November 2012 Case Notes & Comments

“Charity is no substitute for justice withheld.” ~ Saint Augustine

MONTHLY QUIZ: Tortfeasor, who negligently crashes into motorcycle being driven by Insured-Wife, has only $250,000 in automobile insurance coverage. Though tortfeasor’s insurance pays the policy limits, Insured’s damages exceed $250,000 and Insureds seek to collect underinsured motorist (UIM) coverage from their Insurer. Insureds claim a total UIM limit of $500,000, since they have five separate policies with Insurer, each with a $100,000 liability limit. Insurer claims that anti-stacking clause prohibits the aggregation, or “stacking”, of the policies. Are anti-stacking provisions valid in Illinois? Who is right? You be the judge. (Answer below)


ILLLINOIS SUPREME COURT ABANDONS NULLITY RULE: City’s department of transportation issued Plaintiff-Corporation several notices for violating trash dumpster ordinances. The notices required Corporation to appear at administrative hearings; and, when the company failed to appear at the hearings, Corporation was defaulted. Corporation’s president filed motions to set aside the default judgments, alleging that the Corporation did not receive notice of the hearings. City’s administrative law officer denied Corporation’s motions to set-aside and Corporation’s President “appealed” by filing four blank pro se complaints for administrative review with the Trial Court. Though a licensed Attorney subsequently filed appearances on behalf of Corporation, City moved to dismiss the complaints as null and void since Corporation’s President, a non-attorney, drafted and filed the complaints for Corporation. Attorney then filed motions for leave to file amended complaints, arguing that the lack of an attorney’s signature was a technical defect that could be cured by filing amended complaints, signed by Attorney. The Trial Court dismissed Corporation’s complaints, reasoning that pleadings filed by nonattorneys on behalf of a corporation are null and void. However, the Appellate Court refused to apply a long-standing automatic nullity rule and reversed. In affirming the Appellate Court, a divided Illinois Supreme Court held that a per se nullity rule is unreasonable and that instead, Illinois courts should consider the circumstances of the case and the facts before determining whether dismissal is proper. Further, the high court held that sanctions for violating the rule against the unauthorized practice of law “should be proportioned to the gravity of the violation’s consequences.”  Downtown Disposal Services, Inc. v. The City of Chicago, No. 2012 IL 112040 (Nov. 1, 2012)


SUIT LIMITATIONS PERIOD FOR UIM CLAIMS UPHELD: Illinois insured was involved in an accident in Wisconsin with an uninsured motorist. Illinois Supreme Court finds that, even though Wisconsin has a three-year statute of limitations period for personal injury suits resulting from an accident, auto Policy's two-year contractual limitation period to invoke arbitration was nevertheless enforceable. In Illinois, parties to a contract may agree to a shortened contractual limitation period to replace a statute of limitations, so long as it is reasonable. Further, two-year suit limitations period did not violate Illinois public policy. Country Preferred Ins. Co. v. Whitehead, 2012 IL 113365 (Oct. 18, 2012)


NO DUTY TO INDEMNIFY INSURED’S VIOLATIONS OF TELEPHONE CONSUMER PROTECTION ACT: Insured-Hotel sent thousands of junk faxes and was sued in a class-action complaint seeking injunctive relief and statutory damages of $500 per fax. Insured carried a commercial general liability Policy providing coverage for “those sums that the [I]nsured becomes legally obligated to pay as damages because of [property damage or advertising injury].” Insured tendered its defense, but Insurer refused to defend and denied coverage on grounds that claim was outside Policy. Insurer declined to settle for the Policy limits and Insured subsequently reached a $5 million class-wide settlement. Class-Plaintiffs subsequently filed a garnishment action against Insurer - and Insurer filed a declaratory action. In the declaratory action, the trial Court found that Insurer had a duty to defend and entered judgment in favor of the class for the entire settlement amount, plus interest. However, the appellate court reversed, reasoning that statutory damages under the TCPA are penal in nature and, as penalties, do not constitute “damages” covered by the Policy. Columbia Casualty Company v. Hiar Holdings, al., No. 07SL-CC00520, No. ED 98253 (MO. App. E.D. Oct. 23, 2012) COMPARE / CONTRAST: Insurance Company v. Xdata Solutions 2011 IL App (1st) 102769 (1st Dist. Sept. 30, 2011)


DUTY TO DEFEND: Customer was injured in an explosion when he lit a cigarette in the public alley behind gas Station while fuel was being transferred to Station’s underground tanks. Customer sued, among others, Station and Oil Company. Oil Company, as an additional insured of Station, tendered the defense of the action to Insurer. Insurer filed a declaratory action on the grounds that one endorsement to the policy limited coverage to Shell for “negligence in the granting of a franchise”, while a second endorsement limited coverage “to liability arising out of [Oil Company’s] operations … [or its] premises.” Finding the endorsements unclear and ambiguous, both the trial and appellate courts found that the allegations of the Customer’s complaint, which alleged the “direct” negligence of Oil Company, were potentially within the policy’s coverage. Pekin Insurance Company v. Equilon Enterprises LLC No. 2012 IL App (1st) 111529, (Nov. 9, 2012)
ANSWER TO QUIZ: Insurer is correct. The Illinois Insurance Code authorizes anti-stacking provisions: 215 ILCS 5/143a-2(5). Also, inclusion of proration clauses, designed to prevent other insurers from paying less than their fair share of a jointly covered loss, did not render the policies ambiguous. State Farm Mutual Automobile Insurance Company v. McFadden, 2012 IL App (2nd) 110272 (Oct. 31, 2012)

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