Second Division
August 5, 2008
No. 1-06-1902
STATE FARM FIRE AND CASUALTY COMPANY, ) Appeal from the
) Circuit Court of
Plaintiff-Appellee, ) Cook County.
)
)
v. ) No. 05 CH 3422
)
)
MARCELO MARTINEZ, Father and Next )
Friend of Daniela Almendarez, ) Honorable
) Martin S. Agran
Defendant-Appellant. ) Judge Presiding.
JUSTICE HALL delivered the opinion of the court:
In underlying action, Humbelina Flores and her husband
Aurelio Flores sought insurance coverage for a personal injury
action under a homeowners insurance policy that State Farm Fire &
Casualty Company (State Farm) issued to Martin Torres and his
wife Maria Torres. State Farm filed this declaratory judgment
action contending that the Floreses are not covered under the
Torreses' homeowners policy because under the terms of the policy
they do not qualify as insureds since they are not residents of
the Torreses' "household" as that term is defined in the case
law. We agree.
The facts surrounding this controversy are as follows. On
November 26, 2002, Marcelo Martinez commenced the underlying
personal injury action against Humbelina Flores, Maria Torres,
and her husband Martin Torres, seeking damages for injuries his
minor daughter Daniela Almendarez suffered when she was bitten by
a dog owned by the Floreses while a guest in their home. The
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home is located at 2109 South 50th Avenue, in Cicero, Illinois,
and was insured under a homeowners insurance policy that State
Farm issued to Martin and Maria Torres.
According to the declarations, State Farm issued a
homeowners policy to its named insureds, Martin and Maria Torres,
effective between August 13, 2001, and August 13, 2002, providing
a $100,000 liability limit for each occurrence and identifying a
mailing address of 2109 South 50th Avenue, in Cicero, Illinois.
The Torreses held legal title to the home but had never
lived in the home. They actually lived at a separate address
located at 3628 57th Avenue, in Cicero, Illinois. The Torreses
agreed to take legal title to the home to assist Humbelina in
purchasing the home because her credit was bad. Maria Torres and
Humbelina Flores are blood sisters.
On December 30, 2002, State Farm agreed to provide Humbelina
with a defense in the underlying personal injury action subject
to a reservation of rights. The ground for the reservation was
that there was a question as to whether Humbelina qualified as an
insured under the Torreses' homeowners policy.
On the same date, State farm also agreed to provide Maria
and Martin Torres with a defense in the underlying personal
injury action subject to a reservation of rights. One of the
grounds for the reservation was that there was a question as to
whether the home where the dog-bite incident occurred qualified
as a "residence premises" or an "insured location" under the
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policy.
In her answer to the personal injury complaint, Humbelina
acknowledged owning the dog, but denied all allegations of
wrongdoing. In their answer to the complaint, the Torreses
admitted they owned the home where the incident occurred but
denied owning the dog and denied all allegations of wrongdoing.
Shortly thereafter, on February 7, 2003, State Farm verbally
declined to accept Humbelina's tender of defense. This decision
was subsequently confirmed in a letter dated February 11, 2003,
that State Farm sent to Humbelina's attorney.
The parties then proceeded to take pretrial discovery
depositions. At his discovery deposition, Martin Torres
testified that since Humbelina had a poor credit rating, he and
his wife agreed to help her purchase the home where the incident
occurred.
According to Martin Torres, Humbelina provided the down
payment for purchase of the home while he and his wife took joint
legal title to the home with the intention of eventually
conveying it to Humbelina. Martin Torres also stated that he and
his wife never lived or intended to live in the home and had
allowed the Floreses to live there rent-free because they were
family.
Martin Torres testified that the Floreses had been living in
the home for about eight years and were responsible for
maintaining the property. Humbelina made all the mortgage
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payments to the bank.
Martin Torres claimed that he and his wife transferred the
home to Humbelina about a year prior to his discovery deposition.
According to Martin Torres, he and his wife did not receive any
consideration for the transfer.
Martin Torres further testified that at the time he obtained
the homeowners insurance policy for the home, he did not tell
State Farm that his sister-in-law and her family would be living
in the home. Maria Torres' discovery deposition testimony was
similar to her husband's testimony.
Shortly after giving their discovery depositions, the
Torreses obtained summary judgment in their favor on all claims
asserted against them in the personal injury complaint. On
September 21, 2004, Marcelo Martinez filed an amended complaint
on behalf of his daughter, naming the Floreses as the only
defendants.
On or about October 27, 2004, the underlying personal injury
action was dismissed with prejudice pursuant to a settlement
agreement. Under the agreement, the Floreses consented to a
judgment against them in the amount of $150,000, along with an
assignment to Marcelo Martinez of any right of recovery against
State Farm. In return, Marcelo Martinez agreed to release the
Floreses, and he covenanted not to execute the judgment against
their personal assets but to satisfy the judgment out of the
proceeds of the Torreses' homeowners insurance policy.
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State Farm then filed the instant declaratory judgment
action on February 22, 2005, seeking a determination that it was
not contractually obligated to provide a defense or insurance
coverage to the Floreses in the underlying personal injury action
because neither of them qualified as an insured under the
Torreses' homeowners insurance policy. On April 14, 2005, State
Farm filed an amended complaint for declaratory judgment based on
a certified copy of the homeowners policy.
The parties subsequently filed cross-motions for summary
judgment concerning State Farm's obligation to defend and
indemnify the Floreses in the underlying personal injury action.
After hearing argument on the cross-motions for summary judgment,
the trial court granted State Farm's motion. The trial court
concluded that State Farm did not have a duty to defend the
Floreses in the underlying personal injury action because they
did not qualify as insureds under the Torreses' homeowners
insurance policy because they were not members of the Torreses'
"household" as that term was defined in the case law. The trial
court denied the motion to reconsider and this appeal followed.
ANALYSIS
Summary judgement is appropriate where the pleadings,
depositions, and admissions on file, together with any
affidavits, when viewed in the light most favorable to the
nonmovant, reveal there is no genuine issue of material fact and
that the movant is entitled to judgment as a matter of law. 735
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ILCS 5/2-1005(c) (West 2000); Gawryk v. Firemen's Annuity &
Benefit Fund of Chicago, 356 Ill. App. 3d 38, 41, 824 N.E.2d 1102
(2005). When, as in this case, the parties file cross-motions
for summary judgment, they agree that no genuine issue as to any
material facts exists and that only a question of law is
involved, and they invite the court to decide the issues based on
the record. Gawryk, 356 Ill. App. 3d at 41. Our review is de
novo. Abrams v. City of Chicago, 211 Ill. 2d 251, 258, 811 N.E.2d
670 (2004).
In addition, an insurance policy is a contract and its
construction is also reviewed de novo as a question of law.
Andreou & Casson, Ltd. v. Liberty Insurance Underwriters, Inc.,
377 Ill. App. 3d 352, 358, 877 N.E.2d 770 (2007).
Marcelo Martinez first contends that State Farm is estopped
from raising coverage defenses because it breached its duty to
defend when it initially agreed to provide Humbelina with a
defense to the underlying personal injury action and then
abandoned that defense without filing a timely declaratory
judgment action. We disagree.
In a case such as this, where an insurer believes that a
policy may not provide coverage, it has two options: it can seek
a declaratory judgment to determine its obligation to defend or
it can defend under a reservation of rights. Royal Insurance Co.
v. Process Design Associates, Inc., 221 Ill. App. 3d 966, 973,
582 N.E.2d 1234 (1991). In this case, State Farm chose the
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latter option.
An insurer who notifies its insured that it is defending the
insured under a reservation of rights and identifies the policy
provisions that may preclude coverage is not estopped from
subsequently denying coverage. See Earl v. Thompson, 128 Ill.
App. 2d 32, 37-38, 262 N.E.2d 320 (1970); Royal Insurance Co.,
221 Ill. App. 3d at 974 ("If the insurer has adequately informed
the insured of its election to proceed under a reservation of
rights, and the insured accepts the insurer's tender of defense
counsel, the insurer has not breached its duty of loyalty and is
not estopped from asserting policy defenses").
Estoppel does not apply in this case because State Farm
complied with its duty to defend. State Farm sent written notice
to the parties at the outset of the personal injury action that
it was providing them a defense subject to a reservation of
rights. Following the parties' answers to the personal injury
complaint, where Humbelina Flores admitted owning the dog and the
Torreses admitted owning the home where the incident occurred,
State Farm informed the Floreses that it was denying coverage.
State Farm then filed a declaratory judgment action seeking a
determination of whether there was coverage under the homeowners
policy. Under these facts, State Farm was not estopped from
asserting coverage defenses.
Estoppel also does not apply because Humbelina Flores fails
to show that she detrimentally relied on State Farm's initial
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decision to undertake her defense in the underlying personal
injury action. An insurer's delay in withdrawing its initial
decision to provide a defense to an insured is not sufficient to
establish estoppel unless the delay results in prejudice. Western
Casualty & Surety Co. v. Brochu, 122 Ill. App. 3d 125, 134-35,
460 N.E.2d 832 (1984).
Marcelo Martinez finally contends that even if we conclude
that State Farm was not estopped from asserting its policy
defense we should still find that the trial court erred in
holding that the Floreses were not covered under the Torreses'
homeowners insurance policy. Marcelo Martinez asserts that the
Floreses qualify as insureds under the policy because they were
residents of the Torreses' "household."
When a declaratory judgment action is brought to determine
an insurer's duty to defend, the court assesses the allegations
in the underlying complaint in light of the relevant policy
provisions in order to determine whether the claim falls within
or potentially within coverage. Royal Insurance Co. of America v.
Insignia Financial Group, Inc., 323 Ill. App. 3d 58, 63-64, 751
N.E.2d 164 (2001).
In this case, the definitional section of the policy
provides that the following are insured: "you" (named insured);
and if a resident of your household, "your relatives" and "any
other person under the age of 21 who is in the care of a person
described above." Accordingly, the Floreses qualify as insureds
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under the policy only if they can be deemed residents of the
Torreses' household.
Initially we note that the Torreses' homeowners policy does
not define the term "household." And courts have generally
concluded that, in relation to insurance policies, the term is
ambiguous with no fixed meaning. See, e.g., Cincinnati Insurance
Co. v. Argubright, 151 Ill. App. 3d 324, 331, 502 N.E.2d 868
(1986); Erie Insurance Exchange v. Stephenson, 674 N.E.2d 607,
610 (Ind. App. 1996); see also Liberty Mutual Insurance Co. v.
Havner, 103 S.W.3d 829, 833 (Mo. App. 2003) (term "household" is
ambiguous when left undefined in homeowners policy).
Ambiguous terms in an insurance policy are generally
construed in favor of the insured and against the drafter of the
policy. Traveler's Insurance Co. v. Eljer Manufacturing, Inc.,
197 Ill. 2d 278, 293, 757 N.E.2d 481 (2001). In this case,
however, even if we strictly construed the term "household"
against State Farm, there is no way the Floreses can be deemed
residents of the Torreses' household.
The phrase "resident of the household" has no fixed meaning.
Farmers Automotive Insurance Ass'n v. Gitelson, 344 Ill. App. 3d
888, 893-94, 801 N.E.2d 1064 (2003). Interpretation of the
phrase requires a case-specific analysis of intent, physical
presence, and permanency of abode. Gitelson, 344 Ill. App. 3d at
894. The controlling factor, however, is the intent of the party
whose residency is in question as evinced by that party's
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actions. Argubright, 151 Ill. App. 3d at 330.
Applying these factors to the case at bar, it is clear that
the Floreses were not residents of the Torreses' household at the
time of the dog-bite incident. At the time of the incident, the
Flores family lived at 2109 South 50th Avenue, while the Torres
family lived at a separate address located at 3628 57th Avenue.
Martin Torres testified that he and his wife never lived or
intended to live at the 2109 South 50th Avenue address, and no
evidence was presented that the Floreses ever intended to live at
the address where the Torreses maintained their household. The
evidence showed that at the time of the incident, the Floreses
and Torreses maintained two separate and independent households
each operating as separate domestic units.
Under these factual circumstances, there was no genuine
issue of material fact as to whether the Floreses were residents
of the Torreses' household at the time of the dog-bite incident
for purposes of the insurance policy. See, e.g., Argubright, 151
Ill. App. 3d at 331, quoting Liberty National Bank v. Zimmerman,
333 Ill. App. 94, 102, 77 N.E.2d 49 (1947) ("'[a] family
considered as consisting of all those who share in the privileges
and duties of a common dwelling'"); Jones v. Crane Co., 653 So.
2d 822, 825 (La. Ct. App. 1995) (household as a "group of people
living together as a family, and, for insurance purposes, the
term is generally synonymous with 'family'"); American States
Insurance Co. v. Walker, 26 Utah 2d 161, 164, 486 P.2d 1042, 1044
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(1971) ("A resident of a household is one who is a member of a
family who live under the same roof").
The trial court correctly held that the Floreses were not
covered under the homeowners insurance policy issued to the
Torreses, because the Floreses were not residents of the
Torreses' household at the time of the dog-bite incident. The
trial court did not err by entering summary judgment in favor of
State Farm.
Accordingly, for the reasons set forth above, we affirm the
circuit court's judgment granting summary judgment in favor of
State Farm and we affirm the court's order denying Marcelo
Martinez' motion for reconsideration.
Affirmed.
HOFFMAN, P.J., and SOUTH, J., concur.
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