INTERNATIONAL ADM'RS v. Life Ins. Co.

Citation564 F. Supp. 1247
Decision Date17 May 1983
Docket NumberNo. 82 C 625.,82 C 625.
PartiesINTERNATIONAL ADMINISTRATORS, INC. and Sheldon Harrison, Plaintiffs, v. LIFE INSURANCE COMPANY OF NORTH AMERICA, Defendant.
CourtU.S. District Court — Northern District of Illinois

John Ruddy, Becker & Ruddy, Chicago, Ill., for plaintiffs.

William J. Holloway, Hinshaw, Culbertson, Moelmann, Hoban & Fuller, John R. Williamson, Chicago, Ill., for defendant.

MEMORANDUM OPINION AND ORDER

SHADUR, District Judge.

International Administrators, Inc. ("IAI") and its President Sheldon Harrison ("Harrison")1 originally filed a 12-count Complaint against Life Insurance Company of North America ("LINA"), charging interference with IAI's contractual relationships, interference with prospective advantage, breach of contract and defamation. In turn LINA filed a motion to dismiss, which this Court granted only as to Count VIII. 541 F.Supp. 1080 (N.D.Ill.1982)("Opinion I"). LINA has now moved under Fed.R.Civ.P. ("Rule") 56 for summary judgment as to the surviving counts. For the reasons stated in this memorandum opinion and order, LINA's motion is granted in its entirety.

Facts2

Beginning in 1971 IAI was broker and administrator for various group insurance programs of the Department of Iowa of the American Legion and its Ladies Auxiliary (collectively "Iowa Legion"). In 1976 IAI solicited LINA to underwrite the AGL-270 policy3 for Iowa Legion members. Then a few years later IAI selected LINA as underwriter for Iowa Legion's "Cancer" and "Wheels" policies.

During the preliminary negotiations as to IAI's commissions for securing Cancer and Wheels coverage, LINA Group Manager John Haffner sent a November 22, 1978 letter to former IAI President Richard Albert ("Albert"), providing "a synopsis of our continuing discussion on these risks." That letter (dealing with such insurance for both Iowa and Illinois Legions) confirmed LINA's willingness to pay IAI, as an inducement to place the Wheels business with LINA, a "contingent commission" supplementing any commissions IAI received directly from the Legion:

We will allow an agency contingency on Iowa and Illinois Legion Wheels policies whereby we will take 20% for our expenses profit, etc., allow you 25% commission takeover first year (30% new and 20% renewal thereafter), subtract the paid claims and IBNR (15% premium at year end) and split the remainder 50/50 until you reach 10% total additional compensation. ...

On January 9, 1979 LINA and IAI executed a written agreement establishing a commission schedule for Cancer and Wheels coverage for several policyholders, including Iowa Legion. That contract makes no mention of any contingency fee agreement. It did however improve on IAI's position under the November 22 letter "synopsis" in two ways:

1. Its commission rates are higher than those contemplated in the letter.
2. It provided a $50,000 advance on commissions.

Sometime in 1980 IAI replaced LINA with another insurance company as underwriter of Cancer and Wheels coverage for Iowa Legion subscribers. No other change in the relationship among IAI, LINA and Iowa Legion occurred until the fall of 1980, when IAI became more than 90 days delinquent in remitting Iowa Legion premiums in the "six figures" (Jackson Dep. 28).4 That period of delinquency comports with neither industry custom (Roehr Dep. 33-34; Sweeney Dep. 24-25) nor IAI's past practice (Jackson Dep. 29; Harrison Dep. 60-61).5 Indeed IAI was contractually obligated to transmit AGL-270 premiums within 45 days after the first day of the billing quarter (LINA Doc. 01809).

Through mid-March 1981 LINA repeatedly asked IAI to pay the delinquent premiums. Each time Harrison provided immediate payment (Jackson Dep. 28-29). In an undated letter received by Harrison March 18 (the "March 18 letter"), LINA Vice President Lowell Jackson ("Jackson") threatened suit if the premiums were not paid by March 23, 1981:

Your account with I.N.A. is considerably overdue. Our records indicate non-payment of premium for the above accounts as far back as September of 1980. In addition, much of this business was moved to other carriers without proper notification to us.
We must insist that all past due premiums be remited to us immediately. If we do not receive a full accounting with the appropriate premiums by March 23, 1981, we shall begin legal action to collect these accounts.

By that time LINA had decided to discontinue its dealings with IAI. To accomplish that LINA realized it must also sever its relationships with any policyholder, such as Iowa Legion, represented by IAI. Termination of AGL-270 coverage required notice to Iowa Legion 30 days before the policy's "anniversary date" — the only permissible cancellation date.6 Believing the anniversary date to be May 1,7 LINA felt it had to act quickly to comply with the notice requirement. Consequently Jackson sent identically-worded letters (the "March 19 letters") to two Iowa Legion officials, one of whom was Adjutant John B. Brokens ("Brokens"):

I.N.A. has provided Hospital Income coverage to members of the Iowa American Legion and its Auxiliary since May 1, 1976. During that time we have been very appreciative of our relationship with your organization. I.N.A. is a leading underwriter of American Legion insurance coverages and we value the business highly.
We regret to inform you that we have not received certain premiums on policies issued to the Iowa American Legion that were due as far back as September, 1980. These premiums were collected by your broker, Mr. Sheldon Harrison of G & H Insurance Administrators, Inc., but have not been remitted to I.N.A.
We must inform you that under these circumstances it is no longer possible for us to do business with Mr. Harrison. Since he is your appointed broker, we are in a position that forces us to terminate our relationship with your organization as long as he is your representative. We regret that this action is necessary and trust you can appreciate our situation. Please accept this letter as intent to cancel Policy # AGL-270 on May 1, 1981. We will, of course, cooperate with you in every way and see that individual claims are handled properly.

Jackson was mistaken in saying the outstanding premiums reached as far back as September 1980. Three days before the March 19 letter was written LINA had received the premiums due in September 1980, though premiums due in October 1980 remained unremitted as of March 19 (LINA Docs. 00901 and 01324; LINA Dep. Ex. 104).8 However Jackson's deposition (wholly uncontroverted even inferentially) leaves no room for doubt the March 19 letters (including their mistaken assertion) were tendered in good faith:

1. For the six months preceding March 19 Jackson and other LINA officials had sought assiduously to resolve IAI's delinquency problems in an amicable manner (Jackson Dep. 29).
2. LINA's March 19 letter simply sought to convey (and explain) to Iowa Legion LINA's intention not to renew the AGL-270 policy (Jackson Dep. 20). There is no hint the letters were stimulated by a desire to sabotage IAI's relationship with Iowa Legion.9 Indeed Jackson had no idea "what would happen" as a result of the letters and in fact did not expect the Iowa Legion "would even contact him" (Jackson Dep. 26).
3. In drafting the March 19 letters Jackson sought all possible sources of information on IAI, including up-to-date reports from LINA's Accounting Department (Jackson Dep. 32). That coupled with the close proximity in time (three days between LINA's receipt of the delinquent September premiums and Jackson's March 19 letters) reconfirms the bona fides of Jackson's belief he was reporting IAI's delinquency accurately.10

After receiving the March 19 letter Brokens telephoned Jackson and asked him to recommend a broker with whom LINA was willing to deal. Jackson "absolutely would not recommend" a specific replacement for IAI but instead suggested three possibilities, John P. Pearl and Associates, Ltd. ("Pearl")11 and two others (Brokens Dep. 55-56, Jackson Dep. 25). After interviewing Pearl and at least one of the other two brokers, on April 1, 1981 Iowa Legion's Executive Committee chose Pearl as IAI's successor as to all insurance plans (including the Cancer and Wheels programs). There were essentially three reasons for Pearl's selection:

1. Brokens had been personally acquainted with Pearl for ten years (Brokens Dep. 18-19, 65).
2. Pearl was successfully administering Legion accounts in other states (Brokens Dep. 19, 21).
3. Pearl had a good reputation for reliability (Brokens Dep. 20-21).

No committee member was interested in retaining IAI (Brokens Dep. 43), though Iowa Legion had been satisfied with IAI's service before the March 19 letter (Brokens Dep. 61).

Though aware its position as Iowa Legion's administrator was in jeopardy, IAI made no attempt to inform Iowa Legion of the inaccuracy in the March 19 letters. In fact Albert, then an IAI consultant, frequently communicated with Brokens after March 19 without ever alluding to the misstatement (Albert Dec. 23, 1982 Dep. 45).12 Moreover, Harrison failed to keep appointments set by Iowa Legion to discuss IAI's continuing as administrator (Brokens Dep. 25-27).

Needless to say, the loss of Iowa Legion's patronage adversely affected IAI's profitability. According to Harrison's uncontroverted Dep. 223, IAI's commission income realized on all Iowa Legion policies approximated $100,000. But the loss of the Iowa Legion account did have some offsets:

1. IAI sold its records as to Iowa Legion subscribers to Pearl for $140,000 (LINA Dep. Ex. 5).
2. IAI's shareholders (including Harrison) received an approximately $100,000 rebate on their original purchase price of IAI stock, compensating for the decline in IAI's commission income during the period from August 1, 1980 through August 1, 1981 (Harrison Dep. 13).13

Holding LINA responsible for the loss of Iowa Legion's business, IAI brought this action. Its eleven remaining Complaint...

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