Cohen Furniture Co. v. St. Paul Ins. Co. of Illinois

• Decision Date: 11 June 1991
• Docket Number: No. 3-90-0241,3-90-0241
• Citation: 214 Ill.App.3d 408,158 Ill.Dec. 38,573 N.E.2d 851
• Parties: , 158 Ill.Dec. 38 COHEN FURNITURE COMPANY an Illinois corporation, Plaintiff-Appellee/Cross-Appellant, v. ST. PAUL INSURANCE COMPANY OF ILLINOIS, an Illinois Insurance Company, Defendant-Appellant/Cross-Appellee. Third District
• Court: United States Appellate Court of Illinois

Page 851

573 N.E.2d 851

214 Ill.App.3d 408, 158 Ill.Dec. 38

COHEN FURNITURE COMPANY an Illinois corporation Plaintiff-Appellee/Cross-Appellant, v. ST. PAUL INSURANCE COMPANY OF ILLINOIS, an Illinois Insurance Company, Defendant-Appellant/Cross-Appellee.

No. 3-90-0241.

Appellate Court of Illinois,

Third District.

June 11, 1991.

James S. Stickles, Jr. (argued), Johnson & Bell, Chicago, for St. Paul Ins. Co.

David J. Dubicki, James W. Springer, Kavanagh, Scully, Sudow, White & Frederick, P.C., Peoria, for Cohen Furniture Co.

No appearance for Robert Turner Agency, Inc. and Steve Turner.

Justice McCUSKEY delivered the opinion of the court:

Defendant appeals the trial court's determination that the replacement cost insurance coverage in the policy issued by defendant required defendant to indemnify plaintiff for the cost of a fire suppression system which plaintiff incorporated into its reconstructed building.

Plaintiff filed a cross-appeal disputing the trial court's determination that defendant was justified in subtracting from the amount it paid to plaintiff, pursuant to business interruption insurance, tax depreciation of the building destroyed by fire, for the period between the fire and defendant's occupation of the replacement building.

We reverse the trial court's determination granting plaintiff's motion for partial summary judgment with respect to the fire suppression system. We deny plaintiff's cross-appeal and uphold the trial court's resolution granting defendant's motion for partial summary judgment with respect to the tax depreciation issue.

On March 17, 1987, an accidental fire destroyed a building which plaintiff operated as a furniture store. The original building, which was constructed in 1971, did not contain a fire suppression system.

In 1978, the Jacksonville, Illinois Building Code ("Code") was amended to require the installation of a fire suppression system in the construction of all new buildings similar to the destroyed building. Following the loss, plaintiff replaced the old store with a new building which, in accordance with the mandate of the code, included a $54,000 fire suppression system. The cost of the new building was less than the policy's limit on building coverage.

The defendant's policy was issued approximately sixteen years after the construction of the original building and approximately eight years after the change in Code. Defendant agreed to, and did, pay plaintiff the cost of the new building, subject only to its refusal to pay for the fire suppression system. The parties disagree as to whether the terms of the insurance policy obligate the defendant to indemnify plaintiff for the cost of the fire suppression system.

Subsequent to the fire, defendant paid to plaintiff the sum due to replace the building but excluded the $54,000 amount plaintiff incurred for the installation of the fire suppression system. Pursuant to the plaintiff's business interruption insurance policy with defendant, defendant deducted $19,581 as a depreciation allowance. Defendant contends that the $19,581 depreciation allowance was a "non-continuing" expense which was made unnecessary by the fire, and therefore, properly deducted under the business interruption policy provisions. Other expenses which defendant deducted as non-continuing were: commissions, purchased labor-net, customer service, sales training, supplies/samples-net, miscellaneous selling expenses, advertising, store occupancy, delivery, office services, and general and administrative expenses. Plaintiff disputes in its cross-appeal the validity of defendant's deduction for tax depreciation in the amount of $19,581.

After submission of motions for partial summary judgment and oral argument on the issue of payment for the fire suppression system, the trial court entered judgment in favor of plaintiff in the amount of $54,000 plus interest. With respect to the issue of deduction of depreciation, the trial court granted defendant's motion for partial summary judgment and entered judgment in favor of defendant.

The present dispute concerns the construction of the parties' contract and principles of insurance law. In order to determine whether defendant was liable to pay plaintiff for the suppression system, the construction and intent of the provisions of replacement cost coverage must be examined. An insurance policy should be enforced as written if its provisions are clear and unambiguous. (Severs v. Country Mutual Insurance Company (1982), 89 Ill.2d 515, 61 Ill.Dec. 137, 434 N.E.2d 290.) Courts should not torture the language of a policy to find coverage where none clearly exists. Murphy v. Peterson (1984), 129 Ill.App.3d 952, 85 Ill.Dec. 112, 473 N.E.2d 480.

The policy in the instant case contained the following provisions:

"How We'll Figure Your Loss

Actual cash value coverage. If indicated in the Coverage Summary, we'll consider the value of covered buildings to be the actual cash value of your interest in the building at the time of the loss. If a covered building is damaged or destroyed while coverage is in effect, we'll pay either the cost of repairing or replacing the building with similar kind and quality or the actual cash value at the time of loss, whichever is less. But the most we'll pay for any loss from any one event is the Limit of Coverage shown in the Coverage Summary.

Replacement Cost. Unless otherwise indicated, we'll pay the cost of repairing or replacing damaged property without deduction for depreciation. But we won't pay more than the smallest of the following:

1. the limit of coverage that applies to the property;

2. the amount you actually spend in repairing or replacing the property with property of similar kind and quality; or

3. the amount it would cost to replace the damaged item at the time of the loss with property of similar kind and quality to be used for the same purpose on the same site."

The policy also contained the following provision under the heading, "Property Exclusions--Losses We Won't Cover" which provided in pertinent part:

"Building laws. We won't cover loss that is caused directly or indirectly by the enforcement of any law governing the use, construction, repair or demolition of buildings or other structures, including removal of debris. Such loss is excluded regardless of any other cause or event that contributes concurrently or in any sequence to the loss. * * *."

The policy summary dated November 14, 1986 indicates that the plaintiff had replacement cost coverage under the policy.

On appeal, the defendant contends the trial court erred in finding that the policy covered the cost of the fire suppression system. Noting the building laws exclusion, the defendant argues that the additional cost of rebuilding the store with the required fire suppression system was the result of the enforcement of a local building ordinance, thus this cost was excluded from coverage. The defendant also argues that the fire suppression system is not covered by replacement cost insurance.

When an exclusionary clause is relied upon to deny coverage, its applicability must be clear and free from doubt. (Trovillion v. United States Fidelity and Guaranty Co. (1985), 130 Ill.App.3d 694, 86 Ill.Dec. 39, 474 N.E.2d 953.) In the instant case, the policy excluded losses "caused directly or indirectly by the enforcement of any law governing * * *, construction, repair * * * of buildings * * *." The City of Jacksonville ordinance required the fire suppression system to be installed in the newly constructed building. This increased cost of rebuilding is a direct result of the enforcement of the ordinance, and falls squarely within the terms of the building laws exclusion.

We find no merit to plaintiff's contention that under the defendant's interpretation of the provision no rebuilding costs would be recoverable because all costs are increased by laws and regulations. The record indicates that other than the cost of the fire suppression system, the defendant paid all other costs of reconstruction. Thus the defendant is not attempting to use the building laws exclusion to escape its obligations to cover replacement costs.

The plaintiff also argues that the building laws exclusion should be held unenforceable as against the public policy of this state. The plaintiff concedes that there is no Illinois case which directly addresses this issue. The cases cited by the parties in arguing this point are readily distinguishable on their facts or on the issue of law presented. For example, most of the cases relied on by the plaintiff, (e.g. Hertog v. Milwaukee Mutual Insurance Co. (1987), 415 N.W.2d 370; Stahlberg v Travelers Indemnity Co. (1978), 568 S.W.2d 79; Unified School District No. 285 v. St. Paul Fire and Marine Insurance Co. (1981), 6 Kan.App.2d 244, 627 P.2d 1147) involve the enforceability of such exclusionary provisions in states which have valued policy statutes. Valued policy statutes require that in cases of total loss the insurer must pay the whole amount mentioned in the policy. (Hertog v. Milwaukee Mutual Insurance Co. (1987), 415 N.W.2d 370.) Courts in these states have limited the reach of these exclusionary provisions when insurers attempt to use them to limit their liability, in cases of a total loss, to less than the face value of the policy.

In Hewins et al. v. London Assurance Corp. (1903), 184 Mass. 177, 68 N.E. 62, the insureds suffered a partial loss due to fire. The issue presented was whether the referees, in determining the amount of damages to which the insureds were entitled, "had the right to take into consideration the increased cost of repairing the building by reason of the building laws." Twelve separate policies were involved. Eleven of the policies contained the following provision: "In case of any loss or damage, the company * * * shall either pay the amount for which it shall be liable, which amount, if not agreed upon, shall be ascertained by award...