By Don R. Sampen
Don R. Sampen is a member of the appellate practice group of Clausen, Miller P.C., where he focuses on appellate, commercial and insurance related litigation. He also teaches insurance law at Loyola University Chicago School of Law. His column appears twice monthly.
In two recent holdings, the courts addressed the impact of deactivation of a tender on a "case or controversy" and the parameters of a "motor vehicle" exclusion.
In Selective Insurance Co. v. Phusion Projects, Inc., No 11 C 3378 (N.D. Ill. Nov. 15, 2011), the U.S. District Court held that the withdrawal of a tender of defense to an insurer, following the insurer's filing a declaratory judgment action to adjudicate coverage, mooted the declaratory action.
The insurer, Selective, was represented by Wilford, Conrad LLP of Barrington. Dwight B. Palmer Jr. of Palmer & Associates represented the insured, Phusion.
Phusion was sued in connection with its caffeinated, alcoholic beverage known as Four Loko, the consumption of which was alleged to have caused bodily injury. Phusion tendered to Selective, which denied coverage and filed this declaratory action.
Thereafter, Phusion withdrew its tender and asked Selective to voluntarily dismiss the complaint. Phusion represented that it was seeking coverage from another insurer, but also advised that it may reactivate the tender to Selective in the future. Selective declined to dismiss and Phusion filed a motion to dismiss for lack of an "actual controversy."
Deactivation removes controversy
U.S. District Judge Elaine Bucklo granted the motion. She observed that, while an actual controversy existed at the time of the filing of the complaint, the Supreme Court in Alvarez v. Smith, 130 S.Ct. 576 (2009), made clear that the actual controversy must be extant at all stages of the case.
In this case, a contingency existed as to whether Phusion would, someday, reverse its present course of declining to seek coverage, but at the moment it disavowed its intention to doing so.
A dismissal of the declaratory action, in addition, Bucklo said, would not leave Selective in an untenable "wait-and-see" position, for it would be no worse off for litigating coverage, than it was currently, if it had to wait for Phusion to assert a claim for coverage in the future. Neither side had any significant interest in having a hypothetical future claim resolved now.
Finally, Bucklo observed that Illinois law supported Phusion's argument that where an insured has "deactivated" an insurer, that insurer is relieved of its obligation on the claim. The mere fact that the insured places the insurer on "standby" does not trigger the duty to defend.
The court, therefore, granted the motion to dismiss for lack of an actual controversy.
Deactivation of one policy, for purposes of selectively tendering to another, removes the controversy requirement for purposes of litigating coverage under the first policy.
In Allstate Property and Casualty Insurance Co. v. Mahoney, 2011 WL 5299081 (2d Dist. Ill. Nov. 1), the court held that coverage for injuries sustained as the result of a negligently installed motorcycle brake pedal was excluded from coverage by the motor vehicle exclusion of a homeowner's policy.
The insurer, Allstate, was represented by Morse, Buldoc & Dinos. Daniel J. Kordik of the Kordik Law Firm of Elmhurst represented the insured, Michael Frontier, and the Mahoneys, the claimants.
While working at a motorsports shop owned by Richard Mahoney, Frontier welded a brake pedal onto a motorcycle, which Mahoney tested on a public street. The pedal broke, the motorcycle crashed and Mahoney was injured. He and his wife brought suit alleging that Frontier negligently attached the pedal. Allstate defended under a homeowner's policy issued to Frontier's parents, pursuant to a reservation of rights. It subsequently filed this declaratory judgment action contending that it had no duty to defend. The trial court agreed and granted Allstate judgment on the pleadings. The Mahoneys appealed.
"Motor vehicle" definition
In an opinion by Justice Mary Seminara Schostok, the 2nd District Appellate Court affirmed. She first addressed application of the Allstate policy's exclusion for bodily injuries arising out of the use or maintenance "of any motor vehicle." The Mahoneys contended that the exclusion was not applicable because, in their view, a motorcycle is not a "motor vehicle" but rather a "motorized land conveyance."
Relying on a dictionary definition, Schostok found that a "motor vehicle" is a self-propelled, motor-powered vehicle that travels on wheels and that a motorcycle qualifies. While it may also qualify as a "motorized land conveyance," the Allstate policy made no reference to that term. Also, the fact that the motorcycle did not have functioning brakes, that it was being reconstructed, or that it was not titled, did not detract from the fact that it was a motor vehicle.
She then addressed the Mahoneys' argument that the motorcycle was in "dead storage," which, if true, would provide an exception to the exclusion in the Allstate policy. Schostok found a quote in another case to the effect that the "dead" in "dead storage" means at least that the engine is not running. Here, Mahoney was operating the motorcycle on a public street, so it was not in dead storage.
Alleged nonvehicle cause
The Mahoneys' third argument was that the motor vehicle exclusion should not apply because Mahoney's injuries arose from a nonvehicle cause, namely, Frontier's negligent welding of the brake pedal. In support they relied on United States Fidelity & Guaranty Co. v. State Farm Mutual Automobile Insurance Co., 152 Ill. App. 3d 46 (1987), where parents sought damages for injuries to their child when she fell from a moving vehicle operated by a day care center. The court in that case held that the motor vehicle exclusion in the day care's policy did not exclude coverage.
Schostok, however, distinguished the day care case on the ground that negligent supervision by the day care could have been the sole cause of the injury. Here, by contrast, the Allstate policy's exclusion applied to both operation and maintenance and, in addition, the faulty brake pedal was related to the operation of the motorcycle.
The exclusion, therefore, applied and the court affirmed.
A motorcycle is a "motor vehicle" and the fact that it is not titled, or is in the process of being repaired, or contains defective repairs, will not circumvent the vehicle exclusion.