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SECOND DIVISION

September 18, 2001

No. 1--00--2739

Defendant Assurance Company of America (Assurance) appealsfrom an order of the circuit court granting plaintiff DennisKenny's renewed motion for summary judgment and from an ordervacating the trial court's prior grant of summary judgment toAssurance. On appeal, Assurance contends that the trial courterred in granting summary judgment in favor of Kenny because Kenny,by allowing entry of a dismissal order in a separate lawsuit filedby him against Gregory Burdo based upon an accident in which Burdowas driving a vehicle that rear ended a vehicle in which Kenny wasa passenger and which was also the accident underlying Kenny'sclaim against Assurance, extinguished any subrogation rightsAssurance possessed against Burdo and, therefore, Assurance was notliable for underinsured motorist benefits to Kenny. For thereasons set forth below, we affirm.

Kenny was injured on December 21, 1989, while riding in avehicle operated by Scott Kent and owned by Bill Sullivan Pontiac,Kenny's and Kent's employer, when the vehicle was rear ended by acar driven by Burdo. Kenny's employer was insured under a policyissued by Assurance. The policy contained an uninsured motoristlimit and an underinsured motorist limit of $1 million and providedthat Assurance would make damage payments to the insured, but

"only after all liability bonds or policieshave been exhausted by judgments or payments,unless we:

a. Have been given written notice in advanceof a settlement between an 'insured' andthe owner or operator of the'underinsured motor vehicle;' and

b. Decide to advance payment to the'insured' in an amount equal to thetentative settlement."

The policy further provided that "[a]ny judgment for damagesarising out of a 'suit' brought without written notice to[Assurance was] not binding on [it]." The policy also contained anexclusion provision that the policy would not apply if "[a]ny claim[was] settled without [Assurance's] consent." Lastly, the policyprovided that if the insured was entitled to recover damages fromanother, those rights were transferred to Assurance and that theinsured "must do everything necessary to secure [Assurance's]rights and must do nothing after 'accident' or 'loss' to impairthem."

On November 28, 1990, because Kenny's counsel had been advisedby the State of Illinois that Burdo was uninsured, Kenny notifiedAssurance of his claim for uninsured benefits, and the partiesagreed to arbitrate this claim. On October 16, 1991, Kenny fileda negligence action against Burdo (the Burdo case). Kenny's actionwas dismissed, but Kenny later refiled it. In September 1992,Kenny's counsel forwarded a demand letter to Assurance, seeking$800,000 under the policy.

In February 1994, Kenny requested a copy of the insurancepolicy, but never received one. In November, Kenny requested thatAssurance make a settlement offer. There is no evidence in therecord that Assurance responded to this request.

In June 1995, Assurance learned that Burdo was in fact insuredwith Allstate and had a policy with a limit of $100,000. AlthoughAssurance offered the services of its counsel to Allstate torepresent Burdo, Allstate retained its own counsel. Assurance thenrequested to be kept informed of any negotiations with Kenny. Thereafter, Kenny's claim against Assurance was suspended. On July20, 1995, Kenny's counsel wrote to Assurance, recognizing itssubrogation rights and asking it to take over representation of thelawsuit against Burdo. There is no evidence in the record whetherAssurance responded to this letter.

On November 3, 1997, Kenny and Burdo reached a settlement inthe amount of $100,000, Burdo's policy limit. On November 6, at acase management conference, Burdo's counsel had the court enter anagreed order dismissing the case with prejudice based on theparties' settlement of Kenny's claim. The order further providedthat "[s]aid dismissal shall be a bar to the bringing of any actionagainst the Defendant based on or including the claim for whichthis action has been brought." On November 10, Kenny signed anunlimited general release of all claims against Burdo. On November18, Kenny's counsel wrote to Assurance with respect to thesettlement, attaching a copy of the release, renewing his demandfor underinsured benefits, and specifically asking Assurancewhether Kenny should retain Allstate's settlement draft. There isno evidence in the record that Assurance responded to Kenny'sletter.

On December 1, Burdo's counsel wrote to Assurance, advising itthat Burdo had settled with Kenny and attaching a copy of therelease. On December 5, Burdo's counsel faxed a copy of therelease and dismissal order to Assurance. In response, Assurancewrote to Kenny on December 31, denying underinsured benefits to himbased on its contention that Kenny had violated the terms of theinsurance policy by failing to advise Assurance of a limits offerprior to settlement and by settling the claim without Assurance'sconsent, thereby extinguishing Assurance's subrogation rights.

On April 14, 1998, Kenny's counsel wrote to Assurance, reiterating his request that Assurance either settle or submitKenny's underinsured claim to arbitration. On May 11, Kenny fileda complaint against Assurance to compel arbitration and seekingpenalties based on Assurance's bad faith conduct. In its answer,Assurance denied all the allegations of the complaint. Assurancealso filed a counterclaim against Kenny (denying coverage based onthe settlement without consent policy exclusion) and a third-partycomplaint against Allstate and Burdo (seeking a declaration that itwas not barred from pursing its subrogation rights).⁽¹⁾

On March 15, 1999, Kenny filed a motion for summary judgment,contending that the settlement of his action against Burdo did notprejudice Assurance's subrogation rights because Allstate knew ofAssurance's rights and the release did not cover Assurance'ssubrogation interest. On June 11, Assurance filed a cross-motionfor summary judgment, contending that Kenny was not entitled tounderinsured benefits because his settlement of the Burdo caseviolated the insurance policy and he settled and dismissed theclaim against Burdo without Assurance's consent or knowledge and,therefore, Assurance was prejudiced because its subrogation rightsagainst Burdo were barred. On September 14, the trial court deniedKenny's motion for summary judgment and granted Assurance's motionfor summary judgment, finding that Kenny, by virtue of allowingdismissal of the Burdo case with prejudice, abrogated and defeatedany right Assurance would have by way of subrogation and,therefore, Assurance was not obligated to arbitrate Kenny's claim. On October 14, Kenny filed a motion to reconsider. The trial courtgranted the motion on February 16, 2000, and also vacated itsprevious order granting summary judgment to Assurance. The courtconcluded that it had erroneously placed the burden of proof onKenny rather than requiring Assurance to prove the applicability ofthe policy's exclusion provision. On March 27, Kenny filed arenewed motion for summary judgment, which the trial court grantedon July 18. In its order, the court made specific findings andconclusions of law, including: (1) the general release signed byKenny "did not include an amount specifically designated ascovering [Assurance's] subrogation interest"; (2) the generalrelease did not prejudice Assurance's subrogation rights becauseBurdo and Allstate were aware of and had notice of Assurance'ssubrogation interest prior to the settlement; and (3) the decisionin Richter v. Standard Mutual Insurance Co., 279 Ill. App. 3d 501,664 N.E.2d 1140 (1996), was controlling and, pursuant to Richter,the dismissal order of the Burdo case did not result in Kenny'sforfeiture of underinsured motorist benefits under Assurance'spolicy. Based on these findings, the court concluded that nomaterial question of fact existed and that Kenny was entitled tojudgment as a matter of law. The court further ordered Assuranceto submit Kenny's underinsured claim to arbitration. This appealfollowed.

Assurance contends that the trial court erred in grantingsummary judgment in Kenny's favor because Kenny, by allowingdismissal of his action against Burdo with prejudice, destroyedAssurance's subrogation rights and, therefore, Kenny is notentitled to underinsured motorist benefits under Assurance'spolicy. According to Assurance, Kenny did not notify it of theBurdo settlement offer, nor did he timely advise it of theexecution of the release, which violated the terms of Assurance'spolicy. With respect to the dismissal order, Assurance maintainsthat the dismissal with prejudice is a final adjudication and,therefore, any action it may attempt to bring against Burdo wouldbe barred by the doctrine of res judicata. Assurance furtherargues that Kenny knew of Assurance's subrogation rights, and hisattorney confirmed his knowledge and the fact that Kenny wasobligated to protect those rights. According to Assurance, Kenny'sargument, that he was not required to comply with the policyexclusions because he did not receive a copy of the policy, isdisingenuous since he did not need to see the policy to be aware ofAssurance's subrogation rights. With respect to Kenny's failure toobtain Assurance's consent to settle the Burdo case, Assuranceargues that had it been informed of Kenny's intent to dismiss thecase, it could have intervened to protect its subrogation rights.

Kenny counters that Assurance completely ignores Richter,which the trial court relied upon and is directly on point andcontrolling in this case. According to Kenny, like the defendantin Richter, Assurance failed to take the appropriate steps tosecure its rights. Kenny argues that if Assurance had intended topursue its subrogation rights, it had sufficient time to do so andshould have moved to intervene in the Burdo case and then shouldhave sought relief under section 2--1401 of the Code of CivilProcedure (Code) (735 ILCS 5/2--1401 (West 1998)) to set aside thedismissal. Kenny further argues that because Assurance failed todo so, it cannot now complain. With respect to receiving a copy ofthe policy, Kenny maintains that because he did not receive a copyof the insurance policy, Illinois law will not allow Assurance totake advantage of a policy limitation or exclusion.

In response, Assurance first argues that regardless of whetherKenny had a copy of the policy and whether he knew of the exactlanguage of the policy, he knew of Assurance's subrogation rightsand that he had a duty to protect those rights. With respect toRichter, Assurance contends that it did not have an opportunity tointervene to prevent dismissal of the Burdo case because it did notreceive notice of the dismissal until 30 days after it was entered. Assurance further maintains that, unlike the defendant in Richter,it had no advance notice or knowledge of the settlement in theBurdo case. Assurance also argues that the main focus of Richterwas the effect of the release on the defendant's subrogation rightsand the case is silent as to whether the dismissal was withprejudice or without prejudice. Lastly, Assurance maintains thatRichter failed to analyze whether section 2--1401 relief wasactually available to a defendant and that the Richter court erredin finding that section 2--1401 relief is not "extraordinary"because a proceeding based on section 2--1401, by its very nature,is an extraordinary proceeding.

In Richter, the plaintiff settled with an underinsuredtortfeasor and her insurance carrier and executed an unlimitedrelease. Richter, 279 Ill. App. 3d at 503. Subsequently, theplaintiff's attorney sent a letter to the defendant (plaintiff'sown insurance carrier), informing it of the settlement anddemanding settlement under the plaintiff's underinsured motoristprovision. Richter, 279 Ill. App. 3d at 504. The defendant deniedthe claim, stating that the plaintiff had not sought its consent tosettle and that it had not approved the settlement, as required bythe insurance policy, and, therefore, the plaintiff was notentitled to underinsured motorist benefits. Richter, 279 Ill. App.3d at 505. Thereafter, the plaintiff filed a declaratory judgmentaction against the defendant, seeking a declaration that thesettlement did not prejudice the defendant's subrogation rights. Richter, 279 Ill. App. 3d at 503. The trial court concluded thatthe defendant's rights were not prejudiced by the release andsettlement and, therefore, the plaintiff was not barred fromrecovery under her underinsured motorist policy provision with thedefendant. Richter, 279 Ill. App. 3d at 503.

On appeal, the defendant first contended that the plaintiff'ssigning of the release without informing defendant of her intent tosettle, in violation of the policy provisions, prejudiced itssubrogation rights. Richter, 279 Ill. App. 3d at 506. The Richtercourt disagreed, finding that crucial to the disposition of thisissue was whether the tortfeasor or her carrier had notice of thedefendant's subrogation rights. The Richter court relied on HomeInsurance Co. v. Hertz Corp., 71 Ill. 2d 210, 215, 375 N.E.2d 115(1978), where the court held that an unlimited release that doesnot specifically include an amount designating coverage for thesubrogation interest will not bar a subsequent subrogation actionagainst the tortfeasor if the tortfeasor or his insurance carrierhad knowledge of the insured's subrogation interest before thesettlement. The Richter court concluded that the tortfeasor andher carrier did have notice of the defendant's subrogation interestbefore the plaintiff executed the release. Richter, 279 Ill. App.3d at 507-08. The Richter court further noted that the release"did not include an amount designated as covering defendant'ssubrogation interest." Richter, 279 Ill. App. 3d at 508. Accordingly, the Richer court found that the defendant'ssubrogation rights survived the settlement. Richter, 279 Ill. App.3d at 508.

The defendant in Richter next argued that it properly deniedcoverage because the policy was not applicable when an insuredsettles a claim without the written consent of the defendant. Richter, 279 Ill. App. 3d at 508. The Richter court againdisagreed. It first noted that the defendant, who was attemptingto limit liability based on an exclusion provision, "mustaffirmatively demonstrate the applicability of the policyexclusion." Richter, 279 Ill. App. 3d at 509. The court concludedthat the defendant had ample notice of the impending settlementwith the plaintiff, it could have sent a lien letter to thetortfeasor's carrier, and it clearly knew that the plaintiffintended to make a claim for underinsured coverage, which wouldrequire the tortfeasor's carrier to settle for the full limits ofits policy because, under the defendant's policy, it would not beliable until the limits of any and all other applicable insurancepolicies had been paid to the plaintiff. Richter, 279 Ill. App. 3dat 509-10. The Richter court concluded that the plaintiff'scomplaint against the tortfeasor and the correspondence between theplaintiff's and the defendant's attorneys with respect tounderinsured coverage

"show[ed] that defendant had sufficient noticeto prompt it, at the very least, to makefurther inquiries regarding plaintiff's suit*** in order to protect its subrogationrights. In light of these facts, defendant[could] hardly contend it had no prior noticethat plaintiff intended to settle her claim***. Moreover, defendant [could not] denyplaintiff coverage under the policy pursuantto its exclusion clause when it [was]defendant who failed to take the appropriatesteps to secure its rights." Richter, 279Ill. App. 3d at 510.

Lastly, the defendant in Richter argued that because itreceived notice of the settlement on the same day a dismissal orderwas entered, it had insufficient time to take any action to prevententry of the dismissal order. Richter, 279 Ill. App. 3d at 510. The Richter court again rejected the defendant's argument, findingthat "[u]pon learning of the dismissal, defendant made no attemptto contact plaintiff's attorney or to take any legal action toprotect its subrogation rights ***. Instead, defendant set aboutdetermining a manner in which to deny plaintiff recovery under theunderinsured motorist provisions of the policy." Richter, 279 Ill.App. 3d at 511. The Richter court further stated:

"To justify its course of action,defendant contends that it is not required totake any 'extraordinary' action to protect itssubrogation rights because it is plaintiff'sobligation to 'do nothing after loss toprejudice such rights.' Defendant's argumentis flawed on two accounts: first, plaintiff'ssigning of the releases did not prejudicedefendant's subrogation rights because therelease did not specifically designate anamount for covering defendant's subrogationinterest, and second, in the event defendantwas uncertain as to the effects of the releaseon its rights, it would be incumbent upondefendant to take steps to safeguard itsrights, especially because it might be boundby any resulting order or judgment. Filing apetition to intervene can hardly be termed an'extraordinary' step to preserve defendant'sinterest. Further, as an intervenor,defendant would be entitled to all the rightsof an original party, including the right toseek postjudgment relief pursuant to section2--1401 of the Code." Richter, 279 Ill. App.3d at 511.

Although the defendant argued it had no viable claim under section2--1401, the Richter court stated that the defendant would have aviable claim against the tortfeasor to set aside the dismissalorder because the defendant's subrogation rights were not barred bythe release. Richter, 279 Ill. App. 3d at 511. See also Schultzv. Gotlund, 185 Ill. App. 3d 943, 950, 542 N.E.2d 53 (1989) (whilethe insured released the tortfeasor and the trial court dismissedthe action against the tortfeasor, the appellate court concludedthat there was a question whether the insurer's subrogation rightswere still viable because the record did not contain any evidencewhether the tortfeasor or his carrier knew of the subrogationrights prior to settlement, and the cause was remanded for ahearing to determine this issue and, if the trial court concludedthat the tortfeasor or his carrier did have knowledge, thesubrogation rights were not extinguished and the court was todetermine the amount to which the insurer was entitled).

We agree with Kenny and the trial court that Richter isdirectly on point and controlling in the instant case. Contrary toAssurance's argument, the Richter court based its holding on threerationales and it did not label one more important or crucial thananother. In fact, the Richter court's discussion of the dismissalorder is almost as lengthy as its discussion of the release issue. We note that in the instant case, Assurance only raises the issueof the dismissal order. We must conclude therefore that it concursthat Kenny's execution of the release alone does not bar itssubrogation rights and that Kenny's failure to obtain consent tosettle would not extinguish his right to underinsured benefits, asthe Richter court held. We must also presume that Assurance doesnot contest the fact that Burdo and Allstate had knowledge of andwere aware of Assurance's subrogation rights prior to settlement. Accordingly, we need not address the trial court's findings inthese respects. We note, however, that like the defendant inRichter, because Assurance was aware of Kenny's lawsuit againstBurdo and, pursuant to its policy, it would not be liable to Kennyuntil all other policies were exhausted and paid, Assurance hadample notice of an impending settlement with Burdo and could have,and should have, taken measures to protect its interests. As thedefendant in Richter, Assurance did not take appropriate steps tosecure its rights.

We also do not find the fact that the Richter decision issilent on whether the dismissal order was with or without prejudicesignificant. We can presume that the order was with prejudice and,thus, final. First, settlements generally require entry of anorder of dismissal with prejudice--that is the purpose of asettlement, i.e., to bring finality to the matter. Second, thereis no evidence that the trial court retained any jurisdiction overthe matter. Third, the Richter court referred to section 2--1401,which pertains only to final orders. As such, if the order in thatcase was without prejudice, it would not be final, and section 2--1401 would not have been applicable.

We also do not believe that because the defendant in Richterwas advised of the settlement on the same day that the dismissalorder was entered, whereas here, Assurance was notified 30 dayslater, is controlling. Again, the Richter court referred tosection 2--1401, which pertains to relief from judgments 30 daysafter they are entered. Accordingly, the timing of notice to thedefendant could not have been vital to the court's decision anddoes not mandate a different result in the instant case.

Lastly, with respect to Assurance's contention that theRichter court failed to analyze whether section 2--1401 relief wasavailable, we do not believe this warrants our rejection of theRichter court's holding. As previously stated above, section 2--1401 provides for relief from final judgments or orders after 30days following their entry. 735 ILCS 5/2--1401 (West 1998). Themovant is required to file a petition and support it by affidavitor other appropriate showing of matters not of record. In theinstant case, in order to obtain section 2--1401 relief, Assurancewould have needed to only file a petition to intervene and a motionto vacate judgment alleging error in entry of the dismissal orderbased on its subrogation rights. We do not believe this would haverequired extraordinary efforts on the part of Assurance. We notethat while Assurance contends that filing a section 2--1401 motionis an extraordinary remedy, it has cited no authority to supportthis proposition and our independent research has revealed no casesso holding. Given the facts of the instant case, we conclude thatrelief under section 2--1401 would have been available to Assuranceand that it would have been entitled to relief under that section. We further note that because Assurance received notificationof the dismissal order on the 30th day following its entry,Assurance could have proceeded under section 2--1301 of the Code(735 ILCS 5/2--1301 (West 1998)), allowing for relief fromjudgments within 30 days. While this may have required Assuranceto move hastily, it was nonetheless an option available to it.

Based on the foregoing, we conclude that no material questionof fact existed as to Kenny's right to underinsured motoristbenefits and, therefore, the trial court properly granted summaryjudgment in favor of Kenny.

For the reasons stated, we affirm the judgment of the circuitcourt of Cook County.

Affirmed.

CERDA and HALL, JJ., concur.

1. Assurance voluntarily dismissed its complaint against Burdoand Allstate on April 24, 2000.