NO. 4-06-0147 Filed: 12/15/06
IN THE APPELLATE COURT
OF ILLINOIS
FOURTH DISTRICT
GRINNELL MUTUAL REINSURANCE COMPANY, ) Appeal from Plaintiff-Appellee, ) Circuit Court of v. ) Logan County GRANT LaFORGE, ) No. 03MR29 Defendant-Appellant. ) and ) COUNTRY COMPANIES MUTUAL INSURANCE & ) FINANCIAL SERVICES, as Subrogee of ) ALAN INVESTMENTS; ALAN INVESTMENTS; ) Honorable and CROSS FARMS, INC., ) David L. Coogan, Defendants. ) Judge Presiding. _________________________________________________________________
PRESIDING JUSTICE STEIGMANN delivered the opinion of
the court:
In April 2003, defendant, Country Companies Mutual
Insurance & Financial Services (which was then plaintiff and
subrogee of defendants Alan Investments and Cross Farms, Inc.),
filed a complaint against defendant, Grant LaForge, seeking to recoup $34,103.50 that Country Mutual paid to Alan Investments
and Cross Farms for the loss of several hundred pigs that died
while in LaForge's care. In May 2003, plaintiff, Grinnell Mutual
Reinsurance Company, filed a complaint for declaratory judgment,
seeking a determination as to whether it owed its insured, LaForge, a defense in the underlying complaint. In January 2006,
the trial court granted summary judgment in Grinnell's favor.
LaForge appeals, arguing that the trial court erred by
granting summary judgment in Grinnell's favor because (1)
Grinnell was estopped from asserting any coverage defenses under the policy issued to LaForge because it failed to timely file its
declaratory-judgment complaint, (2) Grinnell's declaratory-
judgment complaint improperly sought a determination of non-
liability for its past conduct, and (3) the "mend-the-hold"
doctrine barred Grinnell from asserting the "custom[-]farming"
exclusion set forth in the policy issued to LaForge. We disagree
and affirm.
I. BACKGROUND
The following facts were gleaned from Country Mutual's underlying complaint, Grinnell's declaratory-judgment complaint,
attached documents and exhibits, and certain stipulations of the
parties.
Effective March 30, 2002, Grinnell issued a "farm[-]
guard" insurance policy to LaForge. The policy provided in
pertinent part, as follows:
"'We' will pay[,] subject to the liabil-
ity limits shown for LIABILITY TO PUBLIC
COVERAGE and the terms of the policy[,] all
sums arising out of any one loss which any
'insured person' becomes legally obligated to
pay as damages because of 'bodily injury' or
'property damage' covered by this policy.
If a claim is made or suit is brought
against any 'insured person' for liability
covered by this policy, 'we' will defend the
'insured person.' 'We' will use 'our' law-
yers and bear the expense.
- 2 - HOWEVER, 'WE' WILL NOT DEFEND ANY SUIT
AFTER 'OUR' LIMIT OF LIABILITY FOR THIS COV-
ERAGE HAS BEEN PAID. 'WE' WILL DEFEND OR
SETTLE ONLY IF COVERAGE EXISTS UNDER THE
TERMS OF THIS POLICY." (Emphasis added.)
In August 2000, Gary Cross, owner of Alan Investments,
entered into an oral agreement with LaForge, under which LaForge
agreed to care for Cross's pigs at LaForge's farm for a fee. In
April 2002, Cross delivered several hundred of his pigs to LaForge's farm, where LaForge was to feed and care for them.
On May 28, 2002, Ameren CIPS turned off the electricity
at LaForge's farm due to LaForge's alleged failure to pay his
power bill. As a result, approximately 700 of Cross's pigs died.
In a June 14, 2002, letter to Alan Investments,
Grinnell informed Cross that (1) it had received notice that
Cross had sustained a loss in May 2002, (2) it had completed its
investigation regarding his loss, and (3) LaForge's farm-guard
policy did not provide coverage for the loss.
In a June 25, 2002, letter to LaForge, Grinnell in-
formed him that (1) it had been investigating the May 2002
incident; (2) it was unable to provide coverage under LaForge's
farm-guard policy because the policy "was not intended to cover
the animals in [LaForge's] care" that belonged to Cross; (3) by
advising LaForge of the reason for denying coverage, it did "not
intend to waive the right to rely on other reasons that may
become apparent at a later date"; and (4) if LaForge was sued as
a result of the loss, he should contact Grinnell immediately. In
- 3 - denying coverage, Grinnell cited the following policy exclusions:
"UNDER LIABILITY TO PUBLIC--COVERAGE A
* * *
5. 'We' do not cover 'property damage'
to property rented to, leased to, occupied
by, used by, or in the care, custody[,] or
control of any 'insured person' or any per-
sons living in the household of an 'insured
person.' * * *
UNDER DAMAGE TO PROPERTY OF OTHERS--COVERAGE
A-1
1. 'We' will not pay for 'property
damage' to property owned by, leased to, or
rented to any 'insured person' or any resi-
dent of 'your' household."
Attached to that letter was a copy of the June 14, 2002, letter
from Grinnell to Alan Investments.
In a June 27, 2002, letter to LaForge, Cross Farms'
attorney informed him that (1) due to LaForge's "fault" in the
May 2002 incident, Cross Farms had suffered damages totaling
$35,878; and (2) LaForge needed to pay that amount within seven
days of receiving the letter.
In a July 9, 2002, letter to LaForge, Grinnell informed
him that (1) the letter provided "additional information and
clarification regarding coverage"; (2) LaForge's farm-guard
policy did not provide coverage for his custom-farming opera-
- 4 - tions; (3) as provided in paragraph 1 of exclusions "UNDER DAMAGE
TO PROPERTY OF OTHERS--COVERAGE A-1," the policy did not cover
property damage to "property owned by, leased to, or rented to
any 'insured person'"; (4) by advising LaForge of the reasons for
denying coverage, it did "not intend to waive the right to rely
on other reasons that may become apparent at a later date"; and
(5) if LaForge was sued as a result of the loss, he should
contact Grinnell immediately. (The letter also indicated that,
pursuant to the farm-guard policy, (1) "custom farming" means "any activity arising out of or in connection with" the care or
raising of livestock, such as swine, "by any 'insured person' for
any other person or organization in accordance with a written or
oral agreement"; and (2) the policy did not cover property damage
arising out of custom-farming operations of any insured person if
the "'total gross receipts' from all 'custom farming' exceeds
$2,000[] in [12] months of the prior calendar year.")
In a July 12, 2002, letter to the Illinois Department
of Insurance, LaForge complained about Grinnell's denial of
coverage. In a July 30, 2002, letter to the Department, Grinnell
explained the results of its investigation and its reasons for
denying coverage, including the farm-guard policy's custom-
farming exclusion and paragraph 5 of exclusions "UNDER LIABILITY
TO PUBLIC--COVERAGE A." As to the custom-farming exclusion,
Grinnell noted that (1) since August 2000, LaForge had been
caring for pigs owned by Cross, earning approximately $3,000
every other month; (2) LaForge had failed to pay his power bill,
despite receiving a disconnection notice from Ameren CIPS (which
- 5 - he did not open); and (3) Ameren CIPS shut off LaForge's elec-
tricity, resulting in the death of approximately 700 pigs.
On September 17, 2002, an insurance analyst for the
Department sent a letter to LaForge, stating, in pertinent part,
that "[t]he contract of insurance requires an insurance company
to provide defense to the insured. I have directed a letter to
[Grinnell] to respond directly to you which would state their
defense of the claim representing the insured." That same date,
the Department's insurance analyst sent a letter to Grinnell, which provided, in pertinent part, as follows:
"The Department has a question concerning
[Grinnell's] contract obligation to defend
the insured. The contract of insurance re-
quires the company to provide defense to the
named insured. Please direct a letter to the
insured indicating this contract responsibil-
ity and photocopy that letter to this Depart-
ment as soon as possible referring to file
number 02-8085."
On September 23, 2002, Grinnell sent a letter to LaForge, clari-
fying that his farm-guard policy provided no coverage for the May
2002 loss because the claim "arose out of custom feeding of
livestock." Grinnell also informed LaForge that if he was sued
as a result of the loss, he should contact Grinnell as soon as
possible and send Grinnell a copy of the lawsuit. Grinnell's
legal department would then review the lawsuit and determine if
it had an obligation to provide a defense.
- 6 - On October 8, 2002, and October 21, 2002, LaForge sent
letters to Grinnell, claiming that Grinnell had a duty to defend
him and demanding coverage. In an October 28, 2002, letter to
LaForge, Grinnell informed him that as stated in its prior
correspondence and based on the information currently in its
file, the policy did not provide coverage for the May 2002 loss.
Grinnell again informed LaForge that if he was sued as a result
of the loss, he should contact Grinnell immediately because "the
allegations of the lawsuit may obligate us to provide you with a defense or pay your lawyer to defend you even though the policy
does not provide any coverage."
On April 10, 2003, LaForge's counsel sent a letter to
Grinnell, enclosing an April 1, 2003, letter from Country Mutual
to LaForge, requesting a payment of $34,103.50 for the loss of
the pigs.
On April 14, 2003, Country Mutual filed its complaint
against LaForge, seeking to recoup $34,103.50 that it had paid to
Alan Investments and Cross Farms for the loss of Cross's pigs.
The complaint alleged, in part, that (1) LaForge and Alan Invest-
ments had entered into a verbal agreement, under which LaForge
agreed to care for Cross's pigs for a fee; (2) Ameren CIPS shut
off LaForge's electricity due to his failure to pay his power
bill; and (3) as a result of the power shutoff, Alan Investments
suffered property damage totaling $34,103.50. On April 17, 2003,
LaForge's counsel sent a letter to Grinnell, enclosing a copy of
the underlying complaint.
On May 12, 2003, Grinnell filed its declaratory-judg-
- 7 - ment complaint, seeking a determination as to whether it owed
LaForge a defense in the underlying action. Grinnell alleged, in
pertinent part, that LaForge's farm-guard policy did not cover
the May 2002 loss, citing the following policy exclusions: (1)
the custom-farming exclusion; and (2) paragraph 5 of exclusions
"UNDER LIABILITY TO PUBLIC--COVERAGE A," which states that the
policy did "not cover 'property damage' to property rented to,
leased to, occupied by, used by, or in the care, custody[,] OR
control of any 'insured person' or any persons living in the household of an 'insured person.'"
In June 2003, LaForge filed an answer to Grinnell's
declaratory-judgment complaint and six affirmative defenses,
including the following: (1) the mend-the-hold doctrine barred
Grinnell from asserting the farm-guard policy's custom-farming
exclusion, and (2) under the doctrines of waiver and estoppel,
Grinnell was foreclosed from seeking an adjudication of its
obligations to LaForge because it failed to provide a defense
when a claim was first made against him. LaForge also filed two
counterclaims, seeking to recover for Grinnell's alleged breach
of contract and bad faith.
In early December 2003, LaForge filed a motion for a
default judgment. Five days later, Grinnell filed a motion
requesting leave to file an answer to LaForge's counterclaims and
affirmative defenses, which the trial court later granted.
Meanwhile, the underlying suit proceeded to trial. In
mid-December 2003, a jury returned a verdict against LaForge and
in favor of Country Mutual (damages totaling $26,603.50) and Alan
- 8 - Investments (damages totaling $3,750). The jury also returned a
verdict in favor of LaForge and against Cross on LaForge's
counterclaim seeking to recover for the cost of feed and disposal
of the dead pigs (damages totaling $5,059.20). LaForge appealed,
and this court affirmed the trial court's judgment. Country
Mutual Insurance Co. v. LaForge, No. 4-05-0235 (December 9, 2005)
(unpublished order under Supreme Court Rule 23).
In January 2005, LaForge filed a motion for summary
judgment, arguing that Grinnell's declaratory-judgment action
improperly sought a determination of nonliability for its past
conduct. In February 2005, Grinnell filed a summary-judgment
motion, arguing that it was entitled to judgment as a matter of
law based on the custom-farming and other policy exclusions, as
well as LaForge's admissions regarding his care and feeding of
Cross' pigs. The parties later filed briefs in the trial court
and submitted several exhibits, including the farm-guard policy,
copies of the correspondence between the parties and the Depart-
ment, and pleadings in the underlying lawsuit. In August 2005,
the court denied both parties' summary-judgment motions, upon
determining that genuine issues of material fact existed.
In September 2005, Grinnell filed a motion requesting a
bench trial. In December 2005, the parties agreed to file
stipulations to be considered during a stipulated bench trial.
In January 2006, the parties stipulated to the admission of
several exhibits, including the following: (1) a copy of
LaForge's farm-guard policy, (2) a copy of the April 2003 com-
plaint in the underlying action, (3) copies of the correspondence
- 9 - between the parties and the Department, (4) a transcript of the
December 2004 trial in the underlying action, and (5) the verdict
forms in the underlying action. The parties also stipulated to
the following: (1) in December 2004, the jury returned a
$30,353.50 judgment against LaForge in the underlying action; (2)
in December 2005, this court affirmed the trial court's judgment
in the underlying action (Country Mutual Insurance Co. v.
LaForge, No. 4-05-0235 (December 9, 2005) (unpublished order
under Supreme Court Rule 23)); (3) Grinnell and LaForge would
stand on the briefs they had previously submitted to the trial
court; (4) neither party forfeited any of their previously raised
objections; and (5) if LaForge were called as a witness, his
testimony would be consistent with his April 2005 declaration.
LaForge's April 2005 declaration indicated, in pertinent part, as
follows: (1) on May 28, 2002, LaForge was working in one of his
fields when Ameren CIPS shut off his electricity; (2) no one from
Ameren CIPS contacted him personally before doing so; (3) after
learning that his electricity had been shut off, LaForge rushed
to the hog-confinement building and discovered that a "substan-
tial number" of pigs had died; (4) he did not know that Ameren
CIPS was going to shut off his electricity; and (5) after the
incident, he notified Grinnell that Cross had indicated that he
was going to make a claim against LaForge.
Later in January 2006, the trial court sua sponte granted summary judgment in Grinnell's favor, upon determining
that no genuine issue of material fact existed and Grinnell was
entitled to judgment as a matter of law.
- 10 - This appeal followed.
II. ANALYSIS
A. Procedural Posture
Initially, we note that the procedural posture of this
case is unusual. Even though the trial court previously denied
the parties' summary-judgment motions and the parties (1) agreed
to a stipulated bench trial and (2) submitted stipulations, the
court then sua sponte granted summary judgment in Grinnell's
favor.
Because neither party challenges the trial court's
authority to proceed as it did, we will review the court's ruling
under the standard ordinarily applied to summary judgments--that
is, de novo. Peck v. Froehlich, 367 Ill. App. 3d 225, 227-28,
853 N.E.2d 927, 931 (2006). "Summary judgment is proper if, and
only if, the pleadings, depositions, admissions, affidavits and
other relevant matters on file show that there is no genuine
issue of material fact and that the movant is entitled to judg-
ment as a matter of law." State Farm Mutual Automobile Insurance Co. v. Coe, 367 Ill. App. 3d 604, 607, 855 N.E.2d 173, 176
(2006).
B. The Timeliness of Grinnell's Declaratory-Judgment Complaint
1. The Duty To Timely File a Declaratory-Judgment Complaint LaForge argues that Grinnell is estopped from asserting
any defenses under the farm-guard policy because it failed to
timely file its declaratory-judgment complaint. Grinnell re-
sponds that its declaratory-judgment complaint was timely because
it was filed within 25 days of Grinnell's receipt of the underly-
- 11 - ing complaint filed by Country Mutual. We agree with Grinnell.
Although neither party explicitly frames the argument
in this way, this case turns on our determination as to when
Grinnell's duty to defend was triggered. While LaForge contends
that Grinnell's June 2002 notice of Cross Farms' claim against
him triggered the duty to defend, Grinnell contends that its duty
to defend was triggered by the April 2003 filing of Country
Mutual's underlying complaint against LaForge.
In Illinois, a liability insurer in doubt over whether it has a duty to defend its insured "'cannot simply stand on the
sidelines and wait until the tort action is completed before
contesting the question of coverage.'" Central Mutual Insurance
Co. v. Kammerling, 212 Ill. App. 3d 744, 749, 571 N.E.2d 806, 810
(1991), quoting Reis v. Aetna Casualty & Surety Co., 69 Ill. App.
3d 777, 782-83, 387 N.E.2d 700, 704 (1978). Instead, the insurer
must defend its insured under a reservation of rights or seek a
declaratory judgment that no coverage exists under its policy.
State Farm Fire & Casualty Co. v. Martin, 186 Ill. 2d 367, 371,
710 N.E.2d 1228, 1230-31 (1999).
"When an insurer fails to seek a declar-
atory judgment as to its obligations and
rights in a timely manner or defend under a
reservation of rights, it has breached its
duty to defend. [Citation.] The most impor-
tant factor in determining whether an insurer
has breached its duty to defend is not the
raw chronological delay in an insurer's fil-
- 12 - ing a declaratory[-]judgment action, but
whether the insurer waited until trial or
settlement was imminent." Aetna Casualty &
Surety Co. v. O'Rourke Bros., Inc., 333 Ill.
App. 3d 871, 880, 776 N.E.2d 588, 596 (2002).
Although LaForge cites several cases addressing an
insurer's duty to timely file a declaratory-judgment action, he
cites no case law (and we have found none) in which the insurer's
duty to take such action was triggered prior to the initiation of
a lawsuit. See Martin, 186 Ill. 2d at 369, 710 N.E.2d at 1230
(holding that when a lawsuit has been filed against an insured,
the insurer has a duty to either (1) seek, though not necessarily
secure, a declaratory judgment or (2) proceed under a reservation
of rights); Insurance Co. of the State of Pennsylvania v. Protec-
tive Insurance Co., 227 Ill. App. 3d 360, 367-68, 592 N.E.2d 117,
122 (1992) (concluding that the insurer's September 1988
declaratory-judgment action was not timely when the underlying
complaint was filed in May 1986); Employers Insurance of Wausau v. Ehlco Liquidating Trust, 186 Ill. 2d 127, 139-42, 708 N.E.2d
1122, 1129-31 (1999) (reaffirming that a "suit" exists when a
complaint is filed in a court of law and concluding that a suit
had been filed triggering the insurer's duty to defend); Aetna Casualty, 333 Ill. App. 3d at 880-81, 776 N.E.2d at 596-97
(holding that the insurer breached its duty to defend when it
filed its declaratory-judgment complaint 11 months after learning
of the complaints being filed against its insured); Cincinnati
Cos. v. West American Insurance Co., 183 Ill. 2d 317, 329-30, 701
- 13 - N.E.2d 499, 505 (1998) (holding that (1) the insurer's duty to
defend is triggered by "actual notice of the underlying suit" and
(2) such notice includes knowledge that a cause of action has
been filed and the complaint falls within or potentially within
the scope of the policy coverage); West American Insurance Co. v.
J.R. Construction Co., 334 Ill. App. 3d 75, 85, 777 N.E.2d 610,
619 (2002) ("'two requirements must be satisfied before an
insurer's duty to defend arises: (1) the action must be brought
against an insured, and (2) the allegations of the complaint must
disclose the potential of policy coverage. [Citation.]'"),
quoting Federal Insurance Co. v. Economy Fire & Casualty Co., 189
Ill. App. 3d 732, 735, 545 N.E.2d 541[, 544] (1989).
2. The Terms "Claim" and "Suit" as Used in the Farm-Guard Policy
Although LaForge does not direct our attention to the
language of the farm-guard policy, his estoppel argument can only
succeed if the terms of the farm-guard policy itself impose a
duty on Grinnell to file a declaratory-judgment action prior to a
lawsuit being filed.
The pertinent language of the farm-guard policy pro-
vides as follows: "If a claim is made or suit is brought against
any 'insured person' for liability covered by this policy, 'we'
will defend the 'insured person'".
In Country Mutual Insurance Co. v. Livorsi Marine, Inc., 222 Ill. 2d 303, 311, ___ N.E.2d ___, ___ (2006), our
supreme court discussed the interpretation of an insurance policy
as follows:
"When construing the language of an
- 14 - insurance policy, a court is to ascertain and
give effect to the intentions of the parties
as expressed by the words of the policy.
[Citation.] An insurance policy must be
construed as a whole, giving effect to every
provision. [Citation.] If the words used in
the policy are unambiguous, they are given
their plain, ordinary, and popular meaning.
[Citation.] Although insurance policies are construed liberally in favor of coverage,
this rule of construction comes into play
only when the policy language is ambiguous."
Giving the language in the farm-guard policy its plain
and ordinary meaning, we conclude that a claim and a suit are not
equivalent. If those terms have identical meanings, the clause
is redundant and thus offends the well-settled principle of
contract construction that the provisions of a contract shall not
be interpreted in a way that renders other provisions meaning-
less. Atwood v. St. Paul Fire & Marine Insurance Co., 363 Ill.
App. 3d 861, 864, 845 N.E.2d 68, 71 (2006). In addition, in
ordinary usage, a "claim" can be considered a demand for some
asserted right. See Merriam-Webster's Collegiate Dictionary 210
(10th ed. 2000) (defining "claim" as "a demand for something due
or believed to be due"). On the other hand, a "suit" refers to a
proceeding in a court of law that requires the filing of a
complaint. Employers Insurance of Wasau, 186 Ill. 2d at 140, 708 N.E.2d at 1130; see also Katz Drug Co. v. Commercial Standard
- 15 - Insurance Co., 647 S.W.2d 831, 835 (Mo. App. 1983) (concluding
that the words "claim" and "suit" in an insurance policy were not
equivalent).
3. Grinnell's Duty Under the Farm-Guard Policy
Although the farm-guard policy imposes a duty to
"defend" when either "a claim is made" or a "suit is brought," we
hold that the assertion of a claim and the filing of a lawsuit do
not trigger precisely the same duty. As the previous discussion
shows, Illinois case law speaks only to the duty to defend that
arises when a lawsuit has been filed, and we have found no case
in which the insurer's duty to file a declaratory-judgment
complaint was triggered prior to the initiation of a lawsuit. We
acknowledge that when, as in this case, the language of the
insurance policy clearly imposes a duty upon notice of a claim
having been made, the insurer is obligated to take some action.
However, whatever the parameters of that duty might be, it does
not extend to the obligation to file a declaratory-judgment
action. Instead, the insurer's duty to file a declaratory-
judgment action (or, alternatively, to defend its insured under a
reservation of rights) does not arise until a complaint has been
filed against the insured.
Accordingly, we hold that Grinnell did not have a duty
to file its declaratory-judgment action until after Country
Mutual's lawsuit was filed. A mere 25 days after Country Mutual
filed its underlying complaint, Grinnell did just that. We thus
further conclude that Grinnell's declaratory-judgment complaint
was not untimely filed so as to estop Grinnell from raising
- 16 - policy defenses.
LaForge also argues that Grinnell's declaratory-judg-
ment complaint improperly sought a determination of nonliability
for its past conduct. In light of our conclusion that Grinnell's
declaratory-judgment complaint was timely filed, we need not
address this argument.
C. The Mend-the-Hold Doctrine
LaForge next argues that the mend-the-hold doctrine
barred Grinnell from asserting that the May 2002 loss was not covered under the farm-guard policy's custom-farming exclusion.
Specifically, he contends that because Grinnell did not assert
the custom-farming exclusion in its initial correspondence (the
June 14, 2002, letter to Alan Investments), it was barred from
later asserting that exclusion. We disagree.
In Gibson v. Brown, 214 Ill. 330, 341, 73 N.E. 578, 582
(1905), our supreme court first discussed the mend-the-hold
doctrine, as follows:
"'Where a party gives a reason for his con-
duct and decision touching anything involved
in a controversy, he cannot, after litigation
has begun, change his ground and put his
conduct upon another and a different consid-
eration. He is not permitted thus to amend
his hold. He is estopped from doing it by a
settled principle of law.' Ohio and Missis- sippi Railway Co. v. McCarthy, 96 U.S. 258[,
267-68, 24 L. Ed. 693, 696 (1877)]."
- 17 - See also Schuyler County v. Missouri Bridge & Iron Co., 256 Ill.
348, 353, 100 N.E. 239, 240 (1912) (citing Gibson); Harbor
Insurance Co. v. Continental Bank Corp., 922 F.2d 357, 363 (7th
Cir. 1990) (in which the Seventh Circuit noted that the mend-the-
hold doctrine precludes a "party who hokes up a phony defense to
the performance of his contractual duties" from trying "on
another defense for size" after the first defense fails).
In Liberty Mutual Insurance Co. v. American Home
Assurance Co., No. 1-05-2441, slip op. at 18 (November 2, 2006),
___ Ill. App. 3d ___, ___, ___ N.E.2d ___, ___, the First Dis-
trict recently discussed the mend-the-hold doctrine and noted
that "[i]n the insurance context, courts have precluded insurers
from denying a claim on one basis and then changing the basis for
denial during litigation." (Emphasis added.) We agree with
Liberty Mutual that in the insurance context, the mend-the-hold
doctrine precludes insurers from denying a claim for one reason
and then changing the reason for its denial in the midst of
litigation.
In this case, Grinnell sent a June 14, 2002, letter to
Alan Investments, informing Cross that LaForge's farm-guard
policy did not provide coverage for the May 2002 loss. On June
25, 2002, Grinnell sent its initial letter to LaForge, informing
him that it was unable to provide coverage because the farm-guard
policy "was not intended to cover the animals in [LaForge's]
care" that belonged to Cross. Although Grinnell did not assert
the custom-farming exclusion, it explicitly reserved its right to
assert additional bases for denying coverage. In a July 9, 2002,
- 18 - letter to LaForge, Grinnell first asserted the custom-farming
exclusion. Clearly, Grinnell's assertion of this additional
basis for denying coverage occurred long before Grinnell filed
its May 12, 2003, declaratory-judgment complaint. We thus
conclude that the mend-the-hold doctrine did not apply under the
circumstances of this case.
Even if we were to accept LaForge's assertion that the
mend-the-hold doctrine applies when an insurer changes the reason
for denying coverage before litigation is initiated, the doctrine nonetheless does not apply in the absence of detriment to the
party seeking its application, unfair surprise, or arbitrariness.
See Trossman v. Philipsborn, No. 1-04-0588, slip op. at 35-36
(August 21, 2006), ___ Ill. App. 3d ___, ___, ___ N.E.2d ___, ___
(noting that courts have refused to apply the mend-the-hold
doctrine out of equitable considerations; concluding that the
counter-plaintiffs could not prevail under the doctrine because
they failed to show detriment, unfair surprise, or arbitrari-
ness); Liberty Mutual, No. 1-05-2441, slip op. at 20, ___ Ill.
App. 3d at ___, ___ N.E.2d at ___ (discussing Trossman and noting that the First District had "refused to apply the doctrine in the
absence of unfair surprise or arbitrariness").
In this case, LaForge did not show (nor does he argue
on appeal) that Grinnell's assertion of the custom-farming
exclusion in its July 9, 2002, letter to him was arbitrary,
unfairly surprised him, or was detrimental to him. Indeed,
LaForge could not establish unfair surprise or detriment, given
that Grinnell asserted the custom-farming exclusion (1) within 1
- 19 - 1/2 months after the May 28, 2002, incident and (2) 9 months
before Country Mutual filed the underlying complaint against
LaForge. Thus, the mend-the-hold doctrine did not apply in this
case.
III. CONCLUSION
For the reasons stated, we affirm the trial court's
judgment.
Affirmed.
MYERSCOUGH and COOK, JJ., concur.
- 20 -