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FID. & DEPT. OF MD. v. ROSENMUTTER

July 24, 1985

FIDELITY AND DEPOSIT COMPANY OF MARYLAND, A CORPORATION, PLAINTIFF,
v.
NATHAN ROSENMUTTER AND CHARLES ROSENMUTTER, DEFENDANTS.



The opinion of the court was delivered by: Bua, District Judge.

MEMORANDUM ORDER

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.

I. FACTS

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, § 138.4(a)(2)(1983).

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 agreement 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.

II. DISCUSSION

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, ...

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