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American Service Insurance Company v. United Automobile Insurance Company

April 18, 2011

AMERICAN SERVICE INSURANCE COMPANY,
PLAINTIFF-APPELLANT,
v.
UNITED AUTOMOBILE INSURANCE COMPANY,
DEFENDANT-APPELLEE.



Appeal from the Circuit Court of Cook County. No. 05 CH 17501 The Honorable Kathleen M. Pantle, Judge Presiding.

The opinion of the court was delivered by: Justice Lampkin

FIRST DIVISION

JUSTICE LAMPKIN delivered the judgment of the court, with opinion.

Presiding Justice Hall and Justice Hoffman concurred in the judgment and opinion.

OPINION

Plaintiff, American Service Insurance Company (ASI), appeals the trial court's order denying its motion for summary judgment and granting the cross-motion for summary judgment filed by defendant, United Automobile Insurance Company (UAIC). In so doing, the trial court determined that, because UAIC had rescinded its policy, defendant owed no duty to defend or indemnify a claim resulting from a February 2, 2004, car accident in which plaintiff's insured was injured. On appeal, plaintiff contends the trial court erred in denying its motion for summary judgment because defendant improperly rescinded its policy where defendant's insured did not make any material misrepresentations on her insurance application and had no duty to notify defendant of changes to her application responses. Plaintiff further contends defendant waived its right to rescind coverage of the insured by failing to promptly act after learning of an accident prior to the accident at issue. Based on the following, we affirm.

FACTS

On April 9, 2003, Janice Baker applied for an insurance policy with UAIC vis-a-vis Lincoln Insurance Agency, an independent agency. The application was completed by telephone. In the application, Baker was asked, "[I]s there any operator in the household under 25 years of age?" Baker answered "no." When asked the "Names of all Operators," Baker listed herself and her husband, John Webb. "Operator" was not defined in the policy. Baker testified at her deposition that she understood the term "operator" to mean a driver. The application was signed by Baker's agent.

UAIC issued a policy to Baker providing bodily injury and property damage liability from April 9, 2003, to April 9, 2004, on a 1986 Chevrolet Monte Carlo. The policy excluded Baker's husband, John, from coverage. The declarations page contained the following disclosure:

"Coverage afforded is only with respect to the coverages indicated herein by a specific premium charge or charges. The limit of the company's liability against each such coverage shall be stated herein, subject to all terms of this policy. Insured warrants that there are no other drivers in the household other than those listed in the application or endorsement."

The policy provided coverage to Baker, as the named insured, and "any other person using such automobile to whom the named insured has given permission, provided the use is within the scope of such permission."

In addition, the conditions section of the policy provided:

"If there has been a misrepresentation or false warranty, made with actual intent to deceive or which materially affects either the risk or hazard assumed by the Company, made by the insured or in his behalf in the negotiation for this policy, or breach of condition of such policy, and if said misrepresentation or false warranty or breach of condition is stated in the policy or endorsement or rider attached thereto, or in written application for this policy, then this policy shall be null and void and of no benefit, provided, however, that the Company, during the lesser of the first year of the policy or the first term of the policy, rescinds the policy and declares this policy void. If the policy has been in effect more than the lesser of one year or the first policy term, then the Company shall not rescind this policy. Notwithstanding any other provision in this policy, this policy shall provide no coverage or benefit to any person who makes a fraudulent statement or omission or engages in fraudulent conduct with respect to any accident or loss for which coverage or a benefit is sought under this policy or any renewal of this policy."

Further, the conditions section of the insurance policy contained a paragraph entitled "Declarations," which provided:

"By acceptance of this policy, the insured named in item 1 [Baker] of the Declarations agrees that the statements contained in the Application, a copy of which is attached to and forms part of this policy, have been made by him or on his behalf and that said statements and the statements of the Declarations and any subsequent Application accepted by the Company are offered as an inducement to the Company to issue or continue this policy and that the same are his agreements and representations, and that this policy is issued and continued in reliance upon the truth of such statements and representations and that this policy embodies all agreements existing between himself and the Company or any of its agents relating to this insurance." (Emphasis added.)

On May 4, 2003, the UAIC policy was amended to change the

covered vehicle to a 1993 Ford Thunderbird. An amended declarations page was issued providing that "this declaration page with 'policy provisions' and all other applicable endorsements complete your policy." Two drivers were listed, Baker and John. Baker was listed as the principle driver and John was listed as "excluded."

On May 14, 2003, Baker's son, Devin Webb, received his learner's driving permit. On June 10, 2003, Devin was driving Baker's insured vehicle with her permission and was involved in a car accident with a light pole. The accident resulted in property damage, but no bodily injuries. On June 17, 2003, Baker called UAIC to report the accident. Baker and Devin agreed to provide recorded statements to UAIC.

In her recorded statement, Baker informed UAIC that her son was driving the insured vehicle with her permission when he was involved in the accident. Baker said that her son had lived with her at 9004 S. Ada Street in Chicago, Illinois, for 7 1/2 years. Baker said that, since "April 4, 2003," *fn1 Devin operated her vehicle two times per week. Devin did not have a driver's license; Devin had a "blue slip." When asked why Devin was not disclosed to "the agent," Baker replied that Devin is "not an operator" but that she thought she "mentioned him."

In his recorded statement, Devin reported living with Baker, having a "blue slip," and driving Baker's car "every other day" since April 9, 2003. Devin said he usually drove with his mother as a passenger because of his "blue slip"; however, when the accident occurred, Devin was driving alone.

UAIC informed Baker that Devin was a "DNOP," or a driver not on the policy, and there was a "coverage issue" that needed to be resolved. It is uncontested that Baker ...


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