The opinion of the court was delivered by: Marvin E. Aspen, District Judge
MEMORANDUM ORDER AND OPINION
Presently before us is Plaintiff LM Insurance Corporation's ("LM") Motion for Partial Summary Judgment against Defendant Midwest Insurance Agency, Inc. ("Midwest"). LM alleges that Midwest negligently failed to perform its obligations as an insurance producer and misrepresented and omitted certain facts to LM pertinent to a workers' compensation policy it managed for Midwest's client, Defendant Paycenter, Inc. ("Paycenter"). LM seeks a judgment against Midwest for Counts 14 and 15 of the Amended Complaint, in the amount of $2,895,082. For the reasons set forth below, we deny the motion.
LM is an Iowa corporation authorized to engage in the insurance industry here in Illinois. (Pl.'s Facts ¶ 1.) Although Paycenter allegedly started out as a specialized temp agency, at some point it began functioning as an employee leasing company, or professional employer organization ("PEO"). (Id. ¶ 13; Def.'s Facts ¶ 2-3.) PEOs provide human resources-related services for their client companies. (Pl.'s Facts ¶ 13.) Defendant Louis J. Quilici ("Quilici, Jr.") was the president of Paycenter. (Def.'s Facts ¶ 3.) Prior to forming Paycenter, Quilici, Jr. and his family members (though perhaps in varying combinations) owned and ran other PEOs, Employee Management Corporation ("EMCO") and Employee Management Corporation of Illinois ("EMCO-IL"). (Pl.'s Facts ¶ 15.)
A. Midwest's Involvement in the Insurance Application Process
On or about April 16, 2004, Paycenter applied for workers' compensation insurance through the Illinois Assigned Risk Plan ("the Plan").*fn2(Id. ¶ 18.) Under the Plan, an employer is ineligible for coverage if it "has an outstanding workers compensation insurance premium obligation or other monetary policy obligation . . . that is not subject to a bona fide dispute." (Pl.'s Facts, Ex. 29 at P 4406; see also Pl.'s Facts ¶ 33.) "Employer" is defined by the Plan to include the insurance-seeking entity and "any business organizations or enterprises that are affiliated as a result of common management or ownership." (Pl.'s Facts, Ex. 29 at P 4404.)
Midwest's account manager, Lucy Podgers, obtained information about Paycenter and prepared its insurance application. (Id. ¶¶ 20-21.) As a result, and through the Plan's operation, LM issued*fn3a workers' compensation insurance policy (#WC5-34S-371817-014) to Paycenter,valid from April 18, 2004 through April 16, 2005 ("the Paycenter Policy"). (Id. ¶ 19.) William Blackwell, a co-owner of Midwest, acted as the producer for the Paycenter Policy. (Id. ¶ 1.) In the application, Midwest indicated that Paycenter is not "related through common management or ownership to any entity not listed [thereon], whether coverage is required or not."*fn4(Id. ¶ 28.) Midwest made this representation despite the fact that Paycenter, EMCO and EMCO-IL "were owned variously by Quilici family members" and not mentioned on the application. (Def.'s Resp. to Pl.'s Facts ¶ 29.) According to his deposition testimony, Blackwell did not explore the relationship between EMCO and Paycenter when processing the Paycenter insurance application. (Pl.'s Facts, Ex. 16, Blackwell Dep. at 221-24; see Pl.'s Facts ¶ 30.) In other words, he did not conduct any investigation into whether the two might be considered related entities under the Plan's terms. (Pl.'s Facts ¶ 31; see Pl.'s Facts, Ex. 16, Blackwell Dep. at 223-24.) On January 31, 2005, NCCI ruled that Paycenter was related to EMCO and EMCO-IL, along with other companies owned by Quilici family members.*fn5(Pl.'s Facts ¶ 34; Def.'s Facts ¶ 16.) Thisruling provided for increased modification factors for all affected companies. (Def.'s Facts ¶16.)
In addition to his role as insurance producer, Blackwell also referred clients to Quilici-owned PEOs, including Paycenter, for compensation -- although the parties dispute whether or not he did so in his capacity as co-owner and/or employee of Midwest. (Def.'s Resp. to Pl.'s Facts ¶ 23; see Pl.'s Facts, Ex. 11 at 3-4.) Throughout 2004, for example, Louis I. Quilici ("Quilici, Sr."), father of Quilici, Jr., paid Blackwell a commission of $5,000 per week, representing one-half of one percent of the gross payroll of EMCO clients referred by Blackwell, and pursuant to an agreement reached between Blackwell and EMCO in 2003. (Pl.'s Facts ¶ 24 & Ex. 9, Midwest's 2d. Am. Ans. to Pl.'s 2d Set of Interrogs. ¶ 3.) Quilici, Sr. testified that he met Blackwell through his son.*fn6(Id. ¶ 25.) On at least one occasion, Blackwell visited Quilici, Jr. at the Rockford, Illinois offices of EMCO and EMCO-IL. (Id. ¶ 26.) An EMCO employee testified that she performed work for Paycenter, EMCO and EMCO-IL at that Rockford office. (Def.'s Resp. to Pl.'s Facts ¶ 17.)
B. Midwest's Management of the Paycenter Policy
Pursuant to the Plan, Midwest and Blackwell had continuing obligations to LM after the Paycenter Policy was in place. (Pl.'s Facts ¶¶ 35, 44-45, 50.) First, the insurance producer must report "immediately to the assigned carrier all known changes in the employer's name,operations, ownership status, exposures, locations, financial condition or other changes which may affect the policy or the services being provided." (Pl.'s Facts, Ex. 29 at P 4439.) Relatedly, the producer shall keep the "policy up to date by promptly requesting endorsements as required." (Id.; see Pl.'s Facts ¶¶ 43-45, 50.) Midwest's Blackwell acknowledged that the Plan requires the producer "to report changes in exposure to the insurance company." (Pl.'s Facts, Ex. 16, Blackwell Dep. at 18.) Such changes include changes to employee classification codes and payroll. (Id. at 18-19.) The insurance company needs this information to calculate its exposure, which is then used to set appropriate premium rates. (Pl.'s Facts ¶¶ 38-39.) When additional coverage is requested and endorsed on a policy, the insurance company would increase the premium charges for that coverage. (Id. ¶ 40.)
With one exception, Midwest concedes that it did not disclose or report changes in exposure that might affect the Paycenter Policy or its premiums to LM.*fn7(Def.'s Resp. to Pl.'s Facts ¶ 41; see Pl.'s Facts ¶ 42 & Ex. 1 at 1-2; Reply at 2-4.) Midwest admits that "[it] submitted only one Policy Change Request to notify LM of a change in exposure on the Paycenter Policy." (Def.'s Resp. to Pl.'s Facts ¶ 51.) In that instance, dated June 28, 2004, Midwest notified LM that Paycenter had a new classification of employees and additional payroll, and in response, LM issued an endorsement and increased the premium. (Pl.'s Facts ¶52.)
Second, the Plan provides that the insurance producer may not issue a certificate ofworkers compensation insurance ("COI") unless certain conditions exist, including that "the servicing carrier is provided with a copy of each certificate." (Pl.'s Facts, Ex. 29 at P 4481-82.) Midwest acknowledges that it did not provide LM with copies of all COIs that it printed to evidence Paycenter's insurance coverage. (Def.'s Facts ¶ 7.) It specifically admits that it did not give LM a copy of a COI issued on August 9, 2004 for one of Paycenter's new clients, JK Steel. (Pl.'s Facts ¶¶ 63-64.)
Nonetheless, Midwest claims -- and LM disputes -- that this conduct conformed with industry standards. (Def.'s Facts ¶ 7; see Pl.'s Resp. to Def.'s Facts ¶ 7; Pl.'s Facts, Ex. 24, Deposition of William D. Hager, at 12-14.) According to Midwest's vice president and operations manager, Barton DeGraaf, the insurance producer provides copies of COIs only if the policy has changed, and the insured is responsible to inform the carrier of changes in exposure. (Pl.'s Facts ¶ 39 & Ex. 18, DeGraaf Dep. at 53-60.) DeGraaf, however, also testified that he was not aware of any requirements under the Plan concerning when COIs could be issued. (Pl.'s Facts, Ex. 18, DeGraaf Dep. at 56.) He further stated that Midwest has a "very limited" amount of business under the Plan, as opposed to business through the voluntary insurance market. (Id. at 32.)
LM conducted two audits of Paycenter during the life of the Paycenter Policy, on July 12, 2004 and again on November 19, 2004. (Pl.'s Resp. to Def.'s Facts ¶¶ 17-18; see Def.'s Facts, Exs. 13-14.) On both occasions, Quilici, Jr. met with LM auditors but produced no records for their review. (Def.'s Facts, Exs. 13-14.) Paul Holtrup, a Senior Forensic Consultant for LM, testified that while LM auditors ask policyholders for a variety of information during an audit (including payroll records, contracts, and invoices), they do not independently verify theaccuracy of the documents provided by the ...