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Golden Rule Insurance Co. v. Elton

March 05, 2002

GOLDEN RULE INSURANCE CO., PLAINTIFF-APPELLEE,
v.
FRANK ELTON AND DEBORAH ELTON, DEFENDANTS (DEBORAH EBNER, AS TRUSTEE OF THE BANKRUPTCY ESTATE OF FRANK AND DEBORAH ELTON, REAL PARTY IN INTEREST, DEFENDANT-APPELLANT).



Appeal from the Circuit Court for the 12th Judicial Circuit, Will County, Illinois No. 93-MR-14282 Honorable Amy M. Bertani-Tomczak Judge, Presiding

The opinion of the court was delivered by: Justice Breslin

Released for publication March 12, 2002.

GOLDEN RULE INSURANCE CO., PLAINTIFF-APPELLEE,
v.
FRANK ELTON AND DEBORAH ELTON, DEFENDANTS (DEBORAH EBNER, AS TRUSTEE OF THE BANKRUPTCY ESTATE OF FRANK AND DEBORAH ELTON, REAL PARTY IN INTEREST, DEFENDANT-APPELLANT).

Appeal from the Circuit Court for the 12th Judicial Circuit, Will County, Illinois No. 93-MR-14282 Honorable Amy M. Bertani-Tomczak Judge, Presiding

The opinion of the court was delivered by: Justice Breslin

PUBLISHED

 This declaratory judgment action was brought by plaintiff Golden Rule Insurance Co. against defendants Frank and Deborah Elton after Golden denied coverage of Deborah's medical claims. After the Eltons filed a counterclaim against Golden seeking payment of Deborah's medical bills, the trial court dismissed the counterclaim on the basis that the Eltons lacked standing. The Eltons moved to vacate the dismissal; thereafter the trustee of their bankruptcy estate was substituted in the action as the real party in interest. Although the substitution cured the standing defect, the trial court denied the motion to vacate because it determined that the medical bills were previously discharged in bankruptcy. The trustee appealed. We reverse and hold that although bankruptcy discharges the personal liabilities of the debtors, it does not discharge any independent liability of a third party insurer. Thus, the trial court erred when it dismissed the counterclaim.

FACTS

In April of 1989, Golden issued Frank a health insurance policy which provided coverage for the Eltons and their children. In early 1990, Deborah was diagnosed with breast cancer and underwent a mastectomy, incurring medical expenses in excess of $30,000. Based on a review of Deborah's prior medical records, Golden determined that Deborah's breast cancer was a pre-existing condition, denied Deborah's claims and ultimately voided the Eltons' policy. Thereafter, Golden filed a complaint for declaratory judgment, seeking a determination that the claims were properly denied based on alleged material misstatements made by Deborah on the policy application.

In 1994, the Eltons filed for Chapter 7 bankruptcy, listing the unpaid medical bills as debts and the declaratory action as a liability. An order of discharge was eventually entered in the bankruptcy action. In 2001, the Eltons filed a counterclaim in the declaratory judgment action which sought payment of Deborah's medical bills and damages for Golden's denial of Deborah's claim. Golden moved to dismiss pursuant to section 2-619(a)(6) of the Code of Civil Procedure (Civil Code) (735 ILCS 5/2-619(a)(6) (West 2000)), claiming that the Eltons lacked standing and that the bills had been discharged in bankruptcy. The trial court granted Golden's motion. After the Eltons filed a motion to vacate the dismissal, the bankruptcy trustee sought to be substituted as the real party in interest. The trial court allowed the substitution but denied the motion to vacate. The trustee appealed.

ANALYSIS

On appeal, Golden complains that the trustee did not properly preserve its objection to the dismissal of the counterclaim and the trustee complains that the counterclaim was improperly dismissed. This court reviews questions of law and a trial court's determination of a section 2-619 motion to dismiss de novo. Woods v. Cole, 181 Ill. 2d 512, 693 N.E.2d 333 (1998); Epstein v. Chicago Board of Education, 178 Ill. 2d 370, 687 N.E.2d 1042 (1997).

The first issue is whether the trustee is precluded from appealing the dismissal of the counterclaim. Golden argues that the nature of the trustee's objection to the dismissal was not preserved in the trial court. We disagree.

According to the record, the Eltons timely objected to the trial court's dismissal of the counterclaim, and the objection was recognized by the trial court in its order dismissing the counterclaim when it stated that the counterclaim was being dismissed "over the defendants' objection." In addition, the Eltons' subsequent motion to vacate the dismissal of the counterclaim informed the trial court of the nature of the objection. After the trustee was substituted as the real party in interest, the action already in progress continued, and the trustee inherited the objection. See 735 ILCS 5/2-1008(a) (stating that when interests to an action are changed by reason of a bankruptcy occurring after an action has been commenced and a different party is substituted, the original action does not abate but is carried on with the new and remaining ...


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