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Restoration Specialists, LLC v. Hartford Fire Insurance Co.

September 29, 2009

RESTORATION SPECIALISTS, LLC, PLAINTIFF,
v.
HARTFORD FIRE INSURANCE CO. AND, NAPCO, LLC, DEFENDANTS.



The opinion of the court was delivered by: Judge Robert M. Dow, Jr.

MEMORANDUM OPINION AND ORDER

This matter is before the Court on Defendant NAPCO LLC's motion to dismiss Plaintiff's claim for failure to state a claim upon which relief can be granted [51] pursuant to Federal Rule of Civil Procedure 12(b)(6). Having carefully reviewed the briefs [39, 59, 60], the Court respectfully denies the motion [51] in its entirety.

I. Background

This litigation centers on a dispute over property insurance for a consortium of property owners, including Plaintiff Restoration Specialists ("Plaintiff"). The insurance was procured from Defendant Hartford Fire Insurance Co. ("Hartford") with the assistance of Michael Kogen, a licensed insurance agent with McHenry Services, and Defendant NAPCO, LLC ("NAPCO"), an insurance broker. First Amended Complaint ("FAC") ¶ 8. Kogen sent NAPCO a list of property owners and properties to be insured, and NAPCO then sent the list to Defendant Hartford. Id. ¶ 10.

The policy issued by Hartford on March 18, 2003 referred to the consortium of property owners as "MICHAEL AUFRECHT ETAL" and defined the "Insured" as "Michael Aufrecht, et al and any subsidiary, associated or affiliated company, corporation, firm, organization, partnership, joint venture or individual as exists now or is hereafter constituted or acquired, and any other party or interest that is required by contract or other agreement to be named, hereafter referred to as the ' Insured'."FAC ¶¶ 11-12. The Policy also incorporated an exhibit, captioned "Michael Aufrecht, ETAL Schedule of Locations/Values," which included Plaintiff's property at 713 West Wrightwood. Id. ¶ 13. The "agent or broker' s name" listed on the policy is "NAPCO LLC." Id., Ex. C, at 1.

On June 29, 2003, the third floor back porch of an apartment building owned by Plaintiff at 713 West Wrightwood collapsed. FAC ¶ 15. Plaintiff tendered a claim to Hartford claiming losses of more than $250,000 from the incident. Id. ¶16. In 2004, Hartford determined the covered loss to be $59,946.37 and, after taking into account Plaintiff's deductible, forwarded Plaintiff a check for $9,946.37. Id. ¶ 18. Plaintiff contested Hartford' s assessment. Id. ¶ 19.

On February 6, 2007, Hartford sent a letter to Plaintiff in which Hartford denied coverage for Plaintiff's claim in its entirety and demanded return of the prior payment. FAC ¶ 20. In its denial letter, Hartford explained that it "has recently learned that Restoration Specialists, LLC has the sole ownership interest in the Premises and Mr. Aufrecht, the only named insured on the Policy has never possessed any ownership interest in the Premises." Id., Ex. D, at 1. Accordingly, under Hartford' s reading of its policy language, "Mr. Aufrecht has no insurable interest in the Premises," and "the Policy does not afford coverage for the loss." Id. at 2. In addition to that brief explanation, Hartford' s letter expressly stated that it "does not waive or should it be interpreted to be estopped from relying upon, any term provision, condition, limitation or exclusion in its Policy that may be applicable, which Hartford hereby reserves its right to rely upon."Id. The letter continued by asserting that "[n]either by this letter nor by any other conduct does Hartford waive any of its rights or defenses, nor shall Hartford be estopped from relying upon the terms, provisions, conditions, limitations and exclusions of the Policy." Id.

Hartford subsequently declined to reconsider its denial of Plaintiff's claim. FAC ¶ 22. In a letter dated March 1, 2007, Hartford explained that at some time "[p]rior to the issuance of the Policy, it was represented to Hartford' s underwriter that Mr. Aufrecht had an insurable interest in all of the properties insured under the Policy" and that in July 2006, Hartford "learned, for the first time, that this was not the case."Id., Ex. F, at 1. In that March 2007 letter, Hartford again included language asserting that it did not waive, and reserved its right to assert, any other arguments or defenses. Id.

In the wake of the denial of its request for coverage, Plaintiff filed this diversity action against Hartford and NAPCO. In Counts I and II, Plaintiff seeks a declaratory judgment that it is insured under Hartford' s policy and asserts a claim that Hartford breached its contractual obligations under the insurance policy by refusing to reimburse Plaintiff's expenses resulting from an occurrence that Plaintiff contends was covered under its policy. FAC ¶¶ 23-29. In Count III, Plaintiff seeks damages for what Plaintiff contends was "vexatious and unreasonable conduct" on Hartford' s part in refusing to pay Plaintiff's insurance claim. Id. ¶¶ 30-31. Count IV seeks reformation of the policy to make it clear that Plaintiff is a named insured party.*fn1 Id. ¶¶ 32-35. Finally, in Counts V, VI, and VII, Plaintiff seeks damages from NAPCO for breach of fiduciary duty, negligence and breach of contract based on NAPCO' s role in purchasing the insurance that underlies the coverage dispute between Plaintiff and Hartford. Id. ¶¶ 36-49. In particular, as to NAPCO, Plaintiff alleges, inter alia, that NAPCO acted as an insurance broker on Plaintiff's behalf and breached its duties to Plaintiff by acquiring property insurance that did not clearly state that Plaintiff was a named insured. Id. ¶¶ 37, 38, 42, 43, 48. Plaintiff alleges that it suffered damages as a result of Hartford's denial of coverage and the attorneys'fees, expenses, and costs incurred in contesting Hartford' s denial and in bringing this litigation. Id. ¶¶ 39, 44, 49.

Currently before the Court is NAPCO' s motion to dismiss [51] the claims asserted against it. In its motion, NAPCO contends that the underlying dispute between Plaintiff and Hartford disposes of the claims against NAPCO regardless of which party prevails. By NAPCO's reckoning, if Plaintiff succeeds in demonstrating that it was entitled to coverage, then NAPCO obtained the proper coverage and Hartford will be obligated to pay the damages sought in the complaint. On the other hand, according to NAPCO, if Hartford' s denial of coverage is held to be correct "and [Plaintiff] has no legal relationship with the named insured Michael Aufrecht, it must follow that NAPCO also had no legal relationship with [Plaintiff] to trigger any obligations toward that entity." In short, it is NAPCO' s position that "regardless of how the coverage dispute plays out between Restoration and Hartford, Plaintiff cannot have a recognizable cause of action against NAPCO." For its part, Plaintiff agrees that it may not successfully pursue NAPCO if it prevails against Hartford in the coverage dispute, but vigorously disputes NAPCO' s contention that a defeat on the coverage claim would doom Plaintiff's case against NAPCO.

II. Analysis

A. Legal Standard on Motion to Dismiss for Failure to State a Claim

Defendant NAPCO moved to dismiss Restoration' s complaint pursuant to Federal Rule of Civil Procedure 12(b)(6). A motion to dismiss under Rule 12(b)(6) tests the sufficiency of the complaint, not the merits of the case. See Gibson v. City of Chicago, 910 F.2d 1510, 1520 (7th Cir. 1990). To survive a Rule 12(b)(6) motion to dismiss, the complaint first must comply with Rule 8(a) by providing "a short and plain statement of the claim showing that the pleader is entitled to relief" (Fed. R. Civ. P. 8(a)(2)), such that the defendant is given "fair notice of what the * * * claim is and the grounds upon which it rests." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (quoting Conley v. Gibson, 355 U.S. 41, 47 (1957)). Second, the factual allegations in the complaint must be sufficient to raise the possibility of relief above the "speculative level," assuming that all of the allegations in the complaint are true. E.E.O.C. v. Concentra Health Svcs., Inc., 496 F.3d 773, 776 (7th Cir. 2007) (quoting Twombly, 550 U.S. at 555). "[O]nce a claim has been stated adequately, it may be supported by showing any set ...


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