American Family Mutual Insurance v. Northern Heritage Builders ( 2010 )

FIRST DIVISION
FILED: October 12, 2010
No. 1-10-0216
AMERICAN FAMILY MUTUAL INSURANCE ) APPEAL FROM THE
COMPANY, as subrogee of MICHAEL P. ) CIRCUIT COURT OF
McGRATH, JR., ) COOK COUNTY
)
Plaintiff-Appellant, )
)
v. )
)
NORTHERN HERITAGE BUILDERS, L.L.C., and ) Nos. 07 L 8252
PATRICK PLUNKETT ARCHITECTURAL DESIGN, ) 08 L 5548
LTD., )
)
Defendants-Appellees )
)
and )
)
RAPCIAK CONSTRUCTION, INC., ) HONORABLE
) DENNIS J. BURKE,
Defendant. ) JUDGE PRESIDING.
JUSTICE HOFFMAN delivered the opinion of the court:
American Family Insurance Company (American Family) appeals
from an order of the Circuit Court of Cook County which dismissed
its action against Northern Heritage Builders, L.L.C. (Northern
Heritage), and Patrick Plunkett Architectural Design, Ltd. (Patrick
Plunkett). American Family brought the instant action against
Northern Heritage and Patrick Plunkett as the subrogee of its
insured, Michael P. McGrath, Jr. (McGrath), asserting claims based
upon a theory of equitable subrogation by reason of its having made
No. 1-10-0216
payments to McGrath under a policy of insurance for water damage to
his residence. The trial court found that, since its policy of
insurance with McGrath provides for subrogation, American Family
had not, and could not, assert claims based upon the doctrine of
equitable subrogation. For the reasons which follow, we agree and
affirm the judgment of the circuit court.
The facts of this case are not in dispute. McGrath is the
owner of a three-story single-family residence located at 1848 N.
Orchard, Chicago, Illinois. The residence was designed by Patrick
Plunkett and built by Northern Heritage pursuant to contracts
entered into with McGrath.
McGrath purchased a homeowner’s policy from American Family
insuring the residence (the Policy). On August 23, 2006, while the
Policy was in force, McGrath made a claim under the Policy for
damage to the residence by reason of rain and moisture penetrating
the exterior due to alleged faulty construction. American Family
denied the claim, and McGrath filed suit against American Family in
the United States District Court for the Northern District of
Illinois (hereinafter referred to as the Federal Action).
On August 6, 2007, while the Federal Action was pending and
undetermined, McGrath filed suit in the Circuit Court of Cook
County against Northern Heritage and Rapciak Construction, Inc.
(hereinafter referred to as case 07 L 8252), seeking damages for
the construction defects which resulted in the same damage to his
residence that gave rise to the claim that was the subject of the
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No. 1-10-0216
Federal Action against American Family. Following the filing of
case 07 L 8252, an order was entered in the Federal Action granting
a summary judgment in favor of McGrath on the issue of coverage
under the Policy for the water damage to his residence.
Thereafter, the Federal Action was tried, resulting in a jury
verdict in favor of McGrath. Subsequent to the verdict, on May 16,
2008, McGrath and American Family settled the Federal Action, and
American Family paid McGrath under the Policy for the damage to his
residence. The terms of the settlement are contained in a written
agreement which does not contain an assignment to American Family
of McGrath’s rights of recovery against any party by reason of the
damage to his residence.
On May 20, 2008, American Family filed the instant action as
the subrogee of McGrath, which was docketed in the Circuit Court
of Cook County as case 08 L 5548. American Family asserted the
same allegations as McGrath made in case 07 L 8252. On July 22,
2008, an order was entered consolidating McGrath’s action, case 07
L 8252, and the American Family action, case 08 L 5548, for
purposes of discovery.
On March 13, 2009, American Family filed its third amended
complaint in the instant action, case 08 L 5548, asserting claims
based upon a theory of equitable subrogation against Northern
Heritage and Patrick Plunkett by reason of the payment it made to
McGrath for construction defects which resulted in damage to his
residence. In addition to a recitation of the foregoing historical
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No. 1-10-0216
facts, American Family attached to, and incorporated into, its third
amended complaint a certified copy of the Policy which, as it
relates to subrogation, provides as follows:
"Subrogation. An insured may waive in writing before a
loss all rights of recovery against any person. If not
waived, we may require an assignment of rights of
recovery for a loss to the extent that payment is made by
us.
If an assignment is sought, an insured must sign and
deliver all related papers and cooperate with us.
Where prohibited by law, subrogation does not apply under
Section II to Medical Expense Coverage or Damage to
Property of Others."
On May 13, 2009, Patrick Plunkett filed a combined motion
pursuant to section 2-619.1 of the Code of Civil Procedure (Code)
(735 ILCS 5/2-619.1 (West 2008)), seeking dismissal of American
Family’s third amended complaint. Northern Heritage joined in the
motion on the following day. Pursuant to section 2-615 (735 ILCS
5/2-615 (West 2008)), the motion argued that the third amended
complaint was insufficient at law for the following reasons: 1)
American Family failed to plead how and when it became the subrogee
of McGrath's rights of action in violation of section 2-403 of the
Code (735 ILCS 5/2-403 (West 2008)); 2) the third amended complaint
was not verified; and 3) it fails to state a claim based upon a
theory of equitable subrogation by reason of the existence of a
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No. 1-10-0216
contractual subrogation provision in the Policy. In support of its
prayer for involuntary dismissal pursuant to section 2-619 (735
ILCS 5/2-619 (West 2008)), the motion asserted that, as McGrath had
never assigned his rights to recover pursuant to the terms of the
Policy, American Family could not maintain a claim as his subrogee.
The argument was supported by McGrath's answer to a request to
admit facts wherein he denied ever having assigned his rights to
American Family.
On July 13, 2009, American Family moved for leave to file an
amendment to its third amended complaint, supplying the
verification which had been omitted when the third amended
complaint was originally filed.
On August 3, 2009, the circuit court entered an order granting
the motion to dismiss the third amended complaint and entering
judgment thereon in favor of Patrick Plunkett and Northern
Heritage. In addition, the circuit court made the requisite
finding under Supreme Court Rule 304(a) (210 Ill. 2d R. 304(a))
that there was no just reason to delay enforcement or appeal from
its order.
On August 27, 2009, American Family filed a motion seeking
reconsideration of the dismissal order of August 3rd. That motion
was denied on December 22, 2009, and this timely appeal followed.
A motion to dismiss pursuant to section 2-615 of the Code
tests the legal sufficiency of a complaint; whereas, a section 2-
619 motion admits the legal sufficiency of the complaint, but
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No. 1-10-0216
asserts affirmative matter outside of the complaint which defeats
the claim. Solaia Technology, LLC. v. Specialty Publishing Co.,
221 Ill. 2d 558, 578-79, 852 N.E.2d 825 (2006). Our review of a
dismissal under either section of the Code is de novo. King v.
First Capital Financial Services Corp., 215 Ill. 2d 1, 12, 828
N.E.2d 1155 (2005).
In urging reversal, American Family argues that, once it paid
McGrath's claim under the Policy, it was equitably subrogated to
his rights of action against the wrongdoers responsible for the
loss to the extent of its payment to McGrath. It asserts that this
equitable subrogation is independent of any rights under the
Policy. Patrick Plunkett and Northern Heritage argue that, because
the Policy provides for contractual subrogation, American Family is
not entitled to any recovery under an equitable subrogation theory.
The right of subrogation originated as a creature of chancery
as a doctrine which allowed a person compelled to pay the debt or
claim of another to succeed to that person's rights with respect to
the debt or claim so paid. This common law or equitable right of
subrogation is a remedial device utilized to prevent unjust
enrichment. Dix Mutual Insurance Co. v. LaFramboise, 149 Ill. 2d
314, 319, 597 N.E.2d 622 (1992). Now, a right of subrogation may
also arise by statute or contract. In re Estate of Scott, 208 Ill.
App. 3d 846, 848, 567 N.E.2d 605 (1991). In this case, we address
the question left unanswered by the supreme court in Schultz v.
Gotlund, 138 Ill. 2d 171, 173, 561 N.E.2d 652 (1990); namely, the
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No. 1-10-0216
effect of an express contractual subrogation provision on a common
law or equitable subrogation theory of recovery. Schultz, 138 Ill.
2d at 173.
Where the right of subrogation is created by the terms of an
enforceable contract, the contract terms control, rather than
common law or equitable principles. Benge v. State Farm Mutual
Automobile Insurance Co., 297 Ill. App. 3d 1062, 1071, 697 N.E.2d
914 (1998). As stated in Couch on Insurance, "where the right of
an insurer to subrogation is expressly provided for in the policy,
its right must be measured by, and depend solely on, the terms of
such provisions." 16 Couch on Insurance Law § 222:23, at 222-51
(3rd ed. 2000). Stated otherwise, common law or equitable
subrogation cannot stand in the face of an express contractual
right of subrogation. See Benge, 297 Ill. App. 3d at 1071; Capitol
Indemnity Corp. v. Strike Zone, S.S.B.&B. Corp., 269 Ill. App. 3d
594, 596, 646 N.E.2d 310 (1995); In re Estate of Scott, 208 Ill.
App. 3d at 848. We conclude, therefore, that whatever right of
subrogation American Family acquired in this case by reason of its
having paid McGrath for the damage to his residence, it acquired
pursuant to the subrogation provision of the Policy, not by virtue
of any equitable or common law principle.
The terms of an unambiguous insurance policy should be
enforced as written. King v. Allstate Insurance Co., 269 Ill. App.
3d 190, 192, 645 N.E.2d 503 (1994). According to the unambiguous
language of the Policy, American Family had the right to require
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No. 1-10-0216
McGrath to execute an assignment of his rights of recovery for the
damage to his residence to the extent that American Family paid the
loss. In support of the section 2-619 grounds for involuntary
dismissal of American Family's third amended complaint, Patrick
Plunkett attached a copy of McGrath's answer to a request to admit
facts wherein he denied ever having assigned his rights of recovery
to American Family. No counter-evidentiary material was filed by
American Family. In the absence of such an assignment, American
Family failed to perfect its rights of subrogation under the terms
of the Policy, and for this reason, we affirm the dismissal of its
third amended complaint.
Affirmed.
HALL, P.J., and LAMPKIN, J., concur.
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