State Farm Fire and Casualty Company v. Martinez

• Court: Appellate Court of Illinois
• Decided: August 5, 2008
• Docket: 1-06-1902 Rel
• Status: Published

Opinion

Second Division August 5, 2008

No. 1-06-1902

STATE FARM FIRE AND CASUALTY COMPANY, ) Appeal from the ) Circuit Court of Plaintiff-Appellee, ) Cook County. ) ) v. ) No. 05 CH 3422 ) ) MARCELO MARTINEZ, Father and Next ) Friend of Daniela Almendarez, ) Honorable ) Martin S. Agran Defendant-Appellant. ) Judge Presiding.

JUSTICE HALL delivered the opinion of the court:

In underlying action, Humbelina Flores and her husband

Aurelio Flores sought insurance coverage for a personal injury

action under a homeowners insurance policy that State Farm Fire &

Casualty Company (State Farm) issued to Martin Torres and his

wife Maria Torres. State Farm filed this declaratory judgment

action contending that the Floreses are not covered under the

Torreses' homeowners policy because under the terms of the policy

they do not qualify as insureds since they are not residents of

the Torreses' "household" as that term is defined in the case

law. We agree.

The facts surrounding this controversy are as follows. On

November 26, 2002, Marcelo Martinez commenced the underlying

personal injury action against Humbelina Flores, Maria Torres,

and her husband Martin Torres, seeking damages for injuries his

minor daughter Daniela Almendarez suffered when she was bitten by

a dog owned by the Floreses while a guest in their home. The 1-06-1902

home is located at 2109 South 50th Avenue, in Cicero, Illinois,

and was insured under a homeowners insurance policy that State

Farm issued to Martin and Maria Torres.

According to the declarations, State Farm issued a

homeowners policy to its named insureds, Martin and Maria Torres,

effective between August 13, 2001, and August 13, 2002, providing

a $100,000 liability limit for each occurrence and identifying a

mailing address of 2109 South 50th Avenue, in Cicero, Illinois.

The Torreses held legal title to the home but had never

lived in the home. They actually lived at a separate address

located at 3628 57th Avenue, in Cicero, Illinois. The Torreses

agreed to take legal title to the home to assist Humbelina in

purchasing the home because her credit was bad. Maria Torres and

Humbelina Flores are blood sisters.

On December 30, 2002, State Farm agreed to provide Humbelina

with a defense in the underlying personal injury action subject

to a reservation of rights. The ground for the reservation was

that there was a question as to whether Humbelina qualified as an

insured under the Torreses' homeowners policy.

On the same date, State farm also agreed to provide Maria

and Martin Torres with a defense in the underlying personal

injury action subject to a reservation of rights. One of the

grounds for the reservation was that there was a question as to

whether the home where the dog-bite incident occurred qualified

as a "residence premises" or an "insured location" under the

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policy.

In her answer to the personal injury complaint, Humbelina

acknowledged owning the dog, but denied all allegations of

wrongdoing. In their answer to the complaint, the Torreses

admitted they owned the home where the incident occurred but

denied owning the dog and denied all allegations of wrongdoing.

Shortly thereafter, on February 7, 2003, State Farm verbally

declined to accept Humbelina's tender of defense. This decision

was subsequently confirmed in a letter dated February 11, 2003,

that State Farm sent to Humbelina's attorney.

The parties then proceeded to take pretrial discovery

depositions. At his discovery deposition, Martin Torres

testified that since Humbelina had a poor credit rating, he and

his wife agreed to help her purchase the home where the incident

occurred.

According to Martin Torres, Humbelina provided the down

payment for purchase of the home while he and his wife took joint

legal title to the home with the intention of eventually

conveying it to Humbelina. Martin Torres also stated that he and

his wife never lived or intended to live in the home and had

allowed the Floreses to live there rent-free because they were

family.

Martin Torres testified that the Floreses had been living in

the home for about eight years and were responsible for

maintaining the property. Humbelina made all the mortgage

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payments to the bank.

Martin Torres claimed that he and his wife transferred the

home to Humbelina about a year prior to his discovery deposition.

According to Martin Torres, he and his wife did not receive any

consideration for the transfer.

Martin Torres further testified that at the time he obtained

the homeowners insurance policy for the home, he did not tell

State Farm that his sister-in-law and her family would be living

in the home. Maria Torres' discovery deposition testimony was

similar to her husband's testimony.

Shortly after giving their discovery depositions, the

Torreses obtained summary judgment in their favor on all claims

asserted against them in the personal injury complaint. On

September 21, 2004, Marcelo Martinez filed an amended complaint

on behalf of his daughter, naming the Floreses as the only

defendants.

On or about October 27, 2004, the underlying personal injury

action was dismissed with prejudice pursuant to a settlement

agreement. Under the agreement, the Floreses consented to a

judgment against them in the amount of $150,000, along with an

assignment to Marcelo Martinez of any right of recovery against

State Farm. In return, Marcelo Martinez agreed to release the

Floreses, and he covenanted not to execute the judgment against

their personal assets but to satisfy the judgment out of the

proceeds of the Torreses' homeowners insurance policy.

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State Farm then filed the instant declaratory judgment

action on February 22, 2005, seeking a determination that it was

not contractually obligated to provide a defense or insurance

coverage to the Floreses in the underlying personal injury action

because neither of them qualified as an insured under the

Torreses' homeowners insurance policy. On April 14, 2005, State

Farm filed an amended complaint for declaratory judgment based on

a certified copy of the homeowners policy.

The parties subsequently filed cross-motions for summary

judgment concerning State Farm's obligation to defend and

indemnify the Floreses in the underlying personal injury action.

After hearing argument on the cross-motions for summary judgment,

the trial court granted State Farm's motion. The trial court

concluded that State Farm did not have a duty to defend the

Floreses in the underlying personal injury action because they

did not qualify as insureds under the Torreses' homeowners

insurance policy because they were not members of the Torreses'

"household" as that term was defined in the case law. The trial

court denied the motion to reconsider and this appeal followed.

ANALYSIS

Summary judgement is appropriate where the pleadings,

depositions, and admissions on file, together with any

affidavits, when viewed in the light most favorable to the

nonmovant, reveal there is no genuine issue of material fact and

that the movant is entitled to judgment as a matter of law. 735

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ILCS 5/2-1005(c) (West 2000); Gawryk v. Firemen's Annuity &

Benefit Fund of Chicago, 356 Ill. App. 3d 38, 41, 824 N.E.2d 1102

(2005). When, as in this case, the parties file cross-motions

for summary judgment, they agree that no genuine issue as to any

material facts exists and that only a question of law is

involved, and they invite the court to decide the issues based on

the record. Gawryk, 356 Ill. App. 3d at 41. Our review is de

novo. Abrams v. City of Chicago, 211 Ill. 2d 251, 258, 811 N.E.2d

670 (2004).

In addition, an insurance policy is a contract and its

construction is also reviewed de novo as a question of law.

Andreou & Casson, Ltd. v. Liberty Insurance Underwriters, Inc.,

377 Ill. App. 3d 352, 358, 877 N.E.2d 770 (2007).

Marcelo Martinez first contends that State Farm is estopped

from raising coverage defenses because it breached its duty to

defend when it initially agreed to provide Humbelina with a

defense to the underlying personal injury action and then

abandoned that defense without filing a timely declaratory

judgment action. We disagree.

In a case such as this, where an insurer believes that a

policy may not provide coverage, it has two options: it can seek

a declaratory judgment to determine its obligation to defend or

it can defend under a reservation of rights. Royal Insurance Co.

v. Process Design Associates, Inc., 221 Ill. App. 3d 966, 973,

582 N.E.2d 1234 (1991). In this case, State Farm chose the

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latter option.

An insurer who notifies its insured that it is defending the

insured under a reservation of rights and identifies the policy

provisions that may preclude coverage is not estopped from

subsequently denying coverage. See Earl v. Thompson, 128 Ill.

App. 2d 32, 37-38, 262 N.E.2d 320 (1970); Royal Insurance Co.,

221 Ill. App. 3d at 974 ("If the insurer has adequately informed

the insured of its election to proceed under a reservation of

rights, and the insured accepts the insurer's tender of defense

counsel, the insurer has not breached its duty of loyalty and is

not estopped from asserting policy defenses").

Estoppel does not apply in this case because State Farm

complied with its duty to defend. State Farm sent written notice

to the parties at the outset of the personal injury action that

it was providing them a defense subject to a reservation of

rights. Following the parties' answers to the personal injury

complaint, where Humbelina Flores admitted owning the dog and the

Torreses admitted owning the home where the incident occurred,

State Farm informed the Floreses that it was denying coverage.

State Farm then filed a declaratory judgment action seeking a

determination of whether there was coverage under the homeowners

policy. Under these facts, State Farm was not estopped from

asserting coverage defenses.

Estoppel also does not apply because Humbelina Flores fails

to show that she detrimentally relied on State Farm's initial

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decision to undertake her defense in the underlying personal

injury action. An insurer's delay in withdrawing its initial

decision to provide a defense to an insured is not sufficient to

establish estoppel unless the delay results in prejudice. Western

Casualty & Surety Co. v. Brochu, 122 Ill. App. 3d 125, 134-35,

460 N.E.2d 832 (1984).

Marcelo Martinez finally contends that even if we conclude

that State Farm was not estopped from asserting its policy

defense we should still find that the trial court erred in

holding that the Floreses were not covered under the Torreses'

homeowners insurance policy. Marcelo Martinez asserts that the

Floreses qualify as insureds under the policy because they were

residents of the Torreses' "household."

When a declaratory judgment action is brought to determine

an insurer's duty to defend, the court assesses the allegations

in the underlying complaint in light of the relevant policy

provisions in order to determine whether the claim falls within

or potentially within coverage. Royal Insurance Co. of America v.

Insignia Financial Group, Inc., 323 Ill. App. 3d 58, 63-64, 751

N.E.2d 164 (2001).

In this case, the definitional section of the policy

provides that the following are insured: "you" (named insured);

and if a resident of your household, "your relatives" and "any

other person under the age of 21 who is in the care of a person

described above." Accordingly, the Floreses qualify as insureds

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under the policy only if they can be deemed residents of the

Torreses' household.

Initially we note that the Torreses' homeowners policy does

not define the term "household." And courts have generally

concluded that, in relation to insurance policies, the term is

ambiguous with no fixed meaning. See, e.g., Cincinnati Insurance

Co. v. Argubright, 151 Ill. App. 3d 324, 331, 502 N.E.2d 868

(1986); Erie Insurance Exchange v. Stephenson, 674 N.E.2d 607,

610 (Ind. App. 1996); see also Liberty Mutual Insurance Co. v.

Havner, 103 S.W.3d 829, 833 (Mo. App. 2003) (term "household" is

ambiguous when left undefined in homeowners policy).

Ambiguous terms in an insurance policy are generally

construed in favor of the insured and against the drafter of the

policy. Traveler's Insurance Co. v. Eljer Manufacturing, Inc.,

197 Ill. 2d 278, 293, 757 N.E.2d 481 (2001). In this case,

however, even if we strictly construed the term "household"

against State Farm, there is no way the Floreses can be deemed

residents of the Torreses' household.

The phrase "resident of the household" has no fixed meaning.

Farmers Automotive Insurance Ass'n v. Gitelson, 344 Ill. App. 3d

888, 893-94, 801 N.E.2d 1064 (2003). Interpretation of the

phrase requires a case-specific analysis of intent, physical

presence, and permanency of abode. Gitelson, 344 Ill. App. 3d at

894. The controlling factor, however, is the intent of the party

whose residency is in question as evinced by that party's

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actions. Argubright, 151 Ill. App. 3d at 330.

Applying these factors to the case at bar, it is clear that

the Floreses were not residents of the Torreses' household at the

time of the dog-bite incident. At the time of the incident, the

Flores family lived at 2109 South 50th Avenue, while the Torres

family lived at a separate address located at 3628 57th Avenue.

Martin Torres testified that he and his wife never lived or

intended to live at the 2109 South 50th Avenue address, and no

evidence was presented that the Floreses ever intended to live at

the address where the Torreses maintained their household. The

evidence showed that at the time of the incident, the Floreses

and Torreses maintained two separate and independent households

each operating as separate domestic units.

Under these factual circumstances, there was no genuine

issue of material fact as to whether the Floreses were residents

of the Torreses' household at the time of the dog-bite incident

for purposes of the insurance policy. See, e.g., Argubright, 151

Ill. App. 3d at 331, quoting Liberty National Bank v. Zimmerman,

333 Ill. App. 94, 102, 77 N.E.2d 49 (1947) ("'[a] family

considered as consisting of all those who share in the privileges

and duties of a common dwelling'"); Jones v. Crane Co., 653 So.

2d 822, 825 (La. Ct. App. 1995) (household as a "group of people

living together as a family, and, for insurance purposes, the

term is generally synonymous with 'family'"); American States

Insurance Co. v. Walker, 26 Utah 2d 161, 164, 486 P.2d 1042, 1044

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(1971) ("A resident of a household is one who is a member of a

family who live under the same roof").

The trial court correctly held that the Floreses were not

covered under the homeowners insurance policy issued to the

Torreses, because the Floreses were not residents of the

Torreses' household at the time of the dog-bite incident. The

trial court did not err by entering summary judgment in favor of

State Farm.

Accordingly, for the reasons set forth above, we affirm the

circuit court's judgment granting summary judgment in favor of

State Farm and we affirm the court's order denying Marcelo

Martinez' motion for reconsideration.

Affirmed.

HOFFMAN, P.J., and SOUTH, J., concur.

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