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Western Howard Corporation, An Illinois Corporation, Successor In v. Indian Harbor Insurance Company

June 29, 2011


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


This matter is before the Court on a motion to dismiss [10] filed by Defendant Indian Harbor Insurance Company, seeking dismissal of Counts III and IV of Plaintiff Western Howard Corporation's complaint. For the reasons set forth below, the Court grants Defendant's motion to dismiss.

I. Background*fn1

On June 17, 2008, Indian Harbor Insurance Company ("Indian Harbor") issued an insurance policy to Western Howard Corporation ("Western"). The policy had an effective date of June 17, 2008, and an expiration date of June 17, 2009, and provided insurance coverage for property damage occurring at 2451 West Howard Street, Chicago, Illinois. The insured premises consisted of a sixty-three unit apartment building with apartments on six floors and an elevator servicing each floor. The policy stated in part: "We will pay for direct physical loss of or damage to Covered Property at the premises described in the Declarations caused by or resulting from any Covered Cause of Loss." The policy provided coverage for water damage as follows:

If loss or damage caused by or resulting from covered water or other liquid, powder or molten material damage loss occurs, we will also pay the cost to tear out and replace any part of the building or structure to repair damage to the system or appliance from which the water or other substance escapes.

On December 31, 2008, a plumbing fixture broke under the kitchen sink of Unit 602 and water began to leak into Unit 602 and the surrounding areas. Unit 602 is on the sixth floor and was unoccupied at that time. The water leaked into the walls, floor, and elevator surrounding and below Unit 602. As soon as the leak was discovered, Western contacted its insurance agent, Adamjee Insurance Agency, Inc., to report the loss. When it became apparent that the amount of loss was in excess of the policy deductible of $10,000.00, Adamjee filled out a property loss notice to initiate the claims process. In April and May of 2009, a claims investigator for Indian Harbor requested documents relating to the claim. Western made its first tender of documents on June 16, 2009.

On October 20, 2009, Western's attorneys received a letter from Indian Harbor stating, "At this time, Indian Harbor is unable to accept or reject Mr. Park's proof of loss as additional information is necessary." The October letter requested additional documentation, and on November 23, 2009, Western made a second tender of documents to Indian Harbor's attorneys. On November 30, 2009, Indian Harbor took examinations under oath of Bae Kim and Gary Fredrickson, and on December 29, 2009, took examinations under oath of Kyun Hee Park and Jennifer Park. Then on January 8, 2010, Indian Harbor demanded additional documents, and Western made its third tender on February 19, 2010, despite Western's belief that the many of the requests were unduly burdensome and irrelevant to the loss.

As of March 19, 2010, Western had not received a response from Indian Harbor with respect to its claim, prompting Western to demand payment on the claim. Western's demand letter pointed out that the loss had been incurred over fifteen months prior and that the delay in payment was causing it significant financial hardship. By May 12, 2010, Western still had not received a response to its March 19 demand for payment, and Western's attorneys drafted a second letter demanding payment.

On May 13, Indian Harbor's attorney forwarded a letter to Western's attorney dated May 5, 2010, from U.S. Adjustment Corp. and titled "Letter of Declination." The letter denied coverage from the claim and set forth one exclusion and two breaches of the policy purportedly justifying the denial. The letter cited an exclusion for coverage of water damage applicable when the damage results from freezing and the insured fails to "do [its] best to maintain heat in the building or structure." The letter also claimed that Western breached the policy by failing to give prompt notice of the loss and by intentionally misrepresenting material facts concerning the loss. The letter advised Western that if it wished to contest the denial of coverage, it must institute a legal proceeding.

In November 2010, Western, an Illinois corporation, filed suit against Indian Harbor, a North Dakota corporation, in the Circuit Court of Cook County, Illinois, for breach of an insurance policy (Count I), unreasonable and vexatious conduct under § 155 of the Illinois Insurance Code (Count II), violation of the Illinois Consumer Fraud and Deceptive Business Practices Act, 815 ILCS 505/1 et seq. (Count III), and common law fraud (Count IV). Indian Harbor removed the case to this Court, *fn2 answered Counts I and II, and moved to dismiss Counts III and IV (referred to as the "fraud counts"). Indian Harbor contends that the fraud counts are preempted by § 155 of the Illinois Insurance Code and are not pled with the requisite level of particularity required of fraud allegations.

II. Legal Standard for Rule 12(b)(6) Motions to Dismiss

A motion to dismiss pursuant to Federal Rule of Civil Procedure 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 Atlantic 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 Servs., Inc., 496 F.3d 773, 776 (7th Cir. 2007) (quoting Twombly, 550 U.S. at 555, 569 n.14). "[O]nce a claim has been stated adequately, it may be supported by showing any set of facts consistent with the allegations in the complaint." Twombly, 550 U.S. at 562. The Court accepts as true all of the well-pleaded facts ...

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