State Farm General Ins. Co. v. Stewart, 1-94-3161

• Decision Date: 21 May 1997
• Docket Number: No. 1-94-3161,1-94-3161
• Parties: , 224 Ill.Dec. 310 STATE FARM GENERAL INSURANCE CO., As Subrogee of Vito DeFrancesco, Plaintiff-Appellee, v. Nancy STEWART, Defendant-Appellant, and Hartford Insurance Company of Illinois, Defendant.
• Court: United States Appellate Court of Illinois

Page 625

681 N.E.2d 625

288 Ill.App.3d 678, 224 Ill.Dec. 310

STATE FARM GENERAL INSURANCE CO., As Subrogee of Vito DeFrancesco, Plaintiff-Appellee, v. Nancy STEWART, Defendant-Appellant and Hartford Insurance Company of Illinois, Defendant.

No. 1-94-3161.

Appellate Court of Illinois First District, Third Division.

May 21, 1997.

Michael W. Rathsack, Chicago, for Defendant-Appellant.

Gary P. Hollander, Bixby, Lechner & Potratz, P.C., Chicago, for Plaintiff-Appellee.

Justice GORDON delivered the opinion of the court:

Vito DeFrancesco contracted to sell an apartment building located in Cicero, Illinois to defendant Nancy Stewart. After DeFrancesco delivered the deed to and possession of the premises to Stewart, but before Stewart paid him the full contract price, the building was destroyed by fire. Both Stewart and DeFrancesco submitted claims to their respective fire insurance carriers, and both collected insurance proceeds for the loss of the subject property. Plaintiff State Farm General Insurance Co. (State Farm General), DeFrancesco's insurer, brought this action against Stewart as a purported subrogee to DeFrancesco's right to payment from Stewart for the unpaid contract price on the apartment building. State Farm General sought to obtain the fire insurance proceeds which Stewart had received from her insurer, defendant Hartford Insurance Company of Illinois (Hartford), and to enjoin Hartford from paying Stewart those proceeds. State Farm General later removed Hartford as a defendant in its first amended complaint, upon learning that Hartford had already paid Stewart on her claim. State Farm General subsequently filed a motion for summary judgment against Stewart which the trial court granted. Stewart then filed a post-trial motion to vacate that order which the trial court denied. Stewart appeals from those orders.

The undisputed facts are as follows. On January 26, 1990, DeFrancesco agreed to sell Stewart an apartment building located at 5125 West Cermak Road, Cicero, Illinois. The contract between Stewart and DeFrancesco was entitled "Real Estate Sales Contract" in an emboldened typeface, and required Stewart to pay a $75,000 purchase price and additionally to assume the obligation to repay a $20,000 loan against the property to the lender, Billy Eaton. Stewart was also required to tender a $6,000 down payment to DeFrancesco, which she paid shortly after entering into the contract with DeFrancesco. The contract also contained a mortgage contingency provision and a date of closing provision, which provided in pertinent part as follows:

"4. This contract is subject to the condition that Purchaser will apply for [a] mtge within 3 months as of Feb 90 to pay off seller's balance * * *. (Strike paragraph if inapplicable.)

5. The time of closing shall be January 26, 1990 prorated as of 2-1-90, or 20 days after notice that financing has been procured if paragraph 4 is operative * * * at the office of [the] title company." (Emphasis in contract.)

The sales contract further provided that Stewart "agrees to pay or satisfy the balance of the purchase price * * * at the time of closing * * *." The contract also required DeFrancesco to deliver possession to Stewart "immediately * * * after the sale has been closed." The contract also stated that DeFrancesco agrees "to convey or cause to be conveyed * * * a recordable warranty deed, * * *." Upon entering the contract, DeFrancesco turned over the trustee's deed (which he had received from Stewart in 1987, as discussed more fully below), the keys and the rent documents to Stewart; informed the tenants they should pay rent to Stewart; did not lease any further units; and did not enter the premises ever again.

Stewart subsequently applied to the Savings of America bank for a loan to be used to pay DeFrancesco the unpaid contract price for the apartment building. On May 11, 1990, the day of the fire, Stewart closed on an $80,000 loan from Savings of America obtained to pay DeFrancesco the $69,000 unpaid balance owing on the building under their contract. Stewart deposited the $80,000 into her personal bank account. Stewart stated that upon learning of the fire, her attorney advised her not to pay DeFrancesco the balance due on the contract "until we figured out what the insurance companies were going to do."

Both parties carried fire insurance policies on the property. Stewart was covered by Hartford, and DeFrancesco, by the plaintiff, State Farm General. DeFrancesco's State Farm General policy provided that

"In the event of any payment under this policy, the Company shall be subrogated to all the insured's rights of recovery against any person or organization and the insured shall execute and deliver instruments and papers and do whatever else is necessary to secure such rights. The insured shall do nothing after loss to prejudice such rights."

After the fire, State Farm General paid DeFrancesco $84,649.78 for his fire losses, an amount which represented the policy limits plus interest. Hartford paid Stewart $130,000, ¹ for the fire damage sustained. Stewart then repaid the $80,000 loan, and used a portion of the $130,000 insurance proceeds to pay attorney fees incurred in defending against other lawsuits arising from the fire, the cost of boarding up and later demolishing the burned building, and the Billy Eaton loan. Although she repaid the Billy Eaton loan, Stewart did not pay the principal balance of $69,000 left owing on the contract to the seller, DeFrancesco.

In its second amended complaint, State Farm General claimed that, pursuant to its payment of insurance proceeds to DeFrancesco after the fire, it was subrogated to DeFrancesco's contractual right to collect the $69,000 unpaid purchase price for the property from Stewart, and that it could collect that amount out of the insurance proceeds which she had received from Hartford. In that regard, State Farm General alleged that Stewart and DeFrancesco had entered into a real estate contract on January 26, 1990 for the sale of an apartment building located in Cicero, Illinois for $75,000, and that Stewart paid a $6,000 down payment required under the contract. The complaint further alleged that the apartment building burned down on May 11, 1990, and that Stewart never paid DeFrancesco the unpaid portion of the purchase price, $69,000. State Farm General also claimed that it paid DeFrancesco $84,649.78 after the fire, that Stewart's insurance carrier indemnified her in an unspecified amount after the fire, and that as DeFrancesco's subrogee, State Farm General was entitled to $69,000 of Stewart's insurance proceeds. Attached to the second amended complaint as exhibits were a subrogation receipt, ² which purports to subrogate Defrancesco's rights arising out of the May 11 fire to State Farm Fire and Casualty Insurance Company, another State Farm entity; and an explanatory affidavit of State Farm General Claim Superintendent Candace Armstrong regarding that subrogation receipt, both of which are discussed more fully below.

In her answer to the second amended complaint, Stewart alleged that State Farm General could not be subrogated to any rights that DeFrancesco may have had against her because she did not cause DeFrancesco's fire losses, and moreover that DeFrancesco had no insurable ownership interest in the property at the time of the fire because he had transferred those interests to Stewart when he contracted to sell her the subject property. Stewart further alleged that DeFrancesco's State Farm General fire loss policy did not insure him for losses arising from Stewart's failure to pay under the Stewart-DeFrancesco contract of sale, but only for his fire-related losses. Stewart also denied that State Farm General was DeFrancesco's subrogee insofar as the aforementioned subrogation receipt, attached as an exhibit to plaintiff's second amended complaint and discussed more fully below, designated State Farm Fire and Casualty Insurance Company as subrogee to DeFrancesco's rights arising out of the fire loss. Finally, Stewart denied that she held her Hartford insurance proceeds in trust for State Farm General, and stated that, in any event, she owed less than $69,000 to DeFrancesco on the building sale contract.

Attached to Stewart's answer to plaintiff's complaint was the affidavit of DeFrancesco. In that affidavit, DeFrancesco averred that Stewart originally conveyed the subject property to him in 1987 by means of a trustee's deed. DeFrancesco further stated that when he acquired the property from Stewart he assumed the duty to make payments to Billy Eaton between 1987 and 1989. He also stated that on January 26, 1990, he entered into a real estate sales contract with Stewart to transfer the property back to her, and received a $6,000 down payment from her pursuant to the contract. At that time, Stewart agreed to assume the Eaton loan repayments. DeFrancesco further averred that on January 26, 1990, he turned over the title, keys and rent documents to Stewart, informed the tenants they should pay rent to Stewart, did not lease any further units, and did not enter the premises ever again.

Stewart also separately filed an affirmative defense, wherein she alleged that title to the subject property was in a land trust at the time of the fire, and that the records of the Cook County Recorder of Deeds reflected that fact. She further stated that she notified State Farm General before the May 11 fire that she "held the equitable title to the premises" in question. Stewart also alleged that DeFrancesco therefore had no insurable interest in the subject property at the time of the fire, and that nevertheless, State Farm General carelessly and without any legal obligation to do so indemnified DeFrancesco for his loss arising from the fire. Finally, Stewart alleged that she had paid her own insurance premiums to Hartford, that State Farm General had not, and that therefore, State Farm General...