Goldstein v. Fidelity and Guaranty Insurance Underwriters, Inc.

Michael Goldstein (plaintiff) owned four adjoining properties insured by Fidelity and Guaranty Insurance Underwriters, Inc. (Fidelity) (defendant). In 1992, Goldstein renewed coverage through the Mesirow Agency (Mesirow). At Mesirow’s request, Fidelity agreed to charge Goldstein a lower premium, because he was in the process of restoring the buildings’ sprinkler systems. Coverage began September 1, 1992, but the policy was not issued until October 29, 1992. In the interim, the buildings were covered through a binder issued by Mesirow. The Fidelity policy contained its standard requirement that the property be protected by an automatic sprinkler system. Mesirow’s binder, however, waived Fidelity’s sprinkler provision. Fidelity was unaware of the waiver. On October 5, a fire destroyed two of Goldstein’s buildings and damaged a third. The buildings were not equipped with automatic sprinklers. In November, Fidelity advanced $20,000 on Goldstein’s claim. In December, it sent Goldstein a letter warning that future fires might not be covered if the sprinkler system were not operational. After learning about the waiver in Mesirow’s binder, Fidelity agreed to full coverage, ultimately paying $713,314 on the claim. Fidelity held back $391,175, which was contractually payable only after the property’s repair or replacement. In April 1993, a second fire destroyed the remaining buildings. The sprinkler system was not operating at the time, and Fidelity denied coverage. The following year, Goldstein sold the properties without repairing or replacing them. He sued Fidelity in an Illinois state court, alleging that it was estopped from denying coverage and that it had breached the parties’ insurance agreement. Fidelity removed the case to federal court on the basis of diversity. After Goldstein moved for summary judgment, the court, sua sponte, awarded summary judgment to Fidelity. Goldstein appealed.