Parkway Bank v. State Farm Fire

• Citation: 371 Ill.Dec. 824,2013 IL App (1st) 122387,990 N.E.2d 1202
• Decision Date: 20 May 2013
• Docket Number: Docket No. 1–12–2387.
• Parties: PARKWAY BANK AND TRUST COMPANY, an Illinois Banking Corporation, Plaintiff–Appellant, v. STATE FARM FIRE AND CASUALTY COMPANY, an Illinois Corporation, Defendant–Appellee.
• Court: United States Appellate Court of Illinois

2013 IL App (1st) 122387
990 N.E.2d 1202
371 Ill.Dec. 824

PARKWAY BANK AND TRUST COMPANY, an Illinois Banking Corporation, Plaintiff–Appellant,
v.
STATE FARM FIRE AND CASUALTY COMPANY, an Illinois Corporation, Defendant–Appellee.

Docket No. 1–12–2387.

Appellate Court of Illinois,
First District, First Division.

May 20, 2013.

[990 N.E.2d 1203]

Carey Filter White & Boland, of Chicago (Edmund P. Boland and Emily A. Ralph, of counsel), for appellant.

Sudekum Cassidy & Shulruff, Chrtrd. (Frederick J. Sudekum III and Florence M. Schumacher, of counsel), of Chicago, for appellee.

OPINION
Justice ROCHFORD delivered the judgment of the court, with opinion.

[371 Ill.Dec. 825]¶ 1 Plaintiff, Parkway Bank and Trust Company, filed a declaratory judgment action alleging that defendant, State Farm Fire and Casualty Company, had refused to tender to plaintiff insurance policy proceeds in the amount of $252,830.94 in connection with a fire loss on certain real property on which plaintiff held a mortgage and was named as a “mortgagee” under the policy. Plaintiff sought a declaration of its entitlement to the insurance proceeds. Defendant filed an answer and affirmative defense stating it had already issued two checks totaling $252,830.94 naming plaintiff as a co-payee, and that plaintiff's failure to receive said funds resulted from the tortious or fraudulent acts of a third party. Defendant argued that since it had fully performed all of its obligations under the policy, it should not be required to “duplicatively pay” plaintiff additional insurance proceeds. The circuit court granted defendant's motion for summary judgment and denied plaintiff's motion for summary judgment. Plaintiff appeals. We affirm.

¶ 2 Plaintiff is the owner and holder of a promissory note executed by Nelson and Martha Soto (the Sotos), and delivered to plaintiff on July 14, 2005, in consideration for the extension of credit to the Sotos in the amount of $363,750. The note is secured by a mortgage on the Sotos' apartment building located at 3037 W. Belmont Avenue in Chicago. Defendant issued an insurance policy for the apartment building, identifying the Sotos as the named insureds, and plaintiff as a mortgagee. The policy provided coverage for, among other things, accidental direct physical loss to the apartment building. The policy includes the following loss payment provisions applicable to the Sotos as named insureds ( i.e., “you”):

“Loss Payment. In the event of loss covered by this policy:

a. we will give notice, within 30 days after we receive the sworn statement of loss, of our intent to settle the loss according to one of the following methods:

(1) pay the value of lost or damaged property as determined in Condition 2. Valuation;

(2) pay the cost of replacing or repairing the lost or damaged property, plus any reduction in value of repaired items;

(3) take all or any part of the property at an agreed or appraised value; or

(4) repair, rebuild or replace the property with other property of like kind and quality;

b. we will not pay you more than your financial interest in the covered property;

[990 N.E.2d 1204]

[371 Ill.Dec. 826]c. we may adjust losses with the owners of lost or damaged property if other than you. If we pay the owners, such payments will satisfy your claims against us for the owners' property. We will not pay the owners more than their financial interest in the covered property;

d. we may elect to defend you, at our expense, against suits arising from claims of owners of property;

e. we will pay for covered loss within 60 days after we receive the sworn statement of loss, if:

(1) you have complied with all of the terms of this policy; and

(2) we have reached agreement with you on the amount of loss or an appraisal award has been made.”

¶ 3 The duties and obligations between defendant and plaintiff are found in the policy's “Mortgage Holders” provision, which states:

“10. Mortgage Holders. When used in the following provisions of this condition, the term ‘mortgage holder’ includes mortgagee or trustee:

a. We will pay for covered loss to buildings or structures to each mortgage holder shown in the Declarations in their order of precedence, as interest may appear.

b. The mortgage holder has the right to receive loss payment even if the mortgage holder has started foreclosure or similar action on the building or structure.

c. If we deny your claim because of your acts or because you have failed to comply with the terms of this policy, the mortgage holder will still have the right to receive loss payment if the mortgage holder:

(1) pays any premium due under this policy at our request if you have failed to do so;

(2) submits a signed, sworn statement of loss within 60 days after receiving notice from us of your failure to do so; and

(3) has notified us of any change in ownership, occupancy or substantial change in risk known to the mortgage holder.

All terms of this policy will then apply directly to the mortgage holder.”

¶ 4 A fire damaged the Sotos' apartment building on November 6, 2009. After the fire, the Sotos entered into a written “Repair Agreement” with Brickman Companies LLC (Brickman) to repair the apartment building. Pursuant to the repair agreement, the Sotos assigned Brickman their rights to receive payment under the policy. Specifically, the repair agreement stated:

“I [the Sotos] authorize (Brickman Companies LLC) (contractor) the ability to receive, from the above named insurance company [defendant], such proceeds as are relative to the above referenced loss.

If direct payments to (Brickman Companies LLC) not be possible [sic], the undersigned hereby authorizes and directs the above named insurance company to name (Brickman Companies LLC) as an additional payee on the settlement draft relative to the above named loss.”

¶ 5 Defendant issued two checks totaling $252,830.94 for the fire damage to the apartment building. The first check was in the amount of $75,000. The second check was in the amount of $177,830.94. Both checks were made payable to “NELSON SOTO & MARTHA I. SOTO & PARKWAY BANK & TRUST COMPANY ITS SUCCESSORS AND/OR ASSIGNS & BRICKMAN CONSTRUCTION INC.” [371 Ill.Dec. 827]

[990 N.E.2d 1205]

and were delivered to Brickman pursuant to the Sotos' instructions to defendant.

¶ 6 Approximately two months after defendant mailed the checks to Brickman pursuant to the Sotos' instructions, defendant learned that a representative of Brickman had forged plaintiff's endorsement on the checks and that JP Morgan Chase Bank NA (Chase Bank) had paid the funds to Brickman over the forged endorsement. Plaintiff then made a written demand that defendant immediately pay plaintiff a sum representing the total of the two checks, $252,830.04, arguing that “[u]nder the terms of Mr. Soto's loan with [plaintiff], 100% of the proceeds of all insurance claims, including these 2 checks, must be paid...