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Insurance Company of Illinois v. Brown

August 04, 2000


The opinion of the court was delivered by: Justice Campbell


This is a dispute among insurance companies. Plaintiff, Insurance Company of Illinois (ICI), filed a declaratory action against Potomac Insurance company of Illinois (Potomac), American Service Insurance Company (American Service), and Victor, Diane and Dennis Brown, the insureds (collectively, defendants), under ICI's policy, seeking a declaration that it owed no coverage to Dennis Brown for injuries he sustained while riding as a passenger in a vehicle driven by an uninsured motorist. ICI and defendants filed cross-motions for summary judgment, and the circuit court of Cook County entered judgment in favor of defendants and against ICI, holding that all three policies provided uninsured motorist coverage to Dennis Brown up to a combined maximum of $500,000, to be contributed by each insurer on a pro rata basis.

On appeal, ICI contends that the trial court erred in determining that ICI owed coverage to the Brown's for Dennis' accident on the following bases: (1) the Brown's coverage under the ICI policy lapsed as a result of automatic termination; (2) the "known loss" doctrine prevents coverage for an occurrence which takes place at the end of the policy period; and (3) the ICI policy was properly rescinded due to material omissions by the Browns. For the following reasons, we affirm the judgment of the trial court.


The following facts are relevant to this appeal. In June 1993, Victor and Diane Brown (the Browns) were insured under an automobile liability policy issued by ICI. The Browns' son, Dennis, owned his own automobile, a Ford Mustang, which was insured under a separate liability policy issued by American Service. The Browns' policy with ICI was due to be renewed, and sometime in June 1993, the Browns received a renewal notice and invoice from ICI for a premium of $2127.

At a discovery deposition, Diane testified that out of concern about the increased cost of the policy premium, she began to investigate alternative automobile insurance. Diane obtained a quote from General Accident Insurance Company (General Accident) through Mary Janet Keaskowski, an insurance agent with the firm Drost, Schultz & Pohl. On June 17, 1993, Diane applied for a new insurance policy with General Accident. Diane completed a written application and mailed it to Keaskowski with a check in the amount of $329.50, representing the deposit premium for the proposed new policy.

On June 21, 1993, Keaskowski issued an insurance binder to extend temporary automobile liability coverage to the Browns for their two vehicles, a 1990 Buick Le Sabre and a 1990 Volkswagen Golf . The binder provided coverage through Potomac, a subsidiary of General Accident, beginning on June 20, 1993, and terminating on July 20, 1993. The coverage limits shown on the face of the binder included $500,000 for liability, $5000 for medical payments, and $500,000 for uninsured motorist coverage. The binder also extended coverage for physical damage to the Browns' vehicles, subject to a $500 deductible, $300 higher than the deductible contained in the ICI policy.

Keaskowski testified that she limited the effective period of coverage afforded by the binder to one month because she believed it was contrary to law to write an insurance binder for any period longer than one month. Keaskowski stated that prior to the end of the one month period of the binder, the actual policy is customarily issued by the insurance company. In this case, the Browns' policy was to be for a period of six months. Diane testified that based on her understanding of the above described custom, she did not cancel the ICI policy upon obtaining the Potomac binder.

On June 24, 1993, Dennis Brown was seriously injured when the automobile he was riding in as a passenger collided with an automobile driven by Ramiro Morales. Diane testified that she did not immediately report the accident to either ICI or Potomac because she was attending to the seriousness of Dennis' condition. On the date of Dennis' accident, Potomac had not yet issued its actual policy to the Browns.

On July 8, 1993, Diane received a cancellation notice from ICI. The notice stated that the premium due on the Browns' automobile liability policy on June 28, 1993, had not been received and that the policy would lapse on July 25, 1993, unless the Browns sent payment in the amount of $878.32, to ICI prior to that date. The notice stated: "[i]f the premium is received before the cancellation effective date shown above [July 25, 1993], we will be able to continue your insurance coverage without interruption. On July 16, 1993, Diane wrote and mailed a check for $878.32 to ICI.

ICI renewed the Browns' automobile policy number 13-12-011201-2 (ICI policy), effective May 24, 1993. The declarations page identified the policy as a renewal policy, and provided coverage for the Browns' two vehicles for the period June 20, 1993, to December 20, 1993. Coverages afforded by the policy included liability limited to $500,000, uninsured and underinsured motorist and bodily injury up to a limit of $500,000, excess medical expenses limited to $5,000, and replacement costs for property damage to each vehicle, subject to a $200 deductible. Under the terms of the policy, the uninsured and underinsured motorists' coverage extended to any family member who resided in the Browns' household.

The policy contained the following provision entitled "Automatic Termination" as follows:

"If you obtain other insurance on 'your covered auto,' any similar insurance provided by this policy will terminate as to that auto on the ...

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