Cincinnati Insurance Co. v. Baur's Opera House
Case Date: 04/22/1998
Court: 4th District Appellate
Docket No: 4-97-0672
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IN THE APPELLATE COURT OF ILLINOIS FOURTH DISTRICT THE CINCINNATI INSURANCE COMPANY, ) Appeal from Plaintiff-Appellant, ) Circuit Court of v. ) Sangamon County BAUR'S OPERA HOUSE, INC., a Delaware ) No. 96MR001 Corporation, d/b/a BAUR'S OPERA ) HOUSE, and MARK W. STEARNES, ) Honorable Defendants-Appellees. ) Robert J. Eggers, ) Judge Presiding. JUSTICE KNECHT delivered the opinion of the court: Defendant Mark W. Stearnes filed a personal injury lawsuit in state court against defendant Baur's Opera House, Inc. (Baur's). Baur's was insured by plaintiff, the Cincinnati Insur- ance Company (Cincinnati). Cincinnati filed a declaratory judg- ment action against defendants alleging it was not obligated to defend or indemnify Baur's because neither of the defendants notified it of the state lawsuit, thereby breaching the insurance policy. Cincinnati and Stearnes filed cross-motions for summary judgment arguing whether Cincinnati received reasonable notice of the lawsuit. The trial court denied Cincinnati's motion and granted Stearnes' motion. We find insufficient evidence proving Cincinnati received reasonable notice of the state lawsuit. We reverse and remand the trial court's judgment. I. BACKGROUND In January 1991, Stearnes filed a complaint in the United States District Court for the Central District of Illi- nois. The origin of the complaint was an altercation between Stearnes and Baur's employees in February 1990. The complaint alleged Baur's employees discriminated against Stearnes based on his race. The complaint further alleged negligence, false im- prisonment, false arrest, and malicious prosecution claims against Baur's. Baur's was served with a summons and copy of the complaint in January 1991. Baur's notified Cincinnati of the federal lawsuit and Cincinnati retained attorneys to defend Baur's. Cincinnati's attorneys conducted discovery, filed in- terrogatories, and took 14 depositions in response to Stearnes' cause of action. In February 1992, the attorneys filed a motion for summary judgment, which was granted in March 1992. See Stearnes v. Baur's Opera House, Inc., 788 F. Supp. 375, 379 (C.D. Ill. 1992). In a letter dated April 1992, the attorneys notified Cincinnati of the district court's decision and stated "[w]e can anticipate [p]laintiff's attorney refiling the [s]tate claims in [s]tate [c]ourt." The district court's decision was appealed to the United States Court of Appeals for the Seventh Circuit, and upon remand, the complaint was dismissed for lack of jurisdiction in November 1993. See Stearnes v. Baur's Opera House, Inc., 3 F.3d 1142, 1145 (7th Cir. 1993). In March 1993, before Stearnes' time ran out for filing a complaint in state court (735 ILCS 5/13-217 (West 1992)), he filed a complaint in the circuit court of Sangamon County, alleg- ing state law claims identical to those alleged in the federal complaint. In April 1993, George W. Baur (George), principal owner of Baur's, was served with a summons and a copy of the state complaint. In June 1993, George died. After his death, Cincinnati's attorneys continued to represent Baur's in the fed- eral lawsuit. However, George's estate failed to notify Cincin- nati or its attorneys of the state lawsuit. In January 1994, Paul Presney, Sr., an attorney not retained by Cincinnati, filed an appearance on behalf of Baur's in the state lawsuit. In July 1995, Baur's filed bankruptcy. As a result, Stearnes' state lawsuit was automatically stayed. In September 1995, the bankruptcy court granted Stearnes relief from the auto- matic stay and provided him with leave to pursue any available insurance. In October 1995, Stearnes' attorney contacted Cincin- nati regarding settlement negotiations. In November 1995, Cin- cinnati responded by stating it was investigating the claim and would contact Stearnes after it reviewed the case. Cincinnati also sent a letter to the bankruptcy trustee, Mariann Pogge, notifying her it intended to defend Baur's pursuant to its res- ervation of rights. In December 1995, Cincinnati sent a second letter to Pogge informing her coverage was being denied because Baur's failed to provide reasonable notice of Stearnes' state lawsuit. In January 1996, Cincinnati filed this declaratory judgment action, arguing it did not receive reasonable notice of the state lawsuit. Cincinnati argued Baur's insurance policy was breached; therefore, it did not have a duty to defend, indemnify, or otherwise cover Baur's in regard to the state lawsuit. Stearnes responded arguing Cincinnati, via the federal lawsuit, received sufficient notice of the state cause of action. Baur's never responded to the declaratory judgment action. Cincinnati and Stearnes filed cross-motions for summary judgment arguing whether Cincinnati received reasonable notice. In April 1997, the trial court granted Stearnes' motion. In May 1997, the trial court denied Cincinnati's motion to reconsider. In July 1997, as a result of Baur's failure to appear or other- wise plead, the court entered a finding pursuant to Illinois Su- preme Court Rule 304(a) (155 Ill. 2d R. 304(a)), which permitted Cincinnati to file this appeal. II. ANALYSIS On appeal, Cincinnati contends the trial court erred in denying its summary judgment motion and granting Stearnes' summa- ry judgment motion. When reviewing summary judgment motions, the evidence is reviewed de novo and construed in the light most fa- vorable to the nonmovant. See Walker v. Rogers, 272 Ill. App. 3d 86, 89, 650 N.E.2d 272, 274 (1995), citing Gilbert v. Sycamore Municipal Hospital, 156 Ill. 2d 511, 518, 622 N.E.2d 788, 792 (1993). Summary judgment is properly entered when the pleadings, depositions, admissions, and affidavits fail to establish a genu- ine issue of material fact, thereby entitling the movant to judg- ment as a matter of law. 735 ILCS 5/2-1005(c) (West 1994). Further, the movant bears the burden of persuasion and the initial burden of production. Carruthers v. B.C. Christopher & Co., 57 Ill. 2d 376, 380, 313 N.E.2d 457, 459 (1974); Rice v. AAA Aerostar, Inc., 294 Ill. App. 3d 801, 805, 690 N.E.2d 1067, 1070 (1998). Only if the movant satisfies the initial burden of production does the burden shift to the nonmovant to present some factual basis arguably entitling him or her to a favorable judg- ment. See Carruthers, 57 Ill. 2d at 380, 313 N.E.2d at 459; Rice, 294 Ill. App. 3d at 805, 690 N.E.2d at 1070. Baur's insurance policy requires its proprietors to notify Cincinnati of any lawsuit filed against Baur's. The poli- cy states the following: "4. Insured's Duties in the Event of Occur- rence, Claim or Suit. (a) In the event of an occurrence, written notice containing particu- lars sufficient to identify the insured and also reasonably obtain- able information with respect to the time, place and circumstances thereof, and the names and address- es of the injured and of available witnesses, shall be given by or for the insured to the company or any of its authorized agents as soon as practicable. (b) If claim is made or suit is brought against the insured, the insured shall immediately forward to the company every demand, notice, sum- mons, or other process received by him or his representative." Cincinnati argues Baur's breached the insurance policy when it failed to notify Cincinnati of the state lawsuit within a reason- able time period. A notice provision, such as the one in this case, is a valid condition precedent and not a mere technical requirement for the convenience of the insurer. Millers Mutual Insurance Ass'n v. Graham Oil Co., 282 Ill. App. 3d 129, 140, 668 N.E.2d 223, 231 (1996). Generally, Stearnes may garnish Baur's insur- ance fund only if Baur's could have collected on the insurance policy. Thus, Baur's failure to comply with the notice provision allows Cincinnati to deny coverage under the insurance policy, absent some public policy reason barring Cincinnati from raising this defense. See Reisman v. Delgado, 117 Ill. App. 3d 331, 333- 34, 453 N.E.2d 902, 904 (1983). Compliance with the provision requires notification of the lawsuit within a reasonable time period, considering all the facts and circumstances of the par- ticular case. See American Family Mutual Insurance Co. v. Blackburn, 208 Ill. App. 3d 281, 288, 566 N.E.2d 889, 893 (1991). Despite the language contained in the insurance policy, Baur's need not forward "every demand, notice, summons, or other process" received in connection with the lawsuit. Cincinnati is liable under the insurance policy so long as it received "actual notice," i.e., notice sufficient for it to locate the lawsuit and defend Baur's. See Keepers v. Powell, 131 Ill. App. 2d 423, 427, 268 N.E.2d 488, 491 (1971); Long v. Great Central Insurance Co., 190 Ill. App. 3d 159, 168, 546 N.E.2d 739, 744 (1989). A. Actual Notice Stearnes contends Cincinnati's defense of Baur's in the federal lawsuit provided sufficient notice of the state lawsuit. He argues Cincinnati, by denying coverage, is relying on a tech- nical breach of the notice provision unrelated to its ability to investigate the allegations or its obligation to represent Baur's. See Casualty Insurance Co. v. E.W. Corrigan Construction Co., 247 Ill. App. 3d 326, 332-35, 617 N.E.2d 228, 233-35 (1993). Stearnes' reliance on Corrigan misplaced. Contrary to Stearnes' assertions, notice of a federal lawsuit does not equate to "actu- al notice" of a later state lawsuit, regardless of the similari- ties between the complaints. Instead, the Corrigan court con- cluded once an insurer receives notice of a claim under its insured's workers' compensation insurance policy, it has notice of any lawsuits arising out of the same occurrence covered by its insured's general liability insurance policy. This notice is also sufficient for lawsuits brought against any additional in- sureds listed under the general liability policy. Corrigan, 247 Ill. App. 3d at 333, 617 N.E.2d at 233-34. Stearnes did not bring one lawsuit seeking to recover under multiple insurance policies. Rather, he brought two law- suits in separate and distinct court systems. Essentially, Stearnes argues Cincinnati bears the burden of locating the state lawsuit for a period of one year following the dismissal of the federal lawsuit because a state lawsuit should have been expect- ed. Cincinnati does not bear this burden. The mere possibility Stearnes would file suit in state court is insufficient to con- stitute "actual notice" of the lawsuit. See Rice, 294 Ill. App. 3d at 808, 690 N.E.2d at 1072; Johnson v. Samuels, 40 Ill. App. 2d 417, 420, 189 N.E.2d 780, 782 (1963). The failure of George or his estate to forward a copy of the lawsuit to Cincinnati or its attorneys breached Baur's insurance policy. Stearnes' attorney knew Cincinnati retained attorneys to defend Baur's in the federal lawsuit and could have preserved his client's rights to garnish the insurance fund in any number of ways. See Rice, 294 Ill. App. 3d at 808, 690 N.E.2d at 1072. Based on this record it appears Cincinnati did not receive "actual notice" of the state lawsuit until Stearnes initiated settlement negotiations in October 1995, 2 |