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UNITED SERVICES AUTOMOBILE ASSOCIATION v. DARE
Appellate Court of Illinois, First District, First Division
2005 WL 1278276
May 31, 2005
Unpublished Opinion
Summary of Case
Automobile Association (USAA), refused to defend in a suit arising out of an action for personal injuries sustained by Elingson, one of the multiple defendants. The butt chain of a trailer he had purchased from another defendant in this appeal failed, releasing the horse and causing injury. USAA claimed that the policy did not apply if the trailer was not owned by the insured at the time of the accident. This court does not agree.
Text of Opinion
MCBRIDE,
Justice.
Robert Ellingson bought a horse trailer from
defendant-appellee Margaret Dare. Thereafter, Ellingson sued Dare for injuries
he sustained because of a failure in the trailer's "butt chain," which is a
chain intended to restrain a horse at the rear end of the trailer (the
underlying action). Specifically, Ellingson alleged that the failure of the butt
chain resulted in the release of a horse from the trailer, causing Ellingson
injuries. Dare tendered the underlying action to her homeowner's insurer, United
Services Automobile Association (USAA). USAA filed a declaratory judgment action
seeking a declaration that it had no duty to defend or indemnify Dare based on
an exclusion in Dare's homeowner's policy. It then filed a motion for summary
judgment on the same grounds. The trial court denied USAA's motion, finding that
certain language in the policy exclusion was ambiguous. Dare subsequently filed
a motion for summary judgment asserting that because the policy exclusion was
ambiguous, she was entitled to summary judgment on the duty to defend as matter
of law. The trial court granted Dare's motion for summary judgment, holding that
USAA had a duty to defend. USAA appeals both summary judgment orders.
The underlying action arose out of personal and pecuniary injuries sustained by Ellingson when a horse was released from the trailer he purchased from Dare. Count VII of Ellingson's third amended complaint (complaint) alleged strict liability against Dare. Count VIII of the complaint alleged that Dare was negligent for the same conduct set forth below in count VII. Specifically, count VII, paragraph 1, alleged that Dare was an Illinois resident who "owned, operated, maintained, and controlled horse trailers for personal use at her property." Paragraph 2 alleged that after Dare "purchased" the trailer at issue, she "maintained, modified, altered, and changed said horse trailer, in such a manner that the trailer was equipped with a butt chain for use in containing a horse inside the trailer." The trailer was "sold" by Dare to Ellingson equipped with this butt chain. The complaint also alleged that Dare failed to design the trailer with a "mechanism to adjust the height" of the butt chain "to accommodate horses of various sizes" and with "a proper and secure snap hook" for the butt chain restraining device. It further claimed that Dare failed to properly warn users of the "risks, dangers, limitations and defects" of the butt chain for restraining horses and that Dare "designed, modified, marketed, distributed, and sold" the trailer when she knew or should have known that the trailer was incapable of properly restraining a horse.
Count VII, paragraph 6, of the complaint alleged that
while a horse was on the subject trailer, the "butt chain failed, which resulted
in the release of the horse from the trailer which had been altered, modified,
changed and sold by * * * Dare." Paragraph 8 alleged that when the subject
trailer left the control of Dare, it was in an unreasonably dangerous condition
in one or more of the following respects:
"a. the * * * [t]railer was maintained, designed,
modified, equipped, distributed and sold with a 'butt chain' that was inadequate
for restraining horses;
b. the * * * [t]railer was maintained, designed,
modified, distributed and sold with design and component characteristics that
rendered it unsafe and incapable of properly restraining a horse;
c. [Dare] maintained, designed, modified,
distributed, and sold the * * * [t]railer with a 'butt chain' when [Dare] knew
or should have known that the 'butt chain' was an inadequate device for
restraining horses on her horse trailer;
d. [Dare] maintained, designed, modified,
distributed, sold and provided [Ellingson's trailer] with a 'butt chain' that
was of inadequate tensile strength to properly secure a horse;
e. [Dare] maintained, recommended, equipped,
provided, installed, and sold a * * * [t]railer with a 'butt chain' that was of
inadequate tensile strength to properly secure a horse;
f. [Dare] maintained, designed, modified,
distributed, and sold the * * * [t]railer without performing proper and adequate
testing of the trailer, including resistance testing of the 'butt chain's'
ability to secure horses;
g. [Dare] maintained, designed, modified, marketed,
distributed and sold the * * * [t]railer when she knew or should have known that
the * * * [t]railer was incapable of properly restraining a horse during normal
and foreseeable use;
h. [Dare] failed to properly warn users of the risks,
dangers, limitations and defects of the 'butt chain' for restraining horses;
i. [Dare] failed to design, modify, install, and
equip the * * * [t]railer with a mechanism to adjust the height of the 'butt
chain' to accommodate horses of various sizes;
j. [Dare] failed to design, modify, equip and provide
the * * * [t]railer with a proper and secure snap hook for the 'butt chain'
restraining device; and
k. [Dare] was otherwise unreasonably dangerous."
Counts VII and VIII alleged that because of the
aforementioned "unreasonably dangerous conditions" and "negligent acts or
omissions," respectively, Ellingson sustained injuries of a personal and
pecuniary nature.
Dare tendered the defense of the underlying action to
her homeowner's insurer, USAA. At the time of the claim, Dare was insured by
USAA under policy number CIC 00318 27 92 91A (the policy). Section II, entitled
"LIABILITY COVERAGES," provided in "COVERAGE E" that the insured would be
covered for personal liability and stated the following:
"If a claim is made or a suit is brought against an
Insured for damages because of bodily injury or property damage caused by an
occurrence to which this coverage applies, we will:
1. pay up to our limit of liability for the damages
for which the insured is legally liable; and
2. provide a defense at our expense by counsel of our
choice, even if the suit is groundless, false or fraudulent. We may investigate
and settle any claim or suit that we decide is appropriate. Our duty to settle
or defend ends when the amount we pay for damages resulting from the occurrence
equals our limit of liability."
On the definitions page of the policy, "occurrence"
was defined as:
"an accident * * * which results, during the policy
period, in:
a. bodily injury; or
b. property damage."
In "COVERAGE F, the policy covered "Medical Payments
To Others" and specifically stated the following, in relevant part:
"We will pay the necessary medical expenses that are
incurred * * * from the date of an accident causing bodily injury. * * * This
coverage does not apply to you or regular residents of your household except
residence employees. As to others, this coverage applies only:
* * *
2. To a person off the Insured location, if the bodily injury;
* * *
b. is caused by the activities
of the Insured[.]"
The policy also contained the following exclusion
which stated that:
"Medical Payments to Others do not apply to bodily
injury or property damage:
* * *
e. arising out of:
(1) the ownership, maintenance, use, loading or
unloading of motor vehicles or all other motorized land conveyances, including
trailers, owned or operated by or rented or loaned to an Insured."
The policy did not define "ownership" or
"maintenance," nor did the policy specifically state whether the insured must
have owned the trailer at the time of the accident for the exclusion to apply.
USAA filed a declaratory judgment action in the trial
court on March 4, 2003, which asserted that USAA had no duty to defend or
indemnify based on the policy exclusion. On July 10, 2003, USAA also filed a
motion for summary judgment on the same grounds. In ruling on USAA's summary
judgment motion, Judge Deborah Mary Dooling said, "this Court will only address
Dare and Ellingson's arguments that the plain language of the exclusion cited by
[USAA] does not preclude coverage because the language of the exclusion is
ambiguous ." Judge Dooling subsequently denied USAA's summary judgment motion on
February 13, 2004, concluding that the word "maintenance" in the policy
exclusion was subject to more than one interpretation and because Ellingson's
complaint alleged more than one theory of recovery and potentially came within
the policy coverage. On March 19, 2004, Dare filed a motion for summary judgment
on the duty to defend which alleged that the allegations of the complaint fell
potentially within the policy coverage because the trial court determined that
the term "maintenance" in the policy exclusion was ambiguous. Judge David
Donnersberger granted Dare's motion for summary judgment and found that USAA had
a duty to defend Dare in the underlying action. USAA appeals the orders entered
by the trial court judges on February 13, 2004, and April 5, 2004.
As a preliminary matter, we consider whether we have
jurisdiction over the denial of USAA's motion for summary judgment entered by
Judge Dooling on February 13, 2004. Ellingson contends our jurisdiction is
limited to the April 5, 2004, order granting summary judgment to Dare and does
not extend to the "otherwise unappealable" February 13, 2004, interlocutory
order denying USAA's motion for summary judgment. USAA claims this court has
jurisdiction over both orders under
Supreme Court Rule 304(a) (which requires an express written finding in the
order that there is no just reason for delaying an appeal) or
Supreme Court Rule 301 (which states that every final judgment of a circuit
court in a civil case is appealable as of right). 155 Ill.2d R 304(a); 134
Ill.2d R 301. We agree with Ellingson for the following reasons.
In
Chavda v. Wolak, 188 Ill.2d 394, 403, 721 N.E.2d 1137 (1999), the
supreme court discussed the general rule that the denial of a motion for summary
judgment is ordinarily not a final judgment and therefore is not appealable. The
court also noted that an exception exists where the parties file opposing
motions for summary judgment on the same claim and the trial court grants one
motion and denies the other.
Chavda, 188 Ill.2d at 403, citing
Arangold Corp. v. Zehnder, 187 Ill.2d 341, 358, 718 N.E.2d 191 (1999).
In Arangold, the supreme court explained that
the reason for the general rule above is that a final judgment is generally a
prerequisite to appellate jurisdiction and an order denying summary judgment is
not a final judgment.
Arangold, 187 Ill.2d at 357. As in Chavda, the court
recognized that in situations involving opposing motions for summary judgment on
the same claim, where one party's motion has been granted and the other's has
been denied, it is proper for an appellate court to review the denial of a
summary judgment motion in conjunction with review of a final judgment.
Arangold, 187 Ill.2d at 358. In these situations, the court reasoned
that the resulting order is final and appealable because it entirely disposes of
the litigation.
Arangold, 187 Ill.2d at 358. However, the court was careful to point
out that this exception to the general rule does not apply in cases where a
party seeks review of a denial of summary judgment in conjunction with review of
a final judgment on a separate claim.
Arangold, 187 Ill.2d at 358.
We also point out that generally the duty to
indemnify arises only when the insured becomes legally obligated to pay damages
in the underlying action that gives rise to a claim under the policy.
Travelers Insurance Co. v. Eljer Manufacturing, Inc., 197 Ill.2d 278,
293, 757 N.E.2d 481 (2001). Whether an insurer has a duty to indemnify an
insured for particular liability " 'is only ripe for consideration if the
insured has already incurred liability in the underlying claim against it.'
[Citations.]"
Eljer, 197 Ill.2d at 293. Once the insured has incurred liability
because of the underlying claim, an insurer's duty to indemnify arises only "if
'the insured's activity and the resulting loss or damage actually fall
within the * * * policy's coverage.' (Emphasis in original.) [Citation.]"
Eljer, 197 Ill.2d at 293. On the other hand, the duty to defend is
determined by reference to the allegations in the complaint, and if the
complaint alleges facts that fall within or potentially within the policy's
coverage, the insurer is obligated to defend the action.
Outboard Marine Corp. v. Liberty Mutual Insurance Co., 154 Ill.2d 90,
108, 607 N.E.2d 1204 (1992). The duty of an insurer to defend is much
broader than its duty to indemnify.
Outboard Marine, 154 Ill.2d at 125. An insurer's duty to defend and
its duty to indemnify its insured are separate and distinct duties.
Zurich Insurance Co. v. Raymark Industries, Inc., 118 Ill.2d 23, 52, 514
N.E.2d 150 (1987).
In its summary judgment motion, USAA sought a
declaration that it had no duty to defend or to indemnify Dare in the underlying
action. But a review of Judge Dooling's February 13, 2004, order indicates that
she did not rule on whether USAA had a duty to defend. As pointed out above, she
said she would only "address Dare and Ellingson's arguments that the plain
language of the exclusion cited by [USAA] does not preclude coverage because the
language of the exclusion is ambiguous." She thereafter denied USAA's motion
because the term "maintenance" in the policy was ambiguous. The order did not
contain
Rule 304(a) language, nor did it state that it was a final order.
Dare's later motion for summary judgment sought a
declaration only on the duty to defend based on the ambiguous exclusion in the
policy. In the April 5, 2004, order, Judge Donnersberger, who used Judge
Dooling's order as a basis for his ruling, granted Dare's motion and found that
USAA had a duty to defend. The April 5, 2004, order did contain
Rule 304(a) language but did not address the duty to indemnify.
USAA relies upon
Fremont Casualty Insurance Co. v. Ace-Chicago Great Dane Corp., 317
Ill.App.3d 67, 72, 739 N.E.2d 85 (2000), in support of its argument that we
have jurisdiction over the February 13, 2005, order. In
Fremont,
the defendant insured was sued by an employee seeking damages for personal
injuries. The plaintiff insurer sought a declaratory judgment that it was not
required to defend or to indemnify the insured. The plaintiff then filed a
motion for summary judgment on the same grounds. Approximately four months
later, the insured filed a motion for partial summary judgment only with respect
to the issue of the plaintiff's duty to defend. In an order dated January 10,
2000, the trial court granted the insured's motion for partial summary judgment,
denied the plaintiff's motion for summary judgment, and stated that the
plaintiff had a duty to defend its insured. However, the trial court reserved
ruling on the question of the plaintiff's duty to indemnify in this order.
The appellate court addressed its own jurisdiction
because the insured argued that the trial court's order was not final and
appealable under
Rule 304(a). The insured specifically argued that the plaintiff's duty to
defend and duty to indemnify comprised a single claim and the trial court did
not fully dispose of the indemnification issue. The appellate court noted the
well-settled rule that "an insurer's duty to defend and its duty to indemnify
its insured are separate and distinct duties. [Citation.]"
Fremont, 317 Ill.App.3d at 72. It therefore found that the trial
court's order disposing of the duty to defend, but reserving judgment on the
duty to indemnify, was a final determination.
Fremont, 317 Ill.App.3d at 72. With respect to the summary judgment
motions, the court also concluded that although the denial of a motion for
summary judgment is ordinarily not final and appealable, it was proper to review
an order denying a motion for summary judgment if the appeal from that order was
brought in conjunction with an appeal from an order granting a cross-motion for
summary judgment on the same claim.
Fremont, 317 Ill.App.3d at 72. Because both summary judgment motions
involved the duty to defend, the court found it proper to review the entirety of
the plaintiff's motion for summary judgment, stating that "where no duty to
defend exists, no duty to indemnify could ever exist. [Citation.]"
Fremont, 317 Ill.App.3d at 73.
We decline to follow the reasoning in
Fremont for
several reasons.
First, the Fremont court reviewed the January
10, 2000, order in its entirety reasoning that if the insurer was entitled to
summary judgment with regard to the duty to defend, it was necessarily entitled
to the entry of summary judgment "on the portion of its motion regarding its
duty to indemnify."
Fremont, 317 Ill.App.3d at 73. The court went on to determine that
the insurer had no duty to defend because the allegations in the underlying
complaint did not bring the action even potentially within the coverage
provisions of the policy.
Fremont, 317 Ill.App.3d at 76-77. Because no duty to indemnify could
exist in the absence of a duty to defend, the
Fremont court
found that summary judgment with respect to the insurer's duty to defend and
duty to indemnify was improperly denied by the trial court.
Fremont, 317 Ill.App.3d at 77.
Second, although we acknowledge the general rule that
where no duty to defend exists there is no duty to indemnify, we still conclude
that the summary judgment motions here involved separate claims. USAA's summary
judgment motion sought a declaration that USAA had no duty to defend or to
indemnify Dare, but in the February 13, 2004, order Judge Dooling merely denied
USAA's motion for summary judgment and she did not rule on the duty to defend at
that time. Dare's subsequent motion for summary judgment sought a declaration
only on the duty to defend, which is separate and distinct from the duty to
indemnify.
Zurich, 118 Ill.2d at 52. As noted above, Judge Donnersberger only
ruled on the duty to defend. In doing so, he granted Dare's motion and included
Rule 304(a) language in the April 5, 2004, order. However, the February 13,
2004, order was interlocutory and was not a final order as set forth by the
supreme court above.
Chavda, 188 Ill.2d at 403;
Arangold, 187 Ill.2d at 357. Because these motions for summary
judgment involved separate claims, the exception to the general rule set forth
in Chavda and Arangold above does not apply.
We therefore conclude our jurisdiction is limited to
the April 5, 2004, order entered by Judge Donnersberger on the duty to defend
because that order was final and appealable.
We now consider whether the summary judgment order
granted in favor of Dare was proper. The granting of summary judgment by the
trial court is subject to de novo review.
Central Illinois Light Co. v. Home Insurance Co., 213 Ill.2d 141, 821
N.E.2d 206 (2004). The construction of an insurance policy is a question of
law and is also reviewed de novo review.
National Union Fire Insurance Co. of Pittsburgh v. R. Olson Construction
Contractors, Inc., 329 Ill.App.3d 228, 233, 769 N.E.2d 977 (2002).
In general:
"To determine an insurer's duty to defend its
insured, a court must look to the allegations of the underlying complaints. If
the underlying complaints allege facts within or potentially within policy
coverage, the insurer is obliged to defend its insured even if the allegations
are groundless, false, or fraudulent. [Citation.] An insurer may not justifiably
refuse to defend an action against its insured unless it is clear from the face
of the underlying complaints that the allegations fail to state facts which
bring the case within, or potentially within, the policy's coverage. [Citation
.]"
Northbrook Property & Casualty Co. v. Transportation Joint Agreement, 194
Ill.2d 96, 98, 741 N.E.2d 253 (2000).
As the threshold for pleading a duty to defend is
low, any doubt with regard to such duty is to be resolved in favor of the
insured.
American Country Insurance Co. v. Cline, 309 Ill.App.3d 501, 512, 722
N.E.2d 755 (1999).
Also, insurance policies are to be liberally
construed in favor of coverage, and where an ambiguity exists in the insurance
contract, it will be resolved in favor of the insured and against the insurer.
Mount Vernon Fire Insurance Co. v. Heaven's Little Hands Day Care, 343
Ill.App.3d 309, 314, 795 N.E.2d 1034 (2003). Provisions in an insurance
policy that limit or exclude coverage are also construed liberally in favor of
the insured and against the insurer.
State Farm Mutual Automobile Insurance Co. v. Villicana, 181 Ill.2d 436,
442, 692 N.E.2d 1196 (1998). Finally, if the application of an exclusion
results in denying the duty to defend, that exclusion " 'must be clear and free
from doubt' * * *. [Citation.]"
Mount Vernon, 343 Ill.App.3d at 320-21.
USAA argues that the policy exclusion unambiguously
applies and there is no duty to defend because the liability asserted in the
underlying action clearly "[arose] out of" Dare's ownership and maintenance of
the horse trailer, which falls within the scope of the exclusion. Dare responds
that the policy exclusion is ambiguous because the exclusion does not set forth
any time constraints pertaining to "ownership" or "maintenance," nor does the
policy define these terms. According to Dare, it is unclear when the exclusion
would apply because the plain meaning of the "arising out of the ownership or
maintenance" language suggests the exclusion would apply only while the trailer
is owned or maintained by the insured. Since Dare did not own the trailer at the
time of the occurrence, both Dare and Ellingson argue that the exclusion does
not apply to bar coverage and USAA has a duty to defend. Dare and Ellingson also
contend there are multiple allegations in the complaint outside of the
maintenance exclusion that fall within or potentially within the terms of the
policy and, therefore, the duty to defend is triggered.
We agree with the defendants that there are multiple
allegations in the complaint that are outside the exclusion and fall within or
potentially within the policy's coverage.
As set out above, counts VII and VIII of the
complaint, in paragraphs 8(a) through 8(c), respectively, allege that the
trailer was "maintained, designed, modified, distributed and sold" with a butt
chain that was inadequate because of design and component characteristics that
rendered it unsafe when Dare knew or should have known that the butt chain was
an inadequate device for restraining horses. Paragraph 8(d) alleged that Dare
"maintained, designed, modified, distributed, sold and provided" Ellingson's
trailer with a butt chain that was of inadequate tensile strength to properly
secure a horse. Paragraph 8(f) alleged that Dare "maintained, designed,
modified, distributed, and sold" the trailer without performing proper and
adequate testing of the trailer, including resistance testing of the butt
chain's ability to secure horses. In addition to all of these allegations,
paragraph 8(h) alleged that Dare failed to properly warn users of the risks,
dangers, limitations, and defects of the butt chain for restraining horses.
Paragraph 8(i) alleged that Dare "failed to design, modify, install and equip"
the trailer with a mechanism to adjust the height of the butt chain to
accommodate horses of various sizes. Finally, paragraph 8(j) alleged that Dare
"failed to design, modify, equip and provide" the trailer with a proper and
secure snap hook for the butt chain restraining device.
The allegations above, but more specifically the
allegations in paragraphs 8(h) through 8(j), allege that Dare failed to warn the
purchaser of the risks and defects of the butt chain, failed to design a trailer
with a mechanism to adjust the height of the butt chain, and failed to design
the trailer with a proper and secure snap hook for the butt chain. Additionally,
because there are multiple allegations that Dare designed, modified, equipped,
marketed, distributed, and sold a trailer which had design defects, that are
separate and distinct claims from the allegations concerning Dare's ownership
and maintenance of the trailer, we conclude that they come within or potentially
within the policy coverage. The duty to defend applies to cases "where the
complaint alleges several causes of action or theories of recovery against an
insured even if only one or some of them are within the policy coverage."
United States Fidelity & Guaranty Co. v. State Farm Mutual Automobile
Insurance Co., 107 Ill.App.3d 190, 194, 437 N.E.2d 663 (1982). Further,
"if the liability of an insured arises from negligent acts which constitute
non-auto-related conduct, the policy should be applicable regardless of the
automobile exclusion."
United States Fidelity & Guaranty Co., 107 Ill.App.3d at 194 (holding
that allegations of failure to adequately supervise children and negligent
operation of a day care center were claims of non-auto related conduct). Here,
the allegations that Dare designed an unreasonably dangerous trailer, marketed
and sold the product, and failed to warn potential users of the trailer's risks,
dangers, and limitations are different from the allegations that she maintained
the trailer as set forth in the exclusion.
USAA argues that Dare's maintenance of the horse
trailer as pled in paragraphs 8(a) through (f) is "linked" to her "modifying,"
"altering," and "changing" the horse trailer by the conjunction "and," and
therefore the term "maintenance" cannot be separated from the allegations that
concern modifying, altering, or changing the trailer. According to USAA, because
the exclusion applies to "maintenance," the allegations of modifying, altering,
or changing the trailer, which are "linked" to this term, are also excluded. We
are unpersuaded by USAA's argument because when considering whether an insurer
has a duty to defend, both the underlying complaint's allegations and the
relevant policy provisions must be liberally construed in the insured's favor.
General Star Indemnity Co. v. Lake Bluff School District No. 65, 354
Ill.App.3d 118, 122, 819 N.E.2d 784 (2004). Giving appropriate deference to
this standard, we do not find that the allegations concerning modifying,
altering, or changing the trailer are "linked" to the term "maintenance" by the
word "and."
Further, USAA's argument on this point fails to
address the complaint's other specific allegations that Dare failed to properly
warn users of the dangers and defects of the but chain, failed to design the
trailer with a mechanism to adjust the height of the butt chain, and failed to
design the trailer with a proper and secure butt chain snap hook. As discussed
above, we consider these allegations to be independent from the exclusionary
terms of ownership or maintenance of the trailer.
USAA relies upon Northbrook Property, cited
above, for the proposition that "so long as Ellingson's injury arises out of
Dare's maintenance of the horse trailer, the vehicle exclusion applies."
Northbrook
involved an appeal from the appellate court's determination that the plaintiff,
Northbrook Property and Casualty Company (Northbrook), had a duty to defend
certain school districts in lawsuits that arose out of a collision between a
Metra train and a school bus, which resulted in the death of several school
children.
At the time of the accident, one of the insurance
policies the school districts had in force was a commercial general liability
policy which provided that the following losses were not covered:
" ' "Bodily injury" or "property damage" arising out
of the ownership, maintenance, use or entrustment to others of any aircraft,
"auto" or watercraft owned or operated or rented or loaned to any insured. Use
includes operation and "loading or unloading." * * * "Auto" means a land motor
vehicle, trailer or semitrailer designed for travel on public roads, including
any attached machinery or equipment.' "
Northbrook, 194 Ill.2d at 98.
Northbrook filed a declaratory judgment action in the
trial court asserting that it had no duty to defend under the policy because the
injuries arose out of the use or operation of a bus. The trial court granted
summary judgment in favor of Northbrook but the appellate court reversed,
holding that the lawsuits adequately alleged that the injuries could have arisen
from causes other than the use or operation of a bus such as the failure of the
school districts to adequately plan and inspect bus routes and warn bus drivers
of potential hazards.
Northbrook, 194 Ill.2d at 98.
On review, the supreme court found that the
allegations of the underlying complaints utterly failed to state facts that
either actually or potentially brought the cases within the policy's coverage.
Northbrook, 194 Ill.2d at 98. The court observed that the policy
excluded injuries arising from the school districts' use or operation of a motor
vehicle.
Northbrook, 194 Ill.2d at 98-99. It further noted that the school
districts' inadequate planning, inspection of bus routes and failure to warn bus
drivers of potential hazards were "nothing more than rephrasings of the fact
that the students' injuries arose from the school districts' use or operation of
a motor vehicle."
Northbrook, 194 Ill.2d at 99. The court reversed the appellate court
and concluded that Northbrook had no duty to defend.
Northbrook, 194
Ill.2d at 99.
Northbrook is distinguishable from the instant
case. First, in Northbrook,
the insured school districts clearly operated the bus that was being used at the
time of the occurrence. To the contrary, the insured in this case did not own or
operate the trailer at the time of the occurrence, nor was Dare maintaining the
trailer at the time of the occurrence. Further, the allegations in the
underlying complaint here are not mere "rephrasings" that Dare owned or
maintained the trailer at the time of the occurrence. Instead, the allegations
are that Dare "designed," "equipped," "marketed," "distributed," and "sold" the
trailer. Further, there are allegations that she failed to warn Ellingson of the
unreasonable risks of the defective butt chain. These allegations claim that
Ellingson's injuries arose from a design defect created by Dare, not merely from
her ownership or maintenance of the butt chain. Again, if the allegations of the
complaint are within or potentially within a policy's coverage, the insurer is
required to defend even if the allegations "may be groundless, false, or
fraudulent."
Shell Oil Co. v. AC & S, Inc., 271 Ill.App.3d 898, 904, 649 N.E.2d 946
(1995). We find these additional allegations are separate, distinct, and
outside the language of the exclusion. We therefore find
Northbrook to
be distinguishable.
We also find that the term "maintenance" is ambiguous
as written in the policy exclusion.
As noted above, the term "maintenance" is not defined
in the policy here. Generally, "maintenance" is defined as "[t]he upkeep or
preservation of condition of property, including cost of ordinary repairs
necessary and proper from time to time for that purpose." Black's Law
Dictionary, 953 (6th ed.1990). USAA argues that the definition of "maintenance"
encompasses all of the allegations that are tied to it by the conjunctive word
"and" in the complaint. Specifically, Dare's "maintaining" the horse trailer, as
pled in the conjunctive, is synonymous with the allegations of modifying,
altering, and changing the horse trailer according to USAA. USAA claims the
allegation of maintenance cannot be separated from modifying, altering, or
changing the trailer. This argument, however, works against USAA because the
word "maintaining" takes on a different meaning than that defined above.
Since the term "maintenance" could mean "upkeep," as
it is generally understood, or could reasonably encompass a broader definition
as suggested by USAA, it is subject to more than one interpretation and is
ambiguous. Therefore, the provision should be resolved in favor of the insured.
United States Fidelity & Guaranty Co. v. Wilkin Insulation Co., 144
Ill.2d 64, 80, 578 N.E .2d 926 (1991).
Finally, USAA argues that for liability to arise out
of the insured's "ownership" under the exclusion, all that is necessary is that
the insured's ownership is a "necessary link" in the chain of causation leading
to the liability asserted by the underlying plaintiff. It further claims that
the proper test is the application of a "but for" causation analysis in this
case, specifically, "but for" Dare's ownership of the horse trailer, Ellingson
would not have suffered the alleged injury. According to USAA, because Dare's
ownership of the horse trailer was a necessary link in the chain of causation
leading to Ellingson's damage, the exclusion applies and there is no duty to
defend. Both Dare and Ellingson argue that the exclusion does not apply. They
specifically claim that because Dare did not own, operate, or have any control
over the trailer at the time of the occurrence, the underlying injuries did not
arise out of the ownership or maintenance of the trailer. In addition, Dare
contends that the exclusion is ambiguous because it "does not set forth any time
constraints pertaining to 'ownership' or 'maintenance' nor [does] the policy
define [those] terms."
USAA relies upon language in
Maryland Casualty Co. v. Chicago & North Western Transportation Co., 126
Ill.App.3d 150, 155, 466 N .E.2d 1091 (1984). In Maryland Casualty,
the plaintiff, Maryland Casualty Company (Maryland), appealed a summary judgment
order granted to the defendant, Chicago and North Western Transportation Company
(C & NW), in a declaratory judgment suit. In that order the trial court found
that Maryland was obligated to defend and indemnify C & NW in a negligence
action filed against C & NW by an employee of C & NW's lessee, Demos News, Inc.
(Demos). Demos maintained several newsstands in C & NW's passenger terminal
located at 500 West Madison Street, Chicago, and the Demos employee was
assaulted and raped approximately 10 feet from one of these newsstands when she
reported for work.
The victim's negligence action against C & NW alleged
that her attack and resulting injuries were proximately caused by C & NW's
negligence in controlling and maintaining the passenger terminal. C & NW sought
a defense for this claim under a commercial general liability (CGL) policy
issued by Maryland to Demos under which C & NW was a named an additional
insured, but " 'only with respect to liability arising out of the ownership,
maintenance or use of that part of the premises designated below leased to the
named insured.' "
Maryland Casualty, 126 Ill.App.3d at 153. Maryland filed a
declaratory judgment action and motion for summary judgment on the ground that
it had no duty to defend or indemnify because the policy language above
precluded any defense obligations to C & NW. Specifically, Maryland argued that
the attack, which occurred before the employee began work, did not arise from
Demos' use of the premises but from the victim's mere presence in the terminal,
which was open to the public. According to Maryland, such activity was outside
the scope of coverage provided to C & NW in the policy. C & NW contended that
the policy covered the entire passenger terminal.
One of the issues on appeal was whether Maryland had
a duty to defend C & NW under the terms of the CGL policy issued to Demos. In
determining the propriety of granting summary judgment to C & NW, the appellate
court considered whether the attack on the victim arose " 'out of the ownership,
maintenance or use' " of the designated leased premises.
Maryland Casualty, 126 Ill.App.3d at 154. The court noted that the
term "arising out of" is both "broad and vague" and must be liberally construed
in favor of the insured; accordingly, it held "but for" causation, not
necessarily proximate causation, satisfied this language.
Maryland Casualty, 126 Ill.App.3d at 154. It further observed that "
'[a]rising out of has been held to mean 'originating from,' 'having its origin
in,' 'growing out of' and 'flowing from.' [Citation.]"
Maryland Casualty, 126 Ill.App.3d at 154. In construing the policy
liberally in favor of the insured, the court held that the victim's injuries
arose from the operation and use of the leased premises, since they would not
have been sustained "but for" the victim's employment on the premises owned by
C & NW. Maryland Casualty, 126 Ill.App.3d at 155. Thus, Maryland's
duty to defend
C & NW was found to be triggered. Maryland Casualty, 126 Ill.App.3d at
155.
Here, USAA contends that Maryland Casualty
clearly interprets the meaning of "arising out of" and that a "but for" test is
the proper test to be applied for the purpose of determining whether the policy
exclusion applies. According to USAA, Maryland Casualty also stands for
the proposition that the causal relationship created by the phrase arising out
of "clearly allows for an injury to occur after ownership of the vehicle ceases"
so long as the injury originates from, has its origin in, grows out of, or flows
from an insured's ownership of the vehicle. However, using this type of
analysis, specifically, a case that interprets the phrase "arising out of" as it
appears in a policy section providing coverage, offers minimal assistance in
resolving the appropriate interpretation of the same phrase as it appears in an
exclusion.
Oakley Transport Inc. v. Zurich Insurance Co., 271 Ill.App.3d 716,
721-22, 648 N.E.2d 1099 (1995). That is because a broad interpretation here
would expand the exclusion to the advantage of the insurer and would "turn on
its head established judicial precedent regarding liberal construction of
insurance policies in favor of the insured."
Oakley Transport, 271 Ill.App.3d at 721. When the application of an
exclusion will result in denying the duty to defend, that exclusion must be
clear and free from doubt.
Mount Vernon, 343 Ill.App.3d at 320-21.
USAA's position emerges from a strained
interpretation of Maryland Casualty because C & NW never sold the
premises upon which the victim was injured. Additionally, the injury arose at a
time when the premises were owned by C & NW. The Maryland Casualty court
was never called upon to address the specific question of ownership as it
related to the insurance policy involved. In this case however, Dare sold the
trailer to Ellingson and the alleged injury occurred after the sale. The
Maryland Casualty court did not consider whether the "but for" analysis
associated with the "arising out of" language would apply if C & NW had not
owned the premises at the time. Since this exclusion is not clear and free from
doubt under the instant facts, we do not find Maryland Casualty to be
helpful.
While our research reveals no Illinois decision that
involves interpretation of the same policy exclusion under identical facts, we
find one decision from Michigan to be persuasive. Cf.
Employers Mutual Liability Insurance Co. of Wisconsin v. Michigan Mutual Auto
Insurance Co.,
101 Mich.App. 697, 300 N.W.2d 682 (1980).
In Employers Mutual Liability Insurance, the
insured installed a gas line and filter into a motor boat that he owned. The
insured then sold the boat, which later exploded, resulting in injury to six
people. The injured parties sued the insured alleging that he negligently
installed the boat's gas line, which was the proximate cause of the explosion
and resulting injuries.
At the time the insured owned the boat, he held a
boatowner's insurance policy, two homeowner's policies, and a personal umbrella
and medical expense policy from three different insurers. The insured sought
representation and indemnification for the underlying action from all three
insurers and each insurer denied coverage liability. For reasons not relevant
here, the trial court determined that coverage under the boatowner's policy and
one of the homeowner's policies was not triggered. The court did find that the
insurer which issued the remaining homeowner's policy was liable for
representation and indemnification of the insured in the underlying action and
that the insurer which issued the umbrella policy was responsible for
indemnification in the event the damages exceeded the policy limits on the
triggered homeowner's policy. The liable insurers appealed the trial court's
findings.
The language in the triggered homeowner's policy
excluded liability for " 'bodily injury or property damage arising out of the
ownership, maintenance, operation, use, loading or unloading of any watercraft;
* * * owned by or rented to any
Insured.' " Employers Mutual Liability Insurance, 101 Mich.App. at 705,
300 N.W.2d at 686. The exclusion in the umbrella policy contained similar
language.
On review, the appellate court affirmed the trial
court's coverage findings on the ground that the phrase " 'arising out of the
ownership * * * of any watercraft' is ambiguous in that it is not clear whether
the insured must have owned the boat at the time of the accident for the
exclusion to apply."
Employers Mutual Liability Insurance, 101 Mich.App. at 705, 300 N.W.2d at
686. The court further explained that because ambiguity must be construed
against the insurer and the time that damages arise is the crucial focal point,
the exclusionary language at issue "applies only where the insured owns or rents
the boat at the time of the occurrence."
Employers Mutual Liability Insurance, 101 Mich.App. at 706, 300 N.W.2d at
686.
While Employers Mutual Liability Insurance
involved a boat instead of a trailer, the facts are similar and the policy
language is virtually identical to the language of the exclusion present here.
As noted above, the policy does not define the term "ownership." "Ownership" is
also subject to more than one interpretation because it is unclear if the
exclusion applies only when the insured owned the trailer at the time of the
occurrence or whether, as USAA suggests, ownership extends beyond the insured's
sale of the property under the exclusion. An insurance policy provision is
ambiguous if it is subject to more than one reasonable interpretation.
United States Fidelity & Guaranty Co. v. Wilkin Insulation Co., 144
Ill.2d 64, 74, 578 N.E.2d 926 (1991). Here, the term "ownership" is subject
to more than one reasonable interpretation and we find the term in this policy
is ambiguous. Because an ambiguous policy exclusion must construed against the
insurer-drafter and in favor of coverage, we affirm the order entered on April
5, 2004, finding duty to defend.
Affirmed.
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