LaSalle Nat. Bank v. Massachusetts Bay Ins. Co., 90 C 2005.

• Decision Date: 12 March 1997
• Docket Number: No. 90 C 2005.,90 C 2005.
• Citation: 958 F.Supp. 384
• Parties: LaSALLE NATIONAL BANK, et al., Plaintiffs, v. MASSACHUSETTS BAY INSURANCE COMPANY, et al., Defendants.
• Court: U.S. District Court — Northern District of Illinois

Page 384

958 F.Supp. 384

LaSALLE NATIONAL BANK, et al., Plaintiffs, v. MASSACHUSETTS BAY INSURANCE COMPANY, et al., Defendants.

No. 90 C 2005.

United States District Court, N.D. Illinois, Eastern Division.

March 12, 1997.

Gary S. Tucker, Law Offices of Gary S. Tucker, Chicago, IL, for LaSalle Nat. Bank, Stanley Berg, Ingrid Berg and LaSalle Northbrook Bank.

Frederick H. Crystal, Richard Dennis Heytow, Jeffrey L. Warnick, Crystal, Heytow and Warnick, Chicago, IL, Nancy Lynn Martin, Circuit Court of Cook County, Criminal Division, Chicago, IL, for Massachusetts Bay Ins. Co., Hanover Ins. Co., State Mut. Life Assur. Co. of America and SMA Financial Corp.

MEMORANDUM OPINION AND ORDER

ANN CLAIRE WILLIAMS, District Judge.

In a motion for partial summary judgment filed seven years after this case commenced and four days after the trial was to begin, plaintiffs argue that defendants cannot maintain their counterclaims against Plaintiff Stanley Berg. The motion raises an interesting and important issue that plaintiffs should have raised months or years ago. For reasons set forth below, the court denies plaintiffs' motion for partial summary judgment.

Background

Until November 16, 1988, Plaintiffs Stanley and Ingrid Berg ("the Bergs") lived in a house at 117 Shore Acres Drive in Lake Bluff, Illinois. Plaintiff LaSalle National Bank held legal title to the Bergs' house. Defendants Massachusetts Bay Insurance Company, Hanover Insurance Company, State Mutual Life Assurance Company of America, and SMA Financial Corporation ("insurance companies") issued a homeowners insurance policy to the Bergs on June 17, 1988. (Pls.' 12(M) ¶¶ 1-5, 8-14; Defs.' 12(N) ¶¶ 1-5, 8-14.)¹ This policy expressly excluded losses caused by intentional acts of an insured. (Pls.' 12(M), Ex. 2, insurance policy, § I Exclusions, ¶ 1(h).)

On November 16, 1988, fire destroyed the Bergs' house. Since the time of the fire, defendant insurance companies have refused to pay Plaintiff Stanley Berg for damages incurred as a result of the fire, claiming that he intentionally caused the fire to be set and knowingly misrepresented his losses. However, defendant insurance companies made various payments to Ingrid Berg, after concluding that she did not cause the fire or misrepresent her losses. In addition, defendant insurance companies have made payments to two mortgagees of the property. (Pls.' 12(M), Ex. 4, defendants' answer, affirmative defenses and counterclaim.).

In their counterclaim, defendant insurance companies seek judgment against Stanley Berg in the amount of the monies they have paid (or will pay) to Ingrid Berg and to the two mortgagees under the terms of the homeowners insurance policy. Defendant insurance companies bring their counterclaim against Stanley Berg "as subrogee of Ingrid Berg." (Pls.' 12(M), Ex. 4, defendants' answer, affirmative defenses and counterclaim.)²

Analysis

Plaintiffs move for partial summary judgment under Rule 56 of the Federal Rules of Civil Procedure. The court will render summary judgment only if the factual record shows "that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Bratton v. Roadway Package Sys., Inc., 77 F.3d 168, 173 (7th Cir.1996) (quoting Fed. R.Civ.P. 56(c)). The court will not render summary judgment if "a reasonable jury could return a verdict for the nonmoving party." Sullivan v. Cox, 78 F.3d 322, 325 (7th Cir.1996) (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986)). In ruling on a motion for summary judgment, the court views the facts in the light most favorable to the nonmoving party. Bratton, 77 F.3d at 171 (citation omitted); Sullivan, 78 F.3d at 325 (citation omitted).

On a motion for summary judgment, the moving party "bears the initial burden of showing that no genuine issue of material fact exists." Hudson Ins. Co. v. City of Chicago Heights, 48 F.3d 234, 237 (7th Cir. 1995) (citing Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 2552-53, 91 L.Ed.2d 265 (1986)). Then the burden shifts to the nonmoving party, which "must set forth specific facts showing that there is a genuine issue for trial." Fed.R.Civ.P. 56(e); accord, NLFC, Inc. v. Devcom Mid-America, Inc., 45 F.3d 231, 234 (7th Cir.1995) (citations omitted), cert. denied, ___ U.S. ___, 115 S.Ct. 2249, 132 L.Ed.2d 257 (1995).

These burdens are reflected in Rule 12 of the Local General Rules for the Northern District of Illinois. Waldridge v. American Hoechst Corp., 24 F.3d 918, 921-22 (7th Cir. 1994). Under Rule 12(M)(3), the moving party must submit a statement of material facts in the form of short numbered paragraphs supported by specific references to the factual record. Under Rule 12(N)(3), the nonmoving party must submit a response to each such paragraph, including (in the case of disagreement) specific references to the factual record.³

In their motion for summary judgment, plaintiffs argue that defendants cannot maintain their counterclaim because "[i]t is a well settled principle of Illinois law that an insurer possesses no subrogation rights against its own insured." (Pl.'s Mem. in Supp. at 5.)⁴ In support of this argument, plaintiffs cite two Illinois cases: Reich v. Tharp, 167 Ill.App.3d 496, 118 Ill.Dec. 248, 521 N.E.2d 530 (1987), and Dix Mutual Ins. Co. v. LaFramboise, 149 Ill.2d 314, 173 Ill. Dec. 648, 597 N.E.2d 622 (1992).

In Reich v. Tharp, an Illinois appellate court laid out the general principles of subrogation as follows:

The doctrine of subrogation is designed to place the ultimate responsibility for a loss upon the one on whom in good conscience it ought to fall and to reimburse the innocent party who is compelled to pay. Under this doctrine a person who, pursuant to a legal liability, has paid for a loss or injury resulting from the negligence or wrongful act of another will be subrogated to the rights of the injured person against such a wrongdoer. It is axiomatic that for a right of subrogation to exist, the subrogor must possess a right that he could enforce against a third party and that the subrogee must seek to enforce the subrogor's right. The subrogee can have no greater rights than the subrogor and can enforce only such rights as the subrogor could enforce against the third party. Thus, it is commonly stated that the subrogee ... must step into the shoes of or be substituted for the subrogor. No right of subrogation can arise in favor of an insurer against its own insured since, by definition, subrogation arises only with respect to rights of the insured against third persons to whom the insurer owes no duty. No right of subrogation arises against a person who holds the status of an additional insured. Where the insured is required by contract or lease to carry insurance for the benefit of another, the other party may attain the status of a coinsured, and no subrogation may be taken against such a party, in the absence of a design or fraud on the part of the coinsured. The doctrine of subrogation originates in the general principles of equity and will be applied or not according to the dictates of equity and good conscience and considerations of public policy.

Reich, 118 Ill.Dec. at 251-52, 521 N.E.2d at 533-34 (citations omitted).⁵

In Dix Mutual Ins. Co. v. LaFramboise, an insurer alleged that a tenant of an insured homeowner negligently caused a fire that damaged the home. After paying the homeowner more than $40,000, the insurer sought to recover that amount from the tenant by way of subrogation. The Supreme Court of Illinois held that the insurer could not maintain a subrogation action against the allegedly negligent tenant because the tenant was in effect a coinsured under the insurance policy. Dix, 173 Ill.Dec. at 652, 597 N.E.2d at 626. In support of this holding, the Supreme Court cited Reich for the proposition that "an insurer may not subrogate against its own insured or any person or entity who has the status of a co-insured under the insurance policy." Dix, 173 Ill.Dec. at 652, 597 N.E.2d at 626 (citing Reich, 118 Ill.Dec. at 251-52, 521 N.E.2d at 533-34). However, the Supreme Court cautioned that:

The right of subrogation is an equitable right and remedy which rests on the principle that substantial justice should be attained by placing ultimate responsibility for the loss upon the one against whom in good conscience it ought to fall. Subrogation is allowed to prevent injustice and unjust enrichment but will not be allowed where it would be inequitable to do so. There is no general rule which can be laid down to determine whether a right of subrogation exists since this right depends upon the equities of each particular case.

Dix, 173 Ill.Dec. at 650, 597 N.E.2d at 624 (citations omitted).

Both Reich and Dix involved negligence, not arson. Illinois courts apparently have never considered whether an insurer can subrogate against an insured arsonist, but courts in other states have considered the issue and answered in the affirmative. In Madsen v. Threshermen's Mutual Ins. Co., 149 Wis.2d 594, 439 N.W.2d 607 (App.1989) — a case remarkably similar to the instant case — the owners of a restaurant purchased a fire insurance policy that that expressly excluded intentional acts caused by an insured. After fire destroyed the restaurant, the insurer paid approximately $33,000 to a mortgagee but refused to pay anything to the restaurant owners. The owners sued the insurer for breach of contract. The insurer counterclaimed for the $33,000 it had paid to the mortgagee, claiming that one of the owners intentionally set fire to the restaurant. Affirming a verdict in favor of the insurer, the Wisconsin Court of Appeals stated:

Ordinarily, an insurer does not have a right of subrogation or indemnification against its own insured. In this instance, however, adhering to this principle would defeat a purpose of subrogation, which is to ultimately...