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CHICAGO HMO v. TRANS PACIFIC LIFE INS. CO.

September 9, 1985

CHICAGO HMO, PLAINTIFF,
v.
TRANS PACIFIC LIFE INSURANCE CO., DEFENDANT.



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

MEMORANDUM OPINION AND ORDER

Plaintiff Chicago HMO, Ltd. ("Chicago HMO") filed its six count complaint alleging that defendant Trans Pacific Life Insurance Co. ("Trans Pacific") breached a contract of specific excess insurance between Chicago HMO and Trans Pacific by refusing to pay benefits during the first 12 months after the expiration of the applicable policy (Count I), and by failing to give timely notice of Trans Pacific's decision not to renew the policy (Count II). Count III of the complaint seeks a declaration that the insurance contract was at all relevant times valid and enforceable and that Trans Pacific must pay Chicago HMO for both past and anticipated claims which are allegedly covered under the policy.

In Count IV of the complaint, which is directed against defendant Harry M. Brewer individually ("Brewer"), Chicago HMO alleges that Brewer was the employee or agent of defendant Brewer Insurance Agency, Inc. ("Brewer Insurance"), a California corporation, and was at all relevant times acting within the scope of his agency or employment. Chicago HMO seeks to hold Brewer individually liable for breach of an agency agreement or of a contract to procure insurance or in tort for negligent procurement of insurance.

In Count VI, Chicago HMO seeks to invoke the civil remedy contained in the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1961, et seq. Chicago HMO alleges that defendants Brewer and Trans Pacific formed an "enterprise" under the RICO statute and committed two acts of mail fraud by sending separate signed copies of the insurance policy through the mails with the intent to defraud Chicago HMO. These acts of mail fraud allegedly constituted a "pattern of racketeering activity," thereby entitling Chicago HMO to treble damages from all three defendants pursuant to RICO.

Each of the three defendants has filed a joint motion to dismiss Counts IV, V, and VI of the complaint for failure to state a claim upon which relief can be granted. The jurisdiction of this Court is grounded upon both diversity of citizenship and federal question jurisdiction. For the reasons stated below, the motion to dismiss is denied as to Count IV, but granted as to Counts V and VI of the complaint.

Facts*fn1

In October, 1982, Chicago HMO, a health maintenance organization, sought to obtain insurance for losses it would incur in paying for covered claims of its health plan members. Defendant Brewer agreed to serve as Chicago HMO's insurance agent to obtain such insurance for a period of approximately one year. Chicago HMO instructed Brewer that it required insurance which covered losses incurred during the period of the contract regardless of when the bills for such claims were actually paid.

Brewer obtained a policy of insurance for Chicago HMO issued by Trans Pacific for a period commencing November 10, 1982 and ending September 30, 1983. The insurance contract, insures Chicago HMO for specific losses incurred during the policy period and defines specific losses as "the total amount of money you (Chicago HMO) have actually paid during the policy period, and during the first twelve months thereafter, to or on behalf of any one health plan members."

On September 27, 1983, three days prior to the renewal date of the contract, Trans Pacific advised Chicago HMO, for the first time, that it would not renew the policy. This late notice was contrary to the terms of the contract which required Trans Pacific to give written notice of its refusal to renew at least 31 days prior to the renewal date. Chicago HMO was then forced to procure other insurance for the period commencing October 1, 1983.

Consistent with its normal billing practices, Chicago HMO continued after September 30, 1983 to review and pay bills for health care services which were incurred by various health plan members during the policy period. Trans Pacific maintained it was not obligated to indemnify Chicago HMO for claims paid after September 30, 1983. Trans Pacific thus refused to pay claims totalling $346,361.83, contending that its policy only covered claims incurred and paid during the policy period and that the insertion of the provision covering claims paid for twelve months after the policy expired was an inadvertent clerical error. Chicago HMO then commenced this action with the filing of its six count complaint.

Discussion

Count IV — Brewer's Failure to Adequately Procure Insurance

In Count IV of the complaint, Chicago HMO alleges that defendant Brewer is personally liable for his failure to procure adequately a policy of insurance having certain provisions according to the directions given to him by Chicago HMO. Although acknowledging the liberal notice pleading standard set forth in Conley v. Gibson, 355 U.S. 41, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957), defendants argue that Count IV must be dismissed for several reasons. First, defendants contend that Count IV is deficient because it does not specify whether Brewer's alleged failure to procure insurance adequately constitutes a cause of action for negligence or breach of contract. Second, defendants claim that, under either theory, Count IV is deficient because it insufficiently pleads the requisite elements of any state law cause of action. Finally, defendants assert that because the complaint alleges that Brewer at all times was acting as the agent and employee of Brewer Insurance, and because the general rule is that an agent is not personally liable for a breach of ...


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