                           ILLINOIS OFFICIAL REPORTS
                                         Appellate Court




            Murphy v. State Farm Fire & Casualty Co., 2012 IL App (1st) 112143




Appellate Court            ERIC MURPHY AND SEAN MURPHY, Plaintiffs-Appellants, v.
Caption                    STATE FARM FIRE AND CASUALTY COMPANY, Defendant-
                           Appellee.



District & No.             First District, First Division
                           Docket No. 1-11-2143


Filed                      September 28, 2012


Held                       The existence of a contract for the demolition of plaintiffs’ building did
(Note: This syllabus       not control the issue of whether plaintiffs had an insurable interest in the
constitutes no part of     uninhabited and mostly vacant structure, especially when plaintiffs
the opinion of the court   reasonably believed defendant insurer would reimburse them for any fire
but has been prepared      damage and demolition had not started; therefore, the entry of summary
by the Reporter of         judgment for defendant was reversed and the trial court was directed to
Decisions for the          enter a summary determination that plaintiffs had an insurable interest.
convenience of the
reader.)


Decision Under             Appeal from the Circuit Court of Cook County, No. 07-L-014481; the
Review                     Hon. Ronald F. Bartkowicz, Judge, presiding.



Judgment                   Reversed and remanded with directions.
Counsel on                  Bert Zaczek and Amy Pikarsky, both of Law Office of Bert Zaczek, of
Appeal                      Chicago, for appellants.

                            Johnson & Bell, Ltd., of Chicago (Rick L. Hammond, Garrett L. Boehm,
                            Jr., and Isaac R. Milton, of counsel), for appellee.


Panel                       PRESIDING JUSTICE HOFFMAN delivered the opinion of the court,
                            with opinion.
                            Justices Karnezis and Rochford concurred in the judgment and opinion.




                                              OPINION

¶1           The plaintiffs, Sean and Eric Murphy, brought suit seeking recovery for fire damage to
        their property, which was insured by the defendant, State Farm Fire and Casualty Company
        (State Farm). The circuit court of Cook County granted summary judgment in favor of State
        Farm and denied the plaintiffs’ cross-motion for partial summary judgment, holding that the
        plaintiffs had no insurable interest in the property. For the reasons that follow, we reverse the
        judgment of the circuit court and remand for further proceedings.
¶2           The pleadings, affidavits, depositions, and supporting evidentiary materials establish the
        following undisputed facts. In 2004, the plaintiffs bought a parcel of property improved with
        a multi-unit residential building at 2128 N. Winchester, Chicago, Illinois (the Building).
        State Farm insured the Building. Initially, tenants occupied three of the four units in the
        Building. However, the plaintiffs did not renew any of the tenants’ leases as they began to
        consider demolishing the existing structure and constructing a new residential luxury home
        on the property. The last tenant left the Building in the fall of 2004. After the Building was
        left vacant, the plaintiffs canceled all utilities and had the gas meters removed.
¶3           In the front of the existing Building, the plaintiffs had posted a sign advertising the sale
        of a new single-family luxury home that they were considering constructing on the site. The
        sign contained pictures of the planned home with the caption, “Coming soon.” Additionally,
        the plaintiffs had consulted an architect for the purpose of drawing up plans for this new
        home. The plaintiffs obtained a construction loan in the amount of approximately $1 million
        to build the new luxury home. They also had acquired permits from the City of Chicago
        allowing them to demolish the existing Building and construct the new home. The plaintiffs
        testified in their depositions that, although they had entered into the demolition contract, they
        were still considering whether to sell the Building “as-is,” knock it down and build the new
        luxury home, or to renovate the existing Building.
¶4           On September 24, 2004, the plaintiffs signed a contract with Dunleavy Construction to
        demolish the Building and paid a nonrefundable deposit of $500. In the event that the

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     plaintiffs were to cancel their contract, Dunleavy Construction would only keep the
     nonrefundable $500 deposit, and the plaintiffs would suffer no further damages from the
     cancellation. Though the Building was vacant, it did contain some of the plaintiffs’ personal
     belongings such as cabinetry, stoves and furnaces, which they had inquired about possibly
     selling.
¶5        On March 17, 2005, six months after the plaintiffs had signed the demolition contract,
     a fire took place, causing extensive smoke and water damage to the Building. A State Farm
     representative surveyed the property and estimated the damage at slightly more than $60,000.
     State Farm denied liability claiming that the plaintiffs had intentionally concealed or
     misrepresented facts, and also contended that the Building had no actual value.
¶6        The plaintiffs filed the instant action in 2006, seeking recovery for the fire damage and
     asserting claims for breach of contract and a statutory violation, pursuant to section 155 of
     the Illinois Insurance Code (215 ILCS 5/155 (West 2006)), based on the unreasonable and
     vexatious delay in settling their claim. State Farm filed affirmative defenses and a motion for
     summary judgment, asserting, inter alia, that the plaintiffs had no insurable interest at the
     time of the fire. The plaintiffs filed a cross-motion for partial summary judgment claiming
     that they did have an insurable interest. The circuit court granted summary judgment in State
     Farm’s favor and denied plaintiffs’ cross-motion for partial summary judgment, concluding
     that the plaintiffs had no insurable interest because they had contracted with Dunleavy
     Construction to demolish the existing structure. The plaintiffs have appealed that order.
¶7        Summary judgment may be granted if, “the pleadings, depositions, and admissions on
     file, together with the affidavits, if any, show that there is no genuine issue as to any material
     fact and that the moving party is entitled to judgment as a matter of law.” 735 ILCS 5/2-
     1005(c) (West 2010). Because the parties here have filed cross-motions for summary
     judgment, they agree that there is no material question of fact. Harwood v. McDonough, 344
     Ill. App. 3d 242, 245, 799 N.E.2d 859, 862 (2003). Consequently, the issue presented is one
     of law, and our standard of review from the entry of summary judgment is de novo. Forsythe
     v. Clark USA, Inc., 224 Ill. 2d 274, 280, 864 N.E.2d 227, 233 (2007).
¶8        The plaintiffs argue that the trial court erred by finding that they had no insurable interest
     at the time of the fire. State Farm responds by contending that the plaintiffs lacked an
     insurable interest because the plaintiffs had entered into a demolition contract prior to the
     fire, and therefore, the fire damage to the Building did not cause them to suffer any economic
     loss. Thus, we are called upon to determine whether a property owner has an insurable
     interest when the building is under contract to be demolished but the demolition has not yet
     begun. This is a matter of first impression for Illinois courts. However, other states have
     considered the question and have held that a property owner has an insurable interest in
     property despite the existence of a demolition contract as long as demolition has not yet
     started. We find the reasoning of these cases to be persuasive here.
¶9        In Illinois, there is no statutory definition for “insurable interest.” Reznick v. Home
     Insurance Co., 45 Ill. App. 3d 1058, 1061, 360 N.E.2d 461, 463 (1977). Most Illinois courts
     have adhered to the definition providing that a “ ‘person has an insurable interest in the
     property whenever he would profit by or gain some advantage by its continued existence and


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       suffer loss or disadvantage by its destruction.’ ” Reznick, 45 Ill. App. 3d at 1061, 360 N.E.2d
       at 363 (quoting 3 Ronald A. Anderson, Couch Cyclopedia of Insurance Law § 24:13 (2d ed.
       1960)); Beddow v. Hicks, 303 Ill. App. 247, 258, 25 N.E.2d 93, 98 (1940). A party may have
       an insurable interest in property, even if he or she does not possess the property or even own
       it. Hawkeye-Security Insurance Co. v. Reeg, 128 Ill. App. 3d 352, 470 N.E.2d 1103 (1984).
¶ 10        In Cigna Property & Casualty Insurance Co. v. Verzi, 684 A.2d 486 (Md. Ct. Spec. App.
       1996), a building owner entered into an agreement to have the building demolished and a
       new one built in its place. Cigna Property & Casualty Insurance Co., 684 A.2d at 488. The
       demolition contract was contingent on the purchaser obtaining the necessary permits to
       demolish the building and build anew. Id. Before the permits were obtained, the building was
       destroyed by fire, and the owner sought to recover. Id. In ruling that the property owner had
       an insurable interest, the Maryland appellate court noted, “[a] majority of state and federal
       courts have held that, when a building is destroyed by fire or other disaster, the insured may
       recover from its insurer despite the building being subject to removal, provided it is
       destroyed before removal.” Id. at 489. The Cigna court further stated that, unless the
       demolition has begun and there is some physical damage to the property, the potential
       demolition of the property should not be considered when determining whether the property
       owner possessed an insurable interest in the property. Id. at 489-90.
¶ 11        Additionally, a New Jersey trial court examined a similar issue in Tublitz v. Glens Falls
       Insurance Co., 431 A.2d 201 (N.J. Super. Ct. Law Div. 1981), when the insured entered into
       a contract to demolish the insured buildings within 10 days and a fire destroyed the buildings
       before demolition had begun. Tublitz, 431 A.2d at 201. The Tublitz court held that, because
       demolition was still pending and had not yet begun, the property owner maintained an
       insurable interest in the property. The court reached this conclusion despite the fact that the
       insured actually had a date set for the destruction of the property. Id. at 202.
¶ 12        In American Home Fire Assur. Co. of New York v. Mid-West Enterprise Co., 189 F.2d
       528, 534 (10th Cir. 1951), the insured entered into a contract with a third party requiring the
       owner to destroy certain parts of the building. However, at the time of the subsequent fire,
       the building had not yet been destroyed. Id. The court held that the owner’s insurable interest
       had not been diminished because, despite the existence of the contract, there had not been
       any physical destruction of the property at the time of the fire. Id.
¶ 13        In urging us to affirm the decision of the trial court, State Farm relies on Lieberman v.
       Hartford Fire Insurance Co., 6 Ill. App. 3d 948, 287 N.E.2d 38 (1972), holding that the
       insured did not possess an insurable interest when a fire destroyed the building while
       demolition was in its early stages. Lieberman v. Hartford Insurance Co., 6 Ill. App. 3d 948,
       949, 287 N.E.2d 38, 40 (1972). State Farm’s use of Lieberman is not persuasive because it
       is factually distinguishable from the case at hand. In Lieberman, a portion of the roof had
       already been removed and destruction had begun. Id. Because the demolition had begun, it
       could no longer be considered uncertain or speculative. In contrast, Dunleavy Construction
       had not begun any physical destruction of the plaintiffs’ Building in this case, and the
       plaintiffs presented undisputed evidence that they were not certain about the future of the
       property.


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¶ 14       Both parties discuss Garcy Corp. v. Home Insurance Co., 496 F.2d 479 (7th Cir. 1974),
       which found in favor of the property owner. Garcy Corp., 496 F.2d at 481. State Farm argues
       that Garcy is distinguishable on its facts because, at the time of the fire in that case, the
       building contained $26,000 worth of inventory and the insured had listed the property for
       sale with a real estate agent. However, we find the case to be applicable in its holding that,
       despite the obvious value of the building, the dispositive fact was that the building was not
       in the process of being demolished. Id. Thus, the insured still maintained an insurable
       interest. The Garcy court repeatedly stated that the important inquiry is, “whether the insured
       had abandoned the building pursuant to an irrevocable commitment to demolish it.” Id. This
       “irrevocable commitment to demolish” is perhaps most evident by actual physical damage
       to the building when demolition has actually begun. New Ponce Shopping Center, S.E. v.
       Integrand Assurance Co., 86 F.3d 265, 268 (1st Cir. 1996).
¶ 15       In cases where a court has held that the insured lacked an insurable interest, the property
       generally was in its early stages of demolition and had actual physical damage. See Aetna
       State Bank v. Maryland Casualty Co., 345 F. Supp. 903 (N.D. Ill. 1972); Lieberman v.
       Hartford Fire Insurance Co., 6 Ill. App. 3d 948, 287 N.E.2d 38 (1972). And, even in cases
       like those just described, where a fire loss occurred after the process of demolition had
       begun, some courts have held that the building owners still possessed an insurable interest.
       See Eagle Square Manufacturing Co. v. Vermont Mutual Fire Insurance Co., 213 A.2d 201
       (Vt. 1965); Irwin v. Westchester Fire Insurance Co., 109 N.Y.S. 612 (N.Y. Sup Ct. 1908).
¶ 16       We believe that an insurable interest should be determined at the moment of loss and
       should not be determined by speculating about future, uncertain events. Miller v. New Jersey
       Insurance Underwriting Ass’n, 457 A.2d 23, 31 (N.J. Super. Ct. App. Div. 1983) (citing 4
       John Alan Appleman & Jean Appleman Insurance Law and Practice § 2245, at 167 (1969)).
       The mere existence of a demolition contract should not control whether the insured
       possessed an insurable interest in the property prior to demolition beginning. Here, six
       months had elapsed since the plaintiffs entered into the contract with Dunleavy Construction
       to demolish the Building and no physical destruction had started. This lengthy passage of
       time supports the plaintiffs’ testimony concerning their uncertainty as to whether they would
       actually demolish the Building. Additionally, the plaintiffs presented undisputed evidence
       that they were not certain about the future of the Building. Any number of possible future
       events could have occurred causing the plaintiffs to decide not to demolish the Building.
¶ 17       Furthermore, our ruling is consistent with the principles of contract law governing
       insurance policies. When interpreting a fire insurance policy, the contract must be liberally
       construed to reflect the intent of the insured and the purpose of the contract. Hardesty v.
       Forest City Insurance Co., 77 Ill. App. 413, 416 (1898), aff’d, 182 Ill. 39 (1899). The
       purpose of fire insurance is to allow for indemnity of the insured in the event of a fire. “The
       rule of construction to be adopted should be a liberal one and favorable to the insured, so as
       not to defeat, without a plain necessity, his claim to the indemnity which, in making the
       insurance, it was his object to secure.” Home Insurance Co. v. Peoria & P.U. Ry. Co., 78 Ill.
       App. 137, 139 (1898), aff’d sub nom. Home Insurance Co. of New York v. Peoria & P.U.
       Ry. Co., 178 Ill. 64 (1899). Here, the plaintiffs reasonably believed, because State Farm had
       agreed to provide them with fire insurance, that they would be reimbursed for the damage

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       done to the Building in the event of a fire.
¶ 18       In reviewing all of the evidence in accord with the standards set forth above, we find as
       a matter of law that the plaintiffs had an insurable interest at the time of the fire.
       Consequently, we reverse the grant of summary judgment for State Farm and remand the
       cause with directions that the trial court enter a summary determination of a major issue in
       favor of the plaintiffs, pursuant to section 2-1005(d) of the Code of Civil Procedure (735
       ILCS 5/2-1005(d) (West 2010)), on the issue of insurable interest. Accordingly, we remand
       the cause with directions that the trial court conduct further proceedings consistent with the
       views expressed herein.

¶ 19      Reversed and remanded with directions.




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