The opinion of the court was delivered by: Reagan, District Judge
A. Background and Introduction
On July 25, 2007, Landmark American Insurance Company filed this declaratory judgment action, invoking subject matter jurisdiction under 28 U.S.C. § 1332 (Doc. 2). The action arises out of an insurance policy that Landmark issued to Green Lantern Roadhouse, LLC on December 28, 2006 with respect to Green Lantern's commercial business, which was located on property owned by Linda Kratt (see Doc. 2, Exh. B). According to Landmark, Green Lantern made a false warranty on its application that it had a central station burglar alarm at the property. Landmark also claims that the policy explicitly required Green Lantern to have a central station burglar alarm. Finally, Landmark alleges that Green Lantern misrepresented on its application that a central station fire alarm was installed on the premises.
In fact, the property had neither a central station burglar or fire alarm, and on June 5, 2007, the property was destroyed by fire resulting in damage in excess of $500,000. Landmark refuses to pay on the Defendants' claims and seeks to have the policy declared void and rescind it.
Green Lantern and Kratt*fn1 counterclaimed, seeking enforcement of the policy (Docs. 14 & 63).*fn2
Defendants argue that Landmark waived any misrepresentation because it conducted an inspection of the premises in February 2007 and provided Green Lantern with a list of specific remedial measures which, if not taken, would result in cancellation of the policy. However, Landmark did not require any action at that time with respect to the burglar or fire alarms to maintain continuation of the policy. Green Lantern further argues that no misrepresentation occurred because its December 27, 2006 application informed Landmark that neither alarm was operational, but rather that Green Lantern was in the process of soliciting bids. Kratt argues that regardless of any potential wrongdoing by Green Lantern, she is an innocent insured to whom Landmark owes payment under the policy.
On November 21, 2008, Landmark, Green Lantern, and Kratt filed cross-motions for summary judgment on the issue of liability (Docs. 72, 73, & 75). The motions were fully briefed as of January 9, 2009 (see Docs. 86--89). Having fully considered the parties' arguments, the Court hereby DENIES Landmark's motion (Doc. 73), GRANTS Kratt's motion (Doc. 72), and GRANTS IN PART AND DENIES IN PART Green Lantern's motion (Doc. 75).
B. Standards Governing Motions for Summary Judgment
Summary judgment is appropriate when there are no genuine issues of material fact, and the moving party is entitled to judgment as a matter of law. Breneisen v. Motorola, Inc., 512 F.3d 972 (7th Cir. 2008) (citing FED.R.CIV.P.56(c); Celetex Corp. v. Catrett, 477 U.S. 317, 322- 23 (1986); Krieg v. Seybold, 481 F.3d 512, 516 (7th Cir. 2007)).
Because the primary purpose of summary judgment is to isolate and dispose of factually unsupported claims, the non-movant may not rest on the pleadings but must respond, with affidavits or otherwise, setting forth specific facts showing that there is a genuine issue for trial. Oest v. IDOC, 240 F.3d 605, 610 (7th Cir. 2001); Moore v. J.B. Hunt Transport, Inc., 221 F.3d 944, 950 (7th Cir. 2000).
In ruling on a summary judgment motion, this Court must construe the evidence and all inferences reasonably drawn therefrom in the light most favorable to the non-moving party. Tas Distribution Co., Inc. v. Cummins Engine Co., Inc., 491 F3.d 625, 630 (7th Cir. 2007); Reynolds v. Jamison, 488 F.3d 756, 764 (7th Cir. 2007).
The parties have filed cross-motions for summary judgment. The United States Court of Appeals for the Seventh Circuit has explained that when cross-motions for summary judgment are filed, "we look to the burden of proof that each party would bear on an issue of trial; we then require that party to go beyond the pleadings and affirmatively to establish a genuine issue of material fact." Diaz v. Prudential Ins. Co. of America, 499 F.3d 540, 643 (7th Cir. 2007) (quoting Santaella v. Metropolitan Life Ins. Co., 123 F.3d 456, 461 (7th Cir. 1997)).
As a federal court exercising diversity jurisdiction, this Court applies federal law in resolving procedural and evidentiary issues, and Illinois law with respect to substantive law. Bevolo v. Carter, 447 F.3d 979, 982 (7th Cir. 2006) (citing Colip v. Clare, 26 F.3d 712, 714 (7th Cir. 1994)). As such, this Court applies Illinois's choice-of-law rules to determine the applicable substantive law. See Hinc v. Lime-O-Sol Company, 382 F.3d 716, 719 (7th Cir. 2004); Kohler v. Leslie Hindman, Inc., 80 F.3d 1181, 1184 (7th Cir. 1996). Illinois follows theRESTATEMENT (SECOND) OF CONFLICT OF LAWS in making such decisions. Midwest Grain Products of Illinois, Inc. v. Productization, Inc., 228 F.3d 784, 787 (7th Cir. 2000).
The Supreme Court of Illinois has explained:
Absent an express choice of law, insurance policy provisions are generally "governed by the location of the subject matter, the place of delivery of the contract, the domicile of the insured or of the insurer, the place of the last act to give rise to a valid contract, the place of performance, or other place bearing a rational relationship to the general contract."
Lapham-Hickey Steel Corp. v. Protection Mut. Ins. Co., 655 N.E.2d 842, 845 (Ill. 1995) (quoting Hofeld v. Nationwide Life Ins. Co., 322 N.E.2d 454, 458 (Ill. 1975)). Here, Landmark's policy was delivered in Illinois to Green Lantern, an Illinois limited liability company, and the policy covered property located in Illinois. Accordingly, the Court applies Illinois substantive law to the claims herein. See Supreme Laundry Serv., LLC v. Hartford Cas. Ins. Co., 521 F.3d 743, 746 (7th Cir. 2008).
Landmark claims that Green Lantern made a false warranty and a material misrepresentation on its application by stating that the property in question was equipped with central station burglar and fire alarms. Landmark also argues that Green Lantern breached a condition of the policy by not installing a central station burglar alarm. As a result, Landmark argues that it has a right to rescind the insurance policy as to all Defendants. Additionally, Landmark argues that the Defendants' affirmative defense of waiver is inapplicable because in Illinois, an insurance policy is void ab initio where an insured makes a misrepresentation in the negotiation of the policy or where a condition of the policy is breached. In any case, Landmark asserts that its conduct cannot be taken as a waiver of its right to rescind.
Green Lantern argues that it did not make a false warranty or material misrepresentation on its application. Even if it did, Green Lantern claims that the policy is merely voidable under Illinois law, and that Landmark waived any right to rescission it may have had by failing to promptly rescind the policy once it was aware that the property did not have a central station burglar and fire alarms. Green Lantern also argues that it is the only insured under the Commercial Property Coverage Part of the policy, such that neither Kratt nor Buennemeyer are entitled to recovery under the policy.
Kratt argues that she is, in fact, an additional insured under the policy, and that her innocence with respect to the alleged breach of condition, false warranty, and misrepresentation entitles her to recover under the policy.
Because there appears to be no disagreement that Green Lantern breached the condition of the policy requiring that a functioning burglar alarm must be maintained, the Court begins with the question of whether the breach of that condition alone is sufficient to void the policy.
1. Whether the Breach of a Condition Bars the Insureds from Recovering
Section 154 of the Illinois Insurance Code provides:
No misrepresentation or false warranty made by the insured or in his behalf in the negotiation for a policy of insurance, or breach of a condition of such policy shall defeat or avoid the policy or prevent its attaching unless such misrepresentation, false warranty or condition shall have been stated in the policy or endorsement or rider attached thereto, or in the written application therefor. No such misrepresentation or false warranty shall defeat or avoid the policy unless it shall have been made with actual intent to deceive or materially affects either the acceptance of the risk or the hazard assumed by the company. . . . 215 ILCS 5/154. Here, Green Lantern does not contest that it breached the policy condition requiring it to maintain a burglar alarm. The policy explicitly states that "[a]s a condition of this insurance, you are required to maintain the protective devices and/or services listed in the Schedule above" (Doc. 2-5, p. 15, Exh. B2). The Schedule identifies the applicable protective safeguard as "BR-1," which is designated as "Automatic Burglary Alarm, protecting the entire building, that signals to: (1) An outside central station; or (2) A police station" (Doc. 2-5, p. 15, Exh. B2). Green Lantern admits that no central station burglar alarm was maintained on the property during the term of the policy (Thoele Dep., Doc. 77-6, Exh. C, pp. 78--79).
Landmark argues that under Illinois law, a policy is considered void ab initio when an insured breaches a condition explicitly provided for in the policy. The statute does not explicitly state that a misrepresentation, false warranty, or breach of a condition makes a policy void ab initio. In fact, it states that such conduct does not permit avoidance of the policy unless certain other elements are established.
The Court cannot find, and Landmark does not cite, any authority indicating that the breach of a condition voids an insurance policy ab initio. The literal reading of the statute certainly does not support that conclusion. And in contract law, breach of a condition would not typically have such a drastic effect on the parties' agreement.
Furthermore, the statute does not limit an insurer's ability to provide an insured with even more protection than the legislature gave. Indeed, here, the parties appear to have provided a separate remedy for the breach of the particular condition at issue. The policy provides that [Landmark] will not pay for loss or damage caused by or resulting from theft if, prior to the theft, you:
1. Knew of any suspension or impairment in any protective safeguard listed in the Schedule above and failed to notify us of that fact; or
2. Failed to maintain any protective safeguard listed in the Schedule above, and over which you had control, in complete working order. (Doc. 2-5, Exh. B2, p. 15).
In other words, the policy itself limits Landmark's remedy for Green Lantern's failure to comply with the condition that it maintain a central station burglary alarm to automatic denial of claims resulting from theft.
Thus, the Court finds that the mere breach of a condition within an insurance policy does not, in and of itself, void the policy ab initio under 215 ILCS 5/154. Additionally, the Court notes that because the policy condition at issue here only permits Landmark to deny claims for losses resulting from theft, it does not serve as a basis for the denial of the Defendants' claims, which stem from damage to the property due to fire.
2. Whether Green Lantern Made a False Warranty or Misrepresentation on its Application
Next, the Court addresses whether a genuine issue of material fact exists as to whether Green Lantern's application included (1) a false warranty that the property was equipped with a central station burglar alarm, or (2) a material misrepresentation that the property was equipped with a central station fire alarm.*fn3
The following facts are undisputed, unless otherwise indicated. Ron and Arlene Thoele are the sole members of Green Lantern Roadhouse, LLC, an Illinois limited liability company. Green Lantern planned to operate a bar and grill on the property in question, which Green Lantern leased from Linda Kratt. In furtherance of this enterprise, Ron Thoele began renovations at some point in 2006. Green Lantern initially obtained insurance coverage on the property as a vacant building from Illinois Casualty Company, but that policy was cancelled in November 2006.
Thereafter, efforts were made to obtain a new policy with the help of Kara Haarmann of Weis Insurance Agency, LLC (Weis), an insurance broker.
Initially, Haarmann made submissions to various insurance agencies seeking quotations for coverage of the property as a vacant building. At some point, she made a submission to Rich Nerison of Geo F. Brown & Sons, Inc. (Brown), which was Landmark's managing general agent in Illinois. However, on December 11, 2006, Haarmann sought a quote for insuring the property as an operating business. After soliciting additional information from Thoele, she submitted an application to Brown on December 14. The application form included boxes wherein the applicant was to provide information regarding any burglar or fire alarms installed
Though a copy of the application in the form it was submitted to Brown on December 14th is not available, the parties appear to agree on its content with respect the presence of burglar or fire alarms. Entries labeled "Burglar Alarm Type," "Certificate #," and "Expiration Date" were left blank. However, under "Burglar Alarm Installed and Serviced By," the application stated "ADT." The form also included boxes pertaining to the burglar alarm labeled "Central Station" and "With Keys," which were left unchecked. Additionally, under "Premises Fire Protection (Sprinklers, Standpipes, CO2/Chemical Systems)," the ...