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Hayes Boiler & Repair Co v. Ill. Masonic Med. Ctr

JULY 3, 1975.

DAN HAYES BOILER & REPAIR CO., PLAINTIFF,

v.

ILLINOIS MASONIC MEDICAL CENTER, DEFENDANT. (ILLINOIS MASONIC MEDICAL CENTER, THIRD-PARTY PLAINTIFF-APPELLANT,

v.

ST. PAUL INSURANCE COMPANY, THIRD-PARTY DEFENDANT-APPELLEE.)



APPEAL from the Circuit Court of Cook County; the Hon. DANIEL J. WHITE, Judge, presiding.

MR. JUSTICE MCNAMARA DELIVERED THE OPINION OF THE COURT:

Plaintiff, Dan Hayes Boiler & Repair Co., filed an action in the circuit court of Cook County for money due it for repair work to a boiler owned by the defendant, Illinois Masonic Medical Center (hereinafter the Hospital). The Hospital, in turn, filed a third-party complaint against St. Paul Insurance Company (hereinafter St. Paul), its insurer, for the amount claimed by plaintiff. Prior to trial, plaintiff and the Hospital agreed to entry of judgment against the Hospital in favor of plaintiff in the amount of $3,372.00. Consequently, the present jury trial was concerned only with the third-party complaint. At the close of the Hospital's case, the trial court granted St. Paul's motion for a directed verdict. This appeal follows.

The Hospital had a paid-up property insurance policy with St. Paul. Under its terms, the Hospital was protected against loss caused by fire, lightning, and explosion, among others. The contract contained the usual notice and suit-limitation provisions for the benefit of the insurer. The insured was required to provide the insurer with written proof of loss within 60 days of such occurrence and to file any suit for a claim within 12 months of the loss.

The Hospital apparently did not comply with these latter two provisions. However, this action was predicated upon an oral adjustment allegedly made with with St. Paul and not upon the express terms of the policy. In its answer to the third-party complaint, St. Paul denied the existence of an oral agreement, and affirmatively asserted the notice and suit-limitation provisions as defenses. After the trial court denied pretrial motions in limine by each side to restrict the proof offered at trial to its theory of the case, the Hospital presented its case.

David Lindquist, the Hospital's chief engineer, testified that he was notified of possible damage to the Hospital's number one boiler sometime in December, 1969. He examined the boiler and discovered an external bulge on one of its sides. In order to determine the extent of damage, he arranged with plaintiff to cut a section out of the boiler.

On February 20, 1970, plaintiff cut out a section of the boiler's casing and removed the insulation, thereby exposing the damage, a crack in the refractor. Among those present were Lindquist, Mr. Mooney, plaintiff's general manager, and Mr. Lama, a claims adjuster for St. Paul. Upon viewing the damage, Lindquist realized that repair would be necessary. Plaintiff then patched up what it could and welded the casing back on.

Lama later asked Lindquist if he had any objection to plaintiff doing the work. When Lindquist replied that he did not, Lama requested him to ask Mooney to submit a bid. Lindquist complied, and a bid was sent by Mooney to Lama. Lama contacted Lindquist and informed him that he needed a further cost breakdown on labor and materials. Mooney and Lama contacted each other, and Mooney supplied the additional information. Lindquist testified further that sometime in March Mooney telephoned him and advised him that he had received the necessary authorization from Lama to repair the boiler. In view of the weather, the damaged boiler had to be kept available on a stand-by basis. Therefore, the work was finally performed late in May.

Richard Mooney testified that part of his management duties for plaintiff involved giving estimates, ordering materials, and supervising work completion. After viewing the damaged Hospital boiler, he believed that the casing, insulation, and refractor would all have to be replaced. Mooney forwarded to Lama an initial bid to do the repair work and a later more detailed breakdown. He spoke to Lindquist on several occasions, at which times Lindquist would inquire whether Mooney had received Lama's authorization to proceed with the work. In May Lindquist expressed some anxiety as to whether the boiler would be repaired in time for the cooler weather. Mooney telephoned Lama, and relayed Lindquist's concern. Lama replied that Mooney had his authorization "to go ahead and do the repair work." The work was begun on May 17 and completed on May 25.

Howard Lama, called by the Hospital as a witness under section 60 of the Civil Practice Act (Ill. Rev. Stat. 1973, ch. 110, par. 60), testified that as a claims adjuster for St. Paul he received, investigated, and, when necessary, adjusted claims presented by policyholders. He handled the Hospital's claim in this case. At the time the interior of the boiler was inspected, Mooney detailed what had to be done to make the necessary repairs, and it "sounded realistic" to Lama. He took photographs of the damaged area. Lama admitted requesting initial and follow-up bids from Mooney to do the repair work, but claimed that his conversations with Mooney, including that of May 7, dealt only with Lama's requests for an "opinion" from Mooney. After the work had been completed and a bill sent to Lama by plaintiff, Lama called Mooney and asked why the bill had been sent to him. Mooney replied that St. Paul was responsible for payment. Lama did not discuss the matter further and disregarded the original and subsequent repair bills.

Recalled as a witness for the Hospital, Mooney testified that he recollected that the only time Lama asked for an opinion as to the cause of the damage to the boiler was sometime in May. In reply Mooney sent a letter to Lama dated May 22, 1970, in which he stated that he had no conclusive evidence as to the cause of the damage. On cross-examination, Mooney stated that Lama's request for an opinion probably occurred just prior to the time he sent his letter in response. He testified on redirect examination that he was consistently reminded by Lindquist to obtain Lama's authorization before proceeding with the work.

At the conclusion of the Hospital's case, the trial court granted St. Paul's motion for a directed verdict.

The Hospital contends on appeal that the trial court erred in directing a verdict against it since it had presented a factual issue for the jury as to an oral settlement of the claim. It also contends that the trial court improperly barred its attempts to introduce into evidence the agreed-upon price for repairs.

• 1 A valid adjustment of a disputed insurance claim is enforceable in the courts. (Millers' National Insurance Co. v. Kinneard (1891), 136 Ill. 199, 26 N.E. 368.) The compromise settlement may be oral. (Country Mutual Insurance Co. v. Drendel (1969), 116 Ill. App.2d 466, 252 N.E.2d 757.) To be enforceable, the agreement must contain all the essential elements of a valid contract. 16 Couch Encyclopedia on Insurance Law § 59:14, at 150 (2d ed. 1966).

• 2 At trial, St. Paul denied the existence of a valid adjustment and raised the affirmative defenses included in the policy issued to the Hospital of lack of timely notice of the loss and failure to institute suit within 1 year of the loss. Of course, if the Hospital introduced sufficient evidence at trial to create a prima facie case of recovery on the basis of an enforceable oral adjustment, St. Paul is precluded from relying upon these two affirmative defenses to defeat the Hospital's cause of action. (Western Underwriters Association v. Hankins (1906), 221 Ill. 304, 77 N.E. 447; Fray v. National Fire Insurance Co. (1930), 341 Ill. 431, 173 N.E. 479. See Lazarus v. Hagensick (1972), 8 Ill. App.3d 126, 289 N.E.2d 237.) The basis of this principle is that the suit is not grounded in the insurance policy but in the new promise, and therefore these policy provisions have no relevance or applicability. (Farmers & Merchants Insurance Co. v. Chesnut (1869), 50 Ill. 111.) To sustain the judgment of the trial court in the present case, we ...


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