Illinois Insurance Guaranty Fund v. Nwidor

Citation: 2018 IL App (1st) 171378Docket: 1-17-1378

Court: Appellate Court of Illinois; August 24, 2018; Illinois; State Appellate Court

Original Court Document: View Document

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The Illinois Insurance Guaranty Fund (IIGF) initiated a declaratory judgment action against Chicago Carriage Cab Corporation and other defendants regarding insurance coverage in an underlying personal injury lawsuit. The trial court ruled that Chicago Cab was not covered by IIGF, leading to a summary judgment in favor of IIGF. On appeal, Chicago Cab argued that IIGF was barred from denying coverage due to waiver or estoppel, that the summary judgment was improperly granted, and that the court abused its discretion by denying a motion to reconsider. The appellate court affirmed the trial court’s decision.

The underlying case involved an incident where Israel P. Nwidor, an employee of Chicago Cab, was driving a taxi that collided with a motorcycle operated by James Carrington, resulting in severe injuries. Chicago Cab had a commercial auto liability insurance policy with Ullico Casualty Company, which provided a defense until Ullico went into liquidation in May 2013. Following this, IIGF informed Chicago Cab it would assume Ullico’s obligations, but outlined necessary prerequisites for claims handling and explicitly reserved rights regarding potential non-coverage. IIGF indicated it could seek reimbursement for claims paid if coverage issues arose.

On June 24, 2013, IIGF requested information from Chicago Cab regarding an insurance matter, reiterating its earlier communications. In a follow-up letter on September 26, 2013, IIGF acknowledged receiving initial data from the Ullico liquidator but indicated that critical information was still lacking. The letter emphasized that IIGF was handling the matter with a full reservation of rights under the Ullico insurance policy, preserving all rights and defenses under the Illinois Insurance Code.

In a May 6, 2014 letter, IIGF informed Chicago Cab that it had obtained the Ullico policy, which included an endorsement that removed coverage for the subject taxi (VIN 2FAFP71W67X124521) effective September 30, 2011. IIGF stated that, due to this endorsement, the policy provided no coverage for the deleted taxi, thereby reserving its rights to deny any defense or indemnity obligations to Chicago Cab or Nwidor. It clarified that under the Illinois Insurance Code, IIGF would pay only for covered claims, and it would continue to defend Chicago Cab and Nwidor under a reservation of rights, including the option to file for a declaratory judgment.

On May 23, 2014, IIGF filed a complaint for declaratory relief, asserting that the subject taxi was excluded from the Ullico policy prior to the October 5, 2011 accident, thus there was no liability coverage and no covered claim as defined by the Insurance Code. IIGF sought a declaration of no duty to defend or indemnify Chicago Cab or Nwidor and requested reimbursement for defense costs.

Chicago Cab responded by denying the allegations in IIGF's complaint and asserted three affirmative defenses. In its first defense, it claimed that the subject taxi was still covered under the Ullico policy at the time of the accident, arguing that the taxi was not officially replaced until October 7, 2011, two days after the accident, based on City of Chicago regulations. Thus, Chicago Cab contended that a covered claim existed.

Chicago Cab's second affirmative defense asserts that a 25-month delay between the original complaint's filing in April 2012 and IIGF's issuance of a reservation of rights letter on May 6, 2014, constitutes a waiver of coverage. Chicago Cab claims that this delay should estop IIGF and Ullico from denying coverage. In its third affirmative defense, Chicago Cab argues it relied on the actions of Ullico and IIGF, further supporting its position for estoppel. 

In August 2016, IIGF filed for summary judgment, contending that insurance coverage for the taxi was terminated on September 30, 2011, due to endorsement No. 11 of the Ullico policy, which meant the taxi was uninsured at the time of the underlying accident on October 5, 2011. IIGF maintained that it had not waived its denial of coverage or is estopped from asserting it. 

Chicago Cab responded by arguing that the policy and endorsement language does not fully capture the intent of the contracting parties and emphasized that numerous factual disputes exist regarding the transfer of coverage from the taxi to a replacement vehicle. These disputes, according to Chicago Cab, preclude summary judgment, particularly concerning its affirmative defenses of waiver and estoppel.

The trial court granted IIGF's summary judgment motion on January 5, 2017, a decision that Chicago Cab sought to reconsider and subsequently appealed. The appellate court reviews the summary judgment de novo, assessing whether any genuine issue of material fact exists.

Chicago Cab's waiver and estoppel arguments now focus solely on IIGF, asserting that the 11-month gap between Ullico’s liquidation and IIGF’s fourth reservation of rights letter supports its claims. IIGF counters that it acted promptly, issuing its first reservation of rights letter shortly after Ullico's liquidation, and thus did not delay in reserving its rights.

A reservation of rights must sufficiently inform the insured about the specific rights the insurer is reserving; general notifications are inadequate. In this case, IIGF's initial reservation letters lacked details about policy defenses until the fourth letter on May 6, 2014, which addressed the coverage issue related to Chicago Cab. The doctrines of waiver and estoppel are distinct; waiver involves the voluntary relinquishment of a known right, while estoppel prevents the insurer from asserting rights when inequitable. Generally, these doctrines are fact issues, but summary judgment is appropriate if material facts are undisputed. An insurer waives coverage questions by defending an insured without a reservation of rights, but it can only assert a defense if it is aware of the relevant facts. An insurer must notify the insured promptly to reserve rights, and while delays can be considered in assessing reasonableness, they do not automatically constitute waiver. In this case, IIGF did not waive coverage denial, as it was unaware of policy coverage facts when it assumed responsibility for obligations in June 2013. The time between IIGF's letters was not deemed unreasonable, and there was no evidence of intentional relinquishment of rights.

Chicago Cab's third affirmative defense alleges reliance on IIGF’s representation of defense and indemnification, resulting in Chicago Cab's lack of involvement in the Carrington Action's defense. This reliance purportedly caused prejudice, as Chicago Cab was unable to participate in defense decisions or assess the economic impact of the action, hindering its settlement opportunities. Generally, if an insurer asserts no coverage despite a complaint potentially falling within policy coverage, it must either defend under a reservation of rights or seek a declaratory judgment. Failure to do so results in estoppel from raising policy defenses later, without the need for the insured to prove prejudice. Conversely, if the insurer assumes defense without reserving rights and later changes its position, the insurer must demonstrate that the insured was not prejudiced by this change. In this case, Chicago Cab failed to show how it was prejudiced by IIGF's actions, lacking evidence beyond a mere assertion of prejudice. Consequently, it was determined that IIGF is not estopped from claiming a lack of coverage. Furthermore, a key issue is the timing of coverage transfer from the taxi to a replacement vehicle, with Chicago Cab arguing it occurred on October 7, 2011, while IIGF asserts it was September 30, 2011. This discrepancy raises a genuine issue of material fact regarding coverage at the time of the accident on October 5, 2011.

When interpreting an insurance policy, a court aims to determine the parties' intentions through the policy's language. The policy must be viewed in its entirety, with each provision given effect, as all terms are assumed to serve a purpose. Factors considered include the type of insurance, risk nature, overall contract purpose, and the context in which the policy was issued. Unambiguous terms are to be given their plain meaning and enforced as written unless contrary to public policy. Ambiguity arises only if a term has multiple reasonable interpretations. 

In the current case, the Ullico policy, effective from January 1, 2011, to January 1, 2012, included a list of 813 covered taxis, with subsequent endorsements reflecting changes in vehicle coverage. Specifically, endorsement No. 11 indicated that coverage for a particular taxi was transferred to a replacement vehicle on September 22, 2011, effective September 30, 2011. Chicago Cab argues that it could not operate the replacement vehicle until completing a change of equipment process and receiving a Hard Card, which allowed physical transfer of the medallion to the new vehicle. Chicago Cab asserts that endorsement No. 11 was processed early to facilitate compliance with an upcoming inspection.

The court rejects Chicago Cab's argument, clarifying that evidence of custom and usage can only clarify ambiguous contract terms. When contract terms are clear, they dictate the parties' obligations, and custom cannot contradict explicit terms. The court maintains that no custom or usage can impose conditions inconsistent with the agreement itself.

In endorsement No. 11, Ullico and Chicago Cab explicitly agreed that coverage for medallion No. 2975 would transfer on September 22, 2011, effective September 30, 2011. The policy includes an integration provision, indicating that it encompasses all agreements between the parties regarding the insurance and can only be amended or waived through an endorsement issued by Ullico. Chicago Cab's interpretation would undermine the policy's monthly endorsements that specify the start and end of coverage for exchanged taxis. Courts will enforce contracts as written and are resistant to provisions that could have been included but were not. Chicago Cab's reference to custom and usage lacks validity.

In response to IIGF's motion for summary judgment, Chicago Cab asserted a mutual mistake of fact regarding endorsement No. 11. However, the trial court found no legal or factual basis for this claim and subsequently denied Chicago Cab's request for reformation of the endorsement. To obtain reformation, a party must demonstrate a meeting of the minds and that a significant error occurred in the written agreement. There is a strong presumption that the written instrument reflects the parties' intentions, and the burden of proof for reformation lies with the proponent, requiring clear and convincing evidence.

Chicago Cab contended that the true effective transfer date for coverage was the date the BACP issued a Hard Card, rather than the date stated in the endorsements. The trial court and the reviewing court rejected this argument, noting that Chicago Cab's supporting affidavit did not establish that this alleged custom and practice was documented in a prior contract. The trial court's grant of summary judgment in favor of IIGF was upheld.

Chicago Cab filed a motion to reconsider a prior ruling, citing newly discovered evidence in the form of affidavits from two taxi associations and an insurer regarding the industry custom for determining taxi coverage dates. The trial court denied the motion, leading Chicago Cab to argue that this denial constituted an error. The legal standard for reviewing such motions is based on whether the evidence presented was indeed newly discovered, which is defined as evidence that was not available before the summary judgment hearing. The court noted that Chicago Cab's evidence was not newly discovered, as the affidavits were only obtained after the adverse ruling, indicating a lack of diligence in gathering evidence prior to the initial hearing. Consequently, the court concluded that the trial court did not abuse its discretion in denying the motion to reconsider, ultimately affirming the judgment of the circuit court of Cook County.