American Service Insurance v. Miller, 2014 IL App (5th) 130582
In a recent decision by the Illinois Appellate Court, Fifth District, the court affirmed an award of sanctions against an insurance company in a declaratory judgment action.  The insurance company filed a declaratory judgment action against its former insured and the underlying tort plaintiff.  The insurance company argued that it did owe coverage to its insured arising out of a motor vehicle accident which was the subject of an underlying lawsuit.  The insured failed to give the insurance company notice of the accident and also failed to give the insurance company notice of the tort action that had been filed against her.  The insurance company asked the court to declare that it had no obligation to indemnify or defend its insured in the underlying negligence action.

Attached to the insurer’s declaratory judgment complaint was a certification by an insurance company underwriter indicating that “a true and correct copy” of the insurance policy was attached.  The policy was purportedly in effect at the time of the insured client’s collision.  However, at trial, a claims adjuster employed by the insurance company was cross-examined regarding the certified copy of the insurance policy.  The claims adjuster’s testimony revealed that there were discrepancies between the certified policy attached to the complaint and a policy that was produced in discovery.  The claims adjuster testified that the certified copy of the insured client’s policy attached to the complaint was not the same as the policy that the insured had in her possession at the time of the accident.  The insured’s policy contained different information including, but not limited to, a different address to send written notification of an accident, a different office for the insurance company, and a different telephone number telephone number and office for the insured to report a lawsuit.

At the end of the insurance company’s case, the tort plaintiff moved for a directed verdict in the declaratory judgment action arguing that the insurance company could never establish the terms of the policy or that its insured failed to comply with any provision of the insurance policy since the insurance company could not produce the actual policy that the insured had in her possession at the time of the accident.  The insurance company then filed a motion for leave to amend the complaint to substitute a revised policy in the place of the policy that was attached to the complaint.  As a representative of the insurance company attested that the substitute policy was a true and correct policy issued to the insured.  The insurance company argued that it encountered difficulties when attempting to produce a certified copy of the insured client’s policy, that the relevant policy provisions in all the policies produced by the insurance company were the same, and the errors associated with the creation of the certified copies of the insurance policy were wholly inadvertent and not done with an intent to deceive or conceal.

The trial court found that despite multiple attempts, the insurance company was not able to produce the correct policy because the subsequent policy produced by the insurance company did not comport with correspondence sent to the insured client regarding the policy.  The court concluded that the policy proffered after the close of the insurer’s case in chief was not a true and correct copy of the insured client’s policy.  The court denied the insurance company’s motion for leave to substitute the revised insurance policy for the one that had been filed with the original complaint.  The court also entered an order awarding sanctions to the tort plaintiff.  The insurance company was ordered to pay its policy limits, interest, attorney’s fees, and litigation expenses.  The court did not, however, order additional sanctions because it found that the insurance company’s conduct did not amount to intentional concealment or willful misconduct.

The appellate court in affirming the decision of the trial court noted that good faith alone is not a defense to sanctionable conduct.  When a pleading or other document is filed in violation of the Illinois Supreme Court rules, the court may impose an appropriate sanction which may include an order to pay the reasonable expenses incurred by the other party as a result of filing the inappropriate pleading or other document.