2021 IL App (1st) 200855-U No. 1-20-0855 Second Division December 28, 2021
NOTICE: This order was filed under Supreme Court Rule 23 and is not precedent except in the limited circumstances allowed under Rule 23(e)(1). ____________________________________________________________________________
IN THE APPELLATE COURT OF ILLINOIS FIRST DISTRICT ____________________________________________________________________________
) Appeal from the DIRECT AUTOMOBILE INSURANCE ) Circuit Court of COMPANY, ) Cook County. ) Plaintiff-Appellant, ) ) v. ) No. 16 CH 5766 ) MIHANE KRSO, BAJRA KRSO, AUDREY ) PAUL, and TRAVELERS HOME & ) MARINE INS., ) Honorable ) Pamela McLean Meyerson Defendants-Appellees. ) Judge, presiding.
____________________________________________________________________________
JUSTICE COBBS delivered the judgment of the court. Justices Howse and Lavin concurred in the judgment.
ORDER
¶1 Held: The judgment of the circuit court in a declaratory action is affirmed. The court did not err in granting summary judgment to defendant where plaintiff insurance company did not timely rescind its policy with its insured. No. 1-20-0855
¶2 This appeal arises from a declaratory judgment action filed by plaintiff-appellant Direct
Automobile Insurance Company (Direct Auto) on April 25, 2016. The declaratory action was
related to an underlying personal injury lawsuit resulting from an automobile accident between
Mihane Krso (Mihane), who was allegedly insured by Direct Auto, and Audrey Paul, who was
insured by The Travelers Home and Marine Insurance Company (Travelers). The circuit court
ultimately awarded summary judgment for Travelers and ordered Direct Auto to defend Mihane
in the underlying personal injury suit. Direct Auto now appeals, and we affirm.
¶3 I. BACKGROUND
¶4 On December 6, 2012, Krso and Paul were in an automobile accident in Wheeling, Illinois.
The record shows that shortly before the accident in question, Mihane applied for a 6-month
insurance policy with Direct Auto. The policy took effect on October 20, 2012 and was set to
expire on April 20, 2013. The policy lists Mihane and her husband, Bajro Krso, as the only covered
drivers and a 2003 Chevrolet Cavalier as the only covered vehicle.
¶5 Following the accident, on April 19, 2013, Direct Auto sent Mihane a letter (the April 2013
letter) stating that her policy was null and void due to her “material misrepresentation” of failing
to disclose her son, Edin Krso, as a household member in her policy application. Direct Auto’s
letter also informed Krso that:
“if a lawsuit is filed against and you are served in this matter, then you must provide the
company with a copy of the lawsuit. That portion of your policy relating to the defense of
any lawsuit that may be filed against you is a broader coverage than the other coverage’s
[sic] afforded under the policy. If you are sued in this matter and served with notice, you
must notify the company of the lawsuit and the company will then advise as to whether the
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company will defend you. Failure to notify the company prior to a judgment against you
will void any responsibility the company has of defending you.”
That same day, Direct Auto also wrote to Paul that it would not pay her claim based on the recission
of Mihane’s policy.
¶6 On November 19, 2014, Paul filed the underlying suit against Mihane seeking damages for
injuries sustained in the accident. On December 19, 2014, Direct Auto sent Krso a letter explaining
that it would defend the lawsuit on her behalf and that she was obligated to cooperate with Direct
Auto and the law firm it hired to defend the suit. This letter did not mention the previous recission
letter.
¶7 Some 16 months later, on April 25, 2016, Direct Auto initiated this declaratory action
seeking a judgment that it owed Mihane no liability coverage in relation to Paul’s lawsuit.
Specifically, Direct Auto alleged that Mihane’s policy application failed to list Edin as an
additional household member and potential driver. The declaratory complaint named Mihane,
Bajro, Paul, and Travelers as defendants. The Krsos filed pro se answers denying that their policy
was properly rescinded. Travelers filed an answer admitting many of Direct Auto’s allegations,
but stating that whether a recission occurred was “a statement of law that requires no answer.”
Travelers’ answer also raised as affirmative defenses that Direct Auto’s delay in bringing the
declaratory action operated as an estoppel and waiver of the right to deny coverage under the
policy.
¶8 Paul initially appeared through the law firm Collison & O’Connor, Ltd (the O’Connor firm)
in February 2017. Instead of answering the complaint, Paul signed a “Stipulation to be Bound” on
May 26, 2017. The stipulation was entered as an order that same day. The order provided:
“Stipulation to be Bound:
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Defendant Audrey Paul (“Paul”) agrees to be bound by the Order and Declaration
concerning coverage to be entered at the conclusion of this case, and Paul is making no
claim of coverage. As a consequence, Plaintiff Direct Auto Insurance Company waives
costs on same as to Paul. Further, Direct Auto Insurance Company will send formal notice
to Paul of Orders and events, but will not seek to default Paul.
IT IS ORDERED
Defendant Audrey Paul will be bound by the Order and Declaration concerning Coverage
which will be entered at the conclusion of this case.”
¶9 Several months later, on September 18, 2017, Paul’s counsel at the O’Connor firm wrote
to counsel for Direct Auto, asserting that Direct Auto had violated the stipulation by filing various
pleadings without notice to Paul. The letter also stated that Direct Auto was “attempting to
misconstrue the stipulation” by claiming that Paul was no longer seeking to pursue damages from
Mihane or Direct Auto in the underlying suit.
¶ 10 On October 24, 2017, Paul filed a “Motion to Clarify” the stipulation, arguing that she was
simply agreeing to abide by the outcome of the declaratory action and was not waiving her right
to seek damages from either Mihane or Direct Auto. Paul also contended that the language stating
that she was “making no claim for coverage” meant that she was not claiming to be insured by
Direct Auto, the plaintiff in the declaratory action. Accordingly, Paul sought an order interpreting
the stipulation in her favor or, alternatively, to modify the stipulation to omit the phrase “and Paul
is making no claim of coverage.”
¶ 11 Direct Auto filed a response, arguing that the stipulation unambiguously meant that Paul
waived her right to pursue Direct Auto, and that the stipulation order should not be vacated or
modified for mutual mistake because there was no mistake as to the legal effect of the language
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on Direct Auto’s part. Direct Auto also noted that while its counsel drafted the language of the
stipulation, Paul was the one who requested a proposed stipulation and signed it with the advice
of her own counsel.
¶ 12 After a hearing on the matter, the circuit court agreed with Paul’s interpretation, ruling that
the stipulation meant that Paul would not participate in the declaratory proceedings, but did not
waive her right to pursue damages from Mihane or Direct Auto in the underlying case.
¶ 13 On July 10, 2018, Direct Auto filed a first amended complaint, adding allegations that, in
addition to failing to disclose Edin on the policy application, Mihane also failed to disclose two
other vehicles and another son, Edon Krso. In its answer to the amended complaint, Travelers
denied that Mihane’s policy was rescinded and again asserted its affirmative defenses of waiver
and estoppel. In reply, Direct Auto filed a motion to dismiss Travelers’ affirmative defenses, which
the court treated as a motion for summary judgment. In particular, Direct Auto argued that
Travelers had no “standing” to raise defenses for the benefit of Mihane, a party to whom Travelers
was “directly adverse.” Direct Auto also contended that neither waiver nor estoppel applied in this
case because Mihane’s policy was timely rescinded within one year of its effective date.
¶ 14 On December 18, 2018, after hearing oral argument, the circuit court found that (1)
Travelers had standing to bring the motion and (2) Direct Auto was not entitled to summary
judgment as a matter of law. Specifically, the court ruled that Direct Auto’s April 2013 letter “did
not operate as an effective rescission as it advised Ms. Krso that she has ongoing obligations under
the policy.”
¶ 15 Direct Auto filed a motion to reconsider, arguing that its April 2013 letter constituted a
reservation of rights. In its response, Travelers contended that it was improper for Direct Auto to
raise a new “reservation of rights” argument for the first time in a motion for reconsideration and
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that, in any event, the April 2013 letter could not reasonably be interpretated as a reservation of
rights.
¶ 16 Around the same time, Travelers also filed its own motion for summary judgment on the
basis that the policy was not properly rescinded per the court’s December 18, 2018 order. After a
response and a reply, Direct Auto filed a motion to strike portions of Travelers’ reply, which the
court allowed to stand as a sur-reply.
¶ 17 On August 16, 2019, while the summary judgment pleadings were still pending, Travelers
filed an emergency motion to spread of record that Paul had died on September 9, 2018. According
to the motion, Travelers did not learn of Paul’s death until being informed by Paul’s former counsel
at the O’Connor firm on August 1, 2019. Travelers’ motion acknowledged that Paul could no
longer be a party to declaratory action, but that her personal representative could substitute as a
party. However, as Paul had already agreed to be bound by the court’s declaratory judgment,
Travelers concluded that any personal representative would be bound as well.
¶ 18 In response, Direct Auto argued the circuit court should deny the emergency motion and
stay the proceedings for lack of jurisdiction because no personal or special representative had been
appointed for Paul. On August 20, 2019, the circuit court granted Travelers’ motion and spread
Paul’s death of record.
¶ 19 The case was continued for status to September 16, 2019. On that date, attorney Kevin
O’Connor appeared and informed the court that Paul had filed for Chapter 7 bankruptcy in April
2015. As relevant here, the record shows that on Schedule B of Paul’s bankruptcy petition, she
listed a “Personal Injury Suit-DOL:12/6/2012; Paul v. Krso, 14-L-11980, Cook County, Illinois”
under the category of “Other contingent and unliquidated claims of every nature.” Paul listed the
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current value of the suit as “[u]nknown” and claimed the $15,000 personal exemption allowed by
Illinois law.
¶ 20 Attorney O’Connor further informed the circuit court that on February 3, 2017, the
bankruptcy court approved the bankruptcy trustee, Joseph Cohen’s, request to authorize the
O’Connor firm to pursue the underlying injury claim on the trustee’s behalf. O’Connor also
advised the circuit court that the underlying case had been stayed, but that he would seek to
substitute Paul’s name for that of the bankruptcy trustee once the stay was lifted. O’Connor took
the position that a personal or special representative need not be appointed for Paul in either of the
state cases because, as the bankruptcy preceded the death, the underlying claim was “now an asset
of the trustee in bankruptcy.”
¶ 21 On September 23, 2019, Direct Auto filed a motion objecting to jurisdiction on the basis
of Paul’s bankruptcy and death. Direct Auto requested that the circuit court stay the declaratory
proceedings and strike O’Connor’s appearance.
¶ 22 Meanwhile, on November 18, 2019, the circuit court in the underlying case removed the
matter from the insurance stay calendar, spread Paul’s death of record, and ordered that the
complaint be amended on its face to substitute “Joseph Cohen, trustee in Bankruptcy of Audrey
Paul, deceased, as Administrator to Collect, for Plaintiff, Audrey Paul.” The matter was then
returned to the insurance stay calendar pending resolution of the declaratory action.
¶ 23 Two days later, on November 20, 2019, the O’Connor firm filed a motion to substitute the
bankruptcy trustee for Paul as a necessary party to the declaratory action. Direct Auto objected to
the motion and, on November 22, 2019, filed a motion in the bankruptcy court requesting the court
vacate O’Connor’s appointment as special counsel and find that Paul was estopped from pursuing
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declaratory relief or a personal injury claim.1 The bankruptcy court denied Direct Auto’s motion,
stating that Paul’s claim became property of the bankruptcy estate upon the filing of the petition,
and that under the Bankruptcy Code, her death had “no effect on the bankruptcy case at all.”
However, the bankruptcy judge also stated that any issues with the trustee’s standing in state court
were for a state court to determine.
¶ 24 On December 9, 2019, the declaratory action court granted the motion to substitute the
bankruptcy trustee for Paul in the declaratory case over Direct Auto’s objection. The court ordered
Direct Auto to file an amended complaint to reflect the proper parties by December 16, 2019.
¶ 25 Direct Auto next filed a motion for leave to file an amended response to Travelers’
summary judgment motion and for leave to file a second amended declaratory complaint adding
allegations about the effects of Paul’s death and bankruptcy. After a hearing (the transcript of
which is not included in the record on appeal), the court denied the motion and ordered Direct
Auto to file a third amended declaratory complaint solely altering the name of the parties to
substitute “Joseph Cohen, trustee in Bankruptcy of Audrey Paul, deceased, as Administrator to
Collect for Plaintiff, Audrey Paul.”
¶ 26 On April 10, 2020, the trial court issued a written order in which it denied Direct Auto’s
motion to reconsider the December 18, 2019 order and granted summary judgment in favor of
Travelers. Regarding the motion to reconsider, the circuit court opined that it was improper for
Direct Auto to raise the argument that it was defending Mihane under a reservation of rights for
1 On April 5, 2021, Travelers filed a motion requesting this court take judicial notice of certain certified transcripts of proceedings in the bankruptcy court. We took the motion with the case, and now grant the motion. LB Steel, LLC v. Carlo Steel Corporation, 2018 IL App (1st) 153501, ¶ 22 n.4 (this court may take judicial notice of public documents that are included in the records of other courts, including bankruptcy courts).
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the first time in its motion to reconsider. Nevertheless, the court considered the reservation of
rights argument and rejected it. In particular, the court explained that although an insurer may
defend against a claim under a reservation of rights while simultaneously pursuing a declaratory
action, that was not what occurred in this case. Instead, the court found that Direct Auto defended
against Paul’s claim without a reservation of rights and waited 16 months before filing a
declaratory action in April 2016.
¶ 27 Based on its ruling regarding the effect of the April 2013 letter, the court further found that
Travelers was entitled to summary judgment as a matter of law. Specifically, the court found that
since the April 2013 letter did not rescind the policy, there was no genuine dispute that a timely
recission did not occur. Accordingly, the court found that Direct Auto had a duty to defend and
indemnify Mihane in the underlying lawsuit.
¶ 28 Direct Auto filed a motion to clarify and reconsider the summary judgment order. During
the pendency of that motion, Travelers and the bankruptcy trustee agreed to a settlement whereby
Travelers paid $75,000 in exchange for the trustee’s release of any claims that might be had under
the underinsured/uninsured motorist (UI/UM) portion of Paul’s Travelers policy. Direct Auto
objected in the bankruptcy court, again arguing that Illinois law required the appointment of a
personal or special representative in order to seek recovery against Mihane or Direct Auto. On
May 18, 2020, the bankruptcy court approved the settlement over Direct Auto’s objection.
¶ 29 On July 24, 2020, the circuit court denied Direct Auto’s motion to reconsider the summary
judgment order, except to the extent the court clarified that Direct Auto’s duty of indemnification
would ripen only if a judgement was entered against Mihane in the underlying suit.
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¶ 30 On August 6, 2020, Direct Auto filed a notice of appeal from, inter alia, the orders (1)
allowing the bankruptcy trustee to substitute for Paul, (2) granting Travelers summary judgment,
and (3) denying reconsideration of the summary judgment order.
¶ 31 II. ANALYSIS
¶ 32 A. Stipulation to be Bound
¶ 33 On appeal, we first address Direct Auto’s argument regarding the stipulation to be bound.
Direct Auto argues that the language of the stipulation that “Paul is making no claim for coverage”
meant that Paul waived any right to pursue a claim against Direct Auto. Thus, Direct Auto
concludes that Travelers, as Paul’s subrogee, also has no right to pursue the claim. Travelers, on
the other hand, contends that Paul was merely agreeing to be bound by the outcome of the
declaratory action and stating that she was not claiming to be insured by Direct Auto.
¶ 34 Before we can reach the merits of this issue, however, we must first consider our
jurisdiction. Xcel Supply, LLC v. Horowitz, 2018 IL App (1st) 162986, ¶ 26 (appellate court must
always consider its own jurisdiction). Travelers contends that we lack jurisdiction to consider the
matter because the circuit court’s order ruling on the effect of the stipulation was not included on
Direct Auto’s notice of appeal. We agree.
¶ 35 The filing of a notice of appeal is the jurisdictional step which initiates appellate review.
General Motors Corp. v. Pappas, 242 Ill. 2d 163, 176 (2011). Illinois Supreme Court Rule
303(b)(2) (eff. July 1, 2017) provides that the notice of appeal “shall specificy the judgment or
part thereof or other orders appealed from and the relief sought from the reviewing court.” Thus,
this court has jurisdiction to consider only the judgments or parts of judgments specified in the
notice of appeal. Pappas, 242 Ill. 2d at 176. A notice of appeal must be considered as a whole to
determine whether it fairly and adequately advises the appellee of the nature of the appeal. Id.
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Where a notice of appeal has not been properly filed, this court must dismiss the appeal for lack
of jurisdiction. Id.
¶ 36 Here, the circuit court issued its ruling on the meaning of the stipulation on February 8,
2018. However, Direct Auto’s notice of appeal does not list that date or reference the ruling or
stipulation in any way. Rather, the notice lists several other orders and “REVERSE SUMMARY
JUDGMENT” as the only requested relief. We therefore lack the jurisdiction to consider Direct
Auto’s arguments related to the circuit court’s ruling on the effect of the stipulation.
¶ 37 B. Substitution of the Bankruptcy Trustee
¶ 38 Direct Auto next argues that the circuit court erred by allowing Cohen, as the bankruptcy
trustee, to substitute for Paul in the declaratory action. According to Direct Auto, it was necessary
to name either a special or personal representative to represent Paul’s interest after her death. As
no such representative was named, Direct Auto concludes that “the deceased Paul no longer exists
under Illinois law in the sense of filing suits or defending suit.” Moreover, because Travelers’
rights against Mihane and Direct Auto were derivative of Paul’s, Direct also maintains that “[a]ny
rights Travelers had ‘standing in the shoes’ of Paul died with the failure to appoint a special or
personal representative.”
¶ 39 In addressing these arguments, we first note that Direct Auto advances them with very little
citation to relevant authority. See State by Raoul v. Hitachi, Ltd., 2021 IL App (1st) 200176, ¶ 49
(appellant’s failure to cite relevant authority violates Illinois Supreme Court Rule 341 and may
cause the party to forfeit consideration of the issue.) Additionally, while Direct Auto’s arguments
in this regard focus on Paul’s death during the pendency of the litigation, they either ignore or
misunderstand the importance of her bankruptcy.
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¶ 40 The filing of a bankruptcy petition initiates the assertion of the bankruptcy court’s
jurisdiction over all the debtor’s assets and property. Dailey v. Smith, 292 Ill. App. 3d 22, 24
(1997). The filing of a petition also creates a bankruptcy estate, which section 541 of the
Bankruptcy Code defines broadly as “all legal or equitable interests of the debtor in property as of
the commencement of the case.” 11 U.S.C. § 541(a)(1) (2012). Notably, “once a bankruptcy action
is initiated, all unliquidated lawsuits [in which the debtor has a potential claim] become part of the
bankruptcy estate.” Board of Managers of 1120 Club Condominium Association v. 1120 Club,
LLC, 2016 IL App (1st) 143849, ¶ 41. Thus, “if a party to a lawsuit files for bankruptcy, that party
is divested of standing to pursue the claim” and only the bankruptcy trustee then has standing to
pursue the suit. Id.
¶ 41 Here, it is undisputed that Paul filed for bankruptcy while her underlying personal injury
lawsuit was still pending. Accordingly, Paul’s interest in the unliquidated, contingent claim
became part of the bankruptcy estate for the trustee to pursue. As such, Direct Auto’s contention
that a special representative should have been appointed for the benefit of Paul’s heirs and legatees
is without merit. Once Paul filed for bankruptcy, the claim became part of the bankruptcy estate
for the trustee to wield exclusively for benefit of Paul’s creditors.
¶ 42 We find Direct Auto’s argument that the bankruptcy trustee was required to appoint his
own special representative to pursue the estate’s claims in state court on his behalf similarly
unpersuasive. Although Direct Auto correctly notes that the trustee’s standing in state court is a
matter of state law, Direct Auto does not cite to any Illinois case to support its assertions about the
requirement of a special representative. Rather, as previously noted, Illinois courts have held that
only the bankruptcy trustee has standing to pursue unliquidated lawsuits pending at the time the
bankruptcy petition is filed. 1120 Club, 2016 IL App (1st) 143849, ¶ 41.
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¶ 43 In light of the foregoing, we find that the circuit court did not err in allowing the bankruptcy
trustee to substitute for Paul. Indeed, section 2-1008(a) of the Code of Civil Procedure specifically
provides that where an interest in a lawsuit transfers on account of a bankruptcy, “the action does
not abate, but on motion an order may be entered that the proper parties be substituted or added,
and that the cause or proceeding be carried on with the remaining parties and new parties [.]” 735
ILCS 5/2-1008(a) (West 2016). Here, for reasons we have explained, the bankruptcy petition
caused a transfer of interest from Paul to the bankruptcy estate. The trustee therefore became a
necessary party in the declaratory action, and the court was correct to substitute the parties
accordingly.
¶ 44 C. Estoppel
¶ 45 Direct Auto further argues that Paul should have been judicially estopped from pursuing
her lawsuit “by her failure to fully disclose her claims above the [$15,000 personal] exemption.”
Specifically, Direct Auto acknowledges that Paul scheduled her lawsuit in her bankruptcy petition,
but contends that she failed to adequately disclose her related UIM/UM claim.
¶ 46 Judicial estoppel is an equitable doctrine to be invoked at the court’s discretion. Seymour
Collins, 2015 IL118432, ¶ 36. The doctrine applies where a litigant in a proceeding takes a
position, benefits from that position, and then seeks to take a contrary position in a later
proceeding. Id. Judicial estoppel is designed to protect the integrity of the judicial process by
preventing litigants from changing positions simply according to the exigencies of a particular
moment. Id.
¶ 47 Our supreme court has set forth a two-step process for a trial court to determine whether to
invoke judicial estoppel. First, the court must determine whether the following elements are
present: (1) the party to be estopped has taken two positions, (2) that are factually inconsistent (3)
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in separate judicial or quasi-judicial proceedings, (4) intending for the trier of fact to accept the
truth of the facts alleged, and (5) have succeeded in the first proceeding and received some benefit
from it. Id. ¶ 47. Second, if all these elements are established, the court must then exercise its
discretion to determine whether to apply judicial estoppel. Id. Among the factors for the court to
consider in this step are the significance of the party’s actions in the first proceeding and whether
there is affirmative evidence that the party intended to deceive or mislead. Id.
¶ 48 Applying these principles to the present case, it is evident that the circuit court did not
abuse its discretion in declining to apply judicial estoppel. First, it is far from clear that Paul even
took inconsistent positions. See Knott v. Woodstock Farm & Fleet, Inc., 2017 IL App (2d) 160329,
¶ 26 (debtor’s positions not factually inconsistent where he disclosed a “possible claim” for
personal bodily injury in his bankruptcy petition). Unlike the cases invoking estoppel where the
debtor failed to disclose a potential claim to the bankruptcy court, Paul listed her lawsuit against
Mihane on the bankruptcy schedules from the outset. For example, in Smith v. Integrated
Management Service, 2019 IL App (3d) 180576, ¶¶ 6-7, the sole case Direct Auto cites on this
issue, the debtor entirely failed to disclose a prepetition personal injury suit in his bankruptcy, even
going so far as to deny ever having filed for bankruptcy in that injury suit. This is obviously
inapposite to the present case, where Paul’s personal injury suit was fully scheduled in her
bankruptcy petition.
¶ 49 More importantly, Direct Auto has presented no evidence to suggest that Paul intentionally
meant to deceive the bankruptcy court by not disclosing the UIM/UM claim. In Seymour, our
supreme court refused to presume the debtors’ failure to disclose a pending lawsuit in bankruptcy
proceedings was the result of deliberate manipulation. Seymour, 2015 IL 118432, ¶ 62. We take
the same path here. Additionally, we note that the bankruptcy trustee was clearly aware of Paul’s
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UIM/UM claims, as the trustee participated in the state court cases through the O’Connor firm as
early as February 2017 and reached a settlement with Travelers on the UIM/UM claims in the
amount of $75,000. Thus, it was well within the circuit court’s discretion to decline the application
of judicial estoppel.
¶ 50 D. Summary Judgment/Effect of the Recission Letter
¶ 51 Direct Auto next argues, in the alterative, that the circuit court erred granting summary
judgment for Travelers based on an erroneous finding that Mihane’s Direct Auto policy was not
properly rescinded. In particular, Direct Auto contends that (1) it timely rescinded the policy via
the April 2013 letter and (2) it properly defended the underlying case under a reservation of rights
while simultaneously pursuing the declaratory action.
¶ 52 We disagree with Direct Auto on both points. However, before explaining why, we briefly
set forth the familiar standards of review relevant to a grant of summary judgment. Summary
judgment is a drastic means of resolving litigation that should not be utilized unless the moving
party’s right to judgment is clear and free from doubt. Seymour, 2015 IL 118432, ¶ 42. Summary
judgment is appropriate only where there are no genuine issues of material fact and the moving
party is entitled to judgment as a matter of law. Id. When considering a motion for summary
judgment, a trial court must construe the record strictly against the movant and liberally in favor
of the nonmovant. Id. A grant of summary judgment is reviewed de novo. Id.
¶ 53 The central issue for the circuit court to decide in this declaratory action was whether the
April 2013 letter rescinded Mihane’s Direct Auto policy such that Direct Auto was under no duty
to defend or indemnify her in the underlying lawsuit. Section 154 of the Illinois Insurance Code
allows an insurer to rescind an insurance policy in the case of a material misrepresentation on the
policy application. 215 ILCS 5/154 (West 2012). When seeking to rescind a policy for a material
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misrepresentation, an insurer must prove that (1) the application contains a false statement and (2)
the false statement was either made with the intent to deceive or, regardless of intent, materially
affected the risk assumed by the insurer. Direct Auto Insurance Co. v. Koziol, 2018 IL App (1st)
171931, ¶ 11. Additionally, the rescission must occur within the lesser of (1) one year of the
policy’s effective date or (2) one policy term. 215 ILCS 5/154 (West 2012).
¶ 54 The parties apparently do not dispute that the omissions in the policy application
constituted material misrepresentations. Nor can there be any dispute that the April 19, 2013 letter
was sent prior to the expiration of the policy term, which occurred on April 20, 2013. The question,
then, becomes whether the April 2013 letter was sufficient to rescind the policy. We find that it
was not.
¶ 55 A material misrepresentation on an insurance application renders the policy merely
voidable, rather than void ab initio, meaning that the insurer may waive the right to recission if it
is not properly and promptly invoked. Illinois State Bar Association Mutual Insurance Co. v.
Coregis Insurance Co., 355 Ill. App. 3d 156, 167 (2004). We agree with the circuit court that
Direct Auto’s conduct was inconsistent with an invocation of its right to rescind. Although the
April 2013 letter stated that Direct Auto considered the policy null and void, it also informed Krso
that she had ongoing obligations under that same policy—namely the duty to notify the company
and provide it with a copy of any lawsuit filed against her. These ongoing obligations are
inconsistent with a recission. See id. at 165 (the party seeking recission must restore the other party
to the position it was in before the contract was formed). Thus, the April 2013 letter did not rescind
the policy, and Direct Auto took no further action to rescind prior to the April 20, 2013 deadline
imposed by Section 154.
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¶ 56 Direct Auto contends it did not take a position inconsistent with recission because an
insurer may defend an insured under a reservation of rights while simultaneously pursuing a
declaratory judgment that it does not owe coverage. While this is undoubtedly true as a matter of
Illinois law (see, e.g., IMC Global v. Continental Insurance Co., 378 Ill. App. 3d 797, 809 (2007)),
that is not what happened in this case. A proper reservation of rights must adequately inform the
insured of the rights that the insurer intends to reserve. Mobil Oil Corporation v. Maryland
Casualty Co., 288 Ill. App. 3d 743, 754 (1997). The reservation must also make specific reference
to the policy defense asserted by the insurer and to the potential conflict of interest such that the
insured is able to intelligently decide whether to rely on the insurer or hire independent counsel.
Id. “Absent a reservation of rights, an insurer waives all questions of policy coverage when it
assumes an insured’s defense and recognizes the continued validity of the policy.” [internal
quotation marks omitted] Illinois Insurance Guaranty Fund v. Nwidor, 2018 IL App (1st) 171378,
¶ 22. Here, nothing in Direct Auto’s April 2013 letter can be construed as a reservation of rights.
We also note that, despite being aware of the material misrepresentations in the policy application,
Direct Auto defended Mihane in the underlying suit for some 16 months before filing the
declaratory action, and only then raised the reservation of rights argument for the first time three
years after that, when moving to reconsider the court’s order denying it summary judgment.
¶ 57 State Farm Fire & Casualty Co. v. Martin, 186 Ill. 2d 367 (1999), cited by Direct Auto at
oral argument, is distinguishable. There, State Farm refused to defend or indemnify Martin in an
underlying wrongful death suit, and instead sought a declaratory judgment that it had no duty to
do so. Id. at 369. Summary judgment was later entered against State Farm in the declaratory action.
Id. However, shortly before the declaratory judgment was entered, one of the defendants in the
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wrongful death suit secured a default judgment against Martin. Id. at 370. The remaining defendant
also secured a default judgment against Martin after the declaratory judgment was entered. Id.
¶ 58 On appeal from the declaratory judgment, a preliminary issued was raised as to whether
State Farm was estopped from denying coverage where it failed to either secure a declaratory
judgment in its favor or defend its insured under a reservation of rights. Id. at 371. Our supreme
court ruled that State Farm was not estopped, stating that “[a]n insurer will not be estopped from
denying coverage merely because the underlying case proceeds to judgment before the declaratory
judgment action is resolved.” Id. at 374. Essentially, the court held that an insurer facing a
complaint alleging potential coverage must either (1) defend its insured under a reservation of
rights or (2) seek a declaratory judgment action that there is no coverage. Id. Thus, Martin is of
little help to Direct Auto here where, although Direct Auto sought a declaratory judgment, it also
defended Mihane without a reservation of rights.
¶ 59 Consequently, we find that Direct Auto owed Mihane a duty to defend where it is clear as
a matter of law that Direct Auto did not timely rescind her policy. The circuit court therefore did
not err in granting summary judgment for Travelers in the declaratory action.
¶ 60 D. Denial of Leave to Amend
¶ 61 Finally, Direct Auto contends that the circuit court erred in denying it leave to amend its
declaratory complaint to add, inter alia, allegations concerning the circuit court’s jurisdiction to
proceed without a personal or special representative after Paul’s bankruptcy and death.
¶ 62 Whether to allow amendment of a complaint is within the sound discretion of the circuit
court, and we will not reverse the court’s denial of leave absent an abuse of that discretion. Romito
v. City of Chicago, 2019 IL App (1st) 181152, ¶ 21. Although leave should generally be granted
freely, a party’s right to amend is not absolute or unlimited. Kay v. Prolix Packaging, Inc., 2013
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IL App (1st) 112455, ¶ 41. In determining whether to allow an amendment, a circuit court should
consider the following factors: (1) whether the proposed amendment would cure a defect in the
pleadings, (2) whether the opposing party would be surprised or prejudiced by the amendment, (3)
whether the proposed amendment is timely, (4) whether there were previous opportunities to
amend the pleading. Id. The ultimate test is whether allowing the amendment would further the
ends of justice. Id.
¶ 63 In this case, Direct Auto acknowledges that the circuit court entertained “extend
arguments” on the issues it wished to add in the amended pleading, but nevertheless maintains that
the court “erred in not formally allowing [it] to inculcate these points into a new pleading.” At the
outset, we first note that our review of this issue is somewhat hampered by the lack of transcript
from the January 9, 2020 hearing on Direct Auto’s motion to amend. Without the transcript, it
difficult to ascertain the court’s reasoning or determine whether the court exercised its discretion
soundly. As it is the appellant’s burden to present a sufficient record for review, any doubts caused
by an incomplete record must generally be resolved against the appellant. Shen v. Shen, 2015 IL
App (1st) 130733, ¶ 126.
¶ 64 With that in mind, we cannot say from the record before us that the court abused its
discretion in denying leave to amend. As Direct Auto concedes, the circuit court heard extensive
arguments on the issues it sought to include in its amended pleading. In the order granting summary
judgment for Travelers, the court thoroughly addressed these points and rejected Direct Auto’s
arguments. Thus, it is evident that the court believed the proposed amendment would not have
cured the defects in Direct Auto’s complaint. See Keefe-Shea Joint Venture v. City of Evanston,
364 Ill. App. 3d 48, 62 (“If the amendment would not have cured a defect in the pleading, the other
factors are superfluous.”). For reasons we have previously explained, we agree with the circuit
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court’s assessment. Accordingly, we find that it was within the court’s discretion to deny Direct
Auto leave to amend.
¶ 65
¶ 66 III. CONCLUSION
¶ 67 For the reasons stated, we affirm the judgment of the circuit court.
¶ 68 Affirmed.
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