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United Equitable Insurance Co. v. Thomas
Citation: 2021 IL App (1st) 201122Docket: 1-20-1122
Court: Appellate Court of Illinois; November 22, 2021; Illinois; State Appellate Court
Original Court Document: View Document
United Equitable Insurance Company (UEIC) appealed the Circuit Court's decision that denied its motion for summary judgment, granted summary judgment to defendants Anthony Thomas and Shyeata Rascoe, and dismissed UEIC's declaratory judgment action. The appellate court found UEIC's attempt to rescind coverage due to Thomas's misrepresentations was untimely under Illinois Insurance Code Section 154 and related policy language. Additionally, the court determined that policy exclusions regarding coverage for vehicles used as public livery or conveyance did not apply to the claim for uninsured motorist coverage. The background involved an automobile insurance dispute stemming from a June 2017 collision, with the application for coverage submitted by Thomas's agent indicating no commercial use of the vehicle. UEIC had issued a policy covering various types of damages, which included exclusions for bodily injury and property damage related to commercial use. The policy also contained a condition stating it would be void if any misrepresentation occurred that materially affected the issuance or renewal of the policy. The appellate court affirmed the trial court's judgment. The policy is rendered null and void for anyone who makes fraudulent statements or engages in fraudulent conduct regarding any accident or loss claimed under it. The insurer, however, cannot declare the policy void from inception due to material misrepresentation after it has been active for one year or one policy term, whichever is shorter. The insured agrees that the statements in the application and any subsequent applications are relied upon by the insurer to issue or renew the policy. The policy underwent renewals effective from September 22, 2016, to March 22, 2017, and from March 22, 2017, to September 22, 2017, without altering the original conditions and exclusions. While the policy was in effect, the insured, Thomas, used the vehicle for ridesharing with Uber, completing 4711 trips between April 2016 and November 2019. On June 11, 2017, Thomas, while driving the insured vehicle with passenger Rascoe, was involved in a collision with an uninsured vehicle. Both parties made a claim for uninsured motorist coverage under part II of the policy, which is not disputed by the insurer. After the collision, the insurer inquired about possible ridesharing use, to which Thomas denied using the vehicle for that purpose at the time. However, subsequent communications revealed that Thomas earned income from Uber before the accident and expressed hardship due to the vehicle's damage affecting his ability to earn. Ultimately, on July 13, 2017, the insurer determined that the vehicle was used for ridesharing, leading to a denial of Medical Payments Coverage based on policy exclusions for injuries sustained while using the vehicle as a public or livery conveyance. On July 19, 2017, Thomas demanded the return of all insurance payments, asserting his car was not being used for Uber at the time of an accident. In response, UEIC denied coverage on July 26, 2017, citing an exclusion for vehicles used as public or livery conveyances and notified Thomas of a policy cancellation in 30 days. On May 11, 2018, UEIC reiterated its denial of coverage, alleging that Thomas failed to disclose the car's use on his insurance application, invoking policy conditions regarding full disclosure. Subsequently, Thomas and Rascoe filed for arbitration with the American Arbitration Association (AAA), to which UEIC objected. On January 17, 2019, UEIC initiated a declaratory judgment action in Cook County, claiming the insurance policy did not cover commercial use because Thomas had denied any such use on his application. UEIC detailed the accident involving Thomas, Rascoe, and another party, asserting that Thomas had admitted to driving for Uber and that the policy excluded coverage for vehicles used as public conveyances. The complaint sought a declaration that UEIC was not obligated to pay any claims related to the accident and requested a stay of AAA proceedings, which the circuit court granted on February 21, 2019. Thomas and Rascoe filed an answer, asserting that Thomas was using his car for personal purposes, not commercially, and contended that UEIC could not void the policy after it had been in effect for a year due to alleged misrepresentations. Following written discovery exchanges and a subpoena for information from Uber, UEIC filed a motion for summary judgment on March 30, 2020, claiming the case raised new questions about coverage for ridesharing service vehicles. UEIC argued that ridesharing constitutes a 'commercial use,' while the policy issued to Thomas was a 'family and personal auto policy.' UEIC pointed out that Thomas was informed that the vehicle was not to be used for ridesharing and asserted that Thomas was aware his insurance would not cover commercial use, yet he failed to disclose his ridesharing activities. UEIC submitted affidavits from its underwriting and claims managers, asserting that the company would not accept the risk associated with ridesharing. UEIC cited section 143.19 of the Code, which allows cancellation of an auto insurance policy if the vehicle is used for compensation, contending that such use represents a risk significantly different from personal use that is unacceptable under the policy. Conditions 4 and 20 of the policy were invoked to support UEIC's claim of no coverage due to Thomas's misrepresentations. UEIC maintained that the vehicle should be regarded as a commercial vehicle, even if Thomas was not actively driving for Uber at the time of the accident, arguing that the policy was not intended to cover ridesharing. In response, Thomas and Rascoe filed a cross-motion for summary judgment, contending that Thomas was not using the vehicle for commercial purposes during the accident since he was not driving for Uber at that time. They argued that the policy provided coverage for personal use and claimed the exclusions did not apply because the vehicle was not in use for business at the time. They further asserted that any ambiguity in policy exclusions should favor coverage and challenged UEIC's ability to rescind coverage, citing a provision that limits rescission based on misrepresentation after the policy has been in effect for one year. In UEIC's response to the cross-motion, it reiterated that ridesharing poses a qualitatively different risk than personal use and maintained that Thomas should not benefit from his omissions regarding the vehicle's use for ridesharing. On September 30, 2020, Thomas and Rascoe filed a reply brief supporting their motion for summary judgment, asserting that the vehicle was not being used commercially at the time of the accident. They referenced the case of Standard Mutual Insurance Co. v. Jones, arguing that Illinois law prohibits rescission of an insurance policy after one year, even in cases of misrepresentation. There was no oral argument presented on the cross-motions for summary judgment. On October 7, 2020, the trial court issued a memorandum and order denying UEIC’s motion for summary judgment and granting that of Thomas and Rascoe. The court analyzed policy exclusions pertaining to bodily injury sustained while using an owned automobile as a public livery or conveyance, concluding that these exclusions did not apply since Thomas used the vehicle for personal purposes at the time of the accident. The court emphasized that the exclusions should be interpreted narrowly and confirmed that Thomas was not using the vehicle as a public livery or conveyance during the incident. The trial court also dismissed UEIC’s argument regarding Thomas's alleged misrepresentations about the vehicle's use, stating that under Illinois law, rescission of the policy is not permissible after one year of its effect, citing specific policy language. As a result, the court ruled that Thomas and Rascoe were entitled to summary judgment and coverage for the accident on June 11, 2017. UEIC subsequently filed a notice of appeal, seeking to reverse the trial court's decision and asserting that it owes no coverage to Thomas due to alleged misrepresentations about the vehicle's increased risk associated with ridesharing. UEIC argued that this case raises a novel issue regarding the insurance of vehicles used for ridesharing, likening these risks to those of commercial vehicles, and claimed that its policy specifically excludes coverage for vehicles used as public livery. Thomas and Rascoe countered that the coverage dispute falls under established legal principles. Thomas and Rascoe contend that UEIC’s effort to rescind coverage is barred by statutory time limits and specific policy conditions, asserting that UEIC cannot invoke condition 20 due to the application not being 'attached to' the policy as defined in that condition. They argue that the 'public livery or conveyance' exclusions in parts III and IV do not apply because their claim is solely under part II, the trial court accurately ruled these exclusions are unambiguous, and even if considered ambiguous, they should be interpreted narrowly to avoid barring coverage since the vehicle was not utilized as a 'public livery' during the incident. The court affirms the trial court's decision, stating that UEIC's attempt to void coverage is untimely under section 154 of the Code and condition 4 of the policy. It notes that the relevant exclusions are inapplicable as the only claim presented is for uninsured motorist coverage under part II. Summary judgment is deemed appropriate due to the lack of genuine factual disputes, with the case hinging on legal interpretation. The court emphasizes that it may uphold a summary judgment on any grounds evident in the record, irrespective of the trial court's reasoning. The court also reiterates the principles of contract construction, stating that the primary objective is to ascertain and honor the parties' intent as expressed in the contract language. Clear terms are given their ordinary meaning, while ambiguous terms are construed against the insurer. In situations where multiple reasonable interpretations exist, the interpretation favorable to the insured prevails. UEIC lacked the authority to void coverage due to Thomas’s misrepresentations regarding his use of the insured vehicle for ridesharing. UEIC argued that insuring a vehicle used for ridesharing presents different risks than insuring a vehicle for personal use and claimed it intended to avoid such risks. Thomas did not disclose his ridesharing activities, leading UEIC to invoke policy conditions to deny coverage for a claim made by Thomas and Rascoe. However, the court concurred with the trial court's finding that it was too late for UEIC to rescind coverage at the time of the June 2017 collision, as dictated by Section 154 of the Code. This section states that a policy cannot be voided based on misrepresentation unless the misrepresentation was made with intent to deceive or materially affected the risk assumed by the insurer, and that a policy cannot be rescinded after being in effect for one year or one policy term. The court highlighted a two-prong test for voiding insurance policies: the statement must be false and made with intent to deceive or materially affect the risk. A misrepresentation, even if made innocently, can void a policy, but such a misrepresentation renders the policy voidable, not void ab initio, and may be waived if not acted upon promptly. The statute establishes a one-year limit for insurers to act on material misrepresentations. Section 154 of the Illinois Insurance Code prohibits an insurance company from rescinding certain policies or renewals after they have been in effect for one year or one policy term, irrespective of any misrepresentations made in the application. In the case of Standard Mutual, Rick and Ruth Jones applied for an automobile liability policy but failed to disclose that their son, Tyler, lived with them. Following an accident involving Tyler, Standard Mutual paid claims but later sought rescission of the policy, arguing they would not have issued it had they known of Tyler's residency. The Stephensons, involved in the accident, countered that Section 154 barred rescission. The trial court agreed with the Stephensons, leading to an appeal. The Fourth District's primary concern was whether the trial court correctly interpreted Section 154 to prevent rescission despite material misrepresentations. The court examined an amendment to Section 154, effective June 1, 1996, which explicitly states that a policy cannot be rescinded after it has been in effect for the specified time. The court noted that while previous cases referenced this provision, they did not resolve the specific issue at hand. Ultimately, the Fourth District affirmed the trial court's decision, concluding that Standard Mutual could not rescind the policy, as it had been active for over one policy term, and dismissed the insurer's argument regarding reliance on the applicant's truthfulness without conducting an independent investigation. An insurance company may lack a duty to investigate an applicant's representations, but if it seeks to rescind a policy due to misrepresentations, it must adhere to the time constraints of section 154, which limits rescission to within one policy term or one year. The Fourth District acknowledged Standard Mutual's concern that this limitation could incentivize misrepresentation by applicants; however, it stated that such concerns are for the Illinois General Assembly to address. The court upheld the trial court's decision, confirming that Standard Mutual was barred from rescinding the policy after it had transitioned out of its first term. This reasoning was applied to UEIC, which was also time-barred from rescinding its policy despite Thomas's failure to disclose his ridesharing use, as the policy had already been in effect for over two terms by the time of the June 2017 collision. The court emphasized that the materiality of misrepresentations is irrelevant if the rescission attempt is untimely under the Code. UEIC's arguments regarding the differences between ridesharing and personal vehicles were deemed irrelevant since it acknowledged that it could not rescind under section 154. Instead, UEIC claimed it aimed to deny a claim rather than rescind the policy, arguing that Thomas continued to conceal the extent of his ridesharing during the claims process. Thomas violated conditions 4 and 20 of his insurance policy, misrepresenting the nature of his vehicle, which led to the issuance, renewal, and maintenance of the policy based on that misrepresentation. Consequently, Thomas should not receive coverage. UEIC's assertion that it did not seek to "rescind" the policy is unconvincing; the nature of a pleading is determined by its content rather than its label. The court indicated that UEIC's action to declare the policy void is equivalent to seeking rescission, which is defined as the right to cancel a contract due to default. Under Illinois law, a contract can be voided due to material misrepresentation, as outlined in Section 154 of the Code. Conditions 4 and 20 of the policy specifically state that misrepresentation, whether fraudulent or mistaken, renders the policy null and void. Condition 4 emphasizes that the policy is void if any information provided is misrepresented and is material to the issuance or renewal of the policy. Condition 20 clarifies that Thomas's statements were made to induce UEIC to issue or continue the policy, relying on their truthfulness. UEIC's communications, including a May 2018 letter and its declaratory judgment complaint, referenced these conditions and sought to deny coverage based on Thomas’s material misrepresentations. Condition 4 of UEIC's policy indicates that misrepresentations and omissions can void coverage when made in the application, declarations, and renewals. UEIC's reliance on conditions 4 and 20 is viewed as an attempt to rescind the policy based on these misrepresentations, which is governed by section 154 of the Code. This section imposes a time limit on insurers to act on material misrepresentations, specifically stating that a policy cannot be rescinded after it has been in effect for one year or one policy term. Condition 4's provision allowing rescission based on misrepresentations that influenced renewal decisions is superseded by this statutory time limit, making any attempt to rescind after one policy term unenforceable. Moreover, even without section 154, condition 4 itself contains a time limitation barring UEIC from declaring the policy void after it has been active for multiple terms. Thus, UEIC's effort to void coverage due to misrepresentations is deemed untimely and barred by both the Code and the policy language. The decision acknowledges that this strict application of the time limit may seem harsh from the insurer's perspective, particularly given evidence that the insured, Thomas, misrepresented his intention to use the vehicle for ridesharing, which he did shortly after obtaining the policy and continued to do without disclosure during renewals. The last sentence of condition 4 restricts UEIC from voiding a policy after one term, conflicting with earlier language allowing nullification due to misrepresentation relevant to policy renewal. The court does not address the argument that Thomas's application misrepresentation could not void the policy because it was not "attached" as per condition 20. Thomas disclosed his ridesharing activities only after UEIC's investigation into his claim, and the insurer contends that had this information been revealed, it would have either denied coverage or charged a higher premium. The court acknowledges that strict adherence to the Code's time limits poses challenges for insurers, who must be informed of the risks they underwrite, and emphasizes that applicants have a duty to disclose such risks. Illinois law does not require insurers to investigate the truthfulness of application answers, which means Thomas's failure to disclose relevant information cannot be rectified post-discovery if more than one year or one policy term has passed. The court does not evaluate the fairness of this outcome but notes that concerns regarding the statute should be directed to the legislature. Consequently, UEIC is barred from rescinding the policy, and the court does not need to address whether ridesharing poses different risks than typical personal automobile insurance. UEIC had the opportunity to clearly specify in its policy that it did not cover risks associated with ridesharing, as insurers are responsible for drafting unambiguous terms regarding covered or excluded risks. Case law supports that ambiguous policy terms should be construed in favor of coverage, particularly because policyholders intend to secure coverage and insurers, as drafters, can clarify their provisions. Although a third party informed Thomas that the insured vehicle should not be used for ridesharing, UEIC's policy lacks explicit references to ridesharing or related services like Uber, raising questions about its failure to address a prevalent risk that could lead to coverage disputes. The ruling emphasizes that UEIC is barred from rescinding the policy due to time limitations, without determining the materiality of Thomas’s alleged misrepresentations or whether a ridesharing vehicle is equivalent to a commercial vehicle. The court also noted that while parts of the policy contain exclusions for using an insured vehicle as a “public livery or conveyance,” these terms are not defined in the policy. The trial court ruled in favor of Thomas and Rascoe, stating that they were entitled to summary judgment because Thomas was not using his vehicle as a public livery or conveyance at the time of the incident. On appeal, UEIC contends that it does not owe coverage due to this exclusion, aside from the implications of Thomas's misrepresentations. UEIC did not contest the exclusion in part III of the trial court’s ruling, thereby forfeiting any challenge to it, as per Illinois Supreme Court Rule 341(h)(7). Nonetheless, the reviewing court may overlook forfeiture to achieve a just outcome or preserve legal precedent. In this case, the court chose to overlook UEIC's forfeiture concerning part III, noting that the language in both exclusions is nearly identical, particularly regarding the phrase “while used as a public livery or conveyance.” Thomas and Rascoe argue that the exclusions do not apply since their claim is solely under uninsured motorist coverage (part II), asserting they did not make claims under parts III or IV. They also contend that the phrase “while used as a public livery or conveyance” is ambiguous and should be interpreted narrowly to apply only when the vehicle was being used as a public livery at the moment of the accident. The court agreed that the exclusions were not applicable, as the record does not support that Thomas and Rascoe claimed coverage under parts III or IV. As the appellant, UEIC bears the burden of supplying a complete record to demonstrate error, and ambiguities must be resolved against it. The record lacks evidence of any claim made by Thomas under parts III or IV; although there are communications post-accident, no claim forms or clear indications of claims under those parts were found. UEIC's own filings suggest that only part II is relevant, failing to assert claims under parts III or IV. UEIC's motion for summary judgment indicates that Thomas made a claim without specifying its nature. UEIC's submissions lack support for applying exclusions in parts III and IV of the policy. The statement of facts in UEIC's opening brief mentions that Thomas and Rascoe filed a collision claim and uninsured motorist claims but fails to cite the appellate record as required by Ill. S. Ct. R. 341(h)(6). The record does not demonstrate that Thomas or Rascoe asserted claims for coverage under parts III or IV, despite UEIC citing "public livery or conveyance" exclusions in its communications. Resolving gaps in the record against UEIC, it is presumed that no claims were made under parts III or IV; thus, those exclusions do not bar coverage. The trial court's finding that UEIC's attempt to rescind the policy was untimely under section 154 of the Code is affirmed, along with the conclusion that the exclusions in parts III and IV are inapplicable. The court affirms the trial court's order denying UEIC’s motion for summary judgment and granting Thomas and Rascoe’s cross-motion for summary judgment.