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LM Insurance Corp. v. Fed Equities

March 28, 2008


The opinion of the court was delivered by: Joan B. Gottschall United States District Judge

Judge Joan B. Gottschall


Defendants, Fed Equities, Inc. ("Fed Equities"), Merr, Inc. ("Merr"), Affiliated Insurance Agency, Inc. ("AIA"), and Robert Grimm ("Grimm") (collectively "AIA/Merriman"), have moved for summary judgment on all seven counts of the Amended Complaint.*fn1 Plaintiff, LM Insurance Corporation ("LM"), has cross-moved for partial summary judgment on Counts III (negligent misrepresentation), IV (negligent omission), V (conversion), and VII (negligence). Thus, only AIA/Merriman has moved for summary judgment on Counts I (breach of contract), II (malpractice), and VI (constructive trust). For the reasons stated below, the court grants in part and denies in part defendants' motion for summary judgment and denies plaintiff's cross-motion for partial summary judgment.


The facts of this case are somewhat complicated. LM, a workers' compensation insurer, has sued insurance brokers AIA/Merriman to recover policy premiums and insurance payouts made to Arena Football 2 Operating Company, LLC ("AF2"), a professional athletic league. AF2 was a client of SourceOne Group, Inc. ("SOG"), a professional employee organization that provides human resource and payroll services to organizations, such as AF2, that want to outsource these functions. AIA/Merriman in turn filed a third party complaint against SOG, seeking contribution and indemnity. SOG subsequently filed a counterclaim against AIA/Merriman, alleging negligence.*fn2 LM also sued SOG for claims arising out of the same set of facts in a separate action before Judge Bucklo. LM Ins. Corp. v. SourceOne Group, Inc., No. 04 C 618 (filed Jan. 27, 2004). That case settled and was dismissed by stipulation in November 2007.

At the core of the claims, LM alleges that AIA/Merriman issued a certificate of insurance pursuant to the National Council on Compensation Insurance's (NCCI) Assigned Risk Plan (the "Assigned Risk Plan") to AF2 without LM's knowledge or consent and that AIA/Merriman received premium payments from AF2 and SOG that AIA/Merriman did not remit to LM. LM alleges that AF2 contracted with SOG to provide AF2 with a workers' compensation insurance policy. Under this contract, SOG agreed to endorse AF2's employees onto its then-current workers' compensation policy (policy number WC5-34S35147-012) with LM. LM alleges that AIA/Merriman was SOG's insurance broker for its policy with LM and that neither AIA/Merriman nor SOG ever informed LM of important details regarding AF2's coverage needs.

LM alleges that SOG instructed AF2 to send premium payments to AIA/Merriman. Before making any premium payments, LM alleges that AF2 requested and AIA/Merriman provided a certificate of insurance which stated that AF2 was covered under the LM worker's compensation policy. LM alleges that AIA/Merriman never informed LM about the issuance of the certificate of insurance. LM alleges that, after receiving the certificate of insurance, AF2 sent over $600,000 in premium payments to AIA/Merriman. LM alleges that AIA/Merriman never remitted any of the premium payments made by AF2 to LM.

II. ANALYSIS A. Summary Judgment Legal Standard

Summary judgment is appropriate when the record reveals that there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(c). It is not appropriate if a reasonable jury could return a verdict for the nonmoving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).

In seeking a grant of summary judgment the moving party must identify "those portions of 'the pleadings, depositions, answers to the interrogatories, and admissions on file, together with the affidavits, if any,' which it believes demonstrate the absence of a genuine issue of material fact." Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986) (quoting Fed. R. Civ. P. 56(c)). This initial burden may be satisfied by presenting specific evidence on a particular issue or by pointing out "an absence of evidence to support the non-moving party's case." Id. at 325.

In response, the non-moving party cannot rest on the pleadings, but must designate specific material facts showing that there is a genuine issue for trial. Fed. R. Civ. P. 56(e); Celotex Corp., 477 U.S. at 324. "The applicable substantive law will dictate which facts are material. Only disputes that could affect the outcome of the suit under governing law will properly preclude the entry of summary judgment." McGinn v. Burlington N.R.R. Co., 102 F.3d 295, 298 (7th Cir. 1996) (internal citation omitted). The non-moving party must make a "sufficient showing of evidence for each essential element of its case on which it bears the burden at trial." Salas v. Wis. Dep't of Corrs., 493 F.3d 913, 921 (7th Cir. 2007) (citing Celotex, 477 U.S. at 322-23). The court must view the record and any inferences to be drawn from it in the light most favorable to the opposing party. Griffin v. Thomas, 929 F.2d 1210, 1212 (7th Cir. 1991).

B. Arguments*fn3

1. Count One: Breach of Contract

AIA/Merriman argues a claim for breach of contract cannot stand because: (1) LM has admitted that there is no contract, written or oral, between AIA/Merriman and LM; and (2) the Assigned Risk Plan states that the insurance producer is not a party to the insurance contract.*fn4 In response, LM concedes that there is no express contract, but disputes AIA/Merriman's assertion that no implied contract duty arose between the parties.

LM relies exclusively on Liberty Mutual Insurance Co. v. Paul E. Larson Insurance Agency, Inc., 98 C 2961, 1999 WL 202971 (N.D. Ill. Mar. 31, 1999), in support of its position. In Larson, the court denied a motion to dismiss a breach of contract claim premised on facts very similar to those at bar. 1999 WL 202971 at *10. An insurer claimed an implied contract with an insurance producer, based on the duties of good faith and fair dealing implied into brokering workers' compensation insurance deals pursuant to the Assigned Risk Plan. Id. The court concluded that the producer was "being held to its own alleged implied contract with [the insurer]" and not to the terms of the express contract between the insurer and the insured. Id. In reply, AIA/Merriman correctly observes that the court in Larson only concluded that the insurer could proceed on its theory of breach of implied contract; here, LM must provide a sufficient question of material fact on its prima facie case to survive summary judgment.

An implied contract may be "implied in law," where "by fiction of law, a promise is imputed to perform a legal duty," or "implied in fact," where a contract is "founded upon a meeting of minds, which, although not embodied in an express contract, is inferred, as a fact, from conduct of the parties showing, in the light of the surrounding circumstances, their tacit understanding." Baltimore v. O.R. Co. v. United States, 261 U.S. 592, 597 (1923); accord Suarez v. Pierand, 663 N.E.2d 1039, 1044 (Ill. App. 1996) ("The law recognizes two kinds of implied contracts, those implied in fact and those implied in law."). Contracts implied in fact "arise from a promissory expression that is inferred from circumstantial evidence of an intent to be bound," whereas contracts implied in law "arise notwithstanding the parties intentions, result from a duty imposed by law, and are contracts merely in the sense that they are created and governed by principles of equity." Zadrozny v. City Colls. of Chi., 581 N.E.2d 44, 47-48 (Ill. App. 1991).

LM fails to clarify if its claim is brought as a contract claim implied in fact or implied under law. It alleges that "the parties have an implied duty of good faith and fair dealing." Am. Compl. ¶ 45. It further argues that an "implied contractual duty arose . . . based on AIA/Merriman's duties and responsibilities under the [Assigned Risk] Plan." LM's Mem. in Opp'n to AIA/Merriman's Mot. for Summ. J. at 2. It does not point to any actions that indicate an agreement between the parties from which the court could find an implied contract in fact. Thus, LM must be asserting that a contract was implied in law, based on AIA/Merriman's obligations under the Assigned Risk Plan. "The basis for recovery under the doctrine variously referred to as quasi contract, contract implied in law, or quantum meruit is unjust enrichment, that is, where the defendant receives a benefit from the plaintiff which would be unjust for the defendant to retain without paying for it." City of Marshall v. City of Casey, 532 N.E.2d 1121, 1123 (Ill. App. 1989) (quoting 12 Ill. L. & Prac. Contracts § 6, at 251-52 (1983)).

The problem here is not, as AIA/Merriman asserts, that it is not a party to the contract between AF2 and LM. As the Larson court held, a claim of implied contract breach may properly be asserted against an insurance broker, notwithstanding the fact that the parties to the express contract are the insurer and its insured. Rather, the problem is that LM fails to show any benefit that it provided to AIA/Merriman to provide the basis for an unjust enrichment claim. LM's services, namely providing insurance coverage, benefited SOG and AF2, not AIA/Merriman. LM is seeking damages to compensate it for premiums and claims made pursuant to its coverage of AF2 and allegedly retained by AIA/Merriman, but it is not seeking any compensation for services it provided directly to AIA/Merriman. See LM Resp. in Opp'n to AIA/Merriman's Mot. for Summ. J. at 3 ("AIA/Merriman's breach [of its implied contractual duties] damaged LM -- whether the measure of those damages are the $1,734,193.00 in unpaid premiums or the $2,790,856.00 in claims that LM has paid."). LM cites the court to (disputed) facts that AIA/Merriman breached its obligations under the Assigned Risk Plan, but it does not allege any exchange between the parties or clarify how AIA/Merriman was unjustly enriched by some service LM provided. See LM's Statement of Facts ¶¶ 109-20 (discussing the provisions of the Assigned Risk Plan and how AIA/Merriman failed to comply); id. Tab 21 at LMIC-2274 (producer's duties and responsibilities under the Assigned Risk Plan). LM does not point the court to any case that stretches the concept of an implied contract this far and fails to provide sufficient facts to make out a prima facie case of breach of implied contract. "Summary judgment for a defendant is appropriate when the plaintiff 'fails to make a showing sufficient to establish the existence of an element essential to its case, and on which it will bear the burden of proof at trial.'" Cleveland v. Policy Mgmt. Sys. Corp., 526 U.S. 795, 805-06 (1999) (citing Celotex Corp., 477 U.S. at 322). Therefore, AIA/Merriman's motion for summary judgment is granted as to Count I.

2. Claims That Sound In Negligence

In its motion, AIA/Merriman argues that Counts II-IV and VII: (1) are barred by the Moorman Doctrine; (2) fail as a matter of law because AIA/Merriman owed no duty to LM; and (3) fail as a matter of law because AIA/Merriman's actions were not the proximate cause of LM's damages. AIA/Merriman suggests that LM has "utterly failed to put forth one scintilla of evidence" to prove its claims. AIA/Merriman Mem. of Law in Supp. of Mot. for Summ. J. at 11.

LM responds that the Moorman Doctrine is inapplicable, or an exception applies, and that the evidence to support its claims is undisputed such that it has cross-filed for summary judgment on Counts III, IV, and VII.

In its cross-motion, LM sets forth its prima facie case and argues that there are no material facts in dispute to bar the entry of summary judgment in its favor. In response, AIA/Merriman argues that: (1) the Moorman Doctrine applies; (2) AIA/Merriman does not owe a duty to LM ; and (3) LM has not established the elements of its claims, namely that there was a false statement of material fact, carelessness or recklessness in ascertaining the truth of statements, or an intent to induce, and has not presented evidence that LM relied on the statements or suffered damages as a result.

a. The Moorman Doctrine

AIA/Merriman asserts, in a conclusory fashion, that "LM's tort claims are barred by the Moorman doctrine, as LM seeks to recover economic losses in tort." AIA/Merriman Mem. of Law in Supp. of Mot. for Summ. J. at 6. Both parties provide a solid overview of the law, but fail to apply it to the facts of the case.*fn5 In Moorman Manufacturing Co. v. National Tank Co., 435 N.E.2d 443 (Ill. 1982), the Illinois Supreme Court established the "economic loss" rule, holding that a plaintiff may not recover solely economic losses under tort theories of negligence, innocent misrepresentation, or strict liability. Id. at 449-50. In Anderson Electric, Inc. v. Ledbetter Erection Corp., 503 N.E.2d 246 (Ill. 1986), it extended the rule, holding that a plaintiff ...

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