Duty to Defend and Estoppel

In Economy Premier Assur. Co. v. Faith in Action of McHenry County, Reckamp, a volunteer for defendant/counterplaintiff, Faith In Action of McHenry County (FIA), was driving Matuszek to the hospital in Coral Township, Illinois. When he entered an intersection, Reckamp’s vehicle was struck by a dump truck which caused Matuszek to suffer fatal injuries. As executor of the estate, Matuszek’s son filed the underlying action against Reckamp and FIA.

The complaint alleged that at the time of the accident, Reckamp was the agent, employee, and servant of FIA. FIA had assigned Reckamp to transport Matuszek to the hospital because she was unable to drive. The complaint further alleged that Reckamp was negligent in operating the vehicle and, as a result, Matuszek suffered various injuries that caused her death.

FIA’s insurance (FNIC) denied coverage under its policy with FIA to defend or indemnify relating to the allegations of the complaint. FNIC quoted to portions of its policy in support of its determination, namely the “Non-owned and Hired Auto Liability (Coverage L)” section of its policy. FNIC stated that “[t]he police report confirms you were the owner and driver of the 1998 Olds involved in the accident on 9/2/2005”, therefore the exception to non-owned vehicles applied.

FNIC asserted that in the complaint Reckamp was identified as the owner of the vehicle in the accident and was operating that vehicle as the agent, employee, and servant of FIA and tendered its defense under Economy’s primary policy. FNIC stated that Economy owed the primary obligation under its Reckamp policy with limits of $250,000/$500,000 and an additional $2 million under an umbrella policy.

The court reviewed whether the insurer had a duty to defend. The insurer waited over 21 months after denying coverage to argue that the police accident report indicated the insured owned the vehicle, and insured’s personal automobile insurer admitted as much in response to insurer’s counterclaim for declaratory judgment. The court held that insurer had a duty to defend because insurer waited to seek declaratory judgment and there was no admission by insured or other conclusive proof that he owned vehicle to meet non-owned vehicle exception of insured’s policy and overcome potential for coverage in complaint. The court also held that FNIC was estopped from asserting defenses, including a claim that it was merely an excess insurer, for failure to timely seek declaration of rights. The court determined this based on the fact that  FNIC denied coverage but defended and sought declaratory action over 21 months after denial of coverage and only after insured filed declaratory action. Since the insurer was estopped, it could not find refuge in proposition that claim is covered by a co-insurer to avoid duty to indemnify.

Economy Premier Assur. Co. v. Faith in Action of McHenry County, 2013 IL App (1st) 112329-U, Not Reported in N.E.2d, 2013 WL 1227118, Ill.App. 1 Dist., 2013.

(Filed under Supreme Court Rule 23 and may not be cited as precedent by any party except in the limited circumstances allowed under Rule 23(e)(1))