Hardin, Rodriguez & Boivin Anesthesiologists, Ltd. v. Paradigm Ins. Co.

• Decision Date: 01 May 1992
• Docket Number: No. 90-2863,90-2863
• Parties: HARDIN, RODRIGUEZ & BOIVIN ANESTHESIOLOGISTS, LTD., Plaintiff-Appellee, v. PARADIGM INSURANCE COMPANY, Defendant-Appellant.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 628

962 F.2d 628

HARDIN, RODRIGUEZ & BOIVIN ANESTHESIOLOGISTS, LTD., Plaintiff-Appellee, v. PARADIGM INSURANCE COMPANY, Defendant-Appellant.

No. 90-2863.

United States Court of Appeals, Seventh Circuit.

Argued Sept. 12, 1991.

Decided May 1, 1992.

Timothy S. Richards (argued) and Carl W. Lee, Gundlach, Lee, Eggmann, Boyle & Roessler, Belleville, Ill., for plaintiff-appellee.

Russell Scott (argued), Dunham, Boman & Leskera, Belleville, Ill., for defendant-appellant.

Before BAUER, Chief Judge, CUMMINGS and COFFEY, Circuit Judges.

COFFEY, Circuit Judge.

Hardin, Rodriguez & Boivin Anesthesiologists (HRB) sued the Paradigm Insurance Company (Paradigm), alleging breach of contract, common-law fraud, and a violation of the Illinois Consumer Fraud and Deceptive Business Practices Act, Ill.Rev.Stat. ch. 121 1/2, pp 261-272. A jury found in favor of HRB, awarding it $40,174.72 in compensatory damages and $160,950.00 in punitive damages. The district court denied motions for a new trial and for judgment notwithstanding the verdict. Paradigm appeals, asserting that it substantially performed the contract, that the punitive damages were improper and excessive, and that its post-trial motions should not have been denied. We affirm.

I. BACKGROUND

The plaintiff, HRB, is a professional corporation that provides anesthesiological services to hospitals in southern Illinois. In early 1987 HRB's malpractice insurer, the St. Paul Companies, announced a significant increase in insurance premiums, causing HRB to decide to look for a different, more affordable insurer. HRB's Dr. Hardin contacted Timothy Trout, an insurance broker, and asked him to help HRB find a reliable, solvent insurance company with affordable rates for medical malpractice insurance coverage. Dr. Hardin was especially concerned with finding a financially sound insurance company because at that time the medical profession was in the midst of an "insurance crisis," and it was common for new insurance companies to spring into the market and quickly disappear. Trout suggested that HRB might try Paradigm, and in June of 1987 Dr. Hardin went to Louisville, Kentucky to meet with representatives of Paradigm.

At the meeting Dr. Hardin expressed his concern that his company's insurance provider be financially stable, and asked Paradigm's representatives to send him a copy of a certified financial statement reflecting the company's stability as soon as possible. He also asked them to send a copy of its insurance policy. Paradigm assured Dr. Hardin that it would provide each of these documents. Dr. Hardin made it clear that he needed to see and review both the financial statement and the policy before HRB would commit to buy insurance from Paradigm; until then there would be no deal. Dr. Hardin also asked questions at the meeting, attempting to gain an impression of Paradigm's financial stability as well as the company's experience in providing medical malpractice insurance. Paradigm told Dr. Hardin that it had extensive experience in insuring physicians for medical malpractice, though actually it had been in business for only a month. Paradigm's representatives also said they would send a certified financial statement and a policy to HRB immediately, even though they knew that they had neither document and, in fact, that neither of the documents existed in their office at that time. In addition, Paradigm advised Trout that it was licensed to sell insurance in Illinois, and therefore Trout did not have to worry about the "surplus lines" requirements that Illinois law applies to unlicensed insurance companies. As the evidence demonstrated, Paradigm was not licensed in Illinois either at that time or at any time during its proposed coverage of HRB. ¹

Paradigm failed to forward either a financial statement or a policy, despite several requests from Dr. Hardin, and later from Trout and his secretary. Instead, Paradigm authorized Trout to issue insurance "binders" ² to HRB, which he did on July 7, 1987, and again on August 21, 1987. These binders purported to provide insurance coverage for one year beginning July 1, 1987. This alleged coverage was "subject to the terms, conditions and limitations of the policy(ies) in current use by the Company." At the time the binders were issued, however, Paradigm had no such policy in existence. A few days after receiving the first binder, and still believing that copies of the policy and a financial statement were forthcoming, HRB sent Paradigm its first quarterly premium (for July 1, 1987 to October 1, 1987) of $40,172.75 in July of 1987. In August HRB still had not received the financial statement or the policy requested, and so Dr. Hardin called Trout to tell him that the deal was off, and that HRB would commence to search for alternative coverage. When the second premium came due in October Paradigm still had not forwarded the requested instruments (financial statement and policy), and HRB refused to pay. Nine months later, on April 26, 1988 Paradigm canceled HRB's "policy" due to non-payment and billed HRB for the second quarter premium. Thereafter HRB filed suit, alleging that Paradigm had breached the oral contract by not delivering the requested documents, and committed common-law fraud and violated the Illinois Consumer Fraud and Deceptive Business Practices Act by making false statements to induce HRB into buying their insurance. Paradigm filed a counterclaim alleging that it was entitled to HRB's second quarter premium because it had provided coverage during that period.

II. ISSUES

Paradigm alleges: (1) that the district court erred by not informing the jury that the binders issued by Paradigm provided insurance coverage for HRB, and alternatively that HRB either waived the conditions precedent or ratified the binders as replacing the original contract; (2) that the trial court erred in allowing the jury to find a violation of the Illinois Consumer Fraud and Deceptive Business Practices Act without first finding that Paradigm's actions injured consumers in general; (3) that it was error to award punitive damages absent an award of compensatory damages on the fraud counts, and in any event the punitive damages were excessive; and (4) that the district court erred in rejecting Paradigm's motions for a new trial or judgment notwithstanding the verdict. Because this is a diversity jurisdiction case, we apply the law of the forum state, Illinois. Autocephalous Greek-Orthodox Church v. Goldberg & Feldman Fine Arts, 917 F.2d 278, 286 (7th Cir.1990).

III. DISCUSSION

The agreement at issue in this case arose during Dr. Hardin's meeting with Paradigm's representatives in Louisville, Kentucky. During that meeting Dr. Hardin agreed to have HRB buy medical malpractice insurance from Paradigm for $160,950.00 per year, on the condition that Paradigm first send him a certified financial statement and a copy of the insurance policy for review. On the advice of HRB's accountant Dr. Hardin insisted on receiving a certified financial statement in order that HRB might evaluate Paradigm's stability. Dr. Hardin also wanted a copy of the insurance policy in order that he might understand exactly what types of claims against HRB would or would not be covered. The first question we must address is whether Dr. Hardin, by demanding that HRB receive these documents before it would commit to Paradigm, created a condition precedent to its duty to perform the contract. Under Illinois law, a condition precedent is some act that must be performed or event that must occur before a contract becomes effective or before one party to an existing contract is obligated to perform. Kilianek v. Kim, 192 Ill.App.3d 139, 139 Ill.Dec. 213, 548 N.E.2d 598 (1989). The failure to perform a condition precedent may be construed as a breach of contract. Jones v. Seiwert, 164 Ill.App.3d 954, 115 Ill.Dec. 869, 872, 518 N.E.2d 394, 397 (1987); Restatement (Second) of Contracts § 225(3). Both parties must agree to a condition precedent before it becomes binding. See Wasserman v. Autohaus on Edens, Inc., 202 Ill.App.3d 229, 147 Ill.Dec. 571, 576, 559 N.E.2d 911, 916 (1990). Dr. Hardin testified that both parties agreed that HRB would not be bound until it received both the requested financial statement and the insurance policy. This testimony was uncontradicted. Further, Paradigm's representatives stated at the initial meeting that they were willing to comply with the conditions. These facts indicate that the parties knowingly agreed to the conditions precedent, and understood them to be binding. Paradigm, however, failed to deliver either the financial statement or the insurance policy until more than a year after the policy was to have taken effect. As a result of Paradigm's failure to fulfill the conditions precedent, HRB had no obligation to pay its premiums. Wasserman, 147 Ill.Dec. at 576, 559 N.E.2d at 916; Jones, 115 Ill.Dec. at 872, 518 N.E.2d at 397. Even so, HRB paid its first quarter premium, assuming that Paradigm was making efforts to perform the conditions and would be able to do so. Paradigm claims that it is entitled to keep the premium payment because HRB waived the conditions precedent by accepting the binders in place of a written policy. Additionally, Paradigm asserts that HRB owes it money for the coverage provided during the second quarter of the policy year when HRB refused to pay. HRB contends that it is entitled to have its premium refunded.

A. Waiver of Conditions and Substantial Performance

Conditions precedent may be waived when a party to a contract intentionally relinquishes a known right either expressly or by conduct indicating that strict compliance with the conditions is not required. MBC, Inc. v. Space Center Minnesota, Inc., 177 Ill.App.3d 226, 126 Ill.Dec. 570, 574-75, 532 N.E.2d 255, 259-60 (1988); Geldermann, Inc. v. Fenimore, 663 F.Supp. 590, 592 (N.D.Ill.1987). Such conduct might include continuing to accept the breaching ...