Inter-American Ins. Co. of Illinois v. Ketchum
| Citation | 723 F. Supp. 1266 |
| Decision Date | 24 October 1989 |
| Docket Number | No. 89 C 1753.,89 C 1753. |
| Court | U.S. District Court — Northern District of Illinois |
| Parties | INTER-AMERICAN INSURANCE COMPANY OF ILLINOIS, Plaintiff, v. William S. KETCHUM, Jr., Defendant/Cross-Defendant, and Alexander & Alexander Inc., Defendant/Cross-Claimant. |
Marvin A. Miller and Patrick E. Cafferty, Chertow & Miller, Chicago, Ill., for plaintiff.
William M. Stevens, Rooks, Pitt & Poust, Cornelius P. Callahan and Thomas L. Hogan, Callahan and Ehret, Chicago, Ill., and William T. Burghart, Fennemore Craig Law Firm, Phoenix, Ariz., for defendants.
Inter-American Insurance Company of Illinois is exactly that: an insurance company which does business throughout the country, but which is principally located and incorporated in Illinois. One of Inter-American's affiliates is Inter-American Insurance Marketing Company ("IAIMC"), a company which by contrast is a Delaware Corporation. One of IAIMC's offices is in Scottsdale, Arizona.
On July 12, 1985, IAIMC's Scottsdale office entered into a Regional General Agent agreement with William S. Ketchum, Jr., an Arizona resident. Under this contract, Ketchum became an agent of IAIMC, with the authority to solicit and procure applications in Arizona for insurance issued by various insurance companies, which the contract called "Issuing Companies."1 Ketchum also could contract with other persons, make them agents, and authorize them to solicit business on behalf of IAIMC and the Issuing Companies. The agreement provided that it should be construed in accordance with Illinois law.
After entering into his agreement with IAIMC, Ketchum began drumming up business. Ketchum was licensed in many states, including Illinois. He approached Robert Hoefer, an Iowa-based insurance salesman, in the summer of 1986. Hoefer subsequently applied for appointment as an agent of IAIMC. On the application which he sent to Ketchum, Hoefer indicated that he too held a non-resident license to sell insurance in Illinois. Ketchum reviewed Hoefer's application, approved it, and sent it to IAIMC. IAIMC approved the application, so now Hoefer was in business as Ketchum and IAIMC's agent.
Part of Hoefer's business, like Ketchum's, was to get more agents for IAIMC. Soon after contracting with Ketchum, Hoefer contacted (or else was contacted by, the record is unclear) Alexander and Alexander, Inc. Alexander was a Maryland corporation with its principal place of business in Maryland, but it had an office in Chicago, Illinois. One of Alexander's employees, Donald Wehling, wanted to sell IAIMC products, and so he filled out an application.2 On the application he stated he was licensed to do business in Illinois, his state of residency; he even attached a copy of his Illinois license to it. Wehling asked IAIMC to apply to the Illinois Department of Insurance to allow him to solicit applications on behalf of "the Issuing Company designated below" on his application. He left the "Issuing Company" boxes on the form unchecked, however, along with the date and the name of his Supervising Agent.
Wehling in Illinois sent his application to Hoefer in Iowa, who in turn sent the form to Ketchum in Arizona. Ketchum reviewed it, signed it, filled in the date in one place, but otherwise left the application intact. He sent it to IAIMC in Scottsdale. IAIMC reviewed the application, approved it, and returned a portion to Ketchum. IAIMC had filled in the effective date of the appointment and had checked one box as "Issuing Company": that for Inter-American Insurance Company of Illinois.
About the same time that Ketchum appointed Hoefer as his agent, but before Alexander applied for a license, Inter-American issued a memo to its agents. The memo warned that the California courts had ruled that in certain instances insurance companies had to cover persons possessing "conditional receipts" — forms which indicate that a person has applied for insurance, but that the insurer has not approved the application. Inter-American believed that the conditional receipts it issued under its so-called "PAL" insurance programs created a risk of liability for the company, and thus Inter-American directed its agents not to take cash with PAL applications or issue conditional receipts for them. Inter-American limited its directions to PAL business written in California only.
On March 20, 1987, a California resident named William Bauleke applied for life insurance under the PAL program. Bauleke was ill, and he may not have been working at the time he applied for insurance — two things which would have disqualified him from coverage. Bauleke nevertheless applied, dating his signature but leaving a space for the place of execution blank. According to Inter-American, Alexander solicited and processed Bauleke's application. Someone (either an Alexander employee or a person higher up the ladder) filled in the place of execution as "Chicago, Illinois."
After receiving the application, Alexander forwarded it along with Bauleke's premium check to Hoefer. Hoefer passed it to Ketchum, who received it on April 3, 1987. Shortly thereafter, Hoefer called Ketchum to inform him that Bauleke had died. Ketchum called IAIMC, who told Ketchum to turn the application and the check over to them.
Inter-American investigated the matter and concluded that it had to pay out on Bauleke's policy. Inter-American then filed suit in this court against Ketchum and Alexander for breach of contract, breach of fiduciary duty, and negligent misrepresentation.3 Alexander cross-claimed against Ketchum, alleging that Ketchum failed to inform Alexander of its duties toward Inter-American.
Ketchum has moved to dismiss the Complaint and the Cross-Claim under Rule 12(b)(2), Fed.R.Civ.P., for lack of personal jurisdiction. This court has personal jurisdiction over a defendant when the plaintiff properly serves the defendant with process pursuant to a statute or rule, and the service is done with due process. See Omni Capital Int'l v. Rudolf Wolff & Co., 484 U.S. 97, 104, 108 S.Ct. 404, 409, 98 L.Ed.2d 415 (1987). The burden of proof in establishing personal jurisdiction over the defendant lies with the plaintiff. In considering whether the plaintiff has carried his or her burden, the court may go beyond the pleadings and consider affidavit testimony. The court is to resolve conflicts in the evidence in favor of the plaintiff, however; the plaintiff carries his or her burden of proof for purposes of a motion under Rule 12(b)(2) by making a prima facie showing that jurisdiction exists. See Nelson by Carson v. Park Industries, Inc., 717 F.2d 1120, 1123 (7th Cir.1983); Weidner Comm. v. H.R.H. Prince Bandar al Faisal, 859 F.2d 1302, 1306 n. 2 (7th Cir.1988).
This court recently wrestled with a similar question of personal jurisdiction in Rose v. Franchetti, 713 F.Supp. 1203 (N.D. Ill.1989). Like the defendant in Rose, Ketchum has not objected to the manner in which Inter-American served him. This court will thus assume that service was proper, and will turn to the question of whether Inter-American obtained this service "under the circumstances and in the manner prescribed" by the service-of-process statute of the forum state — again, in this case, Illinois. See Rule 4(e), Fed.R. Civ.P.; Rose, 713 F.Supp. at 1206.
The Illinois long-arm statute provides in part:
Ill.Rev.Stat. ch. 110 § 2-209(a) (1987). Inter-American and Alexander contend that service of Ketchum was proper under both subsections of § 2-209(a). They concede that Ketchum personally did not transact business or commit a tortious act in Illinois, but they submit that Alexander, Ketchum's agent, did.
The term "agent" in § 2-209(a) is ambiguous. Ketchum contends that for an agent to submit his principal to the jurisdiction of the Illinois courts, the principal must direct and control the agent's work. Ketchum refers the court to J.J. & J. Foundation Co., Inc. v. Tommy Moore, Inc., 640 F.Supp. 1119 (N.D.Ill.1986). There the court held that it did not have personal jurisdiction over a Texas firm, which an Illinois company had approached to perform cement work in various states including Illinois. The court cited two cases in support of its holding, Biltmoor Moving & Storage Co. v. Shell Oil Co., 606 F.2d 202 (7th Cir.1979), and Lewis v. Mt. Greenwood Bk., 91 Ill.App.3d 481, 46 Ill.Dec. 926, 414 N.E.2d 1079 (1980).
The J.J. & J. court did not consider the holding of the Illinois Appellate Court in Petty v. Cadwallader, 135 Ill.App.3d 695, 90 Ill.Dec. 518, 482 N.E.2d 225 (1985). There the court ruled that a broad inquiry into the principal's control over the agent was unnecessary to determine whether the agent had submitted the principal to the jurisdiction of the Illinois courts. Rather, the agent need have only "the express or implied authority of the principal to perform the acts which give rise to the jurisdiction." The court expressly declined the suggestion that § 2-209(a) required special authorization from the principal to submit himself or herself to the jurisdiction of the court, as the court feared that most principals would deny such authority to their agents. Id. at 698-99, 90 Ill.Dec. 518, 482 N.E.2d 225. See also Boden Products, Inc. v. Novacham, Inc., 663 F.Supp. 226, 229 (N.D.Ill.1987) (following Petty).
Whether principals would deny such authority to their agents, and whether this is a good result, is not certain. These questions may be inconsequential to the proper one: did the Illinois legislature intend § 2-209(a) to cover those...
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