Coverage Issue Severed from Injury
January 27, 2009
The 1st District Appellate Court recently held that a determination of a tort claimant's rights under an insurance policy issued to the underlying defendant, prior to judgment in the underlying case, does not violate Illinois' rule against direct actions against insurers, and that the homeowner's policy in question did not provide coverage for a claim based on the negligent modification of an automobile. State Farm Fire and Casualty Co. v. Perez, 2008 WL 5381959 (1st Dist. Dec. 23, 2008).
The tort claimant, Dalia Perez, was represented by Theisen & Roche of Wheaton. Dykema Gossett PLCC of Chicago represented the insurer, State Farm Fire & Casualty Co.
Perez was riding in a car driven by Oscar Baeza when he lost control of the vehicle and struck a tree. As the result of her injuries, Perez brought suit against Baeza. Baeza's car had automobile insurance coverage, but in addition Baeza was insured by a homeowner's policy issued by State Farm Casualty.
Perez' amended complaint alleged two counts against Baeza. Count I alleged that he negligently operated the vehicle while under the influence of alcohol. Count II alleged that he negligently modified or altered the seats in the vehicle and failed to warn his passengers of the dangers and defects of the modified seats and safety restraint system.
Baeza's automobile carrier accepted tender of the lawsuit, but State Farm Casualty denied coverage under the motor vehicle exclusion in the homeowner's policy. In June 2006 State Farm Casualty filed a complaint for declaratory judgment against Perez, Baeza and another person injured in the accident, seeking a declaration that it had no duty to defend or indemnify Baeza.
Perez filed an answer to the declaratory judgment action, denying that the exclusion applied to bar coverage. Baeza, however, failed to answer the complaint and a default judgment was entered against him.
Perez subsequently filed a motion for judgment on the pleadings, contending that the negligent modification claim (count II) was not excluded from coverage. State Farm Casualty filed a cross motion for judgment on the pleadings contending the contrary. The circuit court agreed with State Farm Casualty and entered judgment in its favor. Perez took this appeal.
In an opinion by Justice Joy V. Cunningham, the 1st District affirmed. Cunningham initially addressed Perez's standing and the appropriateness of determining her rights under the State Farm Casualty policy in the absence of Baeza and a judgment against him. She noted that, under Illinois law, an injured party's rights against an insurer vest at the moment of the accident, and that those rights cannot be defeated by the joint efforts of the insured and insurer.
The injured party, in other words, becomes a real party in interest. And, while the policy of the state prohibits direct actions by an injured party against an insurer before judgment has been rendered against its insured, such policy is not violated as long as the issue of coverage is effectively severed from any issue of the insured's liability and damages.
Here, said Cunningham, Perez's rights against State Farm Casualty vested at the time of the car accident and could not be defeated by Baeza's default. Because the issue of coverage is severed from the issue of Baeza's liability in the underlying personal injury lawsuit, Perez had standing to defend herself in the coverage action in which she was named as a necessary party and to seek a determination of her rights.
Cunningham then turned to the merits of the coverage issues. She noted that the homeowner's policy exclusion relied upon by State Farm Casualty excluded coverage for bodily injury arising out of the ownership, maintenance or use of a motor vehicle. Perez argued that the exclusion did not apply because the negligent modification claim did not allege bodily injury arising out of the ownership, maintenance or use of the motor vehicle, but rather that the negligent modification was wholly independent from Baeza's negligent operation.
Cunningham examined cases relied on by Perez and State Farm Casualty addressing claims involving vehicles but not necessarily arising out of the actual operation of the vehicles. One case relied on by State Farm Casualty was Northbrook Property & Casualty Co v. Transportation Joint Agreement, 194 Ill.2d 96, 741 N.E.2d 253 (2003), which involved coverage applicable to underlying litigation arising out of a train collision with a school bus.
One of the allegations against the school districts in Northbrook was that the bus route had been poorly planned, thereby resulting in the collision with the train and injuries. The policy in question excluded coverage for bodily injury arising out of the use or maintenance of motor vehicles, and the Illinois Supreme Court ultimately held that the exclusion applied. It found that the allegations concerning the negligent routes could not be said to be wholly independent of the negligent operation of the bus.
One of the cases relied upon by Perez, on the other hand, was Mount Vernon Fire Ins. Co. v. Heaven's Little Hands Day Care, 343 Ill.App.3d 309, 795 N.E.2d 1034 (1st Dist. 2003). That case involved an infant left unattended in a van for more than eight hours. The court held that policy exclusion for injuries arising out of the maintenance or use of an automobile did not apply, because the case involved nonvehicular conduct by day care center employees.
Perez also relied on United Services Automobile Ass'n v. Dare, 357 Ill.App.3d 955, 830 N.E.2d 670 (1st Dist. 2005), in which the court found that an exclusion applicable to the maintenance and use of automobiles, including trailers, did not apply to exclude coverage for the seller of a horse trailer that had a defective horse restraint, which allegedly caused injury to the buyer.
Still another case relied on by Perez was United States Fidelity & Guaranty Co. v. State Farm Mutual Automobile Ins. Co., 152 Ill.App.3d 46, 504 N.E.2d 123 (1st Dist. 1987), involving a child being transported in a station wagon operated by a day care center who was injured when a passenger door opened and she fell from the moving vehicle. The court found that an exclusion applicable to the maintenance and use of automobiles did not apply to a negligent supervision claim against the day care center, and that coverage therefore existed.
Cunningham ultimately found that Perez's claim was controlled by Northbrook. She said that Baeza's failure to warn Perez about the seat alterations only created a risk to Perez when the car was in motion and used as a mode of transportation. Since Baeza was driving the car at the time of the accident, his activity fell squarely within the ''use of a motor vehicle'' language in the State Farm Casualty policy exclusion.
Cunningham distinguished Dare on the ground that, in that case, the defective trailer had been sold by the insured to the underlying plaintiff, so that the claim was separate and distinct from the insured's ownership and maintenance of the trailer. She distinguished USF&G primarily on the ground that the injury could have occurred because of the negligent supervision even if the vehicle had not been negligently driven.
Here, by contrast, no matter how negligent Baeza was in modifying the seats, the injury could not have occurred without his negligent operation of the vehicle. The negligent modification claim therefore was based solely on the Baeza's alleged negligent use and operation of the car.
The court concluded that State Farm Casualty had no duty to defend or indemnify and affirmed.
