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Suburban, Inc. v. Cincinnati Insurance Co.

June 20, 2001

THE SUBURBAN, INC., PLAINTIFF-APPELLEE,
v.
CINCINNATI INSURANCE COMPANY, DEFENDANT-APPELLANT (LARRY JOE PASLEY, DEFENDANT-APPELLEE).



Appeal from the Circuit Court for the 10th Judicial Circuit, Tazewell County, Illinois No. 97--MR--85 Honorable John Barra Judge, Presiding

The opinion of the court was delivered by: Justice Breslin

NOT RELEASED FOR PUBLICATION

Plaintiff The Suburban, Inc. (Suburban), and defendant Larry Joe Pasley entered into a contract for the sale of a tavern subsequently destroyed by fire. Suburban filed a complaint against Pasley and defendant Cincinnati Insurance Company (Cincinnati) seeking a declaration that it was entitled to the proceeds of an insurance policy issued by Cincinnati. Pasley filed a motion for summary judgment which the trial court granted.

We reverse and remand, holding that the doctrine of equitable conversion does not entitle a purchaser/loss payee to a direct action suit against the insurer of lost or damaged property. Additionally, we hold that while a simple loss payable clause in an insurance policy cannot support a claim by a loss payee directly against an insurer, a loss payee may maintain a direct action in his own name if he can show that he contracted for the insurance and paid the premiums.

FACTS

Suburban owned and operated a tavern and restaurant on which it obtained insurance through a local agent, Town and Country. A comprehensive property insurance policy was issued by Cincinnati for a policy period of December 18, 1995, to December 18, 1998.

Suburban entered into an installment sale agreement with Pasley on January 14, 1997, for the sale of the tavern. The agreement provided that Pasley was to make periodic payments for seven years, after which time a deed to the tavern would issue to Pasley. Pasley was also required to maintain insurance on the property "with loss to be made payable to the parties hereto according to their respective interests at the time of loss."

Sometime after Pasley and Suburban entered into the installment sale agreement, Pasley was added as "loss payee" via a contract-of-sale endorsement clause to the insurance policy on the tavern issued by Cincinnati. Suburban remained the "named insured." The actual events that precipitated the addition of Pasley as loss payee to the policy are disputed by the parties. In the policy issued by Cincinnati, the words "you" and "your" are defined as the "named insured." That section of the endorsement devoted to the addition of loss payees because of a contract of sale provides as follows:

"D. CONTRACT OF SALE

1. The Loss Payee shown in the Schedule or in the Declarations is a person or organization you have entered a contract with for the sale of Covered Property.

2. For Covered Property in which both you and the Loss Payee have an insurable interest, we will:

a. Adjust losses with you; and

b. Pay any claim for loss or damage jointly to you and the Loss Payee, as interests may appear.

3. The following is added to the OTHER INSURANCE Condition: For Covered Property that is the subject of a contract of sale, the ...


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