Federal Savings & Loan Insurance v. Pacific Employers Insurance

Mr. PRESIDING JUSTICE JOHNSON delivered the opinion of the court: Plaintiffs, Federal Savings and Loan Insurance Corporation (hereinafter FSLIC) and Esther Rothstein appeal from a summary judgment entered in favor of the defendant, Pacific Employers Insurance Company (hereinafter Pacific). Plaintiff FSLIC was the insured and the owner of the O’Hare Congress Motel in Franklin Park, Illinois. Plaintiff Rothstein is the assignee of the Litas Investing Company, purchaser of the motel and a named insured. On December 31, 1971, the motel was partially destroyed by fire and a claim was filed by Litas with Pacific on its policy covering the motel. The claim was paid with the exception of Litas’ claim for loss of income under the policy. Hence, this action was filed. The policy issued by Pacific contained the following provision: “COVERAGE C — LOSS OF INCOME, during the period of recovery, directly resulting from interruption of the Insured’s operations at the location specified on Page 1 caused by loss under Coverage A or B. [These coverages apply to physical damage to real property and to personal property, respectively.] ‘Income’ is defined as the total revenue from: (a) The net sales of goods or services, and the rental or lease of property to others; less the cost of (b) Goods and service supplies sold, and services purchased (from other than employees) for resale which do not continue under contract.” Pacific refuses to honor Litas’ claim for loss of income under the quoted provision because, it claimed, the loss to Litas did not directly result from the fire nor cause an interruption in Litas’ operations on the premises. The trial court agreed with Pacific and entered its motion for summary judgment. We reverse. In February 1969, FSLIC sold the motel to Litas Investing Company, a New York corporation, under an installment contract that passed title to Litas upon its payment of 40 percent of the principal. On April 26,1970, Litas leased the motel to Herbert R. Miner, pursuant to a written lease agreement that, inter alia, required Miner to incorporate and assign his rights and interest under the lease to O’Hare Congress Inn, Inc. (hereinafter O’Hare). The sole asset of O’Hare was its interest in the motel. It was formed for no other purpose. O’Hare provided the funds required under Miner’s lease agreement with Litas. The resulting fire dried up those funds, as the lease did not provide for abatement of the rent because of the loss of income resulting from business interruption. On September 15, 1970, Pacific issued the motel policy in question, insuring FSLIC and Litas. The policy included the loss of income provision previously cited. In May 1971, the policy was amended, adding Miner as an insured. No other amendments were included. Miner had already assigned his interest and rights to O’Hare in which he was the major stockholder. The monthly premium installments on the policy were paid by FSLIC through the funds supplied by Litas. The amount of the loss claimed by Litas is *102,540 based upon 10 months rent at *10,254 per month. As a result of the fire, rent was not paid Litas for 10 months. Miner and O’Hare have also filed suit against Pacific for loss of income coverage, and the matters were consolidated for purposes of discovery and trial. That suit is still pending in the circuit court of Cook County. The plaintiffs contend that the loss of income coverage should be extended to Litas for several reasons. They argue that as a named insured, coverage should automatically be extended, and that no distinction should be (or has been) made among the named insureds for coverage claims on the motel. They argue that evidence showing a percentage of their monthly premium as allocated to the loss of income coverage estops Pacific from denying said coverage is permissible. It is also contended that at the time the policy was amended to include Miner, Pacific was aware of the relationship among the named insureds and O’Hare. The thrust of Pacific’s argument is, essentially, that Litas’ claim for loss of income did not directly result from intermption of the insured’s operations at the location specified in the policy and, therefore, its loss is not of the gender contemplated within the meaning of the policy. Pacific contends that the kind of loss of income contemplated within its policy is income lost by the operator of the motel as a result of the fire, i.e., loss of income from rental of rooms only. Litas’ “operations,” according to Pacific, did not include the rental of motel rooms and is therefore not covered by the policy. Pacific also maintains that Litas lacked an insurable interest in the motel operation and thus is not entitled to loss of income coverage. They argue that the party entitled to business interruption coverage is Litas’ tenant as operator of the business. At issue is whether Litas can maintain its claim for loss of income coverage within the meaning of the policy issued by Pacific. We hold only that Litas should be permitted to pursue its claim to trial. It is a well-settled principle that ambiguities in insurance policy provisions are resolved to favor the indemnification of the insured. (Brady v. Highway Commissioner (1975), 24 Ill. App. 3d 972, 975-76,322 N.E.2d 236, 238; Tiffiny Decorating Co. v. General Accident Fire & Life Assurance Corp. (1973), 12 Ill. App. 3d 597, 602, 299 N.E.2d 378, 381; Gray v. Merchants’ Insurance Co. (1906), 125 Ill. App. 370, 372-73; see generally Maryland Casualty Co. v. Peppers (1976), 64 Ill. 2d 187, 193-94, 355 N.E.2d 24, 28.) The rule was stated by the court in Gray. “If this is the meaning of the policy, then the parties intended to provide premiums for appellee and to avoid protecting appellant against loss of income from his building as the result of fire. On the contrary, we think the object of such a policy is to protect the owner of the property. We held in Niagara Fire Ins. Co. v. Heenan & Co., 81 Ill. App., 678, that a contract of insurance should be construed liberally in favor of protecting the assured; and in affirming that judgment, in 181 Ill., 175, the Supreme Court said: ‘A contract of insurance is a contract of indemnity, and unless indemnity for the loss sustained has been reached the law will lean to that construction which carries out the purpose of such a contract and gives such indemnity.’ ” Gray, at 372-73. The appellants contend that the terms of the policy provide indemnification for loss of rent to any of the named insureds who suffers that kind of loss. They refer to the language of Coverage C that defines income and argue that Litas’ lease of the property to Miner is included within the definition of “Income.” Pacific argues against that interpretation, stating that the rental of rooms was the only kind of rental contemplated in the definition above. The parties are also in dispute as to the extent that Litas conducted “operations” on the premises sufficient to afford it coverage under the provisions of the policy. There is disputed evidence as to whether Pacific’s issuing agent was aware of the nature of the relationship among Litas, Miner, and O’Hare particularly in light of the fact that at the time the policy was amended to include Miner, O’Hare had already been formed pursuant to the lease agreement between Litas and Miner. Of the *20,194 annual premium, *1974.10 was allocated to loss of income coverage as verified by Pacific. The premiums were paid from the funds supplied Litas through its leasing of the motel. Thus, a reasonable inference could be made that loss of income coverage was provided to the insured. It has been held that a summary judgment is properly entered where there is no genuine issue as to any material fact and where the movant is entitled to judgment as a matter of law. (Manda v. Branham (1977), 50 Ill. App. 3d 91, 94, 365 N.E.2d 216, 218; Freeman v. Augustine’s, Inc. (1977), 46 Ill. App. 3d 230, 236-37, 360 N.E.2d 1245, 1250.) Since the entry of summary judgment is a drastic measure to dispose of litigation, the right of the moving party to invoke the remedy must be free of any doubt. (Mollihan v. Stephany (1975), 35 Ill. App. 3d 101, 103-04, 340 N.E.2d 627, 629-30.) In Mollihan, a summary judgment was reversed where it was shown that information given to an agent of the insurance company was a matter of dispute. While there is support for the proposition that construction of an insurance policy is a matter of law and properly decided in summary judgment (Community National Bank v. St. Paul Fire & Marine Insurance Co. (S.D. Ill. 1975), 399 F. Supp. 873, 878), it should not be used to preempt the right to a jury trial or the right to fully present the factual basis for a case where a material dispute may exist. (Welch v. Chicago Tribune Co. (1975), 34 Ill. App. 3d 1046, 1050, 340 N.E.2d 539, 542.) “Where doubt exists as to the right of the moving party to entry of a summary judgment, the wiser judicial policy is to permit resolution of the dispute by trial rather than by summary judgment.” Armagast v. Medici Gallery & Coffee House, Inc. (1977), 47 Ill. App. 3d 892, 896, 365 N.E.2d 446, 449. Here, it is a matter of dispute whether Litas, a named insured, was covered for loss of income on an insurance policy covering property leased by it to Miner. The parties are also in dispute over whether certain material representations were made to agents of the insurance company regarding the insured property. These kinds of issues are better resolved in a trial on the merits than in a summary judgment. For the foregoing reasons, the judgment of the circuit court of Cook County is reversed, and this cause is remanded for trial on the merits. Reversed and remanded. LINN, J., concurs