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FBS MORTG. CORP. v. STATE FARM FIRE & CAS. CO.

September 16, 1993

FBS MORTGAGE CORPORATION, Plaintiff,
v.
STATE FARM FIRE AND CASUALTY COMPANY OF BLOOMINGTON, ILLINOIS, Defendant.



The opinion of the court was delivered by: BRIAN BARNETT DUFF

 On February 25, 1992, Plaintiff FBS Mortgage Corporation ("FBS") filed a two-count complaint seeking a declaration of its rights under a Homeowner's Insurance Policy ("Homeowner's Policy") issued by Defendant State Farm General Insurance Company ("State Farm"). *fn1" State Farm contends that FBS is not entitled to coverage under the terms of the Homeowner's Policy. The Parties have filed cross motions for summary judgment and, for the reasons explained below, summary judgment is granted in favor of FBS.

 BACKGROUND

 The undisputed facts are as follows. *fn2" In May, 1988, Julio R. Rodriguez ("Rodriguez") and Maria Andrade ("Andrade") acquired 3729 West Palmer, Chicago, Illinois (the "Insured Premises") through a mortgage loan obtained from Centrust Mortgage Corporation ("Centrust"). The mortgage was assigned to FBS on December 1, 1988. On or about May 24, 1988, State Farm issued the Homeowner's Policy which included fire insurance for the Insured Premises. The Homeowner's Policy identified Andrade and Rodriguez as the "Named Insured" and the coverage limitation for the dwelling was $ 71,000.

 Rodriguez and Andrade moved into the Insured Premises about a month after they purchased it. The Insured Premises was a two story dwelling house with separate living facilities on each floor. Rodriguez and Andrade lived together on the second floor of the Insured Premises until Andrade left Rodriguez and moved out on February 10, 1990. After Andrade moved away from the Insured Premises, she returned only to visit. On February 12, 1990, Andrade executed a quit claim deed, transferring her entire interest in the Insured Premises to Rodriguez.

 After February, 1990, Andrade and Rodriguez's mortgage payments were in arrears. On May 29, 1990, Cabrera telephoned FBS about delinquency notices that FBS had sent. She advised an FBS loan counselor that Rodriguez was in jail where he might remain for another two months. She informed that counselor that Rodriguez and Andrade were separated or divorced and she had "no idea" of Andrade's whereabouts. Cabrera stated that she was a tenant at the Insured Premises and had a letter from Rodriguez's attorney "telling her" she was in charge of that property.

 On August 17, 1990, the Spanish Coalition for Housing in Chicago contacted FBS and informed them that Rodriguez and Andrade were divorced, that Andrade had deeded the Insured Premises to Rodriguez in February, 1990, and that Rodriguez had been in jail since April, 1990, and was awaiting sentencing. FBS was also informed that Cabrera had moved into the Insured Premises but was having problems collecting from the tenant who occupied the first floor. A mortgage payment plan with Cabrera was agreed upon, but no payments were made.

 Throughout 1990, FBS gathered information on the Insured Premises and attempted to contact Andrade and/or Rodriguez in an effort to obtain payments. On April 30, 1990, FBS ordered an independent company, Mortgage Maintenance, Inc. ("MMI"), to conduct a property inspection at the Insured Premises and report back to FBS on its condition. In May and June of 1990, FBS received reports from MMI indicating that no contact was made with any occupant of the Insured Premises and that MMI was unable to verify the identity of the occupant. Difficulties with identifying the occupant and contacting Andrade and/or Rodriguez continued throughout the summer of 1990. On or about July 17, 1990, FBS received a report on the Insured Premises from MMI which identified Andrade as the "Person Interviewed" but indicated she had "no phone." The "occupancy status" was reported as "occupied" by the "owner." No entry was made for occupancy by a "Tenant."

 After failing to receive any mortgage payments on the property, FBS brought a foreclosure action in the Circuit Court of Cook County and had summonses issued against Rodriguez and Andrade. The Sheriff's Office returned both summonses "not found." These returns disclosed that in both of the attempted services, the Sheriff's Office contacted Cabrera at the Insured Premises, who informed the deputy that Rodriguez was incarcerated and that Andrade had moved. During the remainder of 1990, FBS received three reports from MMI which indicated that the Insured Premises was "occupied" by the owner and/or the tenant. FBS never did establish contact with Andrade or Rodriguez, but mailed various letters to the Insured Premises which did not yield responses.

 Cabrera left the Insured Premises on December 15, 1990 and moved into another apartment. Rodriguez put a man in charge of the Insured Premises, the locks were changed and Cabrera had to make arrangements with the man to remove her belongings. On December 30, 1990, while the Homeowner's Policy was in full force and effect, the Insured Premises was completely destroyed by fire. Neither Rodriguez nor Andrade submitted a claim to State Farm because of the fire loss. On or about April 22, 1991, FBS learned that the Insured Premises had been destroyed and, on or about May 29, 1991, reported the loss to State Farm which undertook to inspect the Insured Premises. FBS subsequently submitted a Proof of Loss to State Farm.

 In a letter dated November 25, 1991, State Farm rejected FBS's claim under the Homeowner's Policy and denied any liability, including liability for repair and demolition expenses, on the grounds that FBS had failed to comply with the Mortgage Clause of the Homeowner's Policy.

 On February 25, 1992, FBS filed a complaint against State Farm seeking indemnification from the fire loss, the deficiency in the mortgage with interest from the date of denial of its claim, costs of the demolition and removal of debris from the Insured Premises, costs, expenses and attorneys fees. State Farm contends that FBS is not covered under the Homeowner's Policy. Both parties moved for summary judgment.

 DISCUSSION

 Rule 56 of the Federal Rules of Civil Procedure requires this court to enter summary judgment "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." See, e.g., Celotex Corp. v. Catrett, 477 U.S. 317, 322, 91 L. Ed. 2d 265, 106 S. Ct. 2548 (1986). Accordingly, the court must decide "whether the evidence presents a sufficient disagreement to require submission to a jury or whether it is so one-sided that one party must prevail as a matter of law." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 251-52, 91 L. Ed. 2d 202, 106 S. Ct. 2505 (1986). The court must view the record and draw all inferences from it in the light most favorable to the non-moving party. Lohorn v. Michal, 913 F.2d 327, 331 (7th Cir. 1990).

 Actions involving the interpretation and construction of insurance policies present issues of law and are, therefore, particularly appropriate for summary judgment. John Deere Ins. Co. v. Shamrock Industries, Inc., 929 F.2d 413, 417 (8th Cir. 1991). In this regard, the Seventh Circuit has held:

 
In a lawsuit by an insured against its insurer following the insurer's refusal to defend its insured, a court must decide whether the insurer's initial refusal to defend breached the insurance contract. A court's primary concern in interpreting an insurance policy is to effectuate the intent of the parties as expressed in the insurance contract. If the particular policy language at issue in a case is unambiguous, the court will give effect to the plain, ordinary, and popular meaning of the language. However, if the policy language is ambiguous, a court will construe such ambiguity in favor of the insured since the insurer drafted the policy.

 Playboy Enterprises, Inc. v. St. Paul Fire & Marine Ins. Co., 769 F.2d 425, 427-28 (7th Cir. 1985) (citations deleted).

 In the case at bar, State Farm asserts that FBS is not entitled to coverage under the Mortgage Clause of the Homeowner's Policy. Specifically, State Farm argues that FBS was aware, but failed to notify State Farm, of the "change in occupancy" which occurred during the incarceration of Rodriguez. The Mortgage Clause provides in relevant part as follows:

 
a. If a mortgagee is named in this policy, any loss payable under Coverage A [dwelling insurance] shall be paid to the mortgagee and you, *fn3" as interests appear.
 
b. If we deny your claim, that denial shall not apply to a valid claim of the mortgagee, if the mortgagee:
 
(1) notifies us of any change in ownership, occupancy or substantial change in risk of which ...

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