In re Mount Calvary Baptist Church, Bankruptcy No. 89 B 15632
| Decision Date | 29 December 1993 |
| Docket Number | 90 A 0174.,Bankruptcy No. 89 B 15632 |
| Parties | In re MOUNT CALVARY BAPTIST CHURCH, a/k/a Mount Calvary Baptist Church & School, Debtor. CHURCH MUTUAL INSURANCE COMPANY, Plaintiff, v. MOUNT CALVARY BAPTIST CHURCH, a/k/a Mount Calvary Baptist Church & School and Seaway National Bank, Defendants. |
| Court | United States Bankruptcy Courts. Seventh Circuit. U.S. Bankruptcy Court — Northern District of Illinois |
Lyle, Slaughler & Brewer, Chicago, IL, for Mount Calvary Baptist Church.
Johnson & Bell, Chicago, IL, Gregory & Associates, Troy, MI, for Church Mut. Ins. Co.
Carney & Brothers, Chicago, IL, for Seaway Nat. Bank.
PROPOSED FINDINGS OF FACT AND CONCLUSIONS OF LAW
This matter comes before the Court on Plaintiff's Complaint for declaratory relief. Mount Calvary Baptist Church "Mt. Calvary" filed for relief under Chapter 11 of the Bankruptcy Code on September 18, 1989. In November, 1989, Church Mutual Insurance Company "Church Mutual" filed this complaint in the U.S. District Court for the Northern District of Illinois. Subsequently, the complaint was referred to this Court pursuant to 28 U.S.C. § 157(a). This is a related to matter as to which jurisdiction is conferred by 28 U.S.C. § 1334(b). Motions for summary judgment were filed by both Plaintiff, Church Mutual, and Seaway National Bank "Seaway". The Court denied both motions in a Memorandum Opinion and Order dated November 6, 1992 "Opinion". Trial on this matter was held on September 14, 15 and 17, 1993. Much about this proceeding is set forth in that Opinion and will not be repeated here. The Court now enters Findings of Fact and Conclusions of Law after review of the pleadings, memoranda and evidence presented.
1. On September 11, 1989, a fire damaged the building and contents of Mt. Calvary Baptist Church.
2. On May 11, 1981, Mt. Calvary executed its Installment Note payable to Seaway in the principal sum of $1,200,000.00. To secure the Installment Note, on May 11, 1981, Mt. Calvary conveyed to Seaway a first mortgage lien on the Mt. Calvary church located at 1257-59 West 111th Street, Chicago, Illinois. The Trust Deed was amended December 31, 1981.
3. On or about December 7, 1987, Church Mutual issued a Multi-Peril contract of insurance, number XXXXXX-XX-XXXXXX (the "Policy") to Mt. Calvary, subject to terms, conditions, limitations and exclusions in the Policy. It is under this policy that Mt. Calvary claims coverage for losses incurred as a result of the September 11, 1989 fire.
4. Seaway is named as mortgagee under the Policy.
5. At various times, Church Mutual issued various other policies to Mt. Calvary, including, but not limited to, the following:
a. Worker's Compensation 061970-07-500295
b. Worker's Compensation 016970-07-557465
c. Business Automobile XXXXXX-XX-XXXXXX
d. Business Automobile XXXXXX-XX-XXXXXX
e. Commercial Fire XXXXXX-XX-XXXXXX
6. On July 5, 1989, Church Mutual mailed to Mt. Calvary correspondence and Notices of Cancellation for the Business Automobile policy number XXXXXX-XX-XXXXXX and the Worker's Compensation policy number XXXXXX-XX-XXXXXX. Mt. Calvary received this correspondence before July 12, 1989.
7. On July 10, 1989, Church Mutual mailed to Mt. Calvary correspondence and a Notice of Cancellation for the Multi-Peril Policy number XXXXXX-XX-XXXXXX. Mt. Calvary received the correspondence and notice of cancellation on July 12, 1989.
8. On July 10, 1989, Church Mutual mailed to Seaway a Notice of Cancellation. Seaway received the notice of cancellation on or before July 24, 1989.
9. The cancellation notices provided for cancellation of the policies on the following dates:
a. Business Automobile July 17, 1989
b. Worker's Compensation July 17, 1989
c. Multi-Peril July 22, 1989
10. All of the cancellations were for failure to pay premiums timely.
11. Each of the letters which accompanied the notices of cancellation included the amount of premium past due and provided that that amount must be received within 10 days from the date of "this notice" or the policy would be canceled. Each also contained the following language:
12. The letters indicated that the amount of overdue premiums on each policy was as follows:
a. Business Automobile $147.25
b. Worker's Compensation $932.50
c. Multi-Peril $292.75
13. On or about July 13, 1989, Willie Barron ("Barron") was financial secretary of Mt. Calvary and the duties of this office included the payment of bills.
14. On July 13, 1989, Barron wrote a check to Church Mutual for the total of past due premiums indicated in the July 5 and July 10 correspondence from Church Mutual ($1372.50).
15. Barron placed the check and copies of the three cancellation notices received in July, 1989 in an envelope and mailed the envelope to Church Mutual on July 13, 1989.
16. The envelope from Mt. Calvary was postmarked July 13, 1989 and received by Church Mutual on or about July 18, 1993. Mt. Calvary's business check in the amount of $1372.50 was deposited to Church Mutual's account in July 18, 1989. This check was not in the form of a money order or cashier's check.
17. For all relevant periods, Sharon Kleinschmidt ("Kleinschmidt") was Billing Accounts Receivable Supervisor for Church Mutual.
18. Kleinschmidt caused the $1372.50 payment from Mt. Calvary to be applied to earned premiums due on canceled or expired (terminated) policies rather than to the overdue premiums referred to in the notices of cancellation and correspondence to Mt. Calvary dated July 5 and July 10, 1989.
19. On July 18, 1989, Kleinschmidt wrote to Mt. Calvary advising it of the applications of the $1372.50 payment.
20. On July 20, 1989, Barron received Kleinschmidt's letter and called to protest the application of the payment. He was told that there was nothing that could be done to change the outcome.
21. In late August, 1989, Barron made one or two additional phone calls to Church Mutual protesting the application of the July 13, 1989 payment — all to no avail. Barron was advised by Kleinschmidt that the Multi-Peril Policy was canceled effective July 22, 1989.
22. Church Mutual had an internal procedure whereby payments received without accompanying direction as to how the payment was to be applied would be applied first to earned premiums on canceled or expired policies and then to earned premiums on policies in effect. This policy was never communicated to insureds unless they asked.
23. Kleinschmidt testified that she never saw the notices of cancellation which Barron placed in the envelope along with the check. The Court finds that Kleinschmidt's testimony in this regard is based upon her deductions from what she did with respect to the $1372.50 payment and is not credible.
24. Kleinschmidt should have known and had reason to know that Mt. Calvary's check dated July 13, 1989 was tendered to pay the earned premiums on the three policies on which cancellation notices were pending on July 18, 1989.
25. On or about July 18, 1989 (before application of the July 13, 1989 check), Mt. Calvary had earned premiums due on account for canceled or expired policies in an amount greater than $1372.50.
26. On or about July 18, 1989, Church Mutual had the following additional internal policies/procedures which were not communicated to insureds unless they asked specifically:
27. For purposes of determining when a payment is made, Church Mutual looks to the date of the postmark on the envelope containing the payment.
At the heart of this dispute is whether a contract for insurance was in force between Church Mutual and Mt. Calvary on September, 11, 1989. Specifically, the parties disagree about whether the Multi-Peril Policy was effectively canceled as of July 22, 1989. Insurance policies are contracts, and should be interpreted as such. Horning Wire Corp. v. Home Indem. Co., 8 F.3d 587, 589 (7th Cir.1993). The law is well settled that a contract requires an offer, acceptance, and consideration. Serpe v. Williams, 776 F.Supp. 1285, 1287-88 (N.D.Ill.1991). Additionally, there must be a meeting of the minds about both the existence of a contract and its terms. Chicago Litho Plate Graining Co., Ltd. v. Allstate Can Co., 838 F.2d 927 (7th Cir.1988); Academy Chicago Publishers v. Cheever, 144 Ill.2d 24, 161 Ill.Dec. 335, 578 N.E.2d 981 (1991). This case presents mixed questions of law and fact regarding whether each element of contract formation has been satisfied.
As a preliminary matter, the Court notes that insurance contracts are to be construed strictly against the drafter and in favor of coverage. Insurance Corp. of Ireland v. Board of Trustees of So. Ill. Univ., 937 F.2d 331, 336 (7th Cir.1991); In re Templeton, 150 B.R. 214, 221 (Bankr.N.D.Ill. 1993); Grevas v. United States Fidelity & Guar. Co., 152 Ill.2d 407, 178 Ill.Dec. 419, 421, 604 N.E.2d 942, 944 (1992). The Court must construe a contract for insurance to permit the maximum recovery under a reasonable view of its terms. Templeton, 150 B.R. at...
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