Case Title: Jewelers Mutual Insurance Co. v. Firstar Bank Illinois

Citation: 

Docket Number: 96805

State: illinois

Court: Illinois Supreme Court

Date: 2004-11-18T00:00:00Z

Document:
Docket No. 96805-Agenda 22-September 2004.
JEWELERS MUTUAL INSURANCE COMPANY et al., Appellees, 							v. FIRSTAR BANK ILLINOIS, Appellant.
Opinion filed November 18, 2004.
	JUSTICE THOMAS delivered the opinion of the court:
	At issue is whether the exculpatory clause in defendant Firstar
Bank's safety deposit box rental agreement is enforceable under the
facts of this case. We hold that it is not.
BACKGROUND
	More than $1 million worth of loose diamonds and jewelry was
stolen from three safety deposit boxes that defendant leased to jewel
dealers at one of its Chicago branches. The safety deposit box lease
agreements provided that the relationship of the parties was that of
landlord and tenant, not bailor and bailee. Additionally, the agreement
contained the following paragraph:
			"1. It is understood that said bank has no possession or
custody of, nor control over, the contents of said safe and
that the lessee assumes all risks in connection with the
depositing of such contents, that the sum mentioned is for the
rental of said safe alone, and that there shall be no liability on
the part of said bank, for loss of, or injury to, the contents of
said box from any cause whatever unless lessee and said bank
enter into a special agreement in writing to that effect, in
which case such additional charges shall be made by said
bank as the value of contents of said safe, and the liability
assumed on account thereof may justify. The liability of said
bank is limited to the exercise of ordinary care to prevent the
opening of said safe by any person not authorized and such
opening by any person not authorized shall not be inferable
from loss of any of its contents."
	None of the dealers had entered into the "special agreement"
referenced in the first sentence of this paragraph (hereinafter, the
exculpatory clause). Two of the dealers, Annaco Corporation and
Irving M. Ringel, Inc., had the contents of their boxes insured by
plaintiff Jewelers Mutual Insurance Company. The third dealer, Bachu
Vaidya, did not have the contents insured. Jewelers Mutual paid losses
totaling $887,400.37 to its two insureds, and then brought a
subrogation action against defendant. The complaint alleged breach of
contract and negligence. Vaidya sued defendant directly in a separate
action and sought recovery under the same theories. In its answer in
both cases, defendant admitted that it had been negligent in one or
more of the respects alleged by plaintiffs and that it had breached the
agreement in one or more of the respects alleged by plaintiffs.
	Relying on the exculpatory clause, defendant moved for and was
granted summary judgment in both cases. In Vaidya's case, the court
dismissed the negligence count based on Moorman Manufacturing
Co. v. National Tank Co., 91 Ill. 2d 69, 88-89 (1982). Although that
issue was also raised by defendant in the other case, the trial court
made no specific findings on that issue. Plaintiffs appealed, and the
two cases were consolidated.
	The appellate court affirmed the dismissal of the negligence count
in Vaidya's case, holding that the negligence count was barred by
Moorman. 341 Ill. App. 3d 14, 22. However, the court reversed the
summary judgment in favor of defendant in both cases on the breach
of contract counts, holding that the exculpatory clause was
unenforceable. The court gave two reasons for finding the clause
unenforceable. First, that the contract was ambiguous because the first
sentence of paragraph one provided that "there shall be no liability,"
while the second sentence said that the "liability of said bank is limited
to the exercise of ordinary care." 341 Ill. App. 3d at 18. The court
held that the ambiguity had to be resolved against defendant because
it drafted the contract. 341 Ill. App. 3d at 18. Next, the court held
that, because the parties had defined their relationship as landlord and
tenant, they subjected their relationship to the Landlord and Tenant
Act (765 ILCS 705/.01 et seq. (West 2002)). The Act provides that
exculpatory clauses that excuse a landlord from liability for his own
negligence are void as against public policy. 765 ILCS 705/1 (West
2002). The court rejected defendant's argument that the Act did not
apply because a lease of a safety deposit box is not a lease of "real
property." The court held that the boxes were fixtures to real
property, and that therefore the Act applied. 341 Ill. App. 3d at 20.
The court stated that defendant had admitted that it allowed
unauthorized access to the safety deposit boxes in both cases, and
therefore the court granted in part Jewelers Mutual's motion for
summary judgment and directed the entry of partial summary
judgment for Vaidya. The court remanded for proof of damages. 341
Ill. App. 3d at 23.
	Presiding Justice McBride dissented from the reversal of
summary judgment for defendant. She disagreed with the majority's
conclusion that the contract was ambiguous. She believed that the two
sentences in paragraph one could be reconciled by reading the second
sentence as referring to the "special agreement" mentioned in the first
sentence. 341 Ill. App. 3d at 27 (McBride, P.J., concurring in part and
dissenting in part). In other words, the paragraph means that
defendant has no liability for any loss whatsoever, unless the parties
enter into the special agreement referenced in the first sentence. If
they do, then defendant's liability is limited to the exercise of ordinary
care to prevent unauthorized access to the box. 341 Ill. App. 3d at 27
(McBride, P.J., concurring in part and dissenting in part).
Additionally, Presiding Justice McBride disagreed with the majority's
conclusion about the Landlord and Tenant Act. She argued that the
lease was for personal property rather than real property, and that the
parties had not subjected themselves to the Act merely by defining
their relationship as landlord and tenant. 341 Ill. App. 3d at 24
(McBride, P.J., concurring in part and dissenting in part). Finally, she
did not believe that the exculpatory clause was void as against public
policy because safety deposit companies are not generally insurers of
the safety of the box contents. 341 Ill. App. 3d at 27 (McBride, P.J.,
concurring in part and dissenting in part). We allowed defendant's
petition for leave to appeal. 177 Ill. 2d R. 315.
ANALYSIS
	Summary judgment is proper where the pleadings, affidavits,
depositions, admissions, and exhibits on file, when viewed in the light
most favorable to the nonmovant, reveal that there is no issue as to
any material fact and that the movant is entitled to judgment as a
matter of law. 735 ILCS 5/2-1005(c) (West 2002). We review
summary judgment orders de novo. Roth v. Opiela, 211 Ill. 2d 536,
542 (2004).
	Defendant first argues that the court erred in finding paragraph
one ambiguous. According to defendant, although this provision could
have been drafted better, its meaning is clear. Defendant contends that
the word "liability" is used two different ways in the first and second
sentences. In the first sentence, it refers to the amount of damages for
which defendant can be held responsible. In the second sentence, the
word "liability" addresses the standard of care. Thus, the second
sentence means that defendant has a duty to exercise ordinary care to
prevent the unauthorized opening of the box, but the first sentence
limits the amount of damages that can be collected for a breach of that
duty. At oral argument, defendant clarified that its position was that
the only damages that a customer could recover if defendant breaches
its duty of care would be a return of the rental fee. Defendant argues
that this interpretation takes into account the commercial setting in
which the parties contracted and also fairly allocates the liability to the
party who elected to bear the risk of loss. Here, none of the parties
entered into the special agreement referenced in the first sentence to
insure the contents of the box. Defendant argues that Annaco
Corporation and Irving M. Ringel, Inc., insured the contents of the
boxes with Jewelers Mutual and thus elected that Jewelers Mutual
would bear the risk of loss. Vaidya did not purchase insurance and
thus chose to bear the risk of loss himself.
	We disagree with defendant's argument. First, the first sentence
of paragraph one is simply not a limitation of damages clause. That
sentence provides that the customer assumes all risks of depositing the
contents of the box with defendant and that there "shall be no liability
on the part of said bank, for loss of, or injury to, the contents of said
box from any cause whatever." The clause does not say that, in the
event of a breach, the plaintiff's damages are limited to a return of the
rental fee. Rather, it is a general exculpatory clause purporting to
exculpate defendant from all liability for loss of or damage to the
contents of the box. In the very next sentence, however, defendant
assumes one particular liability: it must exercise ordinary care to
prevent the unauthorized opening of the box. We do not believe that
the clauses can be reconciled in the manner suggested by defendant.
	Further, defendant's invocation of insurance law "risk of loss"
concepts is a red herring. The issue in this case is not a dispute
between insurance companies over who bore the risk of loss. The
issues are whether defendant breached the contract it entered into with
plaintiffs and whether defendant can exculpate itself from all liability
for breach of an express obligation assumed in the contract.
	The construction placed on paragraph one by the dissenting
justice in the appellate court must also be rejected. The dissent argued
that the second sentence referred to defendant's liability in the event
that the parties entered into the "special agreement" listed in clause
one. This obviously cannot be the case because the first sentence
provides, in part, that there is "no liability on the part of said bank, for
loss of, or injury to, the contents of said box from any cause whatever
unless lessee and said bank enter into a special agreement in writing
to that effect." (Emphasis added.) In other words, there is no liability
for loss of or injury to the contents of the box from any cause
whatsoever unless the parties enter into an agreement that there will
be liability on the part of the bank for loss of, or injury to, the contents
of the box from any cause whatsoever. If the parties entered into such
an agreement, defendant's liability would not be limited to a failure to
exercise ordinary care to keep unauthorized persons out of the box.
Rather, defendant would become a general insurer of the contents of
the box. Thus, the two sentences cannot be reconciled in the manner
suggested by the appellate court dissent.
	We believe that paragraph one of the lease agreement is
ambiguous and that its two sentences are conflicting. In the first
sentence, defendant disclaims liability for any loss whatsoever. In the
second sentence, defendant assumes one particular liability. It must
exercise ordinary care to prevent unauthorized persons from accessing
the box. Defendant argues that, if we find this paragraph ambiguous,
then the resolution of its meaning is a question of fact and the case
cannot be decided on a motion for summary judgment. See Farm
Credit Bank of St. Louis v. Whitlock, 144 Ill. 2d 440, 447 (1991).
Defendant thus contends that, if we find an ambiguity, we must
remand the case to the fact finder to resolve the ambiguity. We
disagree.
	Whatever the meaning of the exculpatory clause, it clearly cannot
be applied to a situation in which defendant is alleged to have
breached its duty to exercise ordinary care to prevent unauthorized
persons from opening the box. This is a specific duty that defendant
assumed in the contract, and it formed the heart of the parties'
agreement. A party cannot promise to act in a certain manner in one
portion of a contract and then exculpate itself from liability for breach
of that very promise in another part of the contract. See, e.g., Shorr
Paper Products, Inc. v. Aurora Elevator, Inc., 198 Ill. App. 3d 9, 13-14 (1990) (criticizing the defendant for focusing solely on exculpatory
provision of contract to the exclusion of its specifically articulated
obligations, noting that such an interpretation would render
defendant's contractual duties illusory); Contact Lenses Unlimited,
Inc., v. Johnson, 176 Ill. App. 3d 875, 879-80 (1988) (holding that
contractual requirements imposed upon the defendant would be
meaningless if the defendant could ignore those provisions with no
penalty). Here, plaintiffs have received nothing in return for their
rental fee if they cannot hold defendant to its contractual obligation to
exercise ordinary care to prevent unauthorized persons from accessing
their safety deposit boxes.
	This same conclusion was reached by the Florida District Court
of Appeal in Sniffen v. Century National Bank of Broward, 375 So. 2d 892 (Fla. App. 1979). In that case, the safety deposit box rental
agreement was similar to the one here in that it contained two
conflicting provisions. One was a general, broad exculpatory clause
denying liability for any loss: "It is expressly understood . . . .that in
making this lease the Bank does not assume the relation and duty of
bailee and shall not be liable for loss or damage to, the contents of said
box, caused by burglary, fire or any cause whatsoever, but that the
entire risk of such of loss or damage is assumed by the lessee."
Sniffen, 375 So. 2d  at 893. In the second provision, the bank assumed
a duty to prevent unauthorized access: "No person other than the
renter or approved deputy named in the books of Bank . . . shall have
access to the safe." Sniffen, 375 So. 2d  at 893. The plaintiff alleged
that the bank breached this agreement when it allowed an authorized
person, his ex-wife, to access his safety deposit box. She removed
over $250,000 worth of bearer bonds and other valuables. The trial
judge dismissed the complaint on the ground that the exculpatory
clause barred plaintiff's action. Sniffen, 375 So. 2d  at 893.
	The Florida District Court of Appeal reversed, holding that,
"[w]hatever the possible effect of the exculpatory clause in other
situations *** it is clear that it cannot be employed, as it was below,
to negate the specific contractual undertaking to restrict access to the
vault." Sniffen, 375 So. 2d  at 893. The court cited Ivey Plants, Inc.
v. FMC Corp., 282 So. 2d 205, 208 (Fla. App. 1973), for the
proposition that an exculpatory clause cannot be applied to defeat a
breach of contract action based on a breach of a specific contractual
obligation. If such was the case, then the contract would be lacking in
mutuality of obligation, mutuality of remedy, and would be
unenforceable. Sniffen, 375 So. 2d  at 893. The Sniffen court further
elaborated on how this principle applies to safety deposit box rental
agreements:
			"It should be emphasized that, as the court noted in Ivey
Plants, an acceptance of the bank's position in this case
would render the agreement between the parties entirely
nugatory. If a safety deposit customer cannot enforce the
bank's undertaking to preclude unauthorized persons from
entry to his box which is the very heart of the relationship and
the only real reason that such a facility is used at all, see 5
Fla. Jur. 2d Banks and Banking, §139 (1978)-it is obvious
that he will have received nothing whatever in return for his
rental fee. The authorities are unanimous in indicating that no
such drastic effect may properly be attributed to contractual
provisions such as those involved here." Sniffen, 375 So. 2d 
at 893-94.
	We agree with the Sniffen court's analysis. In this contract, in
exchange for plaintiff's rental fee, defendant assumed the obligation
to exercise ordinary care to prevent unauthorized access to the safety
deposit box. Having assumed this duty, defendant cannot exculpate
itself from liability for a breach of that duty. Accepting defendant's
argument would mean that, if defendant routinely breached these
safety deposit box rental agreements by handing the keys to anyone
who came in off the street and asked for them, it would have no
liability to its customers except to give them their rental fee back. It
is safe to assume that, if defendant explained the agreement this way
in the contract, defendant would not have many safety deposit box
customers.
	Defendant's response to Sniffen is twofold. First, defendant
argues that it is distinguishable because it involved an exculpatory
clause that conflicted with another provision of the contract, while the
contract in the case before us contains no such conflict. This is clearly
incorrect. The contract here contains the same conflict as the contract
in Sniffen: a general exculpatory clause absolving the bank for all
liability from any loss whatsoever, and an express obligation to
prevent unauthorized opening of the box. Second, defendant argues
that Sniffen was distinguished in Federal Deposit Insurance Corp.,
436 So. 2d 227 (Fla. App. 1983). Defendant is correct, but that does
not help defendant. In Carre, the court agreed with Sniffen that a
bank cannot exculpate itself from all liability to its safety deposit box
customers. Carre upheld a partial exculpatory clause that limited the
bank's safety deposit box liability to instances of gross negligence,
fraud, or bad faith. Carre, 436 So. 2d  at 229-30. Here, defendant's
exculpatory clause did not limit its liability to instances of gross
negligence, fraud, or bad faith, as in Carre. Rather, as in Sniffen, it
purported to absolve defendant from any liability whatsoever. Thus,
we fail to see the relevance of Carre to this case.
	Defendant further argues that the appellate court's decision
undermined subrogation principles. Defendant points out that
subrogation is an equitable remedy and cites Bost v. Paulson's
Enterprises, Inc., 36 Ill. App. 3d 135 (1976), for the proposition that
subrogation is grounded on the principle that a debt should be paid by
the entity who "in equity and good conscience" should pay that debt.
Defendant then argues that it would be "highly inequitable" to allow
Jewelers Mutual to escape its responsibility for the lost contents of the
safety deposit boxes when it alone was paid to assume the risk of that
loss. We disagree. Defendant's position, not Jewelers Mutual's, would
undermine subrogation principles. What would be highly inequitable
would be to allow defendant to escape all responsibility when the loss
is alleged to be a direct result of defendant's breach of its contractual
obligations. Annaco Corporation's and Ringel's policies with
Jeweler's Mutual were not liability policies for defendant.
	We hold that the exculpatory provision is not applicable to an
allegation that defendant breached its duty to exercise ordinary care
to prevent unauthorized access to the box. Our resolution of the issue
in this manner renders unnecessary a discussion of whether the parties
subjected themselves to the Landlord and Tenant Act by defining their
relationship as landlord and tenant.
	We affirm the appellate court's judgment reversing the summary
judgment for defendant, entering summary judgment for plaintiffs, and
remanding for proof of damages.
Affirmed.