Garcy Corporation v. Home Insurance Company

• Decision Date: 07 May 1974
• Docket Number: No. 73-1298.,73-1298.
• Citation: 496 F.2d 479
• Parties: GARCY CORPORATION, Plaintiff-Appellant, v. HOME INSURANCE COMPANY et al., Defendants-Appellees.
• Court: U.S. Court of Appeals — Seventh Circuit

496 F.2d 479 (1974)

GARCY CORPORATION, Plaintiff-Appellant, v. HOME INSURANCE COMPANY et al., Defendants-Appellees.

No. 73-1298.

United States Court of Appeals, Seventh Circuit.

Argued February 12, 1974.

Decided May 7, 1974.

Eli E. Fink, Morris J. Coff, Chicago, Ill., for plaintiff-appellant.

John P. Gorman, James T. Ferrini, Chicago, Ill., for appellee.

Before CASTLE, Senior Circuit Judge, and PELL and SPRECHER, Circuit Judges.

SPRECHER, Circuit Judge.

This appeal presents the troublesome question of the worth of a building that burned down shortly before it was to have been demolished.

Plaintiff owned five buildings in the same block: a seven-story building, a four-story building, a two-story building, a one-story building and a quonset hut. In April, 1970, each of the six defendant insurance companies issued identical policies totaling $300,000 against fire damage to any or all of the five buildings.

In May or June of 1970, plaintiff entered into a contract with a wrecking company for the demolition of all the buildings. All salvage would become property of the demolition company. The wreckers began work during the last week of June; it was estimated the demolition would take 90 days. On July 6, 1970, the company had demolished the quonset hut, the one-story building, part of the two-story building and a small part of the four-story building.

No wrecking or stripping of salvageable material had begun on the seven-story building. It contained $26,000 of inventory and various machinery and equipment.¹ An affidavit of the assistant to the president of plaintiff corporation stated that plaintiff was trying to sell the seven-story building, even while the smaller buildings were being wrecked. The building was listed with real estate brokers. If plaintiff had found a buyer, it would have halted the demolition.

On the evening of July 6, 1970, all the remaining buildings were destroyed by fire. An appraisal submitted by plaintiff placed the actual cash value of the seven-story building before the fire at $633,532. Defendants refused to pay plaintiff's claim for the total amount of coverage, $300,000.

The case was submitted to the district court on motions for summary judgment from both sides. Although the complaint alleges a claim based on loss of all the buildings, plaintiff's motion for summary judgment relies on loss of the seven-story building alone. Defendants' motion seeks judgment on the damages issue on the theory that the seven-story building had no value to plaintiff at the time of the fire because of the contract for demolition.

The district judge's opinion (reported at 353 F.Supp. 329), granting defendants' motion for summary judgment on the damage issue, follows Judge Marovitz' opinion in a related case, Aetna State Bank v. Maryland Casualty Co., 345 F.Supp. 903 (N.D.Ill.1972). Aetna State Bank, as plaintiff's mortgagee on the buildings, sued the same defendants on the same policies. Judge Marovitz found defendants were liable on the policies, but granted summary judgment to defendants on the damages issue.

The case went to Judge Marovitz on stipulations of fact that apparently treated the five buildings as an indivisible unit.² His opinion shows no awareness that the demolition crew had not begun on the largest and most valuable building, nor that plaintiff had not yet removed inventory and equipment from the building, nor that plaintiff was trying to sell the building. On the facts presented to him, Judge Marovitz held:

We therefore find that actual cash value is not the proper criterion for determining the amount of loss for property which is in the process of being demolished and whose demolition at the time of loss is no longer a matter of conjecture or speculation . . . there is nevertheless no compensable loss in view of the fact that there is no value to buildings in the process of demolition.

345 F.Supp. 903, 909 (emphasis in original).

Defendants did not plead collateral estoppel of the Aetna case against plaintiff. Such a pleading would have been inappropriate for two reasons. First, there is no privity between mortgagor and mortgagee; defendants cannot raise collateral estoppel against a party which did not participate in the previous case. 1B Moore's Federal Practice ¶ 0.411 12, at 1673 (2d ed., 1974). Second, the difference between the factual contexts eliminates identity of issue on the damages question.

But defendants do rely heavily on Aetna as precedent for the present case. We agree with the analysis in Aetna that equity will not allow recovery of actual cash value (defined as replacement cost minus depreciation for age) of a building irrevocably abandoned to a wrecking crew. If the case had been presented to us as it was to Judge Marovitz, with no separate information on individual buildings, we probably would have reached the same result.

When the Aetna reasoning is applied to the facts as presented here, however, we reach the opposite conclusion. The seven-story building was in use as a warehouse for inventory and equipment. Plaintiff hoped to sell it in the weeks before the wrecking crew would reach it. It had not been stripped of salvageable material or prepared for demolition. Plaintiff could have halted demolition, although it might have been liable in money damages to the wrecker. In short, the seven-story building was not in the process of demolition.

A review of similar cases produces an amazing array of analyses, but the critical factual question almost always is whether the insured had abandoned the building pursuant to an irrevocable commitment to demolish it. The following are examples of less than irrevocable commitment. In Knuppel v. American Ins. Co., 269 F.2d 163 (7th Cir. 1959), the court excluded evidence of the owner's intention to demolish a building still in use by his lessee as a tavern and restaurant. A vacant fraternity house, declared a nuisance by the city and ordered demolished, was valued without consideration of the city's resolution in Bailey v. Gulf Ins. Co., 406 F.2d 47 (10th Cir. 1969). Exclusion of evidence of a school board's intent to demolish a school was ruled proper in American Ins. Co. v. Treasurer, School District No. 37, 273 F.2d 757 (10th Cir. 1959), because the school was in full use at the time of the tornado. In American Home Fire Assur. Co. v. Mid-West Enterprise Co., 189 F.2d 528 (10th Cir. 1951), a contract by the owner to tear down part of the building for the benefit of the lessee had no effect on the insurable interest, because no physical changes had been made pursuant to the contract.

Evidence of a lessee's plans to demolish buildings he had erected was irrelevant to his insurable interest in Federowicz v. Potomac Ins. Co., 7 App.Div.2d 330, 183 N.Y.S.2d 115 (1959). A landlord-tenant contract for demolition and replacement of a building was not final in Leggio v. Millers National Ins. Co., 398 S.W.2d 607 (Tex.Civ.App.1965), so the landlord still had an insurable interest.³ A contract for demolition, performance of which had not begun, did not affect the insured's interest in Godwin v. Iowa State Ins. Co., 27 S.W.2d 464 (Mo.Ct.App.1930).⁴

Examples of abandonment pursuant to an irrevocable commitment to demolish are Royal Ins. Co. v. Sisters of the Presentation, 430 F.2d 759 (9th Cir. 1970); Lieberman v. Hartford Fire Ins. Co., 6 Ill.App.3d 948, 287 N.E.2d 38 (1972); and Board of Education v. Hartford Fire Ins. Co., 124 W.Va. 163, 19 S.E.2d 448 (1942). Royal Ins. Co. was decided under California law, which, contrary to Illinois law, defines insurable interest as pecuniary interest. But the same result could be reached following the Aetna analysis because the nuns' obligation to allow demolition of the abandoned convent was specifically enforceable. Lieberman is also an instance of a contract for demolition which could have been specifically enforced by the contractor for the new building. In addition, the demolition work had actually begun. Board of Education v. Hartford Fire Ins. Co. turned on the factual determination that plaintiff had permanently stopped using the old school building.⁵

In analogous cases involving not demolition but some other change in circumstances before the damage occurred, courts have considered crucial the finality of the change. Since condemnation proceedings in Illinois may be abandoned by the condemnor, the owner of a condemned building may recover actual cash value even if he has already received a condemnation award. Edlin v. Security Ins. Co., 269 F.2d 159 (7th Cir. 1959), cert. denied, 361 U.S. 932, 80 S. Ct. 370, 4 L.Ed.2d 354 (1960); American National Bank & Trust Co. v. Reserve Ins. Co., 38 Ill.App.2d 315, 187 N. E.2d 343 (1962). A contract to sell does not affect the seller's insurable interest despite full or partial payment of the contract price. First National Bank v. Boston Ins. Co., 17 Ill.App.2d 159, 149 N.E.2d 420 (1958), aff'd, 17 Ill.2d 147, 160 N.E.2d 802 (1959); Dubin Paper Co. v. Insurance Co. of North America, 361 Pa. 68, 63 A.2d 85 (1949).

In Chicago Title & Trust Co. v. United States Fidelity & Guaranty Co., 376 F.Supp. 767 (N.D.Ill., 1973), the city had ordered the owner to board up an empty building and not to repair the heating system. It had been gutted by a previous fire. Judge Will, applying the Aetna doctrine, held that the definition of actual cash value as reproduction cost minus depreciation "is limited in application to those buildings which are being economically utilized at the time of their damage or destruction." Since plaintiff was using the intact seven-story building as a warehouse and was trying to sell it, it had economic utility.

The district court erred in granting defendants' motion for summary judgment on the damages issue. Since the facts material to this issue are undisputed, the court should have granted plaintiff's motion for summary judgment on the damages question.

Both plaintiff and defendants also moved for summary...