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Court reverses judgment for Direct Auto in man's lawsuit over rescinding of policy after his car was stolen, crashed

State Court

Feb 22, 2020

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A man who claims his discount car insurer sells policies it never intends to pay out will have another chance in court after a state appeals panel reversed a ruling granted to the insurer.

Michael Bradley sued Direct Auto Insurance Company after the insurance company refused to cover his claim. Bradley said his car was wrecked by his landlord’s daughter and her friend, who took his keys and went joyriding without his knowledge. Direct Auto said the claim is null because Bradley never told them there was a second vehicle at his residence – an omission the company classified as a “material misrepresentation.”

Bradley argued the insurance application asked if there were any other vehicles in his “household,” which he interpreted to mean his immediate family. The second vehicle at the residence belongs to his landlord. At worst, he said, the omission was a misunderstanding and should not nullify his coverage.

Bradley filed a class action lawsuit against Direct Auto, claiming it violated the Consumer Fraud Act. He said the insurance coverage “is illusory because it never intends to pay out claims” and targets low-income customers who are unlikely to challenge the company in court.

In a motion for summary judgment, Direct Auto argued it properly rescinded Bradley’s policy – and if the policy was “not properly rescinded there was no coverage” because the policy did not cover losses “due to theft” unless the vehicle had been hotwired.

The circuit court denied the motion, finding there were material questions of fact regarding whether Bradley intentionally made a false statement and whether the statement had a material impact on the insurer’s risk.

Direct Auto was granted its second motion for summary judgment, arguing it thoroughly investigated the claim and made no misrepresentation to Bradley because it issues policies through brokers, not direct to consumers.

On appeal, however, a three-justice panel of the Illinois Second District Appellate Court agreed with Bradley. The justices said the decision from Kane County Judge James Murphy was premature because material questions remain as to whether Bradley’s policy was properly rescinded and as to whether Direct Auto’s conduct was unfair under the Consumer Fraud Act.

Bradley claims the insurer’s unfair conduct includes running undisclosed background checks on policy holders; hiring private investigators to interview policy holders in search of information that might invalidate their policies; instructing policy holders to sign affidavits without telling them those documents could become the basis for invalidating their claims; failing to keep policy holders apprised of the status of their claims; and rescinding policies based on “non-material misrepresentations, such as not listing a landlord’s vehicle.”

"We aobserve that Direct Auto’s argument all but concedes that its decision to rescind Bradley’s policy was improper, and we note that the circuit court specifically found that 'the rescission may have been wrongful, as being based on an arguably non-material representation by the insured as to other vehicles in the household,'" the justices wrote.

Appellate justices George Bridges, Donald C. Hudson and Mary S. Schostok remanded the case to the circuit court for further proceedings. The order was authored by Justice Bridges. The order was filed as an unpublished order under Supreme Court Rule 23, which limits its use as precedent except under limited circumstances.


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Organizations in this Story

Illinois Second District Appellate CourtDirect AutoCircuit Court of Kane County