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Chicago Import, Inc. v. American States Insurance Co.

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

August 16, 2016

Chicago Import, Inc., Plaintiff,
American States Insurance Company, Defendant.


          Manish S. Shah United States District Judge.

         A jury returned a verdict of $5 million in favor of Chicago Import, Inc. on its claim that American States Insurance Company failed to reimburse Chicago Import for merchandise destroyed in a warehouse fire. Judgment was entered shortly after the jury verdict. [396]; [398].[1] Chicago Import moves to amend or correct the judgment to include an award of prejudgment interest. [413]. American States moves for judgment notwithstanding the verdict, a new trial, or remittitur. [417]. For the following reasons, both motions are denied.

         I. Background

         This is a breach of contract case arising out of an insurance claim for merchandise lost in a warehouse fire.[2] American States Insurance Co. issued a commercial property insurance policy to Chicago Import, Inc., a company that bought and re-sold various types of merchandise. Chicago Import occupied a warehouse located at 4150 N. Knox Avenue in Chicago.

         In late April 2007, a sprinkler head broke and water damaged some merchandise in the Knox warehouse. Chicago Import submitted a claim to American States for that loss, which is not at issue. The Chicago Fire Department turned off the warehouse sprinkler system to repair the sprinkler head. The system was never turned back on. A fire occurred at the warehouse on May 12, 2007, destroying the building and Chicago Import’s merchandise stored inside. The day of the fire, and shortly before it occurred, ComEd employees replaced a blown fuse at the warehouse.

         Chicago Import submitted a claim to American States for its full policy limit for the lost warehouse merchandise, which was $5 million. American States did not pay the claim, and Chicago Import sued within two years of the fire (as required under the policy), bringing claims for declaratory judgment, breach of contract, and bad faith under 215 ILCS 5/155. [1]. American States denied liability, contending that Chicago Import breached its duty to cooperate, that Chicago Import misrepresented material information regarding its claim, and that the fire was caused by neglect or was intentionally set. [13].

         Discovery continued for several years, and in 2014, the parties filed cross-motions for summary judgment. [323]; [327]. Because the policy’s negligence exclusion applied only to post-loss negligence, which was not at issue here, Chicago Import was granted summary judgment on American States’s defense to coverage based on pre-loss neglect. [341] at 2-5. American States was granted summary judgment on Chicago Import’s Section 155 bad faith claim because there was sufficient evidence to go to the jury on the defenses of fraud and arson, which meant that American States did not act in bad faith. [341] at 13. The cross-motions were denied in all other respects. After a trial, the jury returned a $5 million verdict in favor of Chicago Import and against American States. [396]; [397].

         II. Chicago Import’s Motion for Prejudgment Interest

         After judgment was entered on the jury verdict, Chicago Import moved under Rule 59(e) to amend or correct the judgment to include an award of prejudgment interest. [413]. American States opposes the motion, arguing that prejudgment interest must be requested prior to entry of judgment and that Chicago Import does not meet the standards for an award of prejudgment interest under Illinois law.

         A. Timeliness

         Federal Rule of Civil Procedure 59(e) permits a court to alter or amend a judgment, upon a parties’ motion within 28 days of entry of judgment. Courts may grant Rule 59(e) motions to alter or amend the judgment if the movant “presents newly discovered evidence that was not available at the time of trial” or “points to evidence in the record that clearly establishes a manifest error of law or fact.” Miller v. Safeco Ins. Co. of Am., 683 F.3d 805, 813 (7th Cir. 2012). But Rule 59(e) does not allow parties “to advance arguments or theories that could and should have been made before the district court rendered a judgment, or to present evidence that was available earlier.” Id. Since prejudgment interest is “encompassed within the merits of the underlying action, ” it falls within a court’s discretion on a Rule 59(e) motion. Id. at 814.

         Although an award of prejudgment interest “may be a proper subject for a Rule 59(e) motion, so long as the requirements of Rule 59(e) have been complied with, ” First State Bank of Monticello v. Ohio Cas. Ins. Co., 555 F.3d 564, 572 (7th Cir. 2009) (marks omitted), that does not mean that an award of prejudgment interest should be made after the entry of judgment. See, e.g., Uphoff v. Elegant Bath, Ltd., 176 F.3d 399, 410 (7th Cir. 1999) (“Here, the Plaintiffs should have requested the prejudgment interest prior to judgment, but they did not.). Typically, in cases where a Rule 59(e) motion for prejudgment interest has been denied as untimely, the plaintiff never requested such relief in their pleadings or the plaintiff had the opportunity to develop that argument at summary judgment but failed to do so. See, e.g., First State Bank, 555 F.3d at 572; Uphoff, 176 F.3d at 410.

         Here, in contrast, Chicago Import requested prejudgment interest in its complaint ([1] ¶¶ 30(4), 32) and again in the proposed pretrial order ([374] at 12). American States argues that the motion should have been brought earlier, but there would have been little point in briefing the issue prior to the jury verdict. “While arguments presented for the first time in a Rule 59(e) motion ordinarily are deemed forfeited, the grant or denial of prejudgment interest is an exception to this general rule” because “elsewise parties would be required to put the cart before the horse and argue about prejudgment interest before the underlying issues of liability and damages have been resolved.” In re Redondo Constr. Corp., 678 F.3d 115, 122 (1st Cir. 2012) (citations omitted). For example, in Osterneck v. Ernst & Whinney, 489 U.S. 169 (1989), the plaintiffs orally moved for prejudgment interest immediately after the jury verdict was announced, but the district court directed the parties to submit written briefs, stating that the judgment would be amended if prejudgment interest were granted. Id. at 171-72. Concluding that “a postjudgment motion for discretionary prejudgment interest constitutes a motion to alter or amend the judgment under Rule 59(e), ” id. at 175, the Supreme Court expressed no disapproval of this procedure, instead holding that “a postjudgment motion for discretionary prejudgment interest involves the kind of reconsideration of matters encompassed within the merits of a judgment to which Rule 59(e) was intended to apply.” Id. at 176. Similarly, in Miller v. Safeco Insurance Co. of America, 683 F.3d 805 (7th Cir. 2012), the district court was entitled to grant the plaintiffs’ Rule 59(e) motion to fix an error in their summary judgment prejudgment interest calculation. Although the revised calculation was an argument that the plaintiffs could have made earlier, the district court was within its discretion finding that “this was not an argument the [plaintiffs] had to make earlier.” Id. at 815. American States has been on notice since the complaint that Chicago Import was seeking prejudgment interest, and was reminded again when the proposed pretrial order was filed. There was little opportunity to develop these arguments prior to the jury verdict, and therefore, Chicago Import’s Rule 59(e) motion timely raises the issue.

         B. Statutory Prejudgment Interest

         “In diversity cases governed by Erie, federal courts look to state law to determine the availability of (and rules for computing) prejudgment interest.” Medcom Holding Co. v. Baxter Travenol Labs., Inc., 106 F.3d 1388, 1405 (7th Cir.1997). Under Illinois law, “[p]rejudgment interest is recoverable only where authorized by agreement of the parties or by statute.” Tri-G, Inc. v. Burke, Bosselman & Weaver, 222 Ill.2d 218, 255 (2006). Section 2 of the Illinois Interest Act, 815 ILCS 205/2, permits recovery of prejudgment interest for all moneys due on any “instrument of writing, ” including insurance policies. Certain Underwriters at Lloyd’s, London v. Abbott Labs., 2014 IL App (1st) 132020, ¶ 71 (citing Marcheschi v. Ill. Farmers Ins. Co., 298 Ill.App.3d 306, 314 (1st Dist. 1998)). While a good-faith dispute does not preclude recovery of prejudgment interest, Marcheschi, 298 Ill.App.3d at 314, “[i]n order to recover prejudgment interest, the amount due must be liquidated or subject to an easy determination.” Certain Underwriters, 2014 IL App (1st) 132020, ¶ 71 (quoting Santa’s Best Craft, L.L.C. v. Zurich Am. Ins. Co., 408 Ill.App.3d 173, 191 (1st Dist. 2010)). “[I]f judgment, discretion, or opinion, as distinguished from calculation or computation is required to determine the amount of the claim, it is unliquidated.” Id. (quoting Dallis v. Don Cunningham & Assocs., 11 F.3d 713, 719 (7th Cir. 1993)). “Whether to award prejudgment interest is a matter within the sound discretion of the trial court, and its decision will not be reversed absent an abuse of discretion.” Marcheschi, 298 Ill.App.3d at 313.

         Here, the amount of inventory lost by Chicago Import in the warehouse fire was not “liquidated or subject to an easy determination.” See Certain Underwriters, 2014 IL App (1st) 132020, ¶ 71. The evidence at trial showed that the fire totally engulfed the large warehouse, destroying merchandise and physical inventory records. Nearly half of the testimony presented over the course of the six-day trial related to ascertaining the amount of Chicago Import’s merchandise lost in the fire. Because of the way its records were maintained, Chicago Import did not have an inventory or valuation of its loss ready at hand. Instead, after the fire occurred, Chicago Import’s public adjuster and a salvage company hired by American States worked together for many weeks to value the merchandise in the warehouse. Working section by section, seven days a week, and using bobcats to sift through the charred and water-logged debris, they attempted to identify destroyed goods and match them with invoices listing quantifies and prices, estimating the value of the merchandise by assigning a value to each cubic foot based on goods stored in that location. At trial, Chicago Import’s public adjuster valued the lost merchandise at over $6 million, and American States’s salvager valued the merchandise at $5 million.

         These numbers, however, represented their opinions estimating the value of Chicago Import’s lost merchandise. See, e.g., [424] at 6 (“Schoeneman was of the opinion that the value of the Chicago Import’s merchandise damaged in the fire was in excess of $5million [sic], ” and “American States’ valuation expert, Jack Garvin, also rendered an opinion that the value of Chicago Import’s merchandise damaged in the fire was in excess of $5 million.”). This is the kind of judgment or opinion that distinguishes an unliquidated claim from a liquidated one. See Certain Underwriters, 2014 IL App (1st) 132020, ¶ 71. American States also presented the expert testimony of a forensic accountant, who did a roll-forward calculation based on sales records and tax returns and valued the lost warehouse merchandise at $1.5 million. Other witnesses also testified to matters relating to Chicago Import’s inventories and the value of its goods, including Chicago Import’s owner, some of its employees, and American States’s adjuster. Even if the jury ultimately sided with Chicago Import’s valuation of its policy-limit loss, the amount of Chicago Import’s loss was not readily ascertainable because the valuation required extensive computation and was based on estimations and opinions. See, e.g., Certain Underwriters, 2014 IL App (1st) 132020 ¶¶ 70-72.

         Chicago Import cites Residential Marketing Group, Inc. v. Granite Investment Group, 933 F.2d 546 (7th Cir. 1991), for the proposition that prejudgment interest can be awarded even if the plaintiff does not uncover the exact amount due until discovery, but that case is significantly different. The contract at issue in Residential Marketing involved a formula, which required information that was only in the defendant’s possession. If the plaintiff had that information, it could have calculated the exact contract damages, and the defendant always had a “perfect” idea of the amount at issue. Id. at 549-50. Residential Marketing noted that “‘[e]asy and exact computation’ is the favored catch phrase, ” id. at 549, but the estimates and opinions required to value Chicago Import’s losses were neither easy, nor exact. Chamberlain Manufacturing Corp. v. Maremont Corp., No. 92-C-0356, 1995 WL 769782, (N.D. Ill.Dec. 29, 1995), also cited by Chicago Import, is similarly inapposite. Determining understated workers’ compensation liabilities, which were always calculable by the defendant, id. at *2, is different than the extensive undertaking required to value Chicago Import’s loss, which involved opinion and not mere computation, and which was the subject of competing expert testimony at trial. See Certain Underwriters, 2014 IL App (1st) 132020 ¶¶ 70-72. Under these circumstances, Chicago Import is not entitled to a statutory award of prejudgment interest.

         C. Equitable Prejudgment Interest

         In the alternative, Chicago Import requests prejudgment interest pursuant to the equitable powers of the court. While prejudgment interest is generally not allowed absent a statue or agreement between the parties, “[a]n exception to this rule exists in equity.” Tri-G, 222 Ill.2d at 257. Specifically, “[i]n chancery proceedings, the allowance of interest lies within the sound discretion of the judge and is allowed where warranted by equitable considerations and disallowed if such an award would not comport with justice and equity.” Id. (quoting City of Springfield v. Allphin, 82 Ill.2d 571, 579 (1980)). This means that claims sounding in equity may be entitled to prejudgment interest based on equitable considerations, but that “Illinois courts have declined to apply the rule governing equitable awards of prejudgment interest to cases at law, notwithstanding that an injured party who is eventually compensated may suffer detriment from the inability to use the money from the date of loss to the date of compensation.” Id. at 258 (quoting Continental Cas. Co. v. Commonwealth Edison Co., 286 Ill.App.3d 572, 579 (1st Dist. 1997)).

         Summary judgment was granted to American States on Chicago Import’s bad faith claim under 215 ILCS 5/155, [341], leaving for trial only Chicago Import’s claim for breach of contract-a “classic action at law, ” for which an equitable award of prejudgment interest is not available.[3] First Nat’l Bank of LaGrange v. Lowrey, 375 Ill.App.3d 181, 217 (1st Dist. 2007); Continental Cas. Co. v. Commonwealth Edison Co., 286 Ill.App.3d at 581; Tri-G, 222 Ill.2d at 258 (agreeing that “our state does not allow nonstatutory prejudgment interest on any type of claim at law”). Because it brought an action at law, Chicago Import is not entitled to an equitable award of prejudgment interest under Illinois law.

         III. American States’s ...

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