Midway Wholesalers Inc. v. Motorists Commercial Mut. Ins. Co.

• Decision Date: 22 September 2022
• Docket Number: 1:21-cv-05441
• Parties: MIDWAY WHOLESALERS, INC., Plaintiff, v. MOTORISTS COMMERCIAL MUTUAL INSURANCE COMPANY, Defendant.
• Court: U.S. District Court — Northern District of Illinois

1

MIDWAY WHOLESALERS, INC., Plaintiff, v. MOTORISTS COMMERCIAL MUTUAL INSURANCE COMPANY, Defendant.

No. 1:21-cv-05441

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

September 22, 2022

MEMORANDUM OPINION AND ORDER

John Robert Blakey United States District Judge

This case involves an insurance dispute concerning Defendant Motorists Commercial Mutual Insurance Company's (“Motorists”) coverage obligations under a property insurance policy it sold to Plaintiff Midway Wholesalers, Inc. (“Midway”). The parties dispute whether Motorists has an obligation to reimburse Midway for the cost of security guard services Midway retained after its warehouse was damaged in the rioting that took place in the City of Chicago in May 2020. Midway sued Motorists, alleging breach of contract and violation of section 155 of the Illinois Insurance Code, 215 ILCS 5/155. [18]. Motorists moves to dismiss Midway's section 155 claim under Federal Rule of Civil Procedure 12(b)(6). [20]. For the reasons stated below, this Court denies Motorists' motion [20].

I. Facts

Midway an alcoholic beverage distributor, maintains a warehouse in Chicago, Illinois. [18] ¶¶ 2, 10. Midway purchased from Motorists a commercial property Policy (the “Policy”) to cover its properties, including its warehouse, effective April 19, 2020 through April 19, 2021. Id. at ¶ 8. Among other provisions, the Policy includes a Business Income (And Extra Expense) Coverage Form, which requires Motorists to pay for certain necessary expenses incurred by Midway when minimizing disruptions to Midway's business, and a Building And Personal Property Coverage Form, which requires Motorists to “pay for direct physical loss of or damage to [the warehouse] caused by or resulting from any Covered Cause of Loss.” [19-1] at 7-8, 70, 54.

The Policy also contains an endorsement entitled the “MiChoice Property Protector-Illinois Endorsement” (the “Endorsement”), which expressly states that it modifies only the Building And Personal Property Coverage Form and the Causes of Loss - Special Form under the Policy. Id. at 110-42. The Endorsement provides:

MiCHOICE PROPERTY PROTECTOR - ILLINOIS

THIS ENDORSEMENT CHANGES THE POLICY. PLEASE READ IT CAREFULLY.

This endorsement modifies insurance provided under the following:

BUILDING AND PERSONAL PROPERTY COVERAGE FORM

CAUSES OF LOSS - SPECIAL FORM

The coverage provided by this endorsement is subject to the provisions, including exclusions and limitations, applicable to the BUILDING AND PERSONAL PROPERTY COVERAGE FORM and the CAUSES OF LOSS - SPECIAL FORM, except as provided below.

Id. at 110. The Endorsement adds additional coverages to the Building and Personal Property Coverage Form of the Policy, such as coverage for security guards, lock replacement, and for recharging fire extinguishers. Id. at 112. The additional coverage for security guards provides:

The BUSINESS AND PERSONAL PROPERTY COVERAGE FORM is amended as follows:

* * *

G. For the purposes of this endorsement, the following items are added to A. Coverage, 4. Additional Coverages:

Security Guard Coverage

We will pay up to $5,000 for the expenses you incur to hire a licensed private security guard or off-duty law enforcement officer in order to protect the public or your property from hazardous conditions which result from a Covered Cause of Loss. This is an additional amount of insurance and no deductible applies to this Additional Coverage.

Id. at 111-12.

The Endorsement also provides additional business income and extra expense coverage to the Building and Personal Property Coverage Form up to a limit of $100,000. Id. at 110. For extra expenses, the Endorsement provides:

Business Income And Extra Expense Coverage

* * *

(2) Extra Expense

Extra Expense means necessary expenses you incur during the “period of restoration” that you would not have incurred if there had been no direct physical loss or damage to property caused by or resulting from the CAUSES OF LOSS - SPECIAL FORM.

We will pay Extra Expense (other than the expense to repair or replace property) to:

(a) Avoid or minimize the “suspension” of business and to continue operations at the described premises or at replacement premises or temporary locations, including relocation expenses and cost to equip and operate the replacement location; or

(b) Minimize the “suspension” of business if you cannot continue “operations”

* * *

(8) Definitions * * *

“Period of Restoration” means the period of time that:

(a) Begins with the date of direct physical loss or damage caused by or resulting from any Covered Cause of Loss at the described premises; and

(b) Ends on the earlier of:

(i) The date when the property at the described premises should be repaired, rebuilt or replaced with reasonable speed and similar quality; or

(ii) The date when business is resumed at a new permanent location.

* * *

“Suspension” means:

(a) The slowdown or cessation of your business activities; or

(b) That a part of all of the described premises in [sic] rendered untenantable, if coverage for Business Income including “Rental Value” or “Rental Value” applies.

Id. at 112-13, 116-17. Although the language for extra expense coverage provided under the Endorsement remains similar to the extra expense coverage under the Business Income (and Extra Expense) Coverage Form, the two coverages are distinct because, among other things, the former limits coverage to $100,000 while the latter limits coverage to $3,279,000. See id. at 39, 110.

On May 31, 2020, riots and looting in Chicago damaged the warehouse, including its windows, doorways, and loading docks. [18] ¶ 3. In response, Midway retained the services of a security guard company to provide on-site protection to its business, including the warehouse. Id. ¶ 12. Midway believed security guard services were necessary to avoid further disruption to its business, viewing it as an extra expense under the terms of the Policy, and thus, requested reimbursement for the security guard services from Motorists. Id. ¶¶ 13-15.

On September 21, 2020, Motorists sent Midway a coverage letter in response to Midway's request for reimbursement. Id. ¶ 26. In the coverage letter, Motorists stated that based on “our investigation regarding the additional costs for security to protect your property, the full limit of insurance for this coverage is specifically described in the MiChoice Property Protector endorsement” and explained that since the “security guard coverage is specifically described, the policy intends to limit the amount of reimbursable expenses for private security at $5,000, and therefore no other coverage can be utilized to stack on this limit.” Id. On February 5, 2021, Motorists sent another coverage letter to Midway largely identical to its coverage determination in the September 21, 2020 letter. Id. ¶ 27.

In its second amended complaint, Midway alleges that Motorists breached the Policy by refusing to fully reimburse Midway for the costs it incurred to retain private security guard services (Count I). Id. ¶ 17. Midway also alleges that Motorists' failure to reimburse Midway for these costs was vexatious and unreasonable under section 155 of the Illinois Insurance Code, 215 ILCS 5/155. (Count II). Id. ¶ 24. Motorists moves to dismiss this latter claim (Count II). [20].

II. Legal Standard

As an initial matter, Motorists filed its Rule 12(b)(6) motion to dismiss after it had already filed its answer and affirmative defenses to Midway's second amended complaint. See [19] (filed on January 13, 2022), [20] (filed on January 14, 2022). Under Rule 12(b), motions asserting certain defenses such as Rule 12(b)(6) “must be made before pleading if a responsive pleading is allowed.” Fed.R.Civ.P. 12(b). Thus, filing a motion to dismiss after or simultaneously with an answer is technically improper. Additionally, neither Midway's second amended complaint nor Motorists' Rule 12(b)(6) motion to dismiss attach the insurance policy at issue. See [18], [20]. But both pleadings reference the policy and Motorists did attach it to its earlier-filed answer, [19], [19-1], which the Court ordinarily cannot consider on a Rule 12(b)(6) motion to dismiss. See Rosenblum v. Travelbyus.com Ltd., 299 F.3d 657, 661 (7th Cir. 2001) (“As a general rule, on a Rule 12(b)(6) motion, the court may consider only the Plaintiff's complaint.”).

As a result, the Court construes Motorists' Rule 12(b)(6) motion to dismiss for failure to state a claim as a Rule 12(c) motion for judgment on the pleadings, which will allow the Court to consider the insurance policy at issue, as well as Motorists' post-answer arguments. See Forseth v. Vill. of Sussex, 199 F.3d 363, 368 n.6 (7th Cir. 2000) (“[B]ecause Defendants previously filed their answer, the district court correctly construed Defendants' motion as a motion for judgment on the pleadings under Rule 12(c)); Fed.R.Civ.P. 10(c) (“A copy of a written instrument that is an exhibit to a pleading is part of the pleading for all purposes.”). This approach, of course, does not change the applicable legal standard. See Federated Mut. Ins. Co. v. Coyle Mech. Supply Inc., 983 F.3d 307, 313 (7th Cir. 2020) (“The only difference between a motion for judgment on the pleadings and a motion to dismiss is timing; the standard is the same.”).

To survive a motion for judgment on the pleadings, a “complaint must state a claim to relief that is plausible on its face.” Milwaukee Police Ass'n v. Flynn, 863 F.3d 636, 640 (7th Cir. 2017). As under Rule 12(b)(6), courts draw all inferences and facts in the non-movant's favor but are not required to accept as true any legal assertions. Id. In ruling on a Rule 12(c) motion, courts consider the pleadings, documents incorporated by reference into the...