Goldstein v. Fidelity and Guar. Ins. Underwriters, Inc.

• Decision Date: 21 June 1996
• Docket Number: No. 95-2922,95-2922
• Citation: 86 F.3d 749
• Parties: Michael GOLDSTEIN, Plaintiff-Appellant, v. FIDELITY AND GUARANTY INSURANCE UNDERWRITERS, INC., a/k/a United States Fidelity and Guaranty Company, Defendant-Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 749

86 F.3d 749

Michael GOLDSTEIN, Plaintiff-Appellant, v. FIDELITY AND GUARANTY INSURANCE UNDERWRITERS, INC., a/k/a

United States Fidelity and Guaranty Company,

Defendant-Appellee.

No. 95-2922.

United States Court of Appeals, Seventh Circuit.

Argued Jan. 16, 1996.

Decided June 21, 1996.

Robert P. Zapinski, David C. Bohan (argued), Michael G. Cartier, Jenner & Block, Chicago, IL, for Plaintiff-Appellant.

Gary P. Hollander, Roger A. Bixby (argued), David C. Lechner, Bixby, Lechner & Potratz, Chicago, IL, for Defendant-Appellee.

Before CUMMINGS, RIPPLE, and EVANS, Circuit Judges.

TERENCE T. EVANS, Circuit Judge.

Two fires--one in October of 1992 and the other in April of 1993--combined to destroy a complex of four interconnected buildings at 1775-1825 West Diversey Street in Chicago. The Diversey Street property was one of several commercial properties in Chicago owned by Michael Goldstein and his company, Gold Realty Group. This litigation concerns a claim by Goldstein against his insurance company, whose name we'll shorten by calling it Fidelity, growing out of the fire. Goldstein moved for summary judgment in the district court, but the tables were turned on him when the judge, sua sponte, granted summary judgment for Fidelity. Goldstein appeals.

Before addressing the district court's disposition of the substantive issues, we must determine whether it was cricket for the court to enter summary judgment on its own motion. As everyone knows, summary judgment is only appropriate when there are no genuine issues of material fact and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56; Roger v. Yellow Freight Systems, Inc., 21 F.3d 146 (7th Cir.1994). And a district court may enter summary judgment in favor of a party even if no motion for relief of that sort has been filed. Hunger v. Leininger, 15 F.3d 664 (7th Cir.1994). This course of action, however, raises concerns in addition to the usual ones present in a motion for summary judgment. The party against whom summary judgment is entered must have notice that the court is considering dropping the ax on him before it actually falls. See Celotex Corp. v. Catrett, 477 U.S. 317, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). In other words, the entry of summary judgment is inappropriate when it takes a party by surprise. Choudhry v. Jenkins, 559 F.2d 1085, 1089 (7th Cir.1977).

In our case, of course, Goldstein filed a motion for summary judgment. Both parties, Goldstein in particular, were on notice that summary judgment was being considered. In the motion for summary judgment he chose to present to the district court, Goldstein claimed that no genuine issues of material fact existed in the case. As a general rule, however, a motion for summary judgment is not a waiver of the right to trial if the motion is denied. Market Street Assocs. Ltd. Partnership v. Frey, 941 F.2d 588, 590 (7th Cir.1991). This means that if the district court disagreed with Goldstein as to the existence of a genuine issue of material fact, Goldstein would not be precluded from arguing the facts at trial. It does not mean that if the district court agreed with his characterization of the facts, Goldstein can wiggle out of his concession and compel a reversal of a judgment against him based on questions of law. Here, Judge Kocoras in the district court thought Goldstein was right about the facts but wrong on his assertion that he was entitled to judgment as a matter of law. Goldstein now claims that the resolution of the legal issues against him was inappropriate because he was not allowed to contest the facts, and that he would have had "greater incentive" to seek out disputed facts had he known summary judgment was being considered in a mode other than in his favor. At oral argument, we asked Goldstein's counsel if this wasn't a bit of lawyerly game-playing. He said it was not. We disagree.

We do not want to encourage district courts to consider summary judgment sua sponte because the procedure warrants "special caution," and it's often inappropriate. See Sawyer v. United States, 831 F.2d 755 (7th Cir.1987). It is also largely unnecessary, as a district court can always invite a nonmoving party to file a motion for summary judgment in its favor. But while we do not express resounding approval of sua sponte summary judgment, it is not always wrong for a district court to resolve certain cases in this fashion. It's just a bit risky. In this case, however, we conclude that Goldstein was afforded the necessary safeguards, and that the potential hazards of the procedure were avoided. No genuine issue of material fact existed, and disposition of the case hinged on the judge's interpretation of the insurance policy. We reject the claim that Judge Kocoras, in this case, was wrong to act sua sponte.

Having determined that the entry of summary judgment on the court's own motion was not erroneous in and of itself, we turn to the disposition of Goldstein's substantive claims. We review the district court's grant of summary judgment de novo. Zenith Electronics Corp. v. Panalpina, Inc., 68 F.3d 197, 201 (7th Cir.1995). Here are the facts.

The Diversey Street buildings were one of ten Goldstein properties insured under a Fidelity policy covering a one-year period starting on September 1, 1992. Prior to September 1, 1992, Goldstein's ten properties were insured under two Fidelity policies through the Associated Agency. One policy covered nine locations; the other covered the buildings on Diversey Street. During the summer of 1992, Goldstein shifted his account from the Associated Agency to the Mesirow Agency, which handled the 1992 renewal of coverage. Mesirow submitted one renewal request to Fidelity, covering all ten Goldstein properties. During the renewal process, Mesirow asked Fidelity (on August 27, 1992) to charge a lower premium rather than a higher "non-sprinklered" rate for the Diversey property because the sprinkler system in the buildings was being restored. Fidelity agreed. The premium thus set, on all ten properties, was $55,497 for the one-year policy. Goldstein apparently paid this sum to Mesirow sometime before October 5, 1992, but it was not sent to Fidelity by Mesirow until November 10, 1992. And actually, when it was sent, $44,515.95 went to Fidelity; Mesirow retained $10,981.05 as a commission.

Although coverage kicked in on September 1, 1992, the policy itself was not actually issued to Goldstein until October 29, 1992. Between September 1 and October 29, Goldstein's properties were covered under the terms of a binder issued by Mesirow. Also between those dates, on October 5, a fire broke out at the West Diversey property, destroying two buildings and damaging one other.

The binder issued by Mesirow contained a waiver of Fidelity's standard policy provision regarding sprinklers called, in insurance lingo, a "protective safeguards endorsement." If not waived, the endorsement would have required Goldstein to maintain, as a condition of coverage, an automatic sprinkler system to protect the property against fires. (It seems Mesirow may have put the endorsement waiver in the binder contrary to his authority as a Fidelity agent, but that is neither here nor there at this time). The actual policy, when issued at the end of October, did contain the endorsement, which said, "As a condition of this insurance, you are required to maintain the protective devices or services listed in the Schedule." The protective safeguard listed in the schedule was an automatic sprinkler system. The endorsement further provided that Fidelity

will not pay for loss or damage caused by or resulting from fire if, prior to the fire, you ... [k]new of any suspension or impairment in any protective safeguard listed in the Schedule above and failed to notify us of that fact; or ... [f]ailed to maintain any protective safeguard listed in the Schedule above, and over which you had control, in complete working order.

After the October 5 fire, Goldstein and Fidelity started to circle each other as they began shadow-boxing over the claim. Fidelity suspected arson--at least at first. Also, Fidelity was unaware that the binder contained the protective safeguard endorsement waiver, for it wrote to Goldstein on October 23 that

[o]ur investigation thus far, leads the Fidelity & Guaranty Insurance Underwriters Inc. to believe that the sprinkler system was not operable on the date of loss at the destroyed premises where the fire occurred. The policy contains a Protective Safeguard Endorsement and you should refer to that endorsement regarding the protective safeguard requirements.

Goldstein and Fidelity each turned to professionals-the public adjusting firm of Laske, Warner & Associates, Inc. doing battle for Goldstein and the firm of R.S. Rozak and Company entering the ring on behalf of Fidelity. The insurance investigation continued for several months and included hiring a fire cause and origin expert, hiring an electrical engineer, hiring a sprinkler engineer, locating witnesses, taking recorded statements, requesting and reviewing numerous documents, and taking statements under oath.

Goldstein received a copy of a December 16, 1992, letter from Rozak, representing Fidelity, to the All American Bank (Goldstein's mortgagee and an additional named insured under the policy) warning that a future fire might not be covered if the sprinklers were not working. The letter said:

This letter is to advise you that the sprinkler fire protective system in the six story building is required to be operative and in service under the insurance policy....

The intention of this letter is to advise you that should another loss occur IT may not be covered under the referred to policy of insurance.

Beginning in mid-November of 1992, Goldstein requested an advance from Fidelity on the claim. Fidelity advanced $20,000 on November 23, 1992, to Goldstein and other payees, including the All American Bank....