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Technology Insurance Co. v. B & R Insurance Partners, LLC

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

March 28, 2016

Technology Insurance Company, Plaintiff,
B & R Insurance Partners, LLC, Defendant.


          JOHN ROBERT BLAKEY, District Judge.

         In this breach of contract case, Plaintiff Technology Insurance Company has sued B & R Insurance Partners, LLC for failing to pay the premiums and other sums due under the terms of the Workers Compensation and Employers Liability Insurance Policy issued by Plaintiff to Defendant. The case is currently before the Court on Plaintiff's motion for summary judgment [43]. For the reasons explained below, the Court denies the motion.

         Background & Procedural History

         Defendant B & R Insurance Partners, LLC. ("B&R") is a professional employer organization ("PEO") founded in August of 2012 for the purpose of handling workers' compensation insurance needs for the taxicab industry. DSOF [53] ¶¶ 2, 6; Deposition of Patrick Joseph Ripoli taken 6/26/15 [54], pp. 12, 16. The three founders of B&R, William Wahl, Pat Ripoli, and Tsefiereda Ripoli, were aware that the calculation of Illinois workers' compensation insurance overestimated a taxicab drivers' annual wages and knew that, as a practical matter, the majority of workplace injuries in the industry were covered by third party car insurance coverage. [54], pp. 13-17. They also knew that the Illinois Insurance Act remained inconsistent with Chicago's Municipal Code regarding taxicab workers' compensation insurance requirements. Id. The Municipal Code of Chicago Section 9-112-600 further complicated this market by requiring taxicab drivers to set aside fares to obtain workers' compensation insurance. PSOF [56] ¶¶ 9.

         On August 16, 2012, despite its reservations about the Illinois workers' compensation insurance market, B&R applied for a workers' compensation policy through a system created under the Illinois Insurance Act called the "Illinois Assigned Risk Plan for Workers' Compensation" ("Assigned Risk Plan") [53] ¶¶ 8, 11. The Assigned Risk Plan was designed to assist companies who could not find workers' compensation insurance in the voluntary insurance market by assigning applications to various insurance providers. [54], p. 40-41. B&R's application was assigned to the Plaintiff, Technology Insurance Company ("Technology") [53] ¶¶ 7. At the time of the application, B&R had not recruited any taxicab associations as clients and had only one employee; the application requested coverage for just that one employee, William Wahl. [54], p. 17-20. For this limited coverage, the application estimated a premium of $707.00. Complaint [1] ¶ 8; [1-1]. The Policy provided that the actual premium would be calculated at the end of the cover period, based on payroll records.

         The parties entered into a Workers Compensation and Employers Liability Insurance Policy ("Policy") through the Assigned Risk Plan for the period of August 17, 2012 to August 17, 2013. [53] ¶ 10. After entering into the Policy, B&R began recruiting taxicab companies to be endorsed under the Policy. [54], pp. 17-20. On September 10, 2012, B&R added sixteen taxicab associations to the Policy, endorsing 6, 286 total taxicab medallions from 24-Seven, Ace, American United, Blue Diamond, Checker, Chicago Carriage, Choice, City Service, Dispatch/Avenue, Flash, Globe, Koam, Sun Taxi, Top Cab, Yellow, and Chicagoland Limousine/AIS. [53] ¶¶ 11. B&R asked Technology to add these clients to the policy, and it made the request via email, the customary method adopted by both parties. Id.

         In late 2012 or early 2013, William Wahl, Rick Allen and Pat Ripoli, as B&R's representatives, met with Technology Insurance officials in Atlanta. [54], p. 68-72. During this meeting, B&R discussed its concerns about the workers' compensation insurance marketplace. Id. The parties discussed the methodology for calculating premiums and also discussed what would constitute "provable remuneration" of a taxicab driver's yearly salary. Id. The topic of provable remuneration was important; under the Policy, the actual premium due at the conclusion of coverage was supposed to be based upon "provable remuneration" in the form of payroll records. [53] ¶¶ 15, 17.

         When the Policy was issued, all parties agreed that the quoted premium was only an estimate, which would be subject to change after a final audit based upon the "provable remuneration." [56] ¶ 11. The Policy required B&R to maintain complete records of all payroll transactions for use in the final audit, which would then be used to determine the actual premium owed. [53] ¶ 8. However, B&R knew it could not maintain complete payroll records for the taxicab drivers covered by the Policy, and it told Technology as much. [53] ¶ 18. The taxicab associations provide 1099's to taxicab drivers showing annual credit card transactions. Id. The documentation from the taxicab association, however, failed to contain complete wage information, and thus, the cash transactions conducted by the taxicab drivers was unavailable. Id.; [54] p. 75-81.

         The Policy issued to B&R provided that, where the policy holder cannot maintain proper payroll records, the Policy followed the rules, rates and procedures of the National Council on Compensation Insurance ("NCCI"). [53] ¶ 8. The NCCI is the administrator of all Assigned Risk Plans in Illinois and it assigned certain Class Codes for use in determining workers' compensation rates. Id. NCCI Manual Class Code 7370 provides a rate to calculate the premium for use with taxicab drivers where there is an "absence of verifiable payroll records." [53] ¶ 22. Under this class code, premiums were to be calculated using a rate of $48, 400 per leased or rented vehicle. [53] ¶ 24.

         B&R believed this rate far exceeded what a taxicab driver earned per year, and it shared its view with Technology, sparking detailed discussions between the parties about what could constitute "provable remuneration" in the absence of complete payroll records. [53] ¶ 19. B&R provided some information to Technology, but Technology was not satisfied. At the end of the Atlanta meeting in late 2012 or early 2013, Technology informed B&R that if they could not come up with an acceptable method to show provable remuneration, then the premium would be calculated using the above Class Code 7370 rate, which would result in a final premium of roughly $25, 000, 000. [54], p. 70.

         The meeting with Technology was not the only attempt by B&R to bring workers' compensation premiums for taxicab drivers in line with the reality of driver pay. [53] at Exhibit D, p. 6-8. In early 2013, B&R filed a dispute with the Illinois Department of Insurance ("DOI") concerning the calculation of the $48, 400 figure in Class Code 7370. Id. The DOI sent the dispute to the NCCI. Id. The NCCI indicated that B&R's proposed options for determining payroll for the taxi industry were "informative and will be thoroughly reviewed by NCCI's staff." Id., p. 6. Subsequently, the NCCI indicated that B&R's request to adopt a new ratemaking methodology for Code 7370 was "not within the jurisdiction of the Illinois WC Appeals Board." Id. On May 21, 2013, Tim Higgins, Regulatory Services Manager at NCCI, resolved the dispute stating in an email that the "current treatment and ratings values for Code 7370 remain applicable to your Technology policy effective 8/17/12 through 8/17/13." Id.

         On July 18, 2013, Gina Forstman, Assigned Risk Manager at Technology Insurance Company, sent an email to B&R confirming that Technology required a physical audit to determine the final premium owed on the Policy. [1] ¶12; [1-7]. Specifically, Technology requested the income tax statements of each driver, the exact number of taxi cabs endorsed by the Policy, and the listing of each taxi association client of B&R during the Policy period. Id. Even after this demand, on July 25, 2013, B&R continued to solicit additional clients to be covered under its Policy. [54-7].

         On January 6. 2014, Technology conducted a physical audit. [53] ¶ 17; [1] ¶ 12 (attached as Exhibit 7). Due to the lack of payroll records for taxicab drivers, the "Taxicab Co" section of the audit could not be calculated and was deemed to be unworkable. [56] ¶ 14. The audit worksheet shows that Technology's auditor indicated that the value of the "unworkable" audit was $10, 850, 044. It is not clear how the auditor arrived at this figure, however, as no methodology or calculation is shown. Id.; [1] ¶ 13 (attached as Exhibit 4). Based upon the audit, Technology adjusted the premium to $11, 447, 907, which included all B&R clients endorsed by the Policy. Id. Because B&R had already paid $1, 597, 460.22 on the Policy, that amount was subtracted from this adjustment, leaving an outstanding premium amount due of $9, 966, 080.78. [53] ¶ 21. B&R refused to pay this amount. Id.

         In response to B&R's refusal to pay the outstanding premium, Technology sued. On March 28, 2014, Technology filed its complaint alleging breach of contract and seeking damages in the amount of $9, 966, 080.78, ...

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