Stonegate Insurance Co. v. Hongsermeier
2017 IL App (1st) 151835
Ill. App. Ct.2017Background
- In Feb 2011 Stonegate issued a hazard insurance policy on a Rockford, IL residence to owners Mark and Rhonda Hongsermeier; the policy named GMACM (later serviced by Ocwen) as mortgagee/loss payee.
- The policy defined the insured residence as the one-family dwelling "where you reside" and included a mortgage clause and a fraud clause; Stonegate issued declarations but did not inspect the property before issuing the policy.
- The owners had leased the property to tenants before the policy was issued; CoreLogic performed multiple inspections for the mortgagee, with one report noting contact with a tenant three days before a Nov. 4, 2011 electrical fire severely damaged the property.
- Stonegate sought declaratory relief and cancelled the policy, arguing coverage was barred because the owners did not occupy the residence (a condition of coverage), the mortgagee failed to notify the insurer of the change in occupancy, and the fraud clause voided coverage.
- Ocwen (successor to GMACM) moved for summary judgment asserting the mortgage clause created an independent contract protecting the mortgagee and that the fraud clause did not bar the mortgagee’s recovery; the trial court granted summary judgment for Ocwen; Stonegate appealed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether owners’ non-occupancy voided coverage for the mortgagee | Non-occupancy was a condition precedent to coverage and bars recovery | Mortgage clause protects mortgagee despite owners’ non-occupancy | Mortgagee’s claim not defeated by owners’ non-occupancy; mortgagee may recover |
| Whether mortgage clause is a "standard" clause creating independent rights | Clause should not protect mortgagee here; insurer contends defenses to insured should apply | Clause is a standard mortgage clause creating separate contract for mortgagee | Clause is a standard mortgage clause (or otherwise creates independent contract) protecting mortgagee |
| Whether mortgagee failed to notify insurer of change in occupancy such that coverage is barred | Mortgagee or its vendor knew or should have known of leasing and failed to notify insurer | No evidence mortgagee knew before the fire; even if it knew, there was no "change" in occupancy to report because owners already had leased | No genuine fact issue showing mortgagee breached notice condition; notice requirement irrelevant where occupancy did not change during policy period |
| Whether fraud clause voids mortgagee’s recovery due to insured’s alleged misrepresentation | Fraud clause voids the entire policy as to all insureds, barring mortgagee’s recovery | Fraud clause does not expressly apply to mortgagee and mortgagee has independent contractual rights | Fraud clause does not bar mortgagee’s recovery absent clear expression that insured’s fraud voids mortgagee’s separate interest |
Key Cases Cited
- Crum & Forster Managers Corp. v. Resolution Trust Corp., 156 Ill. 2d 384 (construction of insurance policy is question of law)
- Nicor, Inc. v. Associated Electric & Gas Ins. Servs. Ltd., 223 Ill. 2d 407 (policy construction rules)
- Founders Ins. Co. v. Munoz, 237 Ill. 2d 424 (give effect to parties’ intent in insurance contracts)
- Central Illinois Light Co. v. Home Ins. Co., 213 Ill. 2d 141 (clear policy language given plain meaning)
- Posner v. Firemen’s Ins. Co., 49 Ill. App. 2d 209 (standard mortgage clause protects mortgagee from insured’s acts)
- Salemi v. West Bend Mutual Ins. Co., 158 Ill. App. 3d 241 (loss payee with independent contract not barred by insured’s fraud absent clear policy language)
- The Suburban, Inc. v. Cincinnati Ins. Co., 323 Ill. App. 3d 278 (rights under simple vs. standard mortgage clauses)
- Heastie v. Roberts, 226 Ill. 2d 515 (retroactivity of appellate decisions)