Tamco Corporation v. Federal Insurance Company of NY

• Decision Date: 23 April 1963
• Docket Number: No. 60C795.,60C795.
• Citation: 216 F. Supp. 767
• Parties: TAMCO CORPORATION, an Illinois corporation, Ruben G. Musikantow and and Ben Musikantow, Plaintiffs, v. FEDERAL INSURANCE COMPANY OF NEW YORK, Defendant.
• Court: U.S. District Court — Northern District of Illinois

216 F. Supp. 767

TAMCO CORPORATION, an Illinois corporation, Ruben G. Musikantow and and Ben Musikantow, Plaintiffs, v. FEDERAL INSURANCE COMPANY OF NEW YORK, Defendant.

No. 60C795.

United States District Court N. D. Illinois, E. D.

April 23, 1963.

Alfred S. Druth, Epton, Scott, McCarthy & Bohling, Chicago, Ill., for plaintiffs.

Jerome H. Torshen, Clausen, Hirsh, Miller & Gorman, Chicago, Ill., for defendant.

ROBSON, District Judge.

This is a declaratory judgment action brought April 27, 1960, by insured Tamco Corporation, and Ruben G. and Ben Musikantow, its sole stockholders, managing officers, and assignees. Plaintiffs seek to establish the insurer's liability on an endorsement, issued May 25, 1955, covering the depreciation value of furniture, fixtures and other supplies, which endorsement was issued in connection with a fire insurance policy of defendant.

A fire occurred on July 28, 1955, which destroyed the insured Tamco Corporation's plant. Liability was determined and paid under the fire policy,¹ but not under the depreciation endorsement. On October 24, 1962, the Court denied cross motions for summary judgments because of the existence of fact issues.

Articles of dissolution of plaintiff Tamco Corporation were filed September 17, 1956. It was dissolved October 2, 1956. Theretofore, on July 25, 1956, Tamco assigned its rights under the depreciation endorsement to plaintiffs Musikantows. The assignment was submitted to defendant, as required by the policy, but it took no action thereon. The stipulation of facts, however, contains a copy of defendant's receipt of the assignment by certified mail.

The parties have stipulated as to the facts and have submitted the cause upon the pleadings, stipulation and briefs. This stipulation reveals that Tamco engaged in the manufacture of mens' and boys' sport shirts.

Paragraph 7 of the complaint alleges:

"That although the Federal Insurance Company of New York paid the sum of $13,377.93 * * * and entered into a compromise, settlement and adjustment of their liability under fire insurance policy F2324114, they have unreasonably refused to pay the sum of $20,593.99, which is due and owing under the depreciation insurance rider which formed a part of said fire insurance policy."

The complaint seeks a construction and declaration of the coverage of the endorsement to the policy and that it be binding upon the insurer, and prays that the proceeds be paid to the assignees and that they not be required to repair, rebuild or replace the destroyed machinery, fixtures and improvements on the same or another site. In the alternative, plaintiffs pray that:

"* * * If the court adjudicates and determines that it is necessary for the plaintiff corporation, or its assignees to repair, rebuild or replace the said machinery, fixtures and improvements on another site, that the said Federal Insurance Company of New York would then be liable to pay for same."

The amendment of November 20, 1961, to the complaint seeks a determination that the defendant insurer is liable on "the adjustment, compromise and settlement set forth in paragraph 3 * * * as a matter of contractual obligation, independent of any provisions of said policy of insurance," and is, therefore, obligated to pay $20,593.99 to plaintiffs "based on said adjustment, settlement and compromise."

Defendant's original answer, filed May 27, 1960, denies that the refusal to pay the sum of $20,593.99 for depreciation is unreasonable and that plaintiffs are entitled to said sum or any part thereof. It fails² to make any mention of the allegation in the complaint of the compromise or settlement. An amended answer, filed April 3, 1962, went further, denying that there had been a compromise settlement and stating that there has "merely been a determination of the amount of money for which defendant would be liable in the event that plaintiffs had complied with the terms and conditions of the policy of depreciation insurance."

Defendant denies all liability under the depreciation endorsement. Insurer claims that plaintiffs-assignees have no right to sue thereunder inasmuch as the insurer never consented to the assignment, as required by the policy, and plaintiff corporation has long since been legally dissolved and so may not maintain this suit three and a half years after dissolution. It further asserts that plaintiffs have not met the express condition precedent to insurer's liability under the endorsement in that the damaged or destroyed property has never been repaired, rebuilt or replaced.³ It also contends that no action may be maintained for a loss unless instituted within a year thereof.⁴ It further asserts that there is no actual controversy within the meaning of the declaratory judgment act⁵ inasmuch as plaintiffs can suffer no loss until they comply with the endorsement's condition precedent of repair or replacement. Defendant maintains the Court would be rendering an advisory opinion on a speculative or hypothetical situation (Beck v. Binks, 19 Ill.2d 72, 165 N.E.2d 292 (1960); Exchange National Bank of Chicago v. County of Cook, 6 Ill.2d 419, 129 N.E.2d 1 (1955); Spalding v. City of Granite City, 415 Ill. 274, 113 N.E.2d 567 (1953)). Finally, the insurer claims that there was no compromise or settlement. And even if there had been a compromise settlement by the insurer's adjusters, it would be invalid as beyond their powers because extending insurance coverage. (Commonwealth Insurance Co. of N. Y. v. O. Henry Tent & Awning Co., 287 F.2d 316 (7th Cir. 1961); Peters v. Great American Ins. Co., 177 F.2d 773 (4th Cir. 1949)).

The Court concludes that plaintiffs-assignees properly bring this action for declaratory judgment relief and are entitled to the alternative relief stated in paragraph 4 of the prayer of the complaint, i. e., payment under the depreciation endorsement upon their compliance with the rebuilding and replacement condition of the endorsement.

The standard fire insurance policy, issued April 19, 1954, insured plaintiff corporation

"* * * to the extent of the actual cash value of the property at the time of the loss, but not exceeding the amount which it would cost to repair or replace the property with material of like kind and quality within a reasonable time after such loss * * * against all direct loss by fire. * * *"

The policy and endorsement further provides:

"It shall be optional with this company to take all, or any part, of the property at the agreed or appraised value, and also to repair, rebuild or replace the property destroyed or damaged with other of like kind and quality within a reasonable time, on giving notice of its intention so to do within 30 days after the receipt of proof of loss herein required.

"Assignment of this policy shall not be valid except with the written consent of this company.

"No suit or action on this policy for the recovery of any claim shall be sustainable in any court of law or equity unless all the requirements of this policy shall have been complied with, and unless commenced within twelve months next after inception of the loss."

The depreciation endorsement was for $22,000 on certain furniture, fixtures and other equipment and supplies which did not constitute a permanent part of the building. The endorsement defined "depreciation" as "meaning the difference, at the time of the loss covered hereunder, between the replacement value new and the actual cash value of the property insured." An important part of this endorsement was:

"This policy does not cover:

"(b) Any loss unless and until the damaged or destroyed property is actually repaired, rebuilt or replaced on the same or another site. * * *"

* * * * * *

"(d) In the event that the company or companies carrying the direct property damage insurance elect to repair, rebuild or replace the property damaged or destroyed."

After the fire, adjusters representing both the Tamco Corporation and the insurer met and "negotiated as to the value of each and every item of machinery, equipment, furniture and fixtures which were destroyed in the fire." The schedule of the amounts "containing final figures agreed to by the insurance company adjusters and the insured's public adjuster" is a part of the stipulation, and specifies that as to the depreciation there was an insurance coverage of $22,000, a value of $29,115.08, with a loss of $27,254.43, and a claim of $20,593.99.⁶

The $96,666.37 paid by the co-insurers was the amount of the loss sustained, determined by subtracting the sum of $20,593.99 from the replacement cost new of the property. The deduction was for accrued depreciation of the property. The stipulation further states:

"The amount of $20,593.99, being the accrued depreciation of the property, was not paid by FEDERAL as TAMCO did not repair, rebuild or replace the property on the same or another site. It was agreed by FEDERAL'S adjusters that this sum, that is $20,593.99, was the measure of loss under the depreciation policy issued by FEDERAL to TAMCO. * * *"

It is stipulated that: "To date the property covered by the depreciation endorsement * * * has neither been repaired, rebuilt or replaced on the same or another site."

Appropriateness of Declaratory Relief. There can be no question that this Court has no power to issue advisory opinions under the declaratory judgment act. But the Court does not deem this cause to be advisory or speculative because brought prior to a compliance with the condition of repair and replacement under the depreciation endorsement. Conceding there is no liability of the insurer under the depreciation endorsement until the condition is complied with, there remains the very obvious controversy that the insurer now firmly denies liability even if the condition is met. The refusal was not grounded solely because the endorsement's condition precedent had not been met⁷ but additionally because the insured corporation had dissolved and because more than a year had...