Affiliated FM Ins. Co. v. Board of Educ. of City of Chicago

• Decision Date: 07 June 1994
• Docket Number: No. 93-2786,93-2786
• Parties: 91 Ed. Law Rep. 483 AFFILIATED FM INSURANCE COMPANY, Plaintiff-Appellee, v. BOARD OF EDUCATION OF the CITY OF CHICAGO, Defendant-Appellant.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 1261

23 F.3d 1261

91 Ed. Law Rep. 483

AFFILIATED FM INSURANCE COMPANY, Plaintiff-Appellee, v. BOARD OF EDUCATION OF the CITY OF CHICAGO, Defendant-Appellant.

No. 93-2786.

United States Court of Appeals Seventh Circuit.

Argued Feb. 23, 1994.

Decided May 12, 1994.

Rehearing Denied June 7, 1994.

John W. Morrison, Altheimer & Gray; Daniel J. Leahy, Leahy, Eisenberg & Fraenkel, Chicago, IL, and Franklin M. Sachs (argued), Rebecca Levy Sachs, Marianne C. Tolomeo, and Henry J. Catenacci, Podvey, Sachs, Meanor, Catenacci, Hildner & Cocoziello, Newark, NJ, for plaintiff-appellee.

Thomas R. Meites (argued), Joan H. Burger, Lynn S. Frackman, Laurie A. Wardell, Bonnie L. Beck-Fries, Meites, Frackman, Mulder & Burger; Mitchell Ware, Andrea M. Buford, R. Delacy Peters, Jr., Gerald D. Zansitis, Jones, Ware & Grenard; and Iris E. Sholder, John L. Wren, Karen Gatsis Anderson, and Michael J. Hernandez, City of Chicago Bd. of Educ., Chicago, IL, for defendant-appellant.

Before FAIRCHILD, CUMMINGS and BAUER, Circuit Judges.

CUMMINGS, Circuit Judge.

Plaintiff Affiliated FM Insurance Company of Rhode Island ("Affiliated") sued the Chicago Board of Education ("Board") in a declaratory judgment action to determine whether a claim previously filed by the Board was barred because it did not commence suit within 12 months of a loss. The district court, sitting in diversity, held that the Board was not immune from complying with the condition of the policies requiring commencement of suit within that period and therefore granted Affiliated's motion for summary judgment.

Facts

The Board claims that Affiliated should indemnify it for its asbestos removal and maintenance costs under four insurance policies in effect from 1978 to 1990 and providing coverage to the Board for all risks of physical damage to insured property. The Board's claim covers 600 of its facilities, constructed between 1946 and 1972, that contain asbestos materials.

The policies insured the risk of direct physical loss to the Board's properties incurred during each policy period, but they contained contractual provisions requiring that the insured give prompt notice of loss, and that any suit must be filed within 12 months of the occurrence of any loss. The Board did not give notice of the alleged loss until September 4, 1990, and did not file suit prior to Affiliated's bringing this declaratory judgment action. Affiliated claims that the Board was aware of asbestos hazards in its schools as early as 1978, and had sustained many of the losses for which it now claims compensation throughout the 1980s.

The magistrate judge held, and the district court agreed, that the Board had knowledge of the asbestos problem by May 1989 at the very latest, when a review ¹ conducted by the Board indicated that the cost of asbestos abatement in the Board's schools would exceed $500,000,000. On September 4, 1990, one and one-half years later, the Board first gave notice to Affiliated of a claim for coverage under the four property damage policies.

Affiliated denied the claim on October 17, 1990, due in part to the insured's failure to comply with the requirement in the policies that any suit had to be filed within 12 months of the loss and also because prompt notice of loss was not given. ² At the same time, Affiliated filed this action for a declaration that the costs incurred by the Board in removing and abating asbestos from its facilities were not covered. The Board answered and counterclaimed, alleging that Affiliated's denial was made in bad faith. Dispositive motions were referred to Magistrate Guzman in November 1991.

The magistrate recommended that the Board's claim that Affiliated's denial was made in bad faith be dismissed except for the Board's claim for attorney's fees and costs and damages up to $25,000. Subsequently Affiliated filed a motion for summary judgment and the magistrate found that the 12-month suit limitation provisions of the policies had been breached by the Board. However, he recommended that the district court deny summary judgment on the ground that the Board was immune from limitations under Board of Education of City of Chicago v. A, C and S, Inc., 131 Ill.2d 428, 137 Ill.Dec. 635, 546 N.E.2d 580 (1989), which dealt with a statute of limitations rather than a contractual provision in the policies themselves.

After objections to the magistrate's recommendation were made, the district court issued an opinion rejecting the Board's claim of immunity from the contractual limitations provision and granted Affiliated summary judgment because of the Board's failure to file suit in the 12-month period provided under the terms of each policy. The court did not reach the question whether the Board had given Affiliated the requisite prompt notice of the claim. Subsequently the district court dismissed the Board's bad faith claims on the ground that its summary judgment in Affiliated's favor was based on no coverage.

Contractual limitations bar

Here no suit was instituted by May 1990 although the Board discovered the loss at the latest by May 1989. Consequently the Board concedes that the 12-month contractual suit limitations provisions were breached ³ unless the Board was immune from its provisions as a public entity. To avoid the limitations defense, the Board insists that it is immune from the contractual provision under the doctrine of nullum tempus occurrit regis ("time does not run against the king"). However, Illinois precedent has established that municipalities may bind themselves to suit initiation limitations by contract. Village of Lake in the Hills v. Illinois Emcasco Ins. Co., 153 Ill.App.3d 815, 106 Ill.Dec. 881, 506 N.E.2d 681 (2d Dist.1987), leave to appeal denied, 116 Ill.2d 560, 113 Ill.Dec. 319, 515 N.E.2d 128 (1987). The parties inform us that this reasoning was followed by the Circuit Court of Cook County which recently held that several Boards of Education were not immune from contractual suit initiation provisions. Home v. Evanston Township H.S. Dist. No. 202, No. 92 CH 11144; Continental v. Township H.S. Dist. No. 214, No. 93 CH 01703; Aetna v. Community Consol. School Dist. No. 21, No. 93 CH 3200, consolidated with No. 93 CH 5642; Community Consol. School Dist. No. 15 v. Centennial, No....