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Gemini Insurance Co. v. Pelican General Insurance Agency, LLC

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

June 6, 2018




         Plaintiffs Gemini Insurance Company (“Gemini”) and Berkley Program Specialists, LLC (“Berkley”) bring this diversity action against Pelican General Insurance Agency, LLC (“Pelican”) alleging claims of breach of contract, contractual indemnification, negligence, and negligent misrepresentation. (Am. Compl. (Dkt. No. 6).) Plaintiffs have filed a motion for partial summary judgment as to liability on all four claims pursuant to Federal Rule of Civil Procedure 56. For the reasons set forth below, we hereby grant Plaintiffs' motion for summary judgment for their breach of contract and indemnification claims (Counts I and II) and deny their motion as it pertains to their negligence and negligent misrepresentation claims (Counts III and IV).


         Plaintiffs Berkley and Gemini are insurance companies; at all relevant times, Berkley has been Gemini's manager with the authority to enter into contracts on Gemini's behalf. (Pls.' Statement of Material Facts (“SOF”) (Dkt. No. 29) ¶¶ 1, 12.) Plaintiffs' relationship with an insurance program administrator, Pelican, and a commercial auto insurance policy issued by Pelican give rise to this suit.

         I. Plaintiffs' Relationship With Pelican

         In 2003, Pelican began serving as program administrator for Plaintiffs' commercial auto program in Louisiana. (Id. ¶ 10.) On April 1, 2005, Pelican entered into a Program Administrator Agreement (“PAA”) under which Pelican agreed to write commercial automobile insurance policies on Gemini insurance paper in Louisiana and Arkansas. (Id. ¶¶ 11, 16.) The PAA sets forth Pelican's ability to quote, underwrite, and issue insurance policies and endorsements, and provides limitations to Pelican's authority. (Id. ¶¶ 14-15.) Specifically, Section 3.1 of the PAA reads: “Administrator [Pelican] will not solicit, transact, quote, underwrite, rate, or bind policies on . . . risks which are unacceptable in accordance with this Agreement, or the underwriting guidelines, procedures, instructions, or memoranda provided to Administrator by Company [Berkley] from time to time . . . .” I (Id. ¶ 15.) Section 1 states the “Administrator agrees to comply with and be bound by” any “underwriting guidelines . . . setting out certain policies of Company, ” that may be revised “without the need to amend this Agreement and shall be effective upon written notice to Administrator.” (Id. ¶ 14.) In the event Administrator “quotes, underwrites, . . . or binds policies as prohibited by Section 3.1 . . . without the prior written approval of Company, whether intentional or not, Administrator will immediately . . . take such actions as are necessary to remove or to minimize the Company's exposure as an insurer on such unacceptable risks. . . .” (Id. ¶ 15). Further, the PAA includes indemnity provisions in Sections 3.2 and 8.2, which provide that the “Administrator shall indemnify and hold the Company harmless for any and all payments that the Company may be required to make under policies which are prohibited by Section 3.1, ” and shall “defend, indemnify, and hold Company harmless from and against all claims, actions, causes of action, liability, or loss which result from any real or alleged negligent or willful acts, errors, or omissions or [sic] Administrator, or the servants, employees, representatives, producers, or brokers of Administrator . . . .” (Id.)

         On June 1, 2013, Plaintiffs issued new underwriting guidelines (“UWGs”) for commercial automobile policies Louisiana and Arkansas. (Id. ¶ 17; UWGs (Dkt. No. 1-2).) The UWGs list “[l]ogging risks” and “[s]and and gravel operations” as “prohibited risks” that Pelican could not insure under the program. (SOF ¶ 19-20.) The UWGs also prohibit insuring operators with drivers with specific automobile-related violations, including speeding. (Id. at 19.) Furthermore, the UWGs require Pelican to maintain underwriting files with “minimum” documentation, including a signed ACORD application, rating worksheets, drivers lists, drivers' motor vehicle records (“MVRs”), a loss control survey, and loss runs[1] for the most recent three years. (Id.) Finally, the UWGs list a number of situations that “require a referral” to Berkley before issuance of insurance coverage, including “accounts outside” of the UWGs, accounts that include a prohibited risk, and “[a]ccounts that have been in business for less than one year without prior experience in similar line of business ” (Id.)

         II. Pelican's Issuance of the Boone Trucking Policy

         The UWGs were in effect when, on November 12, 2014, Barry White of Lincoln Insurance Agency (“Lincoln”), an insurance retail agent, sent a “Quick Quote” form to Jan Edwards, a Pelican underwriter, seeking a quote for commercial auto insurance for Kenneth Boone d/b/a Boone Trucking (“Boone Trucking”). (Id. ¶ 23; Quotation Sheet (Dkt. No. 29-6).) The Quick Quote form listed Boone Trucking's hauling operations as consisting of eighty percent grain and twenty percent frac sand, [2] Boone Trucking's radius of operations as “100, ” “State Farm” as Boone Trucking's previous carrier, Boone and Adam McKenzie as Boone Trucking's drivers, and no response to the “Yrs. In Business” question. (SOF ¶¶ 24, 26; see also Quotation Sheet.) Based on Boone Trucking's Quick Quote form, Edwards sent a quotation to White on November 13, 2014 providing rates to insure Boone Trucking under Gemini's commercial auto policy. (SOF ¶ 27; Pelican Quotation (Dkt. No. 29-7).) The same day, White sent Edwards a signed application requesting Pelican issue Boone Trucking the quoted Gemini policy for liability, property damage, and cargo coverage. (SOF ¶ 28.) The application included McKenzie's and Boone Trucking's MVRs; Boone's MVR noted a violation dated December 2012 in Louisiana described as “Promise to Appear” with a notation of “**SP.” (Id. ¶ 33; Boone Trucking Application Applicant Info. (Dkt. No. 29-8) at 17.)[3] Ultimately, Edwards did not investigate Boone's MVR and approved Boone Trucking's application. (SOF. ¶¶ 35, 45-46.)[4] On behalf of Gemini, Pelican issued Boone Trucking a business auto liability and physical damage policy effective November 13, 2014 to November 13, 2015. (Id. ¶¶ 45-46; Pelican Boone Trucking Policy (No. PEL0008544) (Dkt. No. 29-9).)

         Laura Johnson, Edwards' assistant at Pelican, sent Lincoln a binder of information about the policy, and requested Lincoln provide Boone Trucking's “current valued loss runs 60 days or newer (prior 3 yrs).”[5] (SOF ¶ 41.) Pelican, however, never received Boone Trucking's loss runs. (Id. ¶ 44.)

         On December 1, 2014, Twenty First Services, LLC (“Twenty First”), a third party hired by Pelican, conducted an in-person inspection, also known as a loss control survey, of Boone Trucking's headquarters at Boone's home, as required by the UWGs. (Id. ¶ 48; see also Id. ¶ 19 (quoting the UWGs requirement that Pelican conduct a “[p]hysical inspection[] of every location on [sic] new business within 45 days of the effective date of coverage” for risks with heavy vehicles); Boone Dep. (Dkt. No. 29-18) at 60-62.) Twenty First submitted a Loss Control Survey to Pelican, which states Boone Trucking “[h]auls [g]rain 80% and hauls sand 20% of the time, ” reveals one of Boone Trucking's two trucks had the “critical” issue of a blown engine, and rates the overall risk to be “marginal.”[6] (SOF ¶¶ 49-54; Loss Control Survey (Dkt. No. 29-15).) Kenneth Boone testified in his deposition that at the time of this inspection, he was not present. (SOF ¶ 59 (citing Boone Dep. at 62, 68, 216).) Pelican did not follow up with Twenty First about the inspection, and Pelican did no further inspection of Boone Trucking. (Id. ¶¶ 54-55.)

         On March 4, 2015, Lincoln sent an email to Pelican requesting that B&S Timber, Inc. (“B&S Timber”) be added to Boone Trucking's Gemini policy as an additional insured. (Id. at 61.) Without review by Edwards or another underwriter, Sarah Chustz, an employee in the processing department at Pelican, issued an endorsement adding B&S Timber as an additional insured the same day. (Id. ¶¶ 61, 63; Endorsement (Dkt. No. 29-19).)

         III. October 2015 Boone Trucking Accident

         On October 1, 2015, while driving a Boone Trucking truck with a load of hardwood pulpwood from Mississippi to Texas, Mark Gordon, a Boone Trucking driver, [7] struck a pickup truck, killing three people and injuring a fourth. (SOF ¶¶ 68-69.) As a result of the accident, Gemini was named as a defendant in a number of underlying lawsuits in Louisiana state court and retained counsel to defend itself, Boone Trucking, and Gordon in the state litigation. (Id. ¶¶ 73-76.) After the accident, Pelican learned for the first time that Boone Trucking had been hauling logs, and Pelican cancelled Boone Trucking's Gemini policy. (Id. ¶ 72.) In a deposition in an underlying lawsuit, Boone testified that he hauled logs at the time he applied for insurance in November 2014, and that he had been hauling logs for twelve years. (Boone Dep. at 24-27, 216.) Furthermore, Boone indicated he was not physically present during Twenty First's inspection, and that there were logging trailers on his property at the time. (SOF ¶ 59.)

         IV. Procedural History

         On May 2, 2016, Plaintiffs filed their amended complaint pursuant to 28 U.S.C. § 1332 seeking damages from Pelican for breach of contract (Count I), contractual indemnification (Count II), negligence (Count III), and negligent misrepresentation (Count IV). (Am. Compl. ¶¶ 39-56.) Plaintiffs claim that Pelican breached the parties' PAA and UWGs because it issued Boone Trucking's policy without adequately investigating Boone Trucking, did not refer the account to Berkley for approval before underwriting Boone Trucking's policy, failed to maintain adequate underwriting documentation, never reviewed Central Analysis Bureau (“CAB”) or Safety and Fitness Electronic Records (“SAFER”) reports, and failed to adequately inspect Boone Trucking's operations. (Id. ¶ 42.) Based on these alleged breaches, Plaintiffs argue Pelican must reimburse Plaintiffs for all costs related to the underlying lawsuits pursuant to the PAA indemnification clauses. (Id. ¶¶ 44-46.) Plaintiffs also argue Pelican failed to exercise reasonable care in underwriting Boone Trucking's policy, investigating Boone Trucking's risk, adding the B&S Timber endorsement, and maintaining adequate documentation about Boone Trucking. (Id. ¶¶ 47-50.)

         Plaintiffs filed a motion for partial summary judgment asserting they have sufficiently proven Pelican's liability on all four counts, but reserving the determination of damages. (Pls.' Summ. J. Mot. (“Mot.”) (Dkt. No. 27); Pls.' Mem. in Support of Summ. J. Mot. (“Mem.”) (Dkt. No. 30).) In response, Pelican does not dispute it acted as Plaintiffs' agent, but contends summary judgment is inappropriate because “numerous issues of material fact exist surrounding the purported contractual breaches and negligence.” (Def.'s Resp. to Mot. for Summ. J. (“Resp.”) (Dkt. No. 33) at 2, 5-6.)


         Summary judgment is proper when “there is no genuine dispute as to any material fact.” Fed.R.Civ.P. 56. A genuine issue for trial exists when “the evidence is such that a reasonable jury could return a verdict for the nonmoving party.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 2510 (1986). “If the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact, ” then “the moving party is entitled to a judgment as a matter of law.” Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 2552 (1986) (citing Fed.R.Civ.P. 56). In considering a motion for summary judgment, “[t]he evidence of the non-movant is to be believed, and all justifiable inferences are to be drawn in [its] favor.” Anderson, 477 U.S. at 255, 106 S.Ct. at 2513.


         Plaintiffs seek summary judgment on their state law breach of contract, indemnification, negligence, and negligent misrepresentation claims, which we consider in turn. As a federal court sitting in diversity, we apply state substantive law and federal procedural law. Harper v. Vigilant Ins. Co., 433 F.3d 521, 525 (7th Cir. 2005). The parties do not dispute that based on the PAA's choice of law clause, Illinois substantive law controls. (Mem. at 6; Resp. at 5.)


         Plaintiffs argue “Pelican breached its explicit underwriting limitations under the UWGs and PAA” in issuing Boone Trucking's policy by failing to follow required steps in the underwriting process ...

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