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HELLER INTL. CORP. v. SHARP

July 12, 1994

HELLER INTERNATIONAL CORPORATION, a Delaware corporation, Plaintiff,
v.
ALEC SHARP (a United Kingdom subject, as Lead Underwriter of and for all the Subscribing Syndicates of Underwriters of Lloyd's London); GUARDIAN ROYAL EXCHANGE ASSURANCE COMPANY, LTD., a United Kingdom Corporation; ASSICURAZIONI GENERALI, an Italian corporation, BELLEFONTE INSURANCE COMPANY, a United Kingdom corporation, SPHERE INSURANCE COMPANY, LTD., a United Kingdom corporation; and DRAKE INSURANCE COMPANY, LTD., a United Kingdom corporation, Defendants.


MAROVICH


The opinion of the court was delivered by: GEORGE M. MAROVICH

Plaintiff, Heller International Corporation ("Heller") brings this action for breach of contract in its Sixth Amended Complaint against Alec Sharp, lead underwriter of a syndicate of underwriters at Lloyd's of London, Guardian Royal Exchange Assurance Company, Ltd., Assicurazioni Generali, Bellefonte Insurance Company, Sphere Insurance Company, Ltd., and Drake Insurance Company, Ltd. ("Defendants"). Heller alleges that Defendants refused to indemnify it under a fidelity bond issued by Defendants for losses sustained due to an employee's dishonest and fraudulent acts. As a result of the Defendants' refusal to honor the bond, Heller maintains that it was forced to borrow $ 10 million dollars and has now paid in excess of $ 10 million in interest.

 The Court is once again called upon to offer some guidance to the parties in this insurance coverage dispute which does its best to remain never-ending. Having failed to obtain dismissal of Heller's claim in a prior motion, Defendants now have moved for summary judgment claiming that Heller's claim for damages in excess of the bond's $ 10 million limit are preempted by Section 155 of the Illinois Insurance Code, 215 ILCS 5/155 (1992). Heller justifiably questions Defendants' failure to raise this issue in its earlier motion to dismiss and argues that they waived this argument by failing to plead it as an affirmative defense. *fn1" In the alternative, Heller argues that Section 155 does not preempt claims for breach of contract as opposed to tort claims. For the reasons set forth below, the Court will deny Defendants' motion.

 DISCUSSION2

 To answer the questions presented by Defendants' motion, this Court is forced to examine the preemptive scope of Section 155. Unfortunately, numerous courts have struggled to describe the proper scope of Section 155 with much disagreement along the way. Despite the multitude of decisions, it remains true that the Illinois Supreme Court has not yet addressed the precise scope of Section 155 preemption. Consequently, this Court must endeavor to predict how the Illinois Supreme Court would decide the issue presented in this case. In making this determination, the decisions of the intermediate appellate courts are useful, but not necessarily binding, predictors of the view the Illinois Supreme Court would take. Indiana Harbor Belt R.R. Co. v. American Cyanamid Co., 916 F.2d 1174, 1176 (7th Cir. 1990); Green v. J.C. Penney Auto Ins. Co., 806 F.2d 759, 761 (7th Cir. 1986). This Court must also follow the Seventh Circuit's determinations regarding Illinois law where applicable. Keeping in mind our ultimate goal of predicting the Illinois Supreme Court's views, we now examine the arguments of the parties.

 As in any case where statutory provisions are involved, we begin our discussion by quoting the language of Section 155 which provides in pertinent part:

 
ยง 155. Attorney fees. (1) In any action by or against a company wherein there is in issue the liability of a company on a policy or policies of insurance or the amount of the loss payable thereunder, or for an unreasonable delay in settling a claim, and it appears to the court that such action or delay is vexatious and unreasonable, the court may allow as part of the taxable costs in the action reasonable attorneys fees, other costs, plus an amount not to exceed any one of the following amounts:
 
(a) 25% of the amount which the court or jury finds such party is entitled to recover against the company, exclusive of all costs;
 
(b) $ 25,000;
 
(c) the excess of the amount which the court or jury finds such party is entitled to recover, exclusive of costs, over the amount, if any, which the company offered to pay in settlement of the claim prior to the action.

 215 ILCS 5/155 (1992). Defendants contend that Section 155 sets forth the exclusive remedy for an insured suing an insurer who has refused to pay a claim.

 Because Defendants rely so heavily on the Seventh Circuit's opinion in Kush v. American States Ins. Co., 853 F.2d 1380 (7th Cir. 1988), we address this authority first. The plaintiff in Kush sought to proceed on a claim for intentional infliction of emotional distress against the defendant insurer. In Kush, the Seventh Circuit recognized the split in authority on the issue of whether Section 155 preempted claims based on an implied duty of good faith and fair dealing. Id. at 1385 (collecting cases); see also Bageanis v. American Bankers Life Assur. Co., 783 F. Supp. 1141, 1147 (N.D. Ill. 1992) (collecting cases divided over preemption of compensatory versus punitive damages). The court also noted the ruling of an Illinois appellate court that a claim for intentional infliction of emotional distress was preempted where it was based on conduct proscribed by Section 155. Id. (citing Combs v. Insurance Co., 146 Ill. App. 3d 957, 497 N.E.2d 503, 100 Ill. Dec. 525 (Ill. App. Ct. 1986).

 Based on its review of the Combs decision and decisions of several other courts, the Seventh Circuit, quoting Judge Shadur, found that:


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