memorandum opinion and order, SBA is entitled to the entire
In October 1981 SBA loaned Boutique $100,000 on condition that
Boutique obtain an equivalent amount of hazard insurance on all
its equipment and inventory,*fn4 with a standard loss
payable clause*fn5 protecting SBA's interest as a secured
party. SBA simultaneously took a security interest in
Boutique's inventory, fixtures, accounts and proceeds.*fn6
In compliance with the loan agreement Boutique obtained the
requisite insurance from Aetna effective July 21, 1981 through
July 21, 1982.
On February 14, 1982 a fire at Boutique's premises destroyed
much of the insured property. Sometime after the fire Boutique
filed for bankruptcy, and the bankruptcy judge ordered the
insurance proceeds abandoned due to Boutique's lack of equity
in those proceeds.*fn7
In support of its claim Rabens cites Illinois "equitable fund"
cases, under which subrogors' attorneys have recovered fees
from their clients' subrogees in proportion to the benefits
received by the latter from the attorneys' services.*fn8
Baier v. State Farm Insurance Co., 66 Ill.2d 119, 124, 5
Ill.Dec. 572, 574, 361 N.E.2d 1100, 1102 (1977), followed in
Lemmer v. Karp, 56 Ill. App.3d 190, 13 Ill.Dec. 720,
371 N.E.2d 655 (2d Dist. 1977); Sobczak v. Whitten, 75 Ill. App.3d 208,
30 Ill.Dec. 733, 393 N.E.2d 1080 (5th Dist. 1979);
accord. Remsen v. Midway Liquors, Inc., 30 Ill. App.2d 132,
174 N.E.2d 7 (2d Dist. 1961).
Those cases are inapposite to the present situation. SBA is
not a mere subrogee to Boutique's rights against Aetna, for
the loss payable clause (executed by Aetna's agent) grants SBA
direct rights against Aetna wholly independent of Boutique.
City of Chicago v. Maynur, 28 Ill. App.3d 751, 754,
329 N.E.2d 312, 315 (1st Dist. 1975); Aetna State Bank v. Maryland
Casualty Co., 345 F. Supp. 903, 905 (N.D. Ill. 1972). SBA's
independent contractual relationship places it in a different
position from the derivative situation of a mere subrogee,
whose interest is necessarily dependent on the subrogor's
actual recovery from the tortfeasor. See Glidden v. Farmers
Automobile Insurance Ass'n,
57 Ill.2d 330, 338, 312 N.E.2d 247, 251-52 (1974).
In applying the equitable fund doctrine, the Illinois courts
recognize the subrogee's inherent reliance on the subrogor's
efforts. For just that reason those courts have restricted such
application to insurance subrogation cases or class actions.
McKeeBerger-Mansueto, Inc. v. Board of Education of the City
of Chicago, 691 F.2d 828, 835-36 (7th Cir. 1982); Maynard v.
Parker, 54 Ill. App.3d 141, 145, 11 Ill.Dec. 898, 901,
369 N.E.2d 352, 355 (3d Dist. 1977), aff'd, 75 Ill.2d 73, 25
Ill.Dec. 642, 387 N.E.2d 298 (1979); Boehm and Weinstein,
Chtd. v. City of Chicago, 62 Ill. App.3d 68, 70, 19 Ill.Dec.
489, 491, 379 N.E.2d 4, 6 (1st Dist. 1978).
Rabens argues its efforts resulted in benefit to SBA. SBA
disputes that claim (R.Mem. 2-3). But even if Rabens were
correct, under Illinois law that would not be enough to saddle
SBA with Boutique's attorneys' fees. See
McKee-Berger-Mansueto, 691 F.2d at 835; Kaplan v. Mahin,
79 Ill. App.3d 848, 851-52, 35 Ill.Dec. 481, 484-85,
399 N.E.2d 315, 317-18 (1st Dist. 1979). This Court cannot extend the
"equitable fund" doctrine beyond its Illinois boundaries.
SBA's right to the Fund is superior to Rabens' claim.
Accordingly, the Clerk of this Court is ordered to pay the
entire Fund to SBA pursuant to its interest under the loss
payable clause. This is a final judgment disposing of all
claims in this action.
Loss or damage, if any, under this policy, shall be payable to
Small Business Administration, an Agency of the United States
Government (hereinafter referred to as "SBA"), as lender,
mortgagee or owner of obligations secured by trust deed or as
secured party, as its interest may appear, or to its successors
and assigns, and this insurance, as to the interest of SBA only
therein, shall not be invalidated by any act or neglect of the
mortgagor or owner of the within described property, nor by any
foreclosure or other proceedings or notice of sale relating to
the property, nor by any change in the title or ownership of
the property, nor by the occupation of the premises for
purposes more hazardous than are permitted by this policy.
Provided also, that SBA shall notify this Company of any change
of ownership or occupancy or increase of hazard which shall
come to the knowledge of SBA, and unless permitted by this
policy, it shall be noted thereon and SBA shall, on demand, pay
the premium, if any, for such increased hazard for the term of
the use thereof, but payment of such premium by SBA shall be
only a condition precedent to recovery by SBA under this policy
and agreement, and SBA shall not be otherwise obligated to pay
In the event the property covered by this policy is designated
therein as the "contents" of a certain building or similar
structure, then this policy shall apply to and cover all
machinery, equipment, furniture, fixtures and inventory (and
any other property customarily so designated) of the insured in
which SBA holds a security interest, any other provision in
said policy to the contrary notwithstanding.
This Company reserves the right to cancel this policy at any
time as provided by its terms but in such case this policy
shall continue in force for the benefit only of SBA for ten
days after receipt of written notice to SBA of such
cancellation and shall then cease, and this Company shall have
the right, on like notice. to cancel this agreement. In the
event of cancellation of this policy, the unearned portion of
all premiums received by this Company from any source shall be
deemed to be the property of SBA and shall be remitted to SBA
without set-off of any kind; however, the unearned portion of
such premiums may be applied for the purpose of providing
substantially similar insurance for the benefit of SBA from
this Company covering the same property.
Whenever this Company shall pay SBA any sum for loss or damage
under this policy, and shall claim that as to the mortgagor or
owner, no liability therefor existed, this Company shall, to
the extent of such payment, be thereupon legally subrogated to
all rights of the party to whom such payment shall be made,
under all securities held as collateral for the debt due or may
at its option, pay to SBA the whole principal due or to become
due on the debt, with interest accrued thereon to the date of
payment and shall thereupon receive a full assignment and
transfer of all securities held as collateral. In any event, no
right of subrogation shall impair the right of SBA to recover
the full amount of its claim.