                           ILLINOIS OFFICIAL REPORTS
                                        Appellate Court




               Edwards v. State Farm Insurance Co., 2012 IL App (1st) 112176




Appellate Court            MADELINE EDWARDS, Plaintiff-Appellee, v. STATE FARM
Caption                    INSURANCE COMPANY, Defendant-Appellant (Gaylord Nelson,
                           Defendant).



District & No.             First District, Second Division
                           Docket No. 1-11-2176


Filed                      May 29, 2012


Held                       In a breach of contract action arising from an automobile accident that
(Note: This syllabus       occurred after plaintiff’s insurance policy had been cancelled by
constitutes no part of     defendant for nonpayment of the premium, the entry of summary
the opinion of the court   judgment for plaintiff was reversed and the orders awarding plaintiff
but has been prepared      attorney fees and punitive damages were vacated, notwithstanding
by the Reporter of         plaintiff’s contention that defendant impliedly waived its right to enforce
Decisions for the          the cancellation notice when it reinstated the policy when plaintiff
convenience of the         tendered a late payment after the accident, since there were contested
reader.)
                           material facts with regard to the issue of the implied waiver and there was
                           no evidence of vexatious conduct on the part of defendant to support an
                           award of fees and punitive damages.


Decision Under             Appeal from the Circuit Court of Cook County, No. 09-M1-103542; the
Review                     Hon. Pamela E. Hill Veal, Judge, presiding.


Judgment                   Reversed and remanded.
Counsel on                 Taylor Miller, LLC, of Chicago (Frank C. Stevens, of counsel), for
Appeal                     appellant.

                           Robert J. Biswurm & Associates, Ltd., of Chicago (Robert J. Biswurm,
                           of counsel), for appellee.


Panel                      PRESIDING JUSTICE QUINN delivered the judgment of the court, with
                           opinion.
                           Justices Cunningham and Harris concurred in the judgment and opinion.



                                             OPINION

¶1          Madeline Edwards, plaintiff, brought this breach of contract action against State Farm
        Insurance Company, defendant, and State Farm Insurance agent Gaylord Nelson, defendant,
        to enforce certain alleged rights and duties of the defendants and to determine whether the
        defendants would be liable to pay damages arising from an auto accident that occurred after
        the insurance policy had lapsed and was cancelled for nonpayment. The defendant, State
        Farm Insurance Company (State Farm), filed a counterclaim for a declaratory judgment that
        the auto insurance policy had lapsed for nonpayment and the policy was duly cancelled and
        not in force and effect at the time of the auto accident. The circuit court found that even
        though the insurance policy was cancelled for nonpayment, State Farm had waived its legal
        right to enforce the cancellation. Because the auto insurance policy issued by State Farm had
        been cancelled prior to the auto accident with no legal or factual basis for waiver, we reverse
        the judgment of the circuit court in its entirety.

¶2                                     I. ISSUE ON REVIEW
¶3          The primary issue in the circuit court and on appeal is whether the cancelled automobile
        policy, when reinstated by State Farm following plaintiff’s tendering of a late payment,
        should have covered the auto accident plaintiff had when she was driving her car during the
        period of time when she had no auto insurance coverage. In other words, had State Farm
        impliedly waived its rights to enforce its cancellation notice?

¶4                                  II. STANDARD OF REVIEW
¶5          Because the circuit court ruled following briefing on a motion for summary judgment,
        this court applies the de novo standard of review (Insurance Corp. of Hanover v. Shelborne
        Associates, 389 Ill. App. 3d 795, 799 (2009)), including the circuit court’s award of sanctions
        stemming from its summary judgment order. West American Insurance Co. v. J.R.
        Construction Co., 334 Ill. App. 3d 75, 88 (2002).

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¶6                                      III. BACKGROUND
¶7         Plaintiff purchased a six-month insurance policy from State Farm on July 7, 2008 and
       made a partial payment. On October 5, 2008, a balance of $347.58 was due from plaintiff.
       Plaintiff did not pay the remaining amount. On October 10, 2008, State Farm mailed plaintiff
       a written cancellation notice that acknowledged plaintiff’s nonpayment and lapsed coverage.
       The notice gave plaintiff until October 23, 2008 to make payment without suffering any loss
       of coverage. It also informed plaintiff that failure to make payment by October 23, 2008
       meant her policy would be cancelled. The notice also informed plaintiff that if she paid the
       premium after October 23, 2008, plaintiff “would be informed whether the policy would be
       reinstated and if so, the exact date of reinstatement.” The notice specifically informed the
       plaintiff that there would be no insurance coverage between the date of cancellation and the
       date of reinstatement.
¶8         The exact language of the pertinent part of the written notice is as follows:
               “We have not received the full amount required to keep this policy in force so in
           accordance with its cancellation provisions your policy identified in this notice is hereby
           canceled, effective 12:01 A.M. standard time OCT 23 2008 due to non-payment of the
           premium. No further notice will be sent to you.
               We welcome the opportunity to provide you future insurance protection. Should you
           wish to reinstate this policy please forward your payment immediately. Payment prior to
           the date and time of cancellation will reinstate your policy. If paid after that date and
           time, you will be informed whether your policy has been reinstated and if so, the exact
           date of reinstatement. There is no coverage between the date and time of cancellation and
           the date and time of reinstatement.”
¶9         Plaintiff’s auto insurance policy was cancelled on October 23, 2008 pursuant to the above
       written notice because plaintiff did not pay the balance due on the policy.
¶ 10       About one month after plaintiff’s auto insurance policy was cancelled, plaintiff was
       involved as an uninsured motorist in an auto accident on November 20, 2008. Two days after
       the accident, plaintiff called State Farm and stated she had been in an accident and now
       wanted to make her payment. Plaintiff was informed that the State Farm claims department
       would determine if it would provide coverage. Without any assurances, plaintiff sent a
       payment of $347.58 via a cybercheck. However, the cybercheck did not clear due to
       insufficient funds. About a week later, on November 28, 2008, plaintiff paid the $347.60 in
       cash to a clerk at her agent’s office. Her auto insurance policy was reinstated effective
       November 28, 2008, and on December 3, 2008 State Farm sent a check to plaintiff for
       $96.95, which was the amount calculated to be due back to the plaintiff for the period the
       policy was not in force because of cancellation for nonpayment.
¶ 11       Plaintiff filed a motion for summary judgment and argued that there are in existence
       sufficient facts that support her position that State Farm waived its right to enforce the
       October 23, 2008 cancellation when a clerk accepted plaintiff’s late premium payment after
       the cancellation date on November 22 and again, on November 28, 2008. On this issue, there
       were many material disputes, not the least of which is whether the clerks of the insurance
       agent could bind State Farm through their action of accepting payment or making hopeful

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       comments about reinstatement, despite the company’s written notification to the plaintiff that
       outlined its position regarding any payment made after the cancellation date. Additionally,
       plaintiff claims that clerks made oral assertions to her that caused her to believe State Farm
       would probably provide back coverage for the accident. Those clerks deny making any such
       statements. The denial of the plaintiff’s motion for summary judgment would seem clear as
       there were contested issues of material fact surrounding the issue of State Farm’s implied
       waiver of its right to defend against coverage due to cancellation. However, the circuit court
       ruled in favor of the plaintiff, stating it believed plaintiff’s version of events without
       affording State Farm a trial on the material, disputed issues. The court awarded judgment of
       $12,240 under the policy to plaintiff. The court additionally awarded plaintiff $28,957.50 in
       attorney fees and sanctions of $50,000 pursuant to section 155 of the Illinois Insurance Code
       (215 ILCS 5/155 (West 2002)) for what it believed to be State Farm’s vexatious action in not
       honoring plaintiff’s cancelled insurance policy and not acknowledging that it impliedly
       waived its defense of cancellation when a State Farm clerk accepted plaintiff’s payment.
       Litigation costs of $361 were additionally awarded to plaintiff. State Farm appeals all aspects
       of the circuit court’s judgment.

¶ 12                                       IV. ANALYSIS
¶ 13       The basic quid pro quo of an insurance company’s agreement to provide insurance
       coverage is the insured’s payment of a premium. Every typical insurance contract provides
       that the insurance company agrees to provide coverage for risk of loss in exchange for
       payment of the premium.
¶ 14       The Illinois Insurance Code (the Code) defines “nonpayment of premium” as a “failure
       of the named insured to discharge, when due, any of his obligations in connection with the
       payment of premiums.” 215 ILCS 5/143.13(e) (West 2002). The Code further defines
       “cancellation” of an insurance policy as follows: “ ‘Cancellation’ or ‘cancelled’ means the
       termination of a policy by an insurer prior to the expiration date of the policy.” 215 ILCS
       5/143.13(g) (West 2002). Our supreme court has explicitly defined a cancellation of an
       insurance policy as a unilateral termination by an insurer before the end of the policy period.
       Shiaras v. Chupp, 61 Ill. 2d 164 (1975).
¶ 15       There is no dispute in the instant case that plaintiff failed to discharge her obligation in
       connection with the payment of her auto insurance premium. There is no dispute that State
       Farm afforded the plaintiff an appropriate grace period within which plaintiff could make her
       late payment of the insurance premium and not suffer any lapse in coverage. There is also
       no dispute that State Farm cancelled plaintiff’s auto insurance due to nonpayment of the
       premium only after it mailed the appropriate notice to plaintiff in a timely fashion as
       prescribed by statute. 215 ILCS 5/143.15 (West 2002). There is also no dispute that plaintiff
       received the State Farm notice. See Pekin Insurance Co. v. Harvey, 377 Ill. App. 3d 611
       (2007) (insurer need not prove actual receipt of notice by insured). The parties have
       stipulated that the total amount of the loss by plaintiff as a result of the November 20, 2008
       auto accident is $12,420.
¶ 16       More precisely, the disputed issue in the motion for summary judgment was whether the


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       plaintiff’s State Farm insurance contract was in effect retroactively to cover her auto accident
       by the payment of the premium a month after her auto accident and more than a month after
       cancellation. There is no dispute that plaintiff finally made a successful payment of the
       premium by tendering cash to a State Farm clerk. There is no dispute that the amount was
       accepted. State Farm processed the payment, applied it to the policy and refunded to the
       plaintiff the amount that was due for the period of time the policy was cancelled. In other
       words, State Farm acted consistently with the language in the notice sent to plaintiff. It
       reinstated the policy but did not provide retroactive coverage to her. The language in her
       notice informed the plaintiff that retroactive coverage would only be provided if the premium
       payment was made by a date certain. Plaintiff did not pay her premium by that date and
       allowed her policy to be cancelled for nonpayment.
¶ 17       None of the facts provided by the plaintiff are materially sufficient to support an
       allegation of State Farm’s actual waiver of its defense that plaintiff’s policy was cancelled.
       Plaintiff proceeded on an argument that State Farm impliedly waived its defense.
¶ 18       The Illinois Code of Civil Procedure, section 2-1005, states that a motion for summary
       judgment should only be granted “if the pleadings, depositions and admissions on file,
       together with the affidavits, if any, show that there is no genuine issue as to any material fact
       and that the moving party is entitled to a judgment as a matter of law.” 735 ILCS 5/2-1005(c)
       (West 2002). Plaintiff’s argument in this case is that State Farm impliedly waived its right
       to enforce the cancellation of the policy when it accepted plaintiff’s payment after the
       cancellation date. State Farm, on the other hand, argues that timely notice was sent to
       plaintiff informing her that unless payment was made her policy would be cancelled. State
       Farm argues that plaintiff cannot now argue extraneous facts surrounding her payment after
       cancellation and those facts should not be considered to infer that State Farm impliedly
       waived its defense of cancellation when it was plaintiff’s lack of payment that was the reason
       for the policy cancellation and State Farm provided a clear, written notice of the
       consequences for failure to pay the premium..
¶ 19       Plaintiff relies on the general legal principle that forfeiture of an insurance contract for
       nonpayment of the premium is not favored by the courts, citing Van Hulle v. State Farm
       Mutual Automobile Insurance Co., 44 Ill. 2d 227 (1969). Plaintiff argues that the mere act
       of accepting plaintiff’s payment after cancellation is enough to reinstate and backdate the
       policy to provide coverage for an accident that occurred during the cancellation period. The
       Van Hulle case is not directly on point. In the instant case, plaintiff does not argue lack of
       clarity of the notice of cancellation she received. We have read the cancellation notice
       provision given to plaintiff and there is nothing unclear about the language that would
       demand that we strictly construe any lack of clarity against State Farm. Plaintiff is correct
       insofar as she argues that there are Illinois cases that consider acceptance of a premium after
       the insurance company learns of a loss as one factor in determining whether an insurance
       company has waived its right to cancel. Id.; Horace Mann Insurance Co. v. Brown, 13 Ill.
       App. 3d 330 (1973). However, those cases did not include the unequivocal language in a
       written notice regarding how the insurance company would treat a payment made after
       cancellation that State Farm used in its notice to plaintiff.
¶ 20       State Farm relies on the cases of Gurley v. State Farm Mutual Automobile Insurance Co.,

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       101 Ill. App. 3d 619 (1981), and Butt v. State Farm Mutual Automobile Insurance Co., 107
       Ill. App. 3d 68 (1982), for its position that no waiver exists in this case. While the same
       unequivocal language that plaintiff received in her notice about what would happen if
       payment were made after the cancellation date was similar to the unequivocal language sent
       to the respective insureds in both Gurley and Butt, this does not save the parties from a trial
       on the merits on remand. The holdings in both Gurley and Butt are each based on the
       particular facts surrounding waiver after the courts had a full opportunity to consider
       disputed, material evidence at trial.
¶ 21        State Farm should be afforded the opportunity to present its case at trial as there appear
       to be contested, material facts concerning the implied waiver issue which do not solely
       involve a legal interpretation of the contract. We likewise do not believe there is any merit
       to the court’s award of attorney fees and punitive damages as there is considerable merit to
       State Farm’s position that it is not required to honor a cancelled insurance policy. In any
       event, the court provided no justification for such an award. Whether or not State Farm can
       be found to have impliedly waived its written cancellation is, at least in part, a question of
       fact that should be resolved by trial. Therefore, we reverse the circuit court’s order granting
       plaintiff’s motion for summary judgment. We also vacate the circuit court’s order awarding
       attorney fees to plaintiff and awarding $50,000 in punitive damages against State Farm as
       there is no evidence of vexatious conduct on the part of State Farm and the court did not
       point to any.

¶ 22      Reversed and remanded.




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