Lazzara v. Howard A. Esser, Inc.

• Decision Date: 27 March 1985
• Docket Number: No. 83 C 185.,83 C 185.
• Citation: 604 F. Supp. 1205
• Court: U.S. District Court — Northern District of Illinois
• Parties: Joseph LAZZARA, Plaintiff, v. HOWARD A. ESSER, INC., Defendant. HOWARD A. ESSER, INC., Third-Party Plaintiff, v. AETNA CASUALTY & SURETY COMPANY OF ILLINOIS, INC., and RELIANCE INSURANCE COMPANY OF ILLINOIS, INC., Third-Party Defendants.

604 F. Supp. 1205

Joseph LAZZARA, Plaintiff, v. HOWARD A. ESSER, INC., Defendant.

HOWARD A. ESSER, INC., Third-Party Plaintiff, v. AETNA CASUALTY & SURETY COMPANY OF ILLINOIS, INC., and RELIANCE INSURANCE COMPANY OF ILLINOIS, INC., Third-Party Defendants.

No. 83 C 185.

United States District Court, N.D. Illinois, E.D.

March 27, 1985.

Robert A. Downing, Richard J. O'Brien, Sidley & Austin, Chicago, Ill., for Lazzara.

Mitchell A. Orpett, Haskell & Perrin, Chicago, Ill., for Howard A. Esser, Inc.

Thomas M. Hamilton and Michael M. Marick, Hinshaw, Culbertson, Moelmann, Hoban & Fuller, Chicago, Ill., for Aetna Casualty & Surety Co. of Ill., Inc.

Judge & Knight, Park Ridge, Ill., for Reliance Ins. Co. of Ill., Inc.

MEMORANDUM OPINION AND ORDER

ROVNER, District Judge.

This is a diversity action governed by the substantive law of Illinois. In the underlying lawsuit, Joseph Lazzara ("Lazzara") sued Howard A. Esser, Inc. ("Esser"), an insurance broker, for breach of contract and negligence based on Esser's alleged failure to procure and maintain an agreed upon level of automobile insurance coverage for Lazzara. Presently pending before this Court are the motions of both Lazzara and Esser for reconsideration of two rulings issued by Judge Charles Kocoras in this case before it was transferred to this Court. This Court has reconsidered the rulings at issue and, for the reasons set forth below, has decided to affirm the dismissal of Esser's third-party complaint but to reverse Judge Kocoras' denial of Lazzara's motion for summary judgment.

Facts

Lazzara handled his insurance needs through Esser for many years. In 1973 or 1974, Esser recommended that Lazzara increase his automobile liability insurance coverage to $1 million. Lazzara agreed and instructed Esser to procure such coverage for him. Esser, acting in its corporate capacity as an insurance broker, thus contracted to obtain for Lazzara $1 million in automobile insurance. To fulfill this contract, Esser procured a primary liability policy for Lazzara with Reliance Insurance Company ("Reliance") and an excess liability policy with Aetna Casualty & Surety Company of Illinois, Inc. ("Aetna"). These policies were in force when Lazzara's insured auto was involved in an accident, and a $510,000 judgment was entered against him by a state court in Florida.

The basis for Lazzara's suit against his broker is that, at the time of the accident, a $150,000 gap existed in the coverage provided by the two policies which Esser had procured for Lazzara. The primary liability policy that Esser had obtained from Reliance covered only the first $100,000 of Lazzara's liability under the judgment; the excess liability policy that Esser had obtained from Aetna covered only liability in excess of $250,000. Thus, in arranging Lazzara's insurance coverage, Esser left a $150,000 gap, and Lazzara was compelled to make good on that portion of the judgment out of his own pocket.

Lazzara, a citizen of Alabama, sued Esser, an Illinois corporation, invoking the diversity jurisdiction of this Court. The two-count complaint asserts claims for breach of contract and negligence. After Lazzara filed his complaint, Esser filed a third-party complaint against Aetna and Reliance, attempting to impose upon them ultimate liability for the $150,000 gap on the following bases: a written indemnity agreement between Esser and the insurance companies (Counts I and V); indemnity based upon "active-passive" negligence (Counts II and VI); contribution (Counts III and VII); indemnity based on breach of agency duties and obligations (Counts IV and VIII); and, reformation of the contract with Reliance (Count IX).

After considering Esser's third party allegations against Aetna and Reliance, Judge Kocoras dismissed the third-party complaint in its entirety on February 21, 1984. The court dismissed Counts I and V because the "failure to procure" insurance claims by Esser do not fall within the strict terms of the Aetna or Reliance agreements as a matter of law. Counts II, III, VI, and VII were dismissed because the court held that an insurance company does not have a common law duty to monitor an insured's day-to-day financial affairs by inquiring into the insurance situation of the insured. Finally, Counts IV, VIII, and IX were dismissed because Esser's allegation that it was an agent of Aetna and Reliance for procuring insurance was "bare" and "conclusory" and because "it is clear as a matter of Illinois law that Esser was a broker which acted on behalf of Lazzara in procuring insurance." Lazzara v. Esser, No. 83 C 185, slip op. at 5-6 (N.D.Ill. Feb. 21, 1984).

After the third-party complaint against Aetna and Reliance was dismissed, certain discovery was completed. Thereafter, Lazzara filed his motion for summary judgment. In opposing the motion, Esser argued that a question of fact was presented on several issues:

1. whether Esser was a broker or agent;

2. even assuming Esser was a broker, whether plaintiff instructed Esser to provide $1 million in continuous coverage or whether plaintiff merely assumed coverage would be continuous without discussion with Esser;

3. whether, in July, 1979, Esser properly renewed plaintiff's existing coverage pursuant to its understanding with plaintiff even if that coverage contained a gap;

4. whether the elements of a contract to procure insurance have been established; and

5. whether the Reliance policy provided plaintiff covered the auto involved in the accident in Florida.

Judge Kocoras stated in his October 30, 1984 ruling on the motion for summary judgment that Esser could not withstand Lazzara's motion by arguing that the loss should not have been covered under the terms of the policies because that defense is available only to an insurer, and, in this case, the two insurers agreed that the loss was a covered loss. See Speroni v. Speroni, 406 Ill. 28, 92 N.E.2d 63 (1950).

Judge Kocoras also held that there was no material issue of fact in dispute with respect to the terms of the agreement between Lazzara and Esser: Esser agreed to obtain $1 million in insurance coverage and to keep it in force until directed otherwise.

In response to Esser's contention that there was an issue of fact as to whether it was acting as an agent or broker, Judge Kocoras said that Esser's argument seems to "run contrary to logic and reason," but nonetheless denied the motion for summary judgment. Lazzara v. Esser, No. 83 C 185, slip op. at 9 (N.D.Ill. Oct. 30, 1984). In so doing, Judge Kocoras held that because Esser's commissions were allegedly paid by the insurers, it was conceivable that the trier of fact might conclude that Esser was acting as an agent for the insurance companies rather than as a broker for Lazzara. Because this issue of fact could not be resolved against Esser on the record as it stood at that time, Lazzara's motion for summary judgment was denied. The denial of Lazzara's motion has created the apparent inconsistency between the court's two rulings.

On November 26, 1984, counsel for Lazzara, Esser, and the previously dismissed third-party defendants, Aetna and Reliance, appeared before this Court for a status report. Counsel for Lazzara and for Esser both represented to this Court that Judge Kocoras's opinions of February 21, 1984 and October 30, 1984 are inconsistent. As a result, Lazzara has moved for reconsideration of the October 30th ruling, and Esser has moved for reconsideration of the February 21st ruling.

The October 30th Ruling On The Motion For Summary Judgment

This Court will first address Lazzara's motion to reconsider the October 30th ruling on the motion for summary judgment. As already stated, the only reason Judge Kocoras denied Lazzara's motion for summary judgment was that an issue of fact existed as to whether Esser was a broker or an agent. Judge Kocoras determined that an agreement existed between Esser and Lazzara, that the agreement was for Esser to obtain $1 million in insurance coverage and to keep it in force until told otherwise, and that Esser breached this agreement. Esser does not raise any new points in response to these determinations. Therefore, the only issue raised in Lazzara's motion to reconsider that this Court need address is whether Judge Kocoras was correct in denying summary judgment on the ground that an issue of fact remained as to whether Esser was acting as a broker or as an agent as a matter of law. This Court finds as a matter of law that Esser was acting as a broker for Lazzara for the purpose of procuring insurance. Accordingly, Lazzara's motion to reconsider the October 30, 1984 ruling is granted and summary judgment is entered in favor of plaintiff.

Section 490 of the Illinois Insurance Code defines an "agent" as:

(a) ... an individual, firm, partnership, association or corporation appointed by an insurer to solicit, negotiate or bind coverages for or on applications or policies of insurance on its behalf, covering property or risks located in this State.

An "insurance broker" is defined as:

(b) ... an individual, firm, partnership, association or corporation, while not acting as a duly licensed insurance agent, who solicits, negotiates, procures, renews or continues a policy of insurance on behalf of insureds or prospective insureds other than himself.

The Illinois courts have further defined an insurance broker as "one who procures insurance and acts as middleman between the insured and the insurer, and solicits insurance business from the public under no employment for any special company, but, having an order, places the insurance with the company selected by the insured, or, in the absence of any selection by him, with the company selected by such broker." City of Chicago v. Barnett, 404 Ill. 136, 141-42, 88 N.E.2d 477, 481 (1949). See also Galiher v. Spates, 129 Ill.App.2d 204, 206-07, 262 N.E.2d 626, 628 (4th Dist. 1970); Davidson v. Comet Casualty Co., 89 Ill.App.3d 720, 44 Ill.Dec. 943, 412...