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06/17/87 Angela Verbaere Et Al., v. Life Investors Insurance

June 17, 1987





510 N.E.2d 946, 157 Ill. App. 3d 676, 109 Ill. Dec. 878 1987.IL.835

Appeal from the Circuit Court of Cook County; the Hon. Willard J. Lassers, Judge, presiding.


PRESIDING JUSTICE McNAMARA delivered the opinion of the court. RIZZI and WHITE, JJ., concur.


Defendant Life Investors Insurance Company of America appeals from an order of the trial court denying its motion for summary judgment and granting plaintiffs Peter and Angela Verbaere's cross-motion for summary judgment. Defendant claims that its obligation under a credit insurance policy issued to the Community Bank of Homewood-Flossmoor terminated upon notification from the bank that plaintiffs' indebtedness to the bank had been discharged.

In April 1978, plaintiffs borrowed $15,500 from the bank for the purchase of a motor home. As collateral for this loan, the bank took a second mortgage on plaintiffs' residence and a purchase money security interest in the motor home. Plaintiffs secured credit disability and credit life coverage from three companies, one of which was defendant. The total coverage secured met the amount of plaintiffs' indebtedness to the bank for the loan. Defendant issued a certificate to the bank guaranteeing payment to the bank of $125 per month for a maximum of 10 years should death or disability render plaintiffs unable to make payments on their loan.

In December 1978, plaintiff Peter Verbaere became totally disabled. Defendant commenced monthly payments of $125 to the bank and continued to make payments through October 1982.

In March 1982, plaintiffs contracted to sell their residence. In order to clear title, plaintiffs needed to obtain a release of the second mortgage which the bank held as part of the security on the motor home purchase plan. Plaintiffs and the bank agreed to substitute an amount of cash equal to the remaining balance on the motor home loan for the second mortgage on their home. In accordance with this agreement, plaintiffs deposited a check in the amount of $8,754.84, the outstanding balance of their loan, in a non-interest-bearing account at the bank, and the bank released the mortgage.

In October 1982, the bank, allegedly in breach of its agreement with plaintiffs, seized the deposit being held as collateral on the motor home loan and paid the loan in full. In an earlier appeal, this court held that plaintiffs stated a valid cause of action against the bank in their charge that the bank breached its contract with plaintiffs by seizing the collateral deposited with the bank in exchange for release of the second mortgage on the residence. (Verbaere v. Community Bank (1986), 148 Ill. App. 3d 249, 498 N.E.2d 843.) That matter apparently is pending in the trial court, but we agree that the bank's alleged independent breach of contract and the circumstances of that transaction have no effect on defendant's obligation under the insurance contract.

In any event, the bank notified defendant of the discharge of plaintiffs' indebtedness on October 12, 1982, resulting in defendant's termination of monthly payments. Defendant invoked the cancellation provision of the insurance policy which states:

"CANCELLATION: If through prepayment, renewal, refinancing, or otherwise, the indebtedness in connection with which this insurance is written, is discharged prior to its scheduled maturity date, the insurance hereunder will be cancelled and a refund granted to the Insured calculated in accordance with a refund formula known as the Sum of the Digits Method or 'The Rule of 78' which formula is on file with the Insurance Department of the state in which this Policy was issued and with the Creditor."

Defendant paid plaintiffs a premium refund in the amount of $600.75, and no further payments were made to either the bank or plaintiffs. In this action against defendant, plaintiffs asserted that after learning the debt was discharged, defendant was obligated under the policy to make payments directly to plaintiffs.

In granting summary judgment in favor of plaintiffs on their breach of contract action, the trial court focused on a provision of the insurance policy entitled "Beneficiary" to reach the determination that defendant was obligated to continue ...

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