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Casualty Insurance Company v. Hill Mechanical Group

June 28, 2001

CASUALTY INSURANCE COMPANY, PLAINTIFF-APPELLEE,
v.
HILL MECHANICAL GROUP, HILL MECHANICAL OPERATIONS, INC., L.C. KOHLMAN, INC., HILL/WENDT CORPORATION, KOHLMAN-HILL, INC., FEDERAL VENTILATING COMPANY, AND KOHLMAN ENGINEERS CORPORATION, DEFENDANTS-APPELLANTS. HILL MECHANICAL GROUP, HILL MECHANICAL OPERATIONS, INC., L.C. KOHLMAN, INC., HILL/WENDT CORPORATION, KOHLMAN-HILL, INC., FEDERAL VENTILATING COMPANY, AND KOHLMAN ENGINEERS CORPORATION, PLAINTIFFS-APPELLANTS,
v.
CASUALTY INSURANCE COMPANY, DEFENDANT-APPELLEE.



The opinion of the court was delivered by: Presiding Justice Hartman

Not Released For Publication

CASUALTY INSURANCE COMPANY, PLAINTIFF-APPELLEE,
v.
HILL MECHANICAL GROUP, HILL MECHANICAL OPERATIONS, INC., L.C. KOHLMAN, INC., HILL/WENDT CORPORATION, KOHLMAN-HILL, INC., FEDERAL VENTILATING COMPANY, AND KOHLMAN ENGINEERS CORPORATION, DEFENDANTS-APPELLANTS. HILL MECHANICAL GROUP, HILL MECHANICAL OPERATIONS, INC., L.C. KOHLMAN, INC., HILL/WENDT CORPORATION, KOHLMAN-HILL, INC., FEDERAL VENTILATING COMPANY, AND KOHLMAN ENGINEERS CORPORATION, PLAINTIFFS-APPELLANTS,
v.
CASUALTY INSURANCE COMPANY, DEFENDANT-APPELLEE.

The opinion of the court was delivered by: Presiding Justice Hartman

Appeal from the Circuit Court of Cook County.

Honorable James F. Henry, Judge Presiding.

 Defendants Hill Mechanical Group, Hill Mechanical Operations, Inc., L.C. Kohlman, Inc., Hill/Wendt Corporation, Kohlman-Hill, Inc., Federal Ventilating Company, and Kohlman Engineers Corporation (collectively Hill) appeal from the dismissal of their 1999 complaint and count I of their 1999 counterclaim filed against plaintiff Casualty Insurance Company (Casualty). Hill also appeals the circuit court's denial of its motion to reconsider the earlier denial of leave to file counts II and III of the 1999 counterclaim.

Casualty issued worker's compensation insurance policies to Hill for each policy year from April 1, 1988, through April 1, 1993. Each policy contained an identical "high-low endorsement" that allowed Casualty to adjust retrospectively the premiums on each policy to cover costs, expenses, and liabilities incurred during each policy period. On January 10, 1996, Casualty filed a breach of contract action against Hill to collect an unpaid final adjusted premium of $446,635, under the 1992-93 worker's compensation policy (the 1996 complaint).

Hill made repeated attempts to obtain discovery from Casualty, including claim files for policy years prior to 1992-93. Casualty objected on the grounds that the pre-1992-93 claim files were not relevant to the 1996 complaint which involved only the 1992-93 policy. On January 12, 1998, Hill's motion to compel production of the pre-1992-93 claim files was denied, with the exception of pre-1992-93 claim files relating to Randy Brien.

On February 24, 1998, Hill unsuccessfully sought leave to file a one count counterclaim sounding in breach of contract (the 1998 counterclaim), in which Hill alleged that Casualty mishandled claims in four prior policy years, as well as in the 1992-93 policy year, resulting in damages in excess of $1 million.

On August 17, 1998, the circuit court entered an order requiring Casualty to submit to Hill's attorney the pre-1992-93 claim files "for attorney's eyes only." The order further required Hill's attorney to file a document with the court stating why any of the produced material was relevant. On October 23, 1998, the court considered the relevance of the pre-1992-93 claim files and found that the request for their production remained denied.

On February 9, 1999, Hill sought leave to file another counterclaim (the 1999 counterclaim), which involved only the 1992-93 policy. Count I alleged that Casualty breached its contractual obligations to Hill by failing to investigate adequately worker's compensation claims; failing to interview witnesses and take witness statements; paying worker's compensation claims that should not have been paid because there was no statutory or factual basis for the claims; overpaying claims; failing to adequately verify wages; failing to monitor the medical management of claims in a proper or timely manner resulting in overpayment of both medical, temporary total, and permanent partial disability payments; failing to calculate the total temporary disability and partial permanent disability benefits in accordance with the Worker's Compensation Act; failing to properly categorize unallocated costs and legal expenses under the policy; failing to thoroughly or adequately defend proceedings or suits brought against Hill for benefits claimed under the policy; failing to supervise and coordinate the investigation, administration, management, defense, and settlement of claims; unreasonably settling worker's compensation claims without any adequate factual, medical, legal, or statutory basis; establishing unreasonably large loss reserves; improperly calculating the final adjustment by using a reference date beyond one allowed under the terms of the high/low plan endorsement; wrongfully calculating and charging premiums pursuant to manuals, rates, rules, classifications, rating plans, system of adjustment of premiums, and systems which had never been submitted to the State of Illinois for approval nor been approved by the State of Illinois; wrongfully refusing to allow Hill access to evaluate insurance claim files to determine the accuracy, reliability, and good faith of the determinations made by Casualty; and wrongfully denying Hill access to the claim files created under the policy and wrongfully failing to preserve them. Hill alleged that these acts resulted in payment and overpayment of claims that were not compensable under the Worker's Compensation Act and higher premiums and higher future premiums because of the distorted experience modification factors calculated from the excessive claims paid.

Counts II and III of the 1999 counterclaim sought refunds of premiums and alleged a violation of section 505/2 of the Illinois Consumer Fraud and Deceptive Business Practices Act (the Consumer Fraud Act) (815 ILCS 505/2 (West 1998)), respectively, based upon Casualty's alleged failure to comply with Illinois Department of Insurance (the Department) filing requirements.

On March 16, 1999, leave to file counts II and III of the 1999 counterclaim was denied on the ground that Hill failed to exhaust all administrative remedies. The order also required Casualty to produce all remaining claim files for the 1992-93 policy year.

On March 26, 1999, Hill filed an independent complaint against Casualty (the 1999 complaint), which was identical to the 1999 counterclaim, except that it involved the 1988-89, 1989-90, 1990-91, and 1991-92 policies. Casualty successfully moved to consolidate the 1999 complaint with the 1996 complaint. *fn1 On ...


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