Appeal from the Circuit Court of Cook County No. 04 L 8101 Honorable Mary Brigid McGrath, Judge Presiding.
The opinion of the court was delivered by: Justice Hyman
JUSTICE HYMAN delivered the judgment of the court, with opinion. Presiding Justice Neville concurred in the judgment and opinion. Justice Sterba concurred in part and dissented in part, with opinion.
¶ 1 This appeal arises out of a three-count complaint filed by plaintiff-appellee Bonifacio Delatorre, Jr., as assignee of Ruben Delatorre, against defendant-appellant Safeway Insurance Company. The only count at issue on appeal is count I, alleging breach of the insurance contract. The circuit court granted summary judgment in favor of plaintiff on the issue of whether defendant breached its duty to defend Ruben, its insured, after finding that defendant took insufficient action on learning that Ruben had been defaulted in the personal injury suit filed against him by plaintiff. The circuit court also entered summary judgment in favor of plaintiff on the issue of damages, awarding him $250,000, the amount of the default judgment entered against Ruben.
¶ 2 On appeal, defendant argues that it did not breach its duty to defend where it retained an attorney to represent Ruben in plaintiff's negligence suit. Alternatively, defendant contends that it is not liable for a judgment that exceeds its policy limits where it did not act in bad faith, and where plaintiff did not show that the judgment was traceable to its breach of duty to defend. For the reasons that follow, we affirm.
¶ 4 In September 1991, plaintiff was a passenger in a car driven by Ruben when they were involved in an accident in which plaintiff was injured.*fn1 The driver of the other car, Thomas Zentefis, as well as his passenger, William Zenko, were also injured. Plaintiff, Zentefis and Zenko each filed suit against Ruben, seeking recovery for personal injuries allegedly caused by Ruben's negligent conduct.
¶ 5 At the time of the accident, Ruben was insured under a personal automobile insurance policy issued by defendant. The policy carried a bodily injury liability limit of $20,000 per person and $40,000 per accident. Further, the policy obligated defendant to defend any suit brought against the insured for bodily injury or property damage covered by the policy, with the understanding that defendant had no obligation to the insured once the policy limits were exhausted by payment.
¶ 6 In December 1991, plaintiff made a demand for the policy limits, which defendant refused; however, after learning of the negligence suits brought against Ruben, defendant agreed to defend Ruben under a reservation of rights. In November 1992, it informed Ruben via letter that it had retained attorney I.R. Strizak to undertake his defense in the negligence suit brought by plaintiff. The letter also stated that because plaintiff could potentially recover a judgment in excess of the policy limits, it could be prudent for Ruben to consider retaining additional counsel at his own expense.
¶ 7 Strizak filed an appearance and answer on behalf of Ruben on December 15, 1992, but there is no evidence that he took any further action to defend Ruben after that date. Defendant admitted that it paid no fees to Strizak in connection with his defense of Ruben, nor did Strizak submit statements for work he performed on Ruben's behalf. The plaintiff moved for sanctions, and the court eventually entered an order of default against Ruben on October 4, 1994. The order specified that the basis for the default was Ruben's "failure to comply with outstanding discovery." Plaintiff's attorney sent this order directly to defendant 10 days later. According to an affidavit by defendant's claims manager, Michael Tomory, the order was sent to Strizak on receipt. But this was the only written communication defendant had with Strizak since retaining him in November 1992. A prove-up hearing on the default judgment was held in November 1995, and plaintiff was awarded $250,000 in damages. The record does not indicate when defendant received actual notice of the damages award.
¶ 8 At the same time this litigation was proceeding, defendant was pursuing a declaratory judgment action against plaintiff, Ruben, Zentefis and Zenko. Specifically, defendant sought a declaration that it was not liable for damages alleged against Ruben in the negligence actions due to the fact that Ruben had misrepresented his marital status on his application for insurance, rendering his policy void. The trial court granted summary judgment against defendant on the basis that it was bound by its agent's actual knowledge of Ruben's marital status. This ruling was affirmed on appeal on March 20, 1998. Safeway Insurance Co. v. De La Torre, No. 1-96-0739 (Mar. 20, 1998) (unpublished order under Supreme Court Rule 23).
¶ 9 Several days after learning of the appellate court's ruling, defendant tendered the policy limits to plaintiff, but the tender was rejected. Then, in September 1999, defendant paid the policy limits of $20,000 to both Zentefis and Zenko.
¶ 10 In the meantime, on December 20, 1998, Ruben assigned the cause of action he had against defendant arising out of the contract of insurance to plaintiff for unspecified "value received." Shortly thereafter, plaintiff, as Ruben's assignee, filed suit against defendant. This suit was voluntarily dismissed on July 22, 2003.
¶ 11 About one year later, plaintiff refiled his complaint. After several rounds of amendment and dismissal, the complaint contained three counts: breach of an insurance contract; vexatious and unreasonable delay in settling a claim; and punitive damages. The count seeking punitive damages was dismissed on December 12, 2005, and only count I is at issue on appeal. In count I, plaintiff alleged that defendant breached its duty to defend when it ignored notice that Strizak was not providing Ruben with a meaningful defense. Plaintiff went on to allege that as a result of defendant's failure to provide an adequate defense, Ruben became subject to a default judgment against him in the amount of $250,000.
¶ 12 In September 2010, plaintiff moved for summary judgment on count I. In its response to plaintiff's motion, defendant filed its own motion to dismiss on the basis of res judicata. After hearing argument, on February 4, 2011, the trial court granted plaintiff's motion for summary judgment on the issue of whether defendant breached its duty to defend and denied defendant's motion to dismiss.
¶ 13 Plaintiff then filed a supplemental motion for summary judgment on the issue of damages. Specifically, he sought entry of a final judgment in his favor as to count I, and an award of damages of $250,000, the amount of the default judgment entered against Ruben. Defendant opposed this motion and also filed a cross-motion for summary judgment on the basis that it had exhausted its policy limits on behalf of Ruben and was not liable for contract damages in excess of those limits. On February 28, 2012, the court, after hearing argument, granted plaintiff's motion for summary judgment, denied defendant's cross-motion, and ...