Leona's Pizzeria v. Northwestern Nat. Cas. Co.

• Decision Date: 21 May 2002
• Docket Number: No. 01 C 9652.,01 C 9652.
• Parties: LEONA'S PIZZERIA, INC., an Illinois corporation, Plaintiff, v. NORTHWESTERN NATIONAL CASUALTY COMPANY, a Wisconsin insurance corporation, Defendants.
• Court: U.S. District Court — Northern District of Illinois

203 F.Supp.2d 930

LEONA'S PIZZERIA, INC., an Illinois corporation, Plaintiff, v. NORTHWESTERN NATIONAL CASUALTY COMPANY, a Wisconsin insurance corporation, Defendants.

No. 01 C 9652.

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

May 21, 2002.

COPYRIGHT MATERIAL OMITTED

Jerome H. Torshen, Zoran Dragutinovich, Torshen, Spreyer, Garmisa & Slobig, Ltd., Chicago, IL, Steven P. Garmisa, Hoey, Farina & Downes, Chicago, IL, Thomas Stephen Moore, Jane Farwell Anderson, Anderson & Moore, P.C., Chicago, IL, for plaintiff.

Peter E. Kanaris, David E. Heiss, Cheryl Lynn Heiss, Daar, Fisher, Kanaris & Vanek, Chicago, IL, for defendant.

MEMORANDUM OPINION AND ORDER

BUCKLO, District Judge.

Leona's Pizzeria, Inc. ("Leona's"), an Illinois corporation, sues Northwestern National Casualty Co. ("Northwestern"), a Wisconsin insurance corporation, for breach of an insurance policy and for violations of the Illinois Consumer Fraud and Deceptive Business Practices Act, 815 ILCS 505/1 et seq. (the "Act").¹ Northwestern answered the complaint with regard to the breach of contract claim, but moves to dismiss the claim under the Act. I grant the motion.

I.

Leona's operates thirteen restaurants in the Chicago, Illinois, metropolitan area, and operates a commissary at 3931 South Leavitt in Chicago, where it stores and prepares food for its restaurants. The commissary also houses and operates a laundry for restaurant linens. Leona's had a fire insurance policy with Northwestern that covered the commissary. On October 18, 2000, a fire broke out in the laundry of the commissary, damaging the building to the extent that business could no longer be conducted there and destroying significant amounts of food inventory. Leona's moved the food storage and preparation operations previously performed at the commissary to other restaurant locations and purchases substitute food from outside vendors.

The commissary was shut down for seventeen weeks for repairs, and Leona's incurred $982,944.32 in food costs to outside vendors and business interruption losses, in addition to repair costs of $1,343,525.24. Leona's insurance coverage with Northwestern was sufficient to cover its losses. Leona's made a claim on its policy, and Northwestern made an advance payment of $1,113,370.69 toward the losses. After an investigation, however, Northwestern accused Leona's of falsely and fraudulently inflating its claim, declared the policy void from the outset, and denied the claim in full, demanding a return of $966,631.69. Leona's claims that the investigation was a sham, that there is no evidence to support the allegation that it falsified its claim, and that Northwestern acted in bad faith. In addition, Leona's claims that Northwestern and its parent company were undergoing financial difficulties, of which it did not inform Leona's prior to the purchase of the policy. Leona's also alleges that, two weeks before denying Leona's insurance claim, Northwestern's financial rating was downgraded to a "C-," and that it was because of the downgrade in its own rating that it denied Leona's claim.

For the purposes of this motion, I take the allegations in the complaint as true, draw all reasonable inferences in favor of Leona's, and dismiss only where it is clear that Leona's could prove no set of facts consistent with its complaint that would entitle it to relief under the Act. First Ins Funding Corp. v. Federal Ins. Co., 284 F.3d 799, 804 (7th Cir.2002).

II.

The Act provides a cause of action for "[a]ny person who suffers actual damages as a result of a violation of this Act committed by any other person." 815 ILCS 505/10a(a). The Act is violated when a defendant uses or employs "any deception, fraud, false pretense, false promise, misrepresentation or the concealment, suppression or omission of any material fact" in the conduct of trade or commerce with the intent that others rely on the fraud, though no person need actually have relied on the fraud. § 2. "Consumer" means any person or corporation "who purchases or contracts for the purchase of merchandise not for resale in the ordinary course of his business." § 1(c), (e). "Merchandise" includes services, § 1(e), and "[t]he sale of insurance is clearly a service and insureds are thus consumers and within the protection of the Consumer Fraud Act." Fox v. Industrial Cas. Ins. Co., 98 Ill.App.3d 543, 54 Ill.Dec. 89, 424 N.E.2d 839, 842 (1981).

Northwestern argues that Leona's has alleged no more than a straightforward breach of contract claim, which is not cognizable under the Act and which is preempted by the Illinois Insurance Code, 215 ILCS 5/155. Section 155 of the Insurance Code "provides an extracontractual remedy to policyholders whose insurer's refusal to recognize liability and pay a claim is vexatious and unreasonable." Cramer v. Insurance Exch. Agency, 174 Ill.2d 513, 221 Ill.Dec. 473, 675 N.E.2d 897, 900 (1996). The Illinois Supreme Court has recognized that:

an insurer's conduct may give rise to both a breach of contract action and a separate and independent tort action. Mere allegations of bad faith or unreasonable and vexatious conduct, without more, however, do not constitute such a tort. Courts therefore should look beyond the legal theory asserted to the conduct forming the basis for the claim. In cases where a plaintiff actually alleges and proves the elements of a separate tort, a plaintiff may bring an independent tort action, such as common law fraud, for insurer misconduct.

Id. at 904 (citations omitted). The conduct forming the basis of Leona's claim, as set forth in the complaint, includes: failure to advise Leona's of Northwestern's financial problems; bad faith failure to pay a claim; delay of the claim by a sham investigation; failure to engage...