Berkshire Hathaway Homestate Ins. Co. v. Chi. Metro. Hosp., LLC

• Decision Date: 02 January 2020
• Docket Number: Case No. 17 C 9370
• Citation: 430 F.Supp.3d 553
• Parties: BERKSHIRE HATHAWAY HOMESTATE INSURANCE COMPANY, Plaintiff, v. CHICAGO METROPOLITAN HOSPITAL, LLC, Robert Dieleman, and Kathleen Dieleman, Defendants.
• Court: U.S. District Court — Northern District of Illinois

430 F.Supp.3d 553

BERKSHIRE HATHAWAY HOMESTATE INSURANCE COMPANY, Plaintiff,

v.CHICAGO METROPOLITAN HOSPITAL, LLC, Robert Dieleman, and Kathleen Dieleman, Defendants.

Case No. 17 C 9370

United States District Court, N.D. Illinois, Eastern Division.

Signed January 2, 2020

Wendy N. Enerson, Jeffrey Brian Greenspan, Joseph Evan Nogay, Cozen O'Connor, Chicago, IL, for Plaintiff.

Stanley A. Kitzinger, Cornelius Edward McKnight, JoAnne M. Krol, Nathan Pear Karlsgodt, McKnight & Kitzinger, LLC, Robert John Augenlicht, Kurtz and Augenlicht LLP, Chicago, IL, for Defendants.

OPINION AND ORDER

Joan H. Lefkow, U.S. District Judge In this insurance coverage action, plaintiff Berkshire Hathaway Homestate Insurance Company ("Berkshire") insured a property that sustained fire damage in 2017. Berkshire initially denied coverage and sued the property owner Chicago Metropolitan Hospital LLC ("Chicago Metropolitan") and the mortgagees Robert and Kathleen Dieleman ("the Dielemans") for a declaratory judgment. (Dkt. 1.) The Dielemans counterclaimed for breach of contract and unreasonable and vexatious delay. (Dkt. 55.) Well into this litigation, Berkshire offered to pay the Dielemans the then-current balance of their mortgage note, but the Dielemans declined. Berkshire amended its complaint to seek a declaratory judgment that its offer to the Dielemans satisfied its obligations under the policy. (Dkt. 65.) Berkshire and the Dielemans now file cross-motions for summary judgment on Count III of Berkshire's amended complaint (for declaratory judgment against the Dielemans) and Count I of the Dielemans' counterclaim (for breach of contract). For the reasons below, Berkshire's motion (dkt. 69) is granted and the Dielemans' motion (dkt. 67) is denied.¹

BACKGROUND²

Chicago Metropolitan owns a building in Chicago that was once operated as Sacred Heart Hospital (the "Property"). (Dkt. 88 ¶¶ 3, 17.) In 2014, the Dielemans lent Chicago Metropolitan $500,000, secured by a mortgage on the Property and three other parcels of land. (Id. ¶¶ 41–42.) Berkshire issued a $7,500,000 commercial property insurance policy (the "Policy") to Chicago Metropolitan covering the Property from September 26, 2016 to September 26, 2017. (Id. ¶ 21.) The Policy lists the Dielemans as loss payees. (Id. ¶ 30.)

The Policy provides that under certain circumstances, the Dielemans could be entitled to coverage even if Chicago Metropolitan is not. The Policy's Loss Payable Provisions Endorsement provides:

2. Lender's Loss Payable Clause

* * *

b. For Covered Property in which both [you, i.e. Chicago Metropolitan] and a Loss Payee have an insurable interest:

* * *

(3) If we deny your claim because of your acts or because you have failed to comply with the terms of the Coverage Part, the Loss Payee will still have the right to receive loss payment if the Loss Payee:

(a) Pays any premium due under this Coverage Part at our request if you have failed to do so;

(b) Submits a signed, sworn proof of loss within 60 days after receiving notice from us of your failure to do so; and

(c) Has notified us of any change in ownership, occupancy or substantial change in risk known to the Loss Payee.

All of the terms of this Coverage Part will then apply directly to the Loss Payee.

(4) If we pay the Loss Payee for any loss or damage and deny payment to you because of your acts or because you have failed to comply with the terms of this Coverage Part:

(a) The Loss Payee's rights will be transferred to us to the extent of the amount we pay; and

(b) The Loss Payee's rights to recover the full amount of the Loss Payee's claim will not be impaired.

At our option, we may pay to the Loss Payee the whole principal on the debt plus any accrued interest. In this event, you will pay your remaining debt to us.

(Dkt. 88 ¶ 32.)

Under that endorsement, if Berkshire pays the Dielemans but not Chicago Metropolitan, Berkshire in effect buys the debt (or a portion of it) from the Dielemans and succeeds to their rights (or a portion of them) against Chicago Metropolitan. (Dkt. 71-1 at 42.) Hence, if Berkshire pays off the Dielemans in full, the Policy provides that Chicago Metropolitan "will pay [its] remaining debt to [Berkshire]." (Id. ) Finally, the endorsement caps the Dielemans' potential recovery, stating that Berkshire "will not pay any Loss Payee more than their financial interest in the Covered Property, and ... will not pay more than the applicable Limit of Insurance on the Covered Property." (Id. )

In June 2017, a fire occurred at the Property. (Id. ¶ 33.) Two days later, Chicago Metropolitan submitted a claim under the Policy to Berkshire. (Id. ¶ 34.) And in November 2017, the Dielemans sent Berkshire a letter entitled "Letter of Representation and Notice of Claim," asserting a first-priority lien on any proceeds of Chicago Metropolitan's claim for coverage based on the mistaken belief that Chicago Metropolitan "failed to identify [the Dielemans] as payees of the Policy." (Id. ¶ 38; see dkt. 71-5.) In December 2017, Berkshire denied Chicago Metropolitan's claim, asserting that Chicago Metropolitan was ineligible for coverage because, among other things, it did not maintain an automatic fire alarm. (Id. ¶ 39; see dkt. 71-4.)³ Berkshire's denial did not address the Dielemans' letter. (Id. ¶ 38.)

Shortly after denying coverage, Berkshire filed this action for declaratory judgment. (Dkt. 1.) The Dielemans counterclaimed for breach of contract and bad faith. While litigation was pending, Berkshire's attorney informally asked the Dielemans' attorney to provide documentation about the loan and mortgage. (Dkt. 71 ¶ 43.)⁴ When the Dielemans' response revealed that two of the other parcels subject to the mortgage had been sold without the proceeds being credited to the loan balance, Berkshire requested more information. (Dkt. ¶¶ 7–9.) The Dielemans then advised Berkshire that they had filed a foreclosure complaint against Chicago Metropolitan, which they eventually withdrew when the Dielemans and Chicago Metropolitan agreed to modify the loan. (Dkt. 88 ¶¶ 48–51.)

Berkshire issued discovery requests to the Dielemans in March 2019. (Id. ¶ 52.) The Dielemans' discovery responses revealed that Chicago Metropolitan had substantially paid down its loan: it owed the Dielemans $504,357.37 at the time of the fire but at the time of discovery owed the Dielemans only $401,094.38. (Id. ¶ 56; dkt. 92 ¶ 2.) In July 2019, Berkshire offered to pay the Dielemans the then-current balance on the loan ($401,094.38) in exchange for all rights under the Note. (Id. ¶ 56.) The Dielemans rejected that offer, insisting that Berkshire should pay them the $504,357.37 that Chicago Metropolitan owed them at the time of the fire.

The Dielemans and Berkshire have now filed cross-motions for summary judgment on Count 3 of Berkshire's amended complaint, which seeks a declaratory judgment that the $401,094.38 payment satisfied Berkshire's obligations to the Dielemans, and Count 1 of the Dielemans' amended counterclaim, which seeks damages for Berkshire's breach of contract.

LEGAL STANDARD

Summary judgment obviates the need for a trial where there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(a). A genuine issue of material fact exists if "the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson v. Liberty Lobby, Inc. , 477 U.S. 242, 248, 106 S. Ct. 2505, 91 L. Ed. 2d 202 (1986). To determine whether any genuine fact issue exists, the court must pierce the pleadings and assess the proof as presented in depositions, answers to interrogatories, admissions, and affidavits that are part of the record. Fed. R. Civ. P. 56(c). In doing so, the court must view the facts in the light most favorable to the non-moving party and draw all reasonable inferences in that party's favor. Scott v. Harris , 550 U.S. 372, 378, 127 S. Ct. 1769, 167 L. Ed. 2d 686 (2007). When considering cross-motions for summary judgment, the court must be careful to draw reasonable inferences in the correct direction. See, e.g. , Int'l Bhd. of Elec. Workers, Local 176 v. Balmoral Racing Club, Inc. , 293 F.3d 402, 404 (7th Cir. 2002). The court may not weigh conflicting evidence or make credibility determinations. Omnicare , 629 F.3d at 704.

The party seeking summary judgment bears the initial burden of proving there is no genuine issue of material fact. Celotex Corp. v. Catrett , 477 U.S. 317, 323, 106 S. Ct. 2548, 91 L. Ed. 2d 265 (1986). In response, the non-moving party cannot rest on bare pleadings alone but must designate specific material facts showing that there is a genuine issue for trial. Id. at 324, 106 S. Ct. 2548 ; Insolia v. Philip Morris Inc. , 216 F.3d 596, 598 (7th Cir. 2000). If a claim or defense is factually unsupported, it should be disposed of on summary judgment. Celotex , 477 U.S. at 323–24, 106 S.Ct. 2548.

ANALYSIS

The key facts are not in dispute. The Dielemans sent their letter to Berkshire in 2017, when Chicago Metropolitan owed them about $500,000. Berkshire did not attempt to pay the Dielemans until 2019, after Chicago Metropolitan had paid down the principal by about $100,000, now owing the Dielemans only about $400,000. The dispute centers on whether the Policy requires Berkshire to pay the Dielemans the $500,000 they were owed at the time of the loss or the $400,000 they are owed now. The court must interpret the Policy to resolve the dispute. Under Illinois law, which the parties appropriately agree controls here, interpreting the Policy is a question of law that the court may resolve on summary judgment. St. Paul Fire & Marine Ins. Co. v. Village of Franklin Park , 523 F.3d 754, 756 (7th Cir. 2008). "Like any contract under Illinois law, an insurance policy is construed according to the plain and ordinary meaning of its unambiguous terms." Auto-Owners Ins. Co. v. Munroe , 614 F.3d 322, 325 (7th Cir. 2010).

The Dielemans argue that the Policy...