Stonegate Insurance Co. v. Hongsermeier
72 N.E.3d 869
| Ill. App. Ct. | 2017Background
- Mark and Rhonda Hongsermeier held a mortgage on a Rockford, IL, single-family dwelling; they rented the property to tenants before and at the time of a February–November 2011 homeowners policy issued by Stonegate.
- The policy named the owners as insureds and GMACM (later serviced by Ocwen) as mortgagee/named loss payee; the policy included a mortgage clause and a fraud clause.
- A fire on November 4, 2011, severely damaged the property; Stonegate denied the owners’ claim because the owners did not occupy the residence as required by the policy.
- Stonegate sued for declaratory judgment and joined GMACM/Ocwen, asserting the mortgagee could not recover because it knew (or should have known) the property was rented and failed to notify Stonegate per the mortgage clause; Stonegate also invoked the fraud clause.
- The trial court granted summary judgment for Ocwen, concluding the mortgage clause created an independent contract protecting the mortgagee and the fraud clause did not bar the mortgagee’s recovery; Stonegate appealed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether owner-occupancy was a condition precedent that bars mortgagee recovery | Occupancy by the owners was a policy condition; owners were not occupants, so no coverage | Mortgagee has independent rights; owners’ non-occupancy does not defeat mortgagee’s claim | The court held owner non-occupancy did not bar mortgagee recovery because the mortgage clause created an independent interest |
| Whether the mortgage clause required mortgagee notice and barred recovery if mortgagee knew of rental | GMACM/CoreLogic inspections put GMACM on notice of rental; failure to notify Stonegate precludes recovery | The clause is a standard mortgage clause; mortgagee must notify of a change only if it becomes aware of a change; no evidence GMACM was aware of a change during the policy period | The court held the clause was a standard mortgage clause; plaintiff failed to prove GMACM knew of a change in occupancy and, in any event, there was no change to report because the owners had already been non-occupant when policy issued |
| Whether the fraud clause voids coverage for the mortgagee when the insured committed fraud (leasing) | The policy’s fraud clause voids the entire policy for the insureds’ concealment/misrepresentation, barring both owners and mortgagee | Mortgagee had an independent contract; absent clear language voiding mortgagee’s interest, mortgagee should not be barred by insured’s wrongdoing | The court held the fraud clause did not bar the mortgagee’s recovery because the mortgagee had a separate, independent contractual interest and the clause did not expressly void the mortgagee’s rights |
Key Cases Cited
- Nicor, Inc. v. Associate Electric & Gas Insurance Services Ltd., 223 Ill. 2d 407 (policy-construction principles)
- Founders Insurance Co. v. Munoz, 237 Ill. 2d 424 (same; give effect to parties’ intent)
- Central Illinois Light Co. v. Home Insurance Co., 213 Ill. 2d 141 (clear policy language given plain meaning)
- Valley Forge Insurance Co. v. Swiderski Electronics, Inc., 223 Ill. 2d 352 (definition of ambiguity in insurance contracts)
- Crum & Forster Managers Corp. v. Resolution Trust Corp., 156 Ill. 2d 384 (construction of insurance contracts appropriate on summary judgment)
- Heastie v. Roberts, 226 Ill. 2d 515 (retroactivity of appellate decisions)
- Posner v. Firemen’s Insurance Co., 49 Ill. App. 2d 209 (standard mortgage clause protects mortgagee from insured’s acts; loss-payable vs. independent interest)
- West Bend Mutual Insurance Co. v. Salemi, 158 Ill. App. 3d 241 (mortgagee with independent interest may recover despite insured’s fraud)
- Farmers Automobile Insurance Ass’n v. Gitelson, 344 Ill. App. 3d 888 (insurer bears burden to prove applicability of coverage exclusion)
- Economy Fire & Casualty Co. v. Warren, 71 Ill. App. 3d 625 (interpretation of fraud clauses affecting loss payees)