## Facts

- Michael Goldstein owned a complex of four interconnected commercial buildings in Chicago.
- The property sustained two fires: one in October 1992 and another in April 1993; together they destroyed the complex.
- Goldstein obtained commercial property insurance through Fidelity, placed via a broker.
- The issued policy contained a protective safeguards endorsement requiring Goldstein to maintain an operational automatic sprinkler system as a condition of fire-loss coverage.
- After the October 1992 fire, Goldstein made a claim that Fidelity paid/settled within the policy’s time limits.
- At the time of the April 1993 fire, the sprinkler system was not in proper working order.
- Fidelity denied coverage for the April 1993 loss based on noncompliance with the sprinkler-system condition.
- Goldstein sued for breach of contract, equitable estoppel (based on alleged waiver/misleading conduct tied to premiums, the earlier claim payment, and a purported binder waiver), and statutory penalties for unreasonable and vexatious delay under the Illinois Insurance Code.
- In the district court, Goldstein moved for summary judgment; the court instead granted summary judgment sua sponte for Fidelity.

## Issues

1. Whether the district court could grant summary judgment sua sponte for Fidelity consistent with Rule 56 notice and opportunity-to-respond requirements.
2. Whether Fidelity was estopped (or had waived its rights) from enforcing the protective safeguards endorsement to deny the second fire claim.
3. Whether Fidelity’s denial or claim handling constituted unreasonable and vexatious delay under the Illinois Insurance Code.

## Decision

- The Seventh Circuit affirmed summary judgment for Fidelity.
- The court held Goldstein had adequate notice for a sua sponte ruling because he moved for summary judgment and asserted no genuine dispute of material fact.
- The court held Fidelity was not estopped from enforcing the sprinkler-condition endorsement where Goldstein knew of the condition and remained responsible for compliance.
- The court rejected arguments that acceptance of premiums, the earlier claim payment, an asserted lower rate, or an alleged failure to advance funds created estoppel or waiver.
- Because Fidelity had a valid contractual basis to deny the April 1993 claim, the statutory vexatious-delay claim failed as a matter of law.

## Legal Principles

- A court may grant summary judgment for a nonmovant if the opposing party has notice and an opportunity to present material relevant to summary judgment and is not unfairly surprised.
- When a party moves for summary judgment asserting no genuine issues of material fact, that party is generally on notice that judgment may be entered against it on the same record if the law so requires.
- Protective safeguards endorsements may operate as enforceable conditions of coverage, permitting denial of fire-loss coverage when the insured fails to maintain required safeguards (such as an operational sprinkler system).
- Equitable estoppel against an insurer requires conduct that materially misleads the insured to the insured’s detriment; prior premium acceptance or payment of a separate claim, without more, does not bar enforcement of a known policy condition.
- An insurer’s refusal to pay is not “unreasonable and vexatious” under the Illinois Insurance Code where the denial rests on a valid policy defense.

## Conclusion

The Seventh Circuit upheld a sua sponte summary judgment for the insurer because the insured’s own summary-judgment motion supplied adequate notice, and the insurer properly denied the second fire claim under a sprinkler-system condition that the insured failed to satisfy; the court also rejected estoppel and statutory penalty theories because the denial was contractually justified.


Goldstein v. Fid. & Guar. Ins. Underwriters, Inc., 86 F.3d 749 (7th Cir. 1996)