State Farm Mut. Auto. Ins. Co. v. Du Page County

2011 IL App (2d) 100580

955 N.E.2d 67

352 Ill.Dec. 891

STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, Plaintiff,

v.DU PAGE COUNTY and Du Page County State's Attorney's Office, Defendants–Appellees (State Farm Fire and Casualty Company, Plaintiff–Appellant; Frank Radostits, as Independent Executor of the Estate of Jane E. Radostits, Deceased, Defendant).

No. 2–10–0580.

Appellate Court of Illinois, Second District.

June 16, 2011.

Michael Resis, Glen E. Amundsen, Richard T. Valentino, Ellen L. Green, SmithAmundsen LLC, Chicago, for State Farm Fire & Casualty Company.James G. Sotos, Elizabeth A. Ekl, Jeffrey N. Given, James G. Sotos & Associates, Ltd., Itasca, for Du Page County, Du Page County State's Attorney's Office, for Estate of Jane E. Radostits, Frank Radostits, State Farm Mutual Automobile Insurance Company.

OPINION

Justice McLAREN delivered the judgment of the court, with opinion:

¶ 1 In this case, plaintiff State Farm Fire & Casualty Company (State Farm) sought equitable subrogation and reimbursement from defendant Du Page County (County), a self-insured municipality, after State Farm settled a lawsuit. The lawsuit alleged that an employee of the County struck and injured another driver while the employee was intoxicated and driving a vehicle owned by the County. State Farm appeals the trial court's denial of its motion for judgment on the pleadings and granting of the County's motion to dismiss. On appeal State Farm argues that: (1) the trial court erred by denying State Farm's motion for judgment on the pleadings, because State Farm was entitled to equitable subrogation and reimbursement against the County; and (2) the County was required to pay a settlement within the $2 million retained limit of its insurance program, under principles of horizontal exhaustion. We affirm.

¶ 2 I. FACTS

¶ 3 A. Car Accident

¶ 4 On May 11, 2007, the County's employee, Jane Radostits, was killed when she was involved in a car accident with Michelle Lubinski, who was injured. At the time of the accident, Jane was deputy chief of the criminal prosecutions bureau in the Du Page County State's Attorney's office. She was driving a 2003 Impala, owned by the County, an Illinois municipality. After her death, Jane's husband, Frank Radostits, was appointed independent executor of her estate (Jane's estate).

¶ 5 B. The Lubinski Lawsuit

¶ 6 Lubinski filed a complaint, followed by a first amended complaint (complaint), against Jane's estate, the County, and Joseph Birkett, Du Page County State's Attorney. Lubinski alleged that, during the morning of the day of the accident, certain Du Page County complex buildings were evacuated as a result of a bomb threat. Shortly after the evacuation, Jane left the complex with her supervisor, Jeffrey Kendall, to take care of personal errands together in the Wheaton area.

¶ 7 Lubinski's complaint also alleged that Kendall contacted other members of the Du Page County State's Attorney's office and told them of plans to go to the Kona Grill in Oak Brook for lunch and drinks. Kendall drove Jane in his County-owned vehicle to the Kona Grill, arriving sometime before 11:30 a.m. By 12:45 p.m., seven other members of the Du Page County State's Attorney's office joined Kendall and Jane at the Kona Grill. Jane drank between four and seven lemon martinis and one beer between 11:30 a.m. and 3 p.m. After witnessing Jane consume numerous intoxicating drinks, and knowing that Jane was intoxicated, Kendall drove Jane to the County-owned 2003 Impala, which was parked in the Du Page County complex lot. As Jane drove home, she used a Du Page County cell phone to call Kendall and discuss an upcoming court proceeding.

¶ 8 The complaint alleged that Jane then tried to make another cell phone call. At about the same time, Jane crossed into oncoming traffic on Winfield Road and struck Lubinski's vehicle. Jane was traveling over 80 miles per hour in a 45–mile–an–hour zone. At the time of the accident, Jane had a blood alcohol concentration of 0.25, over three times the Illinois legal limit. Lubinski suffered multiple catastrophic injuries due to the accident.

¶ 9 Count III of Lubinski's complaint alleged “negligence, respondeat superior,” against Birkett in that Jane was acting within the scope of her employment and that Birkett was liable for Jane's negligence in violating her driving duties. Count III also alleged that Birkett was liable for Kendall's actions because he was acting within the scope of his employment when he negligently entrusted Jane to drive. Birkett denied liability.

¶ 10 Count IV of Lubinski's complaint alleged “willful and wanton misconduct, respondeat superior,” against Birkett for the actions of both Jane and Kendall. Birkett denied liability.

¶ 11 Jane's estate filed a counterclaim and/or third-party complaint against the County and Birkett. The County and Birkett denied that Jane's estate was entitled to such relief.

¶ 12 C. Insurance Policies

¶ 13 At the time of the accident the Radostitses were named insureds on three car insurance policies issued by State Farm Mutual Automobile Insurance Company (State Farm car policies). These three State Farm car policies did not provide coverage for the 2003 Impala. Also, at the time of the accident, the Radostitses were named insureds on a personal liability umbrella policy issued by State Farm (State Farm umbrella policy).

¶ 14 The State Farm umbrella policy provided:

“1. Coverage L—Personal Liability. If you are legally obligated to pay damages for a loss, we will pay your net loss minus the retained limit. Our policy will not exceed the amount shown on the Declarations as Policy Limits—Coverage L—Personal Liability.”

“ ‘[N]et loss' means:

a. the amount you are legally obligated to pay as damages for bodily injury, personal injury or property damage; and

b. All reasonable expenses you incur in the investigation, settlement and defense of a claim or suit at our request[.]”

“ ‘[R]etained limit’ means:

a. the total limits of liability of your underlying insurance[.]”

“Other Insurance. This policy is excess over all other valid and collectible insurance.”

¶ 15 At the time of the accident, the County was a self-insured municipality with a retained limit up to $2 million, pursuant to section 9–103 of the Local Governmental and Governmental Employees Tort Immunity Act (Act) (745 ILCS 10/9–103 (West 2006)). In excess of the $2 million retained self-insurance, the County also had an insurance policy issued by Lexington Insurance Company, with a limit of liability of $20 million, in excess of $10 million in liability coverage under a policy issued by Everest National Insurance Company.

¶ 16 D. Settlement of the Lubinski Lawsuit

¶ 17 Lubinski settled her claims against Jane's estate, with State Farm paying $400,000 on behalf of Jane's estate. Lubinski and Jane's estate settled their claims against the County and Birkett, with the County paying Lubinski $100,000. Jane's estate, the County, and Birkett released all claims they had or could have had against each other, without any admission of liability by any party and without affecting State Farm's impending declaratory judgment claims in this case. The entire Lubinski lawsuit was dismissed with prejudice on August 4, 2009.

¶ 18 E. State Farm's Complaint for Declaratory Judgment

¶ 19 On September 14, 2009, State Farm filed its four-count second amended complaint for declaratory judgment (State Farm's complaint), which alleged that the County was self-insured up to $2 million and had insurance in excess of the $2 million self-insurance. Count I, titled “Declaratory Judgment (Car Policies),” sought a declaration that State Farm had no liability for coverage of Lubinski's injuries or damages under the State Farm car policies issued to Jane. Count II, titled “Declaratory Judgment (Personal Liability Umbrella Policy),” sought a declaration that State Farm had no liability under its umbrella policy.

¶ 20 Count III, titled “Equitable Subrogation,” alleged the following. The 2003 Impala and Jane were covered by the County's self-insurance. The County's insurance was primary to any coverage provided by the State Farm umbrella policy and, as a result, the County owed a duty to defend and indemnify Jane's estate in the Lubinski lawsuit. State Farm sought a declaration that it was entitled to recoup $400,000 from the County for the settlement it paid to Jane's estate.

¶ 21 Count IV, titled “Reimbursement,” sought a declaration that the County owed Jane's estate a duty to defend against the Lubinski lawsuit and owed State Farm reimbursement for defense costs of $45,128.56.

¶ 22 In its answer, the County denied that: (1) counts I and II applied to the County; (2) either the 2003 Impala or Jane was covered by the County's self-insurance; (3) the County bore any financial liability for or responsibility to Jane's estate; (4) the County owed a duty to defend or indemnify Jane's estate; (5) the County's self-insurance was “valid or collectible insurance” for purposes of State Farm's umbrella policy's “other insurance” provision; (6) State Farm was entitled to recover $400,000 from the County in connection with the settlement of the Lubinski lawsuit; and (7) the County must reimburse State Farm for its defense costs. The County also raised affirmative defenses, including that Jane was not acting within the scope of her employment at the time of the accident.

¶ 23 F. Cross–Motions

¶ 24 In November 2009, the County filed a motion to dismiss pursuant to section 2–615(a) of the Code of Civil Procedure (Code) (735 ILCS 5/2–615(a) (West 2008)) and State Farm filed a motion for judgment on the pleadings pursuant to section 2–615(e) of the Code (735 ILCS 5/2–615(e) (West 2008)). The County sought dismissal with prejudice of counts III and IV of State Farm's complaint. State Farm sought entry of judgment in its favor on all counts of its complaint.

¶ 25 G. Trial Court's Rulings

¶ 26 The trial court ruled as follows:...