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Direct Auto Insurance Co. v. Koziol

Court of Appeals of Illinois, First District, Fifth Division

August 3, 2018

DIRECT AUTO INSURANCE COMPANY, Plaintiff-Appellant,
v.
ANDREW KOZIOL, Defendant-Appellee.

          Appeal from the Circuit Court of Cook County. Nos. 14 CH 18678, 14 M1144563 cons. The Honorable David B. Atkins, Judge, Presiding.

          HALL JUSTICE delivered the judgment of the court, with opinion. Justices Lampkin and Rochford concurred in the judgment and opinion.

          OPINION

          HALL JUSTICE

         ¶ 1 Plaintiff Direct Auto Insurance Company (DAI) appeals from orders of the trial court which denied its motions for summary judgment and reconsideration, and entered judgment in favor of defendant Andrew Koziol based on stipulated facts in a declaratory judgment action. On appeal, DAI contends that the trial court erred in its interpretation of the decision in Direct Auto Ins. Co. v. Beltran, 2013 IL App (1st) 121128 when it denied its motion for summary judgment and erred in entering judgment for Koziol. Although defendant has not filed a brief on appeal, we will consider the appeal pursuant to the principles set forth in First Capitol Corp. v. Talandis Construction Corp., 63 Ill.2d 128, 131-33 (1976). For the following reasons, we affirm.

         ¶ 2 BACKGROUND

         ¶ 3 DAI filed a declaratory judgment action to determine whether it owed coverage to Koziol for a claim arising out of an accident on July 21, 2013, when a vehicle operated by Koziol came into contact with a utility pole. The car that Koziol was driving, a 2008 Dodge Charger, was insured by DAI under a policy taken out by Koziol on April 8, 2013.

         ¶ 4 After the accident, Koziol made a claim under the policy with DAI. DAI subsequently denied coverage for the accident and rescinded Koziol's policy based on information revealed during its investigation into the accident. As a result, Koziol filed a breach of contract action against DAI in the circuit court of Cook County (14 M1144563) on September 25, 2014, seeking damages for DAI's refusal to provide coverage for his accident. Additionally, on November 19, 2014, DAI filed a declaratory judgment action (14 CH 18678), seeking a declaration that it did not owe coverage to Koziol based on an alleged material misrepresentation on his application for insurance coverage with DAI that was discovered during its investigation of the accident. DAI alleged in its complaint that the material misrepresentation made the policy void ab initio.

         ¶ 5 Koziol's answer to DAI's complaint consisted of blanket admissions and denials to the various paragraphs of DAI's complaint, with the exception of paragraph 3 (whether DAI was an insurance company in Illinois duly licensed to underwrite insurance policies and sell them to the public) and paragraph 10 (whether Insure on the Spot was an independent insurance agency acting as Koziol's agent for the purpose of securing insurance), which Koziol neither admitted nor denied and demanded strict proof. Specifically as to paragraph 17 of DAI's complaint, Koziol denied that he knowingly and intentionally provided a false answer to DAI in order to obtain insurance coverage for less money.

         ¶ 6 The cases were consolidated on May 5, 2015.

         ¶ 7 On April 20, 2016, DAI filed a motion for summary judgment, raising many of the same allegations it stated in its initial complaint. In the motion, DAI argued that during the course of the claims investigation into Koziol's accident, DAI learned that Koziol failed to disclose the existence of a 2002 Ford Explorer XLS that was registered to, and kept at, his home address by his parents at the time of his electronic insurance application which was submitted through his agent, Insure on the Spot. Additionally, DAI contended in its motion that Koziol falsely responded to the following question on his insurance application: "Any other cars in the household other than those listed on the application?" Koziol answered "no." Further, the applicant statement contained in the application had the following language:

"APPLICANT STATEMENT: The applicant states that the application was read and attests that all answers are truthful and that said answers were made as an inducement to the insurance company to issue a policy, and it is a special condition of this policy that the policy shall be NULL and VOID and of no benefit or effect whatsoever as to any claim arising thereunder in the event that the attestations or statements in this application shall prove to be false or fraudulent in nature. It is understood that this application shall be part of the policy of insurance when issued and that it is intended that the company shall rely on the contents of this application in issuing any policy of insurance or renewal thereof."

         The DAI policy contained a statement regarding "fraud and misrepresentation," which stated, in pertinent part:

"Statements contained in the application are deemed to be representations relied upon by the Company in issuing this policy. In the event that any representation contained in the application is false, misleading or materially affects the acceptance or rating of this risk by the Company, by either direct misrepresentation, omission, concealment of facts or incorrect statements, then coverage for the accident or loss in question shall not be provided by the Company and/or this policy shall be null and void and of no benefit whatsoever from its inception. * * *"

         ¶ 8 Rosa Miranda, DAI's Underwriting Manager, submitted an affidavit in support of the motion for summary judgment in which she averred that "had DAIC been advised that Koziol had additional vehicles residing at his household at the time of his application, such information would have affected the rating or the acceptability of the risk under the policy." DAI contended that had Koziol's omission been disclosed, the policy would have been issued with a substantially higher premium (specifically a $477 increase). DAI argued that Koziol's misrepresentation renders the policy null and void under section 15/154 of the Insurance Code (Code) 215 ILCS 5/154 (West 2016)), it was entitled to rescind the policy, and it was entitled to summary judgment as to its request for a declaration that it owed no coverage to Koziol.

         ¶ 9 In his response to DAI's motion for summary judgment, Koziol contended that the decision in Direct Auto Ins. Co. v. Beltran, 2013 IL App (1st) 121128 applied. He contended that his parents resided in the same building, not the same unit and that the information had been clearly disclosed and that they were specifically excluded from the policy. Koziol further noted that DAI only claimed that this information would have raised his insurance rate, not erase liability for coverage for the vehicle that DAI insured.

         ¶ 10 DAI did not respond to the applicability of Beltran in its reply.

         ¶ 11 In its written memorandum opinion and order of September 15, 2016, the trial court cited the two-prong test from Beltran, 2013 IL App (1st) 121128, for determining whether, under section 5/154, the policy may be rescinded where there has been a misrepresentation. Under the test, the trial court was required to determine whether the statement was false and whether Koziol intended to deceive DAI on his insurance application or the statement materially affected the acceptance of the risk or hazard assumed by the insurer. The trial court noted that DAI's reply brief ignored Beltran and thus did not argue any distinguishing aspects between it and the present case. The court concluded that Miranda merely averred that the premium would have been higher, which, standing alone, does not make the misrepresentation material, and noted that she never averred that the policy would not have been issued or that the application would have been rejected. The court further found that DAI did not provide any evidence that Koziol ever drove the 2002 Ford, which belonged to his parents and was insured under a separate policy with State Farm, or that the existence of the 2002 Ford substantially increased the chances of the events insured against, or that Koziol ever drove his parents' vehicle or that his parents ever drove his vehicle. The trial court concluded that at minimum, there was a material issue of fact regarding whether Koziol had intent to deceive when he omitted his parents' vehicle from the application to insure his 2008 Charger. The trial court further concluded that the record on summary judgment did not sufficiently demonstrate that the misrepresentation on the application was material, and denied DAI's summary judgment motion as a matter of law.

         ¶ 12 DAI filed a motion for reconsideration on September 28, 2016, in which it argued that Beltran does not hold that an increase in premium by itself is immaterial. DAI also argued that disclosure of the second vehicle here would have affected the acceptability of the risk and that the increase in premium would have been in excess of nearly 35%. While acknowledging there was "no significant Illinois case law on point," DAI argued that the trial court could take judicial notice that the State Legislature and Department of Insurance have found that an increase of premium by 30% on a renewal policy is material enough to require an insurer to provide special notice to the insured. DAI concluded that the mere ...


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