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Peerless Enterprise, Inc. v. Kruse

October 24, 2000

PEERLESS ENTERPRISE, INC.,
PLAINTIFF-APPELLEE,
V.
RITA KRUSE, AS GUARDIAN AD LITEM FOR PETER A. KRUSE; SHERRY BRUCATO; AND THRIFTY RENT-A-CAR SYSTEM, INC.,
DEFENDANTS
(GALLANT INSURANCE COMPANY, F/K/A ALLIED AMERICAN INSURANCE COMPANY, GARNISHEE/APPELLANT; AMERICAN AMBASSADOR CASUALTY COMPANY, GARNISHEE).



Appeal from the Circuit Court of Du Page County. No. 93--L--1565 Honorable Richard A. Lucas, Judge, Presiding.

The opinion of the court was delivered by: Justice McLAREN

The garnishee, Gallant Insurance Company, f/k/a Allied American Insurance Company (Gallant), appeals the trial court's award in favor of the plaintiff, Peerless Enterprises, Inc. (Peerless), in a garnishment action and the trial court's award of attorney fees and sanctions pursuant to section 155 of the Illinois Insurance Code (Code) (215 ILCS 5/155 (West 1998)). We affirm.

On July 13, 1993, defendant Peter Kruse was involved in an automobile accident with Steven Peregoy in Wayne Township, Du Page County, Illinois. Peregoy was driving an automobile owned by his employer, the plaintiff, Peerless. Kruse was driving a vehicle that Thrifty Rent-A-Car Systems, Inc. (Thrifty), had rented to Sherry Brucato. The accident caused damage to Peerless's car. Peter Kruse was hospitalized and then placed in a nursing home; he has remained in a semicomatose state since the accident.

On August 9, 1993, Peerless filed a complaint against Peter Kruse, Brucato, and Thrifty, alleging that Peter Kruse's negligence caused the accident and damage to Peerless's automobile. Thrifty and Brucato were subsequently dismissed from the suit.

On October 17, 1995, the trial court, Judge Robert Kilander presiding, entered judgment in favor of Peerless and against Peter Kruse in the amount of $30,604.34, plus costs. On February 5, 1996, Rita Kruse, Peter's mother, was appointed guardian ad litem of Peter and was substituted as the defendant in the negligence action.

Peerless then filed a citation to discover assets and a motion for turnover of the assets of Peter Kruse. Rita Kruse claimed that Peter Kruse was covered by policies issued by Gallant and American Ambassador Casualty Company (American). Rita assigned to Peerless any rights Peter had in these policies. Peerless then withdrew its motion for turnover of assets, and the trial court discharged Peerless's citation to discover assets against Rita Kruse. On November 10, 1997, Peerless filed a nonwage garnishment action against Peter Kruse's alleged insurers, Gallant and American. Both Gallant and American denied having property belonging to Peter Kruse and denied that they were indebted to Peter Kruse.

Documents submitted by American in response to interrogatories indicated that, although Peter Kruse was covered by an American policy at the time of the accident, the policy did not include liability coverage. Therefore, the trial court, Judge Rodney W. Equi presiding, granted American's motion to dismiss on September 29, 1998. A document also indicated that on July 20, 1993, a request was made by Lincoln Towers Insurance Company (Lincoln Towers) to add basic liability coverage to Peter Kruse's American policy with a $1,000 medical payment limit.

On November 30, 1998, Gallant orally moved for substitution of judge, and the judge denied this motion. Before Gallant moved for substitution of judge, the trial court, Judge Richard Lucas presiding, made the following rulings: granting garnishee American's motion for leave to allow the late filing of its reply to Peerless's response to American's motion to dismiss, granting Peerless's motion for rule to show cause against Lincoln Towers for their failure to respond to a subpoena, and granting American's motion to continue the hearing on its motion to dismiss; continuing the hearings on American's motion to dismiss and Gallant's rule to show cause; and continuing the garnishment trial based on the absence of a material witness.

At the garnishment hearing, Rita Kruse, Peter Kruse's mother and guardian ad litem, testified that, at the end of June or the beginning of July 1993, her son, Peter, contacted his insurance agent, Danny Martin, to obtain automobile insurance. After the accident, Rita found two insurance policies among Peter's belongings that appeared to cover the date of the accident, one from Gallant and the other from American. Within a few days after the accident, Rita called Donny Martin and informed him about the details of the accident and her son's condition.

Rita testified that her son had been in a semicomatose state in a nursing home since the July 13, 1993, accident. On October 18, 1995, Peter's attorneys, at Rita's request, sent Gallant a letter notifying them that there were four lawsuits filed against Peter in connection with the July 1993 accident. The letter requested that Gallant indemnify and defend Peter Kruse in these suits. On October 9, 1997, Rita, as Peter Kruse's guardian, assigned Peter's rights and claims under the Gallant insurance policy to Peerless.

E. Paul Lanphier, an attorney representing Peerless, testified that on August 27, 1994, he sent a letter to Gallant informing it of the lawsuits pending against Peter Kruse at the time and requesting that Gallant provide a defense. The letter also contained the insurance policy number. Gallant responded in a September 2, 1994, letter asserting that the policy "was canceled on July 2, 1993," and had not been reinstated, and, therefore, there was no coverage on the date of the July 13, 1993, accident.

Jeffrey Spratt, manager with Gallant's parent company, testified that he did not know if Gallant provided a defense for Peter Kruse or filed a declaratory action against Peter Kruse. Spratt explained that Gallant received a request from Lincoln Towers to cancel Peter Kruse's policy on July 22, 1993. The request appeared to be prepared on July 20, 1993. Lincoln Towers had the exclusive right to sell insurance for Gallant. After receiving the request, a Gallant employee processed it and placed a July 22, 1993, date stamp on it. Spratt characterized this request as coming from Peter Kruse and stated that this was the only request Gallant received for the cancellation of Peter Kruse's policy. The request form, which was admitted into evidence, contained the following hand-written comments:

"Please cancel policy immed. Above has a currently susp. lic. We have replaced coverage w/his phys. dam. carrier. *** Dec. page will follow as soon as rec'd."

The request form included a section containing numerous phrases accompanied by boxes to be checked. The options included "Cancel Flat," "Cancel Prorate for," "Non-Payment," "Policy Attached," "Cancel Shortage," "Policy Attached," "Direct Note," and "Renewal." The only box checked was the one next to the phrase "Cancel Prorate for." The "Cancel Flat" box was not checked.

Spratt stated that, after receiving this request, Gallant "flat" canceled the policy; that is, Gallant canceled the policy from its inception date of July 2, 1993. However, Spratt admitted that Gallant had not received a request from Peter Kruse or anyone else to flat cancel the policy. Spratt explained that Gallant flat canceled policies when an insured had duplicate insurance with the same coverage. Spratt stated that he believed that Peter Kruse had such duplicative insurance coverage with American. However, after reviewing American's declaration page, Spratt acknowledged that the coverage was not duplicative because Peter Kruse's policy with American did not include liability coverage.

Spratt stated that there was no indication that Gallant had sent notice to Peter Kruse or his agent of the cancellation. Gallant admitted into evidence a moving violation issued to Peter Kruse in 1990, indicating that he had been driving while his license was suspended. Spratt stated that Gallant would not have issued an insurance policy to someone with a currently suspended driver's license, but it would issue a policy to a driver whose license had been suspended and later reinstated. Peter Kruse's application did not indicate that his license had been suspended.

Nancy Tidwell, a licensed broker and sales manager for 20 years for the parent company of Lincoln Towers, testified that on July 20, 1993, Lincoln Towers sent a request to American for additional coverage for Peter Kruse. On the same day, Lincoln Towers also sent Gallant a request to cancel Peter Kruse's policy. The two requests were prepared with information received from Martin, Peter Kruse's agent.

Tidwell stated that flat canceling a policy meant that the policy never existed. Canceling a policy required the insurer to notify the customer to give the customer time to obtain other insurance. Tidwell opined that the cancellation constituted a simple cancellation and not a flat cancellation. Thus, Gallant was required to notify Peter Kruse of the cancellation. Further, Gallant would have been required to notify Peter Kruse of the cancellation even if Kruse himself had requested the cancellation. Tidwell also opined that Peter Kruse's policy with Gallant was in effect from July 2, to July 20, 1993, and that the policy was in effect on the day of the July 13 accident. The only liability coverage Peter Kruse had from July 2, 1993, to July 20, 1993, was with Gallant.

Tidwell stated that, typically, a 25% down payment was collected by the agent from the insured at the time the insurance application was taken. Gallant then billed the insured for the balance. In this case, Lincoln Towers billed Peter Kruse's agent for the down payment, but Gallant never sent a bill to Peter for the balance. Also, typically, Lincoln Towers received an effective-date-of-cancellation form from Gallant indicating the reason for a cancellation. However, in this case, Lincoln Towers did not receive this form or any other indication that Peter Kruse had been notified regarding the cancellation. Finally, Tidwell did not know whether Peter Kruse's license had been suspended, but she stated that if an insurance company discovered that an insured's driver's license had been suspended it notified the insured of its intention to cancel the policy and provided the insured time to secure other insurance.

During the garnishment proceeding, Peerless acknowledged that the policy limit for property damage was $15,000. However, Peerless alleged that Gallant acted in bad faith and was, thus, liable for the entire amount of the underlying negligence judgment, plus interest, and an additional $1,000 in medical costs incurred by Peter Kruse. The trial court granted Peerless's motion to estop Gallant from asserting policy defenses.

After hearing the testimony and considering the documents admitted into evidence, the trial court, Judge Lucas presiding, entered judgment against the garnishee, Gallant, in the amount of $31,604.34, plus interest. The trial court then set a hearing date to determine the amount of attorney fees. On February 18, 1999, Peerless filed a petition for attorney fees pursuant to section 155 of the Illinois Insurance Code. 215 ILCS 5/155 (West 1998). Peerless also filed a supporting affidavit and time schedule stating that its counsel ...


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