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White v. U.s. Fidelity & Guaranty Co.

JULY 24, 1974.




APPEAL from the Circuit Court of Cook County; the Hon. CHARLES P. HORAN, Judge, presiding.


The plaintiffs, Frank and Doris White, bring this appeal from an order of the circuit court of Cook County granting summary judgment in favor of the defendants, United States Fidelity and Guaranty Company (USF&G) and Jay Goran, on the plaintiffs' second amended complaint for general and punitive damages based upon allegations of breach of contract, breach of trust, fraud, and gross negligence in handling the proceeds of a fire insurance policy on the plaintiffs' residence.

The record establishes that on October 23, 1957, the plaintiffs entered into an installment contract to purchase a two-story residence located at 2947 West Jackson Boulevard in Chicago. The seller was Jay Goran, as trustee of a land trust. The purchase price of the building was stated as $17,900. The plaintiffs made down payments totaling $1200, and monthly payments of approximately $140 thereafter. The contract provided that: "Purchaser shall keep the premises herein insured against loss by fire * * * and shall deliver to Seller such policies of insurance as Seller shall approve as adequate protection therefor." By mutual assent, however, the parties established a practice under which Goran procured the required insurance and the plaintiffs paid the premiums as part of their monthly payments.

On September 11, 1965, USF&G issued a policy of fire insurance on the building in the amount of $13,000. The policy listed Jay Goran as the insured. It also contained a mortgage clause insuring the interest of Emil A. Wagner, trustee, and a contract-of-sale clause insuring the interests of the plaintiffs.

On April 26, 1967, while the policy was in effect, a fire of undetermined origin damaged the building. A public adjuster determined that the premises could be repaired for approximately $7000, and USF&G offered $7036.40 in settlement of the loss in June of 1967. The plaintiffs initially refused this offer, apparently upon the belief that more would be required to restore the building to its original condition, but after obtaining counsel and negotiating with USF&G, they decided to accept it. They signed the proofs of loss on September 21, 1967, and sent them to Goran, who sent them to USF&G. In late October, USF&G sent Goran a check for $7036.40 payable to Goran as trustee, Emil A. Wagner, trustee, the Fire Loss Appraisal Company, and the plaintiffs. Sometime in December, Goran represented to USF&G that the plaintiffs had defaulted on their payments under the sales contract and could not be located. USF&G sent a second check, deleting the plaintiffs as payees, and Goran distributed the proceeds by paying $3,546.61 to the mortgagee and applying $3489.79 to the balance of $12,322.54 due him under the contract of sale at the time of the fire.

Following the date of the fire, the building was unoccupied. It appears that it was boarded up by a representative of either USF&G or the appraisal company, but the boards were removed by vandals who did considerable damage to the property. In his deposition, Frank White stated that he was aware that the boards had been removed and that the building was being vandalized, but he did nothing to prevent it. As a result of the vandalism the city of Chicago instituted an action for demolition. The plaintiffs were made parties and appeared in court on one occasion through their attorney, Herbert Wisch. This was in October, 1967. Neither the plaintiffs nor their attorney appeared thereafter, and on October 27, 1967, the court entered an order of demolition. The building was demolished on November 29, 1967. The city also brought an action against Goran for foreclosure of a demolition lien in the amount of $1185, and Goran paid this sum in order to have the lien released.

On April 9, 1968, the plaintiffs filed a complaint against USF&G in which they alleged in essence that USF&G had breached the insurance contract by failing to pay them the $7036.40 claimed in the proofs of loss and that as a result of the breach they had been unable to repair their building, causing it to be demolished by the city. They claimed $13,000 as damages, the amount of the policy. USF&G answered that it had discharged its obligations under the policy by paying $7036.40 to Goran, the named insured, and Emil A. Wagner, the mortgagee. It also filed a counterclaim in the nature of a third-party action against Goran on the theory that Goran had agreed to hold it harmless against any claim by the plaintiffs. Goran filed an answer to the counterclaim in which he stated that he had employed a public adjuster who had informed him that he would repair the building for $7036.40, but that the plaintiffs had refused to accept this sum until September, 1967; that the plaintiffs had left the building vacant and abandoned, causing it to become vandalized beyond repair and ultimately to be demolished; that he had paid the cost of demolition; that the balance owed him on the contract of sale at the time of the fire was $13,027.05; that the plaintiffs' attorney had demanded the insurance proceeds without expressing any willingness to repair the building; and that thereafter the plaintiffs' attorney did not answer any telephone calls, and the plaintiffs could not be located. In addition to the answer, he filed a motion for summary judgment containing similar allegations and asserting that he was entitled to the insurance proceeds as a matter of law. USF&G also moved for summary judgment, adopting in substance the motion of Goran.

The plaintiffs filed an amended complaint on April 25, 1972. They alleged that USF&G breached the duty created by the contract-of-sale clause by failing to conduct an independent investigation to determine whether they could be located before issuing the second check deleting them as payees; that Goran falsely represented to USF&G that he could not locate them; that Goran had a duty to hold the proceeds of the policy as a constructive trustee for the purpose of repairing the building; and that by applying the proceeds to the balance due under the contract when they were not in default, Goran unlawfully accelerated the contract. They claimed that as a result of these actions they were unable to repair their building and lost its entire value, $17,900. Goran moved to strike and dismiss the amended complaint on the ground that it alleged only conclusions. USF&G filed an answer in which it stated on information and belief that at the time of the fire there was due on the mortgage $3,546.61 and on the contract $13,088.66 and that it paid the proceeds to Goran and the motgagee in accordance with the terms of the policy.

On June 8, 1972, Goran's motion to dismiss the amended complaint was denied. The plaintiffs filed answers to the motions of Goran and USF&G for summary judgment, and Goran filed an answer to the amended complaint and a counterclaim for the balance due under the contract. None of these alleged any new facts or substantially altered the positions of the parties. On July 20, 1972, the affidavit of Herbert Wisch was filed. Wisch stated that he had represented the plaintiffs in their negotiations with USF&G and had settled their claim for $7036.40. He stated further that he had never received a draft for the settlement and after repeated calls to USF&G had learned that it had been sent to Jay Goran. He left numerous messages for Goran, but Goran never returned his calls. Neither USF&G nor Goran ever requested that he have the plaintiffs endorse the draft, and he was never informed that a second draft had been issued.

On September 8, 1972, the plaintiffs filed a second amended complaint. This was identical to the first one, except that it sought punitive, as well as general damages. Both Goran and USF&G filed answers. On November 2, 1972, the affidavit of Esther Rothstein was filed, attached to which were copies of the proof of loss executed by the plaintiffs, the policy of insurance issued by USF&G and the ledger sheets reflecting the payments made by the plaintiffs on the contract. On December 4, 1972, the motions of Goran and USF&G for summary judgment were granted, and it was ordered that the plaintiffs take nothing by their suit. The present appeal followed.

• 1, 2 Summary judgment is an appropriate remedy if the pleadings, depositions, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law. (Ill. Rev. Stat. 1973, ch. 110, par. 57(3).) Summary judgment is an important tool in the administration of justice, and its use in a proper case is to be encouraged. (Allen v. Meyer (1958), 14 Ill.2d 284, 152 N.E.2d 576.) The question presented to this court, then, is whether this is a proper case. As stated in Fooden v. Board of Governors (1971), 48 Ill.2d 580, 272 N.E.2d 497, "if what is contained in the pleadings and affidavits would have constituted all of the evidence before the court and upon such evidence there would be nothing left to go to a jury, and the court would be required to direct a verdict, then a summary judgment should be entered." (48 Ill.2d at 587, 272 N.E.2d at 500.) As the plaintiffs correctly argue, all inferences are to be resolved in favor of the respondent, and all evidence is to be viewed in the light most favorable to him. (Patterson v. Stern (1967), 88 Ill. App.2d 399, 232 N.E.2d 7.)

In the present case, the following facts are uncontroverted: The plaintiffs entered into an installment contract to purchase a building from Jay Goran. The agreement required that the plaintiffs carry fire insurance to insure the interest of the seller in the unpaid balance. By mutual agreement, Goran obtained the insurance and deducted the cost from the plaintiffs' monthly payments. In 1965 Goran obtained a fire insurance policy on the premises in the amount of $13,000 from USF&G in which he was the named insured and in which the interests of the plaintiffs and the mortgagee were insured to the extent that they should appear, the interest of the plaintiffs being subordinate to that of the mortgagee.

On April 26, 1967, the building was damaged by a fire of undetermined origin. Immediately after the fire, the Fire Loss Appraisal Company would have repaired the damage for $7036.40, the settlement offered by USF&G, in June of 1967, but the plaintiffs refused this amount and delayed signing the proofs of loss until September, 1967. By this time the building had become extensively vandalized. The plaintiffs made no payments on the contract after April 6, 1967. In October, 1967, the city of Chicago instituted a proceeding for demolition. The plaintiffs appeared in this proceeding sometime in October, but took no part in it thereafter. The building was demolished in November, 1967, and Goran paid the cost of demolition.

In October, 1967, USF&G issued a draft for $7036.40 payable to Goran as trustee, the mortgagee, the Fire Loss Appraisal Company, and the plaintiffs and sent it to Goran. The plaintiffs never endorsed this draft. In December, 1967, USF&G issued a second draft deleting the plaintiffs as payees, and Goran distributed the proceeds by paying $3546.61 to the ...

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