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West Bend Mut. Ins. Co. v. Procaccio Painting and Drywall Co., Inc.

United States District Court, N.D. Illinois, Eastern Division

March 5, 2013

WEST BEND MUTUAL INSURANCE COMPANY, Plaintiff,
v.
PROCACCIO PAINTING AND DRYWALL COMPANY, INC., Defendant.

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[Copyrighted Material Omitted]

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Daniel J. Cunningham, Ann Elizabeth Oconnor, Tressler LLP, Chicago, IL, for Plaintiff.

Charles Lincoln Philbrick, Abigail Jane Jung, Emily A. Shupe, Gregory Wheeler Jones, Rathje & Woodward, LLC, Wheaton, IL, for Defendant.

MEMORANDUM OPINION AND ORDER

HARRY D. LEINENWEBER, District Judge.

Before the Court are two motions by Defendant Procaccio Painting and Drywall Company, Inc. (hereinafter, " Defendant" or " Procaccio" ). The first is Procaccio's Motion to Dismiss Count I of the Complaint. The second is a Motion for Summary Judgment on Count II of the Complaint and Counts I-IV of Procaccio's Counterclaim. For the reasons stated herein, the Motion to Dismiss is granted, and the Motion for Summary Judgment is granted in part and denied in part.

I. BACKGROUND

Plaintiff West Bend Mutual Insurance Company (hereinafter, " Plaintiff" or " West Bend" ) sells workers' compensation insurance to employers. Defendant procured its workers' compensation insurance from West Bend for years, but in 2011 the relationship soured when Procaccio complained to the Illinois Department of Insurance that West Bend overcharged it by improperly manipulating credits. The Department of Insurance declined to get involved, and West Bend filed this suit seeking a declaratory judgment that its credit adjustments were proper. Procaccio responded by filing a Motion for Partial Dismissal, Counterclaims for breach of contract and violations of the Illinois Insurance Code, and a Motion for Partial Summary Judgment.

The following facts are undisputed except where noted. Procaccio is a large construction company that operates in Illinois. Procaccio first obtained workers' compensation insurance from West Bend, a Wisconsin corporation, in 2001, and renewed the policy each year through at least 2011. Each renewal consisted of an Information Page (which calculated the premium due and contained various terms and conditions), as well as numerous endorsements identified on an Endorsement Schedule (each of which contained additional terms and conditions). The initial renewal policy issued each year contained only an estimated premium, but also allowed the premium to be adjusted through the issuance of subsequent endorsements:

This policy includes at its effective date the Information Page and all endorsements and schedules listed there. It is a contract of insurance between you (the employer named in Item 1 of the Information Page) and us (the insurer named on the Information Page). The only agreements relating to this insurance

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are stated in this policy. The terms of this policy may not be changed or waived except by endorsement issued by us to be part of this policy.

See, e.g., Renewal Policy dated Dec. 19, 2005 (Compl. Ex. A, ECF No. 1-1 at Page ID # 68).

One such adjustment made each year involved the Illinois Contracting Classification Premium Adjustment Program (the " ICC Program" ). Under the ICC Program, an employer may be entitled to a credit toward its workers' compensation insurance premium based on the number of contractors it employed and the average hourly wage it paid. Because Procaccio employees were union workers who earned high hourly wages, it was entitled to a sizeable credit each year. The credit was computed each year using a premium adjustment factor determined by the National Council on Compensation Insurance, but usually the factor was not available at the time the renewal policies issued. Thus, each year's renewal policy contained the following endorsement:

The premium for the policy may be adjusted by an Illinois Contracting Classification Premium Adjustment factor. The factor was not available when the policy was issued. If you qualify, or if an estimated factor has been applied, we will issue an endorsement to show the proper premium adjustment factor after it is calculated.

See, e.g., id. at Page ID # 78. Although the initial renewal policy issued by West Bend each year did not show the proper ICC premium adjustment factor, it subsequently issued an endorsement which showed that year's factor. See, e.g., Endorsement issued Jan. 18, 2006, (Compl., Ex. A, ECF No. 1-1 at Page ID # 48).

Because the ICC premium adjustment factor often entitled Procaccio to a sizeable credit, but was not available when the policy issued, West Bend alleges that the parties arranged to front the credit to Procaccio. Specifically, West Bend alleges that it inflated another credit offered to Procaccio on the renewal policy— the Schedule Modification credit— by the amount of the credit it anticipated from the ICC premium adjustment factor. Then, when the ICC premium adjustment factor was announced, West Bend reduced the Schedule Modification credit by the same amount. That way, West Bend alleges, Procaccio avoided the need to pay a high initial premium, only to receive a sizeable refund a short time later upon the announcement of the ICC premium adjustment factor.

West Bend alleges that Procaccio's president, Doris Procaccio, was aware of the practice because (1) she was present at each of the renewal meetings where insurance agents explained it to her; (2) during those meetings she expressed her approval of the arrangement; and (3) she was advised by e-mail of the effect the arrangement would have on the Schedule Modification credit. According to West Bend, the parties carried out this arrangement for the policy years 2006, 2007, and 2010. During each of those years, the alleged arrangement had the following effect on the Schedule Modification credit:

• 2006 Policy Period: The initial Schedule Modification credit was 51.7%, but an endorsement issued January 26, 2006, dropped the credit to 30%, amounting to a reduction in the credit of $180,681;
• 2007 Policy Period: The initial Schedule Modification credit was 53%, but an endorsement issued January 2, 2007, dropped the credit to 30%, amounting to a reduction in the credit of $78,053; and
• 2010 Policy Period: The initial Schedule Modification credit was 10 %, but an endorsement issued March 25,

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2010, dropped the credit to 7%, amounting to a reduction in the credit of $1,199.

West Bend alleges that each year's reduction to the Schedule Modification credit offset the credit attributable to the ICC premium adjustment factor, per the parties' arrangement.

Procaccio responds that each year's policy was an integrated contract, and that the parties' agreement must be discerned based on the terms of the policy or its endorsements. According to Procaccio, while the policy allowed for subsequent endorsements to reflect any credit due as a result of the ICC premium adjustment factor, the policy contained no similar allowance for adjusting the Schedule Modification credit.

Although West Bend lowered the Schedule Modification credits early in the 2006, 2007, and 2010 policy years, for reasons unspecified in the record, Procaccio did not complain about it until November 28, 2011, when it wrote to the Illinois Department of Insurance asking that West Bend be ordered to honor the initial Schedule Modification credit for those years. See, Procaccio Letter dated November 28, 2011 (Aff. of D. Cunningham, Ex. J, ECF No. 41-10). The Department of Insurance responded by advising West Bend that " all of the factors that make up the premium" such as " scheduled credits" are " frozen" once the " effective date of renewal arrives." Dept. of Ins. Letter dated May 17, 2012 (Compl. Ex. D, ECF No. 1-4).

West Bend responded to the Department of Insurance on June 14, 2012, asking to appeal the Department's finding and requesting a hearing because it believed " facts remain in dispute concerning the contractual arrangement between West Bend and Procaccio." West Bend letter dated June 14, 2012 (Compl. Ex. E, ECF NO. 1-5). On July 23, 2012, the Department of Insurance replied that the " questions raised in your correspondence are not matters that are heard by the Department. The Department does not arbitrate or mediate contractual disputes between the parties" and " respectfully declines to provide a forum to address the questions you raise." Dept. of Ins. Letter dated July 23, 2012 (Compl. Ex. F, ECF No. 1-6).

West Bend then filed the instant suit. Its Complaint consists of two counts. In Count I, it seeks a declaratory judgment that its adjustment of the Schedule Modification credit to offset the ICC premium adjustment factor in the 2006, 2007, and 2010 policies was proper. In Count II, it seeks a declaratory judgment that it does not owe Procaccio any refund for those policy years.

In response, Procaccio filed a Counterclaim, consisting of four counts. In the first three counts, Procaccio alleges breach of contract based on West Bend's adjustment of the Schedule Modification credit in the 2006 (Count I), 2007 (Count II), and 2010 (Count III) policies. In Count IV, Procaccio alleges that West Bend's adjustment of the Schedule Modification credit violated the Illinois Insurance Code. West Bend, in turn, asserted affirmative defenses to the counterclaims.

Before the Court are two Motions filed by Procaccio. First is a Motion to Dismiss Count I of West Bend's Complaint. Second is a Motion for Summary Judgment on Count II of West Bend's Complaint and all counts of Procaccio's Counterclaim. Although the Motion for Summary Judgment is the later-filed motion, the Court shall address it first because its resolution is also dispositive of the Motion to Dismiss.

II. LEGAL STANDARD

Summary judgment is proper " if the movant shows that there is no genuine dispute as to any material fact and the

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movant is entitled to judgment as a matter of law." FED R. CIV. P. 56(a); see also Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). " The evidence of the non-movant is to be believed, and all justifiable inferences are to be drawn in his favor." Valenti v. Qualex, Inc., 970 F.2d 363, 365 (7th Cir.1992). Moreover, a court should grant a motion for summary judgment only when the record shows that a reasonable jury could not find for the nonmoving party. See Valenti, 970 F.2d at 365.

Thus, to withstand a motion for summary judgment, the nonmoving party must show that a dispute about a genuine issue of material fact exists. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). The nonmoving party may not rest merely upon the allegations or details in his pleading, but instead, must set forth specific ...


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