Lazzara v. Howard A. Esser, Inc.

• Decision Date: 17 July 1985
• Docket Number: No. 83 C 185.,83 C 185.
• Citation: 622 F. Supp. 382
• Parties: Joseph LAZZARA, Plaintiff, v. HOWARD A. ESSER, INC., Defendant.
• Court: U.S. District Court — Northern District of Illinois

622 F. Supp. 382

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

No. 83 C 185.

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

July 17, 1985.

MEMORANDUM OPINION AND ORDER

ROVNER, District Judge.

The plaintiff in this diversity action, Joseph Lazzara ("Lazzara"), sued Howard A. Esser, Inc. ("Esser"), an insurance broker, for breach of contract and negligence based on Esser's failure to procure and maintain an agreed upon level of automobile insurance coverage for Lazzara. On April 1, 1985 this Court entered summary judgment in the amount of $150,000 in favor of Lazzara and against Esser, 604 F.Supp. 1205. Presently pending before this Court is Lazzara's motion to amend the judgment to include both interest and attorneys' fees. This Court has decided to grant the motion with regard to interest, but to base the award on Illinois, rather than Florida law, and to deny the motion for attorneys' fees.

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, contracted to obtain $1 million in automobile insurance for Lazzara. 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 Company ("Aetna"). These policies were periodically renewed by Esser. These same insurance policies were in force when Lazzara's insured automobile 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 Esser was 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 obtained from Reliance covered only the first $100,000 of Lazzara's liability under the judgment; the excess liability policy that Esser obtained from Reliance covered only liability in excess of $250,000. Thus, in arranging Lazzara's insurance coverage, Esser left a $150,000 gap, causing a judgment to be entered against Lazzara in that amount by a Florida state court.

Lazzara, an Alabama citizen, sued Esser, an Illinois corporation, invoking the diversity jurisdiction of this Court. On April 1, 1985 this Court granted summary judgment in favor of Lazzara and against Esser in the amount of $150,000. Joseph Lazzara v. Howard A. Esser, Inc., 604 F.Supp. 1205 (N.D.Ill.1985). Presently pending before this Court is Lazzara's motion to amend the judgment to include both interest and attorneys' fees. The Court will consider each separately.

Interest

Lazzara contends that by reason of Esser's failure to properly procure his insurance, Esser is liable to Lazzara for statutory "interest on a judgment" based on Fla.Stat.Ann. § 55.03 (West 1985) from May 5, 1982, the date the Florida court entered judgment against him, through April 1, 1985, the date this Court entered summary judgment in his favor. This Court finds, however, that applying Illinois conflict of laws principles, the Illinois prejudgment interest statute, Ill.Rev.Stat. ch. 17, § 6402 (1983), governs the issue of interest on the judgment.¹

In a diversity action, a federal court must apply the choice of laws principles of the state in which it sits. Klaxon v. Stentor Electric Manufacturing Co., 313 U.S. 487, 496, 61 S.Ct. 1020, 1021, 85 L.Ed. 1477 (1941); McIntosh v. Magna Systems, Inc., 539 F.Supp. 1185 (N.D.Ill.1982). Because prejudgment interest is an item of substantive damages, it may be awarded only when available under state law and at the rate set by state law. Turner v. Japan Lines Ltd., 702 F.2d 752 (9th Cir.1983); In re Air Crash Disaster Near Chicago, Illinois on May 25, 1979, 644 F.2d 594 (7th Cir.1981). In Mitchell v. United Asbestos Corp., 100 Ill.App.3d 485, 55 Ill.Dec. 375, 426 N.E.2d 350 (5th Dist.1981), the Illinois Supreme Court determined that the best way to approach a conflicts of laws problem is to weigh the interests and public policies of each contact state as they relate to each transaction in issue, and not to mechanically apply one test to govern all situations. As such, Illinois has adopted the "most significant contacts" test of the Restatement Second of Conflicts of Law (1969) as the choice of law theory applicable to diversity actions sounding both in contract and tort. McIntosh, 539 F.Supp. at 1188. The "most significant contacts test" incorporates the presumption that local law should govern an issue unless another state has a more significant relationship. Ingersoll v. Klein, 46 Ill.2d 42, 262 N.E.2d 593 (1970). In both a contract and a negligence action, the conflict of laws inquiry is fundamentally the same. The court looks to either the place of injury or of contracting; to the place where the conduct causing the injury occurred or the place of negotiation of the contract; to the place of performance; to the situs of the subject matter of the contract; to the place of domicile, incorporation, and business of the parties; and to the center of gravity of the relationship between the parties. Restatement (Second) of Conflict of Laws § 188, 145 (1969); Boise Cascade Home & Land v. Utilities, Inc., 127 Ill.App.3d 4, 82 Ill.Dec. 180, 468 N.E.2d 442 (1st Dist.1984).

Both Lazzara and Esser agree that the substantive law of Illinois governs the issue of Esser's liability to Lazzara. A separate inquiry must be made, however, to determine which state has a greater interest in having its law apply to the precise issue of the rate of interest to be applied to a judgment. This separate inquiry into the rate of interest is derived from the theory of "depecage" recently adopted by the Seventh Circuit. International Administrators Inc. v. Life Insurance Co. of North America, 753 F.2d 1373, 1376 n. 4 (7th Cir.1985); In re Air Crash, 644 F.2d at 611 n. 13; Reese, Depecage, 73 Columbia L.Rev. 58 (1973). Under the theory of depecage, this Court considers issues on which there is disagreement among the contact states over which rule of law is applicable to each issue. International Administrators, Inc., 753 F.2d 1373, 1376 n. 4. Because there is disagreement on the rate of interest applicable to the instant situation, the inquiry begins here.

The Florida "interest on a judgment" statute provides for interest on judgments at the rate of 12% per annum on judgments rendered in a Florida court. Fla.Stat.Ann. § 55.03 (West 1985). The Illinois prejudgment statute provides for interest to be calculated at the rate of 5% per annum. Ill.Rev.Stat. ch. 17, § 6402 (1983). Under the Illinois "most significant contacts" test, this Court finds that Illinois has a greater interest than Florida does in applying its interest rate to a judgment rendered in a federal court sitting in Illinois.

The insurance agreement entered into between Lazzara and Esser was executed in Illinois, and, although the place of negotiation is unclear, it appears that the contract was negotiated at least partially in Illinois. Illinois is also the center of gravity of the parties' relationship, because Lazzara obtained his insurance through Esser, who was in Illinois. Moreover, Esser is an Illinois corporation, and, although Florida was the place of the accident, the conduct giving rise to the injury here — Esser's failure to procure complete insurance coverage — occurred in Illinois. Additionally, enforcement of the insurance contract was sought in a district court sitting in Illinois, and damages were awarded under Illinois law.

Although Florida would have an interest in applying its interest statute to a judgment rendered in a district court sitting in Florida where the judgment was based on Florida law, this Court finds no similar interest applicable to a district court sitting in Illinois following Illinois law. Hence, the Illinois prejudgment interest statute is controlling.

The Illinois statute reads in pertinent part:

Creditors shall be allowed to receive at the rate of five (5) per centum per annum for all moneys after they become due on any bond, bill, promisory note, or other instrument in writing; on money lent or advanced for the use of another; on money due on the settlement of account from the day of liquidating accounts between the parties and ascertaining the balance on the money received to the use of another and retained without the owners knowledge; and on money withheld by an unreasonable or vexatious delay of payment.

Ill.Rev.Stat. ch. 17, § 6402 (1983). Because this Court has determined that Illinois has a greater interest in having its interest statute apply, Lazzara is awarded prejudgment interest at the statutory rate...