National Tea Co. v. Commerce and Industry Ins. Co.

• Citation: 119 Ill.App.3d 195,456 N.E.2d 206,74 Ill.Dec. 704
• Decision Date: 01 December 1966
• Docket Number: No. 8646,8646
• Parties: , 74 Ill.Dec. 704 NATIONAL TEA COMPANY, an Illinois corporation, and Central National Bank In Chicago, as Trustee under Trust, dated
• Court: United States Appellate Court of Illinois

Page 206

456 N.E.2d 206

119 Ill.App.3d 195, 74 Ill.Dec. 704

NATIONAL TEA COMPANY, an Illinois corporation, and Central National Bank In Chicago, as Trustee under Trust No. 8646, dated December 1, 1966 Plaintiffs- Appellees, v. COMMERCE AND INDUSTRY INSURANCE COMPANY, a New York corporation, Defendant- Appellant.

No. 82-2978.

Appellate Court of Illinois First District, Fifth Division.

Oct. 28, 1983.

Rehearing Denied Nov. 30, 1983.

[74 Ill.Dec. 706] Epton, Mullin, Segan & Druth, Ltd., Chicago, for defendant-appellant; Roger A. Bixby, Mary F. Stafford, and William G. Potratz, Chicago, of counsel

Mayer, Brown & Platt, Chicago, for plaintiff-appellee National Tea Company; Alan N. Salpeter and Michael J. O'Rourke, Chicago, of counsel.

Rabens, Formusa & Glassman, Ltd., Chicago, for plaintiff-appellee Central National Bank in Chicago, etc.; George C. Rabens, Chicago, of counsel.

SULLIVAN, Justice:

This appeal is from a judgment for plaintiffs in an action seeking a declaration of the rights and liabilities of the parties under a fire insurance policy providing coverage for property damage and loss of rents. Defendant contends that (1) the trial court erroneously interpreted the general change endorsement of the policy; (2) the trial court erred in (a) excluding evidence of depreciation and of payments tendered by defendant, (b) striking an affirmative defense based on plaintiffs' failure to preserve and protect the property, and (c) instructing the jury with regard to the elements to be considered in determining the amount of rental loss; and (3) the trial court abused its discretion in awarding attorney fees and a penalty pursuant to section 155 of the Illinois Insurance Code (Ill.Rev.Stat.1981, ch. 73, par. 767).

On May 20, 1978, a commercial building owned by Central National Bank, as trustee (owners) and leased to National Tea Company "(a) This Company's liability for loss hereunder shall not exceed the smallest of the following amounts: (1) The amount of this policy applicable to the damaged or destroyed property (2) the cost to repair; (3) the replacement cost, defined as the cost to rebuild or replace, all as of the date of loss, on the same site or within five miles thereof, with new materials of like size, kind and quality (4) the actual expenditure incurred in rebuilding, repairing or replacing on the same or another site. [Hereinafter referred to as section (a).]

[74 Ill.Dec. 707] (National), ¹ was substantially damaged by fire. The property was the subject of a policy of fire insurance issued by defendant to National and naming the owners as additional insureds. It is undisputed that the loss in question is covered by the policy; however, the parties disagree as to the extent of defendant's liability thereunder. Two policy provisions are pertinent to this question. The first, a general change endorsement providing coverage for property damage, states in relevant part:

* * *

* * *

(c) If the property damaged or destroyed * * * is not repaired, rebuilt or replaced on the same or another site within a reasonable time after the loss or damage, this Company shall not be liable for more than the actual cash value (ascertained with proper deduction for depreciation) of such property." [Hereinafter referred to as section (c).]

The second provision, relating to rental loss, states:

"It is hereby provided that if said premises or any part thereof, whether rented at the time or not, shall be rendered untenantable by fire or lightning occurring during the continuance of this policy, this Company shall thereupon become liable for the rental value of such untenantable portions. Loss to be computed from the date of fire or damage by lightning, until such time as the building could, with reasonable diligence and dispatch, be rendered again tenantable, although the period may extend beyond the termination of this policy."

Testimony established that the property was inspected by an adjuster on behalf of defendant shortly after the fire occurred. On June 7, 1978, he indicated in a memo that the "preliminary replacement cost" of the structure was $600,000 to $650,000, and that the building was an 80-to-85% loss, resulting in a possible liability of approximately $500,000. The memo also contained a "preliminary estimate" of $100,000 in rental loss. Subsequently, M.L. Ensminger & Co. (Ensminger) prepared an estimate at defendant's request, submitted August 4, 1978, which stated that the "reconstruction value" of the building was $523,291.86, and the cost of repair was $321,571.43. The document purported to be a firm offer to perform the repairs at the latter price; however, the offer was not transmitted to plaintiffs.

The owners received several estimates on the cost of repairing the building, ranging from a low of $421,275 to a high of $732,200. After several extensions of the time for filing, a proof of loss was submitted on April 3, 1979, based on the highest bid received. This proof of loss was rejected as excessive on May 1, 1979, in a letter expressly reserving the right to assert any other rights or defenses "which may exist or later become known to exist." A partial proof of loss of rents in the amount of $45,000 was submitted by National on February 23, 1979, but similarly rejected by defendant as excessive, as was a subsequent proof of loss in the amount of $109,722.96, submitted March 13, 1980. The instant action was filed on May 17, 1979, and in its answer defendant admitted liability but denied the amount of damages alleged. Subsequently, a "sound value offer" of $239,261.33 was made, based on the estimated cost of repair received from Ensminger, $321,571.43, less defendant's calculation of After hearing testimony with regard to the amount of loss, a jury found that the owners' damages for building loss were $500,000, and National's damages for rental loss were $100,000. In response to a special interrogatory, the jury found that 83% of the building was destroyed by the fire. On August 17, 1982, the trial court reduced the building loss verdict to $260,739.57 and the rental loss verdict to $63,133.88 to reflect adjustments previously agreed to by the parties. The trial court also assessed attorney fees in the amount of $99,139.55 and a $5,000 penalty against defendant based on a finding that its delay in settling the claims was vexatious and unreasonable. Defendant's post-trial motion was denied on December 6, 1982, and this appeal followed.

[74 Ill.Dec. 708] depreciation. This sum was deposited with the court on April 7, 1980, without prejudice to the rights and claims of any party.

OPINION

Defendant first contends that the trial court erroneously interpreted the policy provision covering liability for property damage. As a result, it asserts, the jury was not properly instructed with regard to the measure of damages.

Throughout trial, defendant argued that the only applicable provision of the policy was section (c), since it was undisputed that the building had not been repaired or replaced. The owners, however, maintained that only section (a) was applicable, contending that it was sufficient that they intended to rebuild or repair but were prevented from doing so by defendant's rejection of their proof of loss and consequent refusal to pay any amount in excess of actual cash value.

While it appears that the trial court tended to agree with the owners' interpretation, the real problem here is not that the trial court misconstrued the policy, but that it failed to construe it. During the instruction conference, it refused the owners' instruction on damages, based on section (a), because it did not incorporate section (c). Similarly, it refused defendant's damage instruction, based on section (c), because it failed to incorporate section (a). Conforming instructions were not tendered and, as a result, although the trial court apparently intended to leave the construction of the contract to the jury by simply placing before it the relevant language without explanation, it in fact gave no instruction at all on the proper measure of damages. The court's rulings prevent us from determining the basis for the jury's verdict, as we are unable to ascertain whether the $500,000 verdict represents either the cost of repair or the cost of replacement under section (a) or actual cash value under section (c). Moreover, there is nothing in the policy provisions before us which requires interpretation by a jury. As we noted in Sherbrooke Homes, Ltd. v. Krawczyk (1980), 82 Ill.App.3d 990, 38 Ill.Dec. 391, 403 N.E.2d 622:

"As a general rule, the interpretation, construction or legal effect of a contract is a matter to be determined by the court as a question of law. * * * This rule has been applied (1) where the contract is in writing * * *; (2) when there is no ambiguity or uncertainty in the terms of the contract * * *; and (3) where there is no question involving proof of the parties' construction which is dependent upon disputed extrinsic facts." 82 Ill.App.3d 990, 992, 38 Ill.Dec. 391, 392-93, 403 N.E.2d 622, 623-24 (citations omitted).

Thus, only if the contract is ambiguous and the extrinsic facts necessary to determine the parties' interpretation thereof are in controversy should the question of interpretation be left to a jury. (Sherbrooke Homes, Ltd. v. Krawczyk; Nerone v. Boehler (1976), 34 Ill.App.3d 888, 340 N.E.2d 534.) In any event, a jury should not be asked to make even that determination without guidance from the court in the form of an instruction stating what conclusion must be reached if the jury finds certain facts to exist.

In the instant case, the trial court noted several times that the language was clear and that there was no conflict between the two sections of the policy relating to liability for property damage. Furthermore, its exclusion of testimony regarding the parties' interpretation of section (c) reinforces our belief that the trial court did not perceive any...