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Heico Companies, LLC v. Factory Mutual Insurance Co.

August 12, 2008

HEICO COMPANIES, LLC, SPARTAN TOOL, LLC, HEICO HOLDING, INC., PETTIBONE, LLC, AND COLE TAYLOR BANK SOLELY AS TRUSTEE UNDER TRUST 94013, PLAINTIFFS,
v.
FACTORY MUTUAL INSURANCE CO., D/B/A FM GLOBAL, DEFENDANT.



The opinion of the court was delivered by: Judge Joan B. Gottschall

Magistrate Judge Martin C. Ashman

MEMORANDUM OPINION AND ORDER

Pursuant to Judge Filip's order of October 3, 2007, plaintiffs Heico Companies, LLC, Spartan Tools, LLC, Heico Holding, Inc., Pettibone, LLC, and Cole Taylor Bank (collectively "Heico") and defendant Factory Mutual Insurance Co. ("FM") have submitted simultaneous briefs and responses addressing the following disputed insurance policy construction issues: (1) the meaning of "replace" as used in the policy, with specific reference as to whether Heico's Mishawaka facility "replaced" its Mendota facility; and (2) the meaning of "like size, kind and quality" under the policy. Although not within the ambit of Judge Filip's order, both sides have also addressed the issue of whether Heico's claim for recovery of the replacement cost value of its destroyed Spartan Tool, LLC manufacturing plant is barred because Heico failed to expend the replacement cost value of the plant on qualifying capital expenditures within the contractual two-year period. For the reasons set forth below, the court holds that: (1) the Mishawaka facility did not "replace" the Mendota facility as that term is employed within the insurance policy; and (2) the term "like kind and quality" shall be construed by the court as meaning "sufficient to restore the lost property to its pre-loss condition." The court also holds that Heico's claim for the replacement cost value of the property is not barred by the policy's two-year limit in which to expend qualifying capital expenditures.

I. BACKGROUND

On August 7, 2003, Heico's Spartan Tools, LLC ("Spartan Tool") manufacturing complex in Mendota, Illinois (the "Mendota Plant") burned. The blaze destroyed a number of buildings in the complex and damaged several more, while others in the complex were spared. Some machinery, inventory and equipment were also destroyed in the blaze.

The Mendota Plant was one of a large number of Heico-owned properties covered under Insurance Policy No. FC179 ("the policy"), which was issued by FM to Heico on August 1, 2003 with a maximum liability of nine hundred million dollars. Of particular relevance to the construction issues at bar is section D of the policy, specifically subparagraphs L.(1) through L.(3) and L.(8) which contain provisions addressing "the physical loss amount" of insured property, including buildings. The relevant paragraphs read:

L. On all other property, the loss amount will not exceed the lesser of the following:

1) The cost to repair

2) The cost to rebuild or replace on the same site with new materials of like size, kind and quality

3) The cost in rebuilding, repairing or replacing on the same site, but not to exceed the size and operating capacity that existed on the date of loss..

8) The Actual Cash Value if such property is:

a) useless to the insured

b) not repaired, replaced or rebuilt on the same or another site within two years from the date of loss

The insured may elect not to repair or replace the insured real and/or personal property lost, damaged or destroyed. Loss settlement may be elected on the lesser of repair or replacement cost basis if the proceeds of such settlement are expended on other capital expenditures related to the Insured's operations within two years from the date of loss. As a condition of collecting under this item, such expenditures must be unplanned as of the date of loss and be ...


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