2013 IL App (1st) 122387
Ill. App. Ct.2013Background
- Parkway Bank sued State Farm for the insurance proceeds after a fire damaged the Sotos’ apartment building, where Parkway held a mortgage and was named a mortgagee under the policy.
- The policy identified the Sotos as named insureds and Parkway separately as mortgagee; mortgagee rights are governed by the policy’s Mortgage Holders provision.
- State Farm issued two checks totaling $252,830.94 payable to Nelson Soto, Martha Soto, Parkway Bank & Trust Company, and Brickman Construction, and delivered to Brickman per the Sotos’ instructions.
- An agent of Brickman forged Parkway’s endorsement on the checks; Chase Bank paid Brickman the proceeds.
- Parkway demanded payment of the full amount to itself; State Farm declined; the circuit court granted State Farm summary judgment against Parkway and in favor of State Farm on Parkway’s declaratory judgment action.
- The UCC provisions (3-310, 3-602, 3-110, 3-309, 3-420) govern the remedy; because Brickman forged Parkway’s endorsement, the checks were not “paid” and Parkway’s remedy lies against the payor bank for conversion, not against State Farm on the underlying policy.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether State Farm satisfied its loss-payment obligation to the mortgagee by issuing the checks to jointly named payees. | Parkway argues it is entitled to the policy proceeds as mortgagee. | The checks to joint payees were issued and payment occurs only if properly enforceable by all payees; fraud invalidates payment. | State Farm’s payment to joint payees was not properly paid due to forgery; Parkway’s remedy is against Chase Bank for conversion. |
| What remedies govern Parkway’s recovery given forged endorsement and payment by Chase Bank? | Parkway should recover under the policy or as a payee of the instrument. | Remedy lies under the UCC: sue Chase Bank for conversion (3-420) or enforce the instrument under 3-309 if lost/destroyed; not the underlying policy. | The correct remedy is Chase Bank conversion under 3-420; Parkway cannot sue State Farm on the underlying contract. |
Key Cases Cited
- Koscher v. Chicago City Bank & Trust Co., 280 Ill. App. 500 (1935) (pre-UCC loss-payment constructs; misappropriation remedies discussed)
- Miyata v. Peerless Insurance Co., 95 Ill. App. 3d 584 (1981) (insureds vs. mortgagee rights under payment provisions)
- Standard Federal Savings & Loan Ass’n of Chicago v. Rocco, 154 Ill. App. 3d 587 (1987) (loan-payment and instrument enforcement principles under UCC discussed)
- Auto-Owners Insurance Co. v. Yocum, 2013 IL App (2d) 111267 (2d Cir. 2013) (summary judgment review; applicability of 3-310-3-602 interplay (cited by court))
- Fleming v. Moswin, 2012 IL App (1st) 103475-B (2012) (allowing consideration of issues raised on appeal)