First District Appellate Court Assesses Cooperation Clause

October 2015

The First District appellate court recently addressed an insurer's duty to defend or indemnify. In American Access Casualty Company v. Farid Alassouli and Eileen Benson, 2015 IL App. 1st 141413, the Court held that: 1) American Access Casualty Company ("AACC") failed to act diligently to secure its insured's cooperation regarding an investigation of an accident, 2) AACC failed to present evidence that its insured's failure to cooperate was willful, and 3) AACC failed to present evidence that its insured's breach of a cooperation clause in the insurance policy substantially prejudiced AACC.

Background

On May 1, 2011, Farid Alassouli turned in front of Eileen Benson's car when she passed through an intersection. To avoid hitting Alassouli's car, Benson struck a car being driven by another motorist. Alassouli was ticketed for failing to yield to oncoming traffic.

Shortly thereafter, Benson made a claim for damages against Alassouli's AACC insurance policy. The claims adjuster for AACC, Cary Loseau, called Alassouli in order to obtain information regarding the accident. Alassouli initially answered the telephone call, but once Loseau told him he would be recording the statements, Alassouli hung up. Loseau then made another call and left a detailed voice message, advising Alassouli that it was important for him to return the call. Five days later, AACC called Alassouli and left a message with his roommate, again asking that Alassouli return the call. Alassouli did not return the second call. AACC then made two additional calls, leaving messages both times. However, Alassouli never returned the calls. AACC then had a skip trace conducted, but it did not reveal anything regarding Alassouli's whereabouts. AACC also retained a private investigator approximately two years after the accident to attempt to locate Alassouli. The investigator was unable to locate Alassouli or determine his current address.

On December 10, 2012, AACC filed a declaratory judgment action against Alassouli and Benson asking the Court to find that AACC owed no duty to defend or indemnify Alassouli in connection with Benson's claim for damages. It was AACC's position it had no duty to defend or indemnify Alassouli because he breached the insurance policy's cooperation clause by failing to respond to AACC's numerous telephone calls. Benson appeared and answered the declaratory judgment complaint, but Alassouli failed to appear or answer. Accordingly, the trial court entered a default judgment against him.

AACC's cooperation clause reads as follows:

"The insured shall cooperate with the Company and, upon the Company's request or through attorneys selected by the Company to represent the insured must *** (b) assist in making settlements, securing and giving evidence, obtaining the attendance of witnesses and in the conduct of any legal proceedings in connection with the subject matter of this insurance *** (i) allow the Company to take signed and recorded statements and answer all questions we may ask when and as often as we may require; (j) submit to examinations under oath as often as the Company requires, outside the presence of any other insured or person to be examined under oath ***. The Company has no duty to provide coverage under this policy unless there has been full compliance with these responsibilities. ***"

On June 5, 2013, AACC filed a motion for summary judgment, in which it argued that it did not owe a duty to defend or indemnify Alassouli due to his breach of the cooperation clause. The summary judgment motion was denied. Benson then filed a motion for summary judgment against AACC, arguing that, as a matter of law, Alassouli did not breach the insurance policy because AACC failed to show that it had been substantially prejudiced by the breach. Benson further argued that AACC failed to exercise reasonable diligence in its attempts to contact Alassouli. The court entered a judgment in favor of Benson, finding that AACC failed to adequately show that Alassouli's failure to cooperate substantially prejudiced it. AACC appealed the ruling, contending that it did not need to establish prejudice, but, in any event, sufficient evidence was presented that AACC was prejudiced by Alassouli's breach of the cooperation clause.

Analysis

The appellate court noted that an insured does not have a duty to assist an insurer in connection with an attempt to defeat a claim, but a cooperation clause in an insurance policy obligates the insured to provide all of the facts and information he or she has so that the insurer can make a determination of coverage under the policy. Waste Management, Inc. v. International Surplus Lines Co., 144 Ill. 2d 178, 204 (1991). In order to show that an insured breached a cooperation clause, the insurer must demonstrate that it exercised reasonable diligence in regard to its efforts in seeking the insured's cooperation. The insurer must also show that the insured's failure to cooperate was due to a willful refusal on the part of the insured, and the willful refusal substantially prejudiced the insurer's investigation. Mazzuca v. Eatmon, 45 Ill. App. 3d 929, 932 (1st Dist. 1977). To establish substantial prejudice, an insurer must show that the insured's violation of a cooperation clause in an insurance policy hindered its investigation of the claim. M.F.A. Mutual Insurance Co. v. Cheek, 66 Ill. 2d 492, 499 (1977). Determinations as to whether the insurer exercised due diligence in seeking cooperation, and whether an insured failed to cooperate, resulting in the insurer being prejudiced, depend on the facts and circumstances of each particular case. Mazzuca, 45 Ill. App. 3d at 932.

The appellate court noted that, as a matter of law, AACC's five telephone calls and the skip trace, all of which occurred in less than two weeks, and the retention of a private investigator two years after the occurrence, were not sufficient to demonstrate that AACC exercised reasonable diligence to obtain the insured's cooperation. The Court wrote that, during the critical time period shortly after the accident, AACC did not make any attempts to visit Alassouli's address, which was known at the time of the accident, send any letters to him, or continue with its efforts to communicate with or find Alassouli. Rather, AACC concluded, after meager attempts to contact Alassouli, that he was refusing to cooperate in the investigation. In summary, the Court held that AACC's efforts were "wanting and deficient," and as such, AACC did not meet the requisite burden of demonstrating that it exercised reasonable diligence, or that Alassouli's non-cooperation was willful.

As noted above, AACC also alleged that it was prejudiced by Alassouli's non-cooperation in the investigation. Its position in that regard was supported by an affidavit from the claims adjuster, Cary Loseau, in which he stated that, due to Alassouli's failure to communicate with AACC, he could not determine coverage or liability for the accident. The Court disagreed that AACC showed it was substantially prejudiced and wrote that, aside from Loseau's affidavit, AACC failed to present any evidence of substantial prejudice in the investigation of the claim. The Court noted that the simple reason why AACC could not show substantial prejudice in connection with its investigation was due to the fact that it failed to conduct a proper and thorough investigation.

In conclusion, the Court held that AACC failed to demonstrate that it exercised reasonable diligence in attempting to obtain Alassouli's cooperation, or that it was substantially prejudiced by Alassouli's failure to cooperate. Therefore, the trial court's ruling, in which it granted Benson's motion for summary judgment, was affirmed.

Learning Point

When investigating an accident, insurers must leave no stone unturned when attempting to locate and secure the cooperation of an insured. If this is not done, a court may order the insurer to defend or indemnify a party, which could result in the insurer paying damages on a claim that could have been properly denied based on the results of a thorough investigation.

http://www.illinoiscourts.gov/opinions/AppellateCourt/2015/1stDistrict/1141413.pdf