Direct Automobile Insurance Company v. Krso

2021 IL App (1st) 200855-U
No. 1-20-0855
Second Division
December 28, 2021

NOTICE: This order was filed under Supreme Court Rule 23 and is not precedent except in the
limited circumstances allowed under Rule 23(e)(1).
____________________________________________________________________________

IN THE
APPELLATE COURT OF ILLINOIS
FIRST DISTRICT
____________________________________________________________________________

) Appeal from the
DIRECT AUTOMOBILE INSURANCE ) Circuit Court of
COMPANY, ) Cook County.
)
Plaintiff-Appellant, )
)
v. ) No. 16 CH 5766
)
MIHANE KRSO, BAJRA KRSO, AUDREY )
PAUL, and TRAVELERS HOME & )
MARINE INS., ) Honorable
) Pamela McLean Meyerson
Defendants-Appellees. ) Judge, presiding.

____________________________________________________________________________

JUSTICE COBBS delivered the judgment of the court.
Justices Howse and Lavin concurred in the judgment.

ORDER

¶1 Held: The judgment of the circuit court in a declaratory action is affirmed. The court did
not err in granting summary judgment to defendant where plaintiff insurance
company did not timely rescind its policy with its insured.
No. 1-20-0855

¶2 This appeal arises from a declaratory judgment action filed by plaintiff-appellant Direct

Automobile Insurance Company (Direct Auto) on April 25, 2016. The declaratory action was

related to an underlying personal injury lawsuit resulting from an automobile accident between

Mihane Krso (Mihane), who was allegedly insured by Direct Auto, and Audrey Paul, who was

insured by The Travelers Home and Marine Insurance Company (Travelers). The circuit court

ultimately awarded summary judgment for Travelers and ordered Direct Auto to defend Mihane

in the underlying personal injury suit. Direct Auto now appeals, and we affirm.

¶3 I. BACKGROUND

¶4 On December 6, 2012, Krso and Paul were in an automobile accident in Wheeling, Illinois.

The record shows that shortly before the accident in question, Mihane applied for a 6-month

insurance policy with Direct Auto. The policy took effect on October 20, 2012 and was set to

expire on April 20, 2013. The policy lists Mihane and her husband, Bajro Krso, as the only covered

drivers and a 2003 Chevrolet Cavalier as the only covered vehicle.

¶5 Following the accident, on April 19, 2013, Direct Auto sent Mihane a letter (the April 2013

letter) stating that her policy was null and void due to her “material misrepresentation” of failing

to disclose her son, Edin Krso, as a household member in her policy application. Direct Auto’s

letter also informed Krso that:

“if a lawsuit is filed against and you are served in this matter, then you must provide the

company with a copy of the lawsuit. That portion of your policy relating to the defense of

any lawsuit that may be filed against you is a broader coverage than the other coverage’s

[sic] afforded under the policy. If you are sued in this matter and served with notice, you

must notify the company of the lawsuit and the company will then advise as to whether the

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company will defend you. Failure to notify the company prior to a judgment against you

will void any responsibility the company has of defending you.”

That same day, Direct Auto also wrote to Paul that it would not pay her claim based on the recission

of Mihane’s policy.

¶6 On November 19, 2014, Paul filed the underlying suit against Mihane seeking damages for

injuries sustained in the accident. On December 19, 2014, Direct Auto sent Krso a letter explaining

that it would defend the lawsuit on her behalf and that she was obligated to cooperate with Direct

Auto and the law firm it hired to defend the suit. This letter did not mention the previous recission

letter.

¶7 Some 16 months later, on April 25, 2016, Direct Auto initiated this declaratory action

seeking a judgment that it owed Mihane no liability coverage in relation to Paul’s lawsuit.

Specifically, Direct Auto alleged that Mihane’s policy application failed to list Edin as an

additional household member and potential driver. The declaratory complaint named Mihane,

Bajro, Paul, and Travelers as defendants. The Krsos filed pro se answers denying that their policy

was properly rescinded. Travelers filed an answer admitting many of Direct Auto’s allegations,

but stating that whether a recission occurred was “a statement of law that requires no answer.”

Travelers’ answer also raised as affirmative defenses that Direct Auto’s delay in bringing the

declaratory action operated as an estoppel and waiver of the right to deny coverage under the

policy.

¶8 Paul initially appeared through the law firm Collison & O’Connor, Ltd (the O’Connor firm)

in February 2017. Instead of answering the complaint, Paul signed a “Stipulation to be Bound” on

May 26, 2017. The stipulation was entered as an order that same day. The order provided:

“Stipulation to be Bound:

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No. 1-20-0855

Defendant Audrey Paul (“Paul”) agrees to be bound by the Order and Declaration

concerning coverage to be entered at the conclusion of this case, and Paul is making no

claim of coverage. As a consequence, Plaintiff Direct Auto Insurance Company waives

costs on same as to Paul. Further, Direct Auto Insurance Company will send formal notice

to Paul of Orders and events, but will not seek to default Paul.

IT IS ORDERED

Defendant Audrey Paul will be bound by the Order and Declaration concerning Coverage

which will be entered at the conclusion of this case.”

¶9 Several months later, on September 18, 2017, Paul’s counsel at the O’Connor firm wrote

to counsel for Direct Auto, asserting that Direct Auto had violated the stipulation by filing various

pleadings without notice to Paul. The letter also stated that Direct Auto was “attempting to

misconstrue the stipulation” by claiming that Paul was no longer seeking to pursue damages from

Mihane or Direct Auto in the underlying suit.

¶ 10 On October 24, 2017, Paul filed a “Motion to Clarify” the stipulation, arguing that she was

simply agreeing to abide by the outcome of the declaratory action and was not waiving her right

to seek damages from either Mihane or Direct Auto. Paul also contended that the language stating

that she was “making no claim for coverage” meant that she was not claiming to be insured by

Direct Auto, the plaintiff in the declaratory action. Accordingly, Paul sought an order interpreting

the stipulation in her favor or, alternatively, to modify the stipulation to omit the phrase “and Paul

is making no claim of coverage.”

¶ 11 Direct Auto filed a response, arguing that the stipulation unambiguously meant that Paul

waived her right to pursue Direct Auto, and that the stipulation order should not be vacated or

modified for mutual mistake because there was no mistake as to the legal effect of the language

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on Direct Auto’s part. Direct Auto also noted that while its counsel drafted the language of the

stipulation, Paul was the one who requested a proposed stipulation and signed it with the advice

of her own counsel.

¶ 12 After a hearing on the matter, the circuit court agreed with Paul’s interpretation, ruling that

the stipulation meant that Paul would not participate in the declaratory proceedings, but did not

waive her right to pursue damages from Mihane or Direct Auto in the underlying case.

¶ 13 On July 10, 2018, Direct Auto filed a first amended complaint, adding allegations that, in

addition to failing to disclose Edin on the policy application, Mihane also failed to disclose two

other vehicles and another son, Edon Krso. In its answer to the amended complaint, Travelers

denied that Mihane’s policy was rescinded and again asserted its affirmative defenses of waiver

and estoppel. In reply, Direct Auto filed a motion to dismiss Travelers’ affirmative defenses, which

the court treated as a motion for summary judgment. In particular, Direct Auto argued that

Travelers had no “standing” to raise defenses for the benefit of Mihane, a party to whom Travelers

was “directly adverse.” Direct Auto also contended that neither waiver nor estoppel applied in this

case because Mihane’s policy was timely rescinded within one year of its effective date.

¶ 14 On December 18, 2018, after hearing oral argument, the circuit court found that (1)

Travelers had standing to bring the motion and (2) Direct Auto was not entitled to summary

judgment as a matter of law. Specifically, the court ruled that Direct Auto’s April 2013 letter “did

not operate as an effective rescission as it advised Ms. Krso that she has ongoing obligations under

the policy.”

¶ 15 Direct Auto filed a motion to reconsider, arguing that its April 2013 letter constituted a

reservation of rights. In its response, Travelers contended that it was improper for Direct Auto to

raise a new “reservation of rights” argument for the first time in a motion for reconsideration and

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No. 1-20-0855

that, in any event, the April 2013 letter could not reasonably be interpretated as a reservation of

rights.

¶ 16 Around the same time, Travelers also filed its own motion for summary judgment on the

basis that the policy was not properly rescinded per the court’s December 18, 2018 order. After a

response and a reply, Direct Auto filed a motion to strike portions of Travelers’ reply, which the

court allowed to stand as a sur-reply.

¶ 17 On August 16, 2019, while the summary judgment pleadings were still pending, Travelers

filed an emergency motion to spread of record that Paul had died on September 9, 2018. According

to the motion, Travelers did not learn of Paul’s death until being informed by Paul’s former counsel

at the O’Connor firm on August 1, 2019. Travelers’ motion acknowledged that Paul could no

longer be a party to declaratory action, but that her personal representative could substitute as a

party. However, as Paul had already agreed to be bound by the court’s declaratory judgment,

Travelers concluded that any personal representative would be bound as well.

¶ 18 In response, Direct Auto argued the circuit court should deny the emergency motion and

stay the proceedings for lack of jurisdiction because no personal or special representative had been

appointed for Paul. On August 20, 2019, the circuit court granted Travelers’ motion and spread

Paul’s death of record.

¶ 19 The case was continued for status to September 16, 2019. On that date, attorney Kevin

O’Connor appeared and informed the court that Paul had filed for Chapter 7 bankruptcy in April

2015. As relevant here, the record shows that on Schedule B of Paul’s bankruptcy petition, she

listed a “Personal Injury Suit-DOL:12/6/2012; Paul v. Krso, 14-L-11980, Cook County, Illinois”

under the category of “Other contingent and unliquidated claims of every nature.” Paul listed the

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current value of the suit as “[u]nknown” and claimed the $15,000 personal exemption allowed by

Illinois law.

¶ 20 Attorney O’Connor further informed the circuit court that on February 3, 2017, the

bankruptcy court approved the bankruptcy trustee, Joseph Cohen’s, request to authorize the

O’Connor firm to pursue the underlying injury claim on the trustee’s behalf. O’Connor also

advised the circuit court that the underlying case had been stayed, but that he would seek to

substitute Paul’s name for that of the bankruptcy trustee once the stay was lifted. O’Connor took

the position that a personal or special representative need not be appointed for Paul in either of the

state cases because, as the bankruptcy preceded the death, the underlying claim was “now an asset

of the trustee in bankruptcy.”

¶ 21 On September 23, 2019, Direct Auto filed a motion objecting to jurisdiction on the basis

of Paul’s bankruptcy and death. Direct Auto requested that the circuit court stay the declaratory

proceedings and strike O’Connor’s appearance.

¶ 22 Meanwhile, on November 18, 2019, the circuit court in the underlying case removed the

matter from the insurance stay calendar, spread Paul’s death of record, and ordered that the

complaint be amended on its face to substitute “Joseph Cohen, trustee in Bankruptcy of Audrey

Paul, deceased, as Administrator to Collect, for Plaintiff, Audrey Paul.” The matter was then

returned to the insurance stay calendar pending resolution of the declaratory action.

¶ 23 Two days later, on November 20, 2019, the O’Connor firm filed a motion to substitute the

bankruptcy trustee for Paul as a necessary party to the declaratory action. Direct Auto objected to

the motion and, on November 22, 2019, filed a motion in the bankruptcy court requesting the court

vacate O’Connor’s appointment as special counsel and find that Paul was estopped from pursuing

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No. 1-20-0855

declaratory relief or a personal injury claim.1 The bankruptcy court denied Direct Auto’s motion,

stating that Paul’s claim became property of the bankruptcy estate upon the filing of the petition,

and that under the Bankruptcy Code, her death had “no effect on the bankruptcy case at all.”

However, the bankruptcy judge also stated that any issues with the trustee’s standing in state court

were for a state court to determine.

¶ 24 On December 9, 2019, the declaratory action court granted the motion to substitute the

bankruptcy trustee for Paul in the declaratory case over Direct Auto’s objection. The court ordered

Direct Auto to file an amended complaint to reflect the proper parties by December 16, 2019.

¶ 25 Direct Auto next filed a motion for leave to file an amended response to Travelers’

summary judgment motion and for leave to file a second amended declaratory complaint adding

allegations about the effects of Paul’s death and bankruptcy. After a hearing (the transcript of

which is not included in the record on appeal), the court denied the motion and ordered Direct

Auto to file a third amended declaratory complaint solely altering the name of the parties to

substitute “Joseph Cohen, trustee in Bankruptcy of Audrey Paul, deceased, as Administrator to

Collect for Plaintiff, Audrey Paul.”

¶ 26 On April 10, 2020, the trial court issued a written order in which it denied Direct Auto’s

motion to reconsider the December 18, 2019 order and granted summary judgment in favor of

Travelers. Regarding the motion to reconsider, the circuit court opined that it was improper for

Direct Auto to raise the argument that it was defending Mihane under a reservation of rights for

1
On April 5, 2021, Travelers filed a motion requesting this court take judicial notice of certain
certified transcripts of proceedings in the bankruptcy court. We took the motion with the case, and now
grant the motion. LB Steel, LLC v. Carlo Steel Corporation, 2018 IL App (1st) 153501, ¶ 22 n.4 (this
court may take judicial notice of public documents that are included in the records of other courts,
including bankruptcy courts).

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No. 1-20-0855

the first time in its motion to reconsider. Nevertheless, the court considered the reservation of

rights argument and rejected it. In particular, the court explained that although an insurer may

defend against a claim under a reservation of rights while simultaneously pursuing a declaratory

action, that was not what occurred in this case. Instead, the court found that Direct Auto defended

against Paul’s claim without a reservation of rights and waited 16 months before filing a

declaratory action in April 2016.

¶ 27 Based on its ruling regarding the effect of the April 2013 letter, the court further found that

Travelers was entitled to summary judgment as a matter of law. Specifically, the court found that

since the April 2013 letter did not rescind the policy, there was no genuine dispute that a timely

recission did not occur. Accordingly, the court found that Direct Auto had a duty to defend and

indemnify Mihane in the underlying lawsuit.

¶ 28 Direct Auto filed a motion to clarify and reconsider the summary judgment order. During

the pendency of that motion, Travelers and the bankruptcy trustee agreed to a settlement whereby

Travelers paid $75,000 in exchange for the trustee’s release of any claims that might be had under

the underinsured/uninsured motorist (UI/UM) portion of Paul’s Travelers policy. Direct Auto

objected in the bankruptcy court, again arguing that Illinois law required the appointment of a

personal or special representative in order to seek recovery against Mihane or Direct Auto. On

May 18, 2020, the bankruptcy court approved the settlement over Direct Auto’s objection.

¶ 29 On July 24, 2020, the circuit court denied Direct Auto’s motion to reconsider the summary

judgment order, except to the extent the court clarified that Direct Auto’s duty of indemnification

would ripen only if a judgement was entered against Mihane in the underlying suit.

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¶ 30 On August 6, 2020, Direct Auto filed a notice of appeal from, inter alia, the orders (1)

allowing the bankruptcy trustee to substitute for Paul, (2) granting Travelers summary judgment,

and (3) denying reconsideration of the summary judgment order.

¶ 31 II. ANALYSIS

¶ 32 A. Stipulation to be Bound

¶ 33 On appeal, we first address Direct Auto’s argument regarding the stipulation to be bound.

Direct Auto argues that the language of the stipulation that “Paul is making no claim for coverage”

meant that Paul waived any right to pursue a claim against Direct Auto. Thus, Direct Auto

concludes that Travelers, as Paul’s subrogee, also has no right to pursue the claim. Travelers, on

the other hand, contends that Paul was merely agreeing to be bound by the outcome of the

declaratory action and stating that she was not claiming to be insured by Direct Auto.

¶ 34 Before we can reach the merits of this issue, however, we must first consider our

jurisdiction. Xcel Supply, LLC v. Horowitz, 2018 IL App (1st) 162986, ¶ 26 (appellate court must

always consider its own jurisdiction). Travelers contends that we lack jurisdiction to consider the

matter because the circuit court’s order ruling on the effect of the stipulation was not included on

Direct Auto’s notice of appeal. We agree.

¶ 35 The filing of a notice of appeal is the jurisdictional step which initiates appellate review.

General Motors Corp. v. Pappas, 242 Ill. 2d 163, 176 (2011). Illinois Supreme Court Rule

303(b)(2) (eff. July 1, 2017) provides that the notice of appeal “shall specificy the judgment or

part thereof or other orders appealed from and the relief sought from the reviewing court.” Thus,

this court has jurisdiction to consider only the judgments or parts of judgments specified in the

notice of appeal. Pappas, 242 Ill. 2d at 176. A notice of appeal must be considered as a whole to

determine whether it fairly and adequately advises the appellee of the nature of the appeal. Id.

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Where a notice of appeal has not been properly filed, this court must dismiss the appeal for lack

of jurisdiction. Id.

¶ 36 Here, the circuit court issued its ruling on the meaning of the stipulation on February 8,

2018. However, Direct Auto’s notice of appeal does not list that date or reference the ruling or

stipulation in any way. Rather, the notice lists several other orders and “REVERSE SUMMARY

JUDGMENT” as the only requested relief. We therefore lack the jurisdiction to consider Direct

Auto’s arguments related to the circuit court’s ruling on the effect of the stipulation.

¶ 37 B. Substitution of the Bankruptcy Trustee

¶ 38 Direct Auto next argues that the circuit court erred by allowing Cohen, as the bankruptcy

trustee, to substitute for Paul in the declaratory action. According to Direct Auto, it was necessary

to name either a special or personal representative to represent Paul’s interest after her death. As

no such representative was named, Direct Auto concludes that “the deceased Paul no longer exists

under Illinois law in the sense of filing suits or defending suit.” Moreover, because Travelers’

rights against Mihane and Direct Auto were derivative of Paul’s, Direct also maintains that “[a]ny

rights Travelers had ‘standing in the shoes’ of Paul died with the failure to appoint a special or

personal representative.”

¶ 39 In addressing these arguments, we first note that Direct Auto advances them with very little

citation to relevant authority. See State by Raoul v. Hitachi, Ltd., 2021 IL App (1st) 200176, ¶ 49

(appellant’s failure to cite relevant authority violates Illinois Supreme Court Rule 341 and may

cause the party to forfeit consideration of the issue.) Additionally, while Direct Auto’s arguments

in this regard focus on Paul’s death during the pendency of the litigation, they either ignore or

misunderstand the importance of her bankruptcy.

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¶ 40 The filing of a bankruptcy petition initiates the assertion of the bankruptcy court’s

jurisdiction over all the debtor’s assets and property. Dailey v. Smith, 292 Ill. App. 3d 22, 24

(1997). The filing of a petition also creates a bankruptcy estate, which section 541 of the

Bankruptcy Code defines broadly as “all legal or equitable interests of the debtor in property as of

the commencement of the case.” 11 U.S.C. § 541(a)(1) (2012). Notably, “once a bankruptcy action

is initiated, all unliquidated lawsuits [in which the debtor has a potential claim] become part of the

bankruptcy estate.” Board of Managers of 1120 Club Condominium Association v. 1120 Club,

LLC, 2016 IL App (1st) 143849, ¶ 41. Thus, “if a party to a lawsuit files for bankruptcy, that party

is divested of standing to pursue the claim” and only the bankruptcy trustee then has standing to

pursue the suit. Id.

¶ 41 Here, it is undisputed that Paul filed for bankruptcy while her underlying personal injury

lawsuit was still pending. Accordingly, Paul’s interest in the unliquidated, contingent claim

became part of the bankruptcy estate for the trustee to pursue. As such, Direct Auto’s contention

that a special representative should have been appointed for the benefit of Paul’s heirs and legatees

is without merit. Once Paul filed for bankruptcy, the claim became part of the bankruptcy estate

for the trustee to wield exclusively for benefit of Paul’s creditors.

¶ 42 We find Direct Auto’s argument that the bankruptcy trustee was required to appoint his

own special representative to pursue the estate’s claims in state court on his behalf similarly

unpersuasive. Although Direct Auto correctly notes that the trustee’s standing in state court is a

matter of state law, Direct Auto does not cite to any Illinois case to support its assertions about the

requirement of a special representative. Rather, as previously noted, Illinois courts have held that

only the bankruptcy trustee has standing to pursue unliquidated lawsuits pending at the time the

bankruptcy petition is filed. 1120 Club, 2016 IL App (1st) 143849, ¶ 41.

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¶ 43 In light of the foregoing, we find that the circuit court did not err in allowing the bankruptcy

trustee to substitute for Paul. Indeed, section 2-1008(a) of the Code of Civil Procedure specifically

provides that where an interest in a lawsuit transfers on account of a bankruptcy, “the action does

not abate, but on motion an order may be entered that the proper parties be substituted or added,

and that the cause or proceeding be carried on with the remaining parties and new parties [.]” 735

ILCS 5/2-1008(a) (West 2016). Here, for reasons we have explained, the bankruptcy petition

caused a transfer of interest from Paul to the bankruptcy estate. The trustee therefore became a

necessary party in the declaratory action, and the court was correct to substitute the parties

accordingly.

¶ 44 C. Estoppel

¶ 45 Direct Auto further argues that Paul should have been judicially estopped from pursuing

her lawsuit “by her failure to fully disclose her claims above the [$15,000 personal] exemption.”

Specifically, Direct Auto acknowledges that Paul scheduled her lawsuit in her bankruptcy petition,

but contends that she failed to adequately disclose her related UIM/UM claim.

¶ 46 Judicial estoppel is an equitable doctrine to be invoked at the court’s discretion. Seymour

Collins, 2015 IL118432, ¶ 36. The doctrine applies where a litigant in a proceeding takes a

position, benefits from that position, and then seeks to take a contrary position in a later

proceeding. Id. Judicial estoppel is designed to protect the integrity of the judicial process by

preventing litigants from changing positions simply according to the exigencies of a particular

moment. Id.

¶ 47 Our supreme court has set forth a two-step process for a trial court to determine whether to

invoke judicial estoppel. First, the court must determine whether the following elements are

present: (1) the party to be estopped has taken two positions, (2) that are factually inconsistent (3)

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in separate judicial or quasi-judicial proceedings, (4) intending for the trier of fact to accept the

truth of the facts alleged, and (5) have succeeded in the first proceeding and received some benefit

from it. Id. ¶ 47. Second, if all these elements are established, the court must then exercise its

discretion to determine whether to apply judicial estoppel. Id. Among the factors for the court to

consider in this step are the significance of the party’s actions in the first proceeding and whether

there is affirmative evidence that the party intended to deceive or mislead. Id.

¶ 48 Applying these principles to the present case, it is evident that the circuit court did not

abuse its discretion in declining to apply judicial estoppel. First, it is far from clear that Paul even

took inconsistent positions. See Knott v. Woodstock Farm & Fleet, Inc., 2017 IL App (2d) 160329,

¶ 26 (debtor’s positions not factually inconsistent where he disclosed a “possible claim” for

personal bodily injury in his bankruptcy petition). Unlike the cases invoking estoppel where the

debtor failed to disclose a potential claim to the bankruptcy court, Paul listed her lawsuit against

Mihane on the bankruptcy schedules from the outset. For example, in Smith v. Integrated

Management Service, 2019 IL App (3d) 180576, ¶¶ 6-7, the sole case Direct Auto cites on this

issue, the debtor entirely failed to disclose a prepetition personal injury suit in his bankruptcy, even

going so far as to deny ever having filed for bankruptcy in that injury suit. This is obviously

inapposite to the present case, where Paul’s personal injury suit was fully scheduled in her

bankruptcy petition.

¶ 49 More importantly, Direct Auto has presented no evidence to suggest that Paul intentionally

meant to deceive the bankruptcy court by not disclosing the UIM/UM claim. In Seymour, our

supreme court refused to presume the debtors’ failure to disclose a pending lawsuit in bankruptcy

proceedings was the result of deliberate manipulation. Seymour, 2015 IL 118432, ¶ 62. We take

the same path here. Additionally, we note that the bankruptcy trustee was clearly aware of Paul’s

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UIM/UM claims, as the trustee participated in the state court cases through the O’Connor firm as

early as February 2017 and reached a settlement with Travelers on the UIM/UM claims in the

amount of $75,000. Thus, it was well within the circuit court’s discretion to decline the application

of judicial estoppel.

¶ 50 D. Summary Judgment/Effect of the Recission Letter

¶ 51 Direct Auto next argues, in the alterative, that the circuit court erred granting summary

judgment for Travelers based on an erroneous finding that Mihane’s Direct Auto policy was not

properly rescinded. In particular, Direct Auto contends that (1) it timely rescinded the policy via

the April 2013 letter and (2) it properly defended the underlying case under a reservation of rights

while simultaneously pursuing the declaratory action.

¶ 52 We disagree with Direct Auto on both points. However, before explaining why, we briefly

set forth the familiar standards of review relevant to a grant of summary judgment. Summary

judgment is a drastic means of resolving litigation that should not be utilized unless the moving

party’s right to judgment is clear and free from doubt. Seymour, 2015 IL 118432, ¶ 42. Summary

judgment is appropriate only where there are no genuine issues of material fact and the moving

party is entitled to judgment as a matter of law. Id. When considering a motion for summary

judgment, a trial court must construe the record strictly against the movant and liberally in favor

of the nonmovant. Id. A grant of summary judgment is reviewed de novo. Id.

¶ 53 The central issue for the circuit court to decide in this declaratory action was whether the

April 2013 letter rescinded Mihane’s Direct Auto policy such that Direct Auto was under no duty

to defend or indemnify her in the underlying lawsuit. Section 154 of the Illinois Insurance Code

allows an insurer to rescind an insurance policy in the case of a material misrepresentation on the

policy application. 215 ILCS 5/154 (West 2012). When seeking to rescind a policy for a material

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misrepresentation, an insurer must prove that (1) the application contains a false statement and (2)

the false statement was either made with the intent to deceive or, regardless of intent, materially

affected the risk assumed by the insurer. Direct Auto Insurance Co. v. Koziol, 2018 IL App (1st)

171931, ¶ 11. Additionally, the rescission must occur within the lesser of (1) one year of the

policy’s effective date or (2) one policy term. 215 ILCS 5/154 (West 2012).

¶ 54 The parties apparently do not dispute that the omissions in the policy application

constituted material misrepresentations. Nor can there be any dispute that the April 19, 2013 letter

was sent prior to the expiration of the policy term, which occurred on April 20, 2013. The question,

then, becomes whether the April 2013 letter was sufficient to rescind the policy. We find that it

was not.

¶ 55 A material misrepresentation on an insurance application renders the policy merely

voidable, rather than void ab initio, meaning that the insurer may waive the right to recission if it

is not properly and promptly invoked. Illinois State Bar Association Mutual Insurance Co. v.

Coregis Insurance Co., 355 Ill. App. 3d 156, 167 (2004). We agree with the circuit court that

Direct Auto’s conduct was inconsistent with an invocation of its right to rescind. Although the

April 2013 letter stated that Direct Auto considered the policy null and void, it also informed Krso

that she had ongoing obligations under that same policy—namely the duty to notify the company

and provide it with a copy of any lawsuit filed against her. These ongoing obligations are

inconsistent with a recission. See id. at 165 (the party seeking recission must restore the other party

to the position it was in before the contract was formed). Thus, the April 2013 letter did not rescind

the policy, and Direct Auto took no further action to rescind prior to the April 20, 2013 deadline

imposed by Section 154.

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¶ 56 Direct Auto contends it did not take a position inconsistent with recission because an

insurer may defend an insured under a reservation of rights while simultaneously pursuing a

declaratory judgment that it does not owe coverage. While this is undoubtedly true as a matter of

Illinois law (see, e.g., IMC Global v. Continental Insurance Co., 378 Ill. App. 3d 797, 809 (2007)),

that is not what happened in this case. A proper reservation of rights must adequately inform the

insured of the rights that the insurer intends to reserve. Mobil Oil Corporation v. Maryland

Casualty Co., 288 Ill. App. 3d 743, 754 (1997). The reservation must also make specific reference

to the policy defense asserted by the insurer and to the potential conflict of interest such that the

insured is able to intelligently decide whether to rely on the insurer or hire independent counsel.

Id. “Absent a reservation of rights, an insurer waives all questions of policy coverage when it

assumes an insured’s defense and recognizes the continued validity of the policy.” [internal

quotation marks omitted] Illinois Insurance Guaranty Fund v. Nwidor, 2018 IL App (1st) 171378,

¶ 22. Here, nothing in Direct Auto’s April 2013 letter can be construed as a reservation of rights.

We also note that, despite being aware of the material misrepresentations in the policy application,

Direct Auto defended Mihane in the underlying suit for some 16 months before filing the

declaratory action, and only then raised the reservation of rights argument for the first time three

years after that, when moving to reconsider the court’s order denying it summary judgment.

¶ 57 State Farm Fire & Casualty Co. v. Martin, 186 Ill. 2d 367 (1999), cited by Direct Auto at

oral argument, is distinguishable. There, State Farm refused to defend or indemnify Martin in an

underlying wrongful death suit, and instead sought a declaratory judgment that it had no duty to

do so. Id. at 369. Summary judgment was later entered against State Farm in the declaratory action.

Id. However, shortly before the declaratory judgment was entered, one of the defendants in the

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wrongful death suit secured a default judgment against Martin. Id. at 370. The remaining defendant

also secured a default judgment against Martin after the declaratory judgment was entered. Id.

¶ 58 On appeal from the declaratory judgment, a preliminary issued was raised as to whether

State Farm was estopped from denying coverage where it failed to either secure a declaratory

judgment in its favor or defend its insured under a reservation of rights. Id. at 371. Our supreme

court ruled that State Farm was not estopped, stating that “[a]n insurer will not be estopped from

denying coverage merely because the underlying case proceeds to judgment before the declaratory

judgment action is resolved.” Id. at 374. Essentially, the court held that an insurer facing a

complaint alleging potential coverage must either (1) defend its insured under a reservation of

rights or (2) seek a declaratory judgment action that there is no coverage. Id. Thus, Martin is of

little help to Direct Auto here where, although Direct Auto sought a declaratory judgment, it also

defended Mihane without a reservation of rights.

¶ 59 Consequently, we find that Direct Auto owed Mihane a duty to defend where it is clear as

a matter of law that Direct Auto did not timely rescind her policy. The circuit court therefore did

not err in granting summary judgment for Travelers in the declaratory action.

¶ 60 D. Denial of Leave to Amend

¶ 61 Finally, Direct Auto contends that the circuit court erred in denying it leave to amend its

declaratory complaint to add, inter alia, allegations concerning the circuit court’s jurisdiction to

proceed without a personal or special representative after Paul’s bankruptcy and death.

¶ 62 Whether to allow amendment of a complaint is within the sound discretion of the circuit

court, and we will not reverse the court’s denial of leave absent an abuse of that discretion. Romito

v. City of Chicago, 2019 IL App (1st) 181152, ¶ 21. Although leave should generally be granted

freely, a party’s right to amend is not absolute or unlimited. Kay v. Prolix Packaging, Inc., 2013

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IL App (1st) 112455, ¶ 41. In determining whether to allow an amendment, a circuit court should

consider the following factors: (1) whether the proposed amendment would cure a defect in the

pleadings, (2) whether the opposing party would be surprised or prejudiced by the amendment, (3)

whether the proposed amendment is timely, (4) whether there were previous opportunities to

amend the pleading. Id. The ultimate test is whether allowing the amendment would further the

ends of justice. Id.

¶ 63 In this case, Direct Auto acknowledges that the circuit court entertained “extend

arguments” on the issues it wished to add in the amended pleading, but nevertheless maintains that

the court “erred in not formally allowing [it] to inculcate these points into a new pleading.” At the

outset, we first note that our review of this issue is somewhat hampered by the lack of transcript

from the January 9, 2020 hearing on Direct Auto’s motion to amend. Without the transcript, it

difficult to ascertain the court’s reasoning or determine whether the court exercised its discretion

soundly. As it is the appellant’s burden to present a sufficient record for review, any doubts caused

by an incomplete record must generally be resolved against the appellant. Shen v. Shen, 2015 IL

App (1st) 130733, ¶ 126.

¶ 64 With that in mind, we cannot say from the record before us that the court abused its

discretion in denying leave to amend. As Direct Auto concedes, the circuit court heard extensive

arguments on the issues it sought to include in its amended pleading. In the order granting summary

judgment for Travelers, the court thoroughly addressed these points and rejected Direct Auto’s

arguments. Thus, it is evident that the court believed the proposed amendment would not have

cured the defects in Direct Auto’s complaint. See Keefe-Shea Joint Venture v. City of Evanston,

364 Ill. App. 3d 48, 62 (“If the amendment would not have cured a defect in the pleading, the other

factors are superfluous.”). For reasons we have previously explained, we agree with the circuit

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court’s assessment. Accordingly, we find that it was within the court’s discretion to deny Direct

Auto leave to amend.

¶ 65

¶ 66 III. CONCLUSION

¶ 67 For the reasons stated, we affirm the judgment of the circuit court.

¶ 68 Affirmed.

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