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Harleysville Lake States Insurance Co. v. Lancor Equities, Ltd.

United States District Court, N.D. Illinois, Eastern Division

February 18, 2014

HARLEYSVILLE LAKE STATES INSURANCE COMPANY, Plaintiff,
v.
LANCOR EQUITIES, LTD., et al., Defendants.

MEMORANDUM OPINION

SAMUEL DER-YEGHIAYAN, District Judge.

This matter is before the court on Defendant Lancor Equities, Ltd.'s (Lancor) and Defendant Western Properties, LP's (Western) (collectively referred to as "Lancor Parties") motion to dismiss, and motion in the alternative to strike. For the reasons stated below, the motions are denied.

BACKGROUND

Plaintiff Harleysville Lake States Insurance (Harleysville) is an insurance company, that allegedly issued an insurance policy (Policy) to Western providing coverage over a commercial property owed by Western in Chicago, Illinois (Property). Lancor allegedly managed the Property for Western. In 2005, the City of Chicago (City) allegedly initiated a civil action against the Lancor Parties for violations of the Chicago Municipal Code (2005 Code Enforcement Action) relating to fire suppression and fire safety deficiencies in the building on the Property (Building). The 2005 Code Enforcement Action was allegedly resolved in 2007. However, on May 4, 2009, the City again allegedly initiated civil enforcement proceedings for code violations against Lancor Parties relating to fire suppression and fire safety deficiencies in the Building (2009 Code Enforcement Action).

In the summer of 2009, Lancor parties allegedly contacted Harleysville and asked for a quote for insurance over the Property. On June 26, 2009, Al Giudice (Giudice), who allegedly controls the operations of Lancor Parties' properties, made certain representations to Harleysville. Giudice allegedly indicated that the Building was entirely covered by a fire suppression sprinkler system (Sprinkler System) and that there were no uncorrected fire code violations. The Policy was allegedly issued on December 17, 2009.

The Policy was allegedly renewed annually in December 2010 and December 2011. In January 2012, Harleysville allegedly inspected the fire suppression system in the Building, and made certain recommendations to Lancor Parties regarding the Sprinkler System. On August 13, 2012, the fire suppression sprinkler system in the Building was allegedly rendered completely inoperable when thieves broke into the Building and stole electrical components from the fire pump system (August 2012 Damage). Although throughout the remainder of 2012, the Lancor Parties allegedly worked with Harleysville to comply with Harleysville's recommendations as to the fire and suppression system at the Building, Lancor Parties allegedly failed to inform Harleysville of the August 2012 Damage or that the damage rendered the Sprinkler System inoperable and without electrical power. Lancor Parties also allegedly failed to mention that valves in the Sprinkler System leading to the sprinkler heads had been closed, preventing any water from reaching the sprinkler heads. On December 17, 2012, the Policy was allegedly renewed for the policy period of December 17, 2012 to December 17, 2013.

Twelve days later, on December 29, 2012, a person allegedly started a fire (Fire) on a platform next to the Building that spread to the Building and destroyed a significant portion of the Building. Lancor Parties subsequently sought payments pursuant to the Policy for the fire damage and Harleysville refused to provide coverage, contending that the Increased Hazard Exclusion in the Policy (IH Exclusion) precluded coverage for Lancor Parties. Harleysville also contends that coverage is not owed to Defendant U.S. Bank, N.A. (U.S. Bank) under the Mortgagee Provision of the Policy. Harleysville brought the instant action and seeks in its amended complaint a declaratory judgment stating that Harleysville is not required to provide coverage or loss damage to Lancor Parties (Count I), and a declaratory judgment stating that Harleysville is not required to provide coverage or loss damage to the Property to U.S. Bank as the mortgagee for the Property (Count II). Harleysville also seeks reimbursement for costs incurred by Harleysville in connection with having to pay for the demolition of the Property. Lancor Parties now move to dismiss the instant action, and move in the alternative to strike certain allegations from the amended complaint.

LEGAL STANDARD

In ruling on a motion to dismiss brought pursuant to Federal Rule of Civil Procedure 12(b)(6) (Rule 12(b)(6)), the court must draw all reasonable inferences that favor the plaintiff, construe the allegations of the complaint in the light most favorable to the plaintiff, and accept as true all well-pleaded facts and allegations in the complaint. Appert v. Morgan Stanley Dean Witter, Inc., 673 F.3d 609, 622 (7th Cir. 2012); Thompson v. Ill. Dep't of Prof'l Regulation, 300 F.3d 750, 753 (7th Cir. 2002). A plaintiff is required to include allegations in the complaint that "plausibly suggest that the plaintiff has a right to relief, raising that possibility above a speculative level'" and "if they do not, the plaintiff pleads itself out of court." E.E.O.C. v. Concentra Health Services, Inc., 496 F.3d 773, 776 (7th Cir. 2007)(quoting in part Bell Atlantic Corp. v. Twombly, 127 S.Ct. 1955, 1965 (2007)); see also Morgan Stanley Dean Witter, Inc., 673 F.3d at 622 (stating that "[t]o survive a motion to dismiss, the complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face, " and that "[a] claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged")(quoting Ashcroft v. Iqbal, 556 U.S. 662 (2009))(internal quotations omitted). Pursuant to Federal Rule of Civil Procedure 12(f), "[t]he court may strike from a pleading an insufficient defense or any redundant, immaterial, impertinent, or scandalous matter." Fed.R.Civ.P. 12(f).

DISCUSSION

Lancor Parties argue that Harleysville has no basis to bar coverage under the Policy to either Lancor Parties or U.S. Bank. In the alternative, Lancor Parties argue that certain allegations included in the amended complaint are irrelevant to the Policy coverage issues in this case and that such allegations should be stricken.

I. Motion to Dismiss

Lancor Parties contend that based on the terms of the Policy, coverage is owed to ...


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