IN THE CIRCUIT COURT OF THE EIGHTEENTH JUDICIAL CIRCUIT DUPAGE COUNTY, ILLINOIS

Transcription

1 IN THE CIRCUIT COURT OF THE EIGHTEENTH JUDICIAL CIRCUIT DUPAGE COUNTY, ILLINOIS W. H. MCNAUGHTON BUILDERS, INC., Plaintiff, vs 09CH3402 AMERICAN FAMILY MUTUAL INSURANCE COMPANY, Defendant, MEMORANDUM OPINION AND ORDER This matter comes before the Court for hearing on the Cross -Motions for Summary Judgment filed by Plaintiff and Defendant. The Court has reviewed the motions and the briefs, heard argument, and is thereby fully advised in the premises. The Cross-Motions for Summary Judgment establish that the parties are in agreement that no disputed issues of fact exist and the parties' counsel confirmed such agreement at motion hearing. Consequently, this Court finds that no disputed issues of fact exist. The lengthy factual scenario will not be repeated here, other than in a summary fashion for identification purposes. Homeowners named Begy filed a lawsuit (the Begy Action) against Plaintiff, W.H. McNaughton Builders, Inc. ("McNaughton") arising out of a construction of a home by McNaughton for Begy. McNaughton tendered the defense of the action to Defendant, American Family Mutual Insurance Company ("American Family"). McNaughton ultimately filed the instant lawsuit against American Family. Count I seeks monetary damages caused by American Family's alleged breach of its duty to defend. Count II seeks monetary and statutory damages under Section 1 55 of the Illinois Insurance Code, 215 ILLS 51155, for American Family's alleged unreasonable and vexations claims handling. 1

2 American Family filed a declaratory judgment action seeking a determination that there was no conflict of interest between it and McNaughton so that American Family had the right to select counsel to defend the Begy Action. The trial court granted declaratory judgment for American Family. McNaughton appealed and the Appellate Court reversed. American Family Mutual Ins. Co. v. W. H. McNaughton Builders, Inc., 363 ILL. App. 3d 505 (2d Dist. 2006) ("American Family decision'). The Appellate Court found that a conflict did exist American Family was defending the Begy Action under a reservation of rights to later deny coverage. American Family asserted policy defenses that the subject policy did not cover property damage which occurred prior the policy's inception nor damage which resulted from mold. The Appellate Court held that a conflict between American Family and McNaughton existed because American Family, but not McNaughton, would be served by the insurer fleshing out facts in discovery showing that the damage to the home occurred prior to the inception of the policy. McNaughton raises may complaints about American Family's handling of the Begy Action prior to the Appellate Court's decision. The complaints culminated in American Family withdrawing its previous reservation of rights but asserting a new basis for reserving its right to deny coverage, namely, late notice by McNaughton. American Family asserted that McNaughton had knowledge of the claim by Begy as early as August 8, 2001, but did not provide notice to American Family until August 31, American Family sought a second declaratory judgment that no conflict was created by the late notice policy defense and that it could select and pay for counsel for McNaughton rather then allowing McNaughton to select independent counsel. This request for a declaratory judgment was rejected by the trial court based on the earlier American Family decision. The Begy action ultimately settled and American Family paid the defense and settlement costs. McNaughton now seeks damages arising out of defending American Family's two failed declaratory judgment actions. Count I alleges that American Family breached its contractual duty to competently defend McNaughton as required by the American Family policies and seeks actual damages plus attorney's fees, costs and interest. Count II alleges that American Family acted vexatiously and unreasonably with 2

3 respect to its handling of the McNaughton policies and seeks statutory damages recoverable pursuant to 215 ILL A thorough review of the record suggests that American Family's handling of the Begy claim, when viewed in its entirety, was problematic. American Family did ultimately defend and indemnify its insured, paying the amount necessary to settle the Begy claim, as well as reimbursing McNaughton for the attorney fees and costs charged by McNaughton's independent counsel. American Family fulfilled its contractional duties to McNaughton arising out of the subject insurance policies. McNaughton's attempt to recover its fees and costs in defending the two declaratory judgment action as breach of contract damages (Count I) is not well-founded under Illinois Law. American Alliance Ins. Co. v Restaurant Group, L.L.C., 342 Ill. App. 3d 500, 511 (1st dist. 2003), citin^westchester Fire Ins. Co. V. G. Heileman Brewing Co., Inc., 321 Ill. App. 3d 622, 637 (IS` Dist. 2001). Count II presents a different issue, namely, whether American Family acted vexatiously and unreasonably in its handling of the Begy claim in violation of 215IL CS 5/155. The record reflects that American Family did act vexatiously and unreasonably in its handling of the Begy claim. This determination depends on the totality of the circumstances, including the insurer's attitude, whether the insured was force to sue to recover, and whether the insured was deprived of the use of his property. Millers Mutual Insurance Association of Illinois vs. House, 286 Ill. App 3d 378 (5`h Dist. 1997); Williams vs. American Country Insurance Company, 359 Ill. App. 3d 128(1 S` Dist. 2005) Although McNaughton vigorously asserts that American Family's failure to invoke the arbitration clause of the contract and instead answer the Begy Complaint violated 215 IL Cs 51155, this Court does not so find. The Court notes that to the extent the failure to invoke the arbitration cause increased the cast of litigation that increased cost was borne by American Family, not McNaughton. Moreover, independent counsel did not raise this issue for approximately two years after his appearance in the case. No evidence appears on the record that the parties (McNaughton and Begy) ever physically attached the "1987 Edition of the General Conditions to ALA Document A201" to the "Standard Form of Agreement Between Owner and Contractor," "the Contract" as they should have. The Contract does incorporate the thirty six (36) pages of General 3

4 Conditions by reference. The arbitration provision in the General Conditions (Article 4.5) was not raised by McNaughton until 2008, although the Begy action commenced in The Court notes that this Court found in American Family's favor in the first declaratory judgment action, but the Appellate Court reversed. It would be difficult to find that a declaratory action ruled on in American Family's favor by Judge Bonnie Wheaton constituted a vexatious and unreasonable action by American Family. Her decision in American Family's favor renders American Family's filing of the action as neither vexatious, nor unreasonable. Consequently, this Court declines to enter summary judgment and impose damages for McNaughton's defense costs in defending the first declaratory judgment action. The filing of the second declaratory judgment action by American Family was both vexatious and unreasonable. The very same legal issue had already been decided by the Appellate Court in the American Family decision. The court notes that although the Begy action commerced August 31, 2004 and American Family issued its initial reservation if rights letter on September 28, 2004, American Family withdrew its purported reservation of rights on February 11, 2008, and for the first time asserted McNaughton's late notice of the claim as a new reservation of rights issue. The letter unreasonably and vexatiously stated the following; "American Family defending under a reservation of rights based solely on the late notice defense does not create a conflict of interest between American Family's and McNaughton's interest. Therefore, American Family is under no obligation to allow McNaughton to continue to have your firm as independent counsel defend it. American Family has selected Norton, Mancini & Weiler, P. C. to represent McNaughton in the Begy suit. You will be hearing from them shortly to discuss the logistics of the successful transfer of the defense of McNaughton. " American Family may or may not have taken this action and thereafter filed its second declaratory judgment action in retaliation for having to pay attorney's fees for McNaughton's more expensive independent counsel. Regardless, the second declaratory filing was objectively unreasonable and vexatious, putting American Family's economic interests ahead of it obligation to its insured. 215 IL CS prohibits this type of behavior. American 4

5 Family's actions needlessly required McNaughton to defend and win a near-identical declaratory judgment lawsuit to the first such suit decided in McNaughton's favor. For the reason set forth above, IT IS HEREBY ORDERED: 1. Plaintiff W.H. McNaughton Builders, Inc's Motion for Summary Judgment is denied as to Count I. 2. Defendant, American Family Mutual Insurance Company's motion for Summary Judgment is granted as to Count I. 3. Plaintiff, W.H. McNaughton Builders, Inc.`s Motion for Summary Judgment is granted as to Count II for any recoverable statutory damages and attorney's fee arising after February 11, 2008, and denied as to any alleged statutory damages and attorney's fees incurred prior to February 11, Defendant, American Family Mutual Insurance Company's Motion for Summary Judgment is denied as to Count II for any recoverable statutory damages and attorney's fees arising after February 11, 2008, and granted as to any alleged statutory damages and attorney's fees incurred prior to February 11, Judge Robert G. Gibson December 6,