknowledged its receipt of plaintiff's claim, and on July 15, 1996, Valor denied defendant's liability for the collision. Thereafter, plaintiff submitted further information to Valor that included copies of the police report of the collision, medical records, and medical bills. On May 23, 1997, Valor again denied defendant's liability.
On October 17, 1997, plaintiff filed a personal injury and property damage action against defendant but was unable to effect personal service on defendant after diligent efforts. Plaintiff subsequently served defendant through the Secretary of State pursuant to section 10-- 301 of the Illinois Vehicle Code (625 ILCS 5/10--301 (West 1996)).
On March 3, 1998, plaintiff obtained an order of default against defendant. The March 3 order indicated that defendant had been served through the Secretary of State and further provided that a hearing would be held on March 26, 1998, in order to prove up damages. On March 5, 1998, plaintiff mailed, by certified mail with return receipt requested, a copy of the order to defendant at defendant's last known address. The record indicates that defendant did not receive this letter. On March 24, plaintiff mailed, by certified mail with return receipt requested, a copy of the March 3 order to Valor. The return receipt indicated that Valor received the copy of the order on March 27, 1998, one day after the scheduled hearing on damages.
On March 26, 1998, plaintiff attended the prove-up hearing on damages. The trial court entered a default judgment and awarded plaintiff damages of $20,000. On April 15, 1998, plaintiff mailed a copy of the March 26 order to Valor by certified mail, return receipt requested. Valor received the copy of the order on April 16, 1998.
On July 14, 1998, plaintiff filed his garnishment action against Valor, seeking to collect the proceeds of his judgment against defendant from Valor. Valor contended that because it had not been timely notified of the existence of the personal injury suit, plaintiff could not collect the policy proceeds.
Plaintiff and Valor filed cross-motions for summary judgment. On May 20, 1999, the trial court granted plaintiff's motion for summary judgment and denied Valor's motion. The trial court found that Valor had "received notice of lawsuit No. 97[--]AR[--]697 in sufficient time to locate and defend it, but did not do so." The trial court entered judgment in favor of plaintiff and against Valor in the amount of $20,000 plus costs. Valor timely appeals.
Valor contends that the trial court erroneously granted plaintiff's motion for summary judgment and denied Valor's motion for summary judgment. Summary judgment will be granted if there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. 735 ILCS 5/2--1005(c) (West 1996); Travelers Insurance Co. v. Eljer Manufacturing, Inc., 307 Ill. App. 3d 872, 878 (1999). We review the trial court's decision de novo. Preferred America Insurance v. Dulceak, 302 Ill. App. 3d 990, 993 (1999).
At issue on appeal is the effect of the notice provision of defendant's insurance policy, which provides that Valor "will not be obligated to pay, and shall not pay under Part I, unless the company received actual notice of a lawsuit before a judgment has been entered in said suit." Valor argues that, by allowing plaintiff to garnish the insurance fund, the trial court erred by determining that Valor had sufficient notice "to locate and defend" plaintiff's suit, even though neither party disputed the fact that Valor did not receive notice of the default judgment before it was entered. We agree with Valor's argument.
Generally, in order to prevail in a garnishment action, a judgment creditor must present a claim that the insured himself could have maintained. Rice v. AAA Aerostar, Inc., 294 Ill. App. 3d 801, 806 (1998). Thus, where an insured breaches the conditions of the insurance policy, the judgment creditor is generally prohibited from garnishing the proceeds of the insurance policy. Rice, 294 Ill. App. 3d at 806.
There are, however, a number of public policy considerations that will prevent the insurer from avoiding payment under the policy, especially where an innocent third party has been injured by the insured. The insurer may be liable for a judgment even where there has not been compliance with the terms of the policy provisions so long as the insurer received actual notice of the suit. Rice, 294 Ill. App. 3d at 807. "Actual notice" means that an insurer is given sufficient notice to allow it to locate and defend the suit. Cincinnati Cos. v. West American Insurance Co., 183 Ill. 2d 317, 329 (1998). Notice is sufficient where the insurer knows both that a cause of action has been filed and that the complaint falls within or potentially falls within the scope of coverage of the insurer's policy. Cincinnati Cos., 183 Ill. 2d at 329-30.
An insurer nevertheless may be relieved of its duty to indemnify where it is able to demonstrate prejudice accruing from lack of notice of a lawsuit. Rice, 294 Ill. App. 3d at 807-08. An insurer may demonstrate prejudice where it does not receive notice of a suit until after a default judgment is entered, as the insurer is deprived of the opportunity to present evidence and engage in cross-examination of the opposing witnesses on the issues of liability and damages. ...