In the

    United States Court of Appeals
                For the Seventh Circuit
                    ____________________
No. 21-3116
WILLIAM M. WERNER,
                                               Plaintiff-Appellant,
                                v.

AUTO-OWNERS INSURANCE COMPANY,
                                              Defendant-Appellee.
                    ____________________

        Appeal from the United States District Court for the
                      Central District of Illinois.
      No. 3:18-cv-03190-SEM-TSH — Sue E. Myerscough, Judge.
                    ____________________

        ARGUED JUNE 7, 2022 — DECIDED JULY 9, 2024
                 ____________________

   Before HAMILTON, KIRSCH, and JACKSON-AKIWUMI, Circuit
Judges.
    HAMILTON, Circuit Judge. This appeal presents an issue
under Illinois insurance law about the extent of an owner’s
insurable interest when a home is in foreclosure proceedings.
The narrow issue is whether and to what extent the owner of
a home in foreclosure has an insurable interest in the property
after a judgment of foreclosure, after a judicial sale, and after
2                                                  No. 21-3116

expiration of all the owner’s rights of redemption, but before
judicial confirmation of the foreclosure sale.
     Plaintiff-appellant William Werner’s home in Springfield,
Illinois, was in foreclosure when it burned down in 2017. On
cross-motions for summary judgment, the district court ruled
that Werner had lost any insurable interest in the full value of
the property after the judicial sale occurred and all of
Werner’s rights of redemption had expired. The court held
that at the time of the fire, Werner’s only remaining insurable
interest in the property was based on his narrow right under
735 ILCS 5/15-1701(b) & (c)(1) to occupy the home until 30
days after the judicial sale was confirmed. The court awarded
him the rental value of that temporary right, not quite $4,000,
which was much less than Werner sought.
    Werner has appealed, and we affirm. When his home
burned down, Werner still held legal title to the property, but
he had no legal right to redeem it from foreclosure or other-
wise to retain it. Its future was out of his control. We agree
with Judge Myerscough that his only insurable interest was
in the value of his temporary right of possession.
I. Factual and Procedural Background
    A. The Mortgage, Foreclosure, and Sale
   Werner built a home in Springfield, Illinois, in the early
1980s. He borrowed money to build the home, and the loan
was secured by a mortgage. He later refinanced the loan and
mortgage through Nationstar Mortgage, LLC. Werner fell
behind in his mortgage payments, and in May 2013,
Nationstar filed a foreclosure action in an Illinois state court.
The court entered a default foreclosure judgment against
Werner, finding that he owed Nationstar $80,398.73 and that
No. 21-3116                                                   3

the debt was secured by a valid mortgage against his home.
The court ordered the property to be sold if, as eventually
occurred, Werner’s statutory redemption rights expired.
   The judicial sale of the property was delayed for several
years after Werner sought protection from his creditors in
bankruptcy. When the bankruptcy court lifted the stay on the
foreclosure proceedings, Werner’s home was put up for a
judicial sale to satisfy the foreclosure judgment. On June 14,
2017, a third-party buyer, Triple J Property Brothers, made the
highest bid: $23,606. A month later, Nationstar moved to
confirm the judicial sale to Triple J. Werner opposed
confirmation on three grounds, arguing that (1) Nationstar
lacked standing to sue; (2) Nationstar improperly calculated
the interest due on any deficiency judgment; and (3) the sale
price was unconscionably low.
   B. The Fire and Insurance Issues
    Before the state court ruled on Nationstar’s motion to con-
firm the sale, a fire destroyed Werner’s home. The fire was ap-
parently caused by a malfunctioning electrical panel. (In light
of the relevant case law and public policy concerns discussed
below on the doctrine of insurable interests, we must note
here that there is no indication that Werner caused the fire, let
alone that he did so deliberately.) In October 2017, after the
fire, the state court confirmed the sale to Triple J. The court
ruled that Nationstar was entitled to the sale proceeds of
$23,606 and ordered Werner to vacate the home within 30
days. The court did not impose any deficiency judgment
against Werner personally.
   When Werner’s home burned down, it was insured
against damage by a policy through defendant Auto-Owners
4                                                 No. 21-3116

Insurance Company. The policy provided in relevant part:
“we will not pay more than the insurable interest the insured
has in the covered property at the time of loss,” subject to a
primary policy limit of $174,000. Werner and Auto-Owners es-
timated that it would cost about $225,000 to replace the home.
Werner filed a claim seeking to recover his policy limit on the
home itself and two smaller coverages (for other structures
and debris removal). In all, Werner sought a combined recov-
ery of just over $190,000. Auto-Owners investigated the claim
and learned that the property had been sold at the judicial
sale. It then denied Werner’s claim for the full replacement
value of the home in its entirety, though it covered his claim
for lost personal property in the home.
    C. The District Court’s Ruling
    Werner filed this suit and won a modest partial victory. He
invoked the court’s diversity jurisdiction—Werner is an
Illinois citizen and Auto-Owners is a Michigan citizen—and
brought two claims under Illinois law, one for breach of the
insurance contract and another for vexatious delay in settling
his claim under an Illinois statute, 215 ILCS 5/155. On cross-
motions for summary judgment, the district court granted
partial summary judgment in favor of Werner on his breach-
of-contract claim. It found that Werner had an insurable
interest in his home after the judicial sale—but only to the
extent that Illinois law granted him the right to occupy the
premises for up to 30 days after the state court confirmed the
sale. The court granted summary judgment to Auto-Owners
on Werner’s vexatious delay claim, finding that Auto-Owners
had taken a reasonable legal position on an unsettled area of
law. Werner does not challenge this ruling on appeal. The
district court then held a bench trial on damages. The court
No. 21-3116                                                    5

found that Werner’s right to occupy the residence for up to 30
days after confirmation of the sale was worth $3,966.67 and
awarded Werner that amount. Auto-Owners has not cross-
appealed that judgment.
II. Analysis
    We review the entry of summary judgment de novo,
without deference to the district court, Gill v. Scholz, 

 (7th Cir. 2020), and we apply Illinois law as we
believe the Illinois Supreme Court would, In re I80 Equipment,
LLC, 

, 869–70 (7th Cir. 2019).
   A. The Insurable Interest Principle
   The concept of an insurable interest lies at the heart of the
business and law of insurance. It separates the sharing of
genuine risks of loss from wagers about calamities that may
befall others. See generally Chicago Title & Trust Co. v. U.S.
Fidelity & Guaranty Co., 

, 246–48 (7th Cir. 1975)
(explaining and enforcing insurable interest requirement); 1
New Appleman on Insurance Law Library Edition § 1.02
(2024) (noting eighteenth-century origin of doctrine in
England for insurance of ships and cargo, and later for life
insurance).
     Werner contends that he had an insurable interest for his
home’s full replacement value when it was destroyed because
the judicial sale had not yet been confirmed and he still held
title to the property. To recover on his insurance contract,
Werner needed to prove that he suffered damages when Auto-
Owners denied his claim. See Norem v. Lincoln Benefit Life Co.,

 (7th Cir. 2013). Werner’s possible damages
are limited to no more than the value of his insurable interest
in his home (subject to policy limits). See Chicago Title & Trust
6                                                     No. 21-3116

Co., 511 F.2d at 246–47, citing B. Harnett & J. Thornton, Insur-
able Interest in Property: A Socio-Economic Reevaluation of a Legal
Concept, 

, 1175–78 (1948) (explaining
that requirement of an insurable interest limits damages to the
scope of the insurable interest).
   Illinois does not define insurable interest by statute, nor is
the term defined in these parties’ insurance contract. The
scope of an insured party’s insurable interest is essential,
however, and Illinois courts often address questions of
insurable interest. They have explained that a person has an
insurable interest in property when the person “would profit
by or gain some advantage by its continued existence and
suffer loss or disadvantage by its destruction.” Murphy v. State
Farm Fire & Casualty Co., 

, 

 (internal quotations omitted).
    The insurable interest requirement can pose challenges in
cases like this one, where a loss occurs when a change in
ownership, control, or even physical condition is imminent or
already underway. Cases address looming demolition and
ongoing condemnation proceedings, as well as foreclosures.
In such cases, Illinois courts teach that an insurable interest is
assessed at the moment of loss and depends on the insured’s
control over the property. See id. ¶ 16, 

.
Under this framework, courts have found that an owner’s
insurable interest after a fire destroyed his or her property
already set for demolition is still the full value of the property,
so long as the owner retained control to stop the scheduled
demolition. See 

 (fire occurred six months after owners had
contracted for demolition of building but before work had
begun; owners still had insurable interest in full value because
they could still have canceled demolition); Garcy Corp. v. Home
No. 21-3116                                                     7

Insurance Co., 

, 480–82 (7th Cir. 1974) (fire
occurred after demolition contract was signed but before
work began; owner still had insurable interest in full value
because it could still have canceled demolition); Edlin v.
Security Insurance Co., 

, 162–63 (7th Cir. 1959) (fire
occurred while condemnation proceedings were pending;
owners still retained legal title and control and had insurable
interest in full value of property); American Nat’l Bank & Trust
Co. of Chicago v. Reserve Insurance Co., 

 (Ill.
App. 1962) (same).
    On the other side of this line we find Lieberman v. Hartford
Fire Insurance Co., 

 (Ill. App. 1972), where the fire
occurred after demolition work had actually begun, a distinc-
tion we noted in Garcy Corp., 496 F.2d at 481–82. The owner in
Lieberman had lost control over the condition of the building,
so the court held he no longer had an insurable interest that
he could protect against the loss. 287 N.E.2d at 40–41.
   No Illinois appellate decision, to our knowledge, has con-
sidered the precise question here: what insurable interest an
owner retains in a home after a judicial foreclosure sale and
expiration of all redemption rights, but before confirmation of
the sale under the procedures and rights established by the
1987 Illinois Mortgage Foreclosure Law, 735 ILCS 5/15-1101 et
seq.
   B. Others’ Insurable Interests
    Werner, the property owner, was not the only party with
a stake in the property. Through the foreclosure proceedings,
these others—the mortgagee and the buyer at the judicial
sale—also stood to gain some advantage by the continued
existence of the residence. Neither is a party to this lawsuit,
8                                                  No. 21-3116

however. The record does not tell us anything about their
interests or possible recoveries from insurance, so we need
not worry here about when the mortgagee surrendered its
insurable interest and when the buyer acquired an insurable
interest.
    C. Werner’s Insurable Interest
    As for Werner’s insurable interest in his home after the
judicial sale but before confirmation, both sides can point to
some support in Illinois case law. Werner points out that
when the fire occurred, he was still the owner of record. The
cases on insurable interests when a loss occurs while
condemnation proceedings are ongoing focus on the change
of title at the end of the proceeding as the key moment when
an owner loses an insurable interest. See Edlin, 269 F.2d at
162–63; American Nat’l Bank & Trust Co., 

.
Similarly, the demolition cases focus on whether demolition
could still be canceled or had already begun when a loss
occurred. Murphy, 

, ¶¶ 10–16, 978
N.E.2d at 652–53; Chicago Title & Trust Co., 511 F.2d at 246–47;
Garcy Corp., 496 F.2d at 480–82; Lieberman, 

.
    In response to the fact that the court had ordered
foreclosure and the judicial sale had already occurred at the
time of the fire, Werner asserts that the judicial sale had not
yet been confirmed by the court and thus was not final or
inevitable. In his view, the district court found correctly that
he retained an insurable interest, but he objects to the court’s
decision to limit his insurable interest to the value of his
temporary right of possession until 30 days after confirmation
of the sale.
No. 21-3116                                                        9

     Auto-Owners argues, on the other side, that the district
court correctly focused on what it considers the decisive fact
under Illinois law: Werner’s loss of his statutory and equitable
rights of redemption before the fire. The insurer relies on a
line of Illinois cases involving insured losses during
foreclosure proceedings that found the owner had an
insurable interest in the full value of the property as long as
the owner still had a right of redemption. See Stephens v.
Illinois Mutual Fire Insurance Co., 

 (1867) (“[I]t is
the settled law, that a mortgagor [owner] may insure to the
full value of the property, and recover the sum insured, if he
had a right of redemption at the time of the loss, even though the
premises have been taken out of his hands by the mortgagee.”
(emphasis added)); Rawson v. Bethesda Baptist Church, 

, 561–62 (Ill. 1906) (mortgagor [owner] had insurable
interest in property during period of redemption); Trustees of
Schools v. St. Paul Fire & Marine Insurance Co., 

,
568–69 (Ill. 1920) (“The mortgagor [owner] had an insurable
interest to the extent of the full value of the property, and his
interest continued after the sale and during the redemption
period.” (emphasis added)); City of Chicago v. Maynur, 

, 314–15 (Ill. App. 1975) (foreclosure is not
complete until redemption period has passed; while process
of foreclosure was ongoing, mortgagee and mortgagor/owner
continued to have insurable interests); see generally 3 Couch
on Insurance § 42:31 (3d ed. 2024) (“mortgagor’s insurable
interest terminates with the expiration of the period for
redemption”).
    More fundamentally, Auto-Owners asserts the general
principle that insurance is intended to indemnify against loss.
It should not put the insured in a better position than he
would have been in if the loss had not occurred. Courts in
10                                                 No. 21-3116

Illinois and elsewhere limit an owner’s insurable interest to
avoid creating incentives for destruction of insured
properties. See Chicago Title & Trust Co., 511 F.2d at 247–48
(limiting insurance recovery where insured building had
been virtually worthless at time of destruction).
     Werner responds to the line of redemption cases by
arguing that the 1987 Illinois Mortgage Foreclosure Law
undermines the reasoning of those cases. Under the statute,
foreclosure is not complete, and the owner/mortgagor retains
title and is not finally divested of his property rights, until
confirmation of a judicial sale. See 735 ILCS 5/15-1509(a) &
(b). That confirmation had not yet happened when Werner’s
home burned.
    Werner also points out that, although confirmation is
routine, it is not guaranteed. See HSBC Bank USA, N.A. v.
Townsend, 

 (7th Cir. 2015). Quoting language
from the Murphy case, he contends that a prediction that
confirmation will occur requires impermissible “speculating
about future, uncertain events.” 

, 

. He also finds support from the cases
of fires with impending demolitions where the owners
retained insurable interests so long as they could cancel the
planned demolitions. See, e.g., Garcy Corp., 496 F.2d at 481–82.
   As noted above, our role as a federal court exercising
diversity jurisdiction over claims arising under state law is to
decide them as we believe the state’s highest court would
decide them. Erie Railroad Co. v. Tompkins, 

(1938); State Farm Mutual Auto. Insurance Co. v. Pate, 

 (7th Cir. 2001). We agree with the district court’s
prediction that the Illinois Supreme Court would hold that
Werner did not have an insurable interest in the full value of
No. 21-3116                                                  11

the residence. The flaw in his reasoning is that, although
confirmation of this sale was not certain (and he had a right
to possess the property until 30 days after the sale was
confirmed), the sale meant that he no longer had a legal path
to retain ownership of the property. Werner’s statutory rights
of reinstatement and redemption both had long expired, and
his equitable right of redemption expired upon the judicial
sale. See 735 ILCS 5/15-1602, 1603(b), & 1605. Once expired,
those rights could not be revived. 735 ILCS 5/15-1603(c)(1) &
1605; see also Aurora Loan Servs., Inc. v. Craddieth, 

 (7th Cir. 2006) (applying these statutory provisions
against reviving rights of redemption).
    Accordingly, assessing Werner’s insurable interest at the
moment of loss, he was destined to lose title. If the initial
judicial sale had not been confirmed, the state court would
have simply held another sale (or if need be, a series of sales)
until one was confirmed to satisfy the foreclosure judgment.
See Mortgage Electronic Registration Systems, Inc. v. Estrella,

, 523–24 (7th Cir. 2004) (order refusing to confirm
sale was not final appealable judgment; another sale would
follow, and only final order confirming a sale would be
appealable).
       1. Loss of Control of Property
    Werner offers two remote possibilities that he says would
have let him retain control of the property. First, he might
have convinced mortgagee Nationstar to allow him to redeem
the property as a matter of grace. See Household Bank, FSB v.
Lewis, 

, 939–40 (Ill. 2008). Second, if he could
have shown that Nationstar “through fraud or misrepresen-
tation, prevented [him] from raising his meritorious defenses
to the complaint” or that he was “otherwise prevented from
12                                                No. 21-3116

protecting his property interests” during the foreclosure pro-
ceedings, then the sale and underlying foreclosure judgment
could have been vacated. See Wells Fargo Bank, N.A. v.
McCluskey, 

, 

. Neither
remote possibility establishes that Werner’s interest in his
property was its full value when it burned.
    The first possibility—that Nationstar would permit late
redemption as an act of grace—is too speculative a basis for
an insurable interest. See Murphy, 

, 

 (explaining insurable interest “should
not be determined by speculating about future, uncertain
events”). Under this late-redemption scenario, Werner still
would not have had a right to retain title to the property; it
would have depended entirely on an act of grace by
Nationstar. See Lewis, 

. Werner has not cited
authority indicating that an insurable interest can be based
upon such a possible act of grace. We would have to engage
in impermissible speculation to conclude that his insurable
interest was the property’s full value based on that remote
possibility. See Murphy, 

, 

.
   Nor does our analysis change based on the rare possibility
that the judicial sale and underlying judgment might be
vacated. A court may allow a “borrower to circumvent the
time limitations for redemption and reinstatement” and
vacate the underlying judgment only in the “rare cases”
where the borrower has both “a meritorious defense to the
underlying judgment” and the lender stopped the borrower
from raising it. McCluskey, 

, ¶¶ 25–26, 999
N.E.2d at 328–29. Otherwise, the court “shall” either confirm
the sale or set it aside and hold another if certain procedural
No. 21-3116                                                     13

steps were missed. 735 ILCS 5/15-1508(b). Much like Federal
Rule of Civil Procedure 60 and its state-law equivalents, this
statutory safety valve empowers a court to prevent a
miscarriage of justice. Nonetheless, Illinois courts teach that
this possibility does not entitle an owner to avoid the time
limits on redemption rights. See McCluskey, 

, 999 N.E.2d at 328–29; 735 ILCS 5/15-1508(b)(iv).
   More specific to this case, Werner also has not identified
any meritorious defense to the foreclosure judgment. Nor has
he argued that Nationstar prevented him from raising any
such defense during the foreclosure proceedings. To find that
Werner somehow retained an insurable interest in the full
value of his property because of the remote chance that the
foreclosure judgment might be set aside, we would have to
indulge in speculation on three points: (1) that he could have
discovered a meritorious defense; (2) that Nationstar pre-
vented him from raising the defense; and (3) the state court
would have agreed and vacated not only the sale but also the
underlying foreclosure judgment.
       2. Policies Underlying the Insurable Interest Doctrine
     Two more general considerations help persuade us that
Illinois courts would hold that, at the time of the fire, Werner
no longer had an insurable interest in the full value of the
home. First, a ruling in Werner’s favor would provide him
with a windfall. The purpose of fire insurance is to put the
insured in the same position as if the fire had not occurred.
See, e.g., Stendera v. State Farm Fire & Casualty Co., 

, 

. In this case, if the fire
had not occurred, Werner would have been able to occupy his
home only until 30 days after the court confirmed the sale. See
735 ILCS 5/15-1701. At the moment of loss, he had no right to
14                                                 No. 21-3116

retain title to the property. Receiving funds up to the full
limits of his insurance policy would have placed him in a
substantially better position than he would have been in
otherwise. Illinois law does not allow such an outcome. See
Stendera, 

, 25–26, 

 (reversing summary judgment for insurer based on
factual disputes, but making clear that property owners were
not entitled to “windfall”); Chicago Title & Trust Co., 511 F.2d
at 246–48 (sharply limiting scope of insurable interest to
prevent “gross inequity” that would result if insured were
able to recover policy limits far in excess of value of building
already badly damaged before covered fire).
    Second and relatedly, finding that a foreclosure-judgment
debtor is legally entitled to an insurance recovery of the full
value of the home—even though the debtor could not other-
wise retain title—would create a moral hazard, creating an in-
centive for arson, negligence, or other property damage and
destruction at a time when an owner has little left to lose.
See Farmers Auto. Insurance Ass’n v. St. Paul Mercury Insurance
Co., 

 (7th Cir. 2007) (affirming summary judg-
ment for insurer enforcing exclusion from liability coverage
for violations of overtime wage laws: “No insurance company
would knowingly write a policy that would enable the in-
sured to trigger coverage any time it wanted a windfall.”);
Chicago Title & Trust Co., 

 (insurable interest
requirement is based on policies against wagering and re-
warding, and thereby tempting destruction of property).
   As the Illinois courts have repeatedly determined, the
public policy considerations underlying the insurable interest
doctrine guide courts to avoid creating such incentives.
Insurance is supposed to offer indemnity against losses, not a
No. 21-3116                                                 15

potentially profitable wager. See Stendera, 

, 

 (“The law does not allow for
an insurance loss to turn into a profit because doing so would
encourage arson or neglect.”); Whitten v. Cincinnati Insurance
Co., 

, 1174–75 (Ill. App. 1989) (plaintiffs in
process of buying property had insurable interest but limited
in amount to avoid possible windfall or unjust enrichment;
allowing recovery for full amount of policy “might well
provide an incentive for an unscrupulous home buyer to
insure the property to be purchased, burn it, pay a reduced
price for it, and then recover fully under the insurance
policy”).
   To be clear, we do not suspect that Werner committed
arson or was even negligent. All indications here point to a
purely accidental fire. Nevertheless, in setting precedents that
can influence future cases, courts in Illinois and elsewhere
have used the doctrine of insurable interests to avoid creating
such destructive incentives. As the Illinois Appellate Court
wrote in Whitten: “We cannot encourage future fraud on
insurance companies.” 

. Pursuant to Erie
Railroad, we try to follow their lead.
   We agree with the district court that Werner retained a
very limited insurable interest in the property at the time of
the fire. Auto-Owners does not contest the district court’s
finding that Werner was entitled to recover the value of his
right to occupy his home until 30 days after the sale was
confirmed. See 735 ILCS 5/15-1508(g) & 1701. As the district
court explained, that was the innovation of the 1987 Illinois
Mortgage Foreclosure Law most relevant here, and it means
that his insurable interest did not disappear entirely when his
rights of redemption expired. Werner does not contest the
16                                                No. 21-3116

court’s valuation of that right based on estimated rental value
of the home before the fire, nor does he suggest that he had
any other right that the court ought to have considered in its
valuation. The district court’s eminently sensible judgment is
therefore AFFIRMED.