THIRD DIVISION
February 22, 2006
Nos. 1-05-1007 and 1-05-1030 (Consolidated)
NANCIE PARIS-CUSTARDO, Special Administrator ) Appeal from the
of the Estate of KATHRYN CUSTARDO, Deceased, ) Circuit Court of
as Assignee of Action Bag Company, Inc., a ) Cook County
corporation, Nancy Cwynar and Richard Cygan, )
)
Plaintiff-Appellant, )
)
v. )
)
GREAT AMERICAN INSURANCE COMPANY OF ) No. 02 CH 14873
NEW YORK, )
)
Defendant-Appellee )
)
)
(Country Mutual Insurance Company, ) Honorable
) David R. Donnersberger,
Intervening Plaintiff-Appellant). ) Judge Presiding.
JUSTICE KARNEZIS delivered the opinion of the court:
This consolidated appeal arises from an order of the circuit court granting
summary judgment to defendant Great American Insurance Company of New York
(Great American) in the declaratory judgment actions filed by plaintiff Nancie Paris-
Custardo and intervening plaintiff Country Mutual Insurance Company (collectively
plaintiffs) seeking declarations of insurance coverage under an insurance policy issued
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by Great American. Plaintiffs argue that the court improperly interpreted an
endorsement in the insurance policy and, as a result, erred in granting summary
judgment to defendant, denying summary judgment to plaintiffs and denying plaintiffs'
motions to reconsider on the basis that Great American did not owe coverage under the
policy. Country Mutual also argues that the court erred in declining to go to trial on
Country Mutual's breach of contract claim. We affirm.
Background
On September 3, 1999, Richard Cygan, driving a borrowed automobile, was
involved in an accident. His passenger, Kathryn Custardo, died from injuries she
sustained in the accident. In October 1999, Custardo's mother, plaintiff Paris-Custardo,
as special administrator of Custardo's estate, filed suit in the circuit court of Cook
County against Cygan's mother, Nancy Cwynar, as parent and next friend of Cygan.
Cwynar was president of Action Bag Company, Inc. (Action Bag). Great
American had issued a commercial umbrella liability insurance policy to Action Bag for
the period from October 1, 1998, to October 1, 1999. The policy contained an
endorsement titled: "AUTO LIABILITY - FOLLOWING FORM." The endorsement
provided:
"The following exclusion is added to Section IV - EXCLUSIONS:
Any liability arising out of ownership, maintenance, operation, use, 'loading' or
'unloading' of any 'auto,' except to the extent that such insurance is provided by a
policy listed in the Schedule of Underlying Insurance, and for no broader
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coverage than is provided by such policy.
This endorsement does not change any other provision of the policy."
The liability limit under the Great American policy is $4 million.
The schedule of underlying insurance in the Great American policy lists a
business automobile liability policy issued to Action Bag by Great Northern Insurance
Company, a member of the Chubb insurance companies (Chubb). Under the Chubb
policy, both Cygan and Cwynar are named insureds under the policy's "Drive Other Car
Coverage Broadened Coverage for Named Individuals" endorsement. The policy
provides $1 million coverage for each occurrence.
Country Mutual had issued a personal umbrella liability insurance policy to
Cwynar and Frederick Cwynar for the period from February 4, 1999, to February 1,
2000. The policy has a liability limit of $1 million. Cygan is covered under the policy as
a relative of Cwynar residing in her home at the time of the accident.
In 2001, Paris-Custardo made a demand on Country Mutual and Great American
to settle the lawsuit.
In June 2002, Great American's claims handler, James Danehy, sent an e-mail to
Country Mutual agreeing to a "pro-rata sharing" with Country Mutual of any settlement
offer in excess of $1 million. In July 2002, Great American denied it owed coverage.
Paris-Custardo subsequently withdrew her settlement demand. 1
1
There is no copy of this communication in the record but the parties appear to
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agree that a denial of coverage occurred.
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On September 24, 2003, the court entered an order approving settlement of the
suit by Chubb, Country Mutual and American Family Insurance, the insurer which
provided personal automobile coverage for the automobile driven by Cygan. Each
insurer paid its respective liability limits of $1 million, $1 million and $100,000. Country
Mutual reserved its rights against Great American for its pro-rata share of the $1 million
settlement paid by Country Mutual. Paris-Custardo took an assignment of Action Bag
and Cwynar's claims against Great American for an additional $1 million.
In August 2002, Paris-Custardo, as assignee of Action Bag and Cwynar's rights
against Great American, filed a declaratory judgment and breach of contract action
against Great American, seeking a declaration that Great American owed coverage
under its policy and for damages for Great American's denial of coverage. The court
granted Country Mutual leave to intervene in the suit. Country Mutual filed a complaint
seeking a declaration that Great American owed coverage and for damages for Great
American's breach of the agreement to share the settlement costs.
In August 2004, Country Mutual, joined by Paris-Custardo, filed a motion for
summary judgment on the coverage count. Great American filed a response and cross
motion for summary judgment. On November 22, 2004, the court granted Great
American's motion for summary judgment and denied plaintiffs' motion for summary
judgment. On February 28, 2005, the court denied plaintiffs' motions to reconsider. On
March 25, 2005, the court denied Country Mutual's motion to set a litigation schedule for
its breach of contract count. The court's order explained that the court had granted
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summary judgment to Great American on Country Mutual's entire complaint because
once the court determined that there was no coverage under the Great American policy,
nothing in the case remained to be decided. Both Paris-Custardo and Country Mutual
timely filed a notice of appeal on March 25, 2005. Since they concern similar facts and
issues, we have consolidated the appeals. We review a grant of summary judgment de
novo. Axen v. Ockerlund Construction Co., 281 Ill. App. 3d 224, 229, 666 N.E.2d 693
(1996).
Analysis
At issue here is whether the Great American policy provides coverage for
Cygan's liability for damages arising out of the auto accident. There is no dispute that,
reading the policy without the "auto liability - following form" endorsement, Cygan is not
an insured thereunder. Plaintiffs argue, however, that the endorsement operates to
provide coverage for Cygan's liability.
The construction of an insurance policy is a question of law, which we review de
novo. Domin v. Shelby Insurance Co., 326 Ill. App. 3d 688, 692, 761 N.E.2d 746, 750
(2001). A court must determine the intent of the parties when construing a policy.
Outboard Marine Corp. v. Liberty Mutual Insurance Co., 154 Ill. 2d 90, 108, 607 N.E.2d
1204, 1212 (1992). "To determine 'the meaning of the policy's words and the intent of
the parties, the court must construe the policy as a whole [citations], with due regard to
the risk undertaken, the subject matter that is insured and the purposes of the entire
contract [citations].' " Lapham-Hickey Steel Corp. v. Protection Mutual Insurance Co.,
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166 Ill. 2d 520, 529, 655 N.E.2d 842, 846 (1995), quoting Outboard Marine Corp., 154
Ill. 2d at 108, 607 N.E.2d at 1212. Provisions that exclude or limit coverage are
interpreted liberally in favor of the insured and against the insurer. Pekin Insurance Co.
v. Estate of Goben, 303 Ill. App. 3d 639, 642, 707 N.E.2d 1259, 1262 (1999). If the
words found in the policy are clear and unambiguous, the court must give them their
"plain, ordinary, and popular meaning." (Emphasis omitted.) Outboard Marine Corp.,
154 Ill. 2d at 108, 607 N.E.2d at 1212.
Conversely, if the words in the policy are susceptible to more than one
reasonable interpretation, they must be considered ambiguous and construed strictly
against the insurer who drafted the policy and in favor of the insured. Outboard Marine
Corp., 154 Ill. 2d at 108, 607 N.E.2d at 1212. A contract is not rendered ambiguous
merely because the parties disagree on its meaning, nor is it unambiguous because
each party insists that the language unambiguously supports its position. Central Illinois
Light Co. v. Home Insurance Co., 213 Ill. 2d 141, 153-54, 821 N.E.2d 206, 214 (2004).
Rather, whether a contract is ambiguous is a question of law, which we review de novo.
Central Illinois Light, 213 Ill. 2d at 153-54, 821 N.E.2d at 213-14. Courts are not to
distort the language of the policy to create ambiguities in order to rewrite the policy.
Butera v. Attorneys= Title Guaranty Fund, Inc., 321 Ill. App. 3d 601, 604, 747 N.E.2d
949, 952 (2001).
The auto liability endorsement provides that the auto liability exclusion "is added
to Section IV - EXCLUSIONS." Since we must construe the policy as a whole, the
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endorsement must be read in conjunction with the specific language of the exclusions
section, which prefaces its provisions with the phrase "[t]his insurance does not apply
to: * * *." Accordingly, read as a whole, the policy now provides:
"This insurance does not apply to:
***
Any liability arising out of ownership, maintenance, operation, use, 'loading' or
'unloading' of any 'auto,' except to the extent that such insurance is provided by a
policy listed in the Schedule of Underlying Insurance, and for no broader
coverage than is provided by such policy."
The Chubb policy is listed in the schedule of underlying insurance. Damages
arising out of Cygan's automobile accident were covered under the Chubb policy.
Cygan was a named insured under the Chubb policy and the policy provided coverage
for any car he was driving. 2 Plaintiffs argue that the Great American policy, following
form with the Chubb policy pursuant to the auto liability endorsement, therefore also
2
Great American argued in the alternative below that there was a question of
fact regarding whether Cygan was covered under the Chubb policy, positing that Cygan
was added as an insured to the Chubb policy after the accident. However, the issue of
coverage under the Chubb policy is not before us given that there is no question that, as
will be discussed, Cygan is not an insured under the Great American policy, no matter
what coverage the Chubb policy may provide for him.
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provides coverage for Cygan's liability arising out of the accident.
Plaintiffs state that there is no other auto liability exclusion in the Great American
policy. This is not quite true. Paragraph F of the policy's section V, the definitions
section, defines "named insured" as, among other things:
"6. Any of your partners, executive officers, directors, or employees but only
while acting within the scope of their duties.
However, the coverage granted by this Provision 6. does not apply to the
ownership, maintenance use, 'loading' or 'unloading' of any 'autos,' aircraft
or watercraft unless such coverage is included in the policies listed in the
Schedule of Underlying Insurance and for no broader coverage than is
provided under such underlying policies." (Emphasis added.)
Although not stated in the exclusions section of the policy, it is apparent this
definition provides a similar auto liability coverage exclusion and exception to the
exclusion as the endorsement. Use of the word "such" in the phrase "such coverage"
operates to refer back to the immediately preceding referenced coverage, i.e., to the
coverage granted by provision 6. Similarly, "such underlying policies" refers back to the
immediately preceding referenced underlying policies, to "the policies listed in the
Schedule of Underlying Insurance."
The word "such" in the auto liability endorsement operates in the same manner.
Reading the endorsement in context, the policy language is clear: "[t]his insurance," i.e.,
the insurance provided in the policy, does not apply to any liability arising out of the
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operation of an auto "except to the extent that such insurance is provided by a policy
listed in the Schedule of Underlying Insurance." (Emphasis added.) "Such insurance"
refers back to the immediately preceding referenced insurance, to the original insurance
provided by the policy prior to the exception stated in the endorsement. The
emphasized language makes it clear that the endorsement operates to exclude
insurance originally not exempted, in this case for an insured's liability arising from
operation of an auto, and then, if "such insurance," i.e., the original insurance, is
provided for in an underlying policy, to put "such insurance," that same original
insurance, back. In other words, the only insurance excepted from the exclusion is
insurance provided in the policy prior to the exclusion that is also provided for in an
underlying policy. In no way can the auto liability endorsement be read as adding
insurance coverage to the policy where there was none previously, as adding an
insured to the policy who was not originally covered by the policy.
As used in the endorsement phrase "such insurance," "such" refers back to the
immediately preceding referenced insurance, the insurance granted by the policy prior
to the exclusion, an insurance under which Cygan is not an insured. The phrase does
not, as plaintiffs' interpretation of the endorsement suggests, refer to insurance under
the Chubb policy, insurance which would include coverage for Cygan. The intent of the
parties, as clearly shown by the policy language, was to provide coverage for liability
incurred by Action Bag and/or its employees acting within the scope of their
employment and for affiliates acting on behalf of Action Bag. Nothing in the policy
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requires reading the endorsement to conflict with that intent, a conflict occasioned by
the adding of coverage for someone whose only connection with Action Bag is his filial
relationship to Action Bag's president.
Further, the endorsement states that it "does not change any other provision of
the policy." This may be "boilerplate" language as plaintiffs suggest, but that does not
make it ineffectual. Reading the endorsement to provide coverage for Cygan would
essentially result in Cygan becoming an insured under the Great American policy for
purposes of an auto liability coverage. This is clearly a change in the policy. In fact, it is
a change to an entire section of the policy, the definitions section, under which Cygan,
who was not an employee or a named insured or a person acting on behalf of Action
Bag at the time of the accident, does not meet any of the requirements for an insured.
The fact that the endorsement is named a "following form" endorsement does not
make the entire policy a following form policy. Only the auto liability coverage provided
for in the endorsement follows form with an underlying policy. Accordingly, the
endorsement creates auto liability coverage in accordance with the terms and
provisions of the Chubb policy. But, as discussed previously, that coverage is only
available for insureds under the Great American policy who are also insureds under the
Chubb policy, not for those, like Cygan, who are not insureds under the Great American
policy.
" 'An indorsement is not to be construed more broadly than the fair import of its
terms considered in connection with the whole of the policy.' " Fidelity & Casualty Co. of
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New York v. Mobay Chemical Corp., 252 Ill. App. 3d 992, 1002, 625 N.E.2d 151, 158
(1992), quoting 2 Couch on Insurance, '15:30, at 230 (2d rev.ed. 1983). Reading the
endorsement and the policy together, it is clear that there is no conflict or ambiguity
between the two. In fact, given that the policy's definition of "named insured" includes
an auto liability exclusion similar to that of the endorsement, the endorsement serves to
reinforce that definition, not conflict with it.
"It is well settled that an insured is only entitled to indemnity for losses that fall
within the terms of its policy." Fidelity & Casualty Co. of New York, 252 Ill. App. 3d at
1003, 625 N.E.2d at 159. Cwynar and Action Bag are insureds under the Great
American policy but the liability at issue is a loss not covered under the policy because
Cwynar was not driving the auto, Cygan was. Because the endorsement does not
operate to provide coverage for Cygan or make him an insured under the Great
American policy, there is no coverage under the policy for any liability resulting from his
accident. Transcontinental Insurance Co. v. National Union Fire Insurance Co. of
Pittsburgh, 278 Ill. App. 3d 357, 368, 662 N.E.2d 500, 507 (1996). The trial court was
correct in finding that the Great American policy did not provide coverage for Cygan and
in granting summary judgment to Great American.
Country Mutual also argues that the court erred in granting summary judgment to
Great American on Country Mutual's breach of contract count against Great American
for its alleged breach of an agreement to share pro-rata the cost of Country Mutual's $1
million settlement payment. Given our determination that the Great American policy
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provides no coverage for Cygan, Great American cannot be liable for a pro-rata share of
Country Mutual's $1 million settlement payment and we need not address this issue.
Accordingly, we affirm the trial court's grant of summary judgment to Great American on
all counts.
For the reasons stated above, we affirm the decision of the trial court.
Affirmed.
THEIS and ERICKSON, JJ., concur.
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Custardo v. Great American Insurance Co.
Combined Opinion