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Nautilus Insurance Company v. Benjamin Raatz; Hayley Multer Raatz; Kathleen C. Chavez; Gabriel

June 29, 2012

NAUTILUS INSURANCE COMPANY, PLAINTIFF,
v.
BENJAMIN RAATZ; HAYLEY MULTER RAATZ; KATHLEEN C. CHAVEZ; GABRIEL CHAVEZ; 1034 WEST ALTGELD LLC; ALTGELD PROPERTIES, LLC; JEFFREY FUNKE; AND FUNKE DESIGN/BUILD, LLC, DEFENDANTS.



The opinion of the court was delivered by: Judge Edmond E. Chang

MEMORANDUM OPINION AND ORDER

Plaintiff Nautilus Insurance Company brought this diversity suit against Defendants seeking a declaratory judgment that Nautilus has no duty to defend Jeffrey Funke (and the businesses named after him) in a state-court action brought by Benjamin and Hayley Raatz (with counterclaims filed by Kathleen and Gabriel Chavez and a business named after Altgeld Street in Chicago).*fn1 The parties have filed cross-motions for summary judgment. R. 165 (Nautilus's motion); R. 168, R. 173, R. 178 (responses and cross motions by Defendants). For the reasons explained below, Nautilus's motion [R. 165] is granted, and Defendants' motions are denied.

I.

The facts are drawn from the parties' Local Rule 56.1 statements, viewing them as necessary in the light most favorable to the non-movant. R. 167 (Nautilus); R. 170 (Altgeld); R. 172 (Raatzes).*fn2 The defendants can be divided into three groups: "Altgeld" refers to the Altgeld LLCs and the Chavezes; "Funke" refers to Funke individually and his companies; and "the Raatzes" refers to the two individual Raatz defendants.

A. The State-Court Action

1. The State-Court Complaint's Allegations

This case stems from a state court action in the Circuit Court of Cook County: Raatz v. Chavez et al., 07 L 14084. The named defendants in that case include all of the defendants in this case, but the Raatzes did not bring suit directly against Nautilus.

R. 167 ¶ 1; R. 167, Exh. A. Altgeld filed a counterclaim against Funke for breach of contract and contribution. Id. ¶¶ 14-15.

The complaint in that case alleges the following: in July 2006, Altgeld (Kathleen Chavez was acting on its behalf) entered into an agreement with the Raatzes to sell the Raatzes a piece of property on which there would be new construction. Id. ¶ 5. Altgeld contracted with Funke to serve as architect and general contractor for the construction. Id. On October 12, 2006, the closing date, the Raatzes raised various concerns about incomplete construction. Id. As a result, the parties entered into a "Work Completion Agreement" that required deficient work to be completed by a certain date. R. 167-2 ¶22. Many of the defects were not corrected by the requisite date, and the Raatzes discovered numerous other defects as they lived in the home after the closing on October 12, 2006. Id. ¶¶ 23-24. These defects are memorialized in two expert evaluation reports that were commissioned by the Raatzes: one issued on June 1, 2007, and "a second and more comprehensive report" prepared on or about November 26, 2007. Id. ¶ 25. The last inspection that factored into a part of these reports occurred on October 23, 2007. R. 167¶ 9. Regarding the June evaluation report, the state-court complaint notes that the defects in that evaluation report "include, but are not limited to" a variety of damages. R. 167-2 ¶ 25. The state-court complaint then alleges that "none of the Defendants have paid or otherwise compensated Plaintiffs for or otherwise remedied the aforementioned deficiencies." Id. ¶ 28 (emphasis added). The state-court complaint moves on to laying out its various claims, without adding any relevant factual allegations as to the damage to the property. R. 167-2.

2. Demands for Repair

On January 16, 2007, the Raatzes sent Funke a letter alleging that Funke's failures to rectify problems "constitute[] a material breach of our agreement," and threatening that "[i]f these items are not completed . . . within the next 30 days, we will bar your workers from our home, retain other firms to complete the items, and bill you for the work done." R. 167¶ 17.*fn3 This was followed by an email from the Raatzes to Funke reiterating their disappointment and noting that "[i]t was only when we got so frustrated and wrote you a threatening letter that you started to pick things up and work on it again." Id. ¶ 19. Then, on June 18, 2007, an attorney sent a letter to Funke and Altgeld demanding that they "honor the warranty commitments, complete the work and repair any defects immediately . . . ." Id. ¶ 21. The letter included one of the expert evaluation reports outlining various defects in the construction. Id. The letter closed with the warning that "[w]hile [the Raatzes] do not want to pursue filing suit . . . they stand ready, willing and able to do so . . . ." Id. (emphasis added in statement of facts removed). An additional letter from the Raatzes' attorney was sent on or around July 19, 2007, noting that the Raatzes "have notified [] and made claim against [Altgeld, the Chavezes, Funke, and his company] for various construction or design deficiencies . . . ." Id. ¶ 24. Similar letters demanding repair and threatening legal action followed on August 22, 2007 and October 10, 2007. Id. ¶¶ 27-30. Notably, Defendants did not make any other demands before the state court case was filed on December 18, 2007, R. 167-1 at 1.

B. The Nautilus Insurance Policy

Funke entered into an insurance policy with Nautilus sometime on or before November 20, 2007.R. 167, Exh. R-1 at 3 (the policy was countersigned on that date). The "policy period" for the policy is November 2, 2007 through November 2, 2008. Id. There are two parts of the policy that are at the crux of the parties' dispute.

First is a "General Change Endorsement." R. 167, Exh. R-2 at 46. The endorsement affected by the relevant "General Change Endorsement" is an exclusion that was originally a part of the insurance contract for "all work performed prior to 11/02/2007." Id. at 27. The General Change Endorsement reads in relevant part that "In consideration of an additional premium of $250.00, it is . . . agreed and understood [that] . . . form CG2134 (01/87) Exclusion ...


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