The Illinois Supreme Court has recognized that a cooperation clause prevents collusion between the insured and injured and enables an insurer to prepare its defense to a claim. M.F.A. Mutual Ins. Co. v. Cheek, 66 Ill. 2d 492, 496 (1977). It has also acknowledged that: “Any condition in the policy requiring cooperation on the part of the insured is one of great importance, and its purpose should be observed.” Waste Management, Inc. v. International Surplus Lines Ins. Co., 144 Ill. 2d 178, 191 (1991). As recently addressed in American Access Cas. Co. [“AACC”] v. Farid Allassouli, No. 1-14-1413 (IL Appellate Court, April 29, 2015), the insurer usually has little or no knowledge of the facts surrounding a claim, while the insured has knowledge of the facts. Thus, the insurer depends on the insured for fair disclosure. The cooperation clause “obligates the insured to disclose all of the facts within his [or her] knowledge and otherwise to aid the insurer in its determination of coverage under the policy.” Id. (citing Waste Management). Thus, when AACC tried unsuccessfully to obtain information about an automobile accident from its insured, AACC sought to be relieved of its duty to defend or indemnify its insured, due to the insured’s failure to cooperate.
To establish a breach of the cooperation clause, the insurance company must show that it exercised a reasonable degree of diligence in seeking the insured’s participation and the insured’s failure to participate was due to a refusal to cooperate. And, if the insurance policy at issue in an automobile policy, an insurer cannot be relieved of its duty unless it can show that the insured’s refusal to cooperate in its investigation caused it substantial prejudice. This is because automobile policies abound with public policy considerations. Thus, courts have held they should afford affected members of the public-innocent third persons—”the maximum protection possible consonant with fairness to the insurer.” Cheek, at 500.
To establish substantial prejudice, the insurer needs to show the insured’s violation of the cooperation clause hampered its investigation. The Illinois Appellate Court held that AACC failed to present evidence that: (1) it acted with reasonable diligence to secure Alassouli’s cooperation in its investigation; (2) Alassouli’s failure to cooperate was willful; or (3) Alassouli’s breach of the cooperation clause substantially prejudiced it.
On the first issue, the Court observed:
-An AACC claims adjuster, Cary Loseau, called Alassouli to clarify the facts surrounding the accident and obtain necessary information regarding the events leading up to the accident. Alassouli answered the call and identified himself. But once Loseau told Alassouli that AACC would be recording his statements, Alassouli hung up.
-Loseau immediately placed another call that went to voicemail, left a “detailed message regarding the need for additional information and informed Alassouli of the importance of returning the call.”
-Five days later, AACC called Alassouli at the same number, leaving a message with his roommate, who promised that he would have Alassouli return the call. Alassouli never called back.
-AACC made two more phone calls, leaving messages, but again, no response from Alassouli.
-AACC then conducted a skip trace that revealed nothing about Alassouli’s whereabouts.
AACC then filed a declaratory action against Alassouli and Benson, the claimant, seeking to be relieved of its duty to defend indemnify Alassouli. Alassouli failed to appear or answer, and the trial court entered a default order against him. Benson filed a summary judgment motion, supported by affidavits of witnesses to the accident. The witnesses testified that Alassouli attempt to make a left turn in front of Benson without properly yielding, causing Benson to make an evasive maneuver to avoid hitting Alassouli. In evading Alassouli’s car, Benson collided with the front end of Sader’s car.
AACC filed a cross-motion for summary judgment. AACC attached affidavits from AACC claims adjuster and Gunther Polak, the private investigator retained to locate Alassouli about two years after the incident.
The Appellate Court found a lack of reasonable efforts and diligence on the part of AACC to locate the insured, noting that unlike the insured in American Country Ins. Co. v. Bruhn, 289 Ill. App. 3d 241 (1997), Alassouli did not explicitly refuse to give a statement to AACC, nor was his refusal recorded. Instead, Alassouli hung up the phone and failed to return the calls. The Court also contrasted AACC’s efforts with the “dynamic efforts” in Founders Insurance Co. v. Shaikh, 405 Ill. App. 3d 367 (2010). The court held, as a matter of law, that five attempted phone calls and a skip trace in the matter of less than two weeks and nothing more until a declaratory judgment petition is on the line does not suffice to claim an insurer used reasonable diligence to secure the insured’s cooperation. The court noted that AACC made no attempt to visit Alassouli’s known address or send any letters via mail or conduct an ongoing effort to talk to or find Alassouli. Also unlike Shaikh, AACC’s attempt to seek Alassouli’s cooperation was slight, and cannot be characterized as having gone “cold.” Instead, AACC summarily concluded that Alassouli refused to cooperate after not returning phone calls after a lapse of 13 days. The Court posited: “Moreover, if AACC’s skip trace revealed no new phone numbers or addresses, why wouldn’t AACC have then visited the known address or send letters seeking his cooperation?” The court concluded that AACC’s efforts were wanting and deficient. It found that there was no evidence that the insured was aware that he had a duty to cooperate and then willfully refused to comply. “His failure to cooperate can as easily be attributed to lack of notice as to what was expected from him.”
On the issue of substantial prejudice, AACC argued:
(1) that it is difficult for “insurers to show prejudice because with a substantial failure to cooperate, an insurer would never know precisely what information it could have had; (2) it had no obligation to show the loss falls within the terms of the policy because that was Alassouli’s obligation. (3) it need not find information concerning the accident from other sources, because only the insured is a party to the contract at issue.
The court was unpersuaded. It found that AACC could not prove substantial prejudice in its investigation because it failed to conduct a proper investigation. AACC had notice of the accident shortly after it occurred and had access to information about the accident, including the police report. The inadmissibility of police reports had no bearing on whether AACC could obtain information from it for purposes of investigating its potential liability for the accident. The report contained a narrative of the accident, a list of the individuals involved in the accident, license plate numbers and vehicle models, any citations or arrests for the accident, and potential witnesses. AACC only sought information from Alassouli and summarily denied coverage based on its inability to receive information from him, despite the availability of alternative sources of information.