American Service Insurance Company v. Franchini

• Court: Appellate Court of Illinois
• Decided: December 15, 2009
• Docket: 1-09-0367 Rel
• Status: Published

Opinion

SECOND DIVISION DECEMBER 15, 2009

1-09-0367

AMERICAN SERVICE INSURANCE COMPANY, ) Appeal from the ) Circuit Court of Plaintiff-Appellee, ) Cook County. ) v. ) No. 07 CH 13990 ) DAVID FRANCHINI and CAROLINA FRANCHINI, ) Honorable ) Peter Flynn, Defendants-Appellants. ) Judge Presiding.

PRESIDING JUSTICE CUNNINGHAM delivered the opinion of the court:

Defendants David and Carolina Franchini (collectively, the Franchinis), who are brother and

sister, appeal from an order of the circuit court of Cook County denying their motion for leave to file

a late counterclaim to the declaratory judgment action filed against them by plaintiff American

Service Insurance Company (ASI). David Franchini (David) was the policyholder on an automobile

insurance policy written by ASI. Carolina Franchini (Carolina) was driving David’s automobile

when she collided with an automobile owned by Takena and Nathan Wright (the Wrights) and driven

by Takena Wright. The Wrights subsequently sued the Franchinis for personal injuries and damages

arising from that collision. The declaratory judgment action brought by ASI sought a declaration that

David1 had defrauded ASI by failing to inform ASI in his insurance application that Carolina lived

with him and frequently drove his automobile. On that basis, ASI sought to have its insurance policy

1 ASI also named the Wrights as defendants, but a default judgment was obtained against them and they are not parties to this appeal. 1-09-0367

with David declared void ab initio, eliminating any obligation that ASI had under the policy with

respect to the collision between the automobiles driven by Carolina and Takena. In their proposed

counterclaim, the Franchinis sought a declaration that ASI had engaged in unreasonable and

vexatious conduct by denying insurance coverage to them without thoroughly investigating the

matter. The circuit court of Cook County denied the Franchinis leave to file the proposed

counterclaim, and this appeal ensued. We affirm.

BACKGROUND

The relevant underlying facts are undisputed. On October 30, 2004, ASI issued a personal

automobile insurance policy to David on his 1997 Ford Expedition. The policy period was October

31, 2004, to October 31, 2005. During this period, on March 8, 2005, Carolina was driving David’s

automobile with his permission when she collided with the Wrights’ automobile, driven by Takena,

at an intersection in Ottawa, Illinois. The Franchinis reported the accident to ASI that same day.

On March 7, 2007, the Wrights filed a complaint against the Franchinis, seeking $25,000 for

personal injuries to Takena and property damage to their automobile arising out of the March 8, 2005

collision between David’s automobile and the Wrights’ automobile.

On April 5, 2005, ASI rescinded its insurance policy issued to David, based on his alleged

fraud. Nonetheless, ASI later provided legal representation for the Franchinis in the lawsuit filed

against them by the Wrights on March 7, 2007. However, ASI reserved the right to cease that

representation if it determined that David had made material misrepresentations when he applied

for the insurance policy with ASI prior to the automobile collision. There is evidence in the record

that shortly after the accident, Carolina told an ASI investigator that she lived with David and

2 1-09-0367

frequently drove David’s automobile prior to the accident. Subsequently, in her deposition, Carolina

denied having made this statement and denied that she had driven David ’s automobile on any other

occasion, either before or after the accident. She also denied living with David at the time of the

accident. However, an Illinois traffic control report filed after the accident lists the same home

address for Carolina and David .

On March 4, 2007, ASI filed this declaratory judgment action in the circuit court of Cook

County against Carolina and David individually. Carolina and David first represented themselves

pro se, filing separate answers, with no counterclaim, on July 20, 2007 (Carolina), and July 23, 2007

(David ). The Franchinis, both Carolina and David, later obtained the representation of the law firm

of Sanchez, Daniels & Hoffman, LLP, on November 16, 2007, and were granted leave to file an

amended answer or otherwise plead on or before December 7, 2007, but they did not do so, nor did

they seek leave to file a counterclaim. The law firm of Jump & Associates was later substituted as

counsel for the Franchinis on February 25, 2008. No amended pleadings or counterclaim was filed

by the successor law firms. Indeed, throughout the proceedings in the circuit court, the Franchinis

relied upon their original pro se responsive pleadings. The Franchinis did not seek leave to file a

counterclaim until May 14, 2008, over 19 months after ASI filed its declaratory judgment action and

almost 10 months after the Franchinis filed their pro se responsive pleadings.

ASI opposed the attempt by the Franchinis to file the counterclaim on May 8, 2008. ASI

asserted that it was untimely and that it failed to state a cause of action. The trial court did not

specifically rule on the timeliness argument advanced by ASI, but did find that the counterclaim

failed to allege facts establishing any vexatious or unreasonable conduct by ASI in its defense of the

3 1-09-0367

Franchinis. In other words, the counterclaim failed to state a cause of action under section 155 of

the Insurance Code. 215 ILCS 5/155 (West 2006). The trial court also noted that ASI had

represented to the court that it had reached a tentative settlement with the Wrights in the underlying

lawsuit by the Wrights against the Franchinis, and that upon successful resolution of that settlement,

ASI would seek dismissal of its declaratory judgment action against the Franchinis. However, after

the Franchinis sought leave to file the counterclaim in question, ASI ceased its settlement

negotiations with the Wrights. The trial court later denied the Franchinis’ motion for leave to file

the counterclaim2 in question. Subsequently, during the pendency of the Franchinis’ motion for

reconsideration of the trial court’s denial of leave to file a counterclaim, ASI voluntarily dismissed

its complaint for declaratory judgment against the Franchinis in anticipation of a settlement with the

Wrights. The Franchinis appeal from the circuit court’s denial of leave to file the counterclaim

against ASI pursuant to section 155 of the Illinois Insurance Code. 215 ILCS 5/155 (West 2006).

ANALYSIS

The Franchinis based their proposed counterclaim upon section 155 of the Illinois Insurance

Code, which provides for monetary sanctions in insurance coverage actions involving issues of

liability under an insurance policy, the amount of the loss, or unreasonable delay in settling a claim

if “it appears to the court that such action or delay is vexatious and unreasonable.” 215 ILCS 5/155

(West 2006). Preliminarily, we note that the Franchinis’ counterclaim was not timely filed, coming

2 The Franchinis’ proposed counterclaim had a second count seeking a declaration that ASI was bound to represent them under David’s insurance policy. The trial court held that this count was inherently part of the ASI declaratory judgment action and thus was superfluous in a counterclaim. The Franchinis have not appealed that ruling, and we will not consider it further.

4 1-09-0367

as it did over 19 months after ASI filed its declaratory judgment action against the Franchinis.

Counterclaims should be part of the answer or response filed by a defendant. 735 ILCS 5/2-608(b)

(West 2006). No counterclaim accompanied the Franchinis’ July 20 and July 23, 2007 responses

to the declaratory judgment complaint filed by ASI. Nor did they seek leave to file an amended

response or a counterclaim when they subsequently obtained the services of the Sanchez law firm,

or when they substituted the Jump law firm as counsel. Under these circumstances it is within the

discretion of the trial court whether to allow the late filing of a counterclaim for relief under section

155 of the Illinois Insurance Code, and the trial court’s exercise of its discretion will only be

overturned if it is found to have abused its discretion. Siwek v. White, 388 Ill. App. 3d 152, 158-60,

905 N.E.2d 278, 284-85 (2009).

It is insufficient for a party to merely assert that the other party’s actions were “vexatious

and unreasonable” without also alleging facts supporting such a claim. American Alliance Insurance

Co. v. 1212 Restaurant Group, L.L.C., 342 Ill. App. 3d 500, 511, 794 N.E.2d 892, 901 (2003). It

is instructive to review examples of conduct which Illinois courts have held to constitute vexatious

and unreasonable actions or delay. In one example, an insurance company forced an insured to sue

to establish recovery where the company unsuccessfully filed five sets of affirmative defenses,

ultimately resulting in dismissal of those defenses with prejudice. Siwek, 388 Ill. App. 3d at 160,

905 N.E.2d at 285. In another example, an insurance company delayed payment solely on the basis

of a clearly erroneous legal construction. Janes v. Western States Insurance Co., 335 Ill. App. 3d

1109, 1116-17, 783 N.E.2d 37, 42-44 (2001). In yet another example, an insurance company failed

to notify its insured that the company possessed a conflict of interest in defending the underlying tort

5 1-09-0367

action, and continued to represent its insured for three years despite efforts by the insured to obtain

other counsel. Williams v. American Country Insurance Co., 359 Ill. App. 3d 128, 141-42, 833

N.E.2d 971, 982 (2005). Lastly, an insurance company was found to have breached its duty to

defend when it failed to respond to its insured’s demands for coverage and also failed to file a

declaratory judgment action to determine coverage or to defend its insured under a reservation of

rights. La Grange Memorial Hospital v. St. Paul Insurance Co., 317 Ill. App. 3d 863, 869, 740

N.E.2d 21, 29-30 (2000).

The allegations of vexatious and unreasonable conduct by ASI asserted in the Franchinis’

proposed counterclaim fall far short of the types of specific and egregious acts illustrated by the cases

cited. The Franchinis erroneously state that ASI denied them a defense and indemnification because

ASI alleged that David had misrepresented information on his insurance application. But in fact,

despite evidence of such a misrepresentation by David, ASI defended the Franchinis against the

lawsuit filed by the Wrights, while reserving its right to cancel coverage should fraud or material

misrepresentation by David be established. ASI also filed this declaratory judgment action to have

a court of law determine whether there had been such fraud or material misrepresentation. These

actions by ASI are precisely those endorsed by our supreme court in Employers Insurance of Wausau

v. Ehlco Liquidating Trust, 186 Ill. 2d 127, 153, 708 N.E.2d 1122, 1136 (1999), and in La Grange,

317 Ill. App. 3d at 869, 740 N.E.2d at 29, as those which a responsible insurance company should

take. These same actions by ASI negate the claims of the Franchinis that ASI failed to investigate

Carolina’s residency before denying insurance coverage and ignored documents establishing that

Carolina did not live with David. As we have noted, from the first days after the collision between

6 1-09-0367

the automobiles belonging to David and the Wrights, there was evidence that Carolina had been

living with David and driving his automobile on a regular basis. One ASI investigator reported that

Carolina had admitted to him that she had been living with David and driving his automobile. The

Illinois traffic control report filed as a result of the accident also showed that the Franchinis lived at

the same address. Faced with Carolina’s subsequent deposition testimony denying these earlier

statements, ASI did the responsible thing by proceeding with the Franchinis’ defense with a

reservation of its right to deny coverage if its investigation revealed fraud or material

misrepresentation. ASI also sought a declaratory judgment regarding David’s coverage. Contrary

to the allegations of the Franchinis in their proposed counterclaim, the fact that they were required

to defend themselves in ASI’s declaratory judgment action was a necessary part of the procedural

process by which ASI sought to have a court of law determine its obligations to David under the

policy of insurance. ASI alleged, and the Franchinis do not deny, that different rates may have

applied to David’s insurance policy had he disclosed that Carolina regularly drove his automobile.

We find no abuse of discretion in the trial court’s determination that the allegations in the

Franchinis’ proposed counterclaim did not state a claim upon which relief could be granted under

section 155 of the Illinois Insurance Code. Accordingly, the trial court properly refused to allow the

late filing of the Franchinis’ counterclaim.

We affirm the judgment of the circuit court of Cook County.

Affirmed.

THEIS and KARENZIS, JJ., concur.