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United States District Court, Northern District of Illinois, E.D

May 17, 1983


The opinion of the court was delivered by: Shadur, District Judge.


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 AGL-270 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 Indeed 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
  1980. In

  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 Believing 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. ("Pearl")*fn11 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 dispositive arguments:

    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

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 Section 143.18.

IAI disputes Section 143.18's applicability on three flimsy grounds:

    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
  covers AGL-270.

    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.

Conditional Privilege

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
  in character.

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, 1303 (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

Count IX

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 reasons:

    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)).

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