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Ashland Savings & Loan Ass'n v. Aetna Ins. Co.

FEBRUARY 19, 1974.




APPEAL from the Circuit Court of Cook County; the Hon. EDWARD J. EGAN, Judge, presiding.


This is an appeal from the decisions of the circuit court in a declaratory judgment action filed by plaintiff Ashland Savings & Loan Association (hereinafter Ashland) alleging breaches of contracts of insurance plaintiff had with defendant-cross-appellee Aetna Insurance Company (hereinafter Aetna) and defendant-appellant Insurance Company of North America (hereinafter INA). Briefly, the complaint alleged in pertinent part that INA insured Ashland against loss and damage by fire to a certain building and that Aetna insured Ashland, under another policy, against loss and damage resulting from the insured's failure to effectively provide insurance coverage for the building, and then prayed that the court determine which defendant was obligated to Ashland.

INA filed a motion for summary judgment asserting that its policy with Ashland had been terminated prior to the date of the alleged loss. Aetna also filed a motion for summary judgment alleging that the fire policy issued by INA for the coverage of loss to Ashland's building had been in force at the date of the alleged loss, and that, therefore, Aetna was not liable to pay under the terms of its policy with Ashland.

The court below entered orders granting Aetna's motion for summary judgment and denying INA's motion for summary judgment, finding, with respect to INA, that its policy with Ashland was in full force and effect on the date of the alleged loss, in that the policy had not been effectively cancelled in keeping with the provisions of 12 U.S.C.A. § 1749 bbb-3 (1969), a part of the National Insurance Development Program. Thereafter, the court below ordered that judgment be entered for Ashland against INA in the amount of $214,990.27. INA appeals from those decisions in the court below. In addition, Ashland brings a cross-appeal against Aetna, requesting that should this court find that INA's policy had been effectively cancelled prior to the date of the damage to Ashland's property, then the court should further find that Aetna is liable to Ashland under the terms of the errors and omissions form of the policy issued to Ashland.

While INA assigns a number of errors on appeal, we are of the opinion that the only issue necessary to decide is whether the trial court acted with propriety in entering the orders granting Aetna's motion for summary judgment and denying that of INA. Our finding on this issue will be dispositive of the appeal.

The facts pertinent to our decision are as follows. Ashland, a State of Illinois chartered savings and loan association with offices in Chicago, owned and operated an apartment building at 5054-58 No. Winthrop Avenue in Chicago. On October 21, 1966, Ashland and INA entered into a contract of insurance — which, among other things, provided Ashland protection against fire loss. The policy included the following pertinent provisions:

"This Policy covers from October 21, 1966 to until cancelled noon, Standard Time, at Insured's Address.

If this policy is written under the Annual Payment of Premium Plan it shall not terminate until cancelled by the Insured or the Company. The premium hereunder shall be payable annually in advance. The first annual premium is set forth on Page 1 and becomes due and payable on the inception date of this policy. The premium for each successive annual period shall be computed to reflect current conditions and become due and payable on the anniversary date.

This policy shall be cancelled at any time 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 cancelled at any time by this Company by giving to the insured a five days' written notice of cancellation with or without tender of the 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."

The INA policy, then, was renewable by the payment of yearly premiums, its anniversary date being October 21; the policy was renewed on the anniversary date in 1967 and 1968. On October 2, 1969, in accordance with the provisions of the policy, INA mailed to Ashland a notice of cancellation informing Ashland that its policy was to be cancelled effective October 21, 1969.

The cancellation notice sent to Ashland read in part:

"You are notified that we are herewith canceling your policy indicated below, in accordance with its terms, and all liability thereunder will terminate, effective as stated below. * * * Cancellation effective the 21st day of Oct. 1969 at the hour stated in the policy for the inception of the policy."

Subsequent to the notice of cancellation, no premium was tendered or paid by Ashland to INA.

Ashland, on February 1, 1967, entered into a special multi-peril policy with Aetna, which policy was for a three year term. The policy provided Ashland insurance in the amount of $200,000 with respect to any one mortgage under an "Errors and Omissions Form," the details of which are not pertinent to this decision.

Ashland's ownership of the subject building came about as the result of a foreclosure which it had initiated. On November 30, 1969, a fire occurred in Ashland's apartment building, resulting in damage to the building and its contents, as well as loss of rent. It was this damage which led to this litigation.

Sometime in 1970, Ashland filed a breach of contract action against Aetna in the United States District Court for the Northern District of Illinois, Eastern Division. As originally conceived in the Federal action, Ashland contended that Aetna was liable under its policy, which was in effect on November 30, 1969. Subsequently, Ashland amended its complaint and joined INA as a party defendant. In the amended Federal action Aetna contended that INA's notice of cancellation mailed October 2, 1969 was ineffective and invalid since INA failed to comply with the provision of the insurance code of the State of Illinois which required that insurance companies after one year coverage must advise the insured their reasons for cancellation. This statutory provision which became effective September 22, 1969 is chapter 73, section 755.1b of the 1969 Illinois Revised Statutes. Aetna, contending that INA's policy was thus in ...

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