United States District Court, Northern District of Illinois, E.D
May 17, 1983
INTERNATIONAL ADMINISTRATORS, INC. AND SHELDON HARRISON, PLAINTIFFS,
LIFE INSURANCE COMPANY OF NORTH AMERICA, DEFENDANT.
The opinion of the court was delivered by: Shadur, District Judge.
MEMORANDUM OPINION AND ORDER
International Administrators, Inc. ("IAI") and its President
Sheldon Harrison ("Harrison")*fn1 originally filed a 12-count
Complaint against Life Insurance Company of North America
("LINA"), charging interference with IAI's contractual
relationships, interference with prospective advantage, breach
of contract and defamation. In turn LINA filed a motion to
dismiss, which this Court granted only as to Count VIII.
541 F. Supp. 1080 (N.D.Ill. 1982)("Opinion I"). LINA has now moved
under Fed.R.Civ.P. ("Rule") 56 for summary judgment as to the
surviving counts. For the reasons stated in this memorandum
opinion and order, LINA's motion is granted in its entirety.
Beginning in 1971 IAI was broker and administrator for
various group insurance programs of the Department of Iowa of
the American Legion and its Ladies Auxiliary (collectively
"Iowa Legion"). In 1976 IAI solicited LINA to underwrite the
policy*fn3 for Iowa Legion members. Then a few years later
IAI selected LINA as underwriter for Iowa Legion's "Cancer"
and "Wheels" policies.
During the preliminary negotiations as to IAI's commissions
for securing Cancer and Wheels coverage, LINA Group Manager
John Haffner sent a November 22, 1978 letter to former IAI
President Richard Albert ("Albert"), providing "a synopsis of
our continuing discussion on these risks." That letter
(dealing with such insurance for both Iowa and Illinois
Legions) confirmed LINA's willingness to pay IAI, as an
inducement to place the Wheels business with LINA, a
"contingent commission" supplementing any commissions IAI
received directly from the Legion:
We will allow an agency contingency on Iowa and
Illinois Legion Wheels policies whereby we will
take 20% for our expenses profit, etc., allow you
25% commission takeover first year (30% new and
20% renewal thereafter), subtract the paid claims
and IBNR (15% premium at year end) and split the
remainder 50/50 until you reach 10% total
additional compensation. . . .
On January 9, 1979 LINA and IAI executed a written agreement
establishing a commission schedule for Cancer and Wheels
coverage for several policyholders, including Iowa Legion.
That contract makes no mention of any contingency fee
agreement. It did however improve on IAI's position under the
November 22 letter "synopsis" in two ways:
1. Its commission rates are higher than those
contemplated in the letter.
2. It provided a $50,000 advance on
Sometime in 1980 IAI replaced LINA with another insurance
company as underwriter of Cancer and Wheels coverage for Iowa
Legion subscribers. No other change in the relationship among
IAI, LINA and Iowa Legion occurred until the fall of 1980,
when IAI became more than 90 days delinquent in remitting Iowa
Legion premiums in the "six figures" (Jackson Dep. 28).*fn4
That period of delinquency comports with neither industry
custom (Roehr Dep. 33-34; Sweeney Dep. 24-25) nor IAI's past
practice (Jackson Dep. 29; Harrison Dep. 60-61).*fn5
IAI was contractually obligated to transmit AGL-270 premiums
within 45 days after the first day of the billing quarter
(LINA Doc. 01809).
Through mid-March 1981 LINA repeatedly asked IAI to pay the
delinquent premiums. Each time Harrison provided immediate
payment (Jackson Dep. 28-29). In an undated letter received by
Harrison March 18 (the "March 18 letter"), LINA Vice President
Lowell Jackson ("Jackson") threatened suit if the premiums
were not paid by March 23, 1981:
Your account with I.N.A. is considerably overdue.
Our records indicate non-payment of premium for
the above accounts as far back as September of
addition, much of this business was moved to
other carriers without proper notification to us.
We must insist that all past due premiums be
remited to us immediately. If we do not receive a
full accounting with the appropriate premiums by
March 23, 1981, we shall begin legal action to
collect these accounts.
By that time LINA had decided to discontinue its dealings
with IAI. To accomplish that LINA realized it must also sever
its relationships with any policyholder, such as Iowa Legion,
represented by IAI. Termination of AGL-270 coverage required
notice to Iowa Legion 30 days before the policy's "anniversary
date" — the only permissible cancellation date.*fn6
the anniversary date to be May 1,*fn7
LINA felt it had to act
quickly to comply with the notice requirement. Consequently
Jackson sent identically-worded letters (the "March 19
letters") to two Iowa Legion officials, one of whom was
Adjutant John B. Brokens ("Brokens"):
I.N.A. has provided Hospital Income coverage to
members of the Iowa American Legion and its
Auxiliary since May 1, 1976. During that time we
have been very appreciative of our relationship
with your organization. I.N.A. is a leading
underwriter of American Legion insurance
coverages and we value the business highly.
We regret to inform you that we have not received
certain premiums on policies issued to the Iowa
American Legion that were due as far back as
September, 1980. These premiums were collected by
your broker, Mr. Sheldon Harrison of G & H
Insurance Administrators, Inc., but have not been
remitted to I.N.A.
We must inform you that under these circumstances
it is no longer possible for us to do business
with Mr. Harrison. Since he is your appointed
broker, we are in a position that forces us to
terminate our relationship with your organization
as long as he is your representative. We regret
that this action is necessary and trust you can
appreciate our situation. Please accept this
letter as intent to cancel Policy # AGL-270 on
May 1, 1981. We will, of course, cooperate with
you in every way and see that individual claims
are handled properly.
Jackson was mistaken in saying the outstanding premiums
reached as far back as September 1980. Three days before the
March 19 letter was written LINA had received the premiums due
in September 1980, though premiums due in October 1980 remained
unremitted as of March 19 (LINA Docs. 00901 and 01324; LINA
Dep. Ex. 104).*fn8
However Jackson's deposition (wholly
uncontroverted even inferentially) leaves no room for doubt
the March 19 letters (including their mistaken assertion) were
tendered in good faith:
1. For the six months preceding March 19
Jackson and other LINA officials had sought
assiduously to resolve IAI's delinquency problems
in an amicable manner (Jackson Dep. 29).
2. LINA's March 19 letter simply sought to
convey (and explain) to Iowa Legion LINA's
intention not to renew the AGL-270 policy
(Jackson Dep. 20). There is no hint the letters
were stimulated by a desire to sabotage IAI's
relationship with Iowa Legion.*fn9 Indeed
Jackson had no idea "what would happen" as a
result of the letters and in fact did not expect
the Iowa Legion "would even contact [him]"
(Jackson Dep. 26).
3. In drafting the March 19 letters Jackson
sought all possible sources of information on
IAI, including up-to-date reports from LINA's
Accounting Department (Jackson Dep. 32). That
coupled with the close proximity in time (three
days between LINA's receipt of the delinquent
September premiums and Jackson's March 19
letters) reconfirms the bona fides of Jackson's
belief he was reporting IAI's delinquency
After receiving the March 19 letter Brokens telephoned
Jackson and asked him to recommend a broker with whom LINA was
willing to deal. Jackson "absolutely would not recommend" a
specific replacement for IAI but instead suggested three
possibilities, John P. Pearl and Associates, Ltd.
and two others (Brokens Dep. 55-56, Jackson
Dep. 25). After interviewing Pearl and at least one of the
other two brokers, on April 1, 1981 Iowa Legion's Executive
Committee chose Pearl as IAI's successor as to all insurance
plans (including the Cancer and Wheels programs). There were
essentially three reasons for Pearl's selection:
1. Brokens had been personally acquainted with
Pearl for ten years (Brokens Dep. 18-19, 65).
2. Pearl was successfully administering Legion
accounts in other states (Brokens Dep. 19, 21).
3. Pearl had a good reputation for reliability
(Brokens Dep. 20-21).
No committee member was interested in retaining IAI (Brokens
Dep. 43), though Iowa Legion had been satisfied with IAI's
service before the March 19 letter (Brokens Dep. 61).
Though aware its position as Iowa Legion's administrator was
in jeopardy, IAI made no attempt to inform Iowa Legion of the
inaccuracy in the March 19 letters. In fact Albert, then an
IAI consultant, frequently communicated with Brokens after
March 19 without ever alluding to the mis-statement
(Albert Dec. 23, 1982 Dep. 45).*fn12 Moreover, Harrison
failed to keep appointments set by Iowa Legion to discuss
IAI's continuing as administrator (Brokens Dep. 25-27).
Needless to say, the loss of Iowa Legion's patronage
adversely affected IAI's profitability. According to
Harrison's uncontroverted Dep. 223, IAI's commission income
realized on all Iowa Legion policies approximated $100,000.
But the loss of the Iowa Legion account did have some offsets:
1. IAI sold its records as to Iowa Legion
subscribers to Pearl for $140,000 (LINA Dep. Ex.
2. IAI's shareholders (including Harrison)
received an approximately $100,000 rebate on
their original purchase price of IAI stock,
compensating for the decline in IAI's commission
income during the period from August 1, 1980
through August 1, 1981 (Harrison Dep. 13).*fn13
Holding LINA responsible for the loss of Iowa Legion's
business, IAI brought this action. Its eleven remaining
Complaint counts assert the following claims:
1. Counts I-V charge tortious interference with
IAI's contractual relations, and Counts VI-VII
allege interference with IAI's prospective
advantages. Though each Count focuses on a
different insurance plan administered by IAI on
Iowa Legion's behalf, they share a single
gravamen. Count II ¶ 6 is representative:
Beginning in March 26, 1981, as aforementioned,
Defendant communicated with Iowa and
intentionally acted in a way calculated to
cause damage to the Plaintiff by the use of
intimidation, force, coercion, and
misrepresentation and threats to the Iowa
Department with the malicious intent of
preventing Plaintiff from fulfilling its
contract with Iowa with the intent to induce
Iowa not to continue a valuable business
relationship with the Plaintiff, to have Iowa
transfer its insurance sponsorship from
Plaintiff to John P. Pearl & Associates, a
broker administrator favored by Defendant. Such
acts by Defendant were without privilege and
interfered with the Plaintiff's right to
conduct its business.
Even though the initial word "Beginning" implies
an ongoing course of action, IAI's only proffered
evidence of "intimidation, force, coercion, and
misrepresentation and threats" are the March 19
letters and the one telephone conversation
between Jackson and Brokens that closely followed
Iowa Legion's receipt of those letters.
2. Count IX is a breach of contract claim based
on LINA's contingent commission proposal in its
November 22, 1978 letter.
3. Counts X-XII allege LINA sent defamatory
letters (including the March 19 letters) to
several of IAI's clients. Those claims survived
LINA's motion to dismiss only as to the March 19
LINA's Rule 56 assault on those counts can now be explored.
LINA's Summary Judgment Motion
LINA's motion advances numerous contentions, most of which
have merit. To
avoid overkill, this Court will address only the following
1. Illinois Insurance Code § 143.18 ("Section
143.18," Ill.Rev.Stat. 1981, ch. 73, § 755.18)
immunizes LINA from liability under Counts I-VII
and X-XII — claims arising from communications
pertaining to its notice of nonrenewal.
2. Illinois' conditional privilege doctrine
also insulates LINA against recovery under those
counts, for the record fails to support even an
inference of bad faith or actual motive on LINA's
3. Because negotiations between IAI and LINA
ultimately produced the January 9, 1979 written
contract, the parol evidence rule bars assertion
of LINA's November 22, 1978 contingent fee
proposal — the sole basis of Count IX.
Section 143.18 provides:
Liability of company or agents regarding statements
made in notices or information. There shall be no
liability on the part of and no cause of action of
any nature shall arise against any company, its
authorized representative, its agents, its
employees, or any firm, person or corporation
furnishing to the company information as to reasons
for cancellation, or nonrenewal, for any statement
made by any of them in any written notice of
cancellation or nonrenewal, or any other
communications, oral or written, specifying the
reasons for cancellation or nonrenewal, or for the
providing of information pertaining thereto.
That provision is fatal to Counts I-VII and X-XII. It will be
remembered those Counts attack the March 19 letters and the
Jackson-Brokens telephone conversation, each conveying (1)
LINA's intention to cancel the AGL-270 policy and (2) IAI's
failure to remit premiums as the reason for cancellation. But
those aspects of the communications are expressly protected by
IAI disputes Section 143.18's applicability on three flimsy
1. Though Illinois common law applies to this
lawsuit, Iowa's (not Illinois') Insurance Code
provides the governing statutory requirements.
2. Section 143.18 was enacted as part of Public
Act 79-686 (the "Act"), whose "lead" section
— Section 143.11 — says the Act does not extend
to "life, accident and health, and ocean marine
policies"*fn15 — an exclusion that concededly
3. Section 143.18 is inapplicable because only
statutes regulating group insurance could
possibly control this action.
Each contention is capable of swift disposition:
1. Opinion I, 541 F. Supp. at 1082 held
"Illinois law provides the substantive rule of
decision."*fn16 IAI concedes that proposition as
to all case law matters; its Mem. 5 says:
Plaintiff agrees that Illinois common law
controls in this law suit. . . .
IAI adduces no authority for splitting off the
legal principles established by Illinois
cases from those established by Illinois statutes.
No principled distinction can be drawn in that
respect: If the Illinois
courts may confer tort rights of action (and are
relied on to do so by IAI), the Illinois
legislature may limit those rights of action
— as it has done in Section 143.18.
2. "Lead" Section 143.11's exclusion of
policies like AGL-270 cannot be impliedly
engrafted upon Section 143.18. Several other Act
provisions are expressly limited to insurance
policies "to which Section 143.11 applies,"
demonstrating the General Assembly knew how to do
so when it wishes. Other provisions of the Act
single out particular types of policies for
special treatment as to cancellation. By contrast
Section 143.18 contains no such limitation of
either kind. On the contrary its sweeping
language ("any company, its authorized
representative, its agents, its employees, or any
firm, person or corporation") confirms its
unfettered scope. Indeed Section 143.18 is found in
Illinois Insurance Code Article IX, entitled
"Provisions Applicable to All Insurance Companies."
3. Statutes addressed to group insurance plans
are of course one (but not the sole) source of
legal precepts governing breach of
contract claims involving the interpretation of
such plans. It is however frivolous to assert those
statutes impliedly preempt statutory and judicial
authorities that define an insurance company's tort
liability in connection with group insurance
Accordingly Section 143.18 bars all IAI's now-existing claims
other than Count IX.
But even were the conclusion otherwise — even were Section
143.18 wholly inapplicable — Counts I-VII and X-XII could not
survive. All those counts are also foreclosed by Illinois'
doctrine of conditional privilege. Zeinfeld v. Hayes Freight
Lines, Inc., 41 Ill.2d 345, 349, 243 N.E.2d 217, 221 (1969)
(quoting Judge v. Rockford Memorial Hospital, 17 Ill. App.2d 365,
376-77, 150 N.E.2d 202, 207 (2d Dist. 1958)) provides the
classic exposition of that principle:
Where circumstances exist, or are reasonably
believed by the defendant to exist, from which he
has an interest or duty, or in good faith
believes he has an interest or duty, to make a
certain communication to another person having a
corresponding interest or duty, and the defendant
is so situated that he believes, in the discharge
of his interest or duty or in the interests of
society, that he should make the communication,
and if he makes the communication in good faith,
under those circumstances, believing the
communication to be true, even though it may not
be true, then the communication is qualifiedly or
conditionally privileged, even though the
defendant's interest or duty be not necessarily a
legal one but only moral or social and imperfect
Originally developed in defamation cases, the concept has been
extended to tort claims of interference with contractual
relations and prospective business advantage. American Pet
Motels, Inc. v. Chicago Veterinary Medical Ass'n, 106 Ill. App.3d 626,
633-34, 62 Ill.Dec. 325, 331, 435 N.E.2d 1297
(1st Dist. 1982) (prospective business advantage claims);
Gasbarro v. Lever Brothers Co., 490 F.2d 424
, 426 (7th Cir.
1973) (Illinois' conditional privilege defense applies to "a
tort action for interference with contract or other business
relationships, or for defamation. . . .").
LINA has plainly satisfied the conditional privilege
requirement: a reasonable or good faith belief that (1) it had
"an interest or duty" to make the challenged communication and
(2) the substance of the communication was true.*fn17 As for
the first element, the record conclusively shows the March 19
correspondence furthered LINA's "interests or duties":*fn18
1. LINA sent those letters to protect its
legitimate interests in (a) ensuring timely
receipt of premiums and (b) cancelling policies
for which premium remittances were delinquent.
2. In light of its obligation under the AGL-270
policy to transmit advance written notice of its
intention not to renew, LINA had a duty to send
those letters once it decided to terminate its
relationship with IAI.
As for the second element, this opinion has already found no
genuine issue of material fact contesting LINA's good faith
belief in the truth of its disclosures in the March 19
letters. More than that, the specific statement now under
attack was substantially true — the untransmitted premiums had
been overdue for a significant period of time. It is absurd for
IAI to urge the one-month overstatement of the delinquency
period rendered that statement false in any material sense (see
nn. 9 and 12 and surrounding text).*fn19
Cf. Kilbane v.
Sabonjian, 38 Ill. App.3d 172, 175, 347 N.E.2d 757
, 761 (2d
Dist. 1976) (defense of truth defeats defamation claim so long
as "gist or sting" of the challenged statement is accurate). In
sum, LINA's conditional privilege also shields it from
liability on Counts I-VII and X-XII.*fn20
It only remains to determine the fate of Count IX. As
already stated, that Count is based on the November 22, 1978
letter in which LINA unilaterally offered IAI a contingency
fee arrangement while negotiations were still in progress.
But those negotiations culminated in the January 9, 1979
contracts. Consequently the November 22 document cannot
establish an enforceable contractual obligation for two
1. Illinois' parol evidence rule bars
consideration of the November 22 letter because
the January 9 contract was an integrated document
embracing the subject
matter addressed in the November 22 letter.
World Insurance Co. v. Smith, 28 Ill. App.3d 1022,
1025, 329 N.E.2d 518, 520 (1st Dist. 1975) confirms
the applicability of that doctrine:
The law is clear in Illinois that, as between
parties to an instrument, extrinsic evidence is
inadmissible to vary, alter, or contradict a
written instrument which is complete,
unambiguous, valid and unaffected by fraud,
duress, mistake, or illegality. (See
Spindler v. Krieger (2nd Dist. 1958), 16 Ill. App.2d 131,
139, 147 N.E.2d 457; 18 I.L.P.
Evidence § 251.) The written contract is
conclusively presumed to include all the material
terms, and all prior negotiations are merged into
that agreement. The intention of the parties must
be ascertained, if possible, from language
employed in the contract itself. Where there is
no ambiguity in the language of the contract, the
court should not consider extrinsic facts in
determining the intention of the parties.
Zimmerman v. Schuster (2nd Dist. 1957), 14 Ill. App.2d 535,
543, 145 N.E.2d 94; 18 I.L.P.
Evidence § 255.
2. Under conventional contract principles of
offer and acceptance, the making and acceptance
of the later offer that became the executed
January 9 contract implicitly revoked the earlier
November 22 offer. Of course the terms of the
later offer were different. And the fact that
some of those terms enhanced IAI's remuneration
in other (offsetting) respects reinforces the
conclusion the contingency fee proposal had been
Count IX too must fail.
There is no genuine issue as to any material fact, and LINA
is entitled to a judgment as a matter of law as to each of
Counts I-VII and IX-XII. LINA's summary judgment motion is
therefore granted. At this point LINA's two-count Counterclaim
presents the only remaining claims in this action (see
553 F. Supp. 82 (N.D.Ill. 1982)).