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CHICAGO MEAT PROCESSORS v. MID-CENTURY INS. CO.

April 21, 1997

CHICAGO MEAT PROCESSORS, INC., Plaintiff,
v.
MID-CENTURY INSURANCE CO. and TRUCK INSURANCE EXCHANGE, Defendants.



The opinion of the court was delivered by: DENLOW

 Chicago Meat Processors, Inc. ("Plaintiff") brings this action against Mid-Century Insurance Company and Truck Insurance Exchange (collectively referred to as "Defendants") for breach of contract, bad faith, and tortious interference in connection with Defendants' denial of Plaintiff's insurance claim for replenishment of spoiled meat inventory and related business losses. This matter is now before the Court on Plaintiff's Revised First Motion in Limine which seeks to bar Defendants from asserting at trial that Plaintiff misrepresented its prior loss history when applying for insurance. For the reasons discussed below, Plaintiff's motion is granted with respect to the claims for breach of contract and tortious interference with contract, which will be tried to a jury, and denied as premature with respect to the bad faith claim, which will be tried as a bench trial, only if Plaintiff prevails before the jury.

 I. BACKGROUND FACTS

 II. ILLINOIS INSURANCE CODE, 215 ILCS 5/154

 Plaintiff contends Illinois Insurance Code, 215 ILCS 5/154 ("Section 154"), as it existed before being amended effective June 1, 1996, bars Defendants from relying upon the August 8 fax to defeat the claim. The pre-1996 version of Section 154 provides in relevant part:

 
No misrepresentation or false warranty made by the insured or in his behalf in the negotiation for a policy of insurance, or breach of a condition of such policy shall defeat or avoid the policy or prevent its attaching unless such misrepresentation, false warranty or condition shall have been stated in the policy or endorsement or rider attached thereto, or in the written application therefor of which a copy is attached to or endorsed on the policy, and made a part thereof.

 215 ILCS 5/154 (1993). The final clause of this sentence was deleted by the 1996 amendment. P.A.- 413.

 The purpose of Section 154 is to preclude an insurer from claiming misrepresentation of facts which occur "up to and at the time an application for insurance is executed." International Amphitheatre Co. v. Vanguard Underwriters Insurance Co., 177 Ill. App. 3d 555, 564, 532 N.E.2d 493, 499, 126 Ill. Dec. 808 (1st Dist. 1988). Section 154 is applicable only to the negotiation stage and not thereafter. Inter-Insurance Exchange of Chicago Motor Club v. Milwaukee Mut. Ins. Co., 61 Ill. App. 3d 928, 931, 378 N.E.2d 391, 394, 18 Ill. Dec. 927 (3d Dist. 1978). The issue before the Court is whether Section 154 applies to the August 8 fax.

 III. PLAINTIFF'S ALLEGED AUGUST 8, 1994 MISREPRESENTATION

 The Court holds that the August 8 fax occurred during the negotiation for the insurance policy as contemplated by Section 154. Defendants requested Plaintiff to provide loss run information before the policy could issue. (Pl.Rep. p.1). Defendants' insurance agent, James Mecha ("Mecha"), testified that the August 8 fax was sent because, at the time of Plaintiff's August 3 application, Mecha needed "something from [Plaintiff] showing prior coverage and no prior losses to send in with the application to the underwriter." (Mecha Dep. P 28). Accordingly, the prior loss information contained in the August 8 fax was requested by Defendants in connection with the application for insurance. Section 154 required Defendants to incorporate the prior loss information into the policy in order to bar coverage on the basis of alleged misrepresentations contained in the August 8 fax.

 This determination is consistent with the result reached in Kafka v. Truck Insurance Exchange, No. 90 C5447, 1992 U.S. Dist. LEXIS 9440 (N.D.Ill. June 30, 1992), aff'd 19 F.3d 383 (7th Cir. 1994). In Kafka, the district court granted a motion in limine prohibiting Truck Insurance Exchange from introducing evidence concerning certain misrepresentations plaintiff made "in connection with his application for insurance." LEXIS at *1-*3. The court ruled that Section 154 barred the admissibility of these misrepresentations because Truck Insurance Exchange did not attach a copy of the application to the policy. LEXIS at *3-*4. Similarly, Section 154 prevents Defendants from using the August 8 fax as a bar to coverage because the August 8 fax, made in connection with the August 3 application, was not attached to the policy.

 The August 8 fax containing prior loss information comes within the negotiation for a policy of insurance because the prior loss information was necessary for the purpose of evaluating whether to issue the policy. See International Amphitheatre, 532 N.E.2d at 499 (information regarding additional insureds required before coverage could be extended, and therefore, came within the negotiation of the policy); Government Employees Insurance Co. v. Dennis, 65 Ill. App. 2d 365, 371, 212 N.E.2d 759, 761-762 (2nd Dist. 1965). *fn1" Mecha testified that establishing no prior losses was "an absolute prerequisite for all policies issued by [Defendants]." (Mecha Dep. P 29). According to Mecha's testimony, if the August 8 fax indicated prior losses, Defendants would not have issued a policy. Id.

 Defendants argue that the August 8 fax should not be granted Section 154 protection because the subject policy became effective and was a legally binding insurance contract with coverage as of August 3, 1994. Zannini v. Reliance Insurance, 147 Ill. 2d 437, 590 N.E.2d 457, 464, 168 Ill. Dec. 820 (1992) (binder is a written instrument providing temporary insurance from the time an application is made until a policy is issued or declined.). According to Defendants, "once the binder and insurance contract are in place and effective, the parties are no longer "negotiating" ...


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