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Keeley & Sons, Inc v. Zurich American Insurance Company

April 13, 2011

KEELEY & SONS, INC.,
PLAINTIFF-APPELLEE,
v.
ZURICH AMERICAN INSURANCE COMPANY,
DEFENDANT-APPELLANT.



Appeal from the Circuit Court of St. Clair County. No. 10-L-163 Honorable Lloyd A. Cueto, Judge, presiding.

The opinion of the court was delivered by: Justice Wexstten

NOTICE Decision filed 04/13/11. The text of IN THE this decision may be changed or corrected prior to the filing of a Peti tion for Rehearing or th e disposition of the same.

JUSTICE WEXSTTEN delivered the judgment of the court, with opinion. Presiding Justice Chapman and Justice Donovan concurred in the judgment and opinion.

OPINION

The plaintiff, Keeley & Sons, Inc., filed a lawsuit against the defendant Zurich American Insurance Company, seeking to recover alleged overpayments of premiums in the total amount of $274,270 under two separate workers' compensation insurance policies issued by the defendant. According to the allegations in the plaintiff's complaint, it overpaid on these two policies due to the defendant's improper calculations of the premiums. Before us now is the defendant's interlocutory appeal challenging the trial court's denial of its amended motion to dismiss the plaintiff's complaint and compel arbitration. For the reasons discussed herein, we affirm.

BACKGROUND

The plaintiff is a construction company located in East St. Louis, Illinois. The defendant, an insurance company, issued the plaintiff two separate workers' compensation and employers' liability insurance policies (collectively, the Policies) for its operations. The first policy, number WC 9308164-00 (the 00 Policy), provided coverage from December 31, 2002, through December 31, 2003. The second policy, number WC 9308164-01 (the 01 Policy), provided coverage from December 31, 2003, through December 31, 2004.

Pursuant to the Policies, all the premiums were to be determined by the defendant's manuals of rules, rates, rating plans, and classifications. Stated within the Policies, the final premium for each of the Policies was also to be determined by using "the actual, not the estimated, premium basis and the proper classifications and rates that lawfully applied to the business and work covered by [each of the Policies]."*fn1 Attached to the 00 Policy is an endorsement entitled "CONTINGENT EXPERIENCE RATING MODIFICATION FACTOR ENDORSEMENT," which states as follows:

"The premium for this policy will be adjusted by an experience rating modification factor. The factor shown in the schedule is a Contingent Experience Rating Modification factor based on the appropriate experience data available and replaces any prior experience modification factor. We will issue an endorsement to show a revised factor if appropriate additional experience data becomes available. The Contingent factor will apply unless a revised factor is subsequently used."

The schedule within the endorsement states that the applicable contingent experience rating modification factor was 1.77. Another endorsement is also attached to the 00 Policy; it is entitled "ILLINOIS MOD CHANGE" and reads as follows: "DUE TO THE ILLINOIS CONTINGENT MOD RULES, THE ILLINOIS MOD EFFECTIVE 12-31-02 IS AMENDED TO 1.00 FOR THIS POLICY. THE RETURN PREMIUM IS SUBJECT TO AUDIT AND DEFERRED TO THE RETRO CALCULATION."

The 01 Policy contains an endorsement somewhat similar to the two endorsements attached to the 00 Policy. It is entitled "CHANGES" and reads, in pertinent part, as follows: "THE POLICY HAS BEEN AMENDED AS FOLLOWS: ENDORSEMENT #1 HAS BEEN AMENDED TO READ: THE ILLINOIS EXPERIENCE MOD IS AMENDED TO 1.00. THE MISSOURI EXPERIENCE MOD IS AMENDED TO 1.82. RETURN PREMIUM SUBJECT TO AUDIT."

However, according to the plaintiff's allegations, the defendant improperly applied an experience rating modification factor of 1.77 for the 00 Policy with respect to the plaintiff's Illinois portion of the risk, increasing its premium calculation by $315,402.*fn2 Therefore, after the retrospective calculation on the 00 Policy was made, the plaintiff's total premium for that policy equaled $351,943. Thus, the plaintiff alleges that had the defendant applied the correct experience rating modification factor of 1.00, its total premium for the 00 Policy after the retrospective calculation was applied should have been $216,029, thereby resulting in an excess paid premium of $147,794.

Similarly, the plaintiff also alleges that the defendant improperly applied an experience rating modification factor of 1.75 to the 01 Policy, thereby increasing the total premium by $248,734. Accordingly, after the application of the retrospective calculation, the total premium for the 01 Policy was $295,110. Yet the plaintiff alleges that had the defendant applied the correct experience rating modification factor of 1.00, the total premium due for the 01 Policy after the retrospective calculation should only have been $168,634, thereby resulting in an excess paid premium of $126,476. That alleged overcharge and the retention of the plaintiff's overpayments give rise to the plaintiff's causes of action for a breach of contract on each of the Policies.*fn3

As the defendant points out on appeal, the allegations in the plaintiff's complaint refer to the "retrospective calculation" applied to the total premiums for each of the Policies. Explaining, the defendant states that the Policies were retrospectively rated, meaning that the plaintiff's actual premiums on the Policies were to be determined based on actual losses that may develop over time. According to the defendant, the reason for doing so was that, during the effective period of coverage for each of the Policies, the actual attributable experience was not yet known. Therefore, during the period of coverage applicable to each of the Policies, the plaintiff paid what was called a "standard premium" (previously referred to in this opinion as "premium" or "total premium"), which, the defendant asserts, is essentially an estimate of the actual final retrospective premium. At the end of the coverage period and periodically thereafter, the defendant was to calculate the actual retrospective premium attributable to the program year according to a formula that took into account the actual claims made and paid on the Policies. Thus, if the standard premium already paid by the plaintiff was less than the actual final retrospective premium (i.e., if the actual claims experience had been ...


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