Thirteen Investment Company, Inc. v. Foremost Insurance Company Grand Rapids MichiganThirteen Investment Company, Inc. v. Foremost Insurance Company Grand Rapids Michigan
Before SYKES, Chief Judge, and HAMILTON and BRENNAN, Circuit Judges.
I.
Thirteen’s building suffered fire damages covered by Foremost’s policy. Thirteen then retained Paramount as its public adjuster and general contractor for repairs. Under their agreement, Thirteen hired Paramount “to be [Thirteen’s] agent and representative to assist in the preparation, presentation, negotiation, adjustment, and settlement” of the fire loss. Thirteen also “direct[ed] any insurance companies to include Paramount … on all payments on” the fire loss claim. Paramount negotiated the fire loss, and Foremost delivered two settlement checks to Paramount. The checks named Thirteen, its mortgagee,1 and Paramount as co-payees. Paramount then endorsed the names of all co-payees, cashed the checks, and kept the proceeds. Paramount performed some repair work on the building before Thirteen fired it as general contractor.
Thirteen sued Foremost in state court, seeking a declaratory judgment that the insurer had breached its policy by not paying the claim. Foremost removed this case to federal court and denied this allegation. The district court granted summary judgment for Foremost because when Paramount received and cashed the checks, that discharged the insurer’s performance obligation under the policy. Thirteen timely appeals.
II.
Thirteen offers three reasons for reversal. First, it contends that Foremost waived payment as an affirmative defense by failing to plead it in its answer. Second, Thirteen argues that, under controlling Illinois law, Foremost’s policy obligation for the loss was not discharged when it delivered the checks to Paramount, which cashed the checks. Third, Thirteen alleges that Foremost agreed to make claim payments to Thirteen in installments after Foremost had inspected repair work performed.
A.
Framing payment here as an affirmative defense, Thirteen argues that Foremost’s answer failed to include the defense, so it is waived. Indeed, payment is a listed affirmative defense in
Thirteen’s complaint states in relevant part:
21. Foremost has not reached agreement with the Plaintiff on the amount of loss and has not paid any portion of the claim.
22. Foremost’s failure to pay is a breach of contract.
Foremost denied both allegations in its answer. So, payment here is not an affirmative defense because it is not asserted as a defense that limits or excuses Foremost’s liability, even if Thirteen’s pleadings are true. Therefore, Foremost did not have to plead payment separately in its answer. The denials of Thirteen’s allegations were sufficient to preserve this defense.
B.
The merits hinge on a question of Illinois law2 that has not yet been addressed by the state’s supreme court: Does a contract obligor’s delivery of a check to a joint co-payee, who then unilaterally cashes the check, discharge the obligor’s performance in the amount of the check? We review the district court’s grant of summary judgment de novo. Pierner-Lytge v. Hobbs, 60 F.4th 1039, 1043 (7th Cir. 2023).
When faced with unresolved issues of state law, we must predict how the relevant highest state court would rule. Sanchelima Int’l, Inc. v. Walker Stainless Equip. Co., LLC, 920 F.3d 1141, 1145 (7th Cir. 2019). And we can use “decisions of the state’s intermediate appellate courts for guidance as necessary,” Straits Fin. LLC v. Ten Sleep Cattle Co., 900 F.3d 359, 369 (7th Cir. 2018), “tak[ing] into account trends in a state’s intermediate appellate decisions,” Cmty. Bank of Trenton v. Schnuck Markets, Inc., 887 F.3d 803, 811–12 (7th Cir. 2018).
Paramount was Thirteen’s designated public adjuster, its agent for claim negotiation, and a joint co-payee. Thirteen, by agreement, retained Paramount “to be [its] agent and representative to assist in the preparation, presentation, negotiation, adjustment, and settlement” of the fire loss. Thirteen even “direct[ed] any insurance companies to include Paramount … on all payments on” the fire loss claim.3 Id. Paramount thus acted within the scope of its express, actual authority when it negotiated, settled, and received the checks for the claim. See generally Curto v. Illini Manors, Inc., 940 N.E.2d 229, 233 (Ill. App. Ct. 2010).
Nothing in the policy says the checks were to be sent to Thirteen. But
What, then, is the legal effect of Paramount unilaterally cashing the checks? As to the obligation of a drawer and obligor under a contract (here, Foremost), Illinois’s version of the Uniform Commercial Code says: “If a draft is accepted by a bank, the drawer is discharged, regardless of when or by whom acceptance was obtained.”
Illinois caselaw on this legal question is sparse, but two appellate court decisions confirm our reading of Illinois law. In Affiliated Health Group, Ltd. v. Devon Bank, 58 N.E.3d 772, 774–75 (Ill. App. Ct. 2016), plaintiff doctors alleged that their employees embezzled health insurance checks issued for services the doctors provided. Like here, the doctors sued the insurers. Id. at 775. The question on appeal was whether the defendant insurers’ obligations to the plaintiffs were discharged by their employees’ cashing the checks. Id. at 776–77. The Illinois appellate court held “that because the drafts were accepted by the banks, the Insurers’ obligation to pay for the medical services performed by [the plaintiffs] was discharged pursuant to section 3-414(c).” Id. at 777. The court rejected the plaintiffs’ argument that the checks were effectively dishonored under
As in Affiliated Health Group, the drawee here, Foremost’s bank, disbursed the settlement funds to Paramount, discharging Foremost’s performance obligation on the claim. The checks were not dishonored, lost, destroyed, or stolen; copies of them are in the record. And we know that Paramount is amenable to service because the parties deposed Paramount’s owner. Thirteen thus may not recover from Foremost
Similar to here, in Parkway Bank & Trust Co. v. State Farm Fire & Casualty Co., 990 N.E.2d 1202, 1203 (Ill. App. Ct. 2013), a co-payee sued an insurer for fire loss proceeds. The insurer responded it had already disbursed the settlement checks to a third-party contractor who was also a co-payee. Id. at 1203, 1205. The insureds had authorized the contractor to receive claim proceeds. Id. at 1204–05. Upon receiving the checks, the contractor forged the plaintiff’s endorsement, and the bank disbursed the amount to the contractor. Id. at 1205.
The Illinois appellate court held that once the check was paid, the obligation was discharged to the amount of the check. Id. at 1206 (citing
Thirteen’s arguments to the contrary are all based on either cheapest-cost-avoider policy or non-Illinois caselaw. Putting to the side that we are not the final arbiters of Illinois’s commercial code or its policy preferences, it is open to debate who here would be the cheapest cost avoider. At least where the co-payee that cashed the check is an agent of an aggrieved principal, the Restatement allocates the risk to the principal.4
But policy debates give way to Illinois’s apparent statutory preferences, revealed through its licensing and regulatory regime for public adjusters. See generally
Requiring the insurer to bear the costs of a public adjuster’s violation of statutory standards runs contrary to Illinois law, under which the public adjuster bears such consequences, whether by tort or through remedies and penalties under the licensing
Thirteen seeks to impose monitoring duties upon the insurer far beyond their insurance contract. Foremost agreed to provide coverage and payment for negotiated claims. But it did not agree to take responsibility for the actions of the public adjuster Thirteen hired or to ensure the bank performed proper diligence before paying a draft.
Thirteen cites two non-Illinois cases to argue that a joint co-payee’s unilateral cashing of a check does not discharge the payor’s obligation. Both cases cut against Thirteen, however. In VFS Leasing Co. v. Markel American Insurance Co., No. 8:21-CV-1297-TPB-JSS, 2022 WL 3924277, at *3–4 (M.D. Fla. Aug. 31, 2022), the district court acknowledged that various UCC states disagree on the issue. Id. at *3–4. And the VFS court specifically cited Parkway Bank & Trust, just discussed, as support that Illinois’s version of the UCC discharges the payor’s obligation in this circumstance. Id. at *3 n.6.
VFS did not involve an insured’s co-payee agent, and the district court in that case specifically limited its ruling to “the cashing of a two-party check by one copayee who is not the agent of the other copayee.” Id. at *3. The Texas Supreme Court case that Thirteen cites did the same. McAllen Hosps., L.P. v. State Farm Cnty. Mut. Ins. Co. of Tex., 433 S.W.3d 535, 540 n.4 (Tex. 2014) (“We do not address this holding’s applicability to copayees in an agency relationship, as that scenario is not presented.“). Here, of course, Paramount was Thirteen’s public adjuster and agent, responsible for claim negotiation and authorized to receive the settlement checks. This fact distinguishes these cases. See Kenerson v. F.D.I.C., 44 F.3d 19, 23, 30–33 (1st Cir. 1995) (holding that the common law of agency relieved a drawer-obligor of liability where the co-payee that cashed the checks was “an agent of plaintiff … authorized to receive the checks on her behalf“).
Accordingly, VFS Leasing and McAllen Hospitals—even if they were entirely consistent with Illinois law—do not support Thirteen’s position. More to the point, guiding Illinois cases Affiliated Health Group and Parkway Bank & Trust did not turn on—and the text of
C.
Finally, Thirteen says Foremost agreed to make claim payments to Thirteen in installments after Foremost had inspected repair work performed. As discussed earlier, Foremost’s delivery of the checks to Paramount constituted delivery to Thirteen, and when Paramount cashed the checks, that discharged Foremost’s payment obligations under the policy.
To the extent that Thirteen alleges a breach of a different agreement—whether as part of the original policy or as a modification thereof—its factual basis is thin. Thirteen points to its president’s deposition testimony that a Foremost adjuster told him “that any and all payments would be made in draws after inspection was performed at the property to make sure that the work was being done.” But such an agreement is not in the policy.
By its terms, the policy “is the entire agreement between [Thirteen] and [Foremost]
III.
Bound by Illinois’s statutes and guided by its appellate court decisions, we AFFIRM the district court’s judgment for Foremost.