MYRON GORDON, Senior District Judge.
The plaintiff, MAJC, Inc., filed its complaint on January 17, 1994, in the circuit court for Milwaukee county. On July 21, 1994, the defendant, Patrick Milligan, removed this action to federal court on the ground that it was an action between citizens of different states and the amount in controversy exceeded $50,000. See 28 U.S.C. § 1332. A trial to the court was conducted from July 17, 1995, through July 18, 1995. This opinion constitutes the court's findings of fact and conclusions of law pursuant to Rule 52, Federal Rules of Civil Procedure.
I. BACKGROUND
Mr. Milligan was the owner of a restaurant and bar, Ye White Horse Inn [the "Inn"], located at the intersection of Route 5 and Highway 67 in Elkhorn, Wisconsin, from approximately November 1990 until July 1993. After operating the Inn himself for a few months, Mr. Milligan executed a lease on March 1, 1991, with Aric Fischer, Michael Broussard, John Biersack and Cherie Biersack — the stockholders and officers of MAJC at that time. As of September 1992, Mr. Fischer's tenure as a stockholder and officer of MAJC ceased, and he is not a party to this action. Mr. Broussard, Mr. Biersack and Ms. Biersack will be collectively referred to herein as "the tenants."
Pursuant to the agreement of the parties, Mr. Milligan leased the Inn and the property on which it was located to the tenants for the purposes of operating the Inn. The lease, which was drafted by an attorney for Mr. Milligan, had a term of one year to expire on February 28, 1992. It expressly provided that the law of Illinois would be the governing law. (Plaintiff's Exhibit 1, ¶¶ 3A. and 27E.)
The lease identified the "premises" subject to the lease as:
A.
Land: The land legally described in Exhibit A attached hereto, commonly known as Route 5, Highway 67, Elkhorn, Wisconsin 53121.
B.
Structures and Improvements: All buildings and improvements now or hereafter erected on such land either prior to the commencement of or during the Lease, and all fixtures, equipment and other property, as described in Exhibit B attached hereto and made a part hereof, (all of the foregoing
being herein collectively called the "Improvements").
(Plaintiff's Exhibit 1.) Exhibit B to the lease purported to describe the "Personal Property and Trade Fixtures included in Lease," but it did not list any such items as it was left blank.
Under the lease, the tenants were obligated to maintain fire insurance on a portion of the premises. This obligation is set forth in paragraph 9 of the lease and provides, in part:
B.
Fire and Extended Coverage Insurance: Tenant agrees to carry and maintain at all times during this Lease, at Tenant's own cost and expense and for the benefit of Landlord, extended coverage fire insurance, roof collapse, plate glass and boiler insurance in amounts covering Improvements on the Premises of not less than the full insurable replacement value thereof. A certificate of such policy or policies of insurance and proof of payment therefor by Tenant shall be furnished to Landlord by Tenant. . . .
(Plaintiff's Exhibit 1.)
At the time the lease was executed, the premises subject to the lease were insured by a policy purchased by Mr. Milligan from Tower Insurance Company in the amount of $250,000. (Defendant's Exhibit 2054). According to Mr. Milligan's testimony, this policy expired on June 28, 1991.
When the parties met in late May or early June 1991 to execute the lease, Mr. Milligan informed the tenants that he wanted them to obtain a $300,000 insurance policy on the building. On June 28, 1991, a $175,000 insurance policy was obtained by the tenants for the building through Wisconsin Farmer's Insurance Company ["Wisconsin Farmer's"]. (Plaintiff's Exhibit 7.) In addition to binding the building, the tenants obtained personal property insurance coverage in the amount of $20,000 on June 28, 1991, for the property that they owned and used in the operation of the restaurant. The record establishes that a copy of the insurance policy was sent to Mr. Milligan as he was an additional insured on the policy. Mr. Milligan testified that he received a "notice" from Wisconsin Farmer's.
On July 1, 1991, the $175,000 insurance policy was cancelled. Mr. Biersack informed his insurance agent that cancellation of the policy was warranted because the owner of the building was arranging for insurance through another insurance agency. (Plaintiff's Exhibit 7.) Approximately three months later, the tenants purchased $200,000 of replacement cost insurance on the building through Wisconsin Farmer's. The record demonstrates that this policy was transmitted to Mr. Milligan by Wisconsin Farmer's.
On April 12, 1992, the Wisconsin Farmer's insurance policy was transferred to Badger Mutual Insurance Company ["Badger Mutual"]. The Badger Mutual policy also named Mr. Milligan as an additional insured and provided coverage for $200,000 in replacement cost on the building with 80% co-insurance and $50,000 in "personal property" insurance. An 80% co-insurance provision contemplates penalizing the insured if the amount of coverage under the policy does not cover 80% of the actual loss suffered.
The parties have stipulated that in 1992 Mr. Milligan lent the tenants $15,000 for the purpose of allowing them to purchase more equipment for the restaurant; the loan was to be repaid in 47 monthly installments at an annual rate of 10.5%. (Defendant's Exhibit 2003.) As a condition of the loan, the lease for the Inn was automatically extended for the period of the loan. (Defendant's Exhibit 2003.) The parties have also stipulated that the tenants defaulted on the loan in January 1993 and owe Mr. Milligan $14,068 in principal and interest.
On January 3, 1993, a fire occurred at the Inn resulting in substantial damage to the facility and the land on which it was located. Ritter and Company ["Ritter"], a public adjuster, was hired by Mr. Milligan to represent his interest in the negotiations with Badger Mutual. (Defendant's Exhibit 2037.) Anthony Groh, an attorney, was retained by the tenants to represent their interests in collecting the insurance proceeds from the Badger Mutual policy.
MAJC and Mr. Milligan each lost over $50,000 of personal property in the fire. The value of the replacement cost of the building ranges from $248,063 to $349,202.
During the settlement negotiations between Ritter, Attorney Groh and Badger Mutual, Badger Mutual agreed to reduce the amount of the full replacement cost in its calculations to $299,323 for the purpose of reducing the co-insurance penalty. Ritter, in turn, agreed that the cost for repairing the building was $236,894. After taking depreciation and the co-insurance penalty into account, the settlement in terms of actual cash value was agreed to be $170,000, or $169,500 in light of the $500 deductible. (Defendant's Exhibit 2023A). A settlement of $50,000 was reached on the tenants' personal property coverage component of the Badger Mutual plan. Thus, in June 1993, Badger Mutual issued a check to Ritter in the amount of $219,500 which named as the payees, Attorney Groh, MAJC, Ritter and Mr. Milligan.
After the check was issued, the parties were unable to agree upon the amount each party was to receive. As a result, MAJC filed the instant lawsuit against Mr. Milligan, Ritter, and Badger Mutual seeking a declaration of the respective rights of the parties to the insurance proceeds. The tenants assert a right to $50,000 of the $219,500 settlement proceeds.
Mr. Milligan responded to the complaint and filed a number of counterclaims against the tenants. Specifically, Mr. Milligan alleges that the tenants, as signatories under the lease, violated its terms by failing to provide adequate fire insurance for his building and personal property. Under this theory, Mr. Milligan claims he is entitled to receive the entire amount of the settlement proceeds and additional damages. The second counterclaim arises out of the tenants' alleged default on the $15,000 equipment loan. Along with these counterclaims, Mr. Milligan advanced two crossclaims against Ritter.
By order of October 3, 1994, I dismissed all claims against Badger Mutual based on the stipulation of the parties. I also ordered Badger Mutual's check, which was in the amount of $219,500 and was made payable to the clerk of court, to be deposited in an interest bearing account pursuant to Local Rule 18 pending a decision on the merits.
Subsequently, the parties stipulated to dismissing all claims against Ritter and to disbursing $15,000 to Ritter from the amount on deposit with the clerk of court. The stipulation also provided that the $15,000 would be deducted from any amount Mr. Milligan received from the insurance proceeds. On June 16, 1995, I approved the parties' stipulation and directed the clerk of court to issue a check for $15,000 to Ritter from the amount that the clerk of court had on deposit. At present, $204,500 of the $219,500 remains on deposit with the clerk of court.
As previously noted, a trial to the court was conducted in this case from Monday, July 17, 1995, through Tuesday, July 18, 1995. At the close of the plaintiff's case, the defendant moved for judgment on partial findings under Rule 52(c), Federal Rules of Civil Procedure, as to the plaintiff's declaratory judgment claim and on its counterclaims against the tenants. In response, the tenants conceded their indebtedness to Mr. Milligan in the amount of $14,068, plus interest. In addition, the parties agreed that Mr. Milligan was entitled to the portion of the insurance proceeds attributable to the building loss in the amount of $169,500 less the $15,000 disbursement to Ritter.
Based on the concessions of the plaintiff and counterclaim defendants, I directed partial judgment in favor of the defendant for $14,068 and $154,500. However, I denied the portion of the defendant's motion as to the plaintiff's claim for the $50,000 personal property insurance proceeds and as to the defendant's counterclaims alleging breach of the lease.
II. ANALYSIS
A. Plaintiff's Declaratory Judgment Claim
The plaintiff seeks a declaration that it is entitled to the remaining $50,000 of the settlement proceeds insofar as that sum represents the coverage it purchased for its personal property in the restaurant. Mr. Milligan does not dispute that the remaining $50,000 of the insurance proceeds represents personal property coverage. However, he contends that the $50,000 is his pursuant to the tenants' obligation under the lease to insure his personal property in the restaurant; namely, the equipment he owned which was used by the tenants to operate the restaurant.
In my opinion, the evidence clearly demonstrates that the $50,000 personal property component of the insurance settlement represents coverage obtained by the tenants for their own personal property. Irrespective of any duty the tenants may have had under the lease to insure Mr. Milligan's personal property, the record lacks evidence which even suggests that the tenants procured insurance to cover Mr. Milligan's personal property. Moreover, the parties who participated in the settlement negotiations, including Richard Drazner, the agent for Ritter, viewed the settlement proceeds of $219,500 to have two distinct components: (1) the $169,500 building component belonging to Mr. Milligan due to his building loss; and (2) the $50,000 personal property component belonging to the tenants due to their personal property loss.
In sum, I find that plaintiff is entitled to $50,000 of the settlement proceeds on deposit with the clerk of court.
B. Counterclaim for Failure to Insure Fixtures and Equipment
Notwithstanding my rejection of the defendant's request for a declaration that the $50,000 portion of the insurance proceeds represented compensation for his personal property loss, Mr. Milligan's claim can also be viewed as one seeking damages in the amount of $50,000 from the tenants for the alleged breach of their obligation, if any, under the lease to purchase insurance to cover his personal property. Mr. Milligan argues that paragraph 9 of the lease agreement imposes on the tenants, as signatories to the lease, the duty to purchase insurance to cover all fixtures and equipment owned by him and located on the premises.
As previously noted, the tenants agreed under paragraph 9 of the lease to carry fire insurance in an amount "covering Improvements on the Premises of not less than the full insurable replacement value thereof." Under paragraph 1 of the lease, "Improvements" are defined as the building and "fixtures, equipment and other property as described on Exhibit B attached " to the lease. (Emphasis added). It is uncontested that Exhibit B failed to identify any fixtures, equipment or other property belonging to Mr. Milligan. In fact, Exhibit B did not list anything.
In total disregard of this definition, Mr. Milligan insists that the word improvements, as used in paragraph 9, refers to all of the equipment used by the tenants in the operation of the restaurant which they knew to be leased. His interpretation is not supported by the unambiguous language of the lease.
The lease that Mr. Milligan drafted very specifically limits his personal property considered to be an "improvement" to the equipment and fixtures which are listed in Exhibit B. His failure to list any items in Exhibit B does not allow him to redraft the contract. I find that the counterclaim defendants were not required under the lease, as drafted, to insure the equipment or other personal property of Mr. Milligan which was not listed on Exhibit B.
Moreover, Mr. Milligan's assertion that his status as an additional insured under the Badger Mutual policy entitles him to all of the insurance proceeds from that policy is unsupported by any authority. In my opinion, Mr. Milligan has not met his burden on this counterclaim.
C. Counterclaim for Failure Adequately to Insure the Building
Mr. Milligan claims that the tenants violated the provision of the lease which required them to provide fire insurance covering the building leased in an amount not less than the full insurable replacement value thereof. At the time of the fire, the insurance policy purchased by the tenants included coverage on the building in the amount of $200,000. The evidence presented at trial reveals that this amount was less than the full replacement value of the building and less than what Mr. Milligan had orally instructed the tenants to obtain. Nonetheless, the tenants argue that Mr. Milligan has waived his right to assert a claim for breach of this provision of the lease. According to the tenants, Mr. Milligan's implied waiver is demonstrated by the fact that he had notice of the amount of insurance purchased and accepted rent from them until the fire in January 1993 without requiring them to increase the insurance coverage on the building. Mr. Milligan contends that he was unaware of the amount of insurance the tenants had purchased for the building.
Waiver is either the express or implied voluntary and intentional relinquishment of a known right. National Tea Co. v. Commerce Industry Insurance Co., 119 Ill. App.3d 195, 74 Ill. Dec. 704, 711, 456 N.E.2d 206, 213 (1st Dist. 1983). The requirement that the waiving party have knowledge of the right or condition waived is met where the party's knowledge is actual or constructive. See International Insurance Company v. City of Chicago Heights, 268 Ill. App.3d 289, 205 Ill. Dec. 698, 707, 643 N.E.2d 1305, 1314 (1st Dist. 1994). While waiver may be implied, it requires that an intention to waive be clearly inferred from the circumstances. Kelly v. Economy Fire Casualty Co., 196 Ill. App.3d 337, 142 Ill. Dec. 898, 900, 553 N.E.2d 412, 414 (3d Dist. 1990). The burden of establishing waiver is on the party asserting that defense. See Ferrero v. National Council of Knights Ladies of Security, 309 Ill. 476, 481, 141 N.E. 130, 132 (1923).
Although Mr. Milligan professes ignorance as to the amount of the tenants' insurance policy, he testified at trial that he did receive "notices" from the issuing insurance companies. Further, the insurance agents from Wisconsin Farmer's and Badger Mutual both testified that they had sent copies of the relevant insurance policies to Mr. Milligan. Based on this evidence, I find that Mr. Milligan received copies of the insurance policies issued by Wisconsin Farmer's and Badger Mutual.
Under Illinois law, an insured has a duty to read and to know the contents of his or her policy. Floral Consultants Ltd. v. Hanover Insurance Co., 128 Ill. App.3d 173, 83 Ill. Dec. 401, 470 N.E.2d 527 (1st Dist. 1984); Foster v. Crum Forster Insurance Cos., 36 Ill. App.3d 595, 345 N.E.2d 49 (5th Dist. 1976). This duty extends to an additional insured. See Midwest Contractors Equipment Co. v. Bituminous Casualty Corp., 112 Ill. App.2d 134, 140, 251 N.E.2d 349, 352 (1st Dist. 1969) (the "insured" in a policy is not limited to the insured named in the policy but extends to "anyone who is insured" under the policy).
In my opinion, Mr. Milligan had constructive knowledge that the tenants had purchased only $200,000 worth of fire insurance on his building. Mr. Milligan was an additional insured who had the duty to know the contents of the insurance policy covering his property upon receipt of those policies. The record confirms that Mr. Milligan continued to accept rent payments from the tenants up until the January 1993 fire, and at no time did he take action to enforce the tenants' obligation under the lease to insure his building for its full replacement value.
I believe it can be clearly inferred from the circumstances that it was Mr. Milligan's intent to relinquish his right under the lease to have the building insured to its full replacement value. Accordingly, Mr. Milligan's counterclaim seeking breach of the tenants' responsibility adequately to insure the building will be dismissed.
ORDER
Therefore IT IS ORDERED that the clerk of court be and hereby is directed to enter judgment in favor of Patrick Milligan in the amount of $154,500, in connection with the plaintiff's declaratory judgment claim.
IT IS ALSO ORDERED that out of the $204,500 on deposit with the clerk of court, the latter be and hereby is directed to issue a check to Patrick Milligan in the amount of $154,500, plus interest, if any, earned on this amount while on deposit with the clerk of court.
IT IS FURTHER ORDERED that the clerk of court be and hereby is directed to enter judgment in favor of Patrick Milligan in the amount of $14,068 on his second counterclaim.
IT IS FURTHER ORDERED that the clerk of court be and hereby is directed to enter judgment in favor of MAJC, Inc. in the amount of $50,000 in connection with its declaratory judgment claim.
IT IS FURTHER ORDERED that out of the $204,500 on deposit with the clerk of court, the latter be and hereby is directed to issue a check to MAJC, Inc. in the amount of $50,000, plus interest, if any, earned on that sum while on deposit with the clerk of court.
IT IS FURTHER ORDERED that Mr. Milligan's remaining counterclaims for breach of the lease be and hereby are dismissed, with prejudice.
IT IS FURTHER ORDERED that the parties be and hereby are directed to bear their own costs in connection with this action.