Allstate Ins. Co. v. Employers Reinsurance Corp., 01 C 1093.

• Decision Date: 18 March 2005
• Docket Number: No. 01 C 1093.,01 C 1093.
• Parties: ALLSTATE INSURANCE CO., Plaintiff/Counter-Plaintiff/Counter-Defendant v. EMPLOYERS REINSURANCE CORP., Defendant/Counter-Plaintiff.
• Court: U.S. District Court — Northern District of Illinois

441 F.Supp.2d 865

ALLSTATE INSURANCE CO., Plaintiff/Counter-Plaintiff/Counter-Defendant v. EMPLOYERS REINSURANCE CORP., Defendant/Counter-Plaintiff.

No. 01 C 1093.

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

March 18, 2005.

COPYRIGHT MATERIAL OMITTED

Robert J. Bates, Jr., Frederick William Stein, Mary Frances Licari, Bates & Carey, Daniel Edward Feinberg, Sonnenschein, Nath & Rosenthal, LLP, Chicago, IL, for Plaintiff/Counter-Defendant.

Rita M. Alliss Powers, Howard Kevin Jeruchimowitz, Greenberg Traurig, LLP, Andrea Rachelle Silverstein, Chicago, IL, for Defendant/Counter-Plaintiff.

MEMORANDUM OPINION AND ORDER

HIBBLER, District Judge.

Employers Reinsurance Corporation (ERC) reinsured Allstate Insurance Company's automobile insurance line from 1934 until 1978 under a number of different agreements. In 1999, Allstate reported to ERC 88 claims that arose under a Treaty agreement that had been in effect from 1972 to 1978. ERC denied coverage on all 88 claims, which prompted Allstate to file this suit. ERC filed a counter claim in which it seeks a declaratory judgment that Allstate violated the Treaty Agreement by untimely submitting these 88 claims and that it is not obligated to pay Allstate any amount for any of the 88 claims. The parties have filed cross-motions for summary judgment.

I. Factual Background

As is frequently the case in contract disputes, the facts of this case are largely not in dispute. ERC and Allstate began a business relationship in 1934, when ERC agreed to provide reinsurance coverage for the automobile insurance that Allstate provided to its customers. Among other things, ERC reinsured Allstate on its Personal Injury Protection (PIP) coverage that provided, in various states with nofault insurance laws, unlimited, lifetime medical payments to persons injured in automobile accidents. In 1971, the parties rewrote a 1959 reinsurance treaty, and entered into a Liability Excess Reinsurance Agreement (the Treaty). Under the Treaty, initially, Allstate was responsible for the first $250,000 of loss on each PIP claim. In 1976, the retention increased to the first $350,000 of each claim. But above the retention, ERC was obligated to indemnify Allstate for its payments on PIP claims in the amount of 100% for the first several hundred-thousand dollars and 50% of Allstate's payments thereafter until Allstate's total payment on the claim reached $5,000,000. Allstate terminated the Treaty effective January 1, 1978, but ERC remained obligated on PIP claims that arose on or after January 1, 1972 and before January 1, 1978.

The dispute between the parties turns upon Article XII of the Treaty. Article XII states in relevant part:

CLAIMS. The REINSURED [Allstate] agrees that it will investigate and will settle or defend all claims arising under policies with respect to which reinsurance is afforded by this agreement, and that it will give prompt notice to the CORPORATION [ERC] of any event or development which, in the judgment of the REINSURED, might result in a claim upon the CORPORATION hereunder, and will forward promptly to the CORPORATION copies of such pleadings and reports of investigation as may be requested by the CORPORATION.

Through 1998, the parties appeared to have little trouble working under the Treaty. In 1999, Allstate conducted a review of its open PIP claims in connection with its process improvement project. Allstate discovered 88 open claims that were covered under the Treaty, but had not yet been submitted to ERC. Allstate then submitted to ERC a list of these 88 claims that contained basic information regarding each claim. Allstate noted that the "vast majority of these claims have not reached [their] retention level," but that because of the "age and nature" of the claims it believed it would be helpful to notify ERC that they remained open. Allstate offered to provide "any additional information [ERC might] require on [those] claims."

ERC then investigated its records and the documentation submitted by Allstate on each claim. ERC noted that seven of the 88 claims already exceeded the Treaty retention and that Allstate had billed it $1,622,000.13 for these seven claims. ERC also noted that another 22 claims carried reserves greater than 50% of Allstate's retention. The remaining 59 claims carried reserves less than 50% of Allstate's retention. In November 1999, ERC sent Allstate a letter denying the 7 claims that had already exceeded retention and the 22 claims that carried reserves greater than 50% of Allstate's retention, citing Article XII of the Treaty. ERC concluded the letter by commenting that "[a]ll claims for which the reserve exceeds one half the applicable retention should have been promptly reported to ERC."

Allstate responded to ERC's letter, noting its disappointment that ERC had denied the claims, and commenting that Article XII of the Treaty contains no express provision requiring Allstate to provide notice to ERC when the reserves exceed 50% of retention. ERC responded that its intention in using the "`half of retention' marker" was "not to assert that [it] was a term of the Treaty, but merely to illustrate that the reporting of the claims for which Allstate is now submitting billings is particularly dilatory." Allstate countered by suggesting that the Treaty "does not require Allstate to comply with ERC's standards for when `it might expect a reinsured to report a claim' . .., [but rather] specifically empowers Allstate with discretion to determine when a claim might impact the [Treaty.]"

The parties met in 2000 to attempt to resolve the dispute, but were unable to do so. Instead, in February 2001, Allstate filed this suit. Allstate seeks a coverage declaration for 29 of the 88 claims and reimbursement for 8 of the 88 claims.¹ ERC has filed a counterclaim seeking a declaration that it has no obligation to pay Allstate any sums for any of the 88 claims.

II. Standard of Review

Summary judgment is appropriate when the record shows "that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). For a dispute to be genuine, the evidence must be 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, 91 L.Ed.2d 202 (1986). For the fact to be material, it must relate to a disputed matter that "might affect the outcome of the suit." Id.

In evaluating a summary judgment motion, the court must draw all reasonable inferences in favor of the non-moving party. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). When both parties have moved for summary judgment, the court therefore construes the facts in the light most favorable to the non-moving party and both parties must demonstrate that no genuine issue of material fact exists. Allen v. City of Chi., 351 F.3d 306, 311 (7th Cir.2003). If issues of fact do exist, neither party is entitled to summary judgment.

III. Choice of Law

The Treaty contains no choice-of-law clause, and only ERC addresses which law governs this dispute. In diversity actions, federal courts follow the forum state's choice-of-law rules. Hine v. Lime-O-Sol Co., 382 F.3d 716, 719 (7th Cir. 2004). Illinois has adopted the "most significant contacts" test in deciding choice-of-law disputes with respect to contractual issues. Id. (collecting cases). Under this test, " the contacts relevant to the choice-of-law decision include the place of contracting, negotiation, performance, location of the subject matter of the contract, and the domicil[e], residen[ce], place of incorporation, and business of the parties.'" Id. (quoting Wildey v. Springs, 47 F.3d 1475, 1483 (7th Cir.1995) (internal quotations omitted)).

The undisputed facts demonstrate that the Treaty was negotiated and executed in Illinois, that Allstate is an Illinois Corporation, Allstate sent ERC the Notices of Claim for the 88 claims at issue from Illinois, and that ERC is incorporated in Missouri. Given these undisputed facts, the Court concludes that Illinois substantive law applies.

IV. Analysis²

Under Illinois law, an insurance policy is a contract, and the general rules governing the interpretation of other types of contracts also govern the interpretation of insurance polices. Dempsey v. Nat'l Life & Accident Ins. Co., 404 Ill. 423, 426, 88 N.E.2d 874 (1949); Baltica Ins. Co. v. Carr, 330 Ill. 608, 162 N.E. 178 (1928); Employers Reinsurance Corp. v. E. Miller Ins. Agency, Inc., 332 Ill.App.3d 326, 338, 265 Ill.Dec. 943, 952, 773 N.E.2d 707, 716 (2002) (quoting Waste Management, Inc. v. Int'l Surplus Lines Ins. Co., 144 Ill.2d 178, 191-92, 161 Ill.Dec. 774, 579 N.E.2d 322 (1991)); see also Universal Reinsurance Corp. v. Allstate Ins. Co., 16 F.3d 125 (7th Cir.1993) (applying principles of contract interpretation to arbitration provision of reinsurance agreement).³ Thus, the primary objective of a court in a contract dispute is to give effect to the intention of the parties as expressed in the contract. American States Ins. Co. v. Koloms, 177 Ill.2d 473, 479, 227 Ill.Dec. 149, 687 N.E.2d 72 (1997). Where the language of the parties' agreement is clear and unambiguous, the court must enforce the agreement according to its plain meaning. Menke v. Country Mutual Ins. Co., 78 Ill.2d 420, 423, 36 Ill.Dec. 698, 401 N.E.2d 539 (1980); Klemp v. Hergott Group, Inc., 267 Ill. App.3d 574, 580-81, 204 Ill.Dec. 527, 641 N.E.2d 957, 962 (1994). It is not the province of the court to rewrite the parties' agreement. Klemp, 267 Ill.App.3d at 581, 204 Ill.Dec. 527, 641 N.E.2d at 962; Universal Reinsurance Corp., 16 F.3d at 129. And there is "a strong presumption against provision that easily could have been included in the contract but were not." Klemp, 267...