Shriver Insurance Agency v. Utica Mutual Insurance

Citations: 750 N.E.2d 1253; 323 Ill. App. 3d 243; 255 Ill. Dec. 868; 2001 Ill. App. LEXIS 435Docket: 2-00-0877

Court: Appellate Court of Illinois; June 12, 2001; Illinois; State Appellate Court

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Utica Mutual Insurance Company (Utica) appeals the denial of its motion to dismiss and the summary judgment in favor of Shriver Insurance Agency (Shriver) by the Du Page County circuit court. The court determined that an exclusion cited by Utica to deny its duty to defend Shriver in a lawsuit filed by Reliance Insurance Company (Reliance) was inapplicable, thus holding Utica liable for Shriver’s defense costs. Utica argues on appeal that the trial court erred in granting summary judgment, claiming that the allegations in Reliance's complaint did not trigger a duty to defend under Utica's insurance policy. Furthermore, Utica contests the application of the 'true but unpleaded facts' doctrine invoked by the trial court to suggest potential coverage.

The case centers on an agreement where Shriver acted as an agent for Home State Holdings Group (Home State), collecting and remitting premiums for insurance policies. Home State previously sold insurance for Security Insurance Company and Reliance. In May 1997, Home State canceled policies for Shriver’s clients, Robinson Bus Company and White Transportation, and issued new ones with Reliance at a reduced rate. Home State owed Shriver $208,000 in unearned premiums from the canceled Security policy, while Shriver owed Home State an undisclosed amount for the new Reliance policy. Home State indicated that Shriver could offset the unearned premium against the new premium, but Reliance later instructed Shriver to pay directly.

In August 1998, Reliance filed a complaint against Shriver for failing to pay premiums. At that time, Shriver had an 'errors and omissions' liability policy with Utica, which stipulated that Utica would defend claims alleging negligent acts made during the policy period, regardless of the allegations' validity. After notifying Utica of Reliance's lawsuit in November 1998, Utica initially acknowledged the claim but subsequently denied coverage based on an exclusion in its policy regarding liabilities for money received or credited to an insured.

Shriver successfully offset its debt to Home State against Home State's debt to it regarding the Reliance policy, a decision later affirmed by the Seventh Circuit. Following Utica's refusal to defend Shriver, Shriver initiated a lawsuit for declaratory judgment, estoppel, and breach of contract against Utica. Utica moved to dismiss based on its errors and omissions policy, which excluded coverage for liabilities related to money received by an insured. Utica argued that since the underlying action involved Shriver's failure to pay premiums, it had no duty to defend. Shriver countered by asserting that the exclusion did not apply to its alleged failure to pay and claimed that Utica was obligated to defend when aware of potentially covered claims. Shriver's motion included an affidavit from its president and communication to Utica regarding Reliance's action. Utica responded with its own motion for summary judgment, relying on previous arguments. The trial court granted Shriver's motion, determining that Utica had a duty to defend based on known facts from Shriver's correspondence. Utica appealed, claiming the trial court erred in granting summary judgment, arguing that the complaint's allegations did not establish a duty to defend under the insurance policy. The review of summary judgment motions is de novo, focusing on whether genuine issues of material fact exist and if the moving party is entitled to judgment as a matter of law. An insurer's duty to defend is determined by comparing the allegations of the underlying complaint with the insurance policy provisions, with courts favoring a liberal interpretation for the insured.

An insurer is obligated to provide a defense if the allegations in a complaint pertain to facts that are within or potentially within the scope of policy coverage, unless the insurer knows of additional unpleaded facts that indicate coverage. In Reliance's lawsuit against Shriver, Reliance claimed that Shriver failed to pay $259,169 in insurance premiums collected on its behalf, asserting Shriver's indebtedness to them. The relevant insurance policy included a coverage provision that required the insurer to defend any claim made during the policy period related to negligent acts in the insured's business, even if the claims were groundless. However, an exclusion within the policy specified that coverage does not apply to claims regarding liabilities for premiums or fees received by the insured.

Utica, the insurer, argued that Reliance's allegations fell within this exclusion, while Shriver contended that the claim was for failure to pay premiums, which should not trigger the exclusion. Courts interpret insurance policy language according to its plain meaning and favor the insured in ambiguous cases, but clear exclusions are enforced as written. The court concluded that the exclusion was applicable, as Shriver's failure to pay was directly connected to premiums it had collected for Reliance. Shriver's argument that the claim did not relate to money received was rejected, emphasizing that the claim arose from Shriver's obligation to forward the collected premiums to Reliance.

Reliance's exclusion clause does not require a finding of wrongful receipt of premiums to deny coverage. The explicit language of the exclusion indicates it applies to any liability for money received as premiums. The court agrees with Utica that the allegations in Reliance's complaint fall within the intended scope of this exclusion. While Illinois courts have not addressed this specific exclusion, similar exclusions have been interpreted in other jurisdictions, notably in the case of Utica Mutual Insurance Co. v. Miller, where the Maryland court ruled that a 'money received' exclusion barred coverage when the underlying complaint involved failure to remit premiums collected. Although Miller had additional claims that did not fall under the exclusion, the court emphasized that if only claims regarding premiums remained, the duty to defend would cease. In Shriver's case, the underlying complaint centered on the failure to remit $259,269.15 in premiums, clearly falling within the exclusion. Shriver argues that the case differs from Miller because he did not actually receive the premiums, asserting that Utica was aware of facts indicating he never received certain premiums. However, Utica contends that this 'true but unpleaded facts' doctrine applies only to additional facts, not to contradicting the complaint's allegations. Hence, Shriver's arguments do not create a duty for Utica to defend based on the complaint's claims.

Utica claims that there is no evidence in the record supporting the truth of the statements made in Shriver's correspondence and asserts that it could not have known those statements were true. Even if the facts presented by Shriver were accurate, Utica contends they are irrelevant to its duty to defend. Shriver counters that Utica did not challenge the facts in its summary judgment motion and that the trial court acknowledged Utica's lack of dispute regarding the truth of Shriver's claims. However, the trial court overlooked Utica's assertion in its motion to dismiss that the attachments to Shriver's summary judgment motion did not raise any "true but unpleaded facts" known to Utica. Utica argues that Charles Shriver's personal belief of non-liability does not imply that Utica accepted his assertions as accurate. The record indicates that Utica maintained its position and did not concede the truth of Shriver's claims. The trial court's determination of Utica's duty to defend based on true but unpleaded facts was deemed flawed, as the cited precedent, Indiana Insurance Co. v. Hydra Corp., did not invoke the true but unpleaded facts doctrine due to a lack of evidence indicating policy coverage. It is noted that the doctrine is typically applicable only when facts are known to the insurer through its own investigation, not solely based on information from the insured. The cases referenced illustrate that insurers have a duty to defend when they possess verified extraneous facts discovered independently, contrasting with the current situation where Utica relied on Shriver's statements without independent verification.

Reliance's action against Shriver was determined not to fall within the coverage of Utica's insurance policy due to a specific exclusion regarding claims for money received or credited to an insured for premiums. Charles Shriver’s letter to Utica described a situation where a prior policy had been canceled, and a credit due from Home State was to be applied towards a new policy with Reliance. Shriver claimed Home State advised him to offset the old premium against the new one, which Reliance later contested. Shriver clarified he had no contract with Reliance but followed Home State's guidance, ultimately sending a check for $166,000 using the offset.

Utica's investigation, limited to a questionnaire sent to Shriver, revealed that the dispute was fundamentally about a premium, not negligent acts, which the policy was designed to cover. Shriver checked "other" for the cause of loss in the questionnaire, indicating a premium dispute rather than an error or omission. Consequently, it was concluded that Reliance's complaint pertained to money related to premiums, thus excluded from coverage under Utica’s policy. The court reversed the lower judgment and remanded for the entry of judgment on Utica's motion to dismiss, affirming that Utica had no duty to defend Shriver.