United States District Court, Northern District of Illinois, E.D
January 29, 1971
ASHLAND SAVINGS & LOAN ASSOCIATION, PLAINTIFF,
AETNA INSURANCE COMPANY AND INSURANCE COMPANY OF NORTH AMERICA, DEFENDANTS.
The opinion of the court was delivered by: Marovitz, District Judge.
Motions for Summary Judgment and Judgment on the Pleadings
This is a contract action alleging, alternatively, a breach of
each defendant's contract of insurance with plaintiff.
Jurisdiction is based on diversity of citizenship since plaintiff
Ashland Savings & Loan Association (Ashland) is an Illinois
corporation and defendants Aetna Insurance Company (Aetna) and
Insurance Company of North America (INA) are corporations of
Connecticut and Pennsylvania, respectively.
As amended and supplemented, the Complaint essentially alleges
that INA insured Ashland against loss and damage by fire to a
certain building and that Aetna insured Ashland against loss and
damage resulting from the insured's failure to effectively cover
the building with insurance. The Complaint further alleges that
plaintiff suffered loss and damage as a result of a fire in the
building and that one of the defendants is liable for damages.
Aetna has moved for summary judgment asserting that an
applicable fire insurance of INA was in force at the time of the
alleged loss. INA has also moved for summary judgment, asserting
that its policy with plaintiff had expired before the alleged
loss was incurred. Ashland has moved for a judgment on the
pleadings, asserting that it is entitled to judgment as to
liability against whichever company is found to have insured
plaintiff's building at the time of the alleged incident.
The factual circumstances are not complex. During all relevant
times, Ashland owned and operated an apartment building at
5054-58 N. Winthrop Ave., Chicago, Illinois. On or about October
21, 1966, Ashland and INA entered into an insurance contract,
numbered AOP 6-07-80, which, among other things, provided
protection against fire loss. Among the provisions in the
contract were the following (at pp. 1, 5):
"This Policy covers from October 21, 1966 to until
canceled noon, Standard Time, at Insured's Address."
CANCELLATION of Policy
"This policy shall be canceled anytime at the request
of the insured, in which case this company shall,
upon demand and surrender of this policy, refund the
excess of paid premium above the customary short
rates for the expired time. This policy may be
canceled at any time by this company by giving to the
insured a five-day's written notice
of cancellation with or without a tender of excess of
paid premium above the pro rata premium for the
expired time, which excess, if not tendered, shall be
refunded on demand. Notice of cancellation shall
state that said excess premium (if not tendered) will
be refunded on demand."
On October 2, 1969, INA sent Ashland a notice of cancellation to
be effective October 21, 1969. Subsequent to this notice, no
premium was charged to or paid by Ashland.
Plaintiff had also entered into a contract of insurance with
Aetna, effective February 1, 1967. This special multiperil
policy, numbered MP 14 51 24, insured plaintiff against all
direct loss and damage under an "Errors and Omissions Form,"
which, among other things, provided (at p. 3):
"A. COVERAGE-MORTGAGEE INTEREST: * * * this company
agrees to indemnify the insured for loss to the
insured's mortgagee interest * * * in real property
and in personal property mortgaged in connection
therewith, when such loss occurs through error or
accidental omission on the part of the insured (or
those representing the insured) in the operation of
the Insured's customary procedure in requiring,
procuring and maintaining valid policies or other
evidences of insurance against the perils described
below, * * *
(2) on such property during and after foreclosure
by the Insured or when sold under a conditional
sales agreement or other instrument whereby title
remains with the insured;
if, by reason of such error or accidental omission,
requisite insurance is not in force at the time of
1. Perils: Only those perils against which the
Insured customarily requires its mortgagors to
provide policies of insurance to protect its
Plaintiff's ownership of the subject property was the result of a
foreclosure initiated by it.
A fire occurred in plaintiff's apartment building on November
30, 1969, resulting in damage to the building and its contents as
well as loss of rent.
The basic question to be resolved is whether the INA or the
Aetna policy, if either, was in effect at the time Ashland's
building was damaged. INA suggests that its policy was cancelled
by virtue of its written, mailed notification of October 2, 1969,
which indicated the effective date of cancellation to be October
21, 1969. Aetna's position is that this notice was ineffective
and invalid since INA failed to comply with certain state
statutes, specifically Ill.Rev.Stat. Ch. 73, §§ 755.1a, 755.1b
(1966). These laws provide:
"755.1a Policies in effect for one year —
After a policy has been effective for one year, any
company transacting fire and extended coverage
insurance business shall not exercise its right to
cancel any such policy of insurance except:
(a) For nonpayment of premium;
(b) When a policy was obtained by a
misrepresentation or fraud; or
(c) For any act which measurably increases the risk
If membership in an organization is a condition
precedent to the receipt of insurance coverage,
failure to maintain such membership is reason to
refuse to renew a policy."
"755.1b Notice of cancellation — Time for giving —
Proof of notice
No notice of cancellation of a policy to which
Section 143.1a (§ 755.1a) applies is effective unless
mailed or delivered to the named insured at least 30
days prior to the effective date of cancellation.
However, where cancellation is for non-payment of
premium, at least 10 days' notice of cancellation
shall be mailed or delivered to the named insured.
Proof of mailing of notice of cancellation to the
named insured at the address shown in the policy,
shall be sufficient proof of notice."
Aetna's claim is that INA failed to meet the time requirements
for notice of cancellation and also failed to base its
cancellation upon a proper statutory reason. Further, Aetna
asserts that INA's attempted cancellation violated a February 19,
1969 order of the State Director of Insurance with respect to the
timing of cancellation and giving notice of procedures for
obtaining substitute insurance.
A determination of the viability of INA's policy at the time of
the fire clearly involves a construction of the state insurance
statutes cited by Aetna. While a minimum thirty-day notice
provision was in effect long before the Ashland-INA contract was
signed, Ill.Rev. Stat. Ch. 73, § 755.1b (1969), the requirement
that insurance companies, after coverage has existed for one
year, must state their reasons for cancellation became effective
on September 22, 1969, or after the relevant contract was signed,
but before cancellation was attempted. Consequently, the issue
becomes whether, as Aetna suggests, the statute applies to all
insurance contracts which existed at the time the statute became
"effective," i.e., September 22, 1969, or, as INA suggests, the
statute applies only to contracts signed after September 22,
1969, or, perhaps, although no party has suggested it, the
statute applies to contracts signed before September 22, 1969,
but only if they have been in effect for one year after that
Unlike the Illinois Commercial Code which specifically provided
that it would become effective as to all "transactions entered
into and events occurring after" a certain date, Ill.Rev.Stat.
Ch. 26, § 10-101 (1969), the statutes with which we are concerned
provide no such guideline. We do not know whether the Illinois
legislature similarly intended Sections 755.1a, 755.1b to apply
to contracts entered into after the "effective" date, but this
time were silent, or whether they did not believe the community
needed time to become acquainted with the provisions and/or
intended, for reasons of public welfare, for the provisions to
apply to existing contracts, or, indeed, whether they thought
about this problem of applicability at all.
While most cases requiring statutory construction are resolved
with an initial decision, if we were to construe the state
legislature's silence as implying that the statutes were
applicable to insurance contracts on September 22, 1969, and
therefore to the Ashland-INA contract, we would be faced with the
further problem concerning the constitutionality of such laws.
That is, would the application of Sections 755.1a, 755.1b be
improper under U.S.Const. art. I, § 10 and Ill.Const. (of 1870)
art. 2, § 14, S.H.A., both of which prohibit the state passing
any "law impairing the obligation of contracts * * *"?
We are unaware of any decision by any Illinois court which
concerns the construction of Sections 755.1a, 755.1b or which
clearly set forth guidelines for those twi-light cases where a
statute intervenes after a contract has been signed, but before
the operating event occurs. Thus, we are asked to settle a virgin
area of state law with potential federal constitutional
Although federal diversity jurisdiction has been properly
invoked we find that abstention is proper in this case. We take
this course since, in these special circumstances, state courts
should be given the first opportunity to interpret state
statutes, Reetz v. Bozanich, 397 U.S. 82, 85, 87, 90 S.Ct. 788,
25 L.Ed.2d 68 (1970); Railroad Commission of Texas v. Pullman
Co., 312 U.S. 496, 499-500, 61 S.Ct. 643, 85 L.Ed. 971; Wackenhut
Corp. v. Aponte, 266 F. Supp. 401, 405 (D.P.R. 1966), aff'd,
386 U.S. 268, 87 S. Ct. 1017, 18 L.Ed.2d 37 (1967), and since the
state court's decision may make unnecessary a federal court's
of a federal constitutional question, City of Meridian v.
Southern Bell Tel. & Tel. Co., 358 U.S. 639, 640-641, 79 S.Ct.
455, 3 L.Ed.2d 562 (1959); R.R. Comm'n. of Texas v. Pullman Co.,
supra, 312 U.S. at 501, 61 S.Ct. 643, 85 L.Ed. 971; Midwest
Video Corp. v. Campbell, 250 F. Supp. 158, 162 (D.N.M. 1965).
Although any use of the abstention doctrine will inevitably
result in some delay of adjudication, this is not a case where a
party's civil rights are in jeopardy, e.g., Zwickler v. Koota,
389 U.S. 241, 252, 88 S.Ct. 391, 19 L.Ed.2d 444 (1967);
Dombrowski v. Pfister, 380 U.S. 479, 486-487, 85 S.Ct. 1116, 14
L.Ed. 2d 22 (1965); Baggett v. Bullitt, 377 U.S. 360, 378, 84
S.Ct. 1316, 12 L.Ed.2d 377 (1964), or where irreparable damage
would result from delay, Midwest Video Corp. v. Campbell,
250 F. Supp. 158, 163 (D.N.M. 1965). Rather, it is a case involving a
state's regulation of a complex, vital industry, see Clay v. Sun
Insurance Office Ltd., 363 U.S. 207, 211-12, 80 S.Ct. 1222, 4
L.Ed.2d 1170 (1960); Life Insurance Co. of Virginia v. Shifflet,
370 F.2d 555, 556 (5th Cir. 1967); Duggins v. Hunt, 323 F.2d 746,
748 (10th Cir. 1963); see also, Giorgi v. Pennsylvania Labor
Relations Board, 293 F. Supp. 873, 875 (E.D.Pa. 1968).
Therefore, in order to avoid a premature decision on a federal
constitutional issue when the state courts might reduce or
eliminate the problem, and in order to avoid unnecessary
interference with a state's internal policy in an important area,
Jehovah's Witnesses in State of Washington v. King County
Hospital, 278 F. Supp. 488, 505 (W.D.Wash. 1967); Schenley
Industries, Inc., v. New Jersey Wine & Spirit Wholesalers Assoc.,
272 F. Supp. 872, 882-883 (D.N.J. 1967), we abstain. Since the
ultimate disposition of all issues at the state court level would
be appealable to the United States Supreme Court, there is no
reason for this court to retain jurisdiction. Consequently, all
pending motions for summary judgment or judgment on the pleadings
are denied and the case is dismissed.
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