Illinois Appellate Court Denies Insurance Coverage To Individual, But Company Covered

A Kane County, Illinois trial court’s decision was reversed in a property damage case involving a car and two horses in what could be described as a two-horse crash. The issue in the case turned out not to be the horses, but the property damage to the car.

State Farm insured the vehicle that was damaged and filed suit against Pat Santucci for property damage only. Santucci was part owner of P.S. Coyote, a corporation that operated out of Santucci’s Illinois property, where he also individually owned the horses, outbuildings and barn involved in the accident. Statewide covered P.S. Coyote and Santucci under a commercial general liability policy.

Statewide agreed to represent Santucci even though he was insured only as related to his business. Statewide even issued a letter to Santucci stating that they reserved no rights and that they would insure Santucci regardless. However, that same day Statewide was declared insolvent. Santucci’s claim would now be handled by the Illinois Guaranty Insurance Fund.

The fund is created by the State of Illinois and is in place to take over some of the insurance claims for liquidated insurance companies. Unlike Statewide Insurance, when the fund took over Santucci’s case it did so with a reservation of rights. That is where Santucci’s claim gets complicated.

After reviewing the facts of the case the fund contended that it should not be responsible for representing Santucci’s claim. It argued that the insurance policy covered Santucci not as an individual, but in his capacity as an officer, director or shareholder of P.S. Coyote. Because of this distinction the fund declared that Santucci was not insured because he owned the horses individually, and not the corporation.

Santucci disagreed and asserted that on the date of the action he was performing his duties as president of P.S. Coyote and so should be covered by the policy. Furthermore, Santucci cited Statewide’s letter agreeing to defend him without a reservation of rights as proof that he should in fact be covered under the policy. Based on this reasoning the fund’s arguments were denied by the trial court.

However, on appeal the trial court’s ruling was reversed and Santucci was deemed to not be covered under Statewide’s policy. The Illinois appeals court rejected Santucci’s argument that the fund’s policy defenses were waived because Statewide accepted Santucci’s tender of defense without a reservation of rights. The court stated that this did not bind the fund, but rather that the fund was only obligated to cover claims that qualified under the policy regardless of what the prior insurer might have stated.

Furthermore, the claim against Santucci was filed against him as an individual and not as an entity of P.S. Coyote. Considering that the claim against Santucci was in his capacity as the owner of the horses and property, and not as the company president, he was not covered under the company’s policy.

Kreisman Law Offices has been in practice as trial lawyers for over 30 years in Cook County and its surrounding areas, including Chicago, Barrington, Oak Forest, Park Ridge and Winnetka.