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SIXTH DIVISION
SEPTEMBER 30, 2004

Nos. 1-02-1645, 02-2244, 02-2318

The plaintiffs, Donald Fogel and James Burke brought a declaratory judgment action againstdefendants Allstate Indemnity Company (Allstate), Enterprise Leasing Company of Chicago(Enterprise) and Mehul Thakkar, seeking a declaration that Allstate and Enterprise owed a duty todefend and indemnify Thakkar in the underlying personal injury lawsuit. The trial court grantedsummary judgment in favor of Enterprise, finding that Thakkar procured the automobile rentalagreement with Enterprise through fraud, and ordered the rescission of the agreement. Consequently,Enterprise had no duty to provide the supplemental liability coverage. The trial court further ruledthat Enterprise was required to provide Fogel and Burke with statutory minimum financialresponsibility (MFR) of $50,000. The trial court did not rule on the issues raised in Enterprise'scounterclaim.

The underlying lawsuit was voluntarily dismissed by the plaintiffs, and Fogel, Burke, Thakkarand Allstate agreed to arbitration. The arbitrators entered an award in favor of Fogel and Burke. Thetrial court confirmed the arbitration award and entered judgment on the award against Thakkar.

These appeals follow.

BACKGROUND

On November 14, 1997, Thakkar was involved in an accident with a vehicle driven by MichaelDeLuca in which Fogel and Burke were passengers. Thakkar was insured under an Allstate policyand DeLuca was insured under a United Services Automobile Association (USAA) policy. Thakkarwas driving a vehicle that he had rented from Enterprise. As part of the rental agreement, Thakkarpurchased supplemental liability coverage in the amount of $1 million.

When Thakkar rented the vehicle from Enterprise, he presented a fictitious California driver'slicense that showed his age to be 22 years. Thakkar was actually 18 years old on November 14,1997. At the time, Enterprise had a policy that prohibited its agents from renting to retail customersunder the age of 21. Thakkar had rented a car from Enterprise at its Hoffman Estates, Illinois,location on November 3, 1997. At that time, Thakkar presented the California driver's license which showed his picture and the name "Mehul Thak." The November 3, 1997, rental agreement indicatesthe name "Mehul Thak" with an address in Los Angeles, Illinois. The Enterprise agent stated that,by habit, she mistakenly listed the state of residence as Illinois. On November 12, 1997, Thakkarreturned the vehicle to the Hoffman Estates location.

Later on November 12, 1997, Thakkar went to the Enterprise facility in Schaumburg, Illinois,and entered into a second rental agreement. The Enterprise agent at the Schaumburg facility statedthat Thakkar presented a California driver's license and a credit card. The agent stated that theinformation from the prior rental was pulled up by entering the driver's license number and state intothe computer. The rental agreement dated November 12, 1997, shows the name "Mehul Thak" withan address in Los Angeles, Illinois. The agreement indicates an age of 22. As part of the rentalagreement, Thakkar also purchased $1 million of supplemental liability protection (SLP).

Thakkar has given conflicting testimony regarding the driver's license he used to rent thevehicles. In depositions, affidavits, and other discovery documents, Thakkar stated he presented anIllinois driver's license to Enterprise on November 3,1997, which showed his age to be 18 at the timeof both rentals. Thakkar denied that he represented himself to reside in California, to have representedhis name to be Mehul Thak or to have presented a fictitious driver's license in order to rent a car fromEnterprise. Thakkar maintained in sworn testimony in both the underlying personal injury lawsuit andin this case that he had no idea from where the information on the rental agreements came. However, in a redeposition taken in June 2001, Thakkar admitted that he used a fictitious Californiadriver's license which showed his age to be 22 when he rented the vehicle on November 3, 1997. Hefurther admitted that at the time he presented the California license, he also had in his wallet a validIllinois driver's license which showed his true age of 18. In the deposition, Thakkar admitted to usingthe California license again when he rented the vehicle on November 12, 1997. Then, later in thedeposition, he changed his testimony and stated that on November 12 he only gave the agent at theSchaumburg facility a copy of the November 3 rental agreement and did not present any driver'slicense.

PROCEDURAL HISTORY

Fogel and Burke filed a complaint against Allstate, USAA, Enterprise, Thakkar and De Luca,seeking a declaration of the rights and liabilities of the parties with respect to the Allstate and USAApolicies of insurance and the Enterprise supplemental liability protection. Allstate and Thakkar fileda cross-complaint and Enterprise filed a counterclaim. Thereafter, Enterprise filed a motion forsummary judgment arguing that it was entitled to rescind the rental agreement and the SLP containedtherein based upon Thakkar's fraudulent procurement of the vehicle. Enterprise maintained that therental agreement was void due to Thakkar's material misrepresentation of his age. Fogel filed a cross-motion for summary judgment arguing that the rental agreement and the SLP were in full force andeffect at the time of the accident and there were no grounds for rescission of the contract. Thakkarfiled a cross-motion for summary judgment adopting Fogel's argument and asserting that regardlessof the SLP, Enterprise was required to make payment under the minimum financial responsibilitystatute contained in the Illinois Vehicle Code (625 ILCS 5/9-101 et seq. (West 2000)).

On April 26, 2002, the trial court granted Enterprise's motion for summary judgment anddenied Fogel and Thakkar's cross-motions for summary judgment. The trial court found that therental agreement was procured by fraud ab initio and the contract between Enterprise and Thakkarwas rescinded. The court found that Enterprise is not liable for supplemental liability protection. Thecourt did find Enterprise liable for $50,000 in accordance with the minimum financial responsibilitystatute.

On May 21, 2002, Fogel and Burke filed a motion in the declaratory judgment action toconfirm the arbitration awards and enter judgment against Enterprise. Fogel, Burke, Thakkar andAllstate had entered into an agreement to arbitrate the underlying personal injury lawsuit. Enterprisewas not a party to the agreement and did not participate in the arbitration. The arbitrator entered anaward for Fogel in the amount of $1,692,163.25 and for Burke in the amount of $72,770.40. Enterprise objected to the motion to confirm, and Fogel filed an amended Motion to confirm seekingjudgment against Thakkar and requesting setoffs of $385,000 on Fogel's award and $65,000 onBurke's award. On July 12, 2002, the trial court confirmed the awards and entered judgment againstThakkar without reduction for the setoffs.

On May 24, 2002, Enterprise filed a motion for Clarification of the court's April 26 order. Enterprise asked the court for a liability finding on Enterprise's fraud counterclaim against Thakkarand to specify a procedure for the assessment of damages. Enterprise also asked the court to makea finding that consideration had been tendered by Enterprise to Thakkar for purposes of rescission. Enterprise also asked the court to expressly deny Thakkar's claims regarding its duty to defend andindemnify Thakkar in the underlying lawsuit. On July 12, 2002, the circuit court denied the motionto clarify.

DISCUSSION

Our review of the circuit court's grant of summary judgment is de novo. Natale v. GottliebMemorial Hospital, 314 Ill. App. 3d 885, 888, 733 N.E.2d 380 (2000). Summary judgment isproperly granted where "the pleadings, depositions, admissions, and affidavits on file, when takentogether in the light most favorable to the nonmovant, show that there is no genuine issue of materialfact and that the movant is entitled to judgment as a matter of law." Fremont Casualty Insurance Co.v. Ace-Chicago Great Dane Corp., 317 Ill. App. 3d 67, 73, 739 N.E.2d 85 (2000). The function ofa reviewing court on appeal from a grant of summary judgment is limited to determining whether thetrial court correctly concluded that no genuine issue of material fact was raised and, if none wasraised, whether judgment as a matter of law was correctly entered. Malanowski v. Jabamoni, 293 Ill.App. 3d 720, 688 N.E.2d 732 (1997). In situations where both parties file cross-motions for summaryjudgment, "they agree that no material issue of fact exists and that only a question of law is involved."Robson v. Electrical Contractors Ass'n Local 134 IBEW Joint Pension Trust, 312 Ill. App. 3d 374,380, 727 N.E.2d 692 (1999). Thus, " 'the court is invited to decide the issues presented as a questionof law.' " Lexmark International, Inc. v. Transportation Insurance Co., 327 Ill. App. 3d 128, 134, 761N.E.2d 1214 (2001), quoting Container Corp. of America v. Wagner, 293 Ill. App. 3d 1089, 1091,689 N.E.2d 259 (1997). However, "the mere filing of cross-motions for summary judgment does notrequire that the court grant the requested relief to one of the parties where genuine issues of fact existprecluding summary judgment in favor of either party." Travelers Insurance Co. of Illinois v. EljerManufacturing, Inc., 307 Ill. App. 3d 872, 878, 718 N.E.2d 1032 (1999).

Here, Fogel argues the trail court erred in granting summary judgment to Enterprise becauseEnterprise is not entitled to rescission of the contract. First Fogel maintains that Enterprise cannotget rescission on a theory of fraudulent inducement.

In order to establish an equitable claim for rescission on the basis of fraud andmisrepresentation, Enterprise must demonstrate: (1) a false statement of material fact; (2) known orbelieved to be false by the party making it; (3) intended to induce the other party to act; (4) actedupon by the other party in reliance upon the truth of the representations; and (5) damaging to theother party as a result. Connick v. Suzuki Motor Co., 174 Ill. 2d 482, 496, 675 N.E.2d 584 (1996). In this case, each of these elements has been established.

A misrepresentation is "material" if the party seeking rescission would have acted differentlyhad it been aware of the misrepresentation. Miller v. William Chevrolet/Geo, Inc., 326 Ill. App. 3d642, 649, 762 N.E.2d 1, 7 (2001). Fogel argues that Thakkar's misrepresentation did not relate toa material fact. We disagree. Here, Thakkar made a false statement of material fact which he knewto be false. Thakkar presented a California driver's license that indicated his age was 22. Thakkarknew that he was not 22 years old, but in fact was only 18 years old. Thakkar signed the rentalagreement containing this false information. Enterprise had a policy that it did not rent vehicles topersons under the age of 21 (except in the case of an insurance replacement vehicle, which is not thecase here). Both of the Enterprise agents who rented vehicles to Thakkar stated that they would nothave rented a vehicle to him had they been aware of his true age. The facts show that Enterprisewould not have rented the vehicle to Thakkar had he not misrepresented his age. We find that themisrepresentation was material.

Fogel further argues that Thakkar did not misrepresent his age intending to induce Enterpriseto rent a car to him. Fogel maintains that the evidence establishes Thakkar had no knowledge ofEnterprise's age restriction. Again, we disagree. We acknowledge that Thakkar did not admit heused the fictitious license because he knew Enterprise would not rent a vehicle to him unless he was21 years old. In fact, Thakkar failed to explain why he used the fake identification rather than theidentification showing his true age. However, Thakkar did admit that he used the fake identificationto falsely represent his age to be over 21 in order to gain entry to bars. Further, the evidence showsthat Thakkar presented the fictitious California license rather than the valid Illinois driver's licensewhich was in his wallet and which showed his true age of 18 years. The facts show that Thakkarintended to represent his age to be over 21 in order to induce Enterprise to rent a vehicle to him.

We also find that Enterprise relied on Thakkar's misrepresentation when it rented a vehicleto him. Fogel argues that Enterprise's reliance was not justified. Fogel maintains that the name onthe fake identification did not match the name on the credit card Thakkar presented and Enterprisehad an obligation to investigate these discrepancies and verify the information provided by Thakkar. Further, Fogel contends that Enterprise had a financial incentive to not verify the information and justaccept Thakkar's misrepresentations as valid. However, the facts show that Enterprise relied onThakkar's representation that he was 22 years old. Both Enterprise agents testified that they wouldnot have rented the car to Thakkar had he not been at least 21 years of age. Thakkar presentedwhat appeared to be a valid driver's license and Enterprise had no reason to suspect that it was notvalid. Thakkar supported his fraud by telling the agents that he was a student at UCLA. There isnothing in the record to support Fogel's contention that Enterprise was unreasonable in acceptingThakkar's misrepresentation.

Finally, Fogel argues that rescission is not proper because the status quo ante cannot berestored. Fogel asserts that apart from the issue of the premiums paid by Thakkar, the status quoante cannot be restored because of the intervening accident.

Restoration of the status quo initially requires the return of any consideration that has passedto the rescinding party under the contract. Puskar v. Hughes, 179 Ill. App. 3d 522, 528, 533 N. E.2d962 (1989). Here, Fogel admits that Enterprise tendered a refund of the premiums paid by Thakkarfor the rental of the vehicle on November 12, 1997. Fogel's assertion concerning the interveningaccident apparently raised the argument that the contract cannot be rescinded because Fogel cannotbe restored to the position he was in before the contract. However, Fogel's assertion is made withoutcitation to authority. Fogel was not a party to the contract. Restoration of the status quo requiresonly that the party seeking rescission restore to the other party to the contract the consideration itreceived under the contract.

For these reasons, we find that Enterprise is entitled to rescission of the contract based onThakkar's fraudulent inducement.

Fogel next argues that Enterprise in not entitled to rescission of the contract under the IllinoisInsurance Code (215 ILCS 5/1 et seq. (West 2002)). We need not address this issue as we havealready found that Enterprise is entitled to rescission of the contract based on common law fraud.

Fogel next contends that public policy requires that the contract between Enterprise andThakkar, including the SLP, be enforced. Fogel maintains that he has a vested interest in the contractand specifically in the SLP coverage. Fogel contends that liability insurance concerns the rights ofthe general public and underlying claimants have a substantial interest in how insurance coveragequestions are resolved. Fogel relies on Hertz Corp.v. Garrott, 238 Ill. App. 3d 231, 606 N.E.2d 219(1992), wherein this court held that an exclusionary clause in the rental agreement which prohibitedliability coverage to drivers under the influence of alcohol, was void as against public policy. Thiscourt held that the rental agency could not impose sanctions upon private citizens for driving whileintoxicated when such sanctions impose a hardship on the general public. Garrott, 238 Ill. App. 3dat 239. Fogel argues that, here, Enterprise is seeking to impose sanctions upon private citizens whoare under the age of 21.

We do not find Fogel's argument to be persuasive. The Garrott case relied upon by Fogelconcerned an exclusionary clause that altered coverage expectations and risks based upon a driver'sactions after the time the contract was entered into. The rental company in Garrott did not seekrescission of the contract and the case did not concern fraud in the inducement. Here, Enterprise isnot altering coverage expectations of a valid contract. Here, Enterprise seeks rescission of thecontract because it would not have entered into the contract had it known Thakkar's true age.

Fogel asserts another public policy argument that Enterprise cannot rescind the contract oncethe rights of an innocent third party have vested. Fogel maintains that numerous jurisdictions haveadopted this position. Again we do not find Fogel's position persuasive. The cases cited by Fogelconcern state laws for mandatory liability insurance. In these cases, courts have held that mandatoryinsurance statutes have abrogated the insurance company's right to rescind the policy with regard toclaims of persons not involved in making the misrepresentation. In other words, the public policyunderlying mandatory insurance statutes requires that insurance companies cannot rescind thecontract and preclude an innocent third party from coverage benefits. The rationale in these casesis that mandatory insurance statutes were enacted to protect the public from financial hardship andthese laws have transformed what was a private contract into a quasi-public obligation. The publicpolicy argument is that where a state mandates liability insurance in order to protect the public, therisk of a misrepresentation made by the applicant is borne by the insurer and not an innocent thirdparty.

In this case however, Fogel's public policy argument fails because we are not addressingmandatory liability coverage. In fact, Illinois courts have allowed the rescission of an insurance policybased upon misrepresentations in the application after an accident and injury to a third party hadoccurred. See Ratliff v. Safeway Insurance Co., 257 Ill. App. 3d 281, 628 N.E.2d 937 (1993);American Country Insurance v. Mahoney, 203 Ill. App. 3d 453, 560 N.E.2d 1035 (1990). Here, thecase involves a private contract entered into between Enterprise and Thakkar. The supplementalliability protection was a part of that contract. The SLP was not required under state law with thepurpose of protecting the public from financial hardship. Thus we find Fogel's public policy argumentunavailing.

Alternatively, Fogel contends that Enterprise is estopped from rescinding the contract. Fogelmaintains that Enterprise did not act promptly in seeking rescission of the contract. We find thisargument unavailing as well. The record does not show any significant delay in Enterprise's assertionof its right to rescission. In fact, Enterprise raises the issue of rescission in its answer and affirmativedefenses to the amended cross-complaint. More importantly, Fogel does not argue and the recorddoes not reveal any prejudicial reliance by Thakkar due to Enterprise's delay in seeking rescission. See Time Insurance Co. v. Vick, 250 Ill. App. 3d 465, 620 N. E.2d 1309 (1993) (estoppel necessarilyrequires some prejudicial reliance of the insured upon some act, conduct or nonaction of the insurer).

Fogel argues that the trial court erred in denying his motion for summary judgment because no grounds exist for rescinding the rental agreement. As stated above, we find that rescission of theagreement is proper and that Enterprise is not liable for SLP. Accordingly, we find that the trial courtproperly denied Fogel's motion for summary judgment.

The final claim raised by Fogel on appeal concerns the finding of the trial court regardingEnterprise's liability under the minimum financial liability statute. Fogel contends that the trial courtimproperly limited the minimum financial responsibility (MFR) award to $50,000. We decline toaddress this argument as Fogel's notices of appeal do not raise this issue.

Accordingly, we find that the rental agreement between Enterprise and Thakkar was properlyrescinded and the court properly granted summary judgment in favor of Enterprise. We affirm theportion of the April 26, 2002 order granting summary judgment in favor of Enterprise and denyingthe cross-motions for summary judgment.

Enterprise contends on appeal that the trial court erred in finding minimum financialresponsibility available. Enterprise argues that the MFR statute provides for liability only where thedriver has the express or implied permission of the owner. Enterprise maintains that Thakkar'smisrepresentations vitiate any permission given by Enterprise.

It is unclear to this court what the basis was for imposing statutory liability on Enterprise.Fogel seems to contend that this statutory liability is excess to the coverage provided by Allstate.

For different reasons than those presented by Enterprise, we find that Enterprise is not liableunder the minimum financial responsibility statute. We have already determined that the contractbetween Enterprise and Thakkar was properly rescinded; thus, Enterprise has no insurance obligationspursuant to the rental agreement. Moreover, Allstate provided coverage for Thakkar. Allstate hasmade no argument on appeal that Enterprise has a duty to indemnify Allstate.

The Illinois Vehicle Code requires all owners of for-rent motor vehicles to give proof offinancial responsibility. 625 ILCS 5/9-101 (West 2002). An owner can comply with this requirementby filing with the Secretary of State a bond, proof of insurance, or a certificate of self-insurance. 625ILCS 5/9-102 (West 2002). To obtain a certificate of self-insurance, an owner must satisfy theIllinois Department of Insurance that he is able and will continue to be able to pay a judgmentobtained against him. Failure to pay a judgment is grounds for revocation of the certificate. 625 ILCS5/7-502 (West 2002).

Here, Enterprise filed a certificate of self-insurance in accordance with this section of theVehicle Code. Clearly, Enterprise does provide insurance if a customer chooses to use Enterprise'sinsurance. Therefore, Enterprise does protect the public by fulfilling the requirement of Illinois lawby proving its financial responsibility. This, however, does not require Enterprise to provide theliability insurance to customers who prefer their own insurance. As stated in Hertz Corp. v. Garrott,238 Ill. App. 3d 231, 239, 606 N.E.2d 219, "the statute merely prescribes the minimum amountsneeded by a rental agency to conduct business in the State. The statute in no way defines the scopeof the obligation that may be assumed by the rental agency by separate agreement." In fact, Illinoiscourts have held that the parties to the rental agreement may properly contract as to which insurer,the rental agency or the renter's own insurance, is responsible for primary coverage, as long asstatutory minimum requirements are met. See Farm Bureau Mutual Insurance Co. v. Alamo Rent aCar, Inc., 319 Ill. App. 3d 382, 744 N.E.2d 300 (2001). In other words, the statute does not mandateprimary liability of the rental agency. Rather, it provides for minimum responsibility when the renterpurchases liability insurance from the rental agency.

Here, Thakkar did purchase liability insurance from the rental agency. However, we havefound the contract was properly rescinded. Yet, even if we decided that Enterprise was indeedrequired to provide liability insurance, we would be protecting Allstate. The purpose of the financialresponsibility insurance is to protect those who would otherwise be uninsured, not to protect otherinsurance companies. Insurance Car Rentals, Inc. v. State Farm Mutual Automobile Insurance Co.,152 Ill. App. 3d 225, 504 N.E.2d 256 (1987).

It follows then that neither the language contained in the Vehicle Code nor the public policybehind it, which is to protect the public, bars contract terms that purport to shift primary liabilityunder insurance policies. Here, however, we have found that the rental agreement betweenEnterprise and Thakkar is rescinded so that any contract terms that purport to shift primary liabilityfrom Allstate to Enterprise are void. Thus, Allstate was responsible to provide coverage for Thakkarand Allstate has paid pursuant to its policy. We find no basis for liability of Enterprise under theminimum financial responsibility statute.

Accordingly, we reverse the portion of the April 26, 2002 order of the trial court findingEnterprise liable for $50,000.00 pursuant to the minimum financial responsibility statute.

Enterprise sought judgment on its fraud claim against Thakkar. The trial court failed toexplicitly rule on the issue.

We find that the record supports a finding of liability in favor of Enterprise on its fraud claimagainst Thakkar. Accordingly, we remand to the trial court to determine damages on Enterprise'sfraud claim against Thakkar.

Enterprise also appeals the confirmation of the arbitration award and the entry of judgmenton that award. Enterprise contends that the arbitration took place for the sole purpose of obtaininga judgment that could then be executed against Enterprise.

We need not address the issues raised by Enterprise because Enterprise has no liability in thiscase. None of the parties to the arbitration agreement have raised any issues in this court. Enterprisewas not a party to the arbitration agreement. Judgment on the award was entered in favor of Fogeland Burke and against Thakkar. This judgment cannot be executed against Enterprise.

CONCLUSION

For the foregoing reasons, we affirm the trial court's order granting summary judgment infavor of Enterprise. We affirm the trial court's order denying all cross-motions for summaryjudgment. We find in favor of Enterprise on its fraud claim against Thakkar and remand to the trialcourt to determine damages. We reverse the trial court's order finding Enterprise liable for $50,000pursuant to the minimum financial responsibility statute.

Affirmed in part and reversed in part; cause remanded with instructions.

FITZGERALD SMITH, P.J., and MCBRIDE, J., concur.