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Russell v. USAA General Indemnity Co.

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

April 30, 2018



          John Robert Blakey, United States District Judge.

         This 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. [5]. 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. [63]. USAA moved for summary judgment on its counterclaim and two other legal issues. [83]. For the reasons explained below, this Court partially grants and partially denies the motion.

         I. Background

         The facts come from USAA's Local Rule 56.1 statement of facts [85], the Russells' response to USAA's facts [90], and the Russells' additional facts [90].

         A. Motion to Strike

         In its response to the Russells' additional facts, USAA moved to strike those facts for failing to comply with Local Rule 56.1. [93] 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.

         That 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 speculation.

         B. The Russells' Insurance Policies

         USAA provides insurance, including auto and home insurance policies, to military personnel, military veterans, and their relatives. [85] ¶ 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. [93] ¶ 9.

         Unbeknownst 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. [85] ¶ 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, [1] [90] 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.

         In 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. [85] ¶ 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. ¶ 86.

         In 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.

         C. Bankruptcy Proceedings

         While 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. ΒΆΒΆ 74, 77. Kiley told ...

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