The opinion of the court was delivered by: Justice Wolfson
Appeal from the Circuit Court of Cook County. The Honorable Dorothy Kirie Kinnaird Judge Presiding.
This is an insurance coverage case arising from the botched sale of 21 cars. It involves transactions between Plaintiff Nudi Auto RV & Boat Sales, Inc. (Nudi), a car dealer, and MK Auto Sales, Inc. (MK), an automobile broker not a party to this lawsuit.
Between April and May 1997, MK bought several cars from auto auction houses. It earmarked 21 of them for Nudi. MK's intention was to sell the cars to Nudi, which it did, and then use that money to pay its debt with the auction houses. After paying off the debt, MK would deliver the certificates of title to the cars to Nudi.
Nudi paid for the cars, but MK never did deliver titles to them. It couldn't, because it never paid the auction houses. Nudi, wanting to keep the cars, ended up paying the auction houses $50,000 for the titles to the 21 cars. Then Nudi made a claim against its insurance company, John Deere Insurance Company (John Deere), for the $50,000 under its "FALSE PRETENSE COVERAGE."
Nudi's "false pretense coverage" applied when it acquired "an 'auto' from a seller who did not have legal title." (Emphasis added.) The issue in this case is whether MK had "legal title" to the 21 cars it sold to Nudi.
The trial court entered summary judgment for the insurance company. We reverse the trial court's decision and remand this cause with directions to enter summary judgment for the insured.
The Insurance Company's Policy
John Deere, an Illinois corporation with its principal place of business in Moline, Illinois, issued an insurance policy and "garage coverage" to Nudi, a Wisconsin corporation with its principal place of business -- a car dealership -- in Kenosha, Wisconsin. Nudi's policy included additional coverage for "false pretense."
Nudi's false pretense coverage was effective from October 1, 1996, to October 1, 1997. The scope of this coverage is now at issue. The pertinent provisions are as follows:
This endorsement modifies insurance provided under the following:
I. SECTION I - COVERED AUTOS is amended, for this endorsement only, by the following:
Any 'auto' you have acquired is a covered 'auto' under the False Pretense Coverage.
II. SECTION IV - PHYSICAL DAMAGE COVERAGE is amended, for this endorsement only, by the following:
A. The following is added to paragraph A. COVERAGE:
1. False Pretense Coverage.
We will pay for 'loss' to a covered 'auto' caused by:
a. Someone causing you to voluntarily part with the covered 'auto' by trick, scheme, or under false pretenses.
b. Your acquiring an 'auto' from a seller who did not have legal title.
c. Confiscation of an 'auto' by a governmental or civil authority, for alleged or actual violations of laws governing the distribution, sale, or use of controlled substances." (Emphasis added.)
The following facts are taken from the pleadings and the depositions filed with the pleadings.
MK and The Auto Auction Houses
In April 1994, Mike Moses and his sister, Karen Moses, opened MK Auto Sales, Inc. MK was an automobile broker/used car dealer located in Mount Prospect, Illinois. It now is defunct. MK specialized in the wholesale selling of used cars to car dealers.
MK bought used cars from auto auctions conducted by Greater Chicago Auto Auction, Metro Milwaukee Auto Auction, Auction Way Sales, Inc., and ADT Automotive, Inc. (collectively the "auction houses"). MK had financial arrangements with these auction houses through their financial services departments. These arrangements allowed MK to bid/buy cars on credit, resell them to buyers/car dealers, then use the money from the sale to pay off its debt. This process occurred as follows:
After MK filled out the appropriate paperwork and executed the proper documents -- showing it was qualified and licensed to buy cars from an auction --, the auction houses gave MK a "floor plan" or "bridge loan," i.e., a credit line, to bid or buy cars with. The auction houses accepted checks, cash, and/or floor plans as payment for auctioned cars and they guaranteed the titles to the auctioned cars were valid and free of any incumbrance.
Through this financial arrangement, MK went to the auction houses and placed cars on its floor plan -- MK had about a $200,000 floor plan limit. If, during the auctions, MK was the successful bidder, the auction houses sold MK the cars. Although MK took possession of the cars it successfully bid on, it did so without the certificates of title. The certificates of title remained in the owner's/seller's name and in the possession of the auction houses until MK paid off its debt, i.e., floor plan.
After MK took possession of the cars, it transported them to its car lot in Mount Prospect, Illinois. Once the cars were on its lot, MK stocked, inventoried, and resold them. A majority of the cars MK bought on its floor plan were resold wholesale and in bulk to other car dealers.
When MK sold the cars it bought from the auction houses, i.e., the cars on its floor plan, MK could not transfer the titles of the cars to the buyer/car dealer at the time of the sale; the auction houses still had them. MK filled out the appropriate paperwork, took cash or check from the buyer, gave the car or cars to the buyer, and deposited the money into its bank account. MK then went to the auction houses and paid for the car or cars with its own check.
Once the auction houses were paid, that is, when MK paid off its floor plan, the auction houses gave the certificates of title to MK -- the certificates were put in MK's name. MK then signed the certificates, gave them to the buyer to sign, and sent them to the Secretary of State to register the titles in the buyer's name. After some time, the Secretary of State sent the buyer certificates of title registered in its name.
In about December 1996, MK approached Nudi and asked if it could sell Nudi used cars wholesale. MK wanted to be, in essence, Nudi's "wholesaler." Nudi described a wholesaler as "somebody that would go out and try to place or buy an automobile for another dealer based on their wants and needs, make a small profit in the in between so that they can make a living and buy and sell and place automobiles where they feel that there's a need."
Nudi agreed. Nudi said he didn't "have time to go out and buy and sell automobiles." Nudi had dealt with Mike Moses of MK before and trusted him.
Between April and May 1997, MK placed several cars on its floor plan at the various auction houses. MK then called Nudi and described the cars. Nudi was interested in them so MK took the cars to Nudi's car dealership in Kenosha, Wisconsin. Twenty-one of the cars Nudi chose to buy and pay for are at the center of this lawsuit.
After Nudi chose the cars it wanted, it gave MK a "check on the spot." The amount was about $179,000. At the time Nudi bought the cars, he did not receive the certificates of title from MK. Nudi knew that MK was going to use the money from the sale to pay off its floor plan.
Nudi allowed MK a two-week "grace period" to get the certificates of title from the auction houses. It expected to get the titles from MK within that time because Nudi and MK usually did business this way -- it was common industry practice to buy and sell used cars the way Nudi and MK did.
Nudi never received the certificates of title for the 21 cars. At the time MK sold the cars to Nudi, MK suffered from what Moses described as "very poor business management." As a result, MK went out of business and was unable to cover checks it wrote to the auction houses to pay off its floor plan. The auction houses refused to turn over the certificates of title to the 21 ...