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Bourazak v. North River Ins. Co.

June 1, 1967


Hastings, Chief Judge, Major, Senior Circuit Judge, and Knoch, Circuit Judge.

Author: Major

MAJOR, Senior Circuit Judge.

Plaintiff commenced this action March 8, 1963, in the Circuit Court of Peoria County, Illinois, to recover from defendant on two policies of insurance. Policy No. 751770, issued January 13, 1961, insured the family dwelling house against loss by fire for an amount not exceeding its cash value at the time of the loss or, in any event, not exceeding $60,000. Policy No. HO 27 2092 covered personal property. Both the house and personal property were totally destroyed by fire on March 10, 1962. The loss sustained on personal property was paid by defendant and that policy is no longer involved.

The policy on the house was issued to Edward G. Shemas, the title owner, who on June 22, 1962 submitted a statement in proof of loss in which he alleged that the actual cash value of the property at the time of the fire was $37,500, which amount defendant paid. The house policy contained an Extension of Coverage provision which provided that the insurer would, under expressed conditions, pay the replacement or repair cost of the house, which payment would not exceed the difference between $60,000 and the amount of the loss which had been paid. Thus, the limit of such extended coverage was the difference between $60,000 and $37,500, or $22,500. Subsequent to receiving the aforesaid payment, Shemas assigned to plaintiff any further interest in the policy.

On March 28, 1963, on defendant's petition, the action was removed to the United States District Court, Southern District of Illinois. There, defendant moved to strike the complaint and dismiss the suit because of plaintiff's failure to state a cause of action entitling him to the relief sought. This motion, after a hearing before Judge Frederick O. Mercer, was allowed and the complaint dismissed on May 1, 1964. An amended complaint was filed which, on defendant's motion, was also dismissed by Judge Mercer on November 23, 1964, for the same reason. Thereupon, plaintiff filed a motion for rehearing of the orders dismissing the complaint and the amended complaint, which was denied by Judge Omer Poos on August 10, 1966. From the orders of dismissal and the order denying the motion for rehearing, plaintiff appeals.

The Extended Coverage clause provided that if the building were completely rebuilt the insurer would be liable for the repair or replacement cost, not exceeding $22,500; that the insurer would not be liable for loss "unless and until actual repair or replacement is completed," and that any claim for such additional liability must be made "within 120 days after loss."

Plaintiff in his brief makes no mention of the 120-day limitation period contained in the policy. He alleges, however, that on July 1, 1962, at the time Shemas was paid the sum of $37,500, defendant through its agents agreed "that the balance of $22,500, would be paid upon rebuilding of structure if rebuilding was commenced within 180 days from the date of the payment of the $37,500."

Presumably to show compliance with this condition the complaint alleged, "That during the month of December, 1962, plaintiff began removing debris and commenced excavation work preparatory to rebuilding the burned dwelling, and so notified the defendant on or about November 29, 1962, of his intentions to rebuild said structure." The complaint further alleged that it became the duty of defendant to pay the sum of $22,500 on completion of rebuilding of the dwelling.

Judge Mercer in dismissing the original complaint stated:

"There is no allegation in the complaint that the structure covered by this policy has been replaced. * * * the complaint alleges only that plaintiff, during the month of December, 1962, began initial preparation for rebuilding by clearing the lot and doing certain excavating, a fact of which defendant was notified. * * *

"It is clear on the face of the complaint that plaintiff has failed to satisfy the condition precedent of rebuilding the structure upon which any further claim of loss must be predicated. * * *"

We think the conclusion thus reached is inescapable. According to the allegations of the complaint, plaintiff had 180 days from July 1, 1962 (or until about January 1, 1963) to commence rebuilding the house. Certainly the insured's expressed intention to rebuild and the removing of debris or doing excavation work "preparatory to rebuilding" cannot be held to be in compliance with the alleged condition. As the Court stated in Mandles et al. v. Guardian Life Ins. Co. of America, 115 F.2d 994, 996 (10th Cir. Colo. 1940):

"The test which shall govern the interpretation of the words, or language employed, is one that is employed 'in the common speech of men'; they are to be given their plain, literal meaning in their ordinary sense."

The complaint alleged that on February 25, 1963, defendant denied all liability on its policy. Plaintiff recognizes that the non-performance of a condition precedent contained in an insurance policy is ordinarily a legal defense but argues that it is not applicable here for the reason that defendant denied all liability. It is evident that the denial of liability could refer only to the Extended Coverage clause because, as previously shown, defendant had paid the insured $37,500. The only case cited by plaintiff ...

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