Docket No. 108285.
IN THE
SUPREME COURT
OF
THE STATE OF ILLINOIS
WEST AMERICAN INSURANCE COMPANY, Appellee, v.
YORKVILLE NATIONAL BANK et al., Appellants.
Opinion filed September 23, 2010.
JUSTICE BURKE delivered the judgment of the court, with
opinion.
Chief Justice Fitzgerald and Justices Thomas, Kilbride, Garman,
and Karmeier concurred in the judgment and opinion.
Justice Freeman dissented, with opinion.
OPINION
The issue in this case is whether the insured violated its liability
insurance policy by failing to give timely written notice to the insurer
as specified in the policy, thereby relieving the insurer of its duties to
defend and indemnify. The appellate court held that the insured
breached the policy’s notice provision and was therefore not entitled
to coverage. 388 Ill. App. 3d 769. For the following reasons, we
reverse the appellate court.
BACKGROUND
On September 24, 2001, Sheryl Kuzma filed a defamation lawsuit
in the circuit court of Will County against Yorkville National Bank
(Yorkville) and its vice president, Bernard Wiegmann. Kuzma alleged
that Wiegmann uttered certain false statements in his official capacity
which damaged her professional reputation. At the time of the alleged
defamation in November 2000, Yorkville was covered by a
commercial general liability policy and commercial umbrella policy
(collectively, the Policy) issued by West American Insurance
Company (West American) for the period of September 17, 2000, to
September 17, 2001. West American is owned by the Ohio Casualty
Insurance Company (Ohio Casualty). The Policy lists the Zeiter-
Dickson Insurance Agency (Zeiter-Dickson) as the agent. Zeiter-
Dickson, at all relevant times, was an approved insurance agent of
Ohio Casualty and West American.
On March 9, 2004, West American filed a declaratory judgment
action denying coverage under the Policy based on late notice.
Yorkville did not submit written notice of a claim for coverage until
January 19, 2004, approximately 27 months after the defamation
lawsuit was filed. The Policy’s notice provision states:
“SECTION IV–COMMERCIAL GENERAL LIABILITY
CONDITIONS
***
2. Duties in the Event of Occurrence, Offense, Claim or
Suit.
***
b. If a claim is made or ‘suit’ is brought against any
insured, you must:
(1) Immediately record the specifics of the claim
or ‘suit’ and the date received; and
(2) Notify us as soon as practicable.
You must see to it that we receive written notice of
the claim or ‘suit’ as soon as practicable.
c. You and any other involved insured must
(1) Immediately send us copies of any demands,
notices, summonses or legal papers received in
connection with the claim or ‘suit’ ***.”
In its answer, Yorkville alleged that West American received oral
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notice of the Kuzma suit on several occasions prior to receiving
written notice on January 19, 2004. Yorkville contended that the oral
notices to West American constituted “actual notice” triggering West
American’s duty to provide coverage.
At a bench trial, James Liggett, Yorkville’s president, testified
that in late 2001 or early 2002, he met with Richard Dickson, the
Zeiter-Dickson insurance agent who had placed the Policy with
Yorkville. Dickson was an agent for Zeiter-Dickson until 2003.
Liggett told Dickson that Yorkville was “involved in a defamation
lawsuit in Ottawa,” that it was a “he said/she said sort of thing,” and
that it was not covered by the bank’s directors & officers (D&O)
insurance policy. According to Liggett, he asked Dickson if the
Zeiter-Dickson Policy would cover the suit. Dickson replied,
“Probably not. Most all of those policies are written the same
anyway.” Dickson did not testify at trial.
Liggett testified that he met with Joel Ottosen, another West
American agent, sometime during the same time period. Liggett
stated he told Ottosen that Yorkville was involved in a defamation
liability case and asked if the Policy would cover it. According to
Liggett, Ottosen gave “basically the same response” as Dickson,
stating that the Policy probably would not cover the lawsuit. In his
testimony, Ottosen denied having any conversation with Liggett about
the defamation lawsuit before January 16, 2004. Ottosen testified that
he first learned of the lawsuit on January 15, 2004, when Weigmann
contacted him to find out whether his homeowner’s policy covered
the suit.
The defamation lawsuit was discussed at three meetings of the
Yorkville board of directors in 2002. Dickson was in attendance at
the meetings because he was a member of the board. According to the
minutes, at the September meeting, Liggett reported to the board that
“Attorney Cheryl Kuzman” was suing Yorkville and Wiegmann for
allegedly derogatory comments made by Weigmann. At the
November meeting, Liggett reported that expenses were high at the
Ottawa bank branch as a result of legal fees related to the Kuzma
litigation. Finally, at the December meeting, the board reviewed and
approved the minutes from the November meeting.
In January 2004, Yorkville was advised by an unrelated insurance
company that the Policy “should cover” the defamation lawsuit.
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Liggett informed Ottosen of the lawsuit, who submitted the requisite
claim forms and copy of the complaint to West American on January
19, 2004. The parties stipulated that on January 22, 2004, Carolyn
Maher, a litigation specialist for West American, informed counsel
for Yorkville that “there was insurance coverage for most of the
allegations in the Kuzma complaint.”
The trial on the Kuzma suit was set for March 15, 2004. On
March 5, 2004, West American decided to deny coverage under the
Policy based on late notice. Yorkville later settled the case with
Kuzma on July 28, 2004, for $1.75 million. West American did not
participate in any trial proceedings or settlement negotiations.
The circuit court found for Yorkville and against West American
in the declaratory judgment action and awarded stipulated damages
in the amount of $1,982,778.78. The court found that the
conversation between Liggett and Dickson took place as described by
Liggett and was “unrefuted.” The court found that Liggett and
Ottosen had a “passing conversation” in the bank, but the court made
no finding as to the content of that conversation. Based on the
conversation between Liggett and Dickson and the reports of the
board meetings, the trial court found that West American received
actual notice of the lawsuit in 2001 or 2002. The court further found
that the written notice in 2004 was given within a reasonable time
because Yorkville was told in 2001 or 2002 that the lawsuit was not
covered.
The appellate court affirmed in part, reversed in part, and
remanded.1 388 Ill. App. 3d 769. Citing to Country Mutual Insurance
Co. v. Livorsi Marine, Inc., 222 Ill. 2d 303 (2006), the appellate court
held that Yorkville breached the Policy’s notice clause as a matter of
law by waiting until 27 months after the lawsuit was filed to submit
a written claim for coverage and a copy of the complaint. The court
found the late notice was unreasonable in light of the fact that
1
On cross-appeal to the appellate court, Yorkville argued that the circuit
court erred in determining that Yorkville was not entitled to sanctions under
section 155 of the Insurance Code (215 ILCS 5/155 (West 2004)). The
appellate court affirmed. 388 Ill. App. 3d at 781. Yorkville has not appealed
that part of the appellate court’s judgment.
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discovery had closed and the case was scheduled to proceed to trial
in eight weeks. The court held that actual notice had “no bearing” on
the issue of whether Yorkville breached the written-notice provision.
To hold that actual notice “trumps” the plain language of the policy,
the court found, would “render the policy’s written notice provision
meaningless.” 388 Ill. App. 3d at 777. Justice Schmidt specially
concurred, noting that there was no reason not to enforce the contract
language, which had been approved by the Department of Insurance.
Justice Lytton concurred in part and dissented in part, contending that
West American had a duty to defend and indemnify Yorkville
pursuant to Cincinnati Cos. v. West American Insurance Co., 183 Ill.
2d 317 (1998), since it had received actual notice of the suit. 388 Ill.
App. 3d at 783-84 (Lytton, J., concurring in part and dissenting in
part). We granted Yorkville’s petition for leave to appeal to this court.
210 Ill. 2d R. 315. We granted leave to the Complex Insurance
Claims Litigation Association to file a brief on behalf of West
American as amicus curiae.
ANALYSIS
In construing an insurance policy, we must ascertain and give
effect to the intentions of the parties, as expressed in the policy
language. Country Mutual Insurance Co. v. Livorsi Marine, Inc., 222
Ill. 2d 303, 311 (2006). The policy must be construed as a whole,
giving effect to every provision. Country Mutual, 222 Ill. 2d at 311.
Unambiguous words in the policy are to be given their plain,
ordinary, and popular meaning. Country Mutual, 222 Ill. 2d at 311.
Where the policy language is ambiguous, courts are to construe the
policy liberally in favor of coverage. Country Mutual, 222 Ill. 2d at
311.
Insurance policy notice provisions impose valid prerequisites to
insurance coverage. Country Mutual, 222 Ill. 2d at 311. The policy
language in the notice provision at issue states that an insured must
“see to it that we receive written notice of the claim or ‘suit’ as soon
as practicable.” A policy provision requiring notice “as soon as
practicable” means notice must be given “within a reasonable time.”
Country Mutual, 222 Ill. 2d at 311, quoting Barrington Consolidated
High School v. American Insurance Co., 58 Ill. 2d 278, 281 (1974).
Whether notice has been given within a reasonable time depends on
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the facts and circumstances of each case. Country Mutual, 222 Ill. 2d
at 311-12. An insured’s breach of a notice clause in an insurance
policy by failing to give reasonable notice will defeat the right of the
insured to recover under the policy. Country Mutual, 222 Ill. 2d at
312, citing Simmon v. Iowa Mutual Casualty Co., 3 Ill. 2d 318, 322-
23 (1954).
The timeliness of an insured’s notice to its insurer generally is a
question of fact for the trier of fact. Northbrook Property & Casualty
Insurance Co. v. Applied Systems, Inc., 313 Ill. App. 3d 457, 465
(2000); University of Illinois v. Continental Casualty Co., 234 Ill.
App. 3d 340, 363 (1992). A reviewing court should overturn a trial
court’s factual findings only if they are against the manifest weight of
the evidence. Addison Insurance Co. v. Fay, 232 Ill. 2d 446, 452
(2009). The following factors may be considered in determining
whether notice to an insurer has been given within a reasonable time:
(1) the specific language of the policy’s notice provision; (2) the
insured’s sophistication in commerce and insurance matters; (3) the
insured’s awareness of an event that may trigger insurance coverage;
(4) the insured’s diligence in ascertaining whether policy coverage is
available; and (5) prejudice to the insurer. Country Mutual, 222 Ill. 2d
at 313.
The parties agree that Yorkville sent written notice of the
defamation lawsuit and a copy of the complaint on January 19, 2004,
approximately 27 months after the underlying lawsuit was filed. The
circuit court held that the 27-month delay was reasonable under the
facts and circumstances in this case. The appellate court concluded
that Yorkville breached the notice clause “as a matter of law.” 388 Ill.
App. 3d at 777. We hold that the trial court’s finding was not against
the manifest weight of the evidence.
Under the first Country Mutual factor, the specific language in the
Policy’s notice provision does not aid in our reasonableness analysis
because it does not identify a specific time frame for giving notice.
Instead, it requires Yorkville to “see to it that [West American]
receive written notice of the claim or ‘suit’ as soon as practicable”
and to “[i]mmediately send us copies of any demands, notices,
summonses, or legal papers received in connection with the claim or
‘suit.’ ” The term “immediate,” in the context of insurance policy
notice provisions, has been interpreted in a similar manner to the
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phrase “as soon as practicable.” See Zurich Insurance Co. v. Walsh
Construction Co. of Illinois, Inc., 352 Ill. App. 3d 504, 512 (2004)
(“ ‘Immediate’ in this context ‘has been uniformly interpreted to
mean within a reasonable time, taking into consideration all the facts
and circumstances’ ”), quoting Kenworthy v. Bituminous Casualty
Corp., 28 Ill. App. 3d 546, 548 (1975).
The second factor mentioned by Country Mutual is the insured’s
sophistication. Yorkville is a bank presumed to be sophisticated in the
areas of commerce and insurance. Accordingly, this factor weighs in
favor of finding that Yorkville’s delay in sending written notice was
unreasonable.
Next, we consider the insured’s awareness of an event which may
trigger insurance coverage. Liggett testified that he learned about the
Kuzma matter in November 2000, when Weigmann informed him
that Kuzma complained about defamatory remarks made by
Weigmann. Liggett advised the bank’s attorney that he would
investigate the matter because Kuzma was “threatening a suit with the
bank.” Two weeks later, Liggett telephoned Kuzma to inform her that
he had checked with the parties involved and that none of the people
at the meeting felt that Weigmann had behaved inappropriately.
Liggett then heard nothing from Kuzma for 10 months until Kuzma
filed her lawsuit in September 2001. Thus, Yorkville was aware in
November 2000 of the potential for a lawsuit and aware in September
2001 that a lawsuit had been filed. This factor also weighs on the side
of unreasonableness.
With regard to the insured’s diligence in ascertaining whether
coverage is available, a lengthy delay in providing notice is not an
absolute bar to coverage provided the insured’s reason for the delay
is justifiable under the circumstances. See Northbrook Property &
Casualty Insurance Co. v. Applied Systems, Inc., 313 Ill. App. 3d 457,
465 (2000); McFarlane v. Merit Insurance Co., 58 Ill. App. 3d 616,
619 (1978). Courts have recognized that an insured’s reasonable
belief of noncoverage under a policy may be an acceptable excuse for
the failure to give timely notice, even where the delay is lengthy. See,
e.g., Allstate Insurance Co. v. Carioto, 194 Ill. App. 3d 767, 780
(1990) (2 ½-year delay excused because 19-year-old insured could
not have reasonably known that the occurrence would have been
covered by his mother’s homeowner’s policy); Grasso v. Mid-
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Century Insurance Co., 181 Ill. App. 3d 286, 290 (1989) (two-year
delay excused because insured did not reasonably believe that an
accident in her boyfriend’s Jeep was covered by her father’s excess
coverage insurance policy); Brotherhood Mutual Insurance Co. v.
Roseth, 177 Ill. App. 3d 443, 449 (1988) (two-year delay excused
because insureds did not reasonably believe that an accidental
shooting which occurred outside their home would be covered by
their homeowner’s policy). Whether the insured, acting as a
reasonably prudent person, believed the occurrence or lawsuit was not
covered by the policy is a question of fact, which we review under the
manifest weight standard. Farmers Automobile Insurance Ass’n v.
Hamilton, 64 Ill. 2d 138, 142-43 (1976).
Liggett testified that in “late 2001 or early 2002,” he spoke with
Dickson, the West American insurance agent who had placed the
Policy with Yorkville. During an informal meeting at the bank,
Liggett told Dickson “that we were involved in this defamation
lawsuit in Ottawa. That it was kind of a he said/she said sort of thing
and the D&O insurance didn’t cover that type of suit.” When Liggett
asked Dickson whether the West American Policy covered the suit,
Dickson replied, “Probably not. Most all of those policies are written
the same anyway.” Dickson did not ask Liggett for a copy of the
complaint, nor did he offer to verify whether a complaint for
defamation was covered under the Policy. The trial court found that
it was “undisputed” that the conversation between Liggett and
Dickson took place as described by Liggett because Dickson did not
testify at trial.
The trial court found that Liggett’s conversation with Dickson,
coupled with the mention of the lawsuit at board meetings, “tips in
favor of the insured as to diligence” and thus the delayed written
notice was reasonable. That finding was not against the manifest
weight of the evidence. After being informed by its agent that the
Policy probably did not cover the lawsuit, Yorkville reasonably
believed that sending written notice to its insurer would be futile. It
was not until January 2004 that Yorkville discovered the lawsuit was
covered by the Policy. At that time, Yorkville promptly sent written
notice to West American. A reasonably prudent party in the position
of the insured would not have continued to pursue coverage under the
policy having been informed by its agent that the policy afforded no
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coverage.
Finally, we consider whether West American suffered prejudice
as a result of Yorkville’s written notice in January 2004. See Country
Mutual, 222 Ill. 2d at 317 (“the presence or absence of prejudice to
the insurer is one factor to consider when determining whether a
policyholder has fulfilled any policy condition requiring reasonable
notice”). No testimony was presented at trial as to whether West
American was prejudiced by the delay in receiving written notice.
The trial court further found that there was no evidence that West
American investigated the defamation complaint or made any efforts
to delay trial during the two months between receiving written notice
and the scheduled trial date.
Moreover, the trial court held that West American received actual
notice of the lawsuit in late 2001 or early 2002, within a few months
of the lawsuit being filed and approximately two years before the case
was scheduled for trial. Contrary to the appellate court’s statement
that actual notice has “no bearing” on whether notice was given
within a reasonable time, actual notice to an insurer is relevant to
whether the insurer has been prejudiced by a delay in receiving
written notice as specified by the policy. “[W]here the insurance
company has actual notice of the loss or receives the necessary
information from some other source, there is no prejudice to the
insurer from the failure of the insured to give notice of the claim.”
McLaughlin v. Attorneys’ Title Guaranty Fund, Inc., 61 Ill. App. 3d
911, 917 (1978) (citing Wehner v. Foster, 331 Mich. 113, 117, 49
N.W.2d 87, 89 (1951), and United States Fidelity & Guaranty Co. v.
Church, 107 F. Supp. 683, 689 (N.D. Cal. 1952)).
An insurance company is deemed to have “actual notice” of a
lawsuit where it has sufficient information to locate and defend the
suit. Cincinnati Cos. v. West American Insurance Co., 183 Ill. 2d 317,
329 (1998); Progressive Insurance Co. v. Universal Casualty Co.,
347 Ill. App. 3d 10, 22 (2004); Federated Mutual Insurance Co. v.
State Farm Mutual Automobile Insurance Co., 282 Ill. App. 3d 716,
726 (1996). “[I]n order to have actual notice sufficient to locate and
defend a suit, the insurer must know both that a cause of action has
been filed and that the complaint falls within or potentially within the
scope of the coverage of one of its policies.” Cincinnati Cos., 183 Ill.
2d at 329-30; Employers Insurance of Wausau v. Ehlco Liquidating
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Trust, 186 Ill. 2d 127, 143 (1999).
The trial court held that Liggett’s “in passing” conversation with
Dickson as well as the reports at the board meetings provided West
American with sufficient information to “locate and defend” the
defamation lawsuit. We agree. Through its authorized agent, the
insurer knew both: (1) that a lawsuit had been filed against its
insured; and (2) that the defamation suit potentially fell within the
scope of coverage of the Policy. Although no details were given as to
when the alleged defamation took place or where the lawsuit was
filed, Liggett conveyed that the bank had been sued for defamation
and that the alleged events took place in Ottawa, Illinois. Dickson
was the authorized agent who had placed the West American Policy
for Yorkville and thus should have been aware that the Policy
provided coverage for defamation. West American was put on notice
at an early stage in the litigation that Yorkville was a defendant in a
lawsuit that was potentially covered under the policy. At the very
least, the agent could have followed up with Yorkville by requesting
to see a copy of the complaint before advising it that the lawsuit
probably was not covered.
After considering all relevant factors, we find that, under the
circumstances in the present case, Yorkville’s written notice of the
lawsuit to West American was given within a reasonable time and did
not violate the notice provision in the Policy. Therefore, we reverse
the appellate court’s judgment that Yorkville is not entitled to
coverage and affirm the circuit court’s finding that West American
had a duty to provide coverage under the Policy.
CONCLUSION
For the foregoing reasons, we reverse the judgment of the
appellate court and affirm the judgment of the circuit court.
Appellate court judgment reversed;
circuit court judgment affirmed.
JUSTICE FREEMAN, dissenting:
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I disagree with today’s opinion on several levels. Although the
majority initially sets forth a framework within which to analyze the
notice provisions of the insurance policy issued by West American to
Yorkville, it neither applies that framework nor construes those
provisions. Instead, my colleagues depart from our well-settled rules
of insurance policy construction and analyze this appeal in a manner
which tacitly undercuts our precedent and will engender confusion for
the bench and bar. In addition, the majority unduly expands the
concept of “actual notice” absent explanation or reason for doing so.
Accordingly, I dissent.
BACKGROUND
This dispute has its genesis in an underlying defamation action
brought by Sheryl H. Kuzma (Kuzma) against Yorkville National
Bank (Yorkville) and its vice president, Bernard Wiegmann.2 Kuzma
filed her complaint on September 24, 2001, in the circuit court of
Will County. 3
Kuzma, an attorney, sued Wiegmann in his capacity as an agent
of Yorkville, for making false and defamatory statements about her
in November 2000 to a group of local businessmen in connection
with her representation of a client. A jury trial took place in March
2004, shortly after West American filed the declaratory judgment
action that is the subject of this appeal. The jury returned a $2.2
million verdict in favor of Kuzma and against Yorkville and
Wiegmann. The parties subsequently settled for the reduced amount
of $1.75 million. Based upon its belief that Yorkville had breached
the notice provisions of the insurance policy, West American did not
participate in either the trial proceedings or in the settlement
negotiations of the Kuzma action. Instead, West American filed the
2
The Kuzma action was also brought against an additional defendant,
James B. Clarage. Clarage, however, is not a party to the instant action.
3
I note that Will County is in the Twelfth Judicial Circuit, and its
courthouse is located in Joliet. The underlying occurrence took place in
La Salle County, which is in the Thirteenth Judicial Circuit, and its
courthouse is in Ottawa. The instant declaratory judgment action was also
filed in La Salle County.
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suit at issue today.
West American filed its declaratory judgment action on March 9,
2004, in the circuit court of La Salle County. West American attached
to its complaint a copy of the commercial general liability policy
issued by it to Yorkville, which required compliance with the
following notice provisions as a condition of coverage:
“SECTION IV–COMMERCIAL GENERAL LIABILITY
CONDITIONS
***
2. Duties In the Event of Occurrence, Offense, Claim or
Suit.
a. You must see to it that we are notified as soon as
practicable of an ‘occurrence’ or an offense which may
result in a claim. To the extent possible, notice should
include:
(1) How, when and where the ‘occurrence’ or
offense took place;
(2) The names and addresses of any injured
persons and witnesses; and
(3) The nature and location of any injury or
damage arising out of the occurrence or offense.
b. If a claim is made or ‘suit’ is brought against any
insured, you must:
(1) Immediately record the specifics of the claim
or ‘suit’ and the date received; and
(2) Notify us as soon as practicable.
You must see to it that we receive written notice of
the claim or ‘suit’ as soon as practicable.
c. You and any other involved insured must:
(1) Immediately send us copies of any demands,
notices, summonses or legal papers received in
connection with the claim or ‘suit’;
(2) Authorize us to obtain records and other
information;
(3) Cooperate with us in the investigation or
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settlement of the claim or defense against the ‘suit,’
and
(4) Assist us, upon our request, in the enforcement
of any right against any person or organization which
may be liable to the insured because of injury or
damage to which this insurance may also apply.”
West American contended that Yorkville breached these notice
provisions by waiting nearly 28 months after a lawsuit was filed
against it before providing the insurer with written notice.
Accordingly, West American maintained that it had no obligation to
defend Yorkville in that action.
Declaratory Judgment Testimony
During the trial on West American’s declaratory judgment action,
Yorkville’s president, James Liggett, testified he first learned of the
Kuzma matter in November 2000 when Wiegmann stated that Kuzma
had accused him of making false statements about her. Liggett met
with Kuzma, whom he described as being “very upset.” After this
meeting, Liggett informed Yorkville’s attorney, Daniel Kramer, that
Kuzma was “threatening a suit with the bank.” After Liggett
“investigate[d]” Kuzma’s claims, he told her that he believed
Wiegmann had done nothing improper. Liggett next heard of this
matter 10 months later, when Yorkville and Wiegmann were named
as defendants in the Will County defamation lawsuit filed by Kuzma
in September 2001. Kramer, who was retained to defend the action,
asked Liggett for a copy of Yorkville’s directors and officers
insurance policy, which was issued by an insurer other than West
American. However, Kramer did not ask for a copy of the West
American policy. Liggett stated that as the litigation with Kuzma
progressed, Kramer “reported to us that he had contacted the
insurance companies.”
Liggett also testified regarding the alleged instances of “actual
notice” of the Kuzma lawsuit to West American. Liggett stated that
in “late 2001 or early 2002” he spoke with Richard Dickson, a
principal of the Zeiter-Dickson Insurance Agency, who had placed the
West American policy with Yorkville. According to Liggett, Dickson
had “stopped in [the bank] as he often did,” and in the midst of
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“discussions about other things” Liggett told Dickson “there was
something I needed to ask him about.” Liggett told Dickson that “we
were involved in this defamation lawsuit in Ottawa. That it was kind
of a he said/she said sort of thing and that the [director and officer]
insurance [policy] did not cover that type of suit. Then I asked if the
[West American] policies would cover the suit.” According to
Liggett, Dickson replied “probably not,” because “[m]ost all of those
policies are written the same way anyway.”
Liggett testified that he had a nearly identical, “in passing”
conversation with Joel Ottosen, another agent of Zeiter-Dickson,
during the same time frame–“late 2001, early 2002.” Ottosen
“stopped by” the bank and Liggett “told him I had an insurance
question I wanted to ask him about.” Liggett informed him that a
defamation lawsuit had been filed against Yorkville, that it was not
covered by the director and officer insurance, and asked whether the
West American policy would provide coverage. According to Liggett,
Ottosen replied with the exact words as had Dickson by stating
“probably not,” as “most all of those policies are written the same.”
Liggett did not direct Ottosen to notify West American as to the
existence of the Kuzma lawsuit.
Liggett further testified that two conference calls occurred
between himself, Ottosen and Kramer “in the second or third quarter
of 2002,” the first being made from his office and the second made
from Kramer’s office. Liggett told Ottosen that Kuzma’s lawsuit was
still pending, and asked again if the West American policy would
provide coverage, to which Ottosen again replied “probably not.”
According to Liggett, in January 2004 another insurance agency
opined that the West American policy should cover the Kuzma suit.
This prompted Liggett to call Ottosen on January 15, 2004, and ask
again about coverage under that policy. According to Liggett, Ottosen
stated, “ ‘I’ll report it’ or something to that effect.”
Finally, Liggett testified regarding meetings of Yorkville’s board
of directors during the fall of 2002. It was not until September 2002
that Liggett first informed Yorkville’s board about the Kuzma
litigation. Liggett stated that he prepared the minutes of the board
meetings, and he read into the record a portion of the minutes of the
September 2002 meeting which first referenced the Kuzma lawsuit:
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“President Liggett reported to the Board that Attorney
Cheryl Kuzman [sic] of Ottawa was suing the bank, Ben
Wiegmann and James Clarage in a counter suit ***. The basis
of the suit is alleged derogatory comments made by Mr.
Wiegmann *** [and the] remarks have been denied ***.”
Liggett also read a relevant portion of the minutes from the November
2002 Yorkville board meeting, which simply stated that there were
“additional legal expenses involved with the Clarage–Yorkville
National Bank–Kuzman [sic] law suit.” Liggett stated that Richard
Dickson was a member of the Yorkville board and was present at
both the September and November 2002 meetings. However,
insurance coverage of the Kuzma lawsuit was not discussed during
any of the board meetings.
Daniel Kramer’s testimony at trial often conflicted with that of
Liggett. Although Liggett told him in November 2000 that Kuzma
came to his office and that she was upset, he did not also tell him that
she threatened legal action. After Kuzma filed suit, Kramer asked
Liggett for copies of Yorkville’s insurance policies and was given
only the policy providing director and officer coverage. Kramer
tendered a defense to that insurer within 60 to 90 days after the bank
was sued, but coverage was declined because that policy had an
exclusion for intentional torts. Kramer was initially unaware of the
West American policy until Liggett mentioned it to him in early 2002.
At no time did Kramer independently contact West American about
coverage of the Kuzma matter.
Kramer’s testimony regarding the alleged instances of “actual
notice” also largely conflicted with that of Liggett. Kramer stated his
first contact with the Zeiter-Dickson agency was by way of
conference calls placed from Liggett’s office in 2001 or 2002. During
these calls, Liggett asked Ottosen whether Yorkville had coverage
under the West American policy. Ottosen asked Liggett for a copy of
the Kuzma complaint, and Liggett replied that he would get it to him
“right away.” Because they did not hear back from Ottosen, Liggett
and Kramer placed another call to him in late 2002 from Liggett’s
office. Ottosen stated he had forwarded the claim to West American
and that they would hear from a West American attorney. Kramer
testified that he prepared no documents to memorialize the
conversations with Ottosen.
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The testimony of both Liggett and Kramer further conflicted with
that of Ottosen, who testified on behalf of West American. Ottosen
did not receive calls from Liggett and Kramer in 2001 and/or 2002
regarding the Kuzma matter. Instead, his first discussion regarding
that action occurred on January 15, 2004, when Wiegmann called to
inquire whether his personal homeowner’s insurance policy could
provide coverage. Ottosen advised Wiegmann that if the lawsuit arose
in the course of his employment as Yorkville’s vice president, it was
likely that he was covered under the West American policy. Ottosen
called Liggett the following day and told him that if the lawsuit arose
out of Wiegmann’s bank employment it should be covered. When
Liggett replied, “they say we are not covered,” Ottosen asked who
informed him that there was no coverage under the West American
policy. Liggett responded: “I don’t know. Kramer is handling it.”
Ottosen asked Liggett to speak with Kramer, obtain that information,
and then contact him again. After calling Liggett, Ottosen asked his
secretary to contact Kramer’s office to obtain a copy of the lawsuit,
and he then looked up Yorkville’s policy in the agency’s old files.
After concluding that there was potential coverage, he called Liggett
back and told him that although it would be a late submission, once
he received a copy of the Kuzma complaint he would submit a claim
to West American, which he did on January 19, 2004. Ottosen’s
testimony was supported by documentation of his actions in
connection with the filing of the claim.
Circuit Court’s Findings and Ruling
The circuit court found it undisputed that although Liggett was
aware of potential litigation from Kuzma in November 2000, Liggett
“satisfied himself that this was no big deal.” Therefore, he did not
notify West American of a potential claim at that time. When Kuzma
filed suit in September 2001, Liggett notified Kramer, who began the
defense. Yet, despite the insurance policy’s notice requirements, the
court found that a copy of Kuzma’s complaint was not tendered to the
Zeiter-Dickson agency or to West American.
The circuit court further found it undisputed that a conversation
between Liggett and Dickson took place at the bank. However, the
court determined that the “only contents of the conversation was that
there was a lawsuit in Ottawa, kind of a he said/she said thing on
-16-
defamation. No testimony as to when this defamation took place.
There was no copy of the complaint. There was no request for any of
that information. It was sort of an in passing conversation, do we have
any coverage on that.”
In addition, the circuit court found that information regarding the
Kuzma matter was presented to Yorkville’s board of directors on two
occasions, and both times Dickson was in attendance in his capacity
as a director. However, because the evidence consisted only of what
was set forth in the minutes, the court further found that “[t]he
minutes don’t contain any information about where the suit was filed,
when the incident allegedly took place, who the parties to the lawsuit
were.”
Finally, with respect to Liggett and Kramer’s testimony regarding
conversations with Ottosen, the court believed that “at some point
Mr. Liggett said something to Mr. Ottosen but the content of which
is very hard to determine, [as is] the context of when it was [said].”
The court, however, flatly rejected the testimony of Liggett and
Kramer that they participated in two conference calls with Ottosen,
finding that their statements were not credible and that these calls did
not take place. The court found support for this conclusion in the fact
that when Wiegmann contacted Ottosen in January 2004 regarding
whether his personal homeowner’s policy could provide coverage for
the Kuzma lawsuit, Ottosen immediately took action and documented
the steps taken in the process. Ottosen’s quick actions with regards to
Wiegmann’s inquiry stood in contrast to the testimony of Liggett and
Kramer that although Ottosen took “phone calls from the bank
president and a lawyer” he did “not even document that *** and
ignore[d] it completely.” The circuit court judge concluded, “I don’t
find that to be credible.”
The circuit court then applied the law to these findings of fact.
Although the court acknowledged that “a gap” existed in the
conversation between Liggett and Dickson to the extent that Dickson
was “not given all the details” of the Kuzma lawsuit, the court
nevertheless held that Liggett’s conversation with Dickson was
sufficient to place West American on “actual notice” that a lawsuit
had been filed against Yorkville, providing it with adequate
information to locate and defend the action. When this conversation
was combined with the additional information regarding the Kuzma
-17-
lawsuit provided during the Yorkville board of directors meetings that
Dickson attended, the court concluded that “[t]he totality of the
situation is that there is notice.” Although the court found “some
evidence” of prejudice to West American due to notice being given
to it after discovery was closed and the case was set for trial, because
the Kuzma action had been mentioned several times and Yorkville
was told that there was no coverage, “the fact that they were late
reporting it, I don’t know that that’s unreasonable.” Thus, the circuit
court held that West American owed a duty to provide coverage to
Yorkville and directed West American to pay stipulated damages in
the amount of $1,982,778.78.
ANALYSIS
In Country Mutual Insurance Co. v. Livorsi Marine, Inc., 222 Ill.
2d 303 (2006), we recently reaffirmed that an insured’s breach of a
policy’s notice provision “will defeat the right of the insured party to
recover under the policy.” Country Mutual, 222 Ill. 2d at 312, citing
Simmon v. Iowa Mutual Casualty Co., 3 Ill. 2d 318, 322-23
(1954).This result is grounded in the principle that notice clauses
“impose valid prerequisites to insurance coverage” (Country Mutual,
222 Ill. 2d at 311, citing Barrington Consolidated High School v.
American Insurance Co., 58 Ill. 2d 278, 281 (1974); Imperial Fire
Insurance Co. of London v. Coos County, 151 U.S 452, 38 L. Ed.
231, 14 S. Ct. 379 (1894)) and is rooted in decades of precedent,
which has long recognized:
“Contracts of insurance are contracts of indemnity upon
the terms and conditions specified in the policy ***,
embodying the agreement of the parties. *** The terms of the
policy constitute the measure of the insurer’s liability, and in
order to recover, the assured must show himself within those
terms; and if it appears that the contract has been terminated
by the violation on the part of the assured, of its conditions,
then there can be no right of recovery. The compliance of the
assured with the terms of the contract is a condition precedent
to the right of recovery.” Imperial Fire Insurance Co., 151
U.S. at 462, 38 L. Ed. at 235, 14 S. Ct. at 381.
Based upon this rationale, our courts have repeatedly held that
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notice provisions in an insurance policy are not merely technical
requirements but, rather, conditions precedent to the triggering of the
insurer’s contractual duties. Northbrook Property & Casualty
Insurance Co. v. Applied Systems, Inc., 313 Ill. App. 3d 457, 464
(2000); see also, e.g., Aetna Casualty & Surety Co. of Illinois v.
Allsteel, Inc., 304 Ill. App. 3d 34, 41 (1999); Kerr v. Illinois Central
R.R. Co., 283 Ill. App. 3d 574, 582 (1996); American States
Insurance Co. v. National Cycle, Inc., 260 Ill. App. 3d 299, 311
(1994); Mitchell Buick & Oldsmobile Sales, Inc. v. National Dealer
Services, Inc., 138 Ill. App. 3d 574, 581 (1985); International
Harvester Co. v. Continental Casualty Co., 33 Ill. App. 2d 467, 471
(1962).These decisions note the several important purposes served by
notice provisions, which include “afford[ing] the insurer an
opportunity to make a timely and thorough investigation and to gather
and preserve possible evidence.” Barrington Consolidated High
School, 58 Ill. 2d at 281; see also P. Kalis, T. Reiter & J. Segerdahl,
Policyholders Guide to the Law of Insurance Coverage §24.02(A), at
24–3 (1997) (“[t]imely notice ensures that an insurer will have the
opportunity to interview witnesses while they are available, and to
marshall evidence relevant to the defense of the underlying action
before it is lost or destroyed”). In addition, a notice-of-suit provision
allows the insurer to “control the litigation,” including options for
settlement.14 Couch on Insurance §199.84, at 199–140 (3d ed. 1999).
Notice provisions, like those here, generally provide that an
insured must give an insurer notice “as soon as practicable.” The
notice provision in Yorkville’s policy is identical to that found in
Country Mutual, where we explained that “[a] policy condition
requiring notice ‘[a]s soon as practicable’ is interpreted to mean
‘within a reasonable time,’ ” and held that “[w]hether notice has been
given within a reasonable time depends on the facts and
circumstances of each case.” Country Mutual, 222 Ill. 2d at 311-12,
quoting Barrington Consolidated High School, 58 Ill. 2d at 282.Thus,
for an insured to satisfy this type of notice provision, two
requirements must be met: first, “notice” must be provided to the
insurer within the meaning of the policy; and, second, such notice
must be timely. See Country Mutual, 222 Ill. 2d at 311-12.
Although the majority recites many of these well-settled legal
principles at the outset of its analysis (see slip op. at 5-6), it fails to
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apply them to the instant appeal. For example, although the majority
readily acknowledges that “[i]nsurance policy notice provisions
impose valid prerequisites to insurance coverage” (slip op. at 5), it
fails to set forth all of the relevant notice provisions contained within
the policy and does not construe these provisions under the very rules
of analysis contained in its opinion. I submit that if the majority
actually performed such an analysis, it would be compelled to reach
a contrary result.
The majority states that in construing an insurance policy, “we
must ascertain and give effect to the intentions of the parties, as
expressed in the policy language.” (Emphasis added.) Slip op. at 5.
As the majority further observes, we must “giv[e] effect to every
provision,” keeping in mind that “[u]nambiguous words in the policy
are to be given their plain, ordinary, and popular meaning.” Slip op.
at 5. Under this framework, the logical next step is to examine the
words used in the policy provisions.
Pursuant to section IV(2)(a) of the policy, the insured must “see
to it that [West American is] notified as soon as practicable of an
‘occurrence’ or an offense which may result in a claim.” Once this
provision is triggered, the policy further requires the insured to
transmit several specific items of information to the insurer: (1) “how,
when and where the ‘occurrence’ or offense took place,” (2) “the
names and addresses of any injured persons and witnesses,” and (3)
“the nature and location of any injury arising out of the occurrence or
offense.”
The majority neither references these policy provisions nor
construes them under the analytical framework set forth in its
opinion, despite its clear statement that the language of the policy
controls. See slip op. at 5 (“we must ascertain and give effect to the
intentions of the parties, as expressed in the policy language”). It is
my view that, pursuant to the plain language of this provision, once
Kuzma contacted Liggett in November 2000 regarding her claim that
Wiegmann had made false statements about her and that it appeared
that a future lawsuit was possible, Yorkville was required to provide
West American with information regarding this “occurrence ***
-20-
which may result in a claim.”4 The policy mandated Yorkville to
notify West American of the Kuzma matter “as soon as practicable”5
and to provide West American with specific information regarding
the genesis of this occurrence. Yorkville, however, failed to comply
with any of these policy provisions.
Section IV(2)(b) is the second relevant notice provision within the
policy and provides that when a “claim is made or ‘suit’ is brought
against any insured,” the insured must “immediately record the
specifics of the claim or ‘suit’ and the date received,” and notify West
American “as soon as practicable.” Yorkville was also required to
“see to it that [West American] receive written notice of the claim or
‘suit’ as soon as practicable.”
Again, although the majority states that effect must be given to
the intent of the parties as expressed through the language of the
policy, the majority fails to construe this provision using this
analytical framework. It is my view that, under the plain language of
the provision, Yorkville was required to “immediately”6 record the
specifics of the lawsuit and the date received, and to provide written
notification to West American of this event “as soon as practicable.”
I submit that the policy required Yorkville to have performed these
actions shortly after the time Kuzma filed her complaint in September
2001. Yorkville, however, failed to comply with any of these policy
provisions.
Finally, under section IV(2)(c) of the policy, the insured is
required to “immediately” send to West American “copies of any
demands, notices, summonses or legal papers received in connection
4
I note that in the course of its opinion, the majority itself states that
“Yorkville was aware in November 2000 of the potential for a lawsuit.”
Slip op. at 7.
5
As stated, we have previously construed this policy language to mean
“within a reasonable time” based upon the facts and circumstances of each
case. Country Mutual, 222 Ill. 2d at 311-12.
6
The use of the term “immediately” indicates that this action was to be
taken “instantly,” and “without delay.” See Black’s Law Dictionary 816
(9th ed. 2009).
-21-
with the claim or ‘suit,’ ” to “authorize [West American] to obtain
records and other information,” to “cooperate with [West American]
in the investigation or settlement of the claim or defense against the
‘suit,’ ” and to “assist [West American] *** in the enforcement of any
right against any person or organization which may be liable to the
insured because of injury *** to which this insurance may also
apply.”
Again, the majority fails to apply its purported analytical
framework by not giving effect to the intention of the parties as
expressed in the language of this policy provision. It is my view that,
pursuant to the provision’s plain language, Yorkville had the
obligation to “immediately” send West American copies of any legal
papers related to the Kuzma action, including the complaint. In
addition, Yorkville was required to authorize the insurer to obtain
records and other information connected to this matter and to
cooperate with the investigation or settlement of the suit. Again,
Yorkville failed to comply with any of these policy provisions.
Thus, upon review of the plain and unambiguous language of the
notice provisions contained in the instant policy, it is apparent that
Yorkville breached each and every reporting obligation it agreed to
as a condition of coverage. Had Yorkville fulfilled the policy notice
requirements, West American would have been in receipt of pertinent
and timely information regarding the Kuzma matter, including the
contact information for the parties, the basis for the filing of the
lawsuit, and the correct case caption, file number and location of the
action. As Justice Schmidt observed in his special concurrence below,
“[m]any of the insurance coverage notice cases involve swearing
contests between the insurance carrier and its insured as to whether
oral notice was given,” and the “obvious intent” of a written notice
provision “is to avoid these ‘he said-she said’ coverage disputes.” 388
Ill. App. 3d at 781-82 (Schmidt, J., specially concurring). Indeed, this
case provides a textbook example of the importance of an insured’s
adherence to the written notice requirement, as Yorkville’s
compliance would have allowed West American to perform a timely
investigation, to gather and preserve evidence, and to allow an
informed decision as to whether to settle or litigate the matter. Due to
Yorkville’s failure to comply with its policy obligations, West
American was deprived of these options, and this litigation ensued.
-22-
It is therefore deeply troubling that despite the majority’s
statements that the language of the policy controls and that an
insured’s compliance with policy notice provisions is a “valid
prerequisite” to coverage, my colleagues fail to apply these well-
settled principles to the matter at bar. As a result, the majority does
not answer the pivotal question of whether Yorkville complied with
the notice provisions as set forth in the policy. Instead, my colleagues
overlook the plain and unambiguous language of the notice
provisions and, in an apparent effort to salvage Yorkville’s claim,
address the subsequent and separate question of whether the notice
given was reasonably timely. I submit that by departing from the
framework set forth at the outset of the “Analysis” portion of its
opinion, the majority tacitly undercuts our precedent absent
discussion or support for doing so, and its opinion will engender
confusion among the bench and bar as to the continued validity of
these previously settled principles.
Departing from our precedent, the majority’s analysis in support
of upholding Yorkville’s coverage claim consists solely of an
application of five factors set forth by this court in Country Mutual,
which provide guidance in determining whether notice given to an
insurer is made within a reasonable time. The dispute between the
parties in Country Mutual centered on whether notice provided to the
insurer 20 months after suit was filed against the insured was
unreasonably late, thereby relieving the insurer of its duty to defend
the insured. Country Mutual, 222 Ill. 2d at 307-08.The narrow legal
issue addressed in Country Mutual was whether an insurer, before
being relieved of its duty to defend, must prove that it was prejudiced
by the delay in receiving notice. We clarified that several factors may
be considered in assessing whether timely notice is given in a
particular case, including whether the insurer was prejudiced; the
specific language of the policy’s notice provision; the insured’s
sophistication in commerce and insurance matters; the insured’s
awareness of an event which may trigger insurance coverage; and the
insured’s diligence in ascertaining whether policy coverage is
available. Country Mutual, 222 Ill. 2d at 313.Significantly, Country
Mutual held that a lack of prejudice on the part of the insurer does not
foreclose an insurer’s contention that notice was untimely (Country
Mutual, 222 Ill. 2d at 316-17), and reaffirmed our long-established
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holding in Simmon that the presence or absence of prejudice to an
insurer is only one factor to consider. Country Mutual, 222 Ill. 2d at
317.
Unlike the matter at bar, there was no dispute in Country Mutual
concerning the adequacy of the notice provided to the insurer or
whether the insured had satisfied its obligations to transmit to the
insurer the information specified under the policy. Thus, Country
Mutual is factually inapposite to the matter before us and provides no
guidance as to the important question presented in the instant appeal:
whether Yorkville complied with the notice requirements of the
policy. The majority nevertheless takes the unprecedented step of
employing the five Country Mutual factors intended to gauge the
timeliness of notice as its sole basis for reversing the judgment of the
appellate court and holding that Yorkville is entitled to coverage.
Because the majority adopts this analysis absent discussion or
explanation for departing from our settled precedent, I cannot join its
opinion.
Moreover, even if I agreed with the majority that this analysis is
appropriate, I still could not join the majority opinion based upon my
belief that the majority errs in its application of these factors. For
example, in assessing whether notice was provided to the insurer
within a reasonable time, Country Mutual directs that the specific
language of the policy’s notice provision be considered. In reviewing
this factor, the majority states that “the specific language in the
Policy’s notice provision does not aid in our reasonableness analysis
because it does not identify a specific time frame for giving notice”
(slip op. at 6) apart from directing that the written notice be sent “as
soon as practicable” and that copies of any legal papers be sent
“immediately.” First, I note that this is the majority’s sole reference
within its analysis to the language of the policy’s notice provisions,
despite its pronouncement earlier in its opinion that the plain
language of the policy controls and that effect should be given to
every provision to fulfill the intent of the parties. Second, I disagree
with the majority’s conclusion that these terms “do[] not aid” in the
reasonableness analysis; to the contrary, they indicate that an insured
must satisfy these provisions with the goal of providing the insurer
with notice at the earliest possible moment under the facts and
circumstances presented.
-24-
Equally problematic is the majority’s discussion of the Country
Mutual factor that directs a court to assess whether the insured was
diligent in ascertaining the availability of policy coverage. Relying
upon the haphazard encounter between Liggett and Dickson at the
bank “in late 2001 or early 2002” and the vague statements made
during that “in passing” conversation, the majority concludes that
Yorkville displayed diligence in ascertaining whether the policy
would cover the Kuzma lawsuit. In further support, the majority
quotes from the circuit court’s finding that during this conversation,
Liggett told Dickson “that we were involved in this defamation
lawsuit in Ottawa. That it was kind of a he said/she said sort of
thing,” and that Dickson responded by stating that this matter would
“[p]robably not” be covered under the policy. See slip op. at 8.The
majority concludes that “[a]fter being informed by its agent that the
Policy probably did not cover the lawsuit, Yorkville reasonably
believed that sending written notice to its insurer would be futile.”
Slip op. at 8.
The majority’s analysis on this point is flawed in several respects.
First, the record is devoid of support for the majority’s conclusion
that Yorkville was of the belief “that sending written notice would be
futile.” Second, I note that the majority relies upon Dickson’s reply
that the policy “probably” would not cover the vague factual scenario
outlined by Liggett during their informal exchange. I submit that
Dickson’s response is not a definitive denial of coverage, and that his
offhand statement left the question open for further discussion. Thus,
the majority factually errs when it subsequently states that Dickson
informed Yorkville that “the policy afforded no coverage.” (Emphasis
added.) Slip op. at 8. Accordingly, its conclusion that “[a] reasonably
prudent party in the position of the insured would not have continued
to pursue coverage under the policy having been informed *** that
the policy afforded no coverage” (emphasis added) (slip op. at 8) is
called into question. Finally, the majority’s determination that
Yorkville displayed diligence is further undercut by its holding earlier
in its opinion that Yorkville is a “sophisticated” insured, owing to the
fact that it is a bank with experience in the areas of commerce and
insurance. Slip op. at 7. Given that Yorkville is skilled in business
and insurance matters, is represented by counsel, and also is subject
to layers of state and federal regulation as a bank, I find it patently
-25-
unreasonable for such an entity to rely upon an in-passing, off-the-
cuff informal conversation and an equivocal response as the basis for
its failure to formally pursue the coverage question and leave itself
open to potential liability exposure. Although the majority relies upon
a series of appellate court decisions for the proposition that “[c]ourts
have recognized that an insured’s reasonable belief of noncoverage
under a policy may be an acceptable excuse for the failure to give
timely notice, even where the delay is lengthy” (slip op. at 7-8), none
of these cases involved a sophisticated insured such as Yorkville, and
they are therefore inapposite.
As a final matter, the majority examines the Country Mutual
factor that questions whether West American suffered prejudice as a
result of the 28-month delay in written notice. The majority notes that
the circuit court held that West American received “actual notice” of
the Kuzma lawsuit in late 2001 or early 2002 as a result of the “in-
passing” conversation between Liggett and Dickson, as well as the
mention of the matter during two Yorkville board meetings. Agreeing
with the circuit court’s ruling that under our prior decision in
Cincinnati Cos. v. West American Insurance Co., 183 Ill. 2d 317, 329
(1998), Yorkville had “actual notice” of the Kuzma lawsuit in that it
had sufficient information to “locate and defend” that action, the
majority concludes that West American suffered no prejudice as a
result of the 28-month delay.
Not only do I disagree with the majority’s conclusion, but I also
am concerned that the majority today expands the principle of “actual
notice” as it was used in Cincinnati without addressing the
differences between that case and today’s case: there, notice
provisions were not at issue, and policy defenses were not raised by
the parties to that action.
In Cincinnati, a construction accident resulted in a suit for
personal injuries against several subcontractors, including Baird,
which was defended under a policy issued by Cincinnati Companies.
A second subcontractor, B&D, was defended by West American.
Unbeknownst to Baird, it was an additional insured under B&D’s
West American policy; therefore, it had no reason to tender a defense
to West American. However, on the eve of trial, B&D disclosed that
Baird was an additional insured on the West American policy. Baird
then tendered its defense to West American, which rejected Baird’s
-26-
tender. Cincinnati, 183 Ill. 2d at 319-21.
We held that the insurer could not decline coverage on the basis
that there had not been an official tender of defense by the newly
discovered insured when it already had “actual notice” of the action
because it had been actively defending the identical lawsuit for
another insured, B&D. Cincinnati, 183 Ill. 2d at 329-30. Defining
“actual notice” as “ ‘notice sufficient to permit the insurer to locate
the suit and defend it’ ” (Cincinnati, 183 Ill. 2d at 324, quoting Long
v. Great Central Insurance Co., 190 Ill. App. 3d 159, 168 (1989)), we
concluded that the insurer actually knew of the lawsuit at issue for
three years, as it had been defending B&D throughout the pendency
of that action. Cincinnati, 183 Ill. 2d at 330. Accordingly, we held
that an exception to the tender requirement exists–and the insurer’s
duty to defend was therefore triggered–where it was unmistakable
that the insurer was already aware of the suit. In arriving at this
holding, we explicitly stated that because neither party invoked the
specific terms of the policy, “policy defenses have not been a factor
in our decision.” Cincinnati, 183 Ill. 2d at 323 n.1.
Clearly, Cincinnati is neither factually nor legally on point with
this case. The insurer in Cincinnati knew of the lawsuit because it
was already a party to that action; hence the term “actual notice.” The
insurer’s participation in the defense of the suit thereby foreclosed
any question regarding its knowledge of that litigation. In contrast,
West American was not a participant in the Kuzma action and,
therefore, the same level of knowledge cannot be attributed to it.
Further, unlike in Cincinnati, the insurer here is vigorously raising
policy defenses, arguing that the language of the policy controls, and
relying upon long-settled precedent that an insured’s compliance with
notice provisions is a prerequisite to insurance coverage. The
majority’s application of Cincinnati to this case will cause confusion
to both bench and bar, as today’s holding contradicts long-held
notions in Illinois that notice provisions are not simply technical
requirements to be overlooked but, rather, conditions precedent to
coverage.
Furthermore, the majority’s holding that Yorkville provided West
American with “actual notice” to allow it to “locate and defend” the
Kuzma lawsuit (slip op. at 9-10) is unsupported by the record. The
majority summarily concludes that the circuit court correctly
-27-
determined that Yorkville provided “actual notice” to West American
of the Kuzma lawsuit, thereby fulfilling its notice responsibilities
under the policy. The majority’s holding is premised only upon the
circuit court’s finding that Liggett and Dickson had a conversation
about the Kuzma action in late 2001 or early 2002, combined with the
brief mention of the Kuzma lawsuit during the September and
November 2002 Yorkville board meetings at which Dickson was
present.
I note, however, that as part of these findings, the circuit court
also found that the conversation informally occurred “in passing,” and
determined that the “only contents of the conversation was that there
was a lawsuit in Ottawa, kind of a he said/she said thing on
defamation” (emphasis added), with no reference to a time frame
when this defamation took place and no production of a copy of the
complaint.7 Even while candidly acknowledging that “no details were
given as to when the alleged defamation took place or where the
lawsuit was filed” (slip op. at 10), the majority nevertheless concludes
that West American was provided with sufficient information to
locate and defend the lawsuit. I strongly disagree.
Since the Kuzma action was filed in Joliet, and not filed in
Ottawa–as was implied by Liggett’s statement to Dickson–and as it
was mentioned simply “in passing,” it is difficult to understand how
the short informal exchange between Liggett and Dickson would have
provided West American with the information necessary “to locate
and defend the lawsuit.” Under the majority’s view, West American
should have been able to simply contact the courthouse in
Ottawa–which is in the Thirteenth Judicial Circuit–and obtain a copy
of the Kuzma lawsuit. Of course, such action would have been futile,
as Kuzma’s suit was filed over 50 miles away in the circuit court of
Will County–which is in the Twelfth Judicial Circuit–and the
paperwork would have been located in the Joliet courthouse. There
is nothing in the record to show that Yorkville ever informed Dickson
and/or West American that Kuzma’s action was filed in a different
7
Although the majority relies upon Liggett’s account regarding this
encounter, I note that the circuit court specifically found that large portions
of his testimony were not credible.
-28-
city, county and judicial circuit prior to sending West American the
complaint in January 2004.
With respect to the minutes of the Yorkville board meetings, the
circuit court found that “[t]he minutes don’t contain any information
about where the suit was filed, when the incident allegedly took place,
who the parties to the lawsuit were.” Given that specific factual
finding, I question how the information in the minutes would have
provided West American with the ability “to locate and defend the
lawsuit,” particularly in light of the fact that the minutes also
misidentify Sheryl Kuzma as “Cheryl Kuzman.”
My review of the record establishes that the circuit court correctly
determined that Liggett believed that the Kuzma matter would simply
go away, to the extent that he “satisfied himself that this was no big
deal.” The circuit court found that this belief accounted for Liggett’s
failure to notify West American of a potential claim after meeting
with Kuzma in November 2000, even though section IV(2)(a) of the
West American policy requires that the insured “must see to it that we
are notified as soon as practicable of an ‘occurrence’ or an offense
which may result in a claim.” Despite this reporting obligation,
Liggett made no contact with West American at that time, even
though Kuzma had “threaten[ed] a suit with the bank.” This may also
explain why Liggett did not inform Yorkville’s board of directors
about the Kuzma litigation until one year had passed from the date it
was filed, even though Yorkville had the potential for significant
exposure if found liable. In addition, this belief may also account for
the fact that, even when the litigation was finally announced to the
board, Liggett downplayed its significance by including very little
about the action in the minutes of the meeting.
In sum, it is my belief that under our well-established precedent,
Yorkville breached the plain and unambiguous language of each and
every notice provision contained within the policy. Because notice
provisions are not merely technical requirements but, rather,
conditions precedent to the triggering of an insurer’s contractual
duties, Yorkville therefore is not entitled to coverage under the
policy. Although today’s opinion pays lip service to these long-held
principles of insurance law, the effect of the majority’s ruling
undercuts this precedent and creates confusion for both bench and
bar.
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By ignoring the settled rules of insurance policy construction and,
instead, focusing exclusively on the timeliness factors set forth in
Country Mutual, the majority redirects the focus of analysis away
from compliance with policy provisions to an unworkable and
problematic case-by-case examination, requiring swearing contests
between the insurer and insured as to whether and when notice was
provided. The majority’s opinion will undoubtedly engender
additional litigation and place further strain on our courts to sort
through these “he said-she said” situations in lieu of holding insureds
to the terms of their policies.
In addition, today’s opinion summarily extends the principle of
“actual notice” and, by doing so, effectively overrules decades of
precedent establishing that notice provisions are conditions precedent
to coverage under a policy and are not merely technical requirements.
Under this holding, virtually any insured may now prevail on a claim
that because the insurer was provided with “actual notice”–in
whatever haphazard way and despite that information being
incorrect–the plain and unambiguous language of the notice
provisions contained within the policy are irrelevant. This holding
essentially writes out of the West American policy its detailed
requirements regarding provision of notice to the insurer, none of
which were complied with by Yorkville.
For the foregoing reasons, I cannot join the majority opinion.
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