Record-A-Hit v. National Fire Insurance ( 2007 )

SECOND DIVISION
FILED: November 13, 2007
No. 1-07-0684
RECORD-A-HIT, INC., ) APPEAL FROM THE
) CIRCUIT COURT OF
Plaintiff-Appellant, ) COOK COUNTY
)
v. )
)
NATIONAL FIRE INSURANCE COMPANY OF )
HARTFORD, TRANSCONTINENTAL INSURANCE )
COMPANY, VALLEY FORGE INSURANCE COMPANY )
and TRI-STATE HOSE & FITTING, INC., ) HONORABLE
) STUART PALMER,
Defendants-Appellees. ) JUDGE PRESIDING.
PRESIDING JUSTICE HOFFMAN delivered the opinion of the court:
The plaintiff, Record-A-Hit, Inc., appeals from an order of
the circuit court, dismissing its declaratory judgment action for
failure to state a claim upon which relief might be granted. For
the reasons which follow, we reverse the judgment of the circuit
court and remand this matter for further proceedings.
The plaintiff filed the instant action seeking a judicial
declaration that National Fire Insurance Company of Hartford,
Transcontinental Insurance Company and Valley Forge Insurance
Company (hereinafter referred to collectively as the "Insurance
Company Defendants") owed a duty to defend and indemnify Tri-State
Hose and Fitting, Inc. (Tri-State) with respect to a class-action
No. 1-07-0684
complaint that the plaintiff filed against Tri-State in the Circuit
Court of Cook County, asserting claims for violations of the
Telephone Consumer Protection Act (47 U.S.C. §227 (2000)) and the
Illinois Consumer Fraud and Deceptive Business Practices Act (815
ILCS 505/1 et seq. (West 2006)), and a claim for conversion
(hereinafter referred to as the "underlying action"). The
Insurance Company Defendants filed a hybrid motion to dismiss
brought pursuant to both section 2-615 and 2-619 of the Code of
Civil Procedure (Code) (735 ILCS 5/2-615, 619 (West 2006)). For
their section 2-615 grounds, they argued that the plaintiff’s
complaint constitutes an impermissible direct action against
liability insurance carriers and that it fails to allege the
requisite elements of a declaratory judgment action. For their
section 2-619 grounds, the Insurance Company Defendants asserted
that the plaintiff’s action should be dismissed pursuant to section
2-619(a)(3) (735 ILCS 5/2-619(a)(3)(West 2006)) by reason of
"Another Action Pending between the Same Parties for the Same
Cause" and pursuant to section 2-619(a)(9) (735 ILCS 5/2-
619(a)(9)(West 2006)) because the plaintiff lacks standing to
maintain the action. The circuit court granted the motion and
dismissed the instant action "pursuant to 735 ILCS 5/2-615." This
appeal followed.
Because this matter was disposed of at the trial level
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No. 1-07-0684
pursuant to section 2-615 of the Code, the only question before
this court is whether the plaintiff’s complaint states a cause of
action upon which relief might be granted. Burdinie v. Village of
Glendale Heights, 139 Ill. 2d 501, 504, 565 N.E.2d 654 (1990). The
issue presented is one of law; consequently, our review is de novo.
T & S Signs, Inc. v. Village of Wadsworth, 261 Ill. App. 3d 1080,
1084, 634 N.E.2d 306 (1994).
The plaintiff’s complaint alleges that it filed the underlying
action against Tri-State premised upon the sending of "junk
fax[es]" and sought, among other relief, recovery for property
damage. Attached to the complaint is a copy of the plaintiff's
complaint in the underlying action and copies of the insurance
policies issued by the Insurance Company Defendants which,
according to the complaint, provide for the defense and
indemnification of Tri-State for property damage and advertising
injury claims. The complaint asserts that Tri-State tendered the
defense of the underlying action to the Insurance Company
Defendants, and that they have refused to defend or indemnify Tri-
State with respect to that action. According to the complaint,
Tri-State has not commenced a declaratory judgment action with
respect to its rights under the policies of insurance issued by the
Insurance Company Defendants, and the plaintiff has not been named
in any action seeking a declaration of Tri-State’s rights under the
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No. 1-07-0684
subject policies.
The Insurance Company Defendants make no claim in their brief
before this court that the plaintiff's action constitutes an
impermissible direct action against an insurance carrier. They do
argue, as they did before the circuit court, that the plaintiff’s
complaint is deficient because it fails to allege that they have
not filed a declaratory judgment action to determine coverage under
the subject policies. Based upon the following analysis, we reject
the argument and conclude that the plaintiff’s complaint alleges
sufficient facts to support an action for a declaratory judgment.
"The essential elements of a declaratory judgment action are:
(1) a plaintiff with a legal tangible interest; (2) a defendant
having an opposing interest; and (3) an actual controversy between
the parties concerning such interests." Beahringer v. Page, 204
Ill. 2d 363, 372, 789 N.E.2d 1216 (2003). In the context of a
declaratory judgment action arising from an insurance coverage
dispute, an actual controversy exists when "all determinative facts
giving rise to the potential policy coverage dispute have occurred
prior to the initial demand upon the insurance company" and the
insurer "is called upon to either pay or defend a claim on behalf
of its insured under the terms of the policy in question."
Gibraltar Insurance Co. v. Varkalis, 46 Ill. 2d 481, 485, 263
N.E.2d 823 (1970); see also Flashner Medical Partnership v.
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No. 1-07-0684
Marketing Management, Inc., 189 Ill. App. 3d 45, 50, 545 N.E.2d 177
(1989). A tort-claimant in an underlying action has a substantial
right in the viability of a policy of insurance that might be the
source of funds available to satisfy the tort claim, and such a
claimant possesses rights in the insurance contract which vest at
the time of the occurrence giving rise to the underlying claim.
Chandler v. Doherty, 299 Ill. App. 3d 797, 805, 702 N.E.2d 634
(1998); Society of Mount Carmel v. National Ben Franklin Insurance
Co. of Ill.; 268 Ill. App. 3d 655, 661, 643 N.E.2d 1280 (1994);
Flashner Medical Partnership, 189 Ill. App. 3d at 54.
In this case, the plaintiff has alleged: its status as a tort-
claimant in the underlying action; that the Insurance Company
Defendants have issued policies of liability insurance which afford
Tri-State coverage for the claims asserted in the underlying action
and which obligate the Insurance Company Defendants to undertake
Tri-State’s defense; and that the Insurance Company Defendants have
rejected Tri-State’s tender of its defense in the underlying action
and refuse to defend or indemnify Tri-State with respect the claims
asserted in that action. These allegations, when taken as true for
the purposes of a section 2-615 motion (see Ziemba v. Mierzwa, 142
Ill. 2d 42, 47, 566 N.E.2d 1365 (1991)), establish the legal
interests of the plaintiff and the defendants in the viability of
the subject insurance policies and an actual controversy between
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No. 1-07-0684
the parties concerning such interests. See Reagor v. Travelers
Insurance Co., 92 Ill. App. 3d 99, 102-03, 415 N.E.2d 512 (1980).
Further, the plaintiff’s action is in no way premature as the
complaint alleges that the Insurance Company Defendants have
rejected Tri-State’s tender of the defense of the underlying action
and have declined coverage under their respective policies.
Nevertheless, the Insurance Company Defendants, relying upon the
holding in Dial Corp. v. Marine Office of America, 318 Ill. App. 3d
1056, 743 N.E.2d 621 (2001) (hereinafter referred to as Dial),
argue that the plaintiff has failed to allege an essential element
of a declaratory judgment action brought by a tort-claimant;
namely, that the insurers have not commenced a declaratory judgment
action to resolve the coverage dispute. We, however, find that no
such allegation is necessary in order to adequately plead a
declaratory judgment action.
In Reagor, the court held that, "[i]n order to maintain a
declaratory judgment action, there must be an actual controversy
between parties capable of being affected by a determination of the
controversy." Reagor, 92 Ill. App. 3d at 102. Under circumstances
where the defendant-insurer challenged the tort-claimants’ standing
to seek a declaratory judgment as to the coverage afforded to the
tortfeasor under the defendant’s policy of insurance, the Reagor
Court concluded that the tort-claimants acquired rights under the
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No. 1-07-0684
tortfeasor’s policy of insurance at the time of the occurrence
giving rise to their underlying action and that an actual
controversy concerning coverage under the policy arose between the
tort-claimants and the defendant-insurer at the time that the
defendant-insurer withdrew its representation of the tortfeasor in
the underlying action. Reagor, 92 Ill. App. 3d at 102-03. The
Reagor Court concluded that there was a sufficient relationship
between the tort-claimants and the defendant-insurer to enable the
tort-claimants to litigate the question of coverage under the
policy. Reagor, 92 Ill. App. 3d at 102-03. Although it appears
that at the time that the tort-claimants filed the declaratory
judgment action in Reagor neither the tortfeasor nor the defendant-
insurer had filed an action to resolve the coverage issue (see
Reagor, 92 Ill. App. 3d at 101-02), the Reagor Court never held
that such a circumstance is a necessary predicate to a tort-
claimant’s right to initiate a declaratory judgment action (see
Reagor, 92 Ill. App. 3d at 102-03).
In Dial, the court was again faced with a circumstance in
which a tort-claimant brought a declaratory judgment action to
determine the tortfeasor’s coverage under an insurance policy which
might be the source of funds to satisfy the underlying claim.
Dial, 318 Ill. App. 3d at 1058. Although the Dial Court relied
upon the reasoning in Reagor and concluded that the tort-claimant
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No. 1-07-0684
had a right to bring the action, the court specifically limited the
holding in Reagor to those cases where "neither the insured nor the
insurer has filed a declaratory judgment action to determine the
scope of the insurer’s policy." Dial, 318 Ill. App. 3d at 1062-63.
In support of its restrictive application of the holding in Reagor,
the Dial Court relied upon a sentence from the supreme court’s
decision in Zurich Insurance Co. v. Baxter International, Inc., 173
Ill. 2d 235, 670 N.E.2d 664 (1996) which provides in part that the
interests of underlying tort-claimants in how insurance coverage
issues are resolved "is best protected by having the claimants
participate directly in litigation between the insurance carrier
and the insured, rather than by allowing the claimants to sue the
carrier independently." Zurich Insurance Co., 173 Ill. 2d at 246.
We, however, do not believe that this isolated passage from the
decision in Zurich, when viewed in context, supports the Dial
Court’s limitation on the holding in Reagor.
The issue before the supreme court in Zurich was whether the
circuit court abused its discretion when it stayed Zurich Insurance
Company’s Illinois action seeking a judicial declaration of rights
under various insurance policies pending the outcome of a second
declaratory judgment action involving the same issues filed by the
insured in California. Zurich Insurance Co., 173 Ill. 2d at 237-
38. The matter had come before the circuit court pursuant to a
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No. 1-07-0684
section 2-619(a)(3) motion (see Zurich Insurance Co., 173 Ill. 2d
at 237), which permits a defendant to move for a dismissal or stay
whenever there is "another action pending between the same parties
for the same cause" (735 ILCS 5/2-619(a)(3) (West 2006)). The
parties to the California action were the insurers and the insured.
The Illinois action included not only those parties, but also the
claimants from the underlying tort actions that gave rise to the
insurance coverage dispute. Zurich Insurance Co., 173 Ill. 2d at
246. The supreme court affirmed the appellate court’s reversal of
the stay entered by the circuit court, finding that the California
action was less comprehensive than the Illinois action. Zurich
Insurance Co., 173 Ill. 2d at 246-47. The court’s holding rests in
large measure upon the fact that, in Illinois, claimants in
underlying tort actions are necessary parties that must be joined
in any declaratory judgment action brought to resolve insurance
coverage disputes involving policies that might be the source of
funds to satisfy their claims; whereas, in California, the
underlying tort-claimants are not necessary parties to any such
declaratory judgment action between the insured-tortfeasor and the
insurer. Zurich Insurance Co., 173 Ill. 2d at 245. It was in this
factual context that the supreme court acknowledged the argument
that the interests of tort-claimants in how insurance coverage
issues are resolved is best served by having those claimants
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No. 1-07-0684
participate directly in litigation between the insurance carrier
and the insured-tortfeasor. Zurich Insurance Co., 173 Ill. 2d at
246. This passage from the opinion in Zurich is addressing the
comprehensive nature of the Illinois procedure as compared to the
procedure employed in California; it has nothing whatever to do
with the allegations necessary to adequately plead a declaratory
judgment action.
Additionally, we note that the portion of the Dial opinion
which the Insurance Company Defendants relied upon in seeking the
dismissal of the instant action pursuant to section 2-615 of the
Code addresses the question of standing (see Dial, 318 Ill. App. 3d
at 1062), not the question of whether Dial Corporation had
adequately pled a declaratory judgment action. Lack of standing is
an affirmative defense which is raised in a section 2-619(a)(9)
motion, not a motion to dismiss brought pursuant to section 2-615
of the Code.
In Pratt v. Protective Insurance Co., 250 Ill. App. 3d 612,
621 N.E.2d 187 (1993), the court relied upon the reasoning in
Reagor when it concluded that claimants in tort actions "may always
bring a declaratory judgment action to determine a tortfeasor’s
coverage under an insurance policy." Pratt, 250 Ill. App. 3d at
618. We believe that, in cases where an actual controversy exists
between a tort-claimant and the tortfeasor’s insurance carrier, the
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No. 1-07-0684
holding in Pratt represents an accurate statement of the law
without the limitation imposed by the Dial court. Whether a prior
filed action involving the same issues instituted by either the
insured-tortfeasor or the insurer might form the basis of a
dismissal or stay of the claimant’s action is a matter to be
resolved pursuant to section 2-619(a)(3) of the Code, not section
2-615.
In summary, we hold that a tort-claimant need not allege that
neither the insured-tortfeasor nor the insurance carrier has filed
a declaratory judgment action in order to adequately plead a
declaratory judgment action to determine the scope of coverage
afforded to the tortfeasor under a policy of insurance. For this
reason, we find that the circuit court erred in dismissing the
plaintiff’s action pursuant to section 2-615 of the Code. We
reverse the judgment of the circuit court and remand this cause for
further proceedings.
Reversed and remanded.
SOUTH and KARNEZIS, JJ., concur.
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