THIRD DIVISION
September 30, 2008
1-07-1807
ZURICH AMERICAN INSURANCE COMPANY, )
)
Plaintiff-Appellee, ) Appeal from the
) Circuit Court of
v. ) Cook County.
)
KEY CARTAGE, INC., an Illinois Corporation, WEST )
BEND MUTUAL INSURANCE COMPANY, a )
Wisconsin Corporation, TERRY G. WASHINGTON and )
SEVALA SALKIC, as Special Administrator of the Estate )
of Enes Salkic, Deceased, ) Honorable
) Dorothy Kirie Kinnaird,
Defendants-Appellant. ) Judge Presiding.
JUSTICE QUINN delivered the opinion of the court:
Defendants West Bend Mutual Insurance Company (West Bend), Key Cartage, Inc. (Key),
and Terry G. Washington appeal from an order of the circuit court of Cook County granting
summary judgment in favor of plaintiff, Zurich American Insurance Company (Zurich), in a
declaratory judgment action brought by Zurich to determine insurance coverage. The underlying
litigation, a wrongful death action arising from a fatal truck accident, was brought by the estate of
Enes Salkic against West Bend’s insureds, Key and Washington. The circuit court found that West
Bend owes the primary duty to defend and indemnify Key and Washington in the underlying
litigation. On appeal, we determine whether the circuit court properly granted summary judgment
1-07-1807
in favor of Zurich and against West Bend. Within this determination, as a matter of first impression,
we decide whether section 7-317(b)(2) of the Illinois Vehicle Code (625 ILCS 5/7-317(b)(2) (West
2006)) applies to insurance policies issued to commercial truckers. For the following reasons, we
reverse the decision of the circuit court.
I. BACKGROUND
This insurance coverage action has its origins in a motor vehicle accident that occurred on
October 31, 2002, and resulted in the death of Enes Salkic. At the time of the fatal truck accident,
Washington, an employee of Key, operated the truck. On December 8, 2003, Sevala Salkic, as
special administrator of the estate of Enes Salkic, filed suit in the circuit court of Cook County
against Key, Washington and Rose Cartage Services, Inc. (Rose), alleging that Washington’s
negligent operation of a tractor trailer caused the accident. The underlying plaintiff later amended
her complaint to add Franklin Truck Group, Inc. (Franklin), as a defendant. The underlying plaintiff
seeks damages in excess of $50,000.
At the time of the accident, Key, Rose and Franklin were all part of a family-run business.
Key is an Illinois corporation with its principal place of business located in Highland, Indiana. Key
is a trucking company owned by Sharon and Corrie Frank. Essentially, Key operates as a “carrier-
for-hire.” Key specializes in hauling heavy oils and asphalt.
Rose is an Illinois corporation with its principal place of business located in Lansing, Illinois.
Rose is a trucking company owned by David Bult, the brother of Sharon Frank. Like Key, Rose
operates as a “carrier-for-hire.” Rose primarily hauls salt, limestone and other material necessitating
dump trucks. Sharon Frank managed the day-to-day operations of both Key and Rose. Her duties
2
1-07-1807
included the leasing of equipment and the procuring of insurance coverage for equipment used by
both Key and Rose.
Franklin is an Illinois corporation with its principal place of business located in Lansing,
Illinois. Franklin, owned by Sharon and Corrie Frank, is an equipment company that leases
semitrailer trucks to other companies. Franklin owned the truck involved in the underlying
accident. In April 1997, Franklin leased the truck, a 1997 Kenworth semitrailer tractor, to Rose.
In the April 1997 lease agreement, Franklin agreed to give Rose exclusive use, possession
and control of the subject truck. Franklin, as lessor, agreed that “while the [truck] was being
operated for [the lessee, Rose], it shall be used exclusively in the business and service of [Rose] in
compliance with all applicable rules, regulations, instructions and tariffs applicable to [Rose].”
Franklin also agreed to furnish drivers to operate the equipment in question and warranted that those
drivers would be competent and qualified. Rose agreed that, during the term of the lease, “the said
vehicle equipment while being operated for [Rose], shall be solely and exclusively under the
direction and control of [Rose] who shall assume full common carrier responsibility to shippers and
the general public for loss or damage to cargo transported in such motor vehicle equipment and for
the operations of such motor vehicle equipment.”
In addition, Franklin agreed that, during the term of the lease, it would obtain and maintain,
at its own cost, extensions of its public liability and property damage insurance in such companies
and in such amounts as approved by Rose. Furthermore, Franklin agreed to indemnify and “save
harmless” Rose against legal liability for any loss resulting from injury or death of such operating
personnel and any loss or damage to persons or property resulting from negligence, incompetence
3
1-07-1807
or dishonesty of any such operating personnel. The lease agreement also stated that Franklin “agrees
that [Rose] shall not be liable for any loss or damage to or destruction of said leased vehicle and
releases [Rose] from and against any claim or demand arising therefrom.” Finally, the lease
agreement stated that “[t]he operations to be conducted under this lease are limited to transportation
performable under the certificates of public convenience and necessity in I.C.C. Docket Number
MC-156863.”
The subject truck was scheduled on Zurich policy number TRK2725644-00, issued to Rose,
and effective August 24, 2002 through August 24, 2003. The Truckers Coverage Form provides for
“Who Is An Insured” as follows:
"a. You for any covered ‘auto’.1
b. Anyone else while using with your permission a covered ‘auto’
you own, hire or borrow except:
(1) The owner or anyone else from whom you hire or borrow
a covered ‘private passenger type auto’.
(2) Your ‘employee’ or agent if the covered ‘auto’ is a
‘private passenger type auto’ and is owned by that ‘employee’
or agent or a member of his or her household.
(3) Someone using a covered ‘auto’ while he or she is
working in a business of selling, servicing, repairing, parking
or storing ‘autos’ unless that business is yours.
(4) Anyone other than your ‘employees’, partners (if you are
a partnership), members (if you are a limited liability
company), a lessee or borrower or any of their ‘employees’,
1
The policy defines “auto” as a land motor vehicle, trailer or semitrailer designed for
travel on public roads.
4
1-07-1807
while moving property to or from a covered ‘auto’.
(5) A partner (if you are a partnership), or a member (if you
are a limited liability company), for a covered ‘private
passenger type auto’ owned by him or her or a member of his
or her household.
c. The owner or anyone else from whom you hire or borrow a
covered ‘auto’ that is a ‘trailer’ [including a semitrailer] while the
‘trailer’ is connected to another covered ‘auto’ that is a power unit, or,
if not connected:
(1) Is being used exclusively in your business as a ‘trucker’;2
and
(2) Is being used pursuant to operating rights granted to you
by a public authority.
d. The owner or anyone else from whom you hire or borrow a
covered ‘auto’ that is not a ‘trailer’ while the covered ‘auto’:
(1) Is being used exclusive in your business as a ‘trucker’; and
(2) Is being used pursuant to operating rights granted to you
by a public authority.
e. Anyone liable for the conduct of an ‘insured’ described above but
only to the extent of that liability."
The Zurich policy also provides that “none of the following is an ‘insured’”:
"a. Any ‘trucker’ or his or her agents or ‘employees’, other than you
and your ‘employees’:
(1) If the ‘trucker’ is subject to motor carrier insurance
requirements and meets them by a means other than ‘auto’
liability insurance.
2
The policy defines “trucker” as “any person or organization engaged in the business of
transporting property by ‘auto’ for hire.”
5
1-07-1807
(2) If the ‘trucker’ is not insured for hired ‘autos’ under an
‘auto’ liability insurance form that insures on a primary basis
the owners of the ‘autos’ and their agents and ‘employees’
while the ‘autos’ are being used exclusively in the ‘truckers’
business and pursuant to operating rights granted to the
‘trucker’ by a public authority."
Zurich has alleged throughout the course of its declaratory judgment action that section a(2) of this
portion of the policy is a reciprocal coverage provision that bars omnibus coverage to Key and
Washington.
The Zurich policy also includes an endorsement for an additional insured “as required by
contract/agreement,” although Franklin was not specifically listed on the schedule. Another
endorsement, entitled, “Hired Autos Specified As Covered Autos You Own,” included “all hired
autos under long-term contract,” although, again, Franklin was not specifically listed on the schedule.
There was no specific mention of Franklin as an insured in the entire Zurich policy. Zurich defended
Rose and Franklin in the underlying litigation pursuant to its policy.
Key was insured by West Bend under policy number CPC0292437 04 and an umbrella policy
under policy number CPC0292438, effective June 1, 2002, through June 1, 2003. The truck
involved in the accident was not scheduled on either of the West Bend policies.
In October 2002, Key had completed its asphalt hauling season and sought additional work
during what was typically considered to be a slow period for construction. Key entered into an oral
agreement to haul garbage for Navajo Transport (Navajo). Navajo had a central staging area where
it would bring all the trash from its route trucks, transfer the trash into trash-hauling trailers, and then
retain carrier-for-hire trucking companies to pull their trailers to various landfills. Key hired
Washington as one of its drivers approximately two weeks before the accident. At the time of the
6
1-07-1807
accident, Washington was driving the truck that struck the decedent’s automobile. Key had
borrowed the truck from Rose.
By deposition, Corrie Frank testified regarding the usage of the truck on the date of the
accident:
"What we had is we had the leased Freightliners hauling
asphalt and they had a higher fifth wheel than what we could use.
The assets we had available to us was with the Kenworths that
had the lower profile fifth wheels and they also are equipped with
hydraulics.
That unit [the subject truck] was just employed for a short
period of time to go ahead and employ this [Navajo garbage hauling
assignment]. The long term to this thing was to put the tractors back
with Rose Cartage, because that’s where we used the hydraulics, for
the dump trucks. And then we’d go out there and lease from
PacLease or Penske the proper units that have -- would have probably
the correct fifth wheel setup that doesn’t have hydraulics that we see
out there because the units are used as a tipper to go into the landfill.
So the overall effect was that this was a two-term -- it was
emergent -- it was an emergency or an on-the-spot thing because we
had to do something immediately to employ the proper equipment.
And then in the long term if this was going to work out then
7
1-07-1807
we could have still leased other equipment to fit the need for that."
In short, the truck that was leased by Franklin to Rose was borrowed by Key to haul waste on the
date of the accident. According to Corrie Frank, the truck was to be returned to Rose had the
accident not occurred.
Sharon Frank testified by deposition that Rose did not receive any economic benefit from
Key’s oral agreement with Navajo to haul waste. She stated, “[a]ny time that truck rolled Franklin
benefitted unless, of course, we didn’t get paid for it. But at any time the truck rolled in theory it was
performing service for which it would be paid and of course, that would ultimately benefit Franklin.”
She further explained that “the whole way that the system was set up was that the equipment owners
in the end saw the income realized.” Although Key used the truck, Franklin bought the fuel, paid
maintenance and “whatever else came up.” Key’s signage and Illinois Commerce Commission
(ICC) placards were on the truck at the time of the accident so that shippers could identify Key as
the operator of the truck.3
The affidavit of Sharon Frank stated that Key never paid Franklin for use of the truck
involved in the accident. The affidavit also stated that, “[b]ecause the tractor involved in the Salkic
accident was scheduled on the Zurich policy, it was [her] expectation that the Zurich policy would
provide primary coverage to Key for the Salkic lawsuit.” In addition, the affidavit stated that “[i]t
was Franklin Truck Group’s understanding that Franklin Truck Group was an additional insured on
3
Under section 18c-4701(1) and (2) of the Illinois Vehicle Code (625 ILCS 5/18c-
4701(1), (2) (West 2006)), Key’s placards and ICC registration constituted its operating rights by
a public authority.
8
1-07-1807
the Zurich policy issued to Rose Cartage based upon the ‘LESSOR-ADDITIONAL INSURED AND
LOSS PAYEE’ endorsement and the ‘HIRED AUTOS SPECIFIED AS COVERED AUTOS YOU
OWN’ endorsements of the Zurich policy.”
An April 28, 2003, coverage opinion letter from West Bend’s counsel to West Bend’s senior
claim representative stated that West Bend “will have a primary duty to defend and indemnify Key
Cartage, Inc., as well as its driver, Terry Washington. Zurich’s policy will also serve as a co-primary
policy with your policy, and you will split all defense and indemnity obligations.” West Bend’s
counsel pointed out “a unique situation” because of the fact that West Bend issued a commercial
auto coverage form to Key, whereas Zurich issued a trucker’s coverage form to Rose. Each form
has a different “other insurance clause.” West Bend’s counsel noted the language from Zurich’s
“other insurance clause” provides excess coverage for any covered “auto” while hired or borrowed
from another trucker. West Bend’s “other insurance clause” provides excess coverage for any
covered “auto” not owned by Key. Because the policies contain “mutually repugnant other insurance
clauses” where the insurers are claiming to be excess carriers, the “other insurance” clauses from
both policies essentially “cancel each other out.” West Bend’s counsel stated for this reason, Zurich
and West Bend are co-primary insurers.
Zurich initially filed its complaint for declaratory judgment on February 5, 2004, against Key,
West Bend, Washington and Salkic. On November 12, 2004, Zurich filed its first amended
complaint for declaratory judgment, in which it asserted that its policy requires reciprocal coverage
for the owners of vehicles it insures in exchange for coverage under its policy. Zurich noted that,
under the West Bend policy , a party other than Key or its employees is covered only while that party
9
1-07-1807
is using a covered auto. Zurich asserted that, because Rose was not using the vehicle at the time of
the accident, the West Bend policy does not provide reciprocal coverage and, therefore, Zurich was
precluded from coverage of Key and Washington as insureds for the underlying accident.
West Bend counterclaimed, arguing that, because Key and Washington were using the
subject truck, which Rose had hired and given permission for Key to use, Key and Washington
qualify as insureds under Zurich’s policy section providing, “Who Is An Insured.” West Bend also
contended that Zurich’s reciprocal coverage provision violates Illinois public policy requiring the
insurer of a vehicle to provide primary insurance to the permissive user of said vehicle. West Bend
requested that the circuit court enter a declaratory judgment that Zurich owes a primary duty to
defend and indemnify Key and Washington.
On October 31, 2005, Franklin and Rose were both voluntarily dismissed from the underlying
action.
On June 27, 2006, counsel for West Bend entered into a stipulation agreement, which stated
that West Bend has not reserved its rights to deny coverage for the underlying action and is providing
a defense to Key and Washington. West Bend acknowledged its duty to indemnify Key and
Washington for any judgment entered against them in the underlying action subject to the limits of
liability in the West Bend policy. West Bend entered into the stipulation agreement without
prejudice to its contention that Zurich owes the primary duty to defend and indemnify Key and
Washington.
On July 7, 2006, Zurich moved for summary judgment on all claims with respect to its first
amended complaint for declaratory judgment and against defendants on all claims as set forth in their
10
1-07-1807
amended counterclaims. West Bend, Key and Washington filed a cross-motion for summary
judgment on August 2, 2006.
On October 26, 2007, the circuit court conducted a hearing on the parties’ cross-motions for
summary judgment. Initially, the parties agreed that there were no facts in dispute that would
prevent the court from deciding the cross-motions. Counsel for Zurich stated that there was a
provision within the lease agreement between Franklin and Rose that required Rose to provide
insurance to Franklin. Counsel for Zurich stated that, “pursuant to an additional insured endorsement
on the back of the Zurich policy there is an argument that Franklin qualified as an insured under the
Zurich policy.” Counsel for Zurich agreed that Sharon Frank did not procure insurance specifically
for Franklin.
Zurich argued that its reciprocal coverage provision does not violate Illinois public policy.
Zurich contended that the Illinois Supreme Court’s holding in State Farm Mutual Automobile
Insurance Co. v. Universal Underwriters Group, 182 Ill. 2d 240 (1998), that a liability policy issued
to the owner of a vehicle must provide omnibus coverage to permissive drivers, was limited in scope
to the portion of the Illinois Vehicle Code encompassing the Safety and Family Financial
Responsibility Law (625 ILCS 5/7-100 et seq. (West 2006)) (Family Responsibility Law). Zurich
also argued that section 7-601(b)(2) of the Illinois Vehicle Code (625 ILCS 5/7-601(b)(2) (West
2006)), includes an exception to the requirement to provide omnibus coverage for “vehicles required
to file proof of liability insurance with the Illinois Commerce Commission.”
The circuit court asked Zurich’s counsel if there was Illinois authority that determined
whether the omnibus coverage requirement applies to the Illinois Commercial Transportation Law
11
1-07-1807
(625 ILCS 5/18c-1101, et seq. (West 2006)). Counsel for Zurich replied, “no,” and stated that West
Bend gave far too expansive of an interpretation of the Universal Underwriters case. Zurich argued
that the Commercial Transportation Law, which governs trucks, is administered independently of
the Family Responsibility Law and, therefore, is a completely independent statutory scheme.
The circuit court next questioned Zurich with respect to its reciprocal coverage provision.
The court stated:
"[C]an you tell me what in the world in the Zurich’s policy
this Subsection (a)(2) means? That is written so obtusely. I had to
read it back and forth a zillion times. What does that mean?"
Zurich explained that the reciprocal coverage provision says that any trucker, in this case, Key, who
fails to insure the owner of the truck, in this case, Franklin, on a primary basis and who is using the
truck for their exclusive use and pursuant to operating rights granted by the ICC must provide
reciprocal coverage to Franklin. Without reciprocal coverage provided by Key to Franklin, Zurich
is precluded from primary coverage for West Bend’s insureds.
West Bend responded that, although no Illinois courts have addressed whether the omnibus
coverage requirement applies to commercial transportation vehicles, the Illinois Appellate Court,
Fourth District, in Pekin Insurance Co. v. Fidelity & Guaranty Insurance Co., 357 Ill. App. 3d 891
(2005), held that a business exclusion for coverage of a permissive user in the business of selling,
servicing, repairing, parking, or storing autos violated Illinois public policy. West Bend pointed out
that the Pekin Insurance case involved a tow truck towing a commercial van. In regard to whether
Zurich’s reciprocal coverage provision is ambiguous, West Bend asserted that the cases Zurich cited
12
1-07-1807
in support of its argument that the provision is unambiguous were not applicable because they did
not consider the validity or ambiguity of that provision.
Zurich replied with respect to the holding in Universal Underwriters that “in the context of
what the court was addressing, it is an awful big stretch to suggest that they were ruling on this grand
basis that this provision was going to govern everything within the context of the vehicle code
because that is not what is before the court.” Zurich also argued that Pekin Insurance was not
applicable because that case involved a tow truck covered by an automobile insurance policy rather
than a commercial truck insurance policy.
On June 5, 2007, the circuit court entered summary judgment in favor of Zurich on its first
amended complaint for declaratory judgment and in favor of Zurich on West Bend’s counterclaim
and defendants’ cross-motion for summary judgment. The court found:
"(a) the ‘reciprocal coverage’ provision in Zurich’s policy
is valid and unambiguous;
(b) since West Bend’s policy does not provide reciprocal
coverage to Franklin or Rose Cartage, no coverage is
afforded for Key Cartage or Washington under the
Zurich policy;
(c) at the time of the accident, the truck in question was
in the ‘exclusive use’ of Key Cartage and being used
pursuant to the ‘operating rights’ granted to Key
Cartage by a ‘public authority,’ here the Illinois
13
1-07-1807
Commerce Commission pursuant to 625 ILCS 5/18c-
4701(1) and (2); and
(d) Zurich’s policy does not violate public policy of the
State of Illinois, and neither section 5/7-317(b)(2)
[(625 ILCS 5/7-317(b)(2) (West 2006))] nor section
5/7-601(a) of the Family Responsibility Law apply to
Franklin, Rose Cartage or Key Cartage which were
operating at the time of the accident under the
jurisdiction of the Illinois Commerce Commission and
governed by the Illinois Commercial Transportation
Law. 625 ILCS 5/18c-1101, et seq."
Defendants timely appeal.
II. ANALYSIS
Defendants argue on appeal that: (1) Zurich’s reciprocal coverage provision is unenforceable
because it violates Illinois public policy; (2) section 7-601(b)(2) of the Illinois Vehicle Code does
not exempt insurance policies issued for commercial vehicles from the omnibus coverage
requirement; (3) Illinois authority supports the extension of omnibus coverage under Section 7-
317(b)(2) to West Bend’s insureds, Key and Washington; and (4) Zurich’s reciprocal coverage
provision cannot be enforced because it is ambiguous. Defendants request that this court reverse the
circuit court’s entry of summary judgment in favor of Zurich and enter summary judgment in favor
of defendants or, alternatively, reverse the circuit court’s judgment in favor of Zurich and remand
14
1-07-1807
this cause to the circuit court with directions to enter summary judgment in favor of defendants.
Zurich responds that the circuit court did not err by granting summary judgment in Zurich’s
favor. Zurich asserts that its reciprocal coverage provision does not violate Illinois public policy.
Zurich argues that commercial trucking, specifically, “motor carriers of property,” are governed by
a separate and distinct regulatory scheme under the Commercial Transportation Law. Zurich
contends that section 7-601(b)(2) of the Family Responsibility Law specifically provides that
vehicles required to file proof of liability insurance with the ICC are exempt from the requirements
of section 7-317(b)(2) and instead are governed by the Commercial Transportation Law. In addition,
Zurich asserts that the circuit court properly ruled that the reciprocal coverage provision is
unambiguous, valid and enforceable.
A. Standard of Review
Summary judgment is granted properly where the pleadings, depositions, admissions and
affidavits, which are construed strictly against the moving party and liberally in favor of the
opponent (RLI Insurance Co. v. Illinois National Insurance Co., 335 Ill. App. 3d 633, 643 (2002)),
show there is no genuine issue as to any material fact and the moving party is entitled to judgment
as a matter of law. 735 ILCS 5/2-1005(c) (West 2006). Summary judgment is a drastic means of
disposing of litigation and should be allowed only when the right of the moving party is clear and
free from doubt. Travelers Insurance Co. v. Eljer Manufacturing, Inc., 197 Ill. 2d 278, 292 (2001);
Spirit of Excellence, Ltd. v. Intercargo Insurance Co., 334 Ill. App. 3d 136, 144-45 (2002). Reversal
of summary judgment is warranted if, on review, a material issue of fact or an inaccurate
interpretation of the law exists. Spirit of Excellence, 334 Ill. App. 3d at 145. Summary judgment
15
1-07-1807
and statutory construction matters are reviewed de novo. Midstate Siding & Window Co. v. Rogers,
204 Ill. 2d 314, 319 (2003); Outboard Marine Corp. v. Liberty Mutual Insurance Co., 154 Ill. 2d 90,
102 (1992).
B. Enforceability of Zurich’s Reciprocal Coverage Provision Pursuant to Illinois Public Policy
Defendants assert Zurich’s argument that its reciprocal coverage provision is not subject to
the omnibus coverage requirement found in section 7-317(b)(2) is based upon a misinterpretation
of section 7-601(b)(2). Defendants point out that there is no dispute that policies of insurance issued
to commercial truckers such as Rose and Key are subject to the insurance provisions contained in
the ICC. Defendants argue that the Illinois Supreme Court on two occasions has ruled that the
omnibus coverage requirement of section 7-317(b)(2) applies throughout the Illinois Vehicle Code.
Defendants contend that the omnibus coverage requirement of section 7-317(b)(2) applies to the
insurance provisions pursuant to the Commercial Transportation Law, which is part of the Illinois
Vehicle Code.
Zurich responds that the public policy concern regarding a permissive user of a motor
vehicle, who may borrow a vehicle and cause injury or damage to others, simply does not exist in
the intrastate trucking context. Zurich argues that defendants’ arguments are based upon the wrong
statutory scheme and should be rejected. Zurich contends that the Commercial Transportation Law,
not the Family Responsibility Law, governs operation of intrastate motor carriers of property such
as Key and Rose. Zurich asserts that, because Rose and Key were required to file proof of liability
insurance with the ICC in order to obtain the necessary registration numbers to operate on public
roadways as carriers of property for hire, the Commercial Transportation Law governs this dispute.
16
1-07-1807
The supreme court in Universal Underwriters was the first to address the scope of section 7-
317(b)(2). The question before the Universal Underwriters court was “whether a car dealer’s garage
insurance policy covers the liability of a separately insured customer who is involved in an accident
while test-driving one of the dealer’s vehicles.” Universal Underwriters, 182 Ill. 2d at 241. During
a test-drive, the customer, Rodney Luckhart, negligently collided with another vehicle owned by
Vivian Carter, but operated by Raun Calinee. Luckhart had automobile liability coverage under a
policy issued by the plaintiff, which paid a total of $9,092.15 to Carter and Calinee for personal
injuries and property damage from the accident. The car dealership, Joyce Pontiac, was insured
under a garage policy issued by the defendant. The plaintiff sought reimbursement for the accident
from the defendant, alleging that the defendant’s policy afforded primary coverage to Luckhart while
test-driving Joyce Pontiac’s vehicle. The defendant argued that a test-driver was only “required by
law” to be insured if the test-driver did not have a liability insurance policy.
Initially, the Universal Underwriters court noted the language included in section 7-317(a)
that defines the term “motor vehicle liability policy” and section 7-317(b)(2) as follows:
" ‘§ 7-317 “Motor vehicle liability policy” defined. (a)
Certification. -- A “motor vehicle liability policy”, as that term is
used in this Act, means an “owner’s policy” or an “operator’s policy”
of liability insurance, certified as provided in Section 7-315 or
Section 7-316 as proof of financial responsibility for the future ***.
(b) Owner’s Policy. -- Such owner’s policy of liability
insurance:
***
2. Shall insure the person named therein and any other person
using or responsible for the use of such motor vehicle or vehicles with
the express or implied permission of the insured.’ " (Emphasis added
and in original.) Universal Underwriters, 182 Ill. 2d at 244, quoting
17
1-07-1807
625 ILCS 5/7-317(West 2006).
The court then noted that the definition in section 7-317(a) appears in article III of chapter 7 of the
Illinois Vehicle Code, “which requires that certain motorists submit proof of financial responsibility
for the future as a condition of enjoying driving privileges.” Universal Underwriters, 182 Ill. 2d at
244-45. The defendant argued that section 3-317's omnibus clause only applies to liability policies
used as proof of future responsibility in accordance with article III of chapter 7.
The supreme court disagreed, stating that the statutory definition of “motor vehicle liability
policy” applied to the term as it is “ ‘used in this Act.’ ” Universal Underwriters, 182 Ill. 2d at 245.
“The word ‘Act,’ in turn, refers to the Illinois Vehicle Code, unless the context clearly indicates
another meaning.” (Emphasis added.) Universal Underwriters, 182 Ill. 2d at 245. The court held
that “the definition set forth in section 7-317 applies throughout the [Illinois Vehicle] Code and thus
applies to the mandatory insurance requirement set forth in section 7-601(a).” Universal
Underwriters, 182 Ill. 2d at 245.
The defendant in Universal Underwriters also argued that it was excused from the
requirements of section 7-317 under a statutory exemption for “ ‘vehicles complying with laws
which require them to be insured in amounts meeting or exceeding the minimum amounts required
under [section 7-601]’ ” 182 Ill. 2d at 245, quoting 625 ILCS 5/7-601(b)(6) (West 1996). The
supreme court stated that the exemption which the defendant referred to applies only when the
insurance required by law provides the type of coverage required under the mandatory insurance
statute. The court ruled that “the insurance must contain an omnibus clause insuring those driving
a vehicle with the owner’s permission.” Universal Underwriters, 182 Ill. 2d at 245-46. The court
18
1-07-1807
stated that the defendant’s policy must cover Luckhart’s liability as a permissive user regardless of
whether the exemption under section 7-601(b)(6) of the Family Responsibility Law applies. Finally,
the court stated that, even assuming the defendant was correct in its interpretation of the language
in its policy, to give effect to that language would violate Illinois public policy. Universal
Underwriters, 182 Ill. 2d at 246.
Pertinent to this case, the defendant in Universal Underwriters also argued that, to the extent
its policy covered Luckhart, the policy only provided excess coverage after other insurance covering
Luckhart was exhausted. The supreme court stated, “pursuant to custom in the insurance industry,
primary liability is generally placed on the insurer of the owner of an automobile rather than on the
insurer of the operator.” Universal Underwriters, 182 Ill. 2d at 246.
The supreme court in State Farm Mutual Automobile Insurance Co. v. Smith, 197 Ill. 2d 369
(2001) held that an automobile business exclusion violated Section 7-317(b)(2) of the Illinois
Vehicle Code and, therefore, Illinois public policy, because it precluded coverage of any person
driving the owner’s vehicle with the express or implied permission of the owner. The policy
exclusion at issue in Smith provided as follows
‘THERE IS NO COVERAGE:
1. WHILE ANY VEHICLE INSURED UNDER THIS SECTION IS:
* * *
b. BEING REPAIRED, SERVICED OR USED BY ANY
PERSON EMPLOYED OR ENGAGED IN ANY WAY IN
A CAR BUSINESS.’
19
1-07-1807
197 Ill. 2d at 372-73. The term “car business” was defined as “a business or job where the purpose
is to sell, lease, repair, service, transport, store or park land motor vehicles or trailers.” Smith, 197
Ill. 2d at 373.
The underlying incident in Smith involved a valet parking service. Maurice Barnes,
accompanied by Ruby Smith, drove his vehicle to Harrah’s Casino Cruises-Joliet. Barnes gave his
vehicle to Harrah’s valet service for parking. When Barnes and Smith left the casino, the valet driver
employed by Harrah’s, Jeremy Fisher, retrieved Barnes’ automobile. Smith alleged that, as she
entered the passenger door, the vehicle rolled backwards, striking her and knocking her to the
ground, causing injury. Fisher and Harrah’s tendered their defense to Barnes’ insurer, State Farm
Mutual Automobile Insurance Company (State Farm). State Farm refused the tender and filed a
declaratory judgment action arguing that it had no duty to defend or indemnify Fisher or Harrah’s
based upon its automobile business exclusion clause, as quoted above.
The circuit court held that the automobile business exclusion applied and that State Farm had
no duty to defend or indemnify Fisher or Harrah’s. The appellate court held that the automobile
business exclusion violated Illinois public policy and, therefore, was unenforceable. The supreme
court agreed with the appellate court and explained:
"Section 7-317(b)(2) is clear. It mandates that a motor
vehicle liability policy, or a liability insurance policy, cover
the named insured and any other person using the vehicle with
the named insured’s permission. [Citations.] When a vehicle
owner gives his vehicle to a person engaged in an automobile
20
1-07-1807
business, the owner is also giving that person the express or
implied permission to use the vehicle. Therefore, a provision
written into an insurance policy that excludes coverage for
persons engaged in an automobile business necessarily
excludes coverage for persons who are using an insured’s
vehicle with the insured’s express or implied permission. The
exclusion thus violates section 7-317(b)(2) of the Illinois
Vehicle Code." Smith, 197 Ill. 2d at 374.
The supreme court’s holding, however, was limited to only the automobile business exclusion from
the policy, stating “[t]he permissibility of other possible policy exclusions is not before us today, and
we express no opinion as to any other exclusion.” Smith, 197 Ill. 2d at 379.
Following the decision in Smith, the Fourth District addressed whether a business exclusion
of liability coverage for a permissive user was void as against public policy. See Pekin Insurance,
357 Ill. App. 3d at 904-05. In Pekin Insurance, a business van owned by Sanfilippo and Sons, Inc.
(Sanfilippo) and insured by the defendant, Fidelity and Guaranty Insurance Company (Fidelity) broke
down. The driver called for a tow and Brown’s Vehicle Inspection (Brown’s Towing), a business
owned by Larrie Brown, responded with a tow truck insured by the plaintiff, Pekin Insurance
Company (Pekin). The tow truck driver hitched the delivery van and proceeded to drive toward
Quincy, Illinois. During the trip, the van broke free, crossed into oncoming traffic, and injured the
driver and passenger of an oncoming vehicle. The injured driver and passenger sued Larrie Brown,
both individually and as Brown’s Towing, the tow truck driver, Sanfilippo and the delivery van
21
1-07-1807
driver. Pekin brought a declaratory judgment action against Fidelity, seeking a declaration that
Fidelity owed a duty to defend Brown’s Towing and its driver and that Pekin owed no duty to defend
the delivery van owner and its driver. The circuit court granted judgment on the pleadings that
Fidelity’s policy provided no coverage for Brown’s Towing and the tow truck driver and that Pekin
breached its duty to defend Sanfilippo and its driver.
The business exclusion provision in Fidelity’s policy provided an exclusion from coverage
for “ ‘[s]omeone using a covered “auto” while he or she is working in a business of selling,
servicing, repairing, parking[,] or storing “autos” unless that business is yours.’ ” Pekin Insurance,
357 Ill. App. 3d at 904. The Pekin Insurance court found that the business exclusion applied to
Brown’s Towing. The Pekin Insurance court compared the Fidelity business exclusion with the
relevant insurance provision from Smith and found that the Fidelity exclusion violates public policy.
The court stated:
"The fact that tow trucks are required to carry their own
insurance [under 625 ILCS 5/12-606(d) (West 2006)] does not mean
that towed vehicles should be allowed to except tow trucks from their
coverage. The policy of protecting the public is best served by having
both the tow truck’s policy and the towed vehicle’s policy as
available insurance." Pekin Insurance, 357 Ill. App. 3d at 904.
The court held that, because Fidelity’s business exclusion violates public policy as stated in State
Farm, the circuit court improperly denied Pekin judgment on the pleadings as to this claim. Pekin
Insurance, 357 Ill. App. 3d at 904-05.
22
1-07-1807
Pekin also claimed that it owed no duty to defend or indemnify anyone because Brown’s
Towing and its driver “deselected” their coverage under the Pekin policy and “targeted” the Fidelity
policy, which was similar to the claim in John Burns Construction Co. v. Indiana Insurance Co., 189
Ill. 2d 570 (2000). The Pekin Insurance court found that allowing Brown’s Towing and its driver
to “deselect” their statutory Pekin policy and target the Fidelity policy violates Illinois public policy.
The court stated:
"Insurance is mandatory for tow trucks on public highways in
order to protect the public from damage arising from the use of tow
trucks. To allow the owner of a policy mandated by this statute [(625
ILCS 5/12-606(d) (West 2006))] to deselect that coverage in favor of
the coverage of the vehicle it tows would render the statute and its
purpose virtually meaningless." Pekin Insurance, 357 Ill. App. 3d at
902.
The court distinguished the facts of John Burns, where the contractor was named on both policies
and both insurers were primary carriers. In Pekin Insurance, Brown’s Towing and its driver were
not named insureds or additional insureds on the Fidelity policy, but were omnibus insured. 357 Ill.
App. 3d at 902-03. The Pekin Insurance court did not specifically refer to section 7-317(b)(2) in this
portion of the opinion, but revisited the fact that Fidelity’s policy required omnibus coverage under
section 7-317(b)(2) when discussing and comparing the holding in Smith. In sum, the Pekin
Insurance court considered that insurance policies for tow trucks, which require mandatory insurance
under Section 12-606(d) of the Illinois Vehicle Code, also require omnibus coverage pursuant to
23
1-07-1807
section 7-317(b)(2).
Another recent supreme court decision, State Farm Mutual Automobile Insurance Co. v.
Illinois Farmers Insurance Co., 226 Ill. 2d 395 (2007), determined whether a “step-down” provision,
which reduces the policy limits for permissive users, was violative of Illinois public policy pursuant
to section 7-317(b)(2). Unlike Universal Underwriters, Smith and Pekin Insurance, the supreme
court did not consider whether the pertinent step-down provision violated section 7-317(b)(2) for
precluding coverage to permissive users. Instead, the Illinois Farmers court considered whether a
permissive user required an equal amount of coverage as provided to the named insured.
The court in Illinois Farmers reiterated its holding in Universal Underwriters that an omnibus
clause “must be read into every liability insurance policy.” 226 Ill. 2d at 402. The court also stated
that liability insurance required by section 7-601 of the Illinois Vehicle Code must comply with the
requirements of section 7-317(b)(2). The court held, however, that nothing in the pertinent statutory
language required a liability policy providing the named insured with coverage in excess of the
statutory minimum pursuant to section 7-203 of the Illinois Vehicle Code (625 ILCS 5/7-203 (West
2006)) to provide the same level of coverage to permissive users. Illinois Farmers, 226 Ill. 2d at 403-
04.
In Progressive Universal Insurance Co. v. Liberty Mutual Fire Insurance Co., 215 Ill. 2d 121
(2005), Shirley Abbinante owned a vehicle insured under a policy issued by the plaintiff, Progressive
Universal Insurance Company (Progressive). Abbinante allowed her son, Ronald, to use the insured
vehicle to deliver pizzas for his employer, Casale Pizza, Inc. Ronald was compensated by a flat fee
for each pizza he delivered. During one of his deliveries, he struck a pedestrian, who sustained
24
1-07-1807
severe injuries. Progressive’s policy contained a “ 'food delivery exclusion,' ” which precluded
coverage for bodily injury or property damage while an insured vehicle was “‘being used to carry
persons or property for compensation for a fee, including, but not limited to, delivery of *** food,
or any other products.’” The supreme court determined whether Progressive had a duty to defend
and indemnify Ronald in the underlying action.
The defendant, Liberty Mutual Fire Insurance Company (Liberty Mutual), argued that the
food exclusion violated public policy because it conflicted with section 7-317(b)(2). Liberty Mutual
contended that, because Ronald was using the vehicle with his mother’s express permission at the
time he struck the pedestrian, section 7-317(b)(2) required Progressive to defend and indemnify
Ronald in the underlying litigation.
Once again, the supreme court reiterated that the omnibus clause as required by statute “must
be read into every such policy.” Progressive, 215 Ill. 2d at 128. The court noted the principal
purpose of this state’s mandatory liability insurance requirement is to protect the public by securing
payment of their damages. The court further explained Illinois public policy on this issue:
"It is axiomatic that a statute that exists for protection of the public
cannot be rewritten through a private limiting agreement. One reason
for that rule is that ‘the members of the public to be protected are not
and, of course, could not be made parties to any such contract.’
[Citation.] In accordance with these principals, a statute’s
requirements cannot be avoided through contractual provisions.
Where liability coverage is mandated by the state’s financial
25
1-07-1807
responsibility law, a provision in an insurance policy that conflicts
with the law will be deemed void. The statute will continue to
control." Progressive, 215 Ill. 2d at 129.
The supreme court stated that whether a contractual agreement is void as against public policy
“ultimately depends on the particular facts and circumstances of each case.” Progressive, 215 Ill.
2d at 133. The court distinguished the facts in Smith, in which the business exclusion applied only
to permissive users. The exclusion in Smith meant that conduct which would be covered if
undertaken by the insured would not be covered if undertaken by someone who was using the vehicle
with the insured’s permission. In comparison, the food delivery exclusion in Progressive provided
that no one was exempt. The food delivery exclusion applied with equal force to the named insured,
Shirley Abbinante, and the permissive user, Ronald. The court stated, “[b]ecause the exclusion in
Progressive’s policy does not differentiate between the insured and those using the vehicle with the
insured’s permission, there is no possibility, as there was in Smith, that liability insurance coverage
afforded the insured would also not be extended to permissive users of the vehicle.” Progressive,
215 Ill. 2d at 134. The court held that the “food delivery exclusion” did not conflict with Section
7-317(b)(2) and, therefore, did not violate public policy.
In sum, the above cases show that: (1) section 7-317(b)(2) requiring omnibus coverage
applies to the entire Illinois Vehicle Code; and (2) an insurance provision violates section 7-
317(b)(2) and, therefore, Illinois public policy, if it provides coverage to the named insured and
precludes coverage to an express or implied permissive user.
There is no Illinois authority that has determined whether section 7-317(b)(2) applies to
26
1-07-1807
commercial truck liability coverage under the Commercial Transportation Law. Section 7-317(b)(2)
does not include any specific language limiting omnibus coverage to passenger vehicles.
Zurich argues that section 7-317(b)(2) does not apply to the Commercial Transportation Law
because Key and Rose were both required to file proof of liability insurance with the I.C.C. in order
to operate on public roadways, thereby fulfilling the purpose of this state’s mandatory liability
insurance requirement to protect the public from damage arising from the use of commercial trucks.
Zurich asserts that section 7-601(b)(2) expressly excludes carriers of intrastate or interstate property
from the mandatory insurance requirement in section 7-601(a). These statutes provide in pertinent
part:
§ 7-601. Required liability insurance policy.
(a) No person shall operate, register or maintain registration
of, and no owner shall permit another person to operate, register or
maintain registration of, a motor vehicle designed to be used on a
public highway unless the motor vehicle is covered by a liability
insurance policy.
* **
(b) The following vehicles are exempt from the requirements
of this Section:
***
(2) vehicles required to file proof of liability insurance with
the Illinois Commerce Commission. 625 ILCS 5/7-601 (West
2006).
Zurich’s argument that Section 7-317(b)(2) does not apply because of the exemption in
section 7-601(b)(2) is misplaced. As noted above, the defendant in Universal Underwriters also
argued that it was excused from the requirements of section 7-317(b)(2) under a statutory exemption
pursuant to section 7-601(b)(6) of the Illinois Vehicle Code, which applies to “other vehicles
complying with laws which require them to be insured in amounts meeting or exceeding the
27
1-07-1807
minimum amounts required under [section 7-601].” The court in Universal Underwriters ruled that
“the insurance must contain an omnibus clause insuring those driving a vehicle with the owner’s
permission.” Universal Underwriters, 182 Ill. 2d at 245-46. The court stated that the defendant’s
policy must cover the liability of Luckhart, the test-driver, as a permissive user regardless of whether
the exemption under section 7-601(b)(6) applies.
Accordingly, we follow the supreme court’s decision in Universal Underwriters and its
progeny to require the application of omnibus coverage pursuant to section 7-317(b)(2) to Zurich’s
Reciprocal Coverage provision. We find that section 7-601(b)(2) does not exempt insurance policies
issued for commercial vehicles from the omnibus coverage requirement pursuant to section 7-
317(b)(2). Illinois authority and public policy support this finding.
The supreme court’s public policy analysis in Illinois Farmers is applicable. The court stated
that “[t]he legislature is vested with the power to enact the laws and if the legislation as enacted
‘seems to operate in certain cases unjustly or inappropriately, the appeal must be to the General
Assembly, and not to the court.’ ” Illinois Farmers, 226 Ill. 2d at 413-14, quoting People v. Garner,
147 Ill. 2d 467, 475-76 (1992). The court noted new legislation with an effective date of January
1, 2008, which mandates that “ ‘any policy of private passenger automobile insurance must provide
the same limits of *** coverage to all persons insured under that policy, whether or not an insured
person is a named insured or permissive user under the policy.’ ” Illinois Farmers, 226 Ill. 2d at 414,
quoting Pub. Act 95-395, eff. January 1, 2008 (now 215 ILCS 5/143.13a (West Supp. 2007)).
Finally, the court stated, “when the legislature intends different types of coverage in excess of the
minimum statutory requirements mandated by section 7-203 of the Illinois Safety and Family
28
1-07-1807
Financial Responsibility Law to be the same, it chooses plain, unambiguous language to indicate its
intent. It has now done so, effective January 1, 2008.” Illinois Farmers, 226 Ill. 2d at 414.
In this case, the unambiguous language of section 7-317(b)(2) provides that an owner shall
insure “any other person using or responsible for the use of such motor vehicle or vehicles with the
express or implied permission of the insured.” 625 ILCS 5/7-317 (West 2006). If the legislature
intended to limit the mandatory omnibus coverage requirement solely to passenger vehicles, it would
have chosen plain, unambiguous language to indicate its intent.
Furthermore, Illinois public policy requiring omnibus coverage for all motor vehicle liability
policies is reflected in the Illinois Vehicle Code (625 ILCS 5/100 et seq. (West 2006)). Both Rose
and Key were businesses engaged in commercial trucking operations, as governed by the
Commercial Transportation Law (625 ILCS 5/18c-1101 et seq. (West 2006)), which is within the
Illinois Vehicle Code. The Commercial Transportation Law requires all motor carriers of property
to maintain liability insurance (625 ILCS 5/18c-4901 (West 2006)). Although the Commercial
Transportation Law provides no specific language requiring omnibus coverage for commercial
truckers, the supreme court has interpreted that section 7-317(b)(2) must be read into every liability
policy. Illinois Farmers, 226 Ill. 2d at 402.
As a matter of public safety, Illinois public policy warrants mandatory omnibus coverage for
commercial truckers that should not be limited by private agreement. See Progressive, 215 Ill. 2d
at 129-30 (“[a]n agreement will not be invalidated on public policy grounds unless it is clearly
contrary to what the constitution, the statutes or the decisions of the courts have declared to be the
public policy or unless it is manifestly injurious to the public welfare”). If we were to accept
29
1-07-1807
Zurich’s argument that section 7-317(b)(2) does not apply to commercial truckers, persons injured
by permissive drivers of commercial trucks would be unable to secure payment of their damages,
in violation of public policy. See Smith, 197 Ill. 2d at 376 (noting the principal purpose of
mandatory automobile liability insurance is to protect the public by securing payment of their
damages). Protection of the public is best served by requiring omnibus insurance because the
legislature “intended to insure that the common and often unavoidable practice of entrusting one’s
vehicle to someone else does not foreclose an injured party from obtaining payment for otherwise
covered losses resulting from operation of the vehicle.” Progressive, 215 Ill. 2d at 137. The
supreme court has held that section 7-317(b)(2) applies throughout the Vehicle Code (Progressive,
215 Ill. 2d at 128; Universal Underwriters, 182 Ill. 2d at 245) and there is no statutory language
precluding commercial truckers from the omnibus insurance requirement in the statute. Accordingly,
we find that section 7-317(b)(2) applies to insurance policies for commercial truckers issued
pursuant to section 18c-4901 and, for the purposes of this case, to Zurich’s reciprocal coverage
provision.
In this case, because Zurich’s reciprocal coverage provision precludes omnibus coverage for
Key and Washington, the reciprocal coverage provision violates section 7-317(b)(2) and, therefore,
Illinois public policy. Smith, 197 Ill. 2d at 372 (“insurance policy provisions that conflict with a
statute are void”). Accordingly, we find that the circuit court erred by granting summary judgment
in favor of Zurich on this issue.
C. Enforceability of Zurich’s Reciprocal Coverage Provision On The Issue Of Ambiguity
Defendants’ second ground for arguing that Zurich’s reciprocal coverage provision is
30
1-07-1807
unenforceable is based on their contention that the provision is ambiguous. In light of our finding
that Zurich’s reciprocal coverage provision is violative of section 7-317(b)(2) and, therefore, void
(Progressive, 215 Ill. 2d at 129; Smith, 197 Ill. 2d at 372), we need not reach the issue of whether
the Reciprocal Coverage provision is ambiguous.
III. CONCLUSION
In conclusion, the circuit court erred by granting summary judgment in favor of Zurich and
against West Bend. As a matter of first impression, we hold that section 7-317(b)(2) of the Illinois
Vehicle Code applies to insurance policies issued to commercial truckers. In addition, we find that
Zurich’s reciprocal coverage provision violated section 7-317(b)(2) and, therefore, is void as against
Illinois public policy. This cause is reversed and remanded with directions to reverse summary
judgment in favor of Zurich and enter summary judgment in favor of defendants.
Reversed and cause remanded with directions.
THEIS and CUNNINGHAM, JJ., concur.
31