Casualty Ins. Co. v. Hill Mechanical Group

• Decision Date: 28 June 2001
• Docket Number: No. 1-00-0656., No. 1-00-0652, No. 1-00-0654
• Citation: 323 Ill. App.3d 1028,753 N.E.2d 370,257 Ill.Dec. 175
• Parties: CASUALTY INSURANCE COMPANY, Plaintiff-Appellee, v. HILL MECHANICAL GROUP, Hill Mechanical Operations, Inc., L.C. Kohlman, Inc., Hill/Wendt Corporation, Kohlman Hill, Inc., Federal Ventilating Company, And Kohlman Engineers Corporation, Defendants-Appellants. Hill Mechanical Group, Hill Mechanical Operations, Inc., L.C. Kohlman, Inc., Hill/Wendt Corporation, Kohlman Hill, Inc., Federal Ventilating Company, And Kohlman Engineers Corporation, Plaintiffs-Appellants, v. Casualty Insurance Company, Defendant-Appellee.
• Court: United States Appellate Court of Illinois

753 N.E.2d 370

323 Ill. App.3d 1028

257 Ill.Dec. 175

CASUALTY INSURANCE COMPANY, Plaintiff-Appellee, v. HILL MECHANICAL GROUP, Hill Mechanical Operations, Inc., L.C. Kohlman, Inc., Hill/Wendt Corporation, Kohlman Hill, Inc., Federal Ventilating Company, And Kohlman Engineers Corporation, Defendants-Appellants.

Hill Mechanical Group, Hill Mechanical Operations, Inc., L.C. Kohlman, Inc., Hill/Wendt Corporation, Kohlman Hill, Inc., Federal Ventilating Company, And Kohlman Engineers Corporation, Plaintiffs-Appellants, v. Casualty Insurance Company, Defendant-Appellee.

Nos. 1-00-0652, 1-00-0654, 1-00-0656.

Appellate Court of Illinois, First District, Fourth Division.

June 28, 2001.

Rehearing Denied August 3, 2001.

Berger, Newmark & Fenchel, P.C., Chicago (David J. Lloyd, of counsel), for Appellants.

Katten, Muchin, Zavis, Chicago (David K. Schmidt and Robert C. Kimmeth, of counsel), for Appellees.

Presiding Justice HARTMAN delivered the opinion of the court:

Defendants Hill Mechanical Group, Hill Mechanical Operations, Inc., L.C. Kohlman, Inc., Hill/Wendt Corporation, Kohlman-Hill, Inc., Federal Ventilating Company, and Kohlman Engineers Corporation (collectively Hill) appeal from the dismissal of their 1999 complaint and count I of their 1999 counterclaim filed against plaintiff Casualty Insurance Company (Casualty). Hill also appeals the circuit court's denial of its motion to reconsider the earlier denial of leave to file counts II and III of the 1999 counterclaim.

Casualty issued worker's compensation insurance policies to Hill for each policy year from April 1, 1988, through April 1, 1993. Each policy contained an identical "high-low endorsement" that allowed Casualty to adjust retrospectively the premiums on each policy to cover costs, expenses, and liabilities incurred during each policy period. On January 10, 1996, Casualty filed a breach of contract action against Hill to collect an unpaid final adjusted premium of $446,635, under the 1992-93 worker's compensation policy (the 1996 complaint).

Hill made repeated attempts to obtain discovery from Casualty, including claim files for policy years prior to 1992-93. Casualty objected on the grounds that the pre-1992-93 claim files were not relevant to the 1996 complaint which involved only the 1992-93 policy. On January 12, 1998, Hill's motion to compel production of the pre-1992-93 claim files was denied, with the exception of pre-1992-93 claim files relating to Randy Brien.

On February 24, 1998, Hill unsuccessfully sought leave to file a one count counterclaim sounding in breach of contract (the 1998 counterclaim), in which Hill alleged that Casualty mishandled claims in four prior policy years, as well as in the 1992-93 policy year, resulting in damages in excess of $1 million.

On August 17, 1998, the circuit court entered an order requiring Casualty to submit to Hill's attorney the pre-1992-93 claim files "for attorney's eyes only." The order further required Hill's attorney to file a document with the court stating why any of the produced material was relevant. On October 23, 1998, the court considered the relevance of the pre-1992-93 claim files and found that the request for their production remained denied.

On February 9, 1999, Hill sought leave to file another counterclaim (the 1999 counterclaim), which involved only the 1992-93 policy. Count I alleged that Casualty breached its contractual obligations to Hill by failing to investigate adequately worker's compensation claims; failing to interview witnesses and take witness statements; paying worker's compensation claims that should not have been paid because there was no statutory or factual basis for the claims; overpaying claims; failing to adequately verify wages; failing to monitor the medical management of claims in a proper or timely manner resulting in overpayment of both medical, temporary total, and permanent partial disability payments; failing to calculate the total temporary disability and partial permanent disability benefits in accordance with the Worker's Compensation Act; failing to properly categorize unallocated costs and legal expenses under the policy; failing to thoroughly or adequately defend proceedings or suits brought against Hill for benefits claimed under the policy; failing to supervise and coordinate the investigation, administration, management, defense, and settlement of claims; unreasonably settling worker's compensation claims without any adequate factual, medical, legal, or statutory basis; establishing unreasonably large loss reserves; improperly calculating the final adjustment by using a reference date beyond one allowed under the terms of the high/ low plan endorsement; wrongfully calculating and charging premiums pursuant to manuals, rates, rules, classifications, rating plans, system of adjustment of premiums, and systems which had never been submitted to the State of Illinois for approval nor been approved by the State of Illinois; wrongfully refusing to allow Hill access to evaluate insurance claim files to determine the accuracy, reliability, and good faith of the determinations made by Casualty; and wrongfully denying Hill access to the claim files created under the policy and wrongfully failing to preserve them. Hill alleged that these acts resulted in payment and overpayment of claims that were not compensable under the Worker's Compensation Act and higher premiums and higher future premiums because of the distorted experience modification factors calculated from the excessive claims paid.

Counts II and III of the 1999 counterclaim sought refunds of premiums and alleged a violation of section 505/2 of the Illinois Consumer Fraud and Deceptive Business Practices Act (the Consumer Fraud Act) (815 ILCS 505/2 (West 1998)), respectively, based upon Casualty's alleged failure to comply with Illinois Department of Insurance (the Department) filing requirements.

On March 16, 1999, leave to file counts II and III of the 1999 counterclaim was denied on the ground that Hill failed to exhaust all administrative remedies. The order also required Casualty to produce all remaining claim files for the 1992-93 policy year.

On March 26, 1999, Hill filed an independent complaint against Casualty (the 1999 complaint), which was identical to the 1999 counterclaim, except that it involved the 1988-89, 1989-90, 1990-91, and 1991-92 policies. Casualty successfully moved to consolidate the 1999 complaint with the 1996 complaint.¹ On July 23, 1999, Hill was granted leave to file count I of the 1999 counterclaim.

On August 16, 1999, Hill filed a motion to reconsider the March 16, 1999 order denying leave to file counts II and III of the 1999 counterclaim. Casualty filed a motion to dismiss the 1999 complaint under section 2-619 of the Code of Civil Procedure (the Code) (735 ILCS 5/2-619 (West 1998) (section 2-619)) and a separate section 2-619 motion to strike or dismiss the 1999 counterclaim. On January 28, 2000, the 1999 complaint and the 1999 counterclaim were dismissed pursuant to section 2-615 of the Code (735 ILCS 5/2-615 (West 1998) (section 2-615)), and Hill's motion to reconsider the March 16, 1999 order was denied.² The January 28, 2000 order included a Supreme Court Rule 304(a) (155 Ill.2d R. 304(a)) finding. Hill filed three separate notices of appeal, which were consolidated on February 24, 2000.

I

Hill first contends that the circuit court erred in dismissing the 1999 complaint and count I of the 1999 counterclaim under section 2-615. Casualty responds that the court properly dismissed the pleadings as factually deficient.

A complaint dismissed under section 2-615 requires the reviewing court to apply a de novo standard of review. Meng v. Maywood Proviso State Bank, 301 Ill. App.3d 128, 234 Ill.Dec. 92, 702 N.E.2d 258 (1998). The question presented by a section 2-615 motion to dismiss is whether sufficient facts have been pled in the complaint which, if proved, would entitle plaintiff to relief. Boyd v. Travelers Insurance Co., 166 Ill.2d 188, 209 Ill.Dec. 727, 652 N.E.2d 267 (1995). All well-pleaded facts in the complaint are taken as true and are construed in the light most favorable to the plaintiff. Lagen v. Balcor Co., 274 Ill.App.3d 11, 210 Ill.Dec. 773, 653 N.E.2d 968 (1995). A complaint is susceptible to dismissal under section 2-615 for failure to state a cause of action only when it clearly appears that no set of facts could be proved under the pleadings that would entitle plaintiff to relief. Board of Directors of Bloomfield Club Recreation Ass'n v. The Hoffman Group, 186 Ill.2d 419, 238 Ill.Dec. 608, 712 N.E.2d 330 (1999).

A

According to Hill, it properly stated claims for breach of contract in counts I, IV, VII, and X of the 1999 complaint and in count I of the 1999 counterclaim. The allegations in each count are identical, except that each count refers to a different policy year. To state a cause of action, the claim must be both legally and factually sufficient, setting forth a legally recognized claim as its basis, as well as pleading facts which are cognizable legally. Nuccio v. Chicago Commodities, Inc., 257 Ill. App.3d 437, 195 Ill.Dec. 670, 628 N.E.2d 1134 (1993).

The parties agree that Hill's claims were legally sufficient. In National Surety Corp. v. Fast Motor Service, Inc., 213 Ill. App.3d 500, 157 Ill.Dec. 619, 572 N.E.2d 1083 (1991) (National Surety), the appellate court recognized that a cause of action is stated in either contract or tort when an insured sues his insurer for a breach of duty for settling claims in an unreasonable manner when the policy of insurance contains a retrospective premium feature. At issue is whether Hill's claims were factually sufficient. In National Surety, defendant's counterclaim alleged that plaintiff breached its contractual duty under the policy by failing to investigate claims properly, failing to obtain wage statements, failing to obtain witness statements, overreserving claims, and...