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Strengthening Policy Defenses to Non-Cooperation: Illinois Appellate Court Reaffirms Enforceability of Cooperation Clauses and Lawsuit Limitation Provisions

The Illinois Appellate Court has affirmed the dismissal with prejudice of a policy holder’s lawsuit against its insurer. Jonathan Piser v. State Farm Mutual Automobile Insurance Company, 1-09-3379 (awaiting formal publication), Appellate Court of Illinois, First District, Fifth Division (September 30, 2010). The case examines the rights of an insurer to request and expect the cooperation of its insured during a claim investigation, as well as the right of the insurer to seek dismissal of an insured’s lawsuit when that insured has failed to provide full cooperation during a claim investigation. The decision represents a fortification of the standard cooperation and suit limitation clauses in many policies, and it affirms that full compliance with reasonable policy requirements still is a precondition to the right to recover.     

Plaintiff Jonathan Piser filed a Complaint at Law against State Farm Mutual Automobile Insurance Company in the Circuit Court of Cook County, Case No. 08 L 9784, alleging breach of contract and statutory bad faith under the Illinois Insurance Code. Mr. Piser filed his Complaint after State Farm denied his claim for the alleged theft of his 2003 Harley Davidson Motorcycle, which he alleged was stolen from his garage in September, 2006. 

State Farm commenced an investigation of Mr. Piser’s claim. The initial investigation included an analysis of relevant documents and an unsworn recorded interview of Mr. Piser, but State Farm was unable to clarify certain inconsistencies and suspicions and requested further information, including a financial authorization and certain relevant bank recordsso that it could ensure that Mr. Piser had no financial motive to present a false claim. State Farm also demanded that he appear for an examination under oath.    

Mr. Piser refused repeatedly to provide State Farm with the executed financial authorization or the bankrecords and refused three times to appear for his EUO. Consequently, State Farm denied the claim on the basis of his failure to cooperate in the claim investigation.State Farm based its denial upon the cooperation requirements in the Insured’s Duties section of the applicable policy, and in its denial letter it reminded Mr. Piser that the policy also prohibited any lawsuit against the company until he complied with all terms and conditions of the policy.  Mr. Piser filed his lawsuit notwithstanding his violations of these provisions. 

State Farm moved to dismiss the lawsuit with prejudice pursuant to Section 619 of the Illinois Code of Civil Procedure, on the basis that an affirmative matter not apparent upon the face of the Complaint defeated Piser’s right to seek recovery. In this instance, that other affirmative matter was his refusal to cooperate with the claim investigation and his resulting inability to satisfy the suit filing provision, which required his full compliance with the policy as a precondition to his ability to file a lawsuit.

 In support of its motion to dismiss, State Farm cited to the two policy provisions at issue. The first, the cooperation clause, states as follows:

 REPORTING A CLAIM – INSURED’S DUTIES

3.  Other Duties Under the Physical Damages Coverages

When there is a loss, you or the owner of the property also shall:

e.   answer questions under oath when asked by anyone we name, as often as we reasonably ask, and sign copies of the answers.

4.  Insured’s Duty to Cooperate With Us

 a.         The insured shall cooperate with us and, when asked, assist us in:

                          (2)        securing and giving evidence. 

The second provision prohibiting Piser’s lawsuit states as follows:

CONDITIONS

1.  Suit Against Us

There is no right of action against us:

a.  until all the terms of this policy have been met;

State Farm supported its motion with the affidavit of claim representative Ron Gottardo, who testified to his attempts to secure Mr. Piser’s cooperation with his claim investigation pursuant to the Duties provisions of the policy, Mr. Piser’s failure to comply with those attempts and the prejudice Piser’s refusal to cooperate caused the claim investigation. Mr. Gottardo testified that that prejudice prohibited State Farm from reaching a claim decision on the merits and left it with no choice but to deny the claim. The affidavit attached and incorporated all of State Farm’s written requests for Piser’s cooperation.

In response, Piser argued that he did cooperate with some of the initial claim investigation requests, and that questions of fact regarding the extent of his compliance precluded dismissal with prejudice at the pleadings stage. However, he did not provide a counter-affidavit to Ron Gottardo’s affidavit, he did not deny the central allegations that he refused to provide requested information and appear for his examination under oath and he did not dispute the enforceability of the two policy provisions at issue by arguing that they were vague, ambiguous or otherwise unenforceable as a matter of law.

The trial court granted the motion to dismiss, ruling that Piser did not comply with the clear policy requirements that he produce the requested evidence and appear for an examination under oath. Consequently, the Court reasoned, the Suit Against Us clause operated as a bar to his lawsuit. Piser appealed.

The Appellate Court, First District, affirmed the dismissal and did so without oral argument. The appellate court reasoned first that Piser’s failure to provide a counter-affidavit in opposition to Ron Gottardo’s affidavit was a fatal defect, because under established rules of procedure, failure to do so elevated Gottardo’s testimony to the force of admitted fact. The Court also rejected Piser’s attacks upon the sufficiency of the Gottardo affidavit, noting that the affidavit was admissible both as an exception to the hearsay rule to the extent it incorporated regular business records and because it was also admissible as non-hearsay, inasmuch as it proved that Piser had notice of State Farm’s requests for his cooperation.

Next, the Court reasoned that Illinois law does require an insured to cooperate with reasonable, policy-based requests for cooperation. See, e.g.,Horton v. Allstate Ins. Co., 125 Ill.App.3d 1034, 1037 (1stDist. 1984); Passero v. Allstate Insurance Co.,, 192 Ill.App.3d 602, 607-608, (1990) (citing Claflin v. Commonwealth Insurance Co., 110 U.S. 81, 94-95 (1884)). The Court affirmed the rule in Illinois that when an insured makes virtually no effort to provide relevant information and the insurer denies the claim based upon the cooperation clause, the insurer generally is entitled to dismissal of an insured’s lawsuit challenging the denial. And the court rejected Piser’s argument that he provided partial cooperation and that State Farm was somehow to blame because it did not conduct Piser’s initial recorded statement under oath. It found the policy provisions to be clear an unambiguous and Piser’s refusal to comply with them to be equally as clear, and inexcusable.

In short, the Court affirmed the right of an insurer to assert its cooperation clause in denial of a claim when an insured refuses substantially to cooperate with a claim investigation. It affirmed as well the right of an insurer to seek dismissal of an insured’s lawsuit challenging the denial when additional policy provisions condition such lawsuits upon full compliance with the policy. The decision is the first Illinois decision in some time interpreting cooperation clauses so favorably for insurers, and it represents a valuable reinvigoration of a very useful defense against obstinate policy holders who prejudice reasonable claim investigations.

(Disclosure: The author wrote and argued the successful motion to dismiss on behalf of State Farm at the trial level).

©2022 Johnson & Bell, Ltd. All Rights Reserved.National Law Review, Volume , Number 351
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About this Author

Eric Moch, Johnson & Bell, insurance lawyer
Associate

Eric Moch concentrates his practice in insurance law with an emphasis in coverage, insurance fraud and bad faith litigation in first- and third-party disputes. Mr. Moch also represents insureds in general negligence actions, municipalities in negligence and civil rights actions, and attorneys in legal malpractice actions. He has extensive civil litigation experience in Illinois state and federal courts, including numerous jury verdicts and published appeals. Mr. Moch also has held numerous claims roles in the insurance industry, including the evaluation of legal...

312-984-3423
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