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Homeowners Choice, Inc. v. Aon Benfield, Inc.

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

March 29, 2013

HOMEOWNERS CHOICE, INC., Plaintiff,
v.
AON BENFIELD, INC., Defendant

For Homeowners Choice, Inc., Plaintiff: Brittany E. Kirk, Thompson Coburn LLP, Chicago, IL; Carly Vandewalle Gibbs, Nisen & Elliott, Llc, Chicago, IL; Claire Gorman Kenny, William J. Raleigh, Nisen & Elliott, Chicago, IL.

For Aon Benfield, Inc., Defendant: David Y Trevor, Timothy E Branson, PRO HAC VICE, Dorsey & Whitney LLP, Minneapolis, MN; Jonathan Booker Cifonelli, Jorge V. Cazares, Walter Jones, Jr., Pugh, Jones & Johnson, P.C., Chicago, IL.

Page 750

MEMORANDUM OPINION AND ORDER

Hon. Harry D. Leinenweber, United States District Judge.

Before the Court for decision are the trial record and posttrial briefing of Plaintiff Homeowners Choice, Inc. and Defendant Aon Benfield.

For the reasons stated herein, the Court finds in favor of Plaintiff Homeowners Choice Inc. and awards the sum of $744,402.06. The Court enters the following Findings of Fact and Conclusions of Law pursuant to Fed.R.Civ.P. Rule 52(a)(1).

I. FACTUAL BACKGROUND

This case stems from a dispute over a reinsurance contract. Reinsurance is a transaction where a reinsurer agrees to indemnify or reimburse an insurance company

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(the reinsured) against all or part of a loss the insurance company sustains under the policies it has issued. In exchange for the reimbursement, the insurance company pays the reinsurer a premium. In order to facilitate a reinsurance transaction, generally an insurance company must appoint a reinsurance broker as its " broker of the record." After being appointed, the broker of the record obtains reinsurance policies and services those policies on the insurance company's behalf. Reinsurance companies earn commissions on the policies they secure for an insurance company.

A. The Parties

Plaintiff Homeowners Choice, Inc. (" Homeowners" ) is a publicly traded Florida corporation. It has a number of subsidiary companies -one of which is Homeowners Choice Property and Casualty Insurance Company (" Homeowners Insurance" ). Homeowners Insurance is engaged in the business of selling property and casualty insurance to Florida homeowners. Homeowners Insurance reinsures its insurance portfolio through the purchase of reinsurance. At all relevant times of this dispute, Frank McCahill (" McCahill" ) was the President and Chief Executive Officer of Homeowners and Perish Patel (" Patel" ) was the Chairman of the Board of Directors.

Defendant Aon Benfield, (hereinafter, " Aon" or " Benfield" ) is an Illinois corporation that provides, among other things, insurance risk management services and brokers reinsurance. Homeowners first appointed Aon as its " broker of the record" in 2007. Homeowners renewed its agreement with Aon in 2008 and again in 2009. This case concerns the Broker Authorization Contract the parties entered into in 2009.

B. Negotiations Leading to the 2009 Brokers Authorization Contract

In approximately October 2008, the parties began to engage in negotiations regarding the renewal of their 2008 Brokers Authorization Contract for the 2009-2010 fiscal year. This was not an uncommon period of time for negotiations to occur, as it is typical for casualty and property insurance companies in Florida to secure their reinsurance contracts between May and July, before Florida's hurricane season. It is also common for insurance companies to request proposals from a number of reinsurance brokers months before they select which reinsurance company to name as its broker of record. The proposals reinsurance brokers submit provide insurance companies an explanation of the services the broker can offer and what the premium will be for such services.

At the time Homeowners and Aon began negotiations for the 2009 Contract, Homeowners was experiencing significant growth. Aon recognized this and recognized its ability to earn a substantial amount of commissions as Homeowners' broker of record. Thus, Aon sought to secure its role as Homeowners' broker of record as soon as possible, and for as long as possible.

In the early stages of negotiations, Homeowners proposed to renew its agreement with Aon if Aon agreed to enter into a Revenue-Sharing Agreement (" RSA" ) with Homeowners. Under the proposed RSA, Aon would pay Homeowners a portion of the commissions it earned from placing Homeowners' reinsurance.

Aon agreed to consider the possibility of incorporating a RSA into the 2009 Brokers Authorization Contract and on November 8, 2008 sent Homeowners a draft agreement (" the draft agreement" ). The draft agreement provided that Aon would continue as Homeowners' broker of record

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and would allow Homeowners to share a portion of the revenue Aon earned from the placement of reinsurance policies. The draft agreement proposed to extend the brokerage relationship to either a three-year or a five-year term.

After McCahill received the draft agreement and learned the agreement was for multiple years, he rejected the offer. McCahill informed Aon he was not interested in any agreement that bound Homeowners for a period of longer than one year.

After this, negotiations between the parties continued. During this time, however, Homeowners was receiving proposals from other reinsurance brokers. Notably, in early February 2009, Aon learned that one of its competitors, Willis Insurance, made a presentation to Homeowners regarding the reinsurance services it could offer for the 2009-2010 fiscal year. After learning this, Aon immediately began to coordinate a meeting with Homeowners to make a similar presentation.

On February 24, 2009, McCahill and Patel met with a number of Aon representatives at a restaurant in the Tampa Airport in Florida. The purpose of the meeting was to discuss Aon resuming its role as Homeowners' broker of record and discuss a RSA that was amenable to both Homeowners and Aon. Those present at the meeting from Aon included, Jeff Jones (" Jones" ), the reinsurance broker Homeowners had been working with since 2007, Bill Fleischhacker (" Fleischhacker" ), Jones' supervisor, and Rob Bredahl (" Bredahl" ), one of Aon's top executives.

During the meeting, Bredahl initially proposed an arrangement similar to that described in the draft agreement which involved a multi-year agreement between the parties. McCahill and Patel again rejected this proposal and explained Homeowners was only interested in entering a one-year agreement. At this point, Bredahl countered with a one-year reinsurance agreement that allegedly included a one-year RSA. The agreement was to begin June 1, 2009 and end May 31, 2010. McCahill and Patel orally accepted this offer on behalf of Homeowners.

The day after the meeting, McCahill and Jones exchanged emails to confirm the terms of the oral agreement the parties reached in Tampa. Both emails stated that the parties had agreed on a one-year arrangement and confirmed that the agreement included a one-year RSA. Jones informed McCahill that Aon would formalize this agreement in writing.

C. The 2009 Brokers Authorization Contract

On or about April 29, 2009, Aon sent McCahill a Brokers Authorization Contract (" the 2009 Contract" ) which purported to memorialize the agreement the parties reached in Tampa in February 2009. Shortly after receiving the agreement, McCahill signed it and returned a signed copy to Aon.

In relevant part, the 2009 Contract provides:

Based on the desire of the parties to establish a long-term mutually beneficial relationship, this Agreement (" Agreement" ) is entered into on this 31st day of March 2009, between Aon . . . and Homeowners Choice, Inc., including its affiliates . . .(" Client" ), under the following terms and conditions:
1. In consideration for Client [Homeowners] appointing Aon Benfield as reinsurance intermediary-broker for the placement and servicing of all reinsurance purchased by the Client (the " Subject Business" ) for the annual period beginning on June 1, 2009 and ending on May 31, 2010 (an " Agreement Year" ), [Aon] agrees to share with Client ...

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