Benge v. State Farm Mutual Automobile Insurance Co.
Annotate this Case
FIFTH DIVISION
FILED: 6/30/98
No. 1-97-3785
CHARLES BENGE,individually and on )
behalf of all persons similarly ) Appeal from the
situated, and JAMES J. CONVERY, ) Circuit Court of
individually and on behalf of all ) Cook County.
persons similarly situated, )
)
Plaintiffs-Appellants, ) No. 96 CH 05727
)
v. )
)
STATE FARM MUTUAL AUTOMOBILE ) Honorable
INSURANCE COMPANY, an Illinois ) Lester D. Foreman,
corporation, ) Judge Presiding.
Defendant-Appellee. )
PRESIDING JUSTICE HOFFMAN delivered the opinion of the
court:
The plaintiffs, Charles Benge and James J. Convery,
individually and on behalf of all persons similarly situated,
appeal from the trial court's dismissal of their second amended
class action complaint for breach of contract against the
defendant, State Farm Mutual Automobile Insurance Company. For
the reasons which follow, we affirm.
On May 30, 1997, the plaintiffs filed a second amended class
action complaint ("complaint") for breach of contract against the
defendant. The plaintiffs purported to represent the class of
persons holding automobile insurance policies issued by the
defendant who sustained damage to their motor vehicles when they
were involved in accidents with persons also insured by the
defendant and who were not paid for those damages by the
defendant both under the liability coverage contained in the at-
fault drivers' insurance policies, and pursuant to the physical
damage coverage contained in their own insurance policies.
The complaint alleged that the plaintiff Convery purchased
an automobile insurance policy from the defendant which was
effective from May 13, 1995, through December 12, 1995. The
physical damage coverage section of that policy provided: "We
will pay for loss to your car caused by collision but only for
the amount of each such loss in excess of the deductible amount."
The policy defined the term "loss" as "each direct and accidental
loss of or damage to 1. your car;" and defined the term collision
as "your car upset or hit or was hit by a vehicle or other
object."
On November 3, 1995, another car, whose driver was also
insured by the defendant, struck and damaged Convery's car.
Convery reported the facts and circumstances of the accident to
one of the defendant's agents. The complaint alleged that
Convery's car required $1,156.99 in repairs and that "[t]he
invoice for the repair *** was paid in full by [the defendant]
pursuant, on information and belief, to the liability coverage
which it sold to the driver of the automobile which struck
CONVERY's automobile." The complaint further alleged that the
defendant failed to pay Convery for those same damages pursuant
to the physical damage coverage provision of his own insurance
policy.
The complaint also alleged that the plaintiff Benge
purchased an automobile insurance policy from the defendant,
which, on information and belief, was identical in all relevant
respects to Convery's policy. On July 7, 1989, while Benge's
insurance policy was in effect, a car whose driver was also
insured by the defendant struck and damaged Benge's car. Benge
reported the facts and circumstances of the collision to one of
the defendant's agents, and, about one month later, the defendant
paid Benge $600, the market value of his car. According to the
complaint, the defendant paid Benge pursuant to the liability
coverage of the at-fault driver and not under the physical damage
coverage provision in his own policy.
The plaintiffs alleged that they paid all premiums and
complied with all terms and conditions of their insurance
policies and that the defendant breached its contractual
obligation by failing to pay the plaintiffs' damages under the
physical damage coverage of those policies. The complaint
charged that the defendant's payments on behalf of the at-fault
drivers in no way satisfied the defendant's independent
contractual obligation to pay the plaintiffs under the physical
damage coverage contained in the plaintiffs' own insurance
policies. In their prayer for relief, the plaintiffs asked that
the court declare the action to be a proper class action and to
award the plaintiffs and the members of the class compensatory
damages, pre-judgment and post-judgment interest, and the costs
and expenses of the litigation. The plaintiffs also asked the
court to enjoin the defendant from engaging in such practices in
the future.
On June 27, 1997, the defendant filed a motion to dismiss
the plaintiffs' complaint pursuant to section 2-615 of the Code
of Civil Procedure (735 ILCS 5/2-615 (West 1996)) and a
memorandum in support of its motion. The defendant alleged,
inter alia, that 1) the complaint was factually insufficient and
failed to plead a breach of contract because the plaintiffs
admitted that the defendant paid them for their damages; 2) the
plaintiffs' allegations that they were paid pursuant to the
policies of the at-fault drivers rather than their own policies
were unsupported factual conclusions; and 3) the complaint was
insufficient because the plaintiffs had attached to it the
incorrect insurance policy for Convery and no insurance policy
for Benge. The defendant also pointed out certain factual
inconsistencies in the complaint. As an example, the complaint
alleged that Benge's accident took place in Chicago, while an
automobile claim report attached as an exhibit to the complaint
stated that the accident occurred in Wheeling. Additionally, the
defendant argued that the complaint was missing crucial facts,
such as the names of the other persons involved in the accidents;
the facts, circumstances and locations of the accidents; the
names of the defendant's agents to whom Benge and Convery
reported their accidents; and specific facts supporting the
plaintiffs' conclusions that the other drivers involved in the
accidents were at fault. Alternatively, the defendant contended
that dismissal of the complaint was appropriate because the
plaintiffs had no right to recover where, under the terms of
their insurance policies, their rights to recover against the at-
fault drivers passed to the defendant once the defendant paid the
plaintiffs for their damages. The provision to which the
defendant referred provides:
"Our Right to Recover Our Payments
***
d. Under all other coverages, and except as
provided for within the medical payments
coverage, the right of recovery of any party
we pay passes to us. Such party shall:
(1) not hurt our rights to recover; and
(2) help us get our money back."
On September 19, 1997, the trial court granted the
defendant's motion to dismiss the complaint, finding that the
plaintiffs had not suffered a "loss" as defined by their
insurance policies because they had been compensated for their
damages under the at-fault drivers' insurance policies. On
appeal, the plaintiffs contend that the trial court improperly
dismissed their complaint, arguing that they suffered a "loss" as
defined by their insurance policies and that their complaint
adequately alleged a cause of action for breach of contract. The
plaintiffs claim that they are entitled to recover both under the
physical damage coverage in their own policies and from the at-
fault drivers, also insured by the defendant. The plaintiffs
rely on Control Specialists Co. Inc. v. State Farm Automobile
Insurance Co., 228 Neb. 642, 423 N.W.2d 775 (1988), and other
foreign authority, in support of their argument that the
defendant cannot enforce a right of subrogation against its own
at-fault insured.
A section 2-615 motion to dismiss, which attacks only the
legal sufficiency of a complaint, admits all well-pleaded facts,
but does not admit unsupported legal or factual conclusions.
Spillyards v. Abboud, 278 Ill. App. 3d 663, 668, 662 N.E.2d 1358,
1361 (1996). The court must interpret the factual allegations in
the light most favorable to the plaintiff. Lake County Grading
Co. of Libertyville, Inc. v. Advance Mechanical Contractors,
Inc., 275 Ill. App. 3d 452, 457, 654 N.E.2d 1109, 1114 (1995). A
complaint should be dismissed pursuant to section 2-615 only if
no set of facts could be proven which would entitle the plaintiff
to the relief he seeks. People ex rel. Peters v. Murphy-Knight,
248 Ill. App. 3d 382, 386, 618 N.E.2d 459, 463 (1993). We review
the trial court's ruling on a motion to dismiss de novo, and can
affirm on any basis present in the record. Toombs v. City of
Champaign, 245 Ill. App. 3d 580, 583, 615 N.E.2d 50, 51 (1993);
Lake County Grading Co., 275 Ill. App. 3d at 457.
In order to state a cause of action for breach of contract,
the plaintiff must allege that a contract existed, that the
plaintiff performed his obligations under the contract, that the
defendant breached the contract, and that the plaintiff was
injured by the defendant's breach. Talbert v. Home Savings of
America, F.A., 265 Ill. App. 3d 376, 379, 638 N.E.2d 354, 357
(1994). A complaint which fails to state essential allegations
is deficient and may not be remedied by liberal construction.
OnTap Premium Quality Waters, Inc. v. Bank of Northern Illinois,
N.A., 262 Ill. App. 3d 254, 259, 634 N.E.2d 425, 429 (1994).
The plaintiffs' complaint admits that the defendant paid
them for the damage to their cars, but alleges that the defendant
paid those damages pursuant to the liability coverage of the at-
fault drivers. Convery's insurance policy provides that the
defendant will pay for any loss due to collision "but only for
the amount of each such loss in excess of the deductible amount."
The policy further provides: "If the collision is with another
motor vehicle insured with us, you do not pay your deductible if
it is $100 or less as we pay it." Convery's insurance policy,
which is attached as an exhibit to the complaint, includes a $500
deductible for collision coverage. Convery alleged, however,
that the defendant paid his damages in full. The complaint also
alleged that Benge's insurance policy was identical in all
relevant respects to Convery's and that the defendant paid Benge
the full market value of his car. When viewed in the light most
favorable to the plaintiffs, we believe that these factual
allegations support the conclusion that the defendant did not
reduce the payments to either plaintiff by the $500 deductible
provided for pursuant to the physical damage coverage in their
policies. We can, therefore, reasonably infer that the defendant
paid, at minimum, $500 of the plaintiffs' damages pursuant to the
liability coverage of the at-fault drivers.
As stated earlier, the physical damage coverage in the
plaintiffs' insurance policies provided that, upon the
defendant's payment of the plaintiffs' damages, their rights to
recover against any third party passed to the defendant. The
plaintiffs contend that the defendant is not entitled to benefit
from this provision because an insurance carrier cannot exercise
a right of subrogation against its own insured. The defendant
responds that the policy provision at issue is not a subrogation
clause and that, even if it is, Illinois law does not prevent an
insurance carrier from subrogating against a party it insures
under a different policy than that from which the right to
subrogate arises.
We reject the defendant's argument that the transfer of
rights provision contained in the plaintiffs' insurance policies
is not a subrogation clause. Subrogation is "the substitution of
one individual in the place of a claimant to whose rights he
succeeds in relation to the debt or claim asserted which he has
paid involuntarily." State Farm General Insurance Co. v.
Stewart, 288 Ill. App. 3d 678, 686, 681 N.E.2d 625, 630 (1997).
The provision in question stated that the plaintiffs' rights to
recover passed to the defendant when it paid the plaintiffs'
damages pursuant to their own coverage.
It is generally said that an insurance carrier may not
subrogate against its own insured. 16 Couch on Insurance 2d
61:136 (rev. 1983); 44 Am. Jur. 2d Insurance 1794 (1982); 2 W.
Freedman, Richards on Insurance 185 (5th ed. 1952). However,
Illinois courts have only applied this rule to prevent an
insurance carrier from subrogating against an insured or
coinsured under the policy which gives rise to the right of
subrogation. In Dix Mutual Insurance Co. v. LaFramboise, 149 Ill. 2d 314, 317, 597 N.E.2d 622, 623 (1992), for instance, the
insurance carrier paid the insured building owner for fire damage
and then sought to recover from one of the building's tenants,
who had allegedly started the fire. The court found that the
tenant was a coinsured under the insurance policy and, as such,
the insurance carrier could not maintain a subrogation action
against him. Dix Mutual, 149 Ill. 2d at 323. See also Reich v.
Tharp, 167 Ill. App. 3d 496, 501-04, 521 N.E.2d 530, 533-36
(1988); McGinnis ex rel. C.I.E. Service Corp. v. LaShelle, 166
Ill. App. 3d 131, 135, 519 N.E.2d 699, 701 (1988); Western States
Mutual Insurance Co. v. Standard Mutual Insurance Co., 26 Ill.
App. 2d 378, 385-86, 167 N.E.2d 833, 837 (1960). Courts have
applied this "anti-subrogation" rule to prevent an insurance
carrier from transferring a loss back to the party who has paid
for protection from the same loss. LaSalle National Bank v.
Massachusetts Bay Insurance Co., 958 F. Supp. 384, 388 (N.D. Ill.
1997).
The defendant, relying on Gibson v. Country Mutual Insurance
Co., 193 Ill. App. 3d 87, 549 N.E.2d 23 (1990), contends that
Illinois law allows an insurance carrier who pays a claim under
one policy to subrogate against a party it insures under a
separate policy. In Gibson, the plaintiff recovered medical
payments under her own insurance policy and then negotiated a
settlement with the at-fault driver. The plaintiff sought to
prevent her insurance carrier from enforcing subrogation and
reimbursement provisions in her policy to recover the medical
payments it paid her from the settlement she received from the
at-fault driver, whom it also insured. Gibson, 193 Ill. App. 3d
at 88-89. She argued that enforcement of the subrogation and
reimbursement provisions in her policy violated public policy
because she had not been fully compensated for her damages.
Gibson, 193 Ill. App. 3d at 89-91. The court rejected the
argument and allowed the defendant to recover the medical
payments from the plaintiff's settlement with the at-fault
driver. Gibson, 193 Ill. App. 3d at 90-92.
Although the Gibson court allowed an insurance carrier to
apply a subrogation and reimbursement provision against one of
its own insureds under facts similar to those in the instant
case, we do not find Gibson instructive here. The policy in
Gibson contained both reimbursement and subrogation language. In
addition, the plaintiff there did not raise, and the court did
not address, the specific issue presented here. The question of
whether an insurance carrier can exercise its subrogation rights
under one policy against a party it insures under a different
policy appears to be one of first impression in Illinois.
The plaintiffs urge us to adopt the holdings of foreign
jurisdictions which have applied the anti-subrogation rule to
cases, such as the instant one, which involve two separate
insureds under two separate policies. See Control Specialists
Co. Inc. v. State Farm Mutual Automobile Insurance Co., 228 Neb.
642, 423 N.W.2d 775 (1988); Stetina v. State Farm Automobile
Insurance Co., 196 Neb. 441, 243 N.W.2d 341 (1976); Richards v.
Allstate Insurance Co., 193 W.Va. 244, 455 S.E.2d 803 (1995);
Home Insurance Co. v. Pinski Brothers, Inc., 160 Mont. 219, 500 P.2d 945 (1972); Moring v. State Farm Mutual Automobile Insurance
Co., 426 So. 2d 810 (Ala. 1982); Dupre v. Vidrine, 261 So. 2d 288
(La. App. 1972); Compare Maynard v. State Farm Mutual Automobile
Insurance Co., 902 P.2d 1328 (Alaska 1995)(court allowed
defendant insurance carrier reimbursement of medical expenses
insured received from third party also insured by defendant);
Norris v. Allstate Insurance Co., 293 So. 2d 918 (La. App. 1974)
(court allowed insurance carrier to subrogate against tortfeasor,
who was also its insured, pursuant to terms of policy).
In Control Specialists Co., Inc. v. State Farm Mutual
Automobile Insurance Co., 228 Neb. 642, 644, 423 N.W.2d 775, 777
(1988), the Nebraska Supreme Court held that
"where two motor vehicles covered by the same insurance
carrier collide, the nonnegligent driver may recover
for damage to his vehicle under the negligent driver's
liability insurance and again under the property damage
clause of his own insurance policy unless the
nonnegligent driver's policy limits such recovery."
While it is unclear what provisions the nonnegligent driver's
policy contained, the court in Control Specialists based its
ruling on the principles set forth in Stetina v. State Farm
Mutual Automobile Insurance Co., 196 Neb. 441, 243 N.W.2d 341
(1976).
In Stetina, the plaintiff's insurance policy contained a
subrogation clause providing that, upon payment under the policy,
the insurance carrier was subrogated to the insured's rights of
recovery. Stetina, 243 N.W.2d at 342. After a collision between
two parties both insured by the defendant insurance carrier, the
plaintiff negotiated a settlement with the other party to the
accident. When the plaintiff then attempted to collect medical
payments under his own policy, the insurance carrier denied the
claim, arguing that its obligation to pay had been extinguished
because the plaintiff violated the terms of the policy by
destroying the carrier's right to subrogation against the
tortfeasor. Stetina, 243 N.W.2d at 343-43. The Stetina court
held that the plaintiff had not impaired the insurance carrier's
right of subrogation because the carrier had no right of
subrogation against the tortfeasor, whom it also insured.
Stetina, 243 N.W.2d at 347.
In Home Insurance Co. v. Pinski Brothers, Inc., 160 Mont.
219, 500 P.2d 945 (1972), the plaintiff insurance carrier paid
the insured hospital for damages resulting from a boiler
explosion. The plaintiff then filed a negligence action against
the hospital's architects. The defendant architects tendered the
defense of the action to their insurance carrier, which was a
wholly owned subsidiary of the plaintiff. When the architects'
insurance carrier refused the tender, the architects hired their
own attorney and filed a counterclaim against their insurance
carrier. Home Insurance, 500 P.2d at 946-47. The Montana
Supreme Court found that allowing an insurance carrier to sue its
own insured in such a situation violated equitable principles and
public policy. The court stated that:
"Such action, if permitted, would (1) allow the insurer
to expend premiums collected from its insured to secure
a judgment against the same insured on a risk insured
against; (2) give judicial sanction to the breach of
the insurance policy by the insurer; (3) permit the
insurer to secure information from its insured under
the guise of policy provisions available for later use
in the insurer's subrogation action against its own
insured; (4) allow the insurer to take advantage of its
conduct and conflict of interest with its insured; and
(5) constitute judicial approval of a breach of the
insurer's relationship with its own insured."
Home Insurance, 500 P.2d at 949.
In Richards v. Allstate Insurance Co., 193 W.Va. 244, 249,
455 S.E.2d 803, 808 (1995), the Supreme Court of Appeals of West
Virginia also held that "[a]n insurance carrier may not rely upon
a subrogation clause in its policy to receive reimbursement when
it also insures the tortfeasor." The court suggested that, in
order to prevent double recovery by one of its insureds, an
insurance carrier must include in its policies "clear and
unambiguous language in its policy providing for the
reimbursement" of payments made to its insured to the extent that
the insured is compensated by a settlement with or judgment
against another party insured by the same carrier. Richards, 455 S.E.2d at 808.
The defendant here contends that extending the anti-
subrogation rule to cases involving different insureds under
different policies would contravene Illinois public policy
against double recovery. See Hoglund v. State Farm Mutual
Automobile Insurance Co., 148 Ill. 2d 272, 277-81, 592 N.E.2d 1031, 1033-35 (1992) (construing ambiguous uninsured motorist
coverage set-off provision to allow set-off only to extent
necessary to prevent double recovery); Wilson v. The Hoffman
Group, Inc., 131 Ill. 2d 308, 321-22, 546 N.E.2d 524, 530 (1989)
("double recovery is a result which has been condemned");
Popovich v. Ram Pipe & Supply Co., Inc., 82 Ill. 2d 203, 208-09,
412 N.E.2d 518, 521 (1980); Michael v. Fansteel, Inc., 235 Ill.
App. 3d 961, 965, 602 N.E.2d 494, 496-97 (1992)("Illinois has a
strong public policy against a plaintiff's double recovery for
the same injury"). The plaintiffs contend that, as a result of
the rulings in Control Specialists and Stetina, in both of which
cases the instant defendant was a party, the defendant was aware
that it could not enforce subrogation rights against its own
insured. The plaintiffs argue that the defendant could have
rewritten its policies to include unambiguous reimbursement
language applying to such situations but chose not to do so.
The right to subrogation originated in equity, but may now
arise at common law, by statute or by contract. In re Estate of
Scott, 208 Ill. App. 3d 846, 848, 567 N.E.2d 605, 606 (1991).
Where the right is created by an enforceable subrogation clause
in a contract, the contract terms, rather than common law or
equitable principles, control. Capitol Indemnity Corp. v. Strike
Zone, S.S.B.&B. Corp., 269 Ill. App. 3d 594, 596, 646 N.E.2d 310,
312 (1995). The language in the plaintiffs' insurance policies
clearly stated that, if the defendant paid the plaintiffs for
damages to their vehicles, it would obtain the plaintiffs' rights
to recover against a third party. The policies did not limit the
transfer of rights to those against third parties not insured by
the defendant. An unambiguous insurance policy should be
enforced as written to the extent that it does not violate public
policy. King v. Allstate Insurance Co., 269 Ill. App. 3d 190,
192, 645 N.E.2d 503, 505 (1994). We must consider, therefore,
the competing public policy considerations implicated by the
question before us.
We recognize that allowing an insurance carrier to subrogate
against its own insured might create a conflict of interest in
some situations. We do not believe, however, that the instant
case is one of those situations. In this case, Convery sustained
$1,156.99 in damages and Benge sustained $600 in damages. It is
clear that the limits of the at-fault insureds' liability
coverage exceeded the plaintiffs' damages in both cases. Under
these circumstances, no conflict of interest exists between the
defendant and the at-fault insureds to prevent subrogation
because the defendant would have no interest in suing the at-
fault insureds merely to reimburse itself under the at-fault
driver's liability coverage. A conflict of interest might arise
where damages paid under the innocent insured's policy exceed the
limits of the at-fault insured's policy coverage, giving the
insurance carrier an interest in suing its own insured for the
excess. However, as we do not have that factual situation before
us, we need not determine whether, and to what extent, the anti-
subrogation rule would apply under those circumstances.
We conclude, therefore, that the unambiguous language of the
plaintiffs' insurance policies granted a right of subrogation to
the defendant for all sums paid to the plaintiffs under the
physical damage coverage contained in their policies, and the
enforcement of that right against an at-fault driver also insured
by the defendant presents no conflict of interest and does not
violate public policy when, as in this case, the at-fault
driver's liability coverage exceeds the amount of the claim to
which the defendant is subrogated.
Next, the plaintiffs argue that, even if the defendant has a
valid subrogation right, it cannot exercise that right because it
never paid for their losses under their policies. Clearly, an
insurance carrier may not exercise its right to subrogation until
it has paid the insured's damages under the policy giving rise to
the subrogation rights. Stewart, 288 Ill. App. 3d at 686-87;
Capital Indemnity Corp., 269 Ill. App. 3d at 596. Courts have
applied this rule in cases where an insurance carrier brings a
subrogation action against a third party before the carrier has
paid damages to its own insured under the policy giving rise to
the right of subrogation. See Johnson v. State Farm Fire &
Casualty Co., 151 Ill. App. 3d 672, 674, 503 N.E.2d 602, 604
(1987); Providence Washington Insurance Co. v. American Bridge
Division of United States Steel Corp., 200 Ill. App. 3d 597, 600,
558 N.E.2d 396, 397-98 (1990). However, we find these
authorities distinguishable on their facts because, for the
reasons which follow, we find the defendant's single payment of
the plaintiffs' total damages to be nothing more than the
simultaneous discharge of its contractual obligations to both the
plaintiffs and the at-fault drivers along with the exercise of
its subrogation rights under the plaintiffs' insurance policies.
The accidents described in the plaintiffs' complaint
triggered the defendant's contractual obligations under both the
physical damage coverage contained in the plaintiffs' insurance
policies and the liability coverage in the at-fault drivers'
insurance policies. If the defendant had first paid the
plaintiffs the amount of their losses minus their $500
deductibles under the physical damage coverage contained in their
own policies, the defendant would have been subrogated to the
plaintiffs' rights against the at-fault drivers to the extent of
those payments. This would leave the plaintiffs with $500 claims
against the at-fault drivers which the defendant would have been
obligated to pay under the at-fault drivers' liability coverage.
Thereafter, the defendant would have been required to satisfy its
own subrogation claims under the liability coverage in the at-
fault drivers policies; that is to say, the defendant would have
been required to pay itself. The net result being: the
plaintiffs would have recovered the total amount of their losses,
and nothing more; the defendant would have paid the total amount
of the plaintiffs' losses, and nothing more; and the tort
liability of the at-fault drivers for the plaintiffs' losses
would have been extinguished. We, however, think it absolutely
senseless to require an insurance carrier to go through such
accounting machinations when, as in this case, it can discharge
its obligations under both the physical damage coverage contained
in one insured's policy and the liability coverage contained in
the policy of another insured by simply issuing one check for the
total loss sustained. This single payment scheme is nothing more
than a commercially efficient means by which the defendant
discharges its contractual obligations to both of its insureds
and at the same time exercises its valid subrogation rights.
Both of the defendant's insureds have received the benefit of
their bargains; the insured whose property was damaged has been
reimbursed in full and the at-fault insured's liability for that
damage has been extinguished.
For these reasons, we find that the trial court correctly
dismissed this case for the plaintiffs' failure to state a cause
of action upon which relief could be granted.
Affirmed.
THEIS and HOURIHANE, JJ., concur.
FILED: 6/30/98
No. 1-97-3785
CHARLES BENGE,individually and on )
behalf of all persons similarly ) Appeal from the
situated, and JAMES J. CONVERY, ) Circuit Court of
individually and on behalf of all ) Cook County.
persons similarly situated, )
)
Plaintiffs-Appellants, ) No. 96 CH 05727
)
v. )
)
STATE FARM MUTUAL AUTOMOBILE ) Honorable
INSURANCE COMPANY, an Illinois ) Lester D. Foreman,
corporation, ) Judge Presiding.
Defendant-Appellee. )
PRESIDING JUSTICE HOFFMAN delivered the opinion of the
court:
The plaintiffs, Charles Benge and James J. Convery,
individually and on behalf of all persons similarly situated,
appeal from the trial court's dismissal of their second amended
class action complaint for breach of contract against the
defendant, State Farm Mutual Automobile Insurance Company. For
the reasons which follow, we affirm.
On May 30, 1997, the plaintiffs filed a second amended class
action complaint ("complaint") for breach of contract against the
defendant. The plaintiffs purported to represent the class of
persons holding automobile insurance policies issued by the
defendant who sustained damage to their motor vehicles when they
were involved in accidents with persons also insured by the
defendant and who were not paid for those damages by the
defendant both under the liability coverage contained in the at-
fault drivers' insurance policies, and pursuant to the physical
damage coverage contained in their own insurance policies.
The complaint alleged that the plaintiff Convery purchased
an automobile insurance policy from the defendant which was
effective from May 13, 1995, through December 12, 1995. The
physical damage coverage section of that policy provided: "We
will pay for loss to your car caused by collision but only for
the amount of each such loss in excess of the deductible amount."
The policy defined the term "loss" as "each direct and accidental
loss of or damage to 1. your car;" and defined the term collision
as "your car upset or hit or was hit by a vehicle or other
object."
On November 3, 1995, another car, whose driver was also
insured by the defendant, struck and damaged Convery's car.
Convery reported the facts and circumstances of the accident to
one of the defendant's agents. The complaint alleged that
Convery's car required $1,156.99 in repairs and that "[t]he
invoice for the repair *** was paid in full by [the defendant]
pursuant, on information and belief, to the liability coverage
which it sold to the driver of the automobile which struck
CONVERY's automobile." The complaint further alleged that the
defendant failed to pay Convery for those same damages pursuant
to the physical damage coverage provision of his own insurance
policy.
The complaint also alleged that the plaintiff Benge
purchased an automobile insurance policy from the defendant,
which, on information and belief, was identical in all relevant
respects to Convery's policy. On July 7, 1989, while Benge's
insurance policy was in effect, a car whose driver was also
insured by the defendant struck and damaged Benge's car. Benge
reported the facts and circumstances of the collision to one of
the defendant's agents, and, about one month later, the defendant
paid Benge $600, the market value of his car. According to the
complaint, the defendant paid Benge pursuant to the liability
coverage of the at-fault driver and not under the physical damage
coverage provision in his own policy.
The plaintiffs alleged that they paid all premiums and
complied with all terms and conditions of their insurance
policies and that the defendant breached its contractual
obligation by failing to pay the plaintiffs' damages under the
physical damage coverage of those policies. The complaint
charged that the defendant's payments on behalf of the at-fault
drivers in no way satisfied the defendant's independent
contractual obligation to pay the plaintiffs under the physical
damage coverage contained in the plaintiffs' own insurance
policies. In their prayer for relief, the plaintiffs asked that
the court declare the action to be a proper class action and to
award the plaintiffs and the members of the class compensatory
damages, pre-judgment and post-judgment interest, and the costs
and expenses of the litigation. The plaintiffs also asked the
court to enjoin the defendant from engaging in such practices in
the future.
On June 27, 1997, the defendant filed a motion to dismiss
the plaintiffs' complaint pursuant to section 2-615 of the Code
of Civil Procedure (735 ILCS 5/2-615 (West 1996)) and a
memorandum in support of its motion. The defendant alleged,
inter alia, that 1) the complaint was factually insufficient and
failed to plead a breach of contract because the plaintiffs
admitted that the defendant paid them for their damages; 2) the
plaintiffs' allegations that they were paid pursuant to the
policies of the at-fault drivers rather than their own policies
were unsupported factual conclusions; and 3) the complaint was
insufficient because the plaintiffs had attached to it the
incorrect insurance policy for Convery and no insurance policy
for Benge. The defendant also pointed out certain factual
inconsistencies in the complaint. As an example, the complaint
alleged that Benge's accident took place in Chicago, while an
automobile claim report attached as an exhibit to the complaint
stated that the accident occurred in Wheeling. Additionally, the
defendant argued that the complaint was missing crucial facts,
such as the names of the other persons involved in the accidents;
the facts, circumstances and locations of the accidents; the
names of the defendant's agents to whom Benge and Convery
reported their accidents; and specific facts supporting the
plaintiffs' conclusions that the other drivers involved in the
accidents were at fault. Alternatively, the defendant contended
that dismissal of the complaint was appropriate because the
plaintiffs had no right to recover where, under the terms of
their insurance policies, their rights to recover against the at-
fault drivers passed to the defendant once the defendant paid the
plaintiffs for their damages. The provision to which the
defendant referred provides:
"Our Right to Recover Our Payments
***
d. Under all other coverages, and except as
provided for within the medical payments
coverage, the right of recovery of any party
we pay passes to us. Such party shall:
(1) not hurt our rights to recover; and
(2) help us get our money back."
On September 19, 1997, the trial court granted the
defendant's motion to dismiss the complaint, finding that the
plaintiffs had not suffered a "loss" as defined by their
insurance policies because they had been compensated for their
damages under the at-fault drivers' insurance policies. On
appeal, the plaintiffs contend that the trial court improperly
dismissed their complaint, arguing that they suffered a "loss" as
defined by their insurance policies and that their complaint
adequately alleged a cause of action for breach of contract. The
plaintiffs claim that they are entitled to recover both under the
physical damage coverage in their own policies and from the at-
fault drivers, also insured by the defendant. The plaintiffs
rely on Control Specialists Co. Inc. v. State Farm Automobile
Insurance Co., 228 Neb. 642, 423 N.W.2d 775 (1988), and other
foreign authority, in support of their argument that the
defendant cannot enforce a right of subrogation against its own
at-fault insured.
A section 2-615 motion to dismiss, which attacks only the
legal sufficiency of a complaint, admits all well-pleaded facts,
but does not admit unsupported legal or factual conclusions.
Spillyards v. Abboud, 278 Ill. App. 3d 663, 668, 662 N.E.2d 1358,
1361 (1996). The court must interpret the factual allegations in
the light most favorable to the plaintiff. Lake County Grading
Co. of Libertyville, Inc. v. Advance Mechanical Contractors,
Inc., 275 Ill. App. 3d 452, 457, 654 N.E.2d 1109, 1114 (1995). A
complaint should be dismissed pursuant to section 2-615 only if
no set of facts could be proven which would entitle the plaintiff
to the relief he seeks. People ex rel. Peters v. Murphy-Knight,
248 Ill. App. 3d 382, 386, 618 N.E.2d 459, 463 (1993). We review
the trial court's ruling on a motion to dismiss de novo, and can
affirm on any basis present in the record. Toombs v. City of
Champaign, 245 Ill. App. 3d 580, 583, 615 N.E.2d 50, 51 (1993);
Lake County Grading Co., 275 Ill. App. 3d at 457.
In order to state a cause of action for breach of contract,
the plaintiff must allege that a contract existed, that the
plaintiff performed his obligations under the contract, that the
defendant breached the contract, and that the plaintiff was
injured by the defendant's breach. Talbert v. Home Savings of
America, F.A., 265 Ill. App. 3d 376, 379, 638 N.E.2d 354, 357
(1994). A complaint which fails to state essential allegations
is deficient and may not be remedied by liberal construction.
OnTap Premium Quality Waters, Inc. v. Bank of Northern Illinois,
N.A., 262 Ill. App. 3d 254, 259, 634 N.E.2d 425, 429 (1994).
The plaintiffs' complaint admits that the defendant paid
them for the damage to their cars, but alleges that the defendant
paid those damages pursuant to the liability coverage of the at-
fault drivers. Convery's insurance policy provides that the
defendant will pay for any loss due to collision "but only for
the amount of each such loss in excess of the deductible amount."
The policy further provides: "If the collision is with another
motor vehicle insured with us, you do not pay your deductible if
it is $100 or less as we pay it." Convery's insurance policy,
which is attached as an exhibit to the complaint, includes a $500
deductible for collision coverage. Convery alleged, however,
that the defendant paid his damages in full. The complaint also
alleged that Benge's insurance policy was identical in all
relevant respects to Convery's and that the defendant paid Benge
the full market value of his car. When viewed in the light most
favorable to the plaintiffs, we believe that these factual
allegations support the conclusion that the defendant did not
reduce the payments to either plaintiff by the $500 deductible
provided for pursuant to the physical damage coverage in their
policies. We can, therefore, reasonably infer that the defendant
paid, at minimum, $500 of the plaintiffs' damages pursuant to the
liability coverage of the at-fault drivers.
As stated earlier, the physical damage coverage in the
plaintiffs' insurance policies provided that, upon the
defendant's payment of the plaintiffs' damages, their rights to
recover against any third party passed to the defendant. The
plaintiffs contend that the defendant is not entitled to benefit
from this provision because an insurance carrier cannot exercise
a right of subrogation against its own insured. The defendant
responds that the policy provision at issue is not a subrogation
clause and that, even if it is, Illinois law does not prevent an
insurance carrier from subrogating against a party it insures
under a different policy than that from which the right to
subrogate arises.
We reject the defendant's argument that the transfer of
rights provision contained in the plaintiffs' insurance policies
is not a subrogation clause. Subrogation is "the substitution of
one individual in the place of a claimant to whose rights he
succeeds in relation to the debt or claim asserted which he has
paid involuntarily." State Farm General Insurance Co. v.
Stewart, 288 Ill. App. 3d 678, 686, 681 N.E.2d 625, 630 (1997).
The provision in question stated that the plaintiffs' rights to
recover passed to the defendant when it paid the plaintiffs'
damages pursuant to their own coverage.
It is generally said that an insurance carrier may not
subrogate against its own insured. 16 Couch on Insurance 2d
61:136 (rev. 1983); 44 Am. Jur. 2d Insurance 1794 (1982); 2 W.
Freedman, Richards on Insurance 185 (5th ed. 1952). However,
Illinois courts have only applied this rule to prevent an
insurance carrier from subrogating against an insured or
coinsured under the policy which gives rise to the right of
subrogation. In Dix Mutual Insurance Co. v. LaFramboise, 149 Ill. 2d 314, 317, 597 N.E.2d 622, 623 (1992), for instance, the
insurance carrier paid the insured building owner for fire damage
and then sought to recover from one of the building's tenants,
who had allegedly started the fire. The court found that the
tenant was a coinsured under the insurance policy and, as such,
the insurance carrier could not maintain a subrogation action
against him. Dix Mutual, 149 Ill. 2d at 323. See also Reich v.
Tharp, 167 Ill. App. 3d 496, 501-04, 521 N.E.2d 530, 533-36
(1988); McGinnis ex rel. C.I.E. Service Corp. v. LaShelle, 166
Ill. App. 3d 131, 135, 519 N.E.2d 699, 701 (1988); Western States
Mutual Insurance Co. v. Standard Mutual Insurance Co., 26 Ill.
App. 2d 378, 385-86, 167 N.E.2d 833, 837 (1960). Courts have
applied this "anti-subrogation" rule to prevent an insurance
carrier from transferring a loss back to the party who has paid
for protection from the same loss. LaSalle National Bank v.
Massachusetts Bay Insurance Co., 958 F. Supp. 384, 388 (N.D. Ill.
1997).
The defendant, relying on Gibson v. Country Mutual Insurance
Co., 193 Ill. App. 3d 87, 549 N.E.2d 23 (1990), contends that
Illinois law allows an insurance carrier who pays a claim under
one policy to subrogate against a party it insures under a
separate policy. In Gibson, the plaintiff recovered medical
payments under her own insurance policy and then negotiated a
settlement with the at-fault driver. The plaintiff sought to
prevent her insurance carrier from enforcing subrogation and
reimbursement provisions in her policy to recover the medical
payments it paid her from the settlement she received from the
at-fault driver, whom it also insured. Gibson, 193 Ill. App. 3d
at 88-89. She argued that enforcement of the subrogation and
reimbursement provisions in her policy violated public policy
because she had not been fully compensated for her damages.
Gibson, 193 Ill. App. 3d at 89-91. The court rejected the
argument and allowed the defendant to recover the medical
payments from the plaintiff's settlement with the at-fault
driver. Gibson, 193 Ill. App. 3d at 90-92.
Although the Gibson court allowed an insurance carrier to
apply a subrogation and reimbursement provision against one of
its own insureds under facts similar to those in the instant
case, we do not find Gibson instructive here. The policy in
Gibson contained both reimbursement and subrogation language. In
addition, the plaintiff there did not raise, and the court did
not address, the specific issue presented here. The question of
whether an insurance carrier can exercise its subrogation rights
under one policy against a party it insures under a different
policy appears to be one of first impression in Illinois.
The plaintiffs urge us to adopt the holdings of foreign
jurisdictions which have applied the anti-subrogation rule to
cases, such as the instant one, which involve two separate
insureds under two separate policies. See Control Specialists
Co. Inc. v. State Farm Mutual Automobile Insurance Co., 228 Neb.
642, 423 N.W.2d 775 (1988); Stetina v. State Farm Automobile
Insurance Co., 196 Neb. 441, 243 N.W.2d 341 (1976); Richards v.
Allstate Insurance Co., 193 W.Va. 244, 455 S.E.2d 803 (1995);
Home Insurance Co. v. Pinski Brothers, Inc., 160 Mont. 219, 500 P.2d 945 (1972); Moring v. State Farm Mutual Automobile Insurance
Co., 426 So. 2d 810 (Ala. 1982); Dupre v. Vidrine, 261 So. 2d 288
(La. App. 1972); Compare Maynard v. State Farm Mutual Automobile
Insurance Co., 902 P.2d 1328 (Alaska 1995)(court allowed
defendant insurance carrier reimbursement of medical expenses
insured received from third party also insured by defendant);
Norris v. Allstate Insurance Co., 293 So. 2d 918 (La. App. 1974)
(court allowed insurance carrier to subrogate against tortfeasor,
who was also its insured, pursuant to terms of policy).
In Control Specialists Co., Inc. v. State Farm Mutual
Automobile Insurance Co., 228 Neb. 642, 644, 423 N.W.2d 775, 777
(1988), the Nebraska Supreme Court held that
"where two motor vehicles covered by the same insurance
carrier collide, the nonnegligent driver may recover
for damage to his vehicle under the negligent driver's
liability insurance and again under the property damage
clause of his own insurance policy unless the
nonnegligent driver's policy limits such recovery."
While it is unclear what provisions the nonnegligent driver's
policy contained, the court in Control Specialists based its
ruling on the principles set forth in Stetina v. State Farm
Mutual Automobile Insurance Co., 196 Neb. 441, 243 N.W.2d 341
(1976).
In Stetina, the plaintiff's insurance policy contained a
subrogation clause providing that, upon payment under the policy,
the insurance carrier was subrogated to the insured's rights of
recovery. Stetina, 243 N.W.2d at 342. After a collision between
two parties both insured by the defendant insurance carrier, the
plaintiff negotiated a settlement with the other party to the
accident. When the plaintiff then attempted to collect medical
payments under his own policy, the insurance carrier denied the
claim, arguing that its obligation to pay had been extinguished
because the plaintiff violated the terms of the policy by
destroying the carrier's right to subrogation against the
tortfeasor. Stetina, 243 N.W.2d at 343-43. The Stetina court
held that the plaintiff had not impaired the insurance carrier's
right of subrogation because the carrier had no right of
subrogation against the tortfeasor, whom it also insured.
Stetina, 243 N.W.2d at 347.
In Home Insurance Co. v. Pinski Brothers, Inc., 160 Mont.
219, 500 P.2d 945 (1972), the plaintiff insurance carrier paid
the insured hospital for damages resulting from a boiler
explosion. The plaintiff then filed a negligence action against
the hospital's architects. The defendant architects tendered the
defense of the action to their insurance carrier, which was a
wholly owned subsidiary of the plaintiff. When the architects'
insurance carrier refused the tender, the architects hired their
own attorney and filed a counterclaim against their insurance
carrier. Home Insurance, 500 P.2d at 946-47. The Montana
Supreme Court found that allowing an insurance carrier to sue its
own insured in such a situation violated equitable principles and
public policy. The court stated that:
"Such action, if permitted, would (1) allow the insurer
to expend premiums collected from its insured to secure
a judgment against the same insured on a risk insured
against; (2) give judicial sanction to the breach of
the insurance policy by the insurer; (3) permit the
insurer to secure information from its insured under
the guise of policy provisions available for later use
in the insurer's subrogation action against its own
insured; (4) allow the insurer to take advantage of its
conduct and conflict of interest with its insured; and
(5) constitute judicial approval of a breach of the
insurer's relationship with its own insured."
Home Insurance, 500 P.2d at 949.
In Richards v. Allstate Insurance Co., 193 W.Va. 244, 249,
455 S.E.2d 803, 808 (1995), the Supreme Court of Appeals of West
Virginia also held that "[a]n insurance carrier may not rely upon
a subrogation clause in its policy to receive reimbursement when
it also insures the tortfeasor." The court suggested that, in
order to prevent double recovery by one of its insureds, an
insurance carrier must include in its policies "clear and
unambiguous language in its policy providing for the
reimbursement" of payments made to its insured to the extent that
the insured is compensated by a settlement with or judgment
against another party insured by the same carrier. Richards, 455 S.E.2d at 808.
The defendant here contends that extending the anti-
subrogation rule to cases involving different insureds under
different policies would contravene Illinois public policy
against double recovery. See Hoglund v. State Farm Mutual
Automobile Insurance Co., 148 Ill. 2d 272, 277-81, 592 N.E.2d 1031, 1033-35 (1992) (construing ambiguous uninsured motorist
coverage set-off provision to allow set-off only to extent
necessary to prevent double recovery); Wilson v. The Hoffman
Group, Inc., 131 Ill. 2d 308, 321-22, 546 N.E.2d 524, 530 (1989)
("double recovery is a result which has been condemned");
Popovich v. Ram Pipe & Supply Co., Inc., 82 Ill. 2d 203, 208-09,
412 N.E.2d 518, 521 (1980); Michael v. Fansteel, Inc., 235 Ill.
App. 3d 961, 965, 602 N.E.2d 494, 496-97 (1992)("Illinois has a
strong public policy against a plaintiff's double recovery for
the same injury"). The plaintiffs contend that, as a result of
the rulings in Control Specialists and Stetina, in both of which
cases the instant defendant was a party, the defendant was aware
that it could not enforce subrogation rights against its own
insured. The plaintiffs argue that the defendant could have
rewritten its policies to include unambiguous reimbursement
language applying to such situations but chose not to do so.
The right to subrogation originated in equity, but may now
arise at common law, by statute or by contract. In re Estate of
Scott, 208 Ill. App. 3d 846, 848, 567 N.E.2d 605, 606 (1991).
Where the right is created by an enforceable subrogation clause
in a contract, the contract terms, rather than common law or
equitable principles, control. Capitol Indemnity Corp. v. Strike
Zone, S.S.B.&B. Corp., 269 Ill. App. 3d 594, 596, 646 N.E.2d 310,
312 (1995). The language in the plaintiffs' insurance policies
clearly stated that, if the defendant paid the plaintiffs for
damages to their vehicles, it would obtain the plaintiffs' rights
to recover against a third party. The policies did not limit the
transfer of rights to those against third parties not insured by
the defendant. An unambiguous insurance policy should be
enforced as written to the extent that it does not violate public
policy. King v. Allstate Insurance Co., 269 Ill. App. 3d 190,
192, 645 N.E.2d 503, 505 (1994). We must consider, therefore,
the competing public policy considerations implicated by the
question before us.
We recognize that allowing an insurance carrier to subrogate
against its own insured might create a conflict of interest in
some situations. We do not believe, however, that the instant
case is one of those situations. In this case, Convery sustained
$1,156.99 in damages and Benge sustained $600 in damages. It is
clear that the limits of the at-fault insureds' liability
coverage exceeded the plaintiffs' damages in both cases. Under
these circumstances, no conflict of interest exists between the
defendant and the at-fault insureds to prevent subrogation
because the defendant would have no interest in suing the at-
fault insureds merely to reimburse itself under the at-fault
driver's liability coverage. A conflict of interest might arise
where damages paid under the innocent insured's policy exceed the
limits of the at-fault insured's policy coverage, giving the
insurance carrier an interest in suing its own insured for the
excess. However, as we do not have that factual situation before
us, we need not determine whether, and to what extent, the anti-
subrogation rule would apply under those circumstances.
We conclude, therefore, that the unambiguous language of the
plaintiffs' insurance policies granted a right of subrogation to
the defendant for all sums paid to the plaintiffs under the
physical damage coverage contained in their policies, and the
enforcement of that right against an at-fault driver also insured
by the defendant presents no conflict of interest and does not
violate public policy when, as in this case, the at-fault
driver's liability coverage exceeds the amount of the claim to
which the defendant is subrogated.
Next, the plaintiffs argue that, even if the defendant has a
valid subrogation right, it cannot exercise that right because it
never paid for their losses under their policies. Clearly, an
insurance carrier may not exercise its right to subrogation until
it has paid the insured's damages under the policy giving rise to
the subrogation rights. Stewart, 288 Ill. App. 3d at 686-87;
Capital Indemnity Corp., 269 Ill. App. 3d at 596. Courts have
applied this rule in cases where an insurance carrier brings a
subrogation action against a third party before the carrier has
paid damages to its own insured under the policy giving rise to
the right of subrogation. See Johnson v. State Farm Fire &
Casualty Co., 151 Ill. App. 3d 672, 674, 503 N.E.2d 602, 604
(1987); Providence Washington Insurance Co. v. American Bridge
Division of United States Steel Corp., 200 Ill. App. 3d 597, 600,
558 N.E.2d 396, 397-98 (1990). However, we find these
authorities distinguishable on their facts because, for the
reasons which follow, we find the defendant's single payment of
the plaintiffs' total damages to be nothing more than the
simultaneous discharge of its contractual obligations to both the
plaintiffs and the at-fault drivers along with the exercise of
its subrogation rights under the plaintiffs' insurance policies.
The accidents described in the plaintiffs' complaint
triggered the defendant's contractual obligations under both the
physical damage coverage contained in the plaintiffs' insurance
policies and the liability coverage in the at-fault drivers'
insurance policies. If the defendant had first paid the
plaintiffs the amount of their losses minus their $500
deductibles under the physical damage coverage contained in their
own policies, the defendant would have been subrogated to the
plaintiffs' rights against the at-fault drivers to the extent of
those payments. This would leave the plaintiffs with $500 claims
against the at-fault drivers which the defendant would have been
obligated to pay under the at-fault drivers' liability coverage.
Thereafter, the defendant would have been required to satisfy its
own subrogation claims under the liability coverage in the at-
fault drivers policies; that is to say, the defendant would have
been required to pay itself. The net result being: the
plaintiffs would have recovered the total amount of their losses,
and nothing more; the defendant would have paid the total amount
of the plaintiffs' losses, and nothing more; and the tort
liability of the at-fault drivers for the plaintiffs' losses
would have been extinguished. We, however, think it absolutely
senseless to require an insurance carrier to go through such
accounting machinations when, as in this case, it can discharge
its obligations under both the physical damage coverage contained
in one insured's policy and the liability coverage contained in
the policy of another insured by simply issuing one check for the
total loss sustained. This single payment scheme is nothing more
than a commercially efficient means by which the defendant
discharges its contractual obligations to both of its insureds
and at the same time exercises its valid subrogation rights.
Both of the defendant's insureds have received the benefit of
their bargains; the insured whose property was damaged has been
reimbursed in full and the at-fault insured's liability for that
damage has been extinguished.
For these reasons, we find that the trial court correctly
dismissed this case for the plaintiffs' failure to state a cause
of action upon which relief could be granted.
Affirmed.
THEIS and HOURIHANE, JJ., concur.
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