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January 13, 1995


Appeal from the Circuit Court of Cook County. No. 92 CH 00611. The Honorable Albert Green, Judge Presiding.

The Honorable Justice Egan delivered the opinion of the court: McNAMARA, P.j., and Rakowski, J., concur.

The opinion of the court was delivered by: Egan

The Honorable Justice EGAN delivered the opinion of the court:

This is an appeal by the defendant, Lexington Insurance Company (Lexington), from an order granting summary judgment in favor of the plaintiff, Management Kinetics, Inc., d/b/a Environetics (Environetics) and the defendant, Rose-Tillmann, Co. (Rose-Tillmann).

Environetics is a corporation providing environmental consulting services. In 1990, Frank DeFranza, the president of Environetics, contacted Rose-Tillmann, a retail insurance broker, to secure errors and omissions insurance to cover the consulting activities of Environetics. Rose-Tillmann contacted National Risk Management, Inc. (National Risk), an insurance wholesaler, which then contacted Midwestern Risk Specialists, Inc. (Midwestern), a surplus line insurance producer and agent of Lexington. Midwestern contacted Lexington, which issued a policy to Environetics in November 1990.

Environetics sent its gross premium plus surplus lines tax and stamping fee of $46,700 to Rose-Tillmann. Rose-Tillmann took a $2000 commission and passed on the premium to National Risk. National Risk took a commission and passed on the premium to Midwestern, which took a commission and passed on the remaining $40,700 to Lexington.

In June 1991, Environetics received a copy of the insurance policy from Lexington. The policy did not cover much of the activities of Environetics and contained a number of provisions that were not disclosed at the time of purchase. On September 20, 1991, the attorney for Environetics wrote letters to Rose-Tillmann and Lexington, demanding a full refund of the premium and of the taxes and fees paid to secure the policy. The amount demanded was $46,700.

Ten days later, Lexington's senior vice president, Richard H. Bucilla, said by letter that Environetics should be "looking somewhere else" for someone to blame for the fact that the policy was not the one Environetics wanted but agreed to settle if Environetics would return the policy through its "broker" for flat cancellation, with a cover letter releasing Lexington; Lexington would then instruct its agent Midwestern to return the premium through Environetics' "broker."

The offer by Bucilla was accepted by Environetics through a letter from its attorney on October 8, 1991. That letter informed Bucilla that Environetics had "already notified Rose-Tillmann's attorney of Environetics' intention." An attorney for Rose-Tillmann accepted the settlement in a letter of October 18, 1991, to Bucilla, a copy of which was sent to the attorney for Environetics.

On November 8, 1991, Environetics returned the policy to Rose-Tillmann, along with a cover letter which cancelled the policy, "pursuant to [Environetics'] agreement with Lexington Insurance, and in return for receiving all monies paid by [Environetics] on this policy." Rose-Tillmann returned the policy to National Risk which returned it to Midwestern, which returned it to Lexington.

Environetics never received any money from Lexington and filed a three-count complaint against Lexington, Rose-Tillmann, Midwestern and National Risk. Lexington and Midwestern filed a counterclaim against Rose-Tillmann, seeking a declaration that Rose-Tillmann was responsible to pay the return premium and sought indemnification from Rose-Tillmann. Rose-Tillmann cross-claimed against Lexington and Midwestern, also asserting a right to indemnification. Rose-Tillmann returned its $2000 commission to the plaintiff. National Risk filed for bankruptcy after the complaint was filed. It is the insolvency of National Risk that is the root of the controversy.

The judge granted summary judgment in favor of the plaintiff and against Lexington and Rose-Tillmann, jointly and severally; he also entered summary judgment in favor of Rose-Tillmann and against Lexington on Rose-Tillmann's claim for indemnification.

After examining the complaint, exhibits, affidavits and answer to interrogatories, we conclude that Lexington kept the cash it ultimately received from the plaintiff and that Lexington considered that its obligation to the plaintiff was satisfied by book entries of credit and debit.

In his affidavit, Richard Gundlach, a Vice-President of Midwestern, described the path of what he considered a return of the premium. National Risk delivered to Midwestern a check in the amount of $99,851.20, which included the notation, "Robinette Demolition less Environetics." Robinette Demolition was another insured on whose behalf National Risk had sought and received coverage from Lexington through Midwestern. According to Gundlach, Lexington and Midwestern paid the premium to National Risk when National Risk reduced an amount payable to Midwestern by $40,766.40. By so giving credit to National Risk, Lexington fulfilled its obligation to the ...

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