Mayfair Const. Co., Inc. v. Security Ins. Co. of Hartford

• Citation: 366 N.E.2d 1020,51 Ill.App.3d 588,9 Ill.Dec. 509
• Decision Date: 05 August 1977
• Docket Number: No. 62680,62680
• Parties: , 9 Ill.Dec. 509 MAYFAIR CONSTRUCTION COMPANY, INC., an Illinois Corporation, Plaintiff-Appellee, v. SECURITY INSURANCE COMPANY OF HARTFORD, a Foreign Corporation, Defendant-Appellant.
• Court: United States Appellate Court of Illinois

Page 1020

366 N.E.2d 1020

51 Ill.App.3d 588, 9 Ill.Dec. 509

MAYFAIR CONSTRUCTION COMPANY, INC., an Illinois Corporation, Plaintiff-Appellee, v. SECURITY INSURANCE COMPANY OF HARTFORD, a Foreign

Corporation, Defendant-Appellant.

No. 62680.

Appellate Court of Illinois, First District, Fifth Division.

Aug. 5, 1977.

[9 Ill.Dec. 510] Schaffenegger, Watson & Peterson, Ltd., Chicago, for defendant-appellant; Randall L. James, Donald G. Peterson, Chicago, of counsel

Lord, Bissell & Brook, Chicago, for plaintiff-appellee; Don W. Fowler, Hugh C. Griffin, Chicago, of counsel.

WILSON, Justice.

In this action on a liability insurance policy, a jury returned a verdict in favor of defendant, Security Insurance Company of Hartford. The trial court granted a judgment notwithstanding the verdict to plaintiff, Mayfair Construction Company, in the amount of $11,083.60 plus interest accruing from December 20, 1968. This appeal by defendant is from an order denying a motion to vacate that judgment and awarding prejudgment interest. The following issues are raised for review: (1) whether certain terms and conditions of the insurance policy prohibit this action; (2) whether plaintiff has standing to bring this action; and (3) whether plaintiff was entitled to prejudgment interest. We affirm the judgment notwithstanding the verdict, but we reverse the award of prejudgment interest.

Plaintiff filed suit on August 6, 1970. At trial, defendant presented no witnesses. Plaintiff presented four witnesses: (1) Angelo J. Polvere, the vice-president of Mayfair Construction Company; (2) Albert W. Gasper, a University of Illinois construction engineer; (3) Frank Houck, the director of the University of Illinois' physical plant department; and (4) Frank E. Gorski, the supervisor of the University of Illinois' pharmacy store. The pertinent facts established by their testimony may be summarized as follows: Plaintiff entered into a contract with the Illinois Building Authority, University of Illinois (University). Plaintiff agreed to build an addition to one of the University's buildings in Chicago. The contract obligated plaintiff to keep all openings in the walls of the existing building covered and "weather-tight" in order to prevent water from entering the building. Further, plaintiff was obligated to keep excavations free from water, through the use of pumps if necessary. Plaintiff was obligated not to disturb any existing underground sewers. Also, plaintiff agreed to "make good" any damage due to its failure to meet the contract obligations. Pursuant to its policy, defendant provided plaintiff with insurance against potential contractual liability.

During plaintiff's construction of the addition, an excavation was dug immediately adjacent to the existing building. An opening was made in the foundation of that building. The opening was covered with plywood. Gasper testified that the covering "wasn't solid enough and it wasn't braced to withstand water that got into the excavation." On June 10, 1967, a heavy rain fell on the construction site. Gasper observed that rainwater, which had built up On June 13, 1967, plaintiff sent Schwartz-Kruger & Company (Schwartz), the firm which had arranged the purchase of the insurance policy, a written report of the June 10th damage to the University's building. Plaintiff wanted Schwartz to "take the necessary steps" under the policy. On November 21, 1968, the University informed plaintiff that there would be a claim made against plaintiff for the water damage, in the amount of $11,294. Later, on December 23, 1968, the amount was decreased to $11,083.60 in a formal claim which showed the costs incurred by the physical plant department and the pharmacy as a result of the water damage. In a letter, dated November 22, 1968, plaintiff notified Schwartz that the University was preparing a claim. Defendant's letter to plaintiff, dated December 20, 1968, read as follows:

[9 Ill.Dec. 511] in the excavation, came through the plywood covering in the foundation of the existing building. Consequently, classrooms and a pharmacy were flooded to a considerable depth. Plaintiff had not provided the pumps necessary to keep the excavation dry. In addition, plaintiff had not repaired an underground sewer line. As a result of the [51 Ill.App.3d 591] excavation, the line was broken and sump pumps in the existing building were unable to prevent water damage.

"We have received your letter of November 22, 1968 sent to your agent. As you know, there is no coverage under your policy for damage of this nature.

It also appears that it would be difficult if not impossible for the University of Illinois to prove negligence on your part for the 'Act of God' involved.

We, therefore, at this time shall be unable to furnish coverage for this loss."

The University withheld $11,083.60 from the amount due plaintiff on the construction contract. Polvere testified that plaintiff never "acquiesced" in the withholding of the money and plaintiff never agreed on the amount to be withheld. Plaintiff, however, never sued the University.

In a letter to Schwartz, dated November 3, 1969, defendant stated that there is "no liability under the policy contract for the alleged claim," but defendant offered to defend any action that might be brought against plaintiff by the University. Polvere signed three statements prepared by one of defendant's investigators concerning the water damage. Those statements did not show that the water came into the existing building through the plywood covered opening in the foundation. Polvere had not witnessed what occurred at the construction site on June 10, 1967, but he had received reports from Gasper who was an occurrence witness. When Polvere signed the statements, he knew about the opening and the role it played in the occurrence.

On June 1, 1973, after plaintiff had rested its case at trial, defendant filed an amended answer to the amended complaint. That amended answer asserted as affirmative defenses certain provisions found in the policy of insurance. The following provisions were allowed to stand as defenses:

"The company will pay on behalf of the insured all sums which the insured, by reason of contractual liability assumed by him under a contract designated in the schedule for this insurance, shall become legally obligated to pay as damages because of

Y. bodily injury or

Z. property damage

to which this insurance applies, caused by an occurrence, and the company shall have the right and duty to defend any suit against the insured seeking damages on account of such bodily injury or property damage, even if any of the allegations of the suit are groundless, false or fraudulent, and may make such investigation and settlement of any claim or suit as it deems expedient, but the company shall not be obligated to pay any claim or judgment or to defend any suit after the applicable limit of the company's liability has been exhausted by payment of judgments or settlements.

In the event of loss the named insured shall cooperate with the company and, upon the company's request, shall assist Defendant charged that plaintiff did not comply with those provisions; therefore, plaintiff could not recover. The following provision was stricken from the amended answer by the trial court:

[9 Ill.Dec. 512] in making settlements, in the conduct of suits and in enforcing any right of contribution or indemnity against any person or organization who may be liable to the named insured because of loss with respect to which this insurance applies; and shall attend hearings and trials and assist in securing and giving evidence and obtaining the attendance of witnesses; but the named insured shall not, except at his own cost, voluntarily make any payment, assume any obligation, offer or pay any reward for recovery of stolen property or incur any expense other than as specifically provided in this insurance."

"No action shall lie against the company unless, as a condition precedent thereto there shall have been full compliance with all of the terms of this policy, nor until the amount of the insured's obligation to pay shall have been finally determined either by judgment against the insured after actual trial or by written agreement of the insured, the claimant and the Company."

Also, the trial court refused to give certain jury instructions tendered by defendant, including an instruction regarding the "no action" clause. The court found that the "Act of God" defense, mentioned by defendant in the December 20 letter, was inapplicable, since the construction contract between plaintiff and the University did not mention an "Act of God" as a basis for excusing plaintiff's obligation under the contract.

After the judgment notwithstanding the verdict was entered, defendant took depositions of Paul Cocose, the president of Mayfair Construction Company, and Edward Schwartz, a partner in the Schwartz firm. In this post trial discovery, Cocose testified that Schwartz orally agreed to loan plaintiff the sum of $11,038.60 provided that plaintiff repay the money if the sum was recovered from the University or defendant. Plaintiff accepted from Schwartz a check, dated October 30, 1969, in the amount of $11,083.60. Cocose further testified that no attempt was subsequently made to recover from the University. In a post trial deposition, Edward Schwartz testified that Schwartz, on prior occasions, had made "advances" to its customers who had claims which appeared to be "covered" by the insurance policy. In the event that plaintiff completely failed to recover from defendant, Edward Schwartz would decide whether to collect the money from plaintiff. The post trial affidavit of Edward Schwartz stated that the position taken by defendant in its December 20 letter was improper. The affidavit further stated that a loan was made and that it had to be repaid by plaintiff from the amount of plaintiff's recovery from defendant. In its order...