Permitted Users Clause and the Duty to Defend
In Indiana Insurance Company v. Philadelphia Indemnity Insurance Co., Cougle Commission Company (“Cougle”) was in the business of distributing meat and poultry. Indiana Insurance Company (“Indiana”) insured the vehicles used in Cougle’s delivery operation under a business auto policy up to $1 million. Indiana’s policy provided coverage for scheduled autos, including leased vehicles and coverage for the lessor, when a lease agreement was required. Cougle entered into a truck lease agreement with Chicago Truck Leasing, Inc. (“Chicago Truck”), a company that leases commercial vehicles. There was a 1995 International truck on the schedule of leased vehicles. Indiana provided coverage on the truck and for lessor Chicago Truck as an “insured” on the Cougle policy. Chicago Truck was insured by Philadelphia under a business auto policy and also a contingent and excess policy. Both policies required the lessor to provide Chicago Truck with primary insurance coverage. The Philadelphia business auto policy insured Chicago Truck up to $1 million and supplied coverage to anyone operating a scheduled motor vehicle with Chicago Truck’s permission. The 1995 International truck was not scheduled on the Philadelphia policy. The Philadelphia contingent and excess policy insured only the named insured, Chicago Truck, up to $1 million.
On July 28, 2004, Chicago Truck replaced the 1995 International truck with a 2005 International truck. Cougle informed Indiana to remove the 1995 truck from its insurance policy and replace it with the 2005 truck. On July 30, 2004, an agent from Cougle contacted Chicago Truck to get an extra truck for the day. Cougle and Chicago Truck entered into a one-day oral lease agreement for an extra truck. The vehicle provided by Chicago Truck was the 1995 International truck, which had been removed from the lease and was not scheduled as a covered vehicle under the Indiana or Philadelphia policies. On July 31, 2004, Illinois Department of Transportation employee, Richard Donovan (“Donovan”), was assisting a disabled motorist on the shoulder of the Dan Ryan Expressway in Chicago when he was struck by the 1995 International truck driven by Cougle employee, Nicholas Pangallo (“Pangallo”). Donovan filed a complaint against Pangallo and Cougle.
Pangallo and Cougle, in turn, filed a third-party complaint against Chicago Truck, where they alleged that Chicago Truck failed to inspect, maintain, and repair the accident vehicle prior to leasing it to Cougle. The attorney for Pangallo and Cougle argued in a letter to Philadelphia that the allegations in the Donovan complaint trigger a duty to defend. Pangallo and Cougle sought a defense from the Donovan lawsuit and coverage from Philadelphia under Chicago Truck’s business auto policy and contingent and excess policy. Philadelphia denied coverage based on the requirements under both Chicago Truck policies that the lessee, Cougle, provide primary coverage. Philadelphia also denied coverage because the 1995 International truck had never been scheduled on either of Chicago Truck’s policies. Pangallo and Cougle defense was taken up by Indiana.
The Donovans filed an amended complaint adding Chicago Truck as a defendant. Indiana, Cougle, and Pangallo filed a two-count complaint for declaratory judgment against Philadelphia, Chicago Truck, and the Donovans. Cougle amd Pangallo sought a declaration that Philadelphia breached a duty to defend them in the Donovan lawsuit based on Chicago Truck’s business auto policy. They allege that the business auto policy provided “permitted user” coverage for anyone using an automobile owned by and leased by Chicago Truck. They also alleged the “Other Insurance Conditions” section of the policy provides primary coverage for autos owned and leased by its insured, Chicago Truck. In count II, they sought a declaration that Philadelphia owed a duty to defend the Donovan lawsuit under Chicago Truck’s contingent and excess policy.
The court reviewed whether there was a duty to defend. To determine whether the underlying suit alleged a situation potentially within the insurance coverage, the court compared the bare allegations of the complaint to the relevant provisions of the insurance policy. Philadelphia argued that since Pangallo and Cougle are not parties to the insurance contract with Chicago Truck, they do not have standing to seek enforcement of the Chicago Truck policy. The court found evidence that the contracting parties here intended coverage for permissive users of Chicago Truck’s vehicles by including the “permitted users” clause in the policy. In addition, both the business auto policy and the contingent and excess policy provide coverage for “leased vehicles.” The record shows that Cougle and Chicago Truck entered into a long-term lease for a truck. With the inclusion of the permitted users clause, along with coverage for leased vehicles, we cannot say there is no potential for coverage here.
The court found that because Philadelphia did not file a declaratory judgment to show the 1995 International truck was not a scheduled vehicle, Philadelphia owed Cougle and Pangallo a duty to defend under Illinois law.
Indiana Insurance Company v. Philadelphia Indemnity Insurance Co., 2013 WL 1289058 (Ill.App. 1 Dist). (Filed under Supreme Court Rule 23 and may not be cited as precedent by any party except in the limited circumstances allowed under Rule 23(e)(1).).
