Sheryl Kuzma filed a defamation suit against Yorkville Bank and its Vice President Bernard Wiegmann, claiming that Wiegmann’s false statements damaged her reputation. Yorkville was insured by West American under a general liability policy with a commercial umbrella. Zeiter-Dickson, an approved insurance agent of West American, sold Yorkville the policy. After Kuzma’s filing, James Liggett, Yorkville’s President, sought advice from Richard Dickson. Dickson not only sold Liggett Yorkville’s policy, but also served as a member of Yorkville’s board. Liggett claimed that, in late 2001 or early 2002, Dickson told him that the West American policy likely would not cover the defamation suit. Liggett further recounted that, around the same time, he met with Joel Ottosen, a different West American agent. Ottosen provided the same response as Dickson: Yorkville’s West American policy probably would not cover the defamation suit. Ottosen denied the conversation, and claimed he learned of Kuzma’s lawsuit two years later when Wiegmann contacted him about whether Wiegmann’s homeowner’s policy would provide coverage.
Over the course of 2002, Yorkville held three board meetings, at which Dickson was present, in which they discussed the financial implications of the defamation suit. In January of 2004, an unrelated insurance agent provided Liggett with an entirely different opinion: the West American policy would cover the defamation suit. On January 19, 2004, days after that conversation, Yorkville provided written notice of the claim for coverage. Three days later, West American’s litigation specialist decided that Yorkville’s policy covered most of Kuzma’s defamation complaint. Then, on March 5, 2004, West American denied Yorkville coverage based on late notice. Four days later, West American filed a declaratory judgment action denying coverage based on Yorkville’s late notice. Yorkville settled with Kuzma in the summer of 2004 for $1.75 million. West American neither participated in any trial proceedings or settlement discussions.
In the declaratory judgment, the trial court ruled for Yorkville, awarding over $1.9 million in stipulated damages. The trial court found that based on both the conversation between Liggett and Dickson (which occurred as Liggett described) and notes from the three Yorkville board meetings (at which Dickson was present) that West American received actual notice of the defamation lawsuit at some point in 2002. The Illinois appellate court reversed the trial court, holding that Yorkville’s twenty-seven month wait in filing a written claim for coverage constituted a breach of the policy’s notice clause. [388 Ill. App. 3d 769, 902 N.E. 2d 1275, 327 Ill. Dec. 889 (3d Dist. 2009)]
The Illinois Supreme Court reversed the appellate court, holding that Yorkville did not breach the policy’s “as soon as practicable” language because it provided notice to the insurer’s authorized agent right after the defamation law suit was filed, and provided written notice when it first learned that coverage might be available under the policy.
The court applied the Country Mutual factors to determine if Great American received notice from Yorkville in a “reasonable time.” Country Mutual Insurance Co. v. Livorsi Marine, Inc., 222 Ill. 2d 303(2006). The factors are: (1) the policy’s notice provision language; (2) the insured’s sophistication in dealing with insurance and commerce; (3) the insured’s awareness of an event that might trigger coverage under the policy; (4) the insured’s diligence in determining whether the event is covered under the policy; and (5) prejudice to the insurer. Id. at 313. First, the court noted that West American’s notice provision did not aid in the reasonableness analysis because it contained no specific notice time frame. Second, the court found Yorkville to be a sophisticated consumer and weighed this factor against Yorkville. Third, that Yorkville became aware of the suit as early as 2000 but did not provide written notice until 2004 weighed against Yorkville’s reasonableness in delaying written notice. Fourth, Yorkville acted as a reasonably prudent party and did not pursue coverage when informed by agents that the defamation suit was not covered. When Yorkville learned that there might be coverage in early January 2004, it acted immediately to send West American written notice, and this weighed in the favor of reasonableness. Fifth, West American presented no evidence at trial that it was prejudiced by the delay in written notice.
The Illinois Supreme Court emphasized the trial court’s finding that actual notice occurred two months before the case was scheduled for trial because actual notice occurred when the insurer had sufficient information “to locate and defend the suit.” The court found that Liggett’s conversation with Dickson, and Dickson’s participation at the board meetings, constituted sufficient information for West American to locate and defend the lawsuit through its authorized insurance agent. The Illinois Supreme Court found the factors weighed in the favor of Yorkville, and that the Yorkville provided written notice to West American in a reasonable time without violating the policy’s notice provision. The court reversed the appellate court’s decision, agreeing with the trial court that West American had a duty to provide Yorkville coverage under the policy.