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24 October 2000

IN THE

APPELLATE COURT OF ILLINOIS

SECONDDISTRICT

JUSTICE McLAREN delivered the opinion of the court:

The garnishee, Gallant Insurance Company, f/k/a Allied American InsuranceCompany (Gallant), appeals the trial court's award in favor of the plaintiff,Peerless Enterprises, Inc. (Peerless), in a garnishment action and the trialcourt's award of attorney fees and sanctions pursuant to section 155 of theIllinois Insurance Code (Code) (215 ILCS 5/155 (West 1998)). We affirm.

On July 13, 1993, defendant Peter Kruse was involved in an automobileaccident with Steven Peregoy in Wayne Township, Du Page County, Illinois. Peregoy was driving an automobile owned by his employer, the plaintiff, Peerless. Kruse was driving a vehicle that Thrifty Rent-A-Car Systems, Inc. (Thrifty), hadrented to Sherry Brucato. The accident caused damage to Peerless's car. Peter Kruse was hospitalized and then placed in a nursing home; he has remained in asemicomatose state since the accident.

On August 9, 1993, Peerless filed a complaint against Peter Kruse, Brucato,and Thrifty, alleging that Peter Kruse's negligence caused the accident anddamage to Peerless's automobile. Thrifty and Brucato were subsequently dismissedfrom the suit.

On October 17, 1995, the trial court, Judge Robert Kilander presiding,entered judgment in favor of Peerless and against Peter Kruse in the amount of$30,604.34, plus costs. On February 5, 1996, Rita Kruse, Peter's mother, wasappointed guardian ad litem of Peter and was substituted as the defendant in thenegligence action.

Peerless then filed a citation to discover assets and a motion for turnoverof the assets of Peter Kruse. Rita Kruse claimed that Peter Kruse was coveredby policies issued by Gallant and American Ambassador Casualty Company(American). Rita assigned to Peerless any rights Peter had in these policies. Peerless then withdrew its motion for turnover of assets, and the trial courtdischarged Peerless's citation to discover assets against Rita Kruse. OnNovember 10, 1997, Peerless filed a nonwage garnishment action against PeterKruse's alleged insurers, Gallant and American. Both Gallant and American deniedhaving property belonging to Peter Kruse and denied that they were indebted toPeter Kruse.

Documents submitted by American in response to interrogatories indicatedthat, although Peter Kruse was covered by an American policy at the time of theaccident, the policy did not include liability coverage. Therefore, the trialcourt, Judge Rodney W. Equi presiding, granted American's motion to dismiss onSeptember 29, 1998. A document also indicated that on July 20, 1993, a requestwas made by Lincoln Towers Insurance Company (Lincoln Towers) to add basicliability coverage to Peter Kruse's American policy with a $1,000 medical paymentlimit.

On November 30, 1998, Gallant orally moved for substitution of judge, andthe judge denied this motion. Before Gallant moved for substitution of judge,the trial court, Judge Richard Lucas presiding, made the following rulings:granting garnishee American's motion for leave to allow the late filing of itsreply to Peerless's response to American's motion to dismiss, granting Peerless'smotion for rule to show cause against Lincoln Towers for their failure to respondto a subpoena, and granting American's motion to continue the hearing on itsmotion to dismiss; continuing the hearings on American's motion to dismiss andGallant's rule to show cause; and continuing the garnishment trial based on theabsence of a material witness.

At the garnishment hearing, Rita Kruse, Peter Kruse's mother and guardianad litem, testified that, at the end of June or the beginning of July 1993, herson, Peter, contacted his insurance agent, Danny Martin, to obtain automobileinsurance. After the accident, Rita found two insurance policies among Peter'sbelongings that appeared to cover the date of the accident, one from Gallant andthe other from American. Within a few days after the accident, Rita called DonnyMartin and informed him about the details of the accident and her son'scondition.

Rita testified that her son had been in a semicomatose state in a nursinghome since the July 13, 1993, accident. On October 18, 1995, Peter's attorneys,at Rita's request, sent Gallant a letter notifying them that there were fourlawsuits filed against Peter in connection with the July 1993 accident. Theletter requested that Gallant indemnify and defend Peter Kruse in these suits. On October 9, 1997, Rita, as Peter Kruse's guardian, assigned Peter's rights andclaims under the Gallant insurance policy to Peerless.

E. Paul Lanphier, an attorney representing Peerless, testified that onAugust 27, 1994, he sent a letter to Gallant informing it of the lawsuits pendingagainst Peter Kruse at the time and requesting that Gallant provide a defense. The letter also contained the insurance policy number. Gallant responded in aSeptember 2, 1994, letter asserting that the policy "was canceled on July 2,1993," and had not been reinstated, and, therefore, there was no coverage on thedate of the July 13, 1993, accident.

Jeffrey Spratt, manager with Gallant's parent company, testified that hedid not know if Gallant provided a defense for Peter Kruse or filed a declaratoryaction against Peter Kruse. Spratt explained that Gallant received a requestfrom Lincoln Towers to cancel Peter Kruse's policy on July 22, 1993. The requestappeared to be prepared on July 20, 1993. Lincoln Towers had the exclusive rightto sell insurance for Gallant. After receiving the request, a Gallant employeeprocessed it and placed a July 22, 1993, date stamp on it. Spratt characterizedthis request as coming from Peter Kruse and stated that this was the only requestGallant received for the cancellation of Peter Kruse's policy. The request form,which was admitted into evidence, contained the following hand-written comments:

"Please cancel policy immed. Above has a currently susp. lic. We havereplaced coverage w/his phys. dam. carrier. *** Dec. page will follow assoon as rec'd."

The request form included a section containing numerous phrases accompanied byboxes to be checked. The options included "Cancel Flat," "Cancel Prorate for,""Non-Payment," "Policy Attached," "Cancel Shortage," "Policy Attached," "DirectNote," and "Renewal." The only box checked was the one next to the phrase"Cancel Prorate for." The "Cancel Flat" box was not checked.

Spratt stated that, after receiving this request, Gallant "flat" canceledthe policy; that is, Gallant canceled the policy from its inception date of July2, 1993. However, Spratt admitted that Gallant had not received a request fromPeter Kruse or anyone else to flat cancel the policy. Spratt explained thatGallant flat canceled policies when an insured had duplicate insurance with thesame coverage. Spratt stated that he believed that Peter Kruse had suchduplicative insurance coverage with American. However, after reviewingAmerican's declaration page, Spratt acknowledged that the coverage was notduplicative because Peter Kruse's policy with American did not include liabilitycoverage.

Spratt stated that there was no indication that Gallant had sent notice toPeter Kruse or his agent of the cancellation. Gallant admitted into evidence amoving violation issued to Peter Kruse in 1990, indicating that he had beendriving while his license was suspended. Spratt stated that Gallant would nothave issued an insurance policy to someone with a currently suspended driver'slicense, but it would issue a policy to a driver whose license had been suspendedand later reinstated. Peter Kruse's application did not indicate that hislicense had been suspended.

Nancy Tidwell, a licensed broker and sales manager for 20 years for theparent company of Lincoln Towers, testified that on July 20, 1993, Lincoln Towerssent a request to American for additional coverage for Peter Kruse. On the sameday, Lincoln Towers also sent Gallant a request to cancel Peter Kruse's policy. The two requests were prepared with information received from Martin, PeterKruse's agent.

Tidwell stated that flat canceling a policy meant that the policy neverexisted. Canceling a policy required the insurer to notify the customer to givethe customer time to obtain other insurance. Tidwell opined that thecancellation constituted a simple cancellation and not a flat cancellation. Thus, Gallant was required to notify Peter Kruse of the cancellation. Further,Gallant would have been required to notify Peter Kruse of the cancellation evenif Kruse himself had requested the cancellation. Tidwell also opined that PeterKruse's policy with Gallant was in effect from July 2, to July 20, 1993, and thatthe policy was in effect on the day of the July 13 accident. The only liabilitycoverage Peter Kruse had from July 2, 1993, to July 20, 1993, was with Gallant.

Tidwell stated that, typically, a 25% down payment was collected by theagent from the insured at the time the insurance application was taken. Gallantthen billed the insured for the balance. In this case, Lincoln Towers billedPeter Kruse's agent for the down payment, but Gallant never sent a bill to Peterfor the balance. Also, typically, Lincoln Towers received an effective-date-of-cancellation form from Gallant indicating the reason for a cancellation. However, in this case, Lincoln Towers did not receive this form or any otherindication that Peter Kruse had been notified regarding the cancellation. Finally, Tidwell did not know whether Peter Kruse's license had been suspended,but she stated that if an insurance company discovered that an insured's driver'slicense had been suspended it notified the insured of its intention to cancel thepolicy and provided the insured time to secure other insurance.

During the garnishment proceeding, Peerless acknowledged that the policylimit for property damage was $15,000. However, Peerless alleged that Gallantacted in bad faith and was, thus, liable for the entire amount of the underlyingnegligence judgment, plus interest, and an additional $1,000 in medical costsincurred by Peter Kruse. The trial court granted Peerless's motion to estopGallant from asserting policy defenses.

After hearing the testimony and considering the documents admitted intoevidence, the trial court, Judge Lucas presiding, entered judgment against thegarnishee, Gallant, in the amount of $31,604.34, plus interest. The trial courtthen set a hearing date to determine the amount of attorney fees. On February18, 1999, Peerless filed a petition for attorney fees pursuant to section 155 ofthe Illinois Insurance Code. 215 ILCS 5/155 (West 1998). Peerless also fileda supporting affidavit and time schedule stating that its counsel had incurred$20,846.25 in fees and $676.50 in costs. On March 1, 1999, Peerless filed amotion to conform the pleadings to the proof.

In response, Gallant claimed that the plaintiff failed to state a cause ofaction for attorney fees under section 155 of the Code, an action for attorneyfees under the Code cannot be brought as part of a garnishment action, and noevidence related to bad faith was heard. On March 22, 1999, the trial courtgranted Peerless's motion for leave to conform its pleadings to the proofs. After the trial court permitted Peerless to conform its pleadings to the proofs,Gallant orally moved to introduce additional evidence regarding the lack of badfaith. Gallant also sought and was granted leave to conduct discovery for thehearing on attorney fees. Prior to hearing evidence regarding attorney fees, thetrial court struck parts I and II of Peerless's billing memorandum, leaving onlypart III of the billing memorandum alleging $9,056.25 in fees and $2,012.50 inadditional fees.

At the hearing, Jeffrey Kowalkowski, Peerless's attorney, testifiedregarding attorney fees. Kowalkowski's affidavit, providing a breakdown ofattorney fees, was admitted into evidence. Kowalkowski also testified regardingadditional fees incurred after the garnishment action.

Gallant moved to strike testimony regarding attorney fees, alleging thatthe trial court failed to make a finding of bad faith. The trial court did notagree with this assertion but heard testimony from Gallant's Spratt regarding theissue of bad faith. The trial court then took judicial notice of the testimonygiven in the garnishment trial.

At the attorney fee hearing, Spratt testified that Gallant did not providePeter Kruse with notice regarding the cancellation of his policy. However, thepolicy provided that the policy would be null and void if the insured providedfalse statements in the insurance application.

At the close of the hearing, Peerless requested $11,000 in attorney feesand another $25,000 in compensation as provided for in section 155(b) of theCode. 215 ILCS 5/155(b) (West 1998). On August 18, 1999, the trial court foundthat the Gallant insurance policy at issue was in full force and effect on thedate of the accident and that Gallant had acted in bad faith by denying coverage. The trial court awarded Peerless $16,127. Gallant filed a timely notice ofappeal.

Initially, we address Gallant's motion to strike Peerless's supplementalstatement of facts. Gallant alleges that Peerless's statement of facts isargumentative, misleading, and not necessary. After reviewing the briefs and therecord, we determine that Gallant's allegations are without merit. Further,contrary to Gallant's argument, nothing in Supreme Court Rule 341(f) requiredPeerless to formally object to Gallant's statement of facts before submitting asupplement. See 155 Ill. 2d R. 341(f). Thus, we deny Gallant's motion to strikethis portion of Peerless's brief. Gallant also urges this court to strike otherportions of Peerless's brief. We deny this request for the reasons discussedbelow.

Gallant first argues on appeal that the trial court, Richard A. Lucaspresiding, erred by denying its motion for a substitution of judge. Peerlessargues that Judge Lucas's decision was proper because Gallant failed to provideproper notice of its motion. We believe Judge Lucas did not abuse hisdiscretion.

Section 2-1001(a)(2) of the Illinois Code of Civil Procedure provides forsubstitution as of right if the motion is made before trial or hearing begins andbefore the judge to whom it is presented has ruled on any substantial issue inthe case. 735 ILCS 5/2-1001(a)(2) (West 1998).

We note that Peerless filed and then withdrew a motion to strike thisportion of Gallant's brief. Further, Peerless failed to object to Gallant'smotion for substitution of judge below, and the record does not contain thereason for Judge Lucas's decision to deny Gallant's motion. However, we mayaffirm on any basis found in the record. Massie v. Minor, 307 Ill. App. 3d 115,121 (1999).

Section 2-1001(b) of the Illinois Code of Civil Procedure provides:

"An application for substitution of judge may be made to the courtin which the case is pending, reasonable notice of the application havingbeen given to the adverse party or his or her attorney." 735 ILCS5/2-1001(b) (West 1998).

It is well established that a trial court may deny a motion for substitution ofjudge if reasonable notice has not been given to the adverse party. Koch v.Carmona, 268 Ill. App. 3d 48, 57 (1994). What constitutes reasonable noticedepends on the facts and circumstances of each case. Koch, 268 Ill. App. 3d 57-58. Further, a reviewing court will not disturb a trial judge's determination asto the sufficiency of notice, absent an abuse of discretion. Koch, 268 Ill.App. 3d 57-58.

In the case at bar, Gallant provided virtually no notice to Peerless. Gallant made its motion orally, and Peerless did not know about this motion untilapproximately 10 minutes before Gallant moved in open court. In light of theother cases addressing this issue, we cannot say that this constituted reasonablenotice or that the trial court abused its discretion by denying Gallant's motion. See Koch, 268 Ill. App. 3d at 57-58 (holding notice unreasonable where it wasserved approximately 24 hours before the presentation of the motion); BuckinghamCorp. v. Modern Liquors, Inc., 16 Ill. App. 3d 534, 537 (1973) (holding noticeunreasonable where it was served approximately 18 hours before the presentationof the motion).

Next, Gallant argues that Peerless lacked standing to seek attorney feesand sanctions under section 155 of the Code because such fees cannot be awardedin a garnishment action and cannot be awarded to a judgment creditor who was notan insured. We disagree.

Section 155 of the Illinois Insurance Code provides in pertinent part:

"(1) In any action by or against a company wherein there is in issuethe liability of a company on a policy or policies of insurance or theamount of the loss payable thereunder, or for an unreasonable delay insettling a claim, and it appears to the court that such action or delay isvexatious and unreasonable, the court may allow as part of the taxablecosts in the action reasonable attorney fees, other costs, plus an amountnot to exceed any one of the following amounts: *** (b) $25,000[.]" 215ILCS 5/155 (West 1998).

Gallant's arguments regarding the application of section 155 in garnishmentproceedings were made in another case and rejected by the First District inBuckner v. Causey, 311 Ill. App. 3d 139 (1999). Buckner was filed by theAppellate Court, First District, on December 30, 1999, one week before Gallant'sappellate brief was due in this case. The facts in Buckner are surprisinglysimilar to the facts in the case at bar. In Buckner, the plaintiff obtained ajudgment against Gallant's insured in a personal injury action. Theplaintiff/judgment creditor then filed a garnishment action against Gallant. Like the case at bar, Gallant claimed that it had no funds belonging to itsinsured/judgment debtor and that it had a defense to the alleged liability underthe insurance contract. Buckner, 311 Ill. App. 3d at 141. The trial courtdetermined that Gallant was liable to its insured/judgment debtor under theinsurance contract and awarded the insured/judgment debtor $16,771.91 for the useand benefit of the plaintiff/judgment creditor. The insured/judgment debtor thensought attorney fees from Gallant under section 155 of the Code (215 ILCS 5/155(West 1998)). Buckner, 311 Ill. App. 3d at 141. The trial court ordered Gallantto pay attorney fees and sanctions. Buckner, 311 Ill. App. 3d at 141-42. Onappeal, Gallant argued that relief under section 155 could not be brought in thecontext of a garnishment proceeding brought by a third party. Buckner, 311 Ill.App. 3d at 141-42. The appellate court affirmed, holding that section 155applied to garnishment actions "where the question of its [an insurancecompany's] liability on a policy of insurance is in issue." Buckner, 311 Ill.App. 3d at 150.

Like the action in Buckner, the question of Gallant's liability was anissue in the garnishment action in this case. Further, the fact that Peerless(the judgment creditor), and not Peter Kruse (the insured/judgment debtor),sought 155 sanctions is of no consequence. Peter Kruse, through his guardian,Rita Kruse, assigned his rights under the insurance contract to Peerless. It iswell settled that the rights and remedies available under section 155 can beextended to assignees of insureds. Garcia v. Lovellette, 265 Ill. App. 3d 724,728 (1994) ("[a] section 155 claim for an insurer's vexatious delay is intendedfor the protection of the insured party, or an assignee who succeeds the sameposition of the insured"). Gallant does not question the validity of the assignment of Peter Kruse's rights to Peerless. Therefore, we adopt thereasoning of the Appellate Court, First District, and determine that Peerlesshad standing in the garnishment action to seek attorney fees and sanctions undersection 155.

We note that, in its motion to strike, Gallant urged this court to strikePeerless's citation to Buckner, Peerless's argument relying on Buckner, and acopy of Buckner attached to Peerless's brief. Gallant argues that Buckner is notprecedential in this case because Buckner had not been published when Peerlessfiled its brief, it was issued by the Appellate Court, First District, andGallant was granted an extension of time in which it could file a petition forleave to appeal to the supreme court.

We acknowledge that this court is not always bound by decisions of otherappellate court districts. In re May 1991 Will County Grand Jury, 152 Ill. 2d381, 398 (1992). However, as our supreme court stated, "there may be compellingreasons to do so when dealing with similar facts and circumstances." Further,there is no doubt that the decisions of other districts have persuasive value. May 1991 Will County Grand Jury, 152 Ill. 2d at 398. In addition, in the absenceof precedent in its own district, a circuit court is bound to follow thedecisions of other appellate districts. Jachim v. Townsley, 249 Ill. App. 3d878, 882-83 (1993). Therefore, Buckner is relevant to the issues raised onappeal, and we refuse to strike Peerless's citation of Buckner or its inclusionin Peerless's appendix.

Further, the fact that Gallant was granted an extension of time to file apetition for leave to appeal does not change the precedential effect of Buckner. See People v. Harris, 123 Ill. 2d 113, 129 (1988) (the precedential effect of anappellate court opinion is not weakened by the fact that a petition for leave toappeal has been granted and is pending in that case). Moreover, the fact thatBuckner was not yet published when Peerless filed its brief is immaterial. Thereis no doubt that Gallant knew of the Buckner decision--it was a party in the caseand Peerless sent Gallant's attorneys a copy of the slip opinion. Further,Gallant's analogy of a slip opinion to a Rule 23 order is without support in therule itself. See 166 Ill. 2d R. 23(e).

We also reject Gallant's claim that Peerless's motion for attorney fees andsanctions under section 155 was untimely because the petition was filed after thetrial court entered judgment on the garnishment claim. It is well settled thata party may file a motion for section 155 sanctions after a garnishment judgmentis entered as long as the court retains jurisdiction. Kinzer v. Fidelity &Deposit Co., 273 Ill. App. 3d 211, 225-26 (1995). Here, the trial courtexpressly retained jurisdiction of the question of attorney fees and sanctions,and Peerless filed its petition within 30 days after the trial court enteredjudgment on the garnishment action (see 155 Ill. 2d R. 303(a)). Thus, Gallant'sargument fails.

Gallant also argues that Peerless failed to sufficiently plead a claim forattorney fees and sanctions under section 155 of the Code. We acknowledge thatPeerless's petition and amended petition for attorney fees and sanctions did notcontain facts alleging vexatious and unreasonable conduct. However, a trial memofiled by Peerless contained sufficient facts alleging Gallant's vexatious andunreasonable conduct. Gallant acknowledged that it received a copy of Peerless'strial memo containing these allegations. Further, Gallant was aware ofPeerless's allegations and arguments regarding Gallant's conduct from thetestimony and arguments Peerless presented at the garnishment trial. Finally,Gallant had an opportunity to conduct additional discovery and present anyadditional evidence at the section 155 hearing and, in fact, Gallant providedadditional testimony from Spratt, the manager of its parent company. Thus, afterreviewing the record, we determine that any alleged error in Peerless's pleadingdid not prejudice Gallant and does not require reversal.

Next, Gallant argues that the trial court's finding that it actedvexatiously and unreasonably was against the manifest weight of the evidence. Peerless argues that the record supports the trial court's finding. We agreewith Peerless.

According to our supreme court, section 155 of the Code provides anextracontractual remedy to insurers and their assignees, whose insurer refusesto recognize liability and pay a claim under a valid insurance policy in avexatious and unreasonable manner. See Cramer v. Insurance Exchange Agency, 174Ill. 2d 513, 520 (1996); Garcia, 265 Ill. App. 3d at 728. Section 155 of theCode is the legislature's remedy to an insured or his assignee "who encountersunnecessary difficulties when an insurer withholds policy benefits." Richardsonv. Illinois Power Co., 217 Ill. App. 3d 708, 711 (1991); see also Kinzer, 273Ill. App. 3d at 226. To determine whether the insured's conduct was vexatiousand unreasonable, the court should consider "the insurer's attitude, whether theinsured was forced to file suit to recover, and whether the insured was deprivedof the use of its property." Mobil Oil Corp. v. Maryland Casualty Co., 288 Ill.App. 3d 743, 752 (1997). A trial court must consider the insurer's conduct inthe totality of the circumstances. Marcheschi v. Illinois Farmers Insurance Co.,298 Ill. App. 3d 306, 313 (1998). We will not disturb a trial court's decisionto award attorney fees and sanctions under section 155 unless it is an abuse ofdiscretion. Employers Insurance v. Ehlco Liquidating Trust, 186 Ill. 2d 127, 160(1999).

In the case at bar, it was uncontroverted that Gallant issued Peter Krusean insurance policy that became effective on July 2, 1993. It was alsoundisputed that the accident in question occurred 11 days later, on July 13,1993. Further, Rita Kruse, through her attorney, notified Gallant of theaccident and of four lawsuits filed against Peter in connection with the accidentand requested indemnification and a defense. In addition, Peerless's attorneynotified Gallant of the lawsuits pending against Peter Kruse, providing thepolicy number and dates of coverage and requesting a defense. Gallant respondedthat the policy had been flat canceled and was not in effect at the time of theaccident. It is well settled that, when an underlying complaint presents anissue of potential insurance coverage and the insurer believes that the policydoes not cover the claim, the insurer may not refuse to defend the insured, butmust either defend the suit under a reservation of rights or seek a declarationof no coverage. Mobil Oil Corp, 288 Ill. App. 3d 754. It is uncontrovertedthat, in the case at bar, Gallant did neither of these things.

Further, nothing in the record supports Gallant's claim that Peter Kruserequested a flat cancellation. Ironically, Gallant relies on a document, a faxfrom Lincoln Towers to Gallant, that belies its argument. The document requestedcancellation of Peter Kruse's policy, but it expressly requested "Pro-rata"payment. The box next to "Flat Cancel" was conspicuously empty. This indicateda request for a cancellation effective on the date it was requested, July 22,1991, nine days after the accident occurred, and a request to bill Peter Krusefor part of the policy term. Gallant had no reason to believe that Peter Krusehad requested a flat cancellation of his policy. Even Tidwell, Lincoln Towers'manager, opined that the request constituted a simple cancellation and not a flatcancellation. Thus, there was ample evidence that Gallant's refusal to providecoverage to Peter Kruse under its policy was vexatious and unreasonable. Accordingly, we cannot say that the trial court's decision to award attorney feesand sanctions under section 155 was an abuse of discretion.

Gallant argues that there was a bona fide dispute regarding coverage. Werecognize that, where there is a bona fide dispute as to whether an insurancepolicy was in effect at the time of the loss, an insurer's refusal to pay a claimis not vexatious and unreasonable under section 155. Ragan v. Columbia MutualInsurance Co., 291 Ill. App. 3d 1088, 1099 (1997). Gallant claims it believedthat Peter Kruse canceled his policy because he had replaced Gallant's coveragewith that of another company. For this reason, Gallant was not required to sendPeter Kruse notice of cancellation. Further, Gallant claims that it flatcanceled Peter Kruse's policy because it learned that Peter Kruse had a suspendeddriver's license. However, Gallant offered little, if any, evidence to supportthese claims.

There is nothing in the record to support Gallant's claim that Peter Krusereplaced its policy with that of another company. In fact, Spratt, the managerof Gallant's parent company, admitted that the coverage in the American policywas not duplicative of Gallant's because the American policy did not includeliability coverage.

There is also nothing in the record to support Gallant's assertion thatPeter Kruse canceled his policy with Gallant. We fail to understand how Gallantcould have believed that Peter Kruse canceled his policy on July 20, 1993, whenit was uncontroverted that Peter Kruse was in a semicomatose state at that timeand Gallant knew of his condition.

Gallant's claim that it had grounds for flat canceling Peter Kruse's policybecause Peter's license had been suspended is also without merit. Gallant failsto recognize that, when there is a question regarding the coverage of aninsured's claim, the insurer must either defend the insured under a reservationof rights or seek a declaratory judgment. Mobil Oil Corp, 288 Ill. App. 3d 754. When an insurer fails to act in either fashion and wrongfully denies coverage,the insurer is estopped from raising policy defenses to coverage. Mobil OilCorp, 288 Ill. App. 3d 754. Thus, Gallant is estopped from raising this argumenthere as it was in the trial court.

Regardless of estoppel, Gallant presented no evidence indicating that PeterKruse's license was actually suspended in July 1993. The traffic citationadmitted into evidence established only that Peter's license had been suspendedin 1990. Further, Tidwell testified that, if Gallant discovered that Peter'slicensed was currently suspended, it would be required to notify Peter of itsintention to cancel and provide Peter with time to secure other insurance. Gallant did neither; instead, it canceled the policy from the date of itsinception.

After reviewing the record, we determine that it contains ample evidencethat Gallant's refusal to provide coverage to Peter Kruse was unreasonable andvexatious. Gallant had no reasonable excuse for its conduct. Thus, the trialcourt did not abuse its discretion by awarding Peerless attorney fees andsanctions under section 155 of the Code.

Next, Gallant argues that the trial court erred in calculating attorneyfees. Gallant argues that the trial court ignored its own ruling that only feesrelated to the garnishment action would be recoverable. According to Gallant,Peerless established that it incurred only $9,056.25 in fees in the garnishmentaction. Peerless argues that the $16,127 award was for attorney fees andallowable sanctions pursuant to section 155 and was not an abuse of discretion. We agree with Peerless.

Peerless presented evidence, through testimony and the affidavit of itsattorney, that it incurred $11,000 in attorney fees in the garnishment action andin the proceedings that followed. At the hearing, Peerless requested a total of$36,000, which included $11,000 in attorney fees and $25,000 in sanctions asprovided in section 155. 215 ILCS 5/155(1)(b) (West 1998). Gallant's claim thatthe trial court's award was for attorney fees only is not supported by therecord. Although the trial court did not expressly state that part of the awardwas for sanctions, in the absence of a contrary indication in the record, we mustpresume that the trial court's ruling conformed with the law. See People v.McDuffee, 299 Ill. App. 3d 283, 286 (1998). Thus, we determine that the trialcourt did not abuse its discretion by awarding Peerless $16,127 in attorney feesand sanctions.

Next, Gallant challenges the garnishment judgment, arguing that the trialcourt erred by entering judgment against it in the garnishment action, by awarding Peerless an amount that exceeded the policy limits, and by awarding anadditional $1,000 in medical expenses. Peerless argues that these issues havebeen waived because Gallant failed to raise them in its notice of appeal. In thealternative, Peerless argues that the trial court did not abuse its discretion.

We note that, although Gallant failed to specify the garnishment judgmentin its notice of appeal, the issues have not been waived. It is well settledthat an appellate court has jurisdiction only to review judgments or partsthereof that are specified in the appellant's notice of appeal. See 155 Ill. 2dR. 303(b)(2); Habitat Co. v. McClure, 301 Ill. App. 3d 425, 434 (1998). However,an appellate court has jurisdiction to review an unspecified judgment if it wasa " 'step in the procedural progression leading to the judgment specified in thenotice of appeal.' " Habitat Co., 301 Ill. App. 3d at 434, quoting Burtell v.First Charter Service Corp., 76 Ill. 2d 427, 435 (1979). We recognize thatGallant did not state in its notice of appeal that it was challenging the trialcourt's garnishment judgment. However, the garnishment judgment was a necessarystep in the procedural progression culminating in the granting of attorney feesand sanctions. In the absence of the garnishment judgment, the trial court wouldhave had no basis to award attorney fees and sanctions. Thus, we will review themerits of Gallant's arguments challenging the trial court's garnishment judgment. Incidentally, for the reasons stated above, we deny Peerless's motion to dismissthis portion of Gallant's appeal.

Gallant's argument regarding the trial court's finding of liability underits policy is without merit. We have already determined that Gallant wrongfullydenied coverage to Peter Kruse, there was no bona fide dispute regardingcoverage, and Gallant presented no evidence to support its claim that the policywas flat canceled because Peter Kruse had a suspended driver's license. Thus,the trial court's finding that Gallant was liable to Peter Kruse for damagesincurred in connection with the July 13, 1993, accident was not against themanifest weight of the evidence.

We also determine that the amount awarded was proper. It is well settled:

"When an insurance company unjustifiably refuses to defend itsinsured, the measure of damages is (1) the amount of the judgment againstits insured up to the policy limits unless the insurer was guilty ofnegligence, fraud or bad faith in which case there is liability for thefull judgment; (2) expenses incurred by the insured in defending the suit;and (3) any additional damages traceable to its refusal to defend." (Emphasis added.) Chandler v. Doherty, 299 Ill. App. 3d 797, 805 (1998).

Here, there was ample evidence to support the trial court's finding that Gallantacted in bad faith by refusing to provide coverage to Peter Kruse. Thus, thisargument fails.

Regarding Gallant's contention that the trial court erred by awarding anadditional $1,000 in medical expenses, Gallant ignores the fact that, in additionto the amount of the underlying judgment, a trial court may award any additionaldamages traceable to the insurer's refusal to defend. See Chandler, 299 Ill.App. 3d at 805. It is undisputed that the policy at issue provided Peter Krusewith coverage for medical expenses up to $1,000. Further, Gallant does not argue that these additional costs were not actually incurred or that Rita Kruse'sassignment of Peter Kruse's rights to Peerless was improper. Thus, we determinethat the trial court did not err by awarding Peerless an additional $1,000 inmedical costs.

Gallant cites Mohr v. Dix Mutual County Fire Insurance Co., 143 Ill. App.3d 989 (1986), to support its argument that a trial court may not enter judgmentagainst an insurer in excess of its policy limits. However, the court in Mohrdid not hold that recovery from an insurer is limited to the policy limit. Rather, the court stated, as we do here, that a court may award damages greaterthan the policy limit in certain circumstances. Mohr, 143 Ill. App. 3d at 997. Thus, this case does not support Gallant's position.

Lastly, we address Peerless's request for attorney fees on appeal. Peerless argues that it is entitled to attorney fees on appeal pursuant toSupreme Court Rule 375 and section 155 of the Code. 155 Ill. 2d R. 375; 215 ILCS5/155 (West 1998). Gallant argues that Peerless's request for attorney fees onappeal is frivolous and that it should be stricken. We disagree with Gallant.

Under section 155 of the Code, attorney fees and sanctions for vexatiousand unreasonable delay may include the delay incurred by an insurer's appeal ofa judgment. See Myrda v. Coronet Insurance Co., 221 Ill. App. 3d 482, 492-93(1991). As we previously stated, this court must "enforce the Code's protectionof insureds by restraining insurers from using the appeal process to punish theinsured by lessening recovery through ill-founded appeals." Myrda, 221 Ill. App.3d at 492-93. We agree with Peerless that Gallant's vexatious and unreasonabledelay was further compounded by this appeal; Gallant's arguments on appeal lacksupport in fact and in law. Thus, we determine that Peerless is entitled toattorney fees incurred on appeal. Peerless attached the affidavit of itsattorney stating the number of hours and fees accumulated on appeal. Gallant has14 days from the filing of this disposition in which to challenge this affidavit.

We reject Gallant's argument that Peerless's request for attorney fees mustbe struck because it did not file a motion for fees but included its request inits appellee's brief instead. Rule 375 provides that an appellate court mayimpose sanctions on its own initiative. 155 Ill. 2d R. 375(b). Further, nothingin section 155 of the Code requires the insured to actually file a motion forattorney fees incurred on appeal.

Lastly, Gallant requests that we award it attorney fees on appeal. We denythis request. We have already denied Gallant's motion to strike Peerless's briefand granted Peerless's request for attorney fees on appeal. Further, Peerlesswithdrew its motion to dismiss Gallant's challenge to the trial court's denialof its motion for substitution of judge, and we determine that Peerless's motionto dismiss Gallant's challenge of the trial court's garnishment judgment does notwarrant an award of attorney fees.

Accordingly, we affirm the trial court's judgments, deny Peerless's motionto dismiss a portion of Gallant's appeal, deny Gallant's motion to strikeportions of Peerless's appellee's brief, deny Gallant's motion for sanctions, andgrant Peerless's motion for attorney fees on appeal. Gallant has 14 days torespond to the affidavit submitted by Peerless's attorney regarding fees incurredon appeal.

For these reasons, the judgment of the circuit court of Du Page County isaffirmed.

Affirmed.

GEIGER and HUTCHINSON,JJ., concur.