United States District Court, N.D. Illinois
January 28, 2004.
LIBERTY MUTUAL INSURANCE COMPANY, Plaintiff,
DECKING AND STEEL, INC., NORTHWEST DECK ERECTORS, INC., DONALD FINNEY CRANE RENTAL, INC., PRO-GAS, INC., STEEL & DECK CONSTRUCTION COMPANY, INC., and DONALD FINNEY Defendants
The opinion of the court was delivered by: ELAINE E. BUCKLO, District Judge
MEMORANDUM OPINION AND ORDER
Illinois law requires many employers to purchase workers' compensation
insurance to protect their employees. Where employers cannot obtain
insurance via the private market, they may obtain coverage via the
Illinois Workers' Compensation Insurance Plan ("Plan"). Premiums for such
insurance are determined by categorizing workers into coded categories,
each with a different level of risk based on the work performed by
employees in that class. In June of 1999, defendant Decking & Steel,
Inc. ("Decking"), a construction business, submitted an application to
the Plan for workers' compensation insurance coverage. The application
listed workers under codes for sheet metal work, contractor-executive
supervisor, and crane & hoisting, but did not list any workers under the
code for steel erection work. The application was signed by Decking's
president, defendant Donald
Finney, and contained a statement verifying the accuracy of the
statements it contained. Based on this application, plaintiff Liberty
Mutual Insurance Company ("Liberty") was assigned as the servicing
carrier to provide insurance to Decking.
Decking and Liberty agreed on two separate policies with nearly
identical terms, one covering the period from June 16, 1999 to June 16,
2000, and the other covering the period from June 16, 2000 through June
16, 2001. The contracts between the parties provided that at the outset
of the coverage period, Decking would pay an estimated premium of
$108,307 based on a preliminary calculation, but that at the end of the
coverage period, a final premium would be calculated based on the actual
business conducted by Decking during the previous year. If the final
premium turned out to be greater than the estimated premium, Decking
would pay Liberty the balance; conversely, if the final premium were less
than the estimated premium, Liberty would reimburse Decking for the
overpayment. The contract also required that Decking retain records of
information needed to compute premiums, and that Decking permit Liberty
to examine all records that pertained to the policy. Liberty retained the
right to conduct audits during the policy period and within three years
after its end.
On or about January 7, 2000, in response to a fatal accident, Liberty
conducted a safety visit of Decking's operations. The report from that
visit indicated that Decking may also have been
engaged in steel erection. On numerous occasions over the next six
months, Liberty contacted Decking via correspondence and telephone to
attempt to set up an audit. On July 10, 2000, Decking directed Liberty to
contact Decking's external accountant to obtain the documentation to
complete the audit. Several attempts to contact the accountant failed.
Finally, on September 20, 2000, Decking's accountant met with Liberty's
auditor. However, the documents sought were not provided by either
Decking or its accountant. Two appointments were scheduled to complete
the audit, and both were canceled by Decking. On November 21, 2000,
Liberty canceled Decking's policy for nonpayment of premiums, but
continued its attempts to complete the audit. On January 18, 2001, the
audit of the first policy was completed and mailed to Decking. That audit
resulted in a final premium of $557,412, a much larger sum than the first
estimate. An appointment set for February 1, 2001 to review that audit
was canceled by Decking. Attempts to schedule an audit of the second
policy once again failed; Liberty issued an estimated audit of that
policy on or about March 21, 2001, showing a balance owed of $301,846.
Based on factual information obtained during discovery in this case,
Liberty now claims a balance of $724,133 on the first policy and $402,736
on the second. Liberty also seeks recovery of prejudgment interest at the
rate of five percent per annum pursuant to 815 ILL. COMP. STAT. 205/2,
which it claims amounts to $102,722 and $58,424 respectively.
Decking ceased doing business in January 2001. In February 2001, Mr.
Finney incorporated Steel & Deck Construction Company ("Steel"),
which, like Decking, was wholly owned and operated by Mr. Finney, and
which had the same office space, customers, workers, etc. as Decking. Mr.
Finney acknowledges that each of the corporate defendants is simply a
rollover successor to the previous incarnation of his construction
business, and that he and Steel are responsible for Decking's debts.
On November 14, 2001, Liberty filed a fourteen-count suit against the
defendants alleging breach of contract, negligent misrepresentation,
unjust enrichment, and fraud. Liberty now moves for summary judgment in
its favor on all counts. I GRANT the motion as to Counts I, III, IV, and
VI (breach of contract and recovery of interest) and Count VII (negligent
misrepresentation). I also GRANT it as to Counts VIII, X, XIII, and XIV,
which seek to prove that Mr. Finney's various companies should be
considered one entity and that Mr. Finney is personally liable for the
losses incurred by his companies; the defendants have admitted that Mr.
Finney and the corporate defendants are, in effect, one entity. I DENY
the motion as to Counts IX, XI and XII (unjust enrichment, fraud, and
fraudulent conveyance). Counts II and V request an accounting which has
occurred and are DENIED as moot.
On a motion for summary judgment, I must evaluate admissible evidence
in the light most favorable to the non-moving party.
Bennett v. Roberts, 295 F.3d 687, 694 (7th Cir. 2000). The defendants
effectively admit to breaching both policies. Mr. Finney acknowledges
that he stopped paying premiums during the coverage period of the second
policy and that he paid only the estimated premium on the first. It is
clear from the record that Mr. Finney obstructed Liberty's attempts to
perform the audits required by the contract. Mr. Finney's entire argument
in his own defense boils down to the allegation that the figure in the
final audit was much larger than either party contemplated at the time
the agreement was signed. That may be, but the contract clearly states
that Decking would pay the final premium as calculated by Liberty in its
audit at the end of the coverage period. It also states that this final
premium may be higher or lower than the estimated premium. Decking insists
that the figures are too high, but does not point out any accounting
errors or factual mistakes in Liberty's calculation of the total. Nor
does it offer any reason why it should not have to pay other than the
fact that Mr. Finney relied on the expertise of his insurance broker,
Howard Mack, in applying for insurance. This is not enough to permit him
or Decking to escape from the contract he signed. Furthermore, if the
final premium was higher than anticipated at the outset of the contract,
this is largely because Mr. Finney did not reveal at the outset that the
largest portion of his business consisted of steel erection work. Summary
judgment is therefore appropriate on the breach of contract claim.
Illinois law provides that "Creditors shall be allowed to receive at
the rate of five (5) per centum per annum for all moneys after they
become due on any bond, bill, promissory note, or other instrument of
writing." 815 ILL. COMP. STAT. 205/2. This prejudgment interest is
properly awarded where "a debtor-creditor relationship has come into being
and the amount due is fixed or readily ascertainable by calculation or
computation." Zayre Corp. v. SM & R Co., Inc., 882 F.2d 1145, 1156 (7th
Cir. 1989). Premiums owed on an insurance policy may fall under the act
because the insurance contract is an instrument of writing. W.E. O'Neil
Constr. Co. v. Gen. Cas. Co. of Ill., 748 N.E.2d 667, 674 (Ill.App. Ct.
2001). Here, the amount due is readily calculable based on the number and
type of covered workers employed by Decking. Thus, Liberty is entitled to
collect prejudgment interest in addition to the premiums owed.
Summary judgment is similarly appropriate on the claim of negligent
misrepresentation. The elements of a claim for negligent
misrepresentation in Illinois are as follows:
(1) a false statement of material fact, (2)
carelessness or negligence in ascertaining the truth
of the statement by the party making it, (3) an
intention to induce the other party to act, (4) action
by the other party in reliance on the truth of the
statement, and (5) damage to the other party resulting
from such reliance, (6) when the party making the
statement is under a duty to communicate accurate
Roe v. Jewish Children's Bureau of Chicago, 790 N.E.2d 882, 893
(Ill.App. Ct. 2003). No genuine issue of fact exists as to any of
these elements. It is undisputed that, despite knowing that his company
engaged in steel erection, Mr. Finney failed to identify any of his
employees as performing this type of work in his insurance application.
Mr. Finney also stated, inaccurately, that Decking was not related
through common management or ownership to any other entity, had not
consolidated, merged, or changed its name in the last five years, and
made other untrue statements. It could, perhaps, be argued that Mr.
Finney did not realize that he was mislabeling his employees on the
application, but it was certainly negligent to apply for workers'
compensation insurance without bothering to check which premium
categories applied to which of his workers. Mr. Finney obviously intended
to induce Liberty to act; that was the purpose of the application. It is
also undisputed that the precise type of work undertaken by Mr. Finney's
employees affected the risk to Liberty and the premiums it would have
charged. Finally, an insurance applicant bears a duty to make a complete
and truthful disclosure of all relevant information. New England Mut.
Life Ins. Co. v. Bank of Ill., 994 F. Supp. 970, 976 N.D. Ill. 1998)
Counts IX, XI, and XII present questions of fact. Summary judgment
would be proper on the fraud counts only if no reasonable jury could find
that the defendants did not act intentionally. While the defendants'
behavior was, at a minimum, negligent, Liberty has not met its burden of
showing that the deception was
intentional. Count IX, unjust enrichment, may be pursued in the presence
of a written contract between the parties only if it sounds in tort,
rather than in quasi-contract. Peddinghaus v. Peddinghaus, 692 N.E.2d 1221,
1225 (Ill.App. Ct. 1998). The tort alleged here is fraud, but summary
judgment is denied on the fraud claim. Thus, it is also denied on the
unjust enrichment claim predicated on the fraud claim.
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