The Joe Cotton Ford, Inc. (Cotton) automobile dealership was located in Carol Stream, Illinois. On September 1, 2003, Ron Drendel (Drendel), Cotton's dealership manager, admitted removing traded-in vehicles from the lot for his own benefit over a period of several years. He concealed these activities by not updating the dealership's inventory records. Drendel was charged with mail fraud and tax evasion in December 2004 and entered into a plea agreement in January 2005, admitting that he transferred possession and titles on approximately 75 vehicles to two vendors, with the proceeds deposited into his personal accounts. The estimated value of the vehicles was $1,244,796.
Cotton filed a complaint against its Garage Coverage carrier, Illinois Emcasco Insurance Company, (EIC) on January 3, 2005, seeking a declaration the EIC had a duty to indemnify Cotton for its loss under the policy's Physical Damage coverage that provided a $2,750,000 limit. Cotton also claimed that EIC breached the contract and its refusal to pay constituted vexatious and unreasonable conduct. EIC filed a motion for summary judgment on July 14, 2006. It argued that the False Pretense Exclusion barred Cotton's claims. The circuit court granted summary judgment in favor of EIC on June 19, 2007, based on its findings that the exclusion unambiguously applied. Cotton filed an appeal on July 18, 2007, arguing that the trial judge erred in granting summary judgment in favor of EIC.
Courts consider policy language to be unambiguous when it is subject to only one reasonable interpretation and does not contravene public policy. On appeal, Cotton did not challenge the circuit court's ruling that Drendel was someone separate from Cotton as "you" under the exclusion. In fact, and with respect to autos left in Cotton's care for service or storage, the Garage Coverage clearly excluded "loss due to theft or conversion caused in any way by you, your 'employees' or by your shareholders." As it did in the trial court, Cotton contended that a genuine fact existed as to whether Drendel caused Cotton to "voluntarily part" with each auto he converted.
The Appellate Court of Illinois noted that Drendel removed the autos and their titles from the lot with the authority to do both. As noted in the circuit court's written ruling, Cotton's finance and insurance manager testified that Drendel had primary responsibility to sell Cotton's used vehicles and the general authority to employ any legal measures needed to dispose of them and their titles if doing so benefited Cotton. The court found that Drendel's ongoing activities based on a scheme and false representations made to Cotton fell squarely within the exclusion.
From a broader perspective, the language of the exclusion applied whenever the insured, or anyone acting on its behalf with either express or implied authority to do so, voluntarily parted with possession of a vehicle to which coverage applied. In this case, Cotton misplaced its trust in Drendel, who held himself out as an honest and loyal employee. As a result, Drendel was vested with authority to voluntarily part with the affected autos. Cotton argued that similar exclusions in other coverage forms and policies expressly referred to non-coverage of loss from false pretenses or embezzlement, conversion or theft by any employee entrusted with custody or possession of an auto. The EIC policy expressly excluded loss "due to theft or conversion caused in any way by you, your 'employees' or by your shareholders." Noting this difference, the court nonetheless ruled that the False Pretense Exclusion in the EIC policy clearly and unambiguously applied to the facts established by the record on appeal and affirmed the judgment of the circuit court.
Appellate Court of Illinois, First District, Fourth Division. Joe Cotton Ford, Inc., Plaintiff-Appellant v. Illinois Emcasco Insurance Company, Defendant-Appellee. No. 1-07-1978. April 30, 2009. 2009 WL 1175104 (Ill.App. 1 Dist.)