The opinion of the court was delivered by: Judge Joan H. Lefkow
Plaintiff Hartford Fire Insurance Co. ("Hartford") filed a complaint against Bank of America, Corus Bank, and Illinois National Bank ("INB") seeking a declaratory judgment of Hartford's rights and obligations regarding claims asserted by the defendants under Illinois Community Currency Exchange Bonds ("the bonds").*fn1 INB filed a counterclaim seeking a declaration that it is entitled to coverage under the bonds and requesting damages in the amount of $123,009.23 plus costs. Both Hartford and INB move for summary judgment pursuant to Federal Rule of Civil Procedure 56. For the reasons stated below, INB's motion [#60] is granted and Hartford's motion [#62] is denied.
I. Hartford Issues Bonds to the Currency Exchanges
The Illinois Community Currency Exchange Act ("ICCEA") requires Illinois currency exchanges to obtain surety bonds. 205 Ill. Comp. Stat. 405/5(a) ("Before any license shall be issued to a community currency exchange the applicant shall file annually with and have approved by the Director a surety bond, issued by a bonding company authorized to do business in this State . . . ."). Springfield Currency Exchange, Inc. #1 ("SCE #1") and Springfield Currency Exchange, Inc. #2 ("SCE #2") (collectively, "the currency exchanges") were both owned by Jay Stone and regulated by the ICCEA. Hartford issued SCE #1 a bond for the amount of $85,000 and SCE #2 a bond for the amount of $56,000. The bonds provided insurance "for any liability incurred by the currency exchange on any money orders issued or sold by the currency exchange . . . and for any liability incurred by the currency exchange in connection with the rendering of any of the services referred to in Section 3" of the ICCEA. Ex. 1 to Stip. Section 3 of the ICCEA authorizes currency exchanges to issue money orders. 205 Ill. Comp. Stat. 405/3 ("[N]othing contained herein shall prevent a community or an ambulatory currency exchange . . . from issuing money orders . . . ."). The Illinois Department of Financial and Professional Regulation ("IDFPR") is the obligee on the bonds and entitled to seek reimbursement on behalf of any creditors who make a claim under the bonds.
II. INB Authorizes Overdrafts for the Currency Exchanges' Accounts SCE #1 and SCE #2 maintained separate bank accounts at INB.Both accounts were subject to a deposit account terms and conditions agreement, which held the currency exchanges "liable for any account shortage resulting from charges or overdrafts" on their respective accounts. Ex. 4 to Stip. at 6; Ex. 9 to Stip. at 6. The agreement did not require INB to authorize overdrafts. On May 5, 2008, INB entered into an additional agreement with SCE #1 and SCE #2 that modified the existing relationships between the parties to account for the currency exchanges' difficult financial position. Stone acknowledged that he needed INB to provide cash on a daily basis to SCE #1 and SCE #2 in order for the currency exchanges to continue operating, despite the currency exchanges' accounts being overdue and overdrawn. The May 5, 2008 agreement specified that INB would authorize overdrafts to a limited extent to allow the currency exchanges to continue operating while Stone pursued the sale of his businesses. Stone agreed to have SCE #1 and SCE #2 under contract for sale by May 15, 2008. INB subsequently extended the date to May 31, 2008, although this date also was not met.
Due to SCE #1's and SCE #2's failure to abide by the agreements, INB decided to no longer fund the operation of the currency exchanges on July 1, 2008, at which time the currency exchanges ceased operating.*fn2 Nonetheless, INB continued to cover overdrafts on the currency exchanges' accounts for some time. INB had agreed to honor money orders issued by SCE #1 and SCE #2 on or before July 1, 2008 up to the limit of the currency exchanges' bonds as part of an understanding with the IDFPR on the closing of SCE #1 and SCE #2. Specifically, from June 27, 2008 to August 22, 2008, INB paid hundreds of money orders issued by SCE #1 even though SCE #1 had insufficient funds in its account to cover them. From June 18, 2008 to July 14, 2008, INB covered hundreds of similar overdrafts on the SCE #2 account.
III. Hartford Denies Claims Under the Bonds
INB sought reimbursement based on the bonds for the payments it had made on the money orders issued by the currency exchanges that resulted in overdrafts. On December 11, 2008, the IDFPR submitted claims on behalf of INB to Hartford for reimbursement for overdrafts of $67,009.23 on the SCE #1 account and $56,000 on the SCE #2 account.
On April 17, 2009, Hartford denied the claims for reimbursement. Hartford claimed that by paying the money orders that created the overdrafts, INB discharged SCE #1's and SCE #2's liability on the money orders and released Hartford from any payment requirements under the bonds. IDFPR and Hartford then exchanged letters in which the IDFPR supported coverage of the overdrafts under the bonds, reasoning:
By agreeing to pay the money orders and making the bond claim, these claimants, the banks, are in fact protecting and providing an additional convenience to the consumers served by the currency exchange. . . . Due to the length of time to recover on a bond claim if a consumer has a money order returned and has to make the bond claim directly to the bonding company, the consumer will, in most cases, have to pay an additional rent, bill or tax payment to replace the returned money order. . . . Therefore, the claims made by [INB] are consistent with the intent and purposes of the [ICCEA] to protect the consumer by saving them money and providing a convenience.
Ex. 14 to Stip. Hartford, however, maintained its decision to deny IDFPR's claims under the bonds. This suit followed.
Summary judgment obviates the need for a trial where there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(c). To determine whether any genuine issue of fact exists, the court must pierce the pleadings and assess the proof as presented in depositions, answers to interrogatories, admissions, and affidavits that are part of the record. Fed. R. Civ. P. 56(c) & advisory committee's notes. The party seeking summary judgment bears the initial burden of proving that there is no genuine issue of material fact. Celotex Corp. v. Catrett,477 U.S. 317, 323, 106 S. Ct. 2548, 91 L. Ed. 2d 265 (1986). In response, the nonmoving party cannot rest on mere pleadings alone but must use the evidentiary tools listed above to designate specific material facts showing that there is a genuine issue for trial. Id. at 324; Insolia v. Philip Morris Inc., 216 F.3d 596, 598 (7th Cir. 2000). A material fact is one that might affect the outcome of the suit. Insolia, 216 F.3d at 598--99. Although a bare contention that an issue of fact exists is insufficient to create a factual dispute, ...