United States District Court, N.D. Illinois, Eastern Division
MEMORANDUM OPINION AND ORDER
Robert Blakey, United States District Judge.
case arises out of a dispute over insurance coverage.
Plaintiffs Kiley and Terrence Russell sued Defendant USAA
General Indemnity Co. in state court for breach of contract
and bad faith after USAA denied the Russells' claim for
personal property allegedly destroyed by a fire at their home
or lost during a subsequent theft. . USAA removed the case
to this district and counterclaimed for fraudulent
misrepresentation, alleging that the Russells made false
statements during the application process that would have
made them ineligible for coverage. . USAA moved for
summary judgment on its counterclaim and two other legal
issues. . For the reasons explained below, this Court
partially grants and partially denies the motion.
facts come from USAA's Local Rule 56.1 statement of facts
, the Russells' response to USAA's facts ,
and the Russells' additional facts .
Motion to Strike
response to the Russells' additional facts, USAA moved to
strike those facts for failing to comply with Local Rule
56.1.  at 1-2. This Court has broad discretion to enforce
the local rules governing summary judgment motions. See
Boss v. Castro, 816 F.3d 910, 914 (7th Cir. 2016). Local
Rule 56.1(b)(3)(C) requires that the non-moving party file
any additional facts as a separate statement with
“short numbered paragraphs.” The Russells plainly
violated this rule by burying their additional facts within
the lengthy paragraphs of their response brief.
said, the local rules serve to assist courts “in
determining whether a trial is necessary.” Delapaz
v. Richardson, 634 F.3d 895, 899 (7th Cir. 2011).
Accordingly, in the interest of justice and efficiency, this
Court may exercise its discretion “in a more lenient
direction” and overlook some transgressions of the
rules. Modrowski v. Pigatto, 712 F.3d 1166, 1169
(7th Cir. 2013); see also Cardoso v. Cellco
P'ship, No. 13-c-2696, 2014 WL 6705282, at *3 (N.D.
Ill. Nov. 26, 2014) (declining to strike statements of fact
despite “egregious” noncompliance with Rule 56.1
so as to resolve summary judgment motion “expeditiously
and on the merits”). Thus, this Court declines to
strike the Russells' additional statements of fact. This
Court notes, however, that it did not rely upon any of the
purported facts that constitute improper legal argument or
The Russells' Insurance Policies
provides insurance, including auto and home insurance
policies, to military personnel, military veterans, and their
relatives.  ¶ 5. USAA does not, however, serve
veterans discharged for bad conduct; the company's bylaws
prohibit it from offering or selling insurance products to
veterans who were not honorably discharged. Id.
¶¶ 6, 39. Kiley first applied for USAA membership
on Terrence's behalf in July 2012, obtaining an
automobile policy. Id. ¶ 4. In 2013, Kiley
applied for and obtained a USAA home policy in Terrence's
name. Id. ¶ 56. Terrence never participated in
the process of getting insurance policies from USAA. 
to USAA when it issued the Russells' policies, Terrence
received a bad conduct discharge from the Army in 1993 for
burglary and conspiracy to commit burglary.  ¶ 7.
USAA did not learn about Terrence's bad conduct discharge
until July 2016, during discovery for this case. Id.
¶ 63. USAA says that the Russells failed to disclose
this information when they applied for coverage and failed to
correct an eligibility confirmation notice listing Terrence
as “honorably discharged, ” id.
¶¶ 8, 45-52, but the Russells say that USAA never
asked about Terrence's discharge status during the
application process,   at 13. The Russells also testified
that Kiley did not know about Terrence's bad conduct
discharge until after this litigation began. See
[85-10] at 10; id. at 11; [90-6] at 32.
2013, USAA issued a home policy to the Russells (under
Terrence's name) with an effective term from August 24,
2013, through August 24, 2014.  ¶ 58. The policy
expressly stated that it would cover a maximum of $10, 000
for “tangible business property” at the
Russells' residence, id. ¶ 62, and Kiley
ran two businesses-a make-up company and a daycare-out of the
Russells' home at this time, id. ¶ 22.
About three weeks after the policy took effect, a significant
fire rendered the Russells' home uninhabitable.
Id. ¶ 66. Kiley contacted USAA the same night
to report the damage to her home and open a claim.
Id. ¶ 69. Five days after the fire, Kiley
opened another claim with USAA for personal property
allegedly stolen from the home's garage. Id.
November 2013, the Russells submitted a sworn “Proof of
Loss” to USAA containing an inventory of the personal
and business property that the Russells claimed they lost in
the fire and subsequent theft. Id. ¶ 90. The
Russells later amended the Proof of Loss with purchase dates
for their lost personal property. Id. ¶ 94. In
total, the Russells claimed about $75, 000 worth of lost
business property and about $428, 000 worth of lost personal
property. Id. ¶¶ 90-92. The claim for
personal property included nearly $150, 000 worth of property
purchased before 2011, and about $50, 000 worth of property
with no purchase date. Id. ¶ 96.
investigating the Russells' claims, USAA learned that
both Kiley and Terrence previously filed for bankruptcy.
Id. ¶ 73. Terrence filed for bankruptcy in
April 2010 and declared, under penalty of perjury, that he
owned only $800 worth of personal property. Id.
¶¶ 74, 76. Kiley filed for bankruptcy in December
2010 and declared, under penalty of perjury, that she owned
only $950 worth of personal property. Id.
¶¶ 77, 79. Both Kiley and Terrence told the
bankruptcy court that, “taking into consideration their
monthly income and expenses, they were operating at a loss of
about $5, 912.99 each month.” Id. ¶ 82.
The bankruptcy court discharged Terrence's debts in July
2010 and Kiley's debts in April 2011. Id.
¶¶ 74, 77. Kiley told ...