United States District Court, Northern District of Illinois, E.D
July 24, 1985
FIDELITY AND DEPOSIT COMPANY OF MARYLAND, A CORPORATION, PLAINTIFF,
NATHAN ROSENMUTTER AND CHARLES ROSENMUTTER, DEFENDANTS.
The opinion of the court was delivered by: Bua, District Judge.
Fidelity and Deposit Company of Maryland ("Fidelity") brings
this action against Nathan Rosenmutter and Charles Rosenmutter
("the Rosenmutters"), seeking entry of a judgment declaring that
Fidelity is entitled to receive collateral from defendants in the
amount of $50,000 to secure its surety bond and awarding Fidelity
$11,140.71 in costs and attorneys' fees. Before the Court is
plaintiff's motion for summary judgment in its favor pursuant to
Rule 56 of the Federal Rules of Civil Procedure. For the reasons
stated below, plaintiff's motion for summary judgment is granted
in part and denied in part. The remainder of plaintiff's
complaint is dismissed without prejudice.
Summary judgment is appropriate under Rule 56 "only if
pleadings, depositions and affidavits fail to disclose a genuine
issue of material fact." Gracyalny v. Westinghouse Electric Co.,
723 F.2d 1311, 1316 (7th Cir. 1983). In deciding the motion, the
Court "must resolve all doubts against the party seeking summary
judgment." Id. Under this standard, the following facts are
assumed to be true for purposes of this motion.
Fidelity is a Maryland corporation with its principal place of
business in Baltimore. The Rosenmutters are residents and
citizens of Illinois. Federal jurisdiction is based on diversity
of citizenship, 28 U.S.C. § 1332.
General Iron Industries, Inc. ("General Iron") and Chimet
Corporation, two entities not parties to this action, were
approved self-insureds under the Illinois Workers' Compensation
Act, Ill.Rev.Stat. ch. 48, § 138.1 et seq. (1983). As a condition
of obtaining self-insured status, the Illinois Industrial
Commission ("the Commission") required the companies to post a
$50,000 surety bond. The bond, secured by a letter of credit for
the full amount, was executed by Fidelity on October 1, 1977. The
Workers' Compensation Act states that the purpose of such a bond
is to guarantee payment by the employer of any compensation
awards made pursuant to the Act. Ill.Rev.Stat. ch. 48, §
The penal sum of the surety bond was subsequently increased to
$100,000 and then, on August 21, 1981, to $200,000. The
defendants, acting as indemnitors, signed and accepted both
riders increasing the amount of the surety bond. As an inducement
to Fidelity to execute the surety bond, the defendants, acting in
their individual capacities, executed and delivered to Fidelity
an Application for Miscellaneous Bonds containing an indemnity
between the parties. Additionally, General Iron arranged for a
letter of credit in the amount of $150,000 to be issued by Main
Bank of Chicago as collateral for the $200,000 surety bond.
In February 1982, General Iron filed for reorganization under
Chapter 11 of the Federal Bankruptcy Code, 11 U.S.C. § 1101 et
seq. Thereafter, it failed to pay a worker's compensation claim,
approved by the Commission, in the amount of $25,000. The injured
General Iron employee then filed suit demanding that Fidelity
disburse the amount of the claim from the bond proceeds. Calvin
v. Fidelity & Deposit Company of Maryland, 82 C 2016 (N.D.Ill.
Nov. 2, 1982). The Commission, intervening as a defendant in that
suit, requested that Fidelity not make payment on the Calvin
claim or on any other claim until the total amount of outstanding
and potential claims against General Iron and Chimet Corporation
could be ascertained. Potential claimants could file claims until
March of 1985.*fn1
Presently, there are 33 claims pending against General Iron.
Four claims totaling $34,913 have been adjudicated. Of these, one
claim for $25,000 has been settled and approved by the
Commission. Three other claims totaling $9,913 have been settled
but not yet approved. Fidelity estimates its ultimate liability
on the bond to exceed the $150,000 secured amount and seeks
summary judgment in the amount of $50,000 as collateral for the
unsecured portion of the bond.
Fidelity also contends it is owed by defendants costs and
attorneys' fees in the amount of $11,140.71. Fidelity alleges
that it incurred these expenses in defending the Calvin suit and
enforcing the indemnity agreement at issue in this lawsuit.
A. The Indemnity Agreement
The controversy between the two parties centers upon the
indemnity agreement contained in paragraph two of the Application
for Miscellaneous Bonds. It reads as follows:
The undersigned do hereby represent that the
statements made herein as an inducement to the
Fidelity & Deposit Company of Maryland, its
successors and assigns, (hereinafter called Company)
to execute the bond applied for herein, are true,
and, should the Company execute said bond, do hereby
agree as follows:
SECOND, to indemnify the Company against all loss,
costs, damages, expenses and attorneys' fees
whatever, and any and all liability therefor, which
the Company may sustain or incur by reason of
executing said bond, in making any investigation on
account thereof, in prosecuting or defending any
action which may be brought in connection therewith,
and obtaining a release therefrom, and in enforcing
any of the agreements in any of the paragraphs herein
contained. Payment of any such amounts shall be
made to the Company by the undersigned as soon as the
Company shall be liable therefor, whether or not it
shall have paid out any portion thereof.
Specifically, this Court is being asked to interpret the term
"liable" under the terms of the agreement.
Fidelity asserts that its liability under the agreement has
accrued because claims estimated to be valued in excess of the
$200,000 bond limit have been filed. Fidelity's interpretation of
the accrual of liability would require the Rosenmutters to
indemnify Fidelity by providing the remaining $50,000 collateral
required under the Collateral Agreement.
The Rosenmutters, however, contend that Fidelity's liability
under the agreement
accrues only after claims have been adjudicated and the exact
amount of Fidelity's liability is fixed. The Rosenmutters'
interpretation of the accrual of liability would require them to
post additional collateral only after adjudicated claims for
which Fidelity is liable have exceeded the $150,000 collateral
already posted. Since adjudicated claims, under this
interpretation, currently total only $34,913, the Rosenmutters
would not now be required to post additional collateral.
In Illinois, indemnity contracts or provisions are to be
strictly construed against the indemnitee. McInerney v. Hasbrook
Const. Co., 16 Ill.App.3d 464, 306 N.E.2d 619 (1973), modified on
appeal, 62 Ill.2d 93, 338 N.E.2d 868 (1975). This is especially
true where, as in this case, the indemnity provision is contained
within the indemnitee's form. Gay v. S.N. Nielsen Co.,
18 Ill. App.2d 368, 152 N.E.2d 468 (1958).
It is a settled principle of Illinois law that a surety, after
a debt has become due, may, without making payment himself,
compel the principal to pay the debt. Moore v. Topliff, 107 Ill. 241,
249 (1883); Western Casualty v. Biggs, 217 F.2d 163 (7th
Cir. 1954). The liability of an indemnitor, however, does not
arise until it has been definitely ascertained that loss or
damage has been sustained. City of Chicago v. Siebert,
244 Ill. App.? 83, 87 (1927); Cunningham Brothers, Inc. v. Bail,
407 F.2d 1165, 1169 (7th Cir. 1969). Accordingly, in this case,
Fidelity is "liable" at this time only for worker compensation
claims in which there has been an ascertained amount of damages.
While it seems likely, based on the 33 claims presently pending
against General Iron, that Fidelity's ultimate liability will
exceed the 150,000 secured amount, only four claims totaling
$34,913 have accrued to date. In fact, only one claim has been
approved by the Commission (Rubin Calvin's claim of $25,000).
Three other claims totaling $9,913 have been settled but have not
yet been approved by the Commission. These four claims total
Fidelity cites Safeco Insurance Co. of America v. Schwab,
739 F.2d 431 (9th Cir. 1984), in support of its position that the
Rosenmutters, as indemnitors, must post additional collateral on
the basis of estimates of future liability rather than on fixed
liability. The Safeco holding, however, interpreted an indemnity
agreement that required the indemnitors to pay the surety, upon
[a]n amount sufficient to discharge any claim made
against Surety [Safeco] on any Bond. This sum may be
used by Surety to pay such claim or be held by Surety
as collateral security against any loss on any Bond.
Id. at 432 (emphasis added). The indemnity agreement signed by
the Rosenmutters is easily distinguished from that in the Safeco
case in that it provides only that the Rosenmutters pay "any such
amounts . . . to [Fidelity] . . . as soon as [Fidelity] shall be
liable therefor, whether or not it shall have paid out any
portion thereof" (emphasis added). The agreement does not require
payment of amounts sufficient to discharge unadjudicated or
anticipated claims. Fidelity is entitled to indemnification when
its liability is fixed and certain "whether or not it shall have
paid out any portion thereof."
Fidelity further relies upon Milwaukie Construction Co. v.
Glens Falls Insurance Co., 367 F.2d 964 (9th Cir. 1966), for its
claim that it is entitled to exoneration from the anticipated
$50,000 unsecured portion of the bond. Consistent with the
Court's interpretation of the indemnity agreement, however,
Fidelity's invocation of the doctrine of exoneration as a basis
for obtaining additional collateral is premature. "A surety
cannot invoke the doctrine of exoneration unless his liability is
imminent and absolute." Falvey v. Foreman — State National Bank,
101 F.2d 409, 417 (7th Cir. 1939). Fidelity's liability under the
bond is neither imminent nor absolute. Therefore, the doctrine of
exoneration is inapplicable at this time.
Accordingly, Fidelity presently is "liable" under the indemnity
agreement in the
amount of $34,913.*fn2 Since that amount is less than $150,000,
Fidelity is not entitled to additional collateral from the
Rosenmutters at this time. To the extent plaintiff seeks summary
judgment on that issue, the motion is denied.
B. Attorneys' Fees and Costs
Fidelity asserts that it is entitled to receive $11,140.71 in
attorneys' fees and costs incurred to date. This total represents
$7,713.21 in attorneys' fees and costs incurred defending the
Calvin suit, $657.50 in unspecified attorneys' fees and $2,770 in
attorneys' fees and costs incurred in bringing this action.
Paragraph two of the Application for Miscellaneous Bonds
permits Fidelity to recover costs and attorneys' fees "which the
Company [Fidelity] may sustain or incur by reason of executing
said bond . . . and in enforcing any of the agreements in any of
the paragraphs herein contained." Under this provision, Fidelity
is clearly entitled to the $7,713.21 it requests for defending
the Calvin suit. These expenses have been incurred by Fidelity,
and the Rosenmutters are liable for them. Attorneys' fees and
costs are separate from and additional to the amount of the
surety bond which represents the total amount designated to pay
workers' compensation claims. Therefore, the defendant's
liability of $7,713.21 is due and plaintiff is entitled to
judgment in that amount.
Fidelity's request for the remaining $3,427.50, however, is
denied. The $657.50 it requests is not clearly explained in that
the Court is unable to ascertain whether the costs and fees were
incurred as part of the Calvin defense or as part of the current
action. Therefore, summary judgment will be denied as to those
fees without prejudicing plaintiff's right to file an affidavit
within 30 days establishing that the $657.50, or a part thereof,
was incurred in defense of one of the four claims.
The $2,770 amount which Fidelity requests is based on expenses
incurred in bringing this action. This action, however, was
unnecessary to enforce the contract since this lawsuit was
premature. Accordingly, each party must bear its own expenses and
fees on this suit.
This motion for summary judgment is granted in part and denied
in part. Plaintiff's motion for summary judgment is granted in
the amount of $7,713.21. Plaintiff is given leave to file an
affidavit within 30 days justifying additional fees up to
$657.50. In all other respects, plaintiff's motion is denied. The
remainder of the complaint is dismissed without prejudice.
IT IS SO ORDERED.