Foran Glennon founding shareholder Thomas Orlando secured an appellate win for his insurance company client as the U.S. Court of Appeals for the Seventh Circuit affirmed the insurance company satisfied its policy obligations under Illinois law when it delivered payment to the insured’s public adjuster. The client was originally awarded summary judgment by the U.S. District Court for the North District of Illinois, Eastern Division.
After the insured’s building suffered fire damages that were covered by the insurance policy of Foran Glennon’s client, the insured hired a public adjuster that doubled as a general contractor and “direct[ed] any insurance companies to include [the public adjuster] …. on all payments on” the fire loss claim.
The public adjuster negotiated the fire loss, and the insurance company issued two settlement checks payable to the insured, the public adjuster and the mortgagee, and delivered the checks to the public adjuster. The public adjuster endorsed for all co-payees and cashed the checks, keeping the proceeds.
The insured sued the insurance company seeking a declaratory judgment that the insurer had breached its policy by not paying the claim. The U.S. District Court granted the company summary judgment, stating that when the public adjuster received and cashed the checks, the company was discharged from its performance obligation to the insured.
The insured appealed, arguing three reasons for reversal:
- The insurance company waived payment as an affirmative defense by failing to plead it in its answer.
- Under Illinois law, the insurance company’s policy obligation for the loss was not discharged when it delivered the checks to the public adjuster.
- The insurance company alledgedly agreed to make claim payments to the insured in installments after the company inspected repair work performed by the general contractor.
The U.S. Court of Appeals for the Seventh Circuit agreed with Tom’s argument that because the insured alleged a failure to pay and the company denied this allegation, the denial of the insured’s allegation was sufficient to preserve the defense such that “payment” was not an affirmative defense in this context despite being identified as an affirmantive defense that must be pled under Federal Rule of Civil Procedure 8(c).
The Seventh Circuit then ruled that the insurance company’s delivery of the checks to the public adjuster was, by law, delivery to the insured based on agency principles. Moreover, under Illinois’s version of the Uniform Commercial Code, the insurance company’s performance obligation regarding the fire loss was discharged when the checks endorsed by the public adjuster were accepted for payment by the insurance company’s bank.
The court explained that while the insurance company agreed to provide coverage and payment for negotiated claims, it did not agree to take responsibility for the actions of the public adjuster the insured hired or to ensure the bank performed proper diligence before paying a draft.
This decision sets a precedent in Illinois law on the question of whether an insurance company’s delivery of a properly issued check to the insured’s public adjuster discharges the company’s performance under the insurance policy.
The court concluded that there is no record that the insurance company agreed to make claim payments to the insured in installments after the company inspected the repair work performed by the public adjuster/general contractor.
The U.S. Court of Appeals for the Seventh Circuit affirmed the district court’s grant of summary judgment for Foran Glennon’s client, finding that under Illinois law, the insurance company satisfied its policy obligations.
Focusing his practice in insurance and appellate law in both insurance and non-insurance disputes, Tom has experience representing both appellants and appellees in several state and federal courts nationwide. He is well-seasoned in a range of insurance coverage disputes, including property and liability coverage and litigation matters involving commercial and personal insurance.