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09/28/89 Dan L. Whitten Et Al., v. Cincinnati Insurance

September 28, 1989





544 N.E.2d 1169, 189 Ill. App. 3d 90, 136 Ill. Dec. 394 1989.IL.1551

Appeal from the Circuit Court of Sangamon County; the Hon. Richard J. Cadagin, Judge, presiding.


PRESIDING JUSTICE McCULLOUGH delivered the opinion of the court. SPITZ and GREEN, JJ., concur.


Topline Systems, Inc. (Topline), contracted to purchase three acres of land, a house, and a barn from Federal Land Bank (Bank). Closing was conditioned on plaintiffs Dan and Leona Whitten, officers and common shareholders of Topline, procuring an insurance policy for $70,000 on the property and the Bank obtaining clear title. The Whittens purchased homeowner's insurance from defendant effective September 15, 1986. Defendant knew plaintiffs did not own the property at that time. Topline was listed on the policy as an additional insured. Due to problems in obtaining clear title, the Bank postponed closing on numerous occasions. On January 19, 1987, prior to closing, fire destroyed the house. The Bank recovered from its insurer but defendant refused to pay plaintiffs, claiming they had no insurable interest. The Whittens sued for declaratory judgment. They later moved for summary judgment, which the Sangamon County circuit court granted. The court awarded plaintiffs $26,000. Defendant appeals the finding that plaintiffs had an insurable interest and the award of $26,000. Defendant also claims the lower court erred in allowing the Whittens to amend their complaint to add Topline as a plaintiff. Plaintiffs crossappeal, claiming they are entitled to $70,000, the policy amount.

The plaintiffs, Dan and Leona Whitten, began leasing the property in question from Kenneth Taft in July of 1984. They paid $450 per month rent and had renters' insurance on the property through defendant. Plaintiffs intended to use the property for residential and business purposes and purchased Topline Systems, Inc., an energy management firm, in January of 1985.

The plaintiffs moved the firm's physical assets to the leased property and stored equipment and parts in the barn. The company had an office in the home and stored computer equipment and sales information in the basement. The insurance policy issued by defendant covering Topline applied only to assets stored in the barn, not to equipment located in the house. That policy is not in issue here.

Taft, lessor of the property, went bankrupt in November of 1984 and the Bank foreclosed on the property. Plaintiffs continued renting the property for $450 per month under a lease with the Bank.

In November of 1985 plaintiffs began negotiating with the Bank to purchase the property. Topline entered a written contract with the Bank on November 28, 1985, to purchase the property for $67,500. Plaintiffs made a $1,500 down payment on that date. Plaintiffs had renewed their lease agreement with the Bank on November 1, 1985, for a six-month period (through April 30, 1986), the time believed necessary for closing. They also began making monthly payments toward the purchase price, in addition to monthly rent payments.

The Bank could not produce clear title by April 30, 1986. Plaintiffs and the Bank did not renew the lease and plaintiffs stopped paying rent on April 30. Plaintiffs and the Bank orally agreed the lease would continue in effect. The Bank did not require plaintiffs to pay rent but did require them to maintain the property.

The Bank continued to assure plaintiffs they would get clear title and set closing for September 21, 1986. In August or September of 1986, the Bank sent plaintiffs a letter requiring them to present a certificate of insurance on the property for a minimum of $70,000 as a condition of closing the transaction.

Plaintiffs contacted defendant through its agent, Robert Brown, to obtain homeowner's insurance. Plaintiffs explained they were in the process of buying the property and expected to close on September 21, 1986. Brown issued a homeowner's policy became effective September 15, 1986, through September 15, 1989. Plaintiffs cancelled their renter's insurance on the date the homeowner's policy became effective.

The policy showed Dan and Leona Whitten as the insureds and Topline as an additional insured. The policy valued the covered property as follows: dwelling $70,000, other structures $7,000, and personal property $35,000.

Once again the Bank failed to obtain clear title and the September 21 closing date passed. The Bank indicated closing would occur within a few days, and Dan Whitten testified Brown told him they would just leave things as they were with the homeowner's policy. The transaction did not close in late September and Whitten again called Brown. He told Brown he would keep him apprised of progress in closing the transaction and Brown consented to such an arrangement. Two subsequent closing dates were set, one in December of 1986 and one in January of 1987. The Bank failed to meet both deadlines.

On January 19, 1987, the home was hit by lightning and burned to the ground. Plaintiffs were en route to Chicago at the time, and due to the severity of the storm, they were unable to return home until January 21, 1987. They immediately notified Robert Brown and the Bank of the loss. Brown informed plaintiffs they would have to deal with defendant's agent Pat Fitzgerald.

During subsequent conversations with the Bank, plaintiffs learned the Bank had $56,000 of insurance on the property. The Bank recovered $51,000, the value of the policy less a $5,000 deductible. Plaintiffs were not covered on the Bank's policy.

Plaintiffs and the Bank entered a new lease agreement after the fire under which plaintiffs paid $50-per-month rent. The parties terminated the real estate sales contract and the Bank returned plaintiffs' earnest money and additional monies plaintiffs had paid toward the purchase price. Plaintiffs expressed continuing interest in purchasing the property, and on May 12, 1987, the parties entered a new purchase agreement and closed shortly thereafter. The Bank reduced the purchase price by the $51,000 it received from its insurer and sold the property to Airtroll, a company owned by plaintiffs, for $16,500.

According to Dan Whitten, defendant originally agreed to honor the insurance contract and pay plaintiffs $70,000. Once the Bank's insurer stepped in, however, defendant refused to pay and Fitzgerald told plaintiffs defendant did not owe them any money under the policy. All payments from defendant stopped. Plaintiffs had accepted partial payment, pursuant to the policy, for temporary living expenses and total reimbursement for personal property lost in the fire. Plaintiffs now reside in a trailer on the premises.

On July 20, 1987, plaintiffs filed a motion for declaratory judgment against defendant in Sangamon County circuit court. During the next six months, Dan and Leona Whitten responded to interrogatories propounded by defendant, defendant moved to dismiss plaintiffs' complaint for declaratory judgment, and plaintiffs responded. Defendant finally answered plaintiffs' complaint on January 20, 1988.

The answer admitted issuing the homeowner's policy effective September 15, 1986, and the amount of coverage. Defendant also admitted plaintiffs complied with policy requirements for notifying defendant of the loss. Defendant claimed it had insufficient information to admit or deny plaintiffs' claim that they entered a purchase agreement with the Bank on October 28, 1986, and the claim that lightning started the fire which destroyed the house. Defendant admitted it refused to pay plaintiffs $70,000 ...

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