West Bend Mut. Ins. Co. v. Salemi

• Decision Date: 20 July 1987
• Docket Number: No. 2-86-0636,2-86-0636
• Citation: 511 N.E.2d 785,158 Ill.App.3d 241,110 Ill.Dec. 608
• Parties: , 110 Ill.Dec. 608 WEST BEND MUTUAL INSURANCE COMPANY, Plaintiff-Appellant, v. Frances SALEMI, a/k/a Frances Solenci, Antoinette Herrick, d/b/a the New Star Lite Motel, Defendants-Appellees.
• Court: United States Appellate Court of Illinois

Page 785

511 N.E.2d 785

158 Ill.App.3d 241, 110 Ill.Dec. 608

WEST BEND MUTUAL INSURANCE COMPANY, Plaintiff-Appellant, v. Frances SALEMI, a/k/a Frances Solenci, Antoinette Herrick d/b/a the New Star Lite Motel, Defendants-Appellees.

No. 2-86-0636.

Appellate Court of Illinois Second District.

July 20, 1987.

Claude W. Tupy, Janis M. Tupy, Tupy & Tupy, Ltd., DeKalb, for West Bend Mut. Ins. Co.

Klein, Stoddard & Buck, James R. Buck, Klein, Stoddard & Buck, Sycamore, for Frances Salemi.

Ron Lev, Ron Lev, Ltd., Chicago, Peter Alexander, Alexander & Cicero, P.C., Rockford, for Antoinette Herrick, d/b/a New Star Lite Motel.

Justice HOPF delivered the opinion of the court:

Plaintiff, West Bend Mutual Insurance Company (West Bend), appeals from trial court orders which granted defendant Frances Salemi's motion for summary judgment, dismissed defendant Antoinette Herrick, and entered a damages judgment for Salemi. Plaintiff asserts on appeal that the trial court erred in (1) finding that defendant Salemi had an independent, contractual right to recovery of proceeds payable under a fire insurance policy, (2) dismissing defendant Herrick, and (3) determining Salemi's damages as a matter of law.

In September 1977 defendant Antoinette Herrick (buyer), among others, was assigned the buyer's interest in a real estate sales contract (agreement) for the purchase of property from defendant Frances Salemi (seller). The property was improved with a 12-unit motel and a separate dwelling house. A provision of the agreement required the buyers to keep the improvements insured against fire and other casualty. Accordingly, in October 1982 a policy was issued by West Bend which provided coverage only on the motel and named Herrick, d/b/a the New Star Lite Motel, as the insured. A contract of sale clause endorsement also was issued which named Salemi and insured her interest in the property.

In May 1983 the motel was partially destroyed by fire. Herrick's insurance claims were rejected by West Bend on grounds that she was suspected of arson in the fire. Herrick filed suit against West Bend in Winnebago County in July 1984 seeking a money judgment for breach of contract. That case, in which Herrick was represented by attorney Ronald Lev, was still pending at the time this appeal was filed.

Salemi also made a claim against West Bend for the amount of the unpaid balance due under the real estate agreement. In August 1984, before a decision was rendered on the claim, West Bend filed a complaint for declaration of rights in Ogle County. Herrick and Salemi were named defendants. Salemi, represented by attorney Ronald Lev, filed a motion for summary judgment, and plaintiff filed a motion for judgment on the pleadings. On August 13, 1985, after a hearing and a series of subsequent motions, the trial court issued a letter opinion in which it found that Salemi was a coinsured under the West Bend insurance policy and, as such, her rights were independent of defendant Herrick's rights. The court granted Salemi's motion for summary judgment as to liability, denied plaintiff's motion for judgment on the pleadings, and indicated that there remained a genuine issue of material fact as to damages sustained by Salemi.

In January 1986 plaintiff filed a motion to default defendant Herrick who, like Salemi, was represented by attorney Ronald Lev but had never filed an appearance or otherwise pleaded. The motion was denied, and counsel was given seven days to appear or plead on behalf of Herrick. The court also denied plaintiff's concurrent motion to disqualify attorney Lev on grounds that he improperly represented both the buyer and the seller involved in the real estate sales contract. Shortly thereafter attorney Lev filed both an appearance for defendant Herrick and a motion to dismiss her from the Ogle County case on grounds that the suit pending in Winnebago County involved the same parties and the same cause.

Ultimately, the trial court disposed of all matters still pending in the following manner. Herrick was dismissed; Salemi's motion for summary judgment on the issue of damages was granted; judgment was entered for Salemi for the balance due on the real estate agreement plus delinquent real estate taxes and interest; and Salemi was ordered to assign her interest in the real estate contract to West Bend. Plaintiff's post-judgment motion was denied, and this appeal was timely filed.

The trial court disposed of this matter by summary judgment. Summary judgment should be granted only when there are no genuine issues of material fact to be tried and the movant is entitled to judgment as a matter of law. (Marquette National Bank v. Walgreen Co. (1984), 126 Ill.App.3d 680, 682, 81 Ill.Dec. 832, 467 N.E.2d 954; Bohnen International, Inc. v. Liberty Mutual Insurance Co. (1983), 120 Ill.App.3d 657, 662, 76 Ill.Dec. 244, 458 N.E.2d 644.) West Bend asserts that summary judgment as to liability was improper, not because there were disputed genuine issues of material fact, but because Salemi was not entitled to judgment as a matter of law. Plaintiff refuses to recognize any direct liability to Salemi under the insurance contract. It insists that Salemi's rights, if any, are derived from those of Herrick, the named insured, and argues that it need not honor Herrick's rights because she was allegedly involved in arson which damaged the motel. West Bend concludes that since it has no liability to Herrick it certainly has no liability to Salemi whose rights exist only by virtue of the rights of Herrick. We do not believe plaintiff's position regarding Salemi's rights under the contract of insurance is legally supportable.

As a general rule where the buyer under an instalment contract for the sale of realty agrees to insure the property against casualty loss for the benefit of the seller, the seller is entitled to the insurance proceeds to the extent of his interest in the insured property. (International Insurance Co. v. Melrose Park National Bank (1986), 145 Ill.App.3d 286, 290, 99 Ill.Dec. 462, 464, 495 N.E.2d 1197, 1199; Kindred v. Boalbey (1979), 73 Ill.App.3d 37, 40, 29 Ill.Dec. 77, 391 N.E.2d 236; White v. United States Fidelity & Casualty Co. (1974), 21 Ill.App.3d 588, 594, 316 N.E.2d 131.) We find this rule to be applicable here. The real estate agreement in the case at bar states:

"The Buyers agree to keep the improvements insured from date of possession to the date of delivery of deed with fire and extended coverage insurance in the amount of not less than $15,000.00 on the dwelling house and $100,000.00 on the motel units and the said contracts of insurance shall bear riders with loss payable clauses to the parties hereto as their interest may appear from this agreement." (Emphasis added.)

The insurance policy subsequently taken out by Herrick contains a contract of sale clause endorsement which states in pertinent part:

"A contract for sale of the property described in this policy having been made between the Insured and Mrs. Frances * * * [Salemi] 163 Hickory Hill, Port Richey, FL 33568 the interest of said last named party is also insured hereunder, but without any increase in the amount of insurance, and subject to all other terms, provisions and conditions of this policy, including any Mortgage Clause forming a part of this policy."

The combination of the language in the agreement and the addition of Salemi as an insured in the contract of sale clause clearly indicate that the buyers agreed to insure the property for Salemi's benefit at least to the amount of her interest. Thus, Salemi had a right to insurance proceeds as a matter of law.

West Bend's citation of Posner v. Firemen's Insurance Co. (1964), 49 Ill.App.2d 209, 199 N.E.2d 44, rather than dissuading us from our conclusion, reenforces it. Plaintiffs in Posner sought insurance proceeds under a simple loss payable clause which indicated loss was to be payable to the insured and the plaintiffs according to their interests. The court found that a loss payable clause, without more, would not support a claim by plaintiffs directly against the insurer. However, according to the Posner court, a standard mortgage clause which specifically protected a mortgagee from acts or omissions of the named insured would support recovery directly by a mortgagee. Recovery could also be supported by language setting up a separate contractual relationship between the insurer and the third party. The court cited the following as an example of such language:

" 'If with the consent of this company an interest under this policy shall exist in favor of a mortgage, or of any person or corporation having an interest in the subject of insurance other than the interest of the insured, as described herein [certain conditions shall apply].' " Posner v. Firemen's Insurance Co. (1964), 49 Ill.App.2d 209, 214-15, 199 N.E.2d 44, quoting Crawford v. Aachen & Munich Fire Insurance Co. (1902), 100 Ill.App. 454, 455, aff'd (1902), 199 Ill. 367, 65 N.E. 134.

In the absence of additional, contractual language creating an independent insurance relationship, the Posner court held that the plaintiffs named as payees in the loss payable clause were merely appointees of the named insured. As appointees they could receive payment due to the insured to the extent of their own interest in the property. Thus, the rights of the loss payees under a simple loss payable clause were derivative in nature and dependent upon the rights of the named insured. That is not the situation now before us.

It is our opinion that Salemi's rights in the instant case, unlike plaintiffs in Posner, were established by the contract of sale clause endorsement. The language of the clause indicates a recognition by West Bend that, pursuant to the contract for sale, Salemi had an interest in the motel property separate and distinct from Herrick's interest. It is also apparent that West Bend agreed that Salemi's interest "is also insured"...