Indiana Ins. Co. v. Pana Community Dist. No. 8
| Decision Date | 31 December 2002 |
| Docket Number | No. 02-1501.,No. 02-1500.,02-1500.,02-1501. |
| Citation | 314 F.3d 895 |
| Parties | INDIANA INSURANCE COMPANY, an Indiana corporation, Plaintiff-Appellee, v. PANA COMMUNITY UNIT SCHOOL DISTRICT NUMBER 8, Defendant-Third Party Plaintiff-Appellant, v. Insurance Management Bureau, also known as Independent Risk Managers, Inc., Third Party Defendant-Appellant. |
| Court | U.S. Court of Appeals — Seventh Circuit |
Appeal from the District Court for the District Illinois, 173 F.Supp.2d
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Peter W. Schoonmaker (argued), Condon & Cook, Chicago, IL, for plaintiff-appellee.
Lorence Harley Slutzky (argued), Robbins, Schwartz, Nicholas, Lifton & Taylor, Chicago, IL, Stephen R. Kaufmann, Sorling, Northrup, Hanna, Cullen & Cochran, Springfield, IL, for defendants-appellants.
Before BAUER, ROVNER, and WILLIAMS, Circuit Judges.
In 1992, Defendant-Appellee Indiana Insurance Company ("Indiana") issued an insurance policy to PANA Community School District Number 8 ("PANA") for property and casualty insurance. After making payments to PANA following a fire which damaged its property, Indiana filed a complaint for declaratory judgment seeking a judicial declaration that it had fully satisfied its contractual obligations to PANA. PANA filed a counterclaim for breach of contract. The district court granted Indiana's motion for partial summary judgment and denied PANA's motion for summary judgment. PANA appeals, arguing that the district court erred in its summary judgment determination. For the reasons set forth below, we conclude that the district court correctly granted summary judgment and affirm.
PANA is a municipal corporation organized under the Illinois School Code that provides public educational services to students through two elementary schools, a junior high school, a senior high school, and an adult educational center. Among the buildings that PANA owns is a junior high school, which consists of a north and south building. The north building is approximately 35,000 square feet and the south building is less than 19,000 square feet. Classes are held in the north building while the south building has been used for storage since the Illinois Department of Education condemned the building in 1981 or 1982.
Under Section 5/10-20.21 of the Illinois School Code, PANA must publicly bid contracts in excess of $10,000.00. In 1992, PANA, acting through its insurance consultant, Insurance Management Bureau ("IMB"), issued bid specifications soliciting proposals for property coverage for the various school buildings owned by PANA. The bid specifications requested blanket coverage on a replacement cost basis for all buildings unless otherwise noted. Replacement cost value is the cost of replacing the property in like utility without deduction for depreciation. The bid specifications provided that the south building of the junior high school was to be insured at a value of $50,000.00 for demolition and debris removal only. Indiana, through Richard A. Lees, a licensed insurance producer, submitted a proposal pursuant to the bid specifications that was accepted by PANA. Indiana issued an insurance policy which provided coverage for the south building of the junior high school in the amount of $50,000.00 but did not include the south building under the blanket coverage provisions, valuing its replacement cost as "0."
Indiana issued renewal policies to PANA from 1993 through 1995, continuing to exclude the south building from blanket coverage and providing only $50,000.00 coverage for demolition and debris removal for the south building.
In 1995, PANA's new superintendent of schools, Larry Marsh, hired ValueQuest International, Ltd. (ValueQuest) to appraise the replacement cost of all of PANA's buildings. ValueQuest prepared a report that reflected a replacement cost for the junior high school of $1,872,396.00.
In 1996, PANA decided to rebid its insurance needs, requesting that IMB lay the groundwork for the rebidding process. While working on the rebidding project, IMB reviewed the ValueQuest report and discovered a discrepancy between the ValueQuest appraisal of the junior high school and the replacement cost of the junior high school set forth in the 1995 statement of values. Larry Marsh explained to the IMB representative, Renee Smith, that the ValueQuest appraisal did not incorporate a value for the south building of the junior high school.
In March 1996, Renee Smith sent a fax to Larry Marsh confirming the discrepancies in the different evaluations of the junior high school. She also recommended that PANA should fully insure the south building. Based on this advice, Marsh obtained the services of the school district's architects, Gatewood Hance & Associates, to appraise the junior high school. Gatewood Hance & Associates prepared a building replacement cost estimate reflecting an appraisal of the PANA junior high school buildings at 35,730 square feet with replacement cost of $2,325,920.00. After receiving the Gatewood appraisal of March 14, 1996, Smith assumed that the figure of 35,730 square feet pertained to the South Building.
On March 15, 1996, Smith prepared to incorporate several modifications to the PANA bid specifications. These changes included combining the replacement cost of $1,616,031.00 established by ValueQuest for the north building with the replacement cost of $2,325,920.00 estimated by Gatewood. Smith also intended to specify that blanket coverage was wanted for both junior high school buildings.
While in the process of implementing these changes to the 1996 bid specifications, IMB came under new ownership. However, after an abrupt change of ownership, the new owner, Debra Callen, ordered Smith's computer to be turned off and the changes to the 1996 bid specifications were lost.
When IMB published the 1996 bid specifications, they did not include Smith's modifications. Thus, neither Indiana nor Richard Lees were ever made aware of Smith's attempted modifications. The statement of values for the 1996 bid specifications listed the replacement cost for the north building as $1,616,031.00 and "0" for the south building. In addition, the 1996 bid specifications required blanket coverage for all of PANA's buildings according to the building's replacement cost. The statement of values for the 1996 bid specifications appeared as follows:
On May 20, 1996, PANA awarded Indiana the contract for casualty and property insurance coverage from July 1996 through June 1997. The contract went into effect on July 1, 1996, and was renewed for a one-year period running from July 1, 1997 to July 1, 1998. On July 1, 1996, Indiana issued the insurance policy to PANA. Since the south building was not assigned a replacement or insurable value, Indiana did not charge a premium for blanket coverage of the south building.
On October 4, 1997, fire damaged both junior high school buildings. Indiana investigated, adjusted, and paid all components of the claim submitted by PANA pursuant to the Indiana policy with the exception of PANA!s claim for structural damage to the south building. Indiana did, however, pay PANA $50,000.00 pursuant to the demolition and debris removal coverage for the south building provided by the 1997 policy. When PANA sought payment for replacement costs for the south building, Indiana denied PANA!s claim based upon the 1997 policy. Shortly thereafter, Indiana filed its initial complaint seeking declaratory relief.
In response to Indiana's complaint, PANA filed an answer, a counterclaim for breach of contract and reformation, and a third-party complaint against IMB, the agent who issued the Indiana policy. On December 3, 2001, the district court entered an order granting Indiana's motion for partial summary judgment and denying PANA's cross motion for summary judgment. The district court then relinquished pendent jurisdiction over PANA's third-party complaint, thereby dismissing the case in its entirety. In reaching its decision, the court determined that the insurance policy unambiguously limited liability and thus Indiana was not liable for the replacement costs of the south building of the junior high school.
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