Find Legal Information

JUSTICE KAPALA delivered the opinion of the court:

Plaintiff, American Standard Insurance Company, appeals from an order entered pursuant to a complaint for a declaratoryjudgment. The order determined that plaintiff had a duty to defenda tort suit (the Sawczuk suit) brought by Paul Basbagill and PeterBencak, as administrators of the estates of Peter Sawczuk and hisfamily, against plaintiff's insureds, Randy E. Bresnahan andAnthony P. Pease. Bresnahan and Pease were named also asdefendants in plaintiff's complaint for declaratory judgment. Plaintiff asserts that, by offering to settle for the policy limitand by tendering that amount to the court via interpleader (see 735ILCS 5/2--409 (West 2000)), it has discharged its contractual dutyto defend even though the Sawczuk suit was still pending. Wedisagree and affirm.

Plaintiff issued an automobile liability insurance policy toBresnahan, covering his 1990 Ford Bronco for up to $40,000 perincident. On April 19, 1997, with the policy in force, the Broncocollided with Peter Sawczuk's car, killing Sawczuk, his wife, andtheir two daughters. On January 27, 1999, Basbagill and Bencak,the administrators of the Sawczuk estates, sued Bresnahan and Peasein the circuit court of Lake County, alleging that, although theidentity or the driver was in question, either Bresnahan or Peasewas driving the Bronco and was at fault when the Bronco collidedwith the Sawczuk car.

On March 30, 1999, American Standard filed the two-countcomplaint in the case now before this court. Count I, forinterpleader, states that, although plaintiff does not admit anyliability in the Sawczuk suit, the total claims there could equalor exceed the Bresnahan policy's $40,000 limit. In count Iplaintiff asks for leave to deposit $40,000 with the clerk of thecircuit court so that, when the Sawczuk suit is resolved, the moneycan be distributed according to an appropriate court order. CountII seeks a declaration that granting plaintiff judgment on count Irelieves it of any further duty to defend Bresnahan or Pease in theSawczuk suit. Plaintiff relies on the following language in partI of the policy:

"We will pay compensatory damages an insured person is legally liable for because of bodily injury and property damage ***.

We will defend any suit or settle any claim for damagespayable under this policy as we think proper.

If a suit involves both compensatory and punitive or exemplarydamages, we will defend the compensatory damages. We will notdefend the punitive or exemplary damage portion of the suit.

HOWEVER, WE WILL NOT DEFEND ANY SUIT AFTER OUR LIMIT OFLIABILITY HAS BEEN OFFERED OR PAID." (Emphasis in original.)

The policy does not define "offered" or "paid."

Pease filed an answer to the complaint. Bresnahan did notfile an answer. Plaintiff moved for summary judgment on bothcounts of the complaint. In seeking summary judgment on count II,plaintiff argued that, under Zurich Insurance Co. v. RaymarkIndustries, Inc., 118 Ill. 2d 23 (1987), and Novak v. AmericanFamily Insurance Co., 183 Wis. 2d 133, 515 N.W.2d 504 (1994), partI of the policy implies that its duty to defend the Sawczuk suitwould end when it tendered the $40,000 policy limit to the courtvia interpleader. Pease did not oppose summary judgment forplaintiff on count I, but he argued that plaintiff could notdischarge its contractual duty merely by tendering its policy limitto the court before the Sawczuk suit had been resolved.

The trial court initially granted plaintiff summary judgmenton both counts of its complaint. Pease moved to reconsider thejudgment on count II, arguing that, under Douglas v. AlliedAmerican Insurance, 312 Ill. App. 3d 535 (2000), plaintiff had notdischarged its contractual duty to defend and that to allowplaintiff to withdraw from the defense of its insured while thetort suit awaited resolution would violate public policy.

Plaintiff responded that Douglas was both distinguishable andwrongly decided. Plaintiff also filed the affidavit of CharlesSwearingen, its casualty claims specialist. Swearingen stated thatin 1998 he wrote to Pease and the representatives of the Sawczukestates. Pease, who may have been the passenger in Bresnahan'sBronco, and the Sawczuk estates had potential claims underBresnahan's policy. Swearingen proposed to discharge plaintiff'sliability as insurer by paying each party $8,000, thus exhaustingthe $40,000 liability limit. The offer was rejected.

The trial court vacated the summary judgment on count II andheld a bench trial on that count. The sole witness, CharlesSwearingen, testified consistently with his affidavit. The trialcourt ruled in favor of Pease on count II. (Plaintiff received a default judgment against Bresnahan on this count.)

The court gave two reasons for its holding. First, plaintiffhad not satisfied its contractual duty to defend. Finding the term"offered or paid" ambiguous and construing it against plaintiff,the court reasoned that the $40,000 policy limit would not be"paid" until a claimant received it via a settlement or judgmentestablishing plaintiff's legal liability. Thus, the money had beentendered to the court, but it had not been "paid." Also, becausethe equal distribution that Swearingen had proposed lacked anyproven relation to the relative merits of the parties' claims,there had been no valid "offer."

Second, the court held that under Douglas, public policy wouldnot allow plaintiff to withdraw from the defense of the Sawczuksuit in mid-course. Thus, regardless of the proper construction ofthe policy, plaintiff could not use an interpleader judgment tofree itself of the duty to defend.

Plaintiff timely appealed. Pease has not filed an appellee'sbrief. However, the record is short and we choose to decide themerits of the appeal. See First Capitol Mortgage Corp. v. TalandisConstruction Corp., 63 Ill. 2d 128, 133 (1976).

On appeal, plaintiff argues that the trial court erred inentering judgment for Pease on count II of the complaint. Plaintiff reasons that its duty to defend arises solely from theBresnahan policy and that it met its duty (a) when it "offered" todivide the $40,000 limit equally among the four Sawczuk estates andPease; and (b) when it "paid" the limit by tendering $40,000 to thecourt under the interpleader judgment. Plaintiff also argues thatDouglas is unsound and that nothing in public policy preventsplaintiff from limiting its duty to defend.

The judgment on count I of the complaint, for interpleader, isnot on appeal. Only the judgment on count II is at issue. Weagree with the trial court that plaintiff has not fulfilled itscontractual duty to defend. We affirm the judgment withoutdeciding whether the duty to defend clause violates public policy.

In arguing that it is relieved of its contractual duty todefend, plaintiff relies on the policy's statement that plaintiffwill not defend any suit against an insured after the policy'sliability limit has been "offered or paid." The policy does notdefine "offered or paid." However, plaintiff asserts that thislanguage is unambiguous and that the undisputed facts prove thatplaintiff has "offered" and "paid" the policy limit. We disagree.

We hold first that plaintiff has waived any assertion that itdischarged its duty to defend by "offering" to divide the policylimit among the four Sawczuk estates and Pease. Although plaintiffraised this argument at the trial, its complaint nowhere allegesthis theory or any facts to support it. A party must recover, ifat all, according to the case he has made for himself by hispleadings. Lempa v. Finkel, 278 Ill. App. 3d 417, 424 (1996). Proof without pleadings is as defective as pleadings without proof. Colonial Inn Motor Lodge, Inc. v. Gay, 288 Ill. App. 3d 32, 40(1997). Thus, plaintiff may not now rely on the unpleadedassertion that it "offered" the policy limit and thus dischargedits duty to defend.

Two days after we heard oral argument, plaintiff moved toamend count II to allege that plaintiff "offered" the $40,000policy limit when Swearingen proposed distributing the money amongthe five remaining parties in the Sawczuk suit. We denied thismotion. On appeal, a party may move to amend its pleadings. 155Ill. 2d R. 362(a). However, no such motion will be considered "ifmade after the cause has been submitted for decision." 155 Ill. 2dR. 362(e). By the time plaintiff filed its motion to amend, thecause had been submitted for decision. See Geise v. Phoenix Co. ofChicago, Inc., 159 Ill. 2d 507, 515 (1994); Lee Shell Co. v. ModelFood Center, Inc., 111 Ill. App. 2d 235, 247-48 (1969). Therefore,the proposed amendment is not before us.

We now consider the issue that is properly before us, that is,whether the trial court erred in holding that, under the languagein part I of the Bresnahan policy, an insurer has not "paid" apolicy limit by tendering it to the circuit court through aninterpleader action to distribute after the suit against itsinsured is resolved. Apparently, no Illinois court has consideredthis precise issue. Plaintiff asserts that courts elsewhere haveheld that language similar to the disclaimer in part I allows aninsurer to discharge its duty to defend even before the suitagainst the insured has been concluded by a judgment or asettlement. Plaintiff urges us to rule similarly. For the reasonsthat follow, we decline to do so.

An insurer's duty to defend its insured arises from thecontract of insurance. Zurich, 118 Ill. 2d at 48. Because theduty to defend is a creature of contract, determining the scope ofthe duty requires us to construe the policy. The construction ofan insurance policy is a question of law that we decide de novo. Roth v. Illinois Farmers Insurance Co., 324 Ill. App. 3d 293, 295(2001). As with any contract, we must ascertain the parties'intentions. Outboard Marine Corp. v. Liberty Mutual Insurance Co.,154 Ill. 2d 90, 108 (1992). In doing so, we give unambiguous wordstheir ordinary meanings (Outboard Marine, 154 Ill. 2d at 108) butconstrue ambiguous language in favor of the insured (Grzeszczak v.Illinois Farmers Insurance Co., 168 Ill. 2d 216, 223 (1995)). Policy language is ambiguous if it is susceptible to more than onereasonable interpretation. Travelers Insurance Co. v. EljerManufacturing, Inc., 197 Ill. 2d 278, 293 (2001).

Under part I of the Bresnahan policy, plaintiff "will defend"a suit against the insured, but only until the limit of liabilityhas been paid. As noted, the policy does not define "paid." Plaintiff asserts that, once it tendered the $40,000 policy limitto the circuit court, the money had been "paid." However, webelieve that an insurer has not "paid" money under a policy untilthe insurer has surrendered any claim to the money and in theprocess has fulfilled an obligation to the recipient.

Plaintiff's contention that it has "paid" its $40,000liability limit to the circuit court via interpleader is notwithout merit. Plaintiff delivered the money with no guaranteethat it would get any of it back. One court has held (with littleanalysis) that, by making such a conditional tender, an insurer has"paid" its liability limit. See Viking Insurance Co. of Wisconsinv. Hill, 57 Wash. App. 341, 348, 787 P.2d 1385, 1389 (1990). Another court appears to have reached a similar conclusion,although it is unclear to us whether the insurer admitted liabilityor relinquished any claim to the interpleaded funds. See UnitedStates Fire Insurance Co. v. Barker Car Rental, 944 F. Supp. 739,744 (S.D. Ind. 1996), rev'd on other grounds, 132 F.3d 1153 (7thCir. 1997). However, assuming such a construction is reasonable,we think that an opposing one is also reasonable.

Dictionaries regularly define "payment" as the delivery ofmoney or its equivalent to the person to whom it is due insatisfaction of an obligation. See, e.g., Black's Law Dictionary1150 (7th ed. 1999); Webster's Third New International Dictionary1659 (1993). So do many courts. In Zimmerman v. Illinois FarmersInsurance Co., 317 Ill. App. 3d 360 (2000), in a different context,we observed that a "payment" under an insurance policy is "thefulfillment of a promise or the performance of an agreement." Zimmerman, 317 Ill. App. 3d at 366-67. The word "payment" or"paid" did not appear in the policy itself, and thus Zimmerman doesnot apply directly. However, our opinion illustrates that the term"payment" is routinely taken to connote the satisfaction of anobligation.

Courts elsewhere have ascribed similar meaning to the term"payment." See, e.g., Rosenman v. United States, 323 U.S. 658, 89L. Ed. 535, 65 S. Ct. 536 (1945); Sizemore v. E.T. BarwickIndustries, Inc., 225 Tenn. 226, 231, 465 S.W.2d 873, 875 (1971);Votzmeyer v. Votzmeyer, 964 S.W.2d 315, 321 (Tex. Ct. App. 1998). Under this definition, a conditional remittance, especially one toan intermediary or bailee, is not a "payment."

Rosenman well illustrates this reasoning. There, thepetitioners sought a refund of federal estate taxes that were duein 1934. (The return was not due until 1935.) In 1934, theydelivered a check to the government along with a letter contendingthat the petitioners did not owe the full sum; that they werepaying the money under protest; and that they delivered the checksolely to avoid penalties and interest. Rosenman, 323 U.S. at 659-60, 89 L. Ed. at 538-39, 65 S. Ct. at 537. The government put themoney into a "suspense account" until the petitioners filed theirreturn in 1935. In 1938, the government applied money in thesuspense account to satisfy the assessment, and the petitionerssubmitted more money to cover the deficiency that the governmenthad determined.

The petitioners filed a refund claim in 1938 and another claimin 1940. The law required a claim to be filed " 'within threeyears next after the payment of such tax.' " Rosenman, 323 U.S. at659, 89 L. Ed. at 538, 65 S. Ct. at 537, quoting 26 U.S.C.