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Corday's Department Store Inc. v. New York Fire & Marine Underwriters Inc.

May 4, 1971


Swygert, Chief Judge, Castle, Senior Circuit Judge, and Kerner, Circuit Judge.

Author: Castle

CASTLE, Senior Circuit Judge.

These consolidated appeals are prosecuted from summary judgments entered for defendants-appellees, New York Fire and Marine Underwriters, Inc. and certain underwriters at Lloyd's, London, in two actions brought by plaintiffs-appellants, Corday's Department Store, Inc. and Central National Bank as trustee, to recover for fire loss and damage under insurance policies issued by the insurance company and a cover note issued by underwriters at Lloyd's to Corday's.*fn1 In No. 18367 the insured's claim is for an alleged business interruption loss, which resulted from damage to its property. In No. 18368 the claim is for damage to the insured's building. The respective business and property were located on West Roosevelt Road in Chicago, Illinois. In both cases the property damage which gave rise to the claims asserted occurred on April 5, 1967, in the wake of the civil unrest which followed the assassination of the Rev. Martin Luther King, Jr. Each of the insurance policies here involved was a "Fire and Limited Extended Coverage" policy, and bore a "Special Exclusion Endorsement" as follows:

"In consideration of the rate and premium charged, this policy specifically excludes ALL LOSS (including ensuing fire loss) OR DAMAGE, caused directly or indirectly by RIOT, RIOT ATTENDING A STRIKE, CIVIL COMMOTION, CIVIL RIGHTS DEMONSTRATIONS and all disturbances of a similar nature."*fn2

The insurers declined liability to the insureds on the ground that the endorsement specifically excludes from the policies' coverage loss by the perils which caused damage to the insureds' properties.*fn3 It is conceded by the appellant insureds that the losses and damage they sustained "by fire" occurred "in the course of riot and civil commotion" but they contend that the District Court erred in concluding that the special exclusionary endorsement is valid and enforceable.

On the record made by the pleadings, affidavits, and admissions before the court for consideration on the motions for summary judgment it is apparent that if the exclusionary endorsement is valid and enforceable the District Court was correct in entering the summary judgments in favor of the defendant-appellee insurance carriers.

The insureds point out that the Illinois Director of Insurance acting under his statutory powers*fn4 and in conformity with the mandate of Section 397 of the Illinois Insurance Code (Ill. Rev. Stat. 1969, ch. 73, § 1009) to:

" . . . promulgate such rules and regulations as may be necessary to effect uniformity in all basic policies of fire and lightning insurance issued in this State, to the end that there be concurrency of contract where two or more companies insure the same risk"

promulgated Illinois Department of Insurance Rule 23.01 which designated, effective January 1, 1946, a standard form policy for fire and lightning insurance. The rule provides in part that:

"(1) The printed form of policy attached hereto is hereby designated as the Standard Policy for fire and lightning insurance of the State of Illinois. No policy or contract of such insurance shall be made, issued or delivered by any insurer subject to the provisions of the Illinois Insurance Code or by any agent or representative thereof on any property in this State unless it shall conform to such Standard Policy and to the other provisions of this order.

(8) The effective date of this order shall be January 1, 1946. On and after that date all policies written in this State shall conform to the foregoing requirements of the Standard Policy of the State of Illinois."

The standard form policy so prescribed for use in Illinois insures against "direct loss by fire" and contains the following provision:

"Added provisions. The extent of the application of insurance under this policy and of the contribution to be made by this Company in case of loss, and any other provision or agreement not inconsistent with the provisions of this policy, may be provided for in writing added hereto, but no provision may be waived except such as by the terms of this policy is subject to change."

The insureds contend that the exclusionary endorsement constitutes an impermissible deviation from the standard form policy and is therefore invalid and unenforceable against them. In this connection they additionally urge that the endorsement contains a condition which "unreasonably or deceptively affects the risks that are purported to be assumed by the policy" in contravention of the requirements of Section 143(2) of the Illinois Insurance Code (Ill. Rev. Stat. 1969, ch. 73, § 755(2)) which Section further provides that such a violation shall not "in any way affect the legality of any policy that has been issued and found to be in conflict with this subsection, but such policies shall be subject to the provisions of section 442". Section 442 of the Code (ch. 73, § 1054) provides, in effect, that when any policy contains a provision or endorsement which conflicts with any provision of the Code, the rights, and the obligations of the company thereunder shall not be less favorable to the insured than is required by the applicable Code provisions. Thus, the insureds conclude that the statutes referred to, and Rule 23.01 adopted pursuant thereto, ...

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