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Shriver Insurance Agency v. Utica Mutual Insurance Co.

June 12, 2001

SHRIVER INSURANCE AGENCY, PLAINTIFF-APPELLEE,
v.
UTICA MUTUAL INSURANCE COMPANY, DEFENDANT-APPELLANT.



Appeal from the Circuit Court of Du Page County. No. 99--MR--969 Honorable Bonnie M. Wheaton, Judge, Presiding.

The opinion of the court was delivered by: Justice Bowman

Defendant, Utica Mutual Insurance Company (Utica), appeals from the denial of its motion to dismiss and the entry of summary judgment in favor of plaintiff, Shriver Insurance Agency (Shriver), by the circuit court of Du Page County. The court found that the exclusion upon which Utica relied in disclaiming its duty to defend Shriver in an action brought against it by Reliance Insurance Company (Reliance) did not apply and that Utica was liable to Shriver for the expenses Shriver incurred in defending the underlying action.

On appeal, Utica contends that the trial court erred in granting Shriver's summary judgment motion, as the comparison of the allegations in Reliance's complaint with the language of Utica's insurance policy established that Utica had no duty to defend Shriver in the lawsuit brought by Reliance. Additionally, Utica contends that the "true but unpleaded facts" doctrine relied upon by the trial court did not apply to create the potential for coverage.

Shriver is an insurance agency that had a contract for several years with Home State Holdings Group (Home State) to act as Home State's agent. As its agent, Shriver collected and remitted premiums on insurance policies issued under the contract. Home State sold insurance on behalf of out-of-state insurance companies, or "fronting companies." Up until May 1997, Home State sold insurance on behalf of Security Insurance Company (Security). It also sold insurance on behalf of Reliance. In May 1997, the policies covering Shriver's customers, Robinson Bus Company and White Transportation (collectively Robinson), which had been fronted by Security for Home State, were canceled by Home State four months before expiration. Home State issued new policies, fronted by Reliance, at a lower rate. As a result, Home State owed Shriver approximately $208,000 in unearned premiums on the canceled Security policy and Shriver owed Home State an undisclosed amount for the premiums on the Reliance policy. The new policy had a new deposit and new installments. Home State told Shriver that it could offset the old premium on the Security policy against the new premium on the Reliance policy.

Subsequently, Reliance wrote Shriver, informing it that Shriver should not be offsetting premiums and that it should be paying Reliance directly. In August 1998, Reliance filed a complaint in the United States District Court for the Northern District of Illinois, alleging that Shriver had failed to pay Reliance the premiums it collected on the insurance policies issued to Robinson.

At the time Reliance brought its action against Shriver, Shriver had an insurance broker's "errors and omissions" liability policy with Utica. Pursuant to that policy, Utica agreed to defend any claim asserting "a negligent act, error or omission" first made during the policy period even if the allegations of the claim were groundless, false, or fraudulent. On November 9, 1998, Shriver notified Utica of the lawsuit, explaining the circumstances giving rise to Reliance's claim. In a letter dated November 19, 1998, Utica acknowledged notice of Shriver's claim and enclosed a questionnaire for Shriver to complete. Shriver completed and returned the questionnaire.

On February 3, 1998, Utica advised Shriver that, based on the exclusion section of its errors and omissions policy, it would not defend or indemnify Shriver for any damages or expenses relating to the lawsuit. That section provided in relevant part:

"SECTION IV - EXCLUSIONS

This insurance does not apply to any claim for, or arising out of:

4. Any liability for money received by an insured or credited to an insured for fees, premiums, taxes, commissions, loss payments, or escrow or brokerage monies."

Shriver defended itself.

The federal district court held that Shriver was entitled to offset its debt to Home State on the Reliance policy against Home State's debt to Shriver on the Security policy. The Seventh Circuit Court of Appeals subsequently affirmed the district court's decision. Reliance Insurance Co. v. Shriver, Inc., 224 F.3d 641 (7th Cir. 2000).

Because of Utica's refusal to defend Shriver, Shriver brought an action for declaratory judgment, estoppel, and breach of contract against Utica. Utica moved to dismiss the action pursuant to section 2- -615 of the Code of Civil Procedure. 735 ILCS 5/2--615 (West 1998). Utica asserted that, because its errors and omissions policy excluded coverage for "liability for money received by an insured or credited to an insured for *** premiums" and because the basis for the underlying action was that Shriver owed Reliance money for premiums on an insurance policy, Utica owed no duty to defend Shriver. Consequently, Shriver's complaint should be dismissed for failure to state a cause of action.

Shriver responded to Utica's motion to dismiss and also filed a motion for summary judgment. Shriver argued that paragraph four of section IV of Utica's errors and omissions policy did not apply because that exclusion applied only to "liability for money received" and the wrongful conduct in question in the underlying action was Shriver's alleged "failure to pay" and not its "liability for money received." Additionally, Shriver contended that, where an insurer is aware of true but unpleaded facts indicating that a claim is potentially covered, the insurer must defend. Attached to Shriver's motion was the affidavit of the president of Shriver, Charles M. Shriver (Charles Shriver or Mr. Shriver), and a copy of the letter he sent to Utica informing it of Reliance's action against Shriver and of the facts leading up to the lawsuit. Utica filed a reply in support of its motion to dismiss and as a response to Shriver's motion for summary judgment. Additionally, Utica filed its own motion for summary judgment, incorporating the arguments and authorities it relied upon in its motion to dismiss and in the aforementioned reply and response.

Relying specifically on the letter sent by Charles Shriver to Utica, the trial court granted Shriver's motion for summary judgment. The court found that Utica's duty to defend had been invoked by true but unpleaded facts known to Utica as evidenced by Shriver's correspondence to Utica. This appeal ensued.

Utica first contends that the trial court erred in granting Shriver's motion for summary judgment because a comparison of the allegations in Reliance's complaint with the language of Utica's errors and omissions insurance policy established that Utica had no duty to defend Shriver in the lawsuit. Summary judgment is proper when the pleadings, depositions, and the admissions on file, along with any affidavits, show that there exists no genuine issue of material fact and that the moving party is entitled to judgment as a matter of law. Cosgrove v. Commonwealth Edison Co., 315 Ill. App. 3d 651, 654 ...


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