Pekin Insurance v. U.S. Credit Funding, Ltd.

Citations: 571 N.E.2d 769; 212 Ill. App. 3d 673; 156 Ill. Dec. 789Docket: 1-90-0635

Court: Appellate Court of Illinois; March 28, 1991; Illinois; State Appellate Court

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Pekin Insurance Company filed a declaratory action against U.S. Credit Funding, Ltd., seeking a judgment that its insurance policy did not require it to defend or indemnify U.S. Credit in a lawsuit arising from an accident involving Beth Trilling, a minor, struck by a vehicle driven by Heather Gould. The incident occurred on January 22, 1987, with the insurance policy issued later that day. The trial court found that U.S. Credit owned the vehicle and ruled against Pekin, which then appealed, raising issues concerning the ownership of the vehicle and the applicability of Illinois Insurance Code section 154 regarding fraud.

The court's findings included a material misrepresentation by Jack Gould, who claimed the vehicle was owned by U.S. Credit despite his wife, Roberta Gould, being listed on the title. Jack Gould argued that the vehicle had been transferred to U.S. Credit prior to the policy's issuance but provided no written proof of this transfer. Testimony indicated that Roberta Gould had sold the vehicle for $100, but documentation was lacking. Pekin had also filed Requests to Admit Facts that went unanswered, asserting that U.S. Credit was not the title holder of the vehicle on the date of the accident and had not purchased it before the policy's effective date. The appellate court ultimately reversed the trial court's decision.

During the cross-examination of Jack Gould, Pekin introduced a certified copy of the Illinois Secretary of State's records for the 1976 Ford Granada, which included a duplicate certificate of title in Roberta Gould's name, dated November 14, 1986. Pekin did not provide a copy of the insurance application. Testimony indicated that both the application and Secretary of State records influenced Pekin's underwriting decision. The application identified Jack Gould and his partner John Spiess as drivers, with U.S. Credit listed as the owner. Pekin contended that had it known the vehicle was involved in an accident on January 22, 1987, or that an underaged driver would operate it, it would not have underwritten the policy. If the vehicle's ownership had been misrepresented, it would have required separate insurance. Pekin's claim rested on the notion that the misrepresentation regarding U.S. Credit’s ownership absolved it of liability.

Pekin argued that the trial court's conclusion that U.S. Credit owned the Granada contradicted the evidence. It maintained that the Secretary of State's certificate was not effectively rebutted by evidence of actual ownership. Conversely, Trilling contended that the certificate did not definitively establish ownership and noted that title ownership could exist independently of the certificate holder's name. The certificate creates a prima facie presumption of ownership, which can be countered by credible evidence. 

Trilling proposed that Roberta Gould sold the Granada to her husband’s business before it incorporated in December 1986 and that the vehicle was subsequently transferred to U.S. Credit. However, Trilling failed to provide supporting evidence for this pre-corporate transfer theory and did not offer proof regarding the transfer of assets from the unincorporated entity to U.S. Credit. Consequently, the arguments presented by Trilling were deemed unpersuasive.

Trilling argues that the assets of an unincorporated entity were transferred to U.S. Credit upon incorporation, but no factual support for this theory was presented at trial. The incorporator of U.S. Credit was identified as 'U.S. Credit Repair Center, Ltd.' Roberta Gould testified she sold the vehicle to U.S. Credit, not the prior entity. Trilling claims the evidence of the sale and U.S. Credit's control over the vehicle should affirm the trial court’s ownership finding; however, the presumption of ownership rested with Roberta Gould as indicated by the certificate of title. Trilling did not provide sufficient legal authority to counter this presumption with mere evidence of use and control. The testimony from the Goulds was deemed inherently unbelievable and contradictory, with discrepancies regarding the payment method and lack of supporting documentation for the sale. The handwritten bill of sale was dated after the alleged transaction, and the court found that Jack Gould lied about several aspects related to ownership. Consequently, the trial court's ruling on ownership was determined to be against the manifest weight of the evidence. Additionally, section 154 of the Insurance Code states that misrepresentations or breaches by the insured do not invalidate a policy unless specifically included in the policy documents. A referenced case emphasizes the statute's purpose to protect insured parties from potential fraud by insurance agents during the application process.

Courts mandate strict compliance with section 154 of insurance regulations, requiring that if an application is not attached to the policy, the policy must contain a clear statement of any misrepresentation. In this case, Pekin did not attach the application but argues that the misrepresentation concerning the ownership of the Granada is evident from the policy’s face, as it names U.S. Credit as the insured without mentioning Roberta Gould. The policy includes the Granada as an owned vehicle under the 'owned vehicles' description, which Pekin interprets as establishing U.S. Credit as the owner. Citing Government Employees Insurance v. Dennis, where the court found that a declaration indicating the insured as the vehicle owner did not violate section 154, Pekin contends that the same principle applies here. Thus, the court concludes that section 154 does not prevent Pekin from raising the defense of fraudulent misrepresentation, as the misrepresentation is apparent in the policy. Consequently, the circuit court's judgment is reversed. McNAMARA and LaPORTA, JJ. concur. Notably, U.S. Credit and Gould did not participate in the appeal.