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Chicago Title & Trust Co. v. United States Fidelity & Guaranty Co.

decided: February 19, 1975.

CHICAGO TITLE & TRUST CO., AS TRUSTEE UNDER TRUST NO. 49944, PLAINTIFF-APPELLANT,
v.
UNITED STATES FIDELITY & GUARANTY CO., DEFENDANT-APPELLEE



Appeal from the United States District Court for the Northern District of Illinois, Eastern Division - No. 72 C 3225 Hubert L. Will, Judge.

Maris*fn* and Hastings, Senior Circuit Judges, and Tone, Circuit Judge.

Author: Tone

TONE, Circuit Judge.

The issue in this diversity case is whether the insured may recover under an Illinois fire insurance contract for the loss of a building that had little or no economic value at the time of the loss. To decide this issue we must return to the area of the law visited last year in Garcy v. Home Ins. Co., 496 F.2d 479 (7th Cir. 1974). The plaintiff insured appeals from an order entering summary judgment for the defendant insurer on the issue of damages and dismissing the remainder of the case as moot.

The building in question, 1312-1316 West 79th Street, Chicago, Illinois, was a three-story masonry structure containing two store premises and four apartments and built about 55 years ago. In 1966 the building was conveyed into a land trust, of which plaintiff is trustee.

In 1970 an action to foreclose the mortgage on the building was commenced in the state court, as was an action by the city alleging numerous building code violations and seeking, inter alia, demolition of the building. In the city's suit, the court appointed a receiver on an emergency basis to restore heating but, in January 1971, ordered him to vacate the entire premises and not to make any heating repairs. Later the same month the court discharged the receiver. In the foreclosure action, the mortgagee acquired the beneficial interest in the land trust in 1971. Later that year it sold that beneficial interest for $7,000 to one Alex Salb, who took the interest in the name of a nominee to avoid personal liability.

Defendant issued its fire insurance policy on the building in the amount of $50,000 for the term August 24, 1971 to August 24, 1972 under the Illinois Property Insurance Placement Facility, commonly known as the Illinois FAIR Plan.*fn1 The policy, originally issued in the names of the mortgagee and the receiver, was assigned to the plaintiff trustee and the assignment consented to by defendant on November 11, 1971.

On February 6, 1972 the building suffered the first of two fires. Defendant paid $18,556 for this loss to plaintiff trustee, who turned it over to Alex Salb. The insurance company adjuster's report on this claim shows that this figure was based on an itemization of damage and an "actual cash value" for the building prior to the fire of $60,435 (total replacement cost of $119,436.40 less 45 percent depreciation and uninsurables). Salb did not spend any part of the insurance proceeds on the building.

On February 29, 1972, at a hearing in the city's action in the state court, a city building inspector testified that he had inspected the building the previous day and it was "vacant and open." The court ordered a "D and H [dangerous and hazardous] inspection" and continued the hearing to March 14, 1972. At the continued hearing on that date the inspector testified that the building was still open, vacant, severely damaged, and in a dangerous and hazardous condition. The court ordered Salb's attorney to board and secure the building.

That very day,*fn2 however, Salb, instead of boarding and securing the building or spending any of the insurance proceeds he had received to rehabilitate it, assigned his beneficial interest in the land trust to Oddie Banks, who late in March married and became Oddie Banks Wright. She testified in a deposition that the agreed price was $4,400, but that she paid only $400 down and was to pay the balance at the rate of $100 per month beginning 60 days from the date of purchase. All she ever paid, however, was the original $400. No purchase contract has been produced by her.

Oddie Banks Wright's application to FAIR for an assignment of the policy was not submitted until several weeks after she had purchased the beneficial interest and was never acted upon. Defendant, however, makes no point of this and acknowledges that the policy continued in force after she acquired the beneficial interest.

On April 12, 1972, the state court again ordered that the building be boarded and secured immediately.*fn3 Yet Oddie Banks Wright's husband, Oscar Wright, testified by deposition that he had caused certain repairs to be made to the building during the one and one-half month period between the date of his wife's purchase of the building and May 1. Although he testified that over $7,000 was spent, no invoice or other corroborating evidence was produced.

On May 1, 1972, eighty-five days after the first fire, the building suffered a second fire. Plaintiff filed this action on Oddie Banks Wright's behalf to recover $43,795 for the loss resulting from that fire.

After discovery, plaintiff filed a motion in limine asking the court to exclude evidence of the amount paid by Oddie Banks Wright for her interest or of the market value of the building on the ground that "actual cash value," as defined in a fire insurance policy, means reproduction cost, less depreciation. Plaintiff also moved to strike from defendant's answer the defenses based on the vacancy*fn4 and increase-of-hazard clauses of the policy.*fn5 Judge Will denied both motions by a memorandum opinion and order dated June 7, 1973, Chicago Title & Trust Co. v. United States Fidelity & Guaranty Co., 376 F. Supp. 767 (N.D. Ill. 1973), in which he held that plaintiff had no insurable interest, and was therefore not entitled to any damages at all, because ...


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