CXA Corporation v. American Family Insurance Company
Filing
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MEMORANDUM Opinion and Order Signed by the Honorable Marvin E. Aspen on 11/7/2016: Defendant American Family Insurance Company's Rule 19(a) motion to join The 1900 Austin Building Corporation 28 is denied. Mailed notice(mad, )
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF ILLINOIS, EASTERN DIVISION
CXA CORPORATION,
Plaintiff,
v.
AMERICAN FAMILY INSURANCE
COMPANY,
Defendant.
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Case No. 15 CV 11412
Hon. Marvin E. Aspen
MEMORANDUM OPINION AND ORDER
Presently before us is Defendant American Family Insurance Company’s (“American
Family”) motion to join The Austin 1900 Building Corporation (“Austin 1900”) as a plaintiff in
this suit brought by Plaintiff CXA Corporation (“CXA”) against American Family for breach of
an insurance contract. (Mot. for Joinder (Dkt. No. 28).) For the reasons stated below, we deny
American Family’s motion.
BACKGROUND
American Family issued an insurance policy to Austin 1900 effective March 31, 2014
through March 31, 2015 for the property at 6001 West Dickens Avenue, Chicago, Illinois (the
“insured property” or the “property”). (Compl. (Dkt. No. 1), Ex A at Pg. ID #12.) Austin 1900
has owned the insured property at all times relevant to this lawsuit. (Compl. ¶ 8.)
The insurance policy contains a mortgageholders clause which provides coverage
specifically to the mortgageholder for loss in certain circumstances. (Id., Ex. A. at Pg. ID #99.)
Two sections of that clause are relevant here. First, under Section 2(b), American Family
promises to provide coverage to the property’s mortgageholder for covered losses. (Id.) Second,
under Section 2(d), American Family promises to provide coverage to the mortgageholder in
some instances for losses that are not covered. (Id.) Section 2(d) provides that, when the insurer
denies a claim because of the named insured’s act or failure to comply with the policy terms, the
insurer may still provide coverage to the mortgageholder so long as the mortgageholder has
“notified [the insurer] of any change in ownership, occupancy or substantial change in risk
known to the mortgageholder.” (Id.)
The insurance policy identifies the mortgageholder of the property as CLMG Corporation
as Servicer for Beal Bank – Nevada (“Beal Bank” or “CLMG”). (Id. at Pg. ID #78.) On or
around January 8, 2014, Beal Bank assigned the note, mortgage, and loan documents for the
insured property to LNV Corporation. (Compl., Ex. B at Pg. ID #130–31.) On that same day,
LNV Corporation assigned the note, mortgage, and loan documents for the insured property to
CXA. (Id. at Pg. ID #124–25.) On the basis of that assignment, CXA claims it is the
mortgageholder of the property. (Compl. ¶ 15.)
On or around December 15, 2014, the roof collapsed at the property. (Id. ¶ 18.) After the
roof collapsed, Austin 1900 submitted an insurance claim, which American Family denied.
(Compl., Ex. C at Pg. ID #136–37.) CXA claims a right to the insurance claim because it alleges
it is the mortgageholder of the property. In a July 23, 2015 letter, American Family stated that
the collapse resulted from uncovered “long term wear and tear, rot and deterioration,” and
therefore it would not “honor any claim for damage or repair.” (Id.) CXA contends that “snow
and ice accumulation” caused the roof to collapse, and therefore American Family should pay for
the loss. (Compl. ¶ 18.) The disagreement over whether American Family should have covered
the loss forms the basis of the present suit. (Id. ¶¶ 21–25.)
CXA filed suit against American Family on December 17, 2015, alleging that American
Family breached its insurance contract with CXA, as mortgageholder, when it refused to pay
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CXA for losses associated with the roof collapse at the insured property. American Family filed
the instant motion for joinder of Austin 1900 on July 26, 2016. (Mot. for Joinder.)
LEGAL STANDARD
Rule 19 governs joinder of mandatory parties. Fed. R. Civ. P. 19(a). The aim of Rule 19
is to “permit joinder of all materially interested parties to a single lawsuit so as to protect
interested parties and avoid waste of judicial resources.” Askew v. Sheriff of Cook Cnty., Ill.,
568 F.3d 632, 634 (7th Cir. 2009); Moore v. Ashland Oil, 901 F.2d 1445, 1447 (7th Cir. 1990).
The party moving for joinder has the burden to demonstrate that we should join the absent party
if feasible. Florian v. Sequa Corp., No. 98 C 7459, 2002 WL 31844985, at *3 (N.D. Ill.
Dec. 18, 2002) (citing Pudela v. Swanson, No. 91 C 3559, 1996 WL 754106, at *4 (N.D. Ill.
Dec. 31, 1996); cf. NanoeXa Corp. v. Univ. of Chicago, No. 10 C 7177, 2011 WL 4729797,
at *1 (N.D. Ill. Oct. 6, 2011) (observing that, for the purposes of a Rule 12(b)(7) motion to
dismiss for failure to join a party under Rule 19, it is the moving party’s burden to demonstrate
the absent party is a necessary and indispensable party under Rule 19).
To determine if an absent party must be joined under Rule 19, we first determine whether
the absent party is “required to be joined if feasible” under Rule 19(a). Davis Cos. v. Emerald
Casino, Inc., 268 F.3d 477, 481 (7th Cir. 2001); Moore, 901 F.2d at 1447. A party is required to
be joined if feasible if:
(A)
(B)
in that person’s absence, the court cannot accord complete relief among existing
parties; or
that person claims an interest relating to the subject of the action and is so situated
that disposing of the action in the person’s absence may:
(i)
as a practical matter impair or impede the person’s ability to protect the
interest; or
(ii)
leave an existing party subject to a substantial risk of incurring double,
multiple, or otherwise inconsistent obligations because of the interest.
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Fed. R. Civ. P. 19(a)(1). If a party must be joined, then we must also determine whether joinder
is feasible under Rule 19(b). Askew, 568 F.3d at 635 (describing the two-step process courts use
to analyze Rule 19 joinder motions).
ANALYSIS
American Family argues that Austin 1900 is a required party because: (1) in its absence,
we cannot accord complete relief among existing parties, (Mot. for Joinder ¶ 6); (2) Austin 1900
is an insured, and all insureds “are necessary parties to the suit when their claims for coverage
are in issue,” (id. ¶ 8); and (3) Austin 1900 “claims an interest relating to the subject of the action
and is so situated that disposing of the action in its absence may leave American Family subject
to a substantial risk of incurring double, multiple or otherwise inconsistent obligations,” (id. ¶ 7).
I.
Complete Relief Among the Parties
CXA seeks relief for a loss it believes American Family should have covered under the
insurance policy’s mortgageholders clause. (Compl. ¶¶ 9–15, 23–25.) American Family argues
that CXA is not a mortgageholder, and that we cannot accord complete relief among the parties
without joining Austin 1900 because CXA’s rights under the insurance policy are, at the very
most, “commensurate with whatever coverage” Austin 1900 may claim. (Pl.’s Reply Br. (Dkt.
No. 37) at 4 (citing Old Second Nat’l Bank v. Indiana Ins. Co., 2015 IL App (1st) 140265, ¶ 20,
29 N.E.3d 1168, 1175 (1st Dist. 2015).)
In response, CXA contends that the “language of the Policy’s Mortgageholder clause
qualifies as a ‘standard loss payable clause,’” under which CXA has an “independent contractual
relationship with [American Family].” (Pl.’s Resp. Br. (Dkt. No. 36) at 2.) CXA argues that, on
the basis of that independent contractual relationship, it “may maintain an independent cause of
action against American Family,” and “[a]ny action by this Court on Plaintiff’s complaint will
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fully adjudicate the rights of both parties as to one another with respect to the insurance claim at
issue. (Id. at 2–3.)
In the context of Rule 19(a), “the term ‘complete relief’ refers only to ‘relief between the
persons already parties, and not as between a party and the absent person whose joinder is
sought.’” Davis, 268 F.3d 477 at 484 (quoting Perrian v. O’Grady, 958 F.2d 192, 196
(7th Cir. 1992)). American Family has not shown that we cannot accord complete relief among
the existing parties in this action. CXA’s present action concerns its rights, as the alleged
mortgageholder of the insured property, to receive payment for the losses caused by the roof
collapse at the property. (Compl. ¶¶ 9–15.) American Family has provided no reason we
cannot, without Austin 1900’s participation, adequately determine whether CXA is entitled to
payment under its theory that it is a mortgageholder for the insured property. See Old Second
Nat’l Bank, 2015 IL App (1st) 140265 at ¶ 20, 29 N.E.3d at 1175 (“The ‘standard’ mortgage
clause, more broadly, forms a separate and distinct contract between the insurer and the
mortgagee.”).
Instead, American Family argues that “[i]n light of the fact that, at most, CXA merely
enjoys the same rights under the policy as 1900 Austin, 1900 Austin must be made a party to
properly determine those rights.” (Pl.’s Reply Br. at 4.) Assuming for the sake of argument that
CXA is not a mortgageholder, American Family has still not demonstrated that we cannot accord
complete relief among the existing parties without joining Austin 1900. 1 In relying on Old
Second Nat’l Bank, American Family’s argument is presumably that CXA may, at most, have
rights pursuant to a “‘simple’ mortgage clause,” as opposed to a “‘standard’ mortgage clause,”
such that it “will receive insurance proceeds only to the extent of its interest as stated in the
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Accordingly, we need not decide the more fundamental question of whether CXA is in fact a
mortgageholder for the purpose of deciding the present motion.
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policy, subject to all of the same defenses to coverage as the insured.” Old Second Nat’l Bank,
2015 IL App (1st) 140265 at ¶ 20, 29 N.E.3d at 1168; see also Chrysler First Commercial
Corp. v. State Farm Ins. Co., 269 Ill. App. 3d 318, 321–322, 646 N.E.2d 647, 649
(2d Dist. 1995). However, American Family has provided no compelling reason why Austin
1900’s participation in this suit would be necessary to determine CXA’s interest as stated in the
policy, or to determine what defenses to recovery American Family may deploy. Thus,
American Family has failed to demonstrate that, even if CXA is not a mortgageholder, we cannot
accord complete relief among the existing parties.
II.
Absent Party’s Interest
Second, we consider whether Austin 1900’s ability to protect its interest in the subject
matter of the litigation will be impaired if it is not joined. Thomas v. United States,
189 F.3d 662, 667 (7th Cir. 1999); see also, e.g., Pasco Int’l (London) Ltd. v. Stenograph Corp.,
637 F.2d 496, 501–02 (7th Cir. 1980) (reviewing “alleged sources of prejudice” toward the
absent person). American Family contends that Austin 1900 claims an interest in this case
because it is the named insured and the property owner. (Mot. for Joinder ¶ 7.) Significantly,
Austin 1900 is aware of this litigation and has not attempted to intervene. Indeed, American
Family’s deposition of Austin 1900’s owner prompted the instant motion for joinder. (Dkt.
Nos. 23, 28 ¶ 3); see Davis, 268 F.3d at 483–84 (“under Rule 19(a), it is the absent party that
typically must claim” an interest in the litigation); Leaf Funding, Inc. v. PMI Sports, Inc.,
No. 07 C 4571, 2008 WL 4717166, at *5 (N.D. Ill. May 29, 2008) (“When an outsider is aware
of an action and does not claim an interest, courts typically do not second-guess the decision.”).
Additionally, American Family has provided no evidence that Austin 1900 will be prejudiced if
we do not join it in this case. Instead, American Family merely asserts “[a]s a named insured
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and the owner of 6001 Dickens, The Austin 1900 Building Corporation claims an interest
relating to the subject of the action.” (Mot. for Joinder ¶ 7.)
Furthermore, Austin 1900’s potential interest in the subject of this litigation likely differs
substantially from CXA’s claims against American Family, such that that Austin 1900 is not at
risk of losing its ability to protect its interest. CXA sued pursuant to the mortgageholders clause
of the insurance policy, which grants the mortgageholder certain rights to coverage that are
independent from the named insured’s right to coverage. (Compl. ¶¶ 9–10, 20–25, Ex. A at Pg.
ID #99); see Old Second Nat’l Bank, 2015 IL App (1st) 140265 at ¶ 20, 29 N.E.3d at 1175 (“The
‘standard’ mortgage clause, more broadly, forms a separate and distinct contract between the
insurer and the mortgagee.”). Although Austin 1900, as owner of the insured property, could
have an interest in payment of an insurance claim for the roof collapse, Austin 1900 does not
have an interest in that payment pursuant to the Mortgageholders clause, which underlies the
case before us.
Nevertheless, American Family argues that insureds are always “necessary parties when
their claims for coverage are in issue.” (Mot. for Joinder ¶¶ 8–9 (citing Sta-Rite
Industries, Inc. v. Allstate Ins. Co., 96 F.3d 281, 285–86 (7th Cir. 1996); Northland Ins.
Co. v. Hawk, 59 Ill. App. 3d 155, 157, 376 N.E.2d 30, 32 (1st Dist. 1978); Safeway Ins.
Co. v. Harvey, 36 Ill. App. 3d 388, 392, 343 N.E.2d 679, 682 (1st Dist. 1976).) However, these
cases are legally and factually distinguishable from the instant case. American Family first relies
on Northland and Safeway, which both held that absent parties were required to be joined when
their rights could be adversely impacted by the outcome of the litigation. Northland, 59 Ill. App.
3d at 158, 376 N.E.2d at 32; Safeway, 36 Ill. App. 3d at 391–92, 343 N.E.2d at 682). While we
agree that the absent party’s ability to protect its interest is a relevant consideration when
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determining whether it is a required party, see Fed R. Civ. P. 19(a)(1)(B)(i), neither Northland
nor Safeway in any way demand that an insured is always a required party. Rather, both cases
found the insureds to be indispensable parties where the resolution of the action without their
presence would, in those particular circumstances, prejudice them. Northland, 376 N.E.2d at 32;
Safeway, 343 N.E.2d at 682. American family has shown no such prejudice to Austin 1900 here,
particularly where Austin 1900 is aware of the lawsuit and roof collapse, and has chosen not to
assert any claims.
American Family also contends that Sta-Rite Industries, Inc. requires us to join
Austin 1900. 96 F.3d 281(7th Cir. 1996). However, Sta-Rite is also distinguishable. Sta-Rite
affirmed the dismissal of an action for failure to join one of multiple insurers based, in relevant
part, on Wisconsin substantive law providing “joint and several liability for insurers that cover
the same risks.” Id. at 284–85 (determining that an insurer was an indispensable party where the
case concerned which insurer’s coverage applied, whether excess coverage was implicated, and
how to allocate defense and indemnity liability among insurers in plaintiff’s claim). Unlike
Sta-Rite, which concerned potential prejudice to absent insurers, the present case turns on
whether a named insured must be joined in a suit where a third party, CXA, claims an
independent contractual relationship with the lone insurer. Accordingly, Sta-Rite does not
require the joinder of Austin 1900.
For the above reasons, American Family has failed to demonstrate that Austin 1900 will
be prejudiced if not made a party to this action.
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III.
Risk of Multiple or Inconsistent Obligations
Finally, we consider whether any existing parties might be subjected to a substantial risk
of multiple or inconsistent obligations should Austin 1900 not be joined. Davis, 268 F.3d at 481;
Thomas, 189 F.3d at 667. American Family asserts in conclusory fashion that, without joinder of
Austin 1900, it will be subjected to a substantial risk of multiple or inconsistent obligations.
(Mot. for Joinder ¶ 7.) However, under CXA’s theory that it is a mortgageholder within the
meaning of the insurance policy’s Mortgageholder’s clause, American Family has distinct
obligations to both CXA as mortgageholder and Austin 1900 as named insured. See Old Second
Nat’l Bank, 2015 IL App (1st) 140265 at ¶ 20, 29 N.E.3d at 1175 (“The ‘standard’ mortgage
clause, more broadly, forms a separate and distinct contract between the insurer and the
mortgagee.”).
As we observe above, American Family argues that CXA is not a mortgageholder and, at
most, “possesses rights commensurate with whatever coverage the named insured, 1900 Austin,
has under the policy.” (Pl.’s Reply Br. at 4.) In support, American Family cites Old Second Nat’l
Bank, in which the Illinois Appellate Court held that a mortgagee with rights under a simple
mortgage clause, as opposed to a standard mortgage clause, has “no greater right of recovery
than the insured” and “will receive insurance proceeds only to the extent of its interest as stated
in the policy.” 2015 IL App (1st) 140265 at ¶ 20, 29 N.E.3d at 1175. However, American
Family has provided no evidence that—assuming it has correctly characterized the limits of
CXA’s rights under the insurance policy—it is at greater risk of incurring multiple or
inconsistent obligations. Even if CXA is not a mortgageholder and may only be able to recover
insurance proceeds based on “its interest as stated in the policy,” or may be “subject to the all of
the same defenses to coverage as the insured,” American Family has not shown that it is at
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greater risk of incurring multiple, inconsistent obligations. Id. Additionally, that a party with
rights under a simple mortgage clause may bring an action “separate from that of the named
insured,” Chrysler First Commercial Corp., 269 Ill. App. 3d at 323, 199 N.E.2d at 650, militates
against presuming that American Family might be at risk of multiple and inconsistent obligations
if CXA’s rights are at most “commensurate with whatever coverage the named insured,
1900 Austin, has under the policy,” (Def.’s Reply Br. at 4). Therefore, American Family has not
demonstrated that it might be subjected to a substantial risk of multiple or inconsistent
obligations should Austin 1900 not be joined.
CONCLUSION
For the above reasons, American Family’s Rule 19(a) motion to join The 1900 Austin
Building Corporation is denied. It is so ordered.
____________________________________
Honorable Marvin E. Aspen
United States District Judge
Dated: November 7, 2016
Chicago, Illinois
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