Insurance Coverage - State Farm Prevails Because Policyholders No Longer Live In Residence

SCHUCHMAN v. STATE AUTO PROPERTY AND CASUALTY INSURANCE COMPANY, Dist. Court, SD Illinois 2012 - Google Scholar:

State Farm has won summary judgment in a coverage case.  The plaintiffs purchased homeowners insurance and then made the mistake of moving out to a mobile home.  The residence sustained fire damage and they submitted a claim to State Farm, which denied coverage.

The District Court agreed with State Farm and granted summary judgment.  Because the insurance contract limited State Farm's obligation to insure a "residence," plaintiff's had no claim.

This type of result occurs all the time in the world of insurance coverage - plaintiff buys insurance only to realize that when there is a claim, he has no insurance.

Edward X. Clinton, Jr.


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Insured Prevails In Coverage Fight With Progressive Insurance

PROGRESSIVE DIRECT INSURANCE COMPANY v. JUNGKANS, Ill: Appellate Court, 2nd Dist. 2012 - Google Scholar:

This case was recently decided by the Illinois Appellate Court, Second District.

The defendant, Kyle Jungkans, was seriously injured in a motor vehicle accident, while he was riding in a car driven by Billy Watts.

Jungkans settled with State Farm, Watts' insurer, for the policy limits, then sought underinsured motorist coverage under his policy with Progressive Direct.  Progressive denied coverage on the basis that Jungkans' failure to give notice to Progressive before the settlement violated the cooperation clause.  The trial court granted Progressive summary judgment, but the Appellate Court reversed.

Jungkans conceded that he violated the Progressive policy by failing to give notice to Progressive.  However, Progressive was not prejudiced by the settlement because Watts was judgment proof at the time of the accident.  Moreover, Progressive was aware of its subrogation rights before Jungkans entered into the settlement with State Farm.

The Court explains:

As to the knowledge issue:

"¶ 19 We agree with defendant that there is no genuine dispute that State Farm knew in advance of the settlement that plaintiff had a subrogation right against Watts and that this was sufficient to defeat the invocation of the cooperation clause. Bell said plainly that she knew in advance of plaintiff's subrogation right. Although this statement was a conclusion, it hardly required elaboration; Bell would have known whether she had been aware of plaintiff's subrogation right, a routine fact of insurance litigation. Under the case law, that was sufficient. Thus, there is no genuine issue of fact as to whether plaintiff retained its subrogation right, especially as, per Richter, it was ultimately plaintiff's burden to prove that defendant's settlement cut off that right."


As to the prejudice issue, there was no prejudice because the defendant in the underlying case was judgment proof.


"¶ 25 Numerous jurisdictions have held that an insurer may not rely on a technical violation of a cooperation clause to deny coverage if the tortfeasor with whom the insured settled was judgment-proof."


The opinion cites the many cases siding with the insured.


Edward X. Clinton, Jr.


www.clintonlaw.net



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Contract Law - Personal Guaranty Enforced in Illinois

The case is a routine collection case for $5,000.  The legal issue is important: the enforceability of a personal guaranty.

TH Davidson and Company v. Eidola Concrete, LLC and Thomas E. Kilbride, 2012 Il App (3d) 110641.

The case originated in small claims court.  Plaintiff sought to recover on a line of credit for $5,600.80.  The trial court entered judgement in that amount against Plaintiff, and against Kilbride, who signed a personal guaranty.

Kilbride appealed on the ground that his guaranty was limited to $1,000.  He based this argument on the original credit application, which he signed as a personal guarantor.  The original credit application was for $1,000.  Later, the parties, through a course of dealing, increased the credit limit to $5,600.

The trial court and the appellate court found that the guaranty was a continuing guaranty.  The opinion at Paragraph 11 quotes the Restatement (Third) of Suretyship and Guaranty § 16: "A continuing guaranty is a contract pursuant to which a person agrees to be a secondary obligor for all future obligations fo the principal obligor to the obligee."  Because the parties contemplated a "future course of dealing" the guaranty was for the maximum amount of credit extended.

Kilbride could have also limited the guaranty by inserting express language into the credit application.  He did not.  Therefore, the guaranty was unlimited.

Comment: clients should never sign a continuing guaranty.  Limiting language should always be inserted.  That being said, my experience is that clients sign these documents all the time and do not consider the consequences until it is too late.

Edward X. Clinton, Jr.

www.clintonlaw.net

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Illinois Court Rejects Challenge To Written Settlement Agreement

Schrager v. Bailey, Ill: Appellate Court, 1st Dist., 1st Div. 2012 - Google Scholar:

This is an odd case in which the plaintiff settled with the defendant, signed a written settlement agreement and release, and then sued again.

The court dismissed the claims in the second case.

The court described the settlement in case No. 1 as follows:

"¶ 5 In 2002, plaintiff Schrager filed a legal malpractice suit against the defendants and attorney James T. Hynes.^[1] The suit alleged that the defendants committed legalmalpractice when they took a voluntary dismissal of a federal suit they had filed on plaintiff Schrager's behalf. The suit was refiled in the circuit court of Cook County only to be dismissed with prejudice based on the single-refiling rule.

¶ 6 In June 2006, plaintiff Schrager agreed to dismiss the malpractice suit and settle his claim against the defendants based on their representation that they had relied on advice from attorney Hynes in deciding to dismiss the federal suit. As part of the settlement negotiations, plaintiff Schrager requested affidavits from the defendants to support their representation. The Agreement provided in pertinent part as follows:

"13. NO CONDITIONS PRECEDENT: Each of the parties to this Agreement acknowledges that no conditions precedent and no promise, inducement, or agreement not stated herein has been made to them in connection with this Agreement except that it is expressly agreed and understood that this Agreement is contingent upon the entry of an order granting Defendants' motion for Good Faith Finding in the Lawsuit.

14. INTEGRATION AND NO RELIANCE CLAUSE//AMENDMENT: This Agreement and the exhibits attached hereto constitute the entire understanding and agreement of the parties hereto and supercede any and all other written or oral agreements, representations or understandings. No representations, inducements, promises or agreements, oral or written have been made by SCHRAGER or Releasees or anyone acting on behalf of Releasees which are not contained herein, and any prior letters of intent, agreement, promises, negotiations, statements or representations not expressly set forth in this Agreement have not been relied upon in any respect and shall be of no force or effect. SCHRAGER agrees and warrants that in entering into this Agreement, SCHRAGER is solely relying upon the information contained in this Agreement and not in reliance upon any other information. No modification, amendment or alteration to this Agreement shall be effective unless in a writing signed by the Parties hereto."

The Agreement also contained an acknowledgment by the parties that they received independent legal advice as to the "effect and import" of its provisions. By June 30, 2006, the Agreement had been signed by all parties.

¶ 7 On July 6, 2006, the circuit court found the Agreement had been made in good faith and dismissed plaintiff Schrager's claims against the defendants."

...

The court holds: "¶ 34 We conclude that the integration/nonreliance clause in the Agreement precluded plaintiff Schrager from proving justifiable reliance, which was fatal to his cause of action for fraud."

I have printed the clauses in the well-drafted settlement agreement to show how good lawyers can draft such clauses to avoid future claims.

Edward X. Clinton, Jr.

www.clintonlaw.net

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Insurance Company Has No Duty To Defend Stranger Operating Insured's Car

MERCURY INSURANCE COMPANY OF ILLINOIS v. SMOROVSKY, Dist. Court, ND Illinois 2012 - Google Scholar:

The court granted summary judgment to the insurance company on the ground that the driver of the car, Smorovsky, did not have permission to use the vehicle.  The opinion does not explain how Smorovsky managed to get the car started, whether he had a key or whether the car had been stolen.  There is a hint that Smorovsky was a garage attendant where the car was garaged.

In any event, because he was not an insured under the policy, Smorovsky had no coverage and the insurance company had no duty to defend.

Edward X. Clinton, Jr.

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Insurance Coverage - Ohio Court Holds That Trial Court Should Not Have Considered Mediation Proceedings

Kuhn v. 21st Century Ins. Co., 2012 Ohio 2598 - Ohio: Court of Appeals, 5th Appellate Dist. 2012 - Google Scholar:


This is an insurance coverage case arising out of an auto accident.  The parties went to mediation.  The mediation was unsuccessful.  The trial court then granted the defendant's motion to dismiss the complaint.


Mediation is confidential and non-binding.  The trial court apparently relied on facts that it learned during the mediation and dismissed the complaint.  The Ohio Appellate court reversed: "We hold, under the circumstances presented in this case, the trial court committed reversible error in utilizing the mediation process as a means of considering matters outside of the pleadings in order to rule on appellee's motion to dismiss under Civ.R. 12(B)(6)."


Edward X. Clinton, Jr.

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Insurance Coverage - No Coverage Where Policy Lapses

This case is captioned Edward v. State Farm Insurance Company, 2012 Ill. App (1st) 112176.

Plaintiff brought suit against State Farm for breach of contract and specifically for failing to pay damages arising from an auto accident that occurred after the insurance policy lapsed and was cancelled for nonpayment.  State Farm brought a declaratory judgment counterclaim alleging that there was no duty to cover an accident that occurred when the policy was not in force.

While this would appear to be an obvious defense to a payment, the Circuit Court of Cook county found that State Farm had "waived" its defense to coverage by reinstating the policy when the premium was eventually paid.  The Circuit Court, Judge Pamela E. Hill Veal,  also found that State Farm acted in bad faith and awarded $50,000 in punitive damages.

State Farm refunded her the premium for the period when the policy was not in force.  State Farm reinstated the policy but refused to provide retroactive coverage.

The Appellate Court reversed on the ground that (a) plaintiff breached the contract by failing to pay the premium on time; (b) State Farm declined to offer retroactive coverage and did not waive its rights.  State Farm also provided a clear and unequivocal cancellation notice.

Comment: State Farm should not have had to go to the Appellate Court to have this decision reversed.

Edward X. Clinton, Jr.

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