United States District Court, N.D. Illinois
January 26, 2004.
North American Specialty Insurance Co., Plaintiff
Valenti, Trobec, Chandler & Schurr Inc., Defendant
The opinion of the court was delivered by: JAMES ZAGEL, District Judge
MEMORANDUM OPINION AND ORDER
This case arises from the alleged failure of Defendant, Valenti,
Trobec, Chandler & Schurr ("Valenti") to notify Plaintiff, North
American Specialty Insurance Company ("NAS") that a bond-holder had
allowed its workmen's compensation insurance to lapse. The lapse in
insurance coverage resulted in NAS's payment of $250,000, under the terms
of its bond, for injuries sustained by a William H. Kelly Company
("Kelly") employee working on the McCormick Place expansion project.
Valenti is an insurance and surety bond brokerage firm that has, since
the mid-1980's, offered for sale NAS's performance and payment bonds. In
1993, Valenti brokered a performance and payment bond underwritten by NAS
to Kelly who was a subcontractor on the McCormick Place expansion
project. Valenti also acted as a broker in obtaining Kelly's workmen's
compensation coverage from Liberty Mutual.
As the project at McCormick Place proceeded, Kelly began to experience
severe financial difficulties and ultimately stopped paying its insurance
premiums. On February 2, 1997, Liberty Mutual notified Valenti that it
would cancel Kelly's coverage at the end of the month Despite
providing NAS with other information concerning Kelly's financial
distress, Valenti did not notify NAS of this cancellation. To remedy the
situation, Valenti recommended that Kelly open a new, better capitalized
entity with insurance coverage to finish the work at McCormick Place and
that NAS transfer its bond to that new entity.
On March 4, 1994, a Kelly employee was injured while working at
McCormick Place. The general contractor for the McCormick Place expansion
project sought indemnity first from Liberty Mutual, which informed him
that Kelly's insurance had lapsed and next from Valenti who refused.
Finally, on May 26, 1996, the general contractor filed suit against NAS
seeking compensation for the injured employee. NAS settled the case for
$250,000 and filed this instant suit on March 5, 1999 claiming that
Valenti breached the parties' Agency Agreement and its fiduciary duty by
failing to notify NAS of the insurance lapse.
NAS and Valenti now move for summary judgment pursuant to Federal Rule
of Civil Procedure 56(c). Summary judgment is proper when there is no
genuine issue of material fact and the moving party is entitled to
judgment as a matter of law. Celotex Corp. v. Catrett,
477 U.S. 317, 322-323 (1986). In determining whether any genuine issue of
material fact exists, I must construe all facts in the light most favorable
to the non-moving party and draw all reasonable and justifiable inferences
in its favor. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255
(1986). A genuine issue of fact exists only when, based on the record as
a whole, a reasonable jury could find for the non-movant. Pipitone v.
United States, 180 F.3d 859, 861 (7th Cir. 1999).
Both NAS and Valenti claim they are entitled to summary judgment on
NAS's breach of contract and breach of fiduciary duty claims. Valenti
also argues that this suit is barred entirely
by the statute of limitations. I will deal first with Valenti's
statute of limitations claims. Valenti urges me to apply § 735 ILCS
5/13-214.4, which provides for a special two year statute of limitations
in cases brought against insurance producers. The statute is as follows:
All causes of action brought by any person or
entity under any statute or legal or equitable
theory against an insurance producer, registered
firm, or limited insurance representative
concerning the sale, placement, procurement,
renewal, cancellation of, or failure to procure
any policy of insurance shall be brought within
two years of the date the cause of action accrues.
NAS objects to the application of § 735 ILCS 5/13-214.4
claiming it does not apply here because Valenti was acting as NAS's
agent. However, since Illinois courts have applied this statute to suits
between insurers and their agents, that fact is irrelevant. See Ind.
Ins. Co. v. Machon & Machon, Inc., 753 N.E.2d 442
, 445 (2001).
NAS also seems to argue that § 735 ILCS 5/13-214.4 does not apply
because it is the failure to notify that is at issue and not the
procurement/cancellation of insurance. This argument is also
unconvincing. Valenti acted as an insurance producer (see Plaintiff's
Exhibit C) in obtaining the workmen's compensation from Liberty Mutual
for both Kelly and the newly established entity. Because this case
certainly "concerns" the procurement/cancellation of this insurance by
Valenti, the application of § 735 ILCS 5/13-214.4 and its two year
statute of limitation is appropriate.
For contract claims and tort claims arising out of contractual
relationships, such as we have here, the cause of action ordinarily
accrues at the time of the breach, not when the party sustains damages.
Id. (citing West Insurance Co. v. Sal E. Lobianco & Son Co.,
370 N.E.2d 804 (1977)). NAS alleges that the breaches of duty, both
contractual and fiduciary, took place on or about February 14, 1994
the time of the failed notification. Using this date for breach,
statute would have run on February 14, 1996, a date long before the
filing of this action.*fn1 Therefore, I find this suit is barred by the
statute of limitations.
Even if I have wrongly decided the statute of limitation question, I
would still grant summary judgment on NAS's breach of contract claims.
NAS argues that Valenti's failure to notify it of the cancellation was a
clear breach of two Agency Agreement provisions.*fn2 Namely, Valenti did
not comply with the Agency Agreement's requirements that Valenti (1)
exercise its best business judgment and (2) turn over all information
relating to legal process. Valenti, on the other hand, argues it is
entitled to summary judgment because the provisions cited by NAS do not
apply to the facts presented here. First, Valenti contends that the
business judgment provision was directed toward the underwriting and
issuance of bonds and not the maintenance of bonds already issued. From
my reading of the provision, I have to agree. The provision explicitly
states that "the best business judgment after a thorough under-writing
review of the undersigned will be used for the protection of the Company.
No bond known to be unsafe or unsound will be signed even though it may
be authorized in this letter of authority." In this provision, the best
judgment requirement is directed to the due diligence period and not to
the period of post-issuance handling of the bond. Thus, I find this
provision is not a proper basis for this breach of contract claim.
Next, Valenti argues, and again I must agree, that the provision
requiring it to "turn over all legal process involving coverage" is
directed solely to litigation management. The full clause states "Agent
shall not commit Company as to liability in connection with any claim or
loss which may occur under any contract. Agent shall immediately report
all claims and losses and turn over all legal process involving coverage
placed with Company." I find this clause relates to legal actions that
could result from the placement of NAS's bonds and not the ongoing
management of issued bonds. The clause's use of terms such as liability,
claim, loss, and legal process support this conclusion. For this reason,
I find this provision is also an insufficient basis for NAS's breach of
Lastly, I turn to NAS's breach of fiduciary duty claims. NAS argues
that Valenti so clearly breached its fiduciary duty when it failed to
notify NAS of the insurance cancellation that NAS is entitled to summary
judgment. According to the Restatement (Second) of Agency §
381 (1957), "the duty exists if [the agent] has notice of facts which, in
view of his relation with the principal, he should know may affect the
desires of his principal as to his own conduct or the conduct of the
principal or another agent." NAS argues that Valenti either did know or
should have known information regarding Kelly's workmen's compensation
coverage would affect its conduct. However, Valenti counters by claiming
it was not required to notify NAS because such information was not
normally provided to NAS or other insurers.
Valenti also moves for summary judgment claiming it took all actions
necessary to fulfill its duty to NAS. Valenti claims that it provided NAS
with sufficient information concerning Kelly's financial difficulty and
took sufficient steps to remedy Kelly's lack of workmen's
compensation insurance by establishing a new, insured entity.*fn3
Obviously, NAS disagrees. As is demonstrated by the parties' arguments
here, significant factual disputes remain on the issue of fiduciary duty.
Accordingly, I find summary judgment on these grounds alone is
To the extent consistent with this opinion, Valenti's Motion for
Summary Judgment is GRANTED. NAS's Motion for Summary Judgment is DENIED.