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                                                                                                           SIXTH DIVISION
                                                                                                           AUGUST 4, 2000

No. 1-99-0373

This is a dispute among insurance companies. Plaintiff, Insurance Company of Illinois(ICI), filed a declaratory action against Potomac Insurance company of Illinois (Potomac),American Service Insurance Company (American Service), and Victor, Diane and Dennis

Brown, the insureds (collectively, defendants), under ICI's policy, seeking a declaration that itowed no coverage to Dennis Brown for injuries he sustained while riding as a passenger in avehicle driven by an uninsured motorist. ICI and defendants filed cross-motions for summaryjudgment, and the circuit court of Cook County entered judgment in favor of defendants andagainst ICI, holding that all three policies provided uninsured motorist coverage to Dennis Brownup to a combined maximum of $500,000, to be contributed by each insurer on a pro rata basis.

On appeal, ICI contends that the trial court erred in determining that ICI owed coverage tothe Brown's for Dennis' accident on the following bases: (1) the Brown's coverage under the ICIpolicy lapsed as a result of automatic termination; (2) the "known loss" doctrine preventscoverage for an occurrence which takes place at the end of the policy period; and (3) the ICIpolicy was properly rescinded due to material omissions by the Browns. For the followingreasons, we affirm the judgment of the trial court.

BACKGROUND

The following facts are relevant to this appeal. In June 1993, Victor and Diane Brown(the Browns) were insured under an automobile liability policy issued by ICI. The Browns' son,Dennis, owned his own automobile, a Ford Mustang, which was insured under a separate liabilitypolicy issued by American Service. The Browns' policy with ICI was due to be renewed, andsometime in June 1993, the Browns received a renewal notice and invoice from ICI for apremium of $2127.

At a discovery deposition, Diane testified that out of concern about the increased cost ofthe policy premium, she began to investigate alternative automobile insurance. Diane obtained aquote from General Accident Insurance Company (General Accident) through Mary JanetKeaskowski, an insurance agent with the firm Drost, Schultz & Pohl. On June 17, 1993, Dianeapplied for a new insurance policy with General Accident. Diane completed a writtenapplication and mailed it to Keaskowski with a check in the amount of $329.50, representing thedeposit premium for the proposed new policy.

On June 21, 1993, Keaskowski issued an insurance binder to extend temporaryautomobile liability coverage to the Browns for their two vehicles, a 1990 Buick Le Sabre and a1990 Volkswagen Golf . The binder provided coverage through Potomac, a subsidiary ofGeneral Accident, beginning on June 20, 1993, and terminating on July 20, 1993. The coveragelimits shown on the face of the binder included $500,000 for liability, $5000 for medicalpayments, and $500,000 for uninsured motorist coverage. The binder also extended coverage forphysical damage to the Browns' vehicles, subject to a $500 deductible, $300 higher than thedeductible contained in the ICI policy.

Keaskowski testified that she limited the effective period of coverage afforded by thebinder to one month because she believed it was contrary to law to write an insurance binder forany period longer than one month. Keaskowski stated that prior to the end of the one monthperiod of the binder, the actual policy is customarily issued by the insurance company. In thiscase, the Browns' policy was to be for a period of six months. Diane testified that based on herunderstanding of the above described custom, she did not cancel the ICI policy upon obtainingthe Potomac binder.

On June 24, 1993, Dennis Brown was seriously injured when the automobile he wasriding in as a passenger collided with an automobile driven by Ramiro Morales. Diane testifiedthat she did not immediately report the accident to either ICI or Potomac because she wasattending to the seriousness of Dennis' condition. On the date of Dennis' accident, Potomac hadnot yet issued its actual policy to the Browns.

On July 8, 1993, Diane received a cancellation notice from ICI. The notice stated that thepremium due on the Browns' automobile liability policy on June 28, 1993, had not been receivedand that the policy would lapse on July 25, 1993, unless the Browns sent payment in the amountof $878.32, to ICI prior to that date. The notice stated: "[i]f the premium is received before thecancellation effective date shown above [July 25, 1993], we will be able to continue yourinsurance coverage without interruption. On July 16, 1993, Diane wrote and mailed a check for$878.32 to ICI.

ICI renewed the Browns' automobile policy number 13-12-011201-2 (ICI policy),effective May 24, 1993. The declarations page identified the policy as a renewal policy, andprovided coverage for the Browns' two vehicles for the period June 20, 1993, to December 20,1993. Coverages afforded by the policy included liability limited to $500,000, uninsured andunderinsured motorist and bodily injury up to a limit of $500,000, excess medical expenseslimited to $5,000, and replacement costs for property damage to each vehicle, subject to a $200deductible. Under the terms of the policy, the uninsured and underinsured motorists' coverageextended to any family member who resided in the Browns' household.

The policy contained the following provision entitled "Automatic Termination" asfollows:

"If you obtain other insurance on 'your covered auto,' any similarinsurance provided by this policy will terminate as to that auto onthe effective date of the other insurance."

The policy was amended in January 1992 to include the following provision regarding uninsuredmotorist coverage:

"Part C - Uninsured Motorist and Underinsured Motorist Coverage. Under INSURING AGREEMENT, Part A. of Uninsured MotoristsCoverage, the following sentence is added:

Any claim for damages under this coverage must bepresented to us within two (2) years of the date of theaccident.

Under INSURING AGREEMENT, Part A. of UnderinsuredMotorists Coverage, the following sentence is added:

Any claim for damages under this coverage must bepresented to us within two (2) years from the date ofjudgment, fulfillment of the exhaustion clause, or otherindication of underinsured loss."

On July 13, 1993, Keaskowski mailed an automobile liability policy issued by Potomac tothe Browns. The Potomac policy, number RPA 1014018-5 (Potomac policy), extended coverageto the Browns and their vehicles from June 20, 1993, through December 20, 1993. Thecoverages were subject to the following limits of liability: $500,000 for liability, $5000, formedical payments, and $500,000, for uninsured motorist coverage, with a $500 deductible forproperty damage to the covered vehicles.

On September 3, 1993, Alina Koester of American Service Insurance Company(American Service), the parent company of ICI, sent a medical authorization form to the Brownsin response to their report concerning Dennis' accident of June 24, 1993. On October 2, 1993,Diane sent ICI a check for $608.50, representing the second installment of the premium due ICIfor the Browns' automobile policy. Subsequently, on October 15, 1993, ICI canceled the policyat Diane's request, retaining the premium of $878.50 paid by Diane on July 16, 1993, andrefunding the amount of $608.50, which Diane paid on October 2, 1993.

After Dennis' accident, the Browns discovered that the driver of the vehicle in whichDennis was an occupant was uninsured. The Browns also learned that Morales' automobilepolicy, issued through American Service, limited coverage to $20,000, per person and $40,000per occurrence. By correspondence dated January 5, 1995, Browns' counsel, Corboy andDemetrio, formally notified ICI, Potomac and American Service of Dennis' intent to seek coverage under the uninsured motorists' provisions of each insurance company's respective policies.

On August 5, 1995, ICI filed its complaint for declaratory judgment against the Browns,Potomac, and American Service, seeking a declaration that it owed no uninsured motoristcoverage to Dennis Brown. ICI subsequently filed a motion for summary judgment andPotomac, American Service and the Browns filed cross-motions for summary judgment. OnDecember 22, 1998, the trial court denied ICI's motion and granted the cross-motions in favor ofthe Browns, Potomac, and American Service, specially finding that uninsured motorist coverageexisted under all three policies of insurance to a maximum of $500,000, to be allocated on a pro-rata basis among the three insurers. ICI filed its timely notice of appeal on January 20, 1999.

OPINION

Initially, ICI contends that the trial court erred in determining that the ICI policy providedcoverage for Dennis' accident. ICI argues that the Browns' policy lapsed as a result of automatictermination.

Our review of the construction of an insurance policy on summary judgment is de novo. Indiana Ins. Co. v. Liaskos, 297 Ill. App. 3d 569, 697 N.E. 2d 398, 402 (1998). The only issuebefore this court is whether all the pleadings, depositions, admissions, and affidavits show thatthere is no genuine issue of material fact and that the moving party is entitled to judgment as amatter of law. 735 ILCS 5/2-1005 (West 1998); Caterpillar, Inc. v. Aetna Cas. & Surety Co., 282 Ill. App. 3d 1065, 668 N.E. 2d 1152, 1154 (1996).

ICI argues that the automatic termination clause of the Browns' policy, i.e., "If you obtainother insurance on 'your covered auto,' any similar insurance provided by this policy willterminate as to that auto on the effective date of the other insurance," clearly and unambiguouslyprovides that if similar automobile insurance is procured, the ICI policy will terminate.

The language of an insurance policy is considered ambiguous when capable of more thanone construction, both of which are reasonable. Bruder v. Country Mutual Ins. Co., 156 Ill. 2d179, 620 N.E. 2d 355, 362 (1993). Our supreme court has held that provisions of an insurancepolicy which limit or exclude coverage, such as an automatic termination clause, are to beinterpreted liberally in favor of the insured and against the insurer. American States Ins. v.Koloms, 177 Ill. 2d 473, 687 N.E. 2d 72, 75 (1997). Here, because the ICI policy does not define"similar insurance," a term which is susceptible to more than one reasonable interpretation, theterm is rendered inherently ambiguous.

While our supreme court has specifically rejected the notion of automatic "cancellation bysubstitution," holding that an insured's subjective intent to cancel an insurance policy could not,standing alone, effect a cancellation of the insurance policy (Copley v. Pekin Ins. Co., 111 Ill. 2d76, 488 N.E. 2d 1004, 1008 (1986)), the interpretation of the "automatic termination" provisionis a question of first impression in Illinois. Without established authority in Illinois, this courtmay choose to examine authority outside of our jurisdiction to aid our interpretation of theinsurance contract provision. Pekin Ins. Co. v. Benson, 306 Ill. App. 3d 367, 374, 714 N.E. 2d559 (1999).

Both parties direct this court to out-of-state authority in support of their respectivepositions. ICI relies primarily on the Washington State case Taxter v. Safeco Ins. Co., 44 Wash.App. 121, 721 P.2d 972 (1986), which upheld and enforced an identical automatic terminationclause contained in an automobile insurance policy. Taxter is distinguishable from the presentcase, however, in that the Taxter plaintiffs were in receipt of an actual second policy of insuranceat the time they made their claim. Here, the Browns possessed a mere binder of temporaryinsurance from Potomac at the time they made their claim, as opposed to an actual second policyof insurance.

As for the meaning of a temporary binder of insurance, we find instructive the Kentuckycase of General Accident Insurance Co. of America v. Guess, 936 S.W.2d 97 (Ky. App. 1997). Under Kentucky law, a binder is "generally issued as a temporary arrangement to provideimmediate coverage until a permanent policy can be obtained." Guess, 936 S.W.2d at 99; Seealso 43 Am Jur. 2d Insurance