Court Construes Reciprocal Coverage Provision
December 02, 2009
The Illinois Supreme Court recently held that a "reciprocal coverage" provision in a commercial trucking insurance policy did not violate Illinois' public policy requiring insurance coverage for permissive users of vehicles. Zurich American Insurance Co. v. Key Cartage Inc., 2009 WL 3470846 (Ill. Oct. 2009).
One of the insurers involved in the appeal, Zurich, was represented by Christopher E. Kentra of Meckler, Bulger, Tilson Marick & Pearson. Another insurer, West Bend, was represented by Thomas F. Lucas of McKenna Storer.
Key Cartage and its employee/driver were operating a commercial truck that was involved in an accident that resulted in the death of the plaintiff's deceased.
Key Cartage had borrowed the truck from Rose Cartage, an owner-related business, for use in a new line of business. Rose Cartage was lessee of the truck from Franklin Truck, the owner of the vehicle.
Key Cartage and its driver were insured under a commercial truck policy issued by West Bend. Rose Cartage was insured under a policy issued by Zurich, and the truck itself was listed on Zurich's policy as an insured vehicle.
After the underlying lawsuit was filed against Key Cartage, a dispute arose between West Bend and Zurich regarding coverage for the accident.
West Bend provided a defense to Key Cartage and its driver, but asserted that Zurich had the primary duty to defend because Key Cartage and the driver were permissive users of the truck under the Zurich policy. Zurich disagreed and filed this declaratory judgment action.
In its complaint, Zurich acknowledged that, as a general matter, the policy issued to Rose Cartage insured permissive users of Rose Cartage's trucks, such as Key Cartage and its driver. Zurich contended, however, that coverage was precluded in this case based on the reciprocal coverage clause of the policy.
The reciprocal coverage clause provided that if the "trucker" to which coverage would otherwise be extended under the Zurich policy was not insured under a liability policy that extended coverage to the "owners" of the "autos" identified in the Zurich policy (while those "'autos are being used exclusively in the 'truckers' business and pursuant to operating rights granted to the 'trucker' by a public authority") then the Zurich policy would not extend coverage to the "trucker."
The parties were in general agreement that, under this clause, the Zurich poicy did not provide coverage to Key Cartage and its driver since the West Bend policy issued to Key Cartage did not provide coverage to Rose Cartage.
West Bend nevertheless maintained that the clause violated Illinois public policy, as expressed in the Financial Responsibility Law, 625 ILCS 5/7-317(B)(2), requiring an insurer of a vehicle to provide "omnibus coverage," meaning primary insurance to a permissive user of the vehicle.
Upon cross-motions for summary judgment, the circuit court entered summary judgment for Zurich, finding that Zurich had no defense obligation. The appellate court reversed, and Zurich then petitioned for leave to appeal, which was allowed.
In an opinion by Justice Anne M. Burke, the Supreme Court reversed.
Burke first addressed West Bend's alternative argument on appeal, that the language "being used exclusively in the 'truckers' business," as found in the reciprocal coverage clause, was ambiguous.
West Bend contended that the truck involved in the accident was not being used "exclusively" in Key Cartage's business because the truck was only being used by Key Cartage to explore a new line of business and remained under lease to Rose Cartage.
Burke disagreed, finding that Rose Cartage received no benefit from the truck while it remained under Key Cartage's control. The "used exclusively" condition therefore was met.
Burke then took up West Bend's main argument, going to the lack of "omnibus coverage." The argument was based largely on State Farm Mutual Automobile Insurance Co. v. Universal Underwriters Group, 182 Ill. 2d 240, 695 N.E.2d 848 (1998), which addressed whether the omnibus coverage requirement extended to car dealerships under section 7-601(a) of the Financial Responsibility Law.
That section imposes a mandatory liability insurance requirement but does not specify "omnibus coverage." The Supreme Court nevertheless concluded in Universal that section 7-317(b)(2)'s omnibus coverage requirement applied to section 7-601(a).
Here, however, Burke distinguished Universal on the ground that it did not involve commercial trucking insurance policies, which are governed by the Commercial Transportation Law, 625 ILCS 5/18c-4902.
If section 7-317 were construed to apply to section 18c-4902, said Burke, then a conflict would arise in the legislation, for the Illinois Department of Insurance has final approval of insurance policies under section 7-317, while the Illinois Commission has approval authority for insurance issued to commercial truckers.
Burke therefore concluded that the omnibus coverage requirement of section 7-317 did not apply.
She also rejected the appellate court's concern about persons injured by permissive drivers of commercial trucks who failed to have insurance coverage. Burke said the concern was not well-founded because, by its own terms, the reciprocal coverage provision only applied where the permissive use of the truck was "pursuant to operating rights granted … by a public authority."
Since operating rights are granted only where the trucker has insurance coverage, the reciprocal provision would not be effective in the absence of such coverage.
The Supreme Court therefore reversed the decision of the appellate court and affirmed the decision of the circuit court.
Justice Rita B. Garman filed a concurring opinion, stating that she agreed with the result but that she did not think it necessary to re-examine the relationship between section 7-317 and other parts of the Illinois Vehicle Code, particularly the Commercial Transportation Law.
