People ex rel. Hammer v. Lumbermens Mut. Cas. Co. (In re Liquidation of Lumbermens Mut. Cas. Co.)
| Decision Date | 16 November 2018 |
| Docket Number | No. 1-17-1613,1-17-1613 |
| Citation | 127 N.E.3d 719,431 Ill.Dec. 186,2018 IL App (1st) 171613 |
| Parties | IN RE LIQUIDATION OF LUMBERMENS MUTUAL CASUALTY COMPANY, (The People of the State of Illinois ex rel. Jennifer Hammer, Director of Illinois Department of Insurance, Plaintiff-Appellee, v. Lumbermens Mutual Casualty Company, an Illinois Domestic Property and Casualty Mutual Company, American Manufacturers Mutual Insurance Company, an Illinois Domestic Property and Casualty Mutual Company, and American Motorists Insurance Company, an Illinois Domestic Stock Insurance Company, Defendants, (North Plainfield Board of Education, Claimant-Appellant)). |
| Court | United States Appellate Court of Illinois |
Gregory E. Ostfeld, of Greenberg Traurig, LLP, of Chicago, and Robert C. Epstein, of Greenberg Traurig, LLP, of Florham Park, New Jersey, for appellant.
Dale A. Coonrod, of Chicago, and John F. Casey (pro hac vice) and Darren Grzyb (pro hac vice), of Chiesa Shahinian & Giantomasi PC, of West Orange, New Jersey, and, for appellee.
¶ 1 Claimant, the North Plainfield Board of Education (Board), which represents the school district for North Plainfield, New Jersey, appeals an order of the circuit court that disallowed its claim against American Motorists Insurance Company (AMICO), which is involved in insurance liquidation proceedings in the circuit court of Cook County. On appeal, the Board contends that (1) it was entitled to an evidentiary hearing before its claims were disallowed, (2) the circuit court erroneously disallowed its claims for liquidated damages related to a construction project, and (3) it is entitled to recover liquidated damages and actual damages. We affirm.
¶ 3 In 2001, the Board embarked on a $32 million project to renovate and expand five schools. The Board awarded the construction contract to D & D Associates, Inc. (D & D), in three separate contracts known as Contracts 1A, 1B, and 1C. Contract 1A covered the East End and West End Schools, Contract 1B covered the Middle/High School and Stony Brook School,1 and Contract 1C covered the Somerset School. According to the Board's superintendent, the project was expected to be completed by September 2002. D & D was to serve as the general contractor, and AMICO served as D & D's surety for the project. The Vitetta Group, Inc. (Vitetta) was the architect. In 2003, the Board purported to terminate D & D and called on AMICO to complete the project. In 2005, AMICO commenced an action that sought approximately $2.2 million in contract balances owed by the Board to AMICO. As a counterclaim, the Board asserted liquidated delay damages that at one point approximated $15 million. Litigation proceeded in New Jersey, which included the parties filing motions for summary judgment and motions in limine .
¶ 4 On August 16, 2012, the circuit court of Cook County entered an agreed order of rehabilitation with respect to AMICO, which was domiciled in Illinois. The order enjoined the bringing of or further prosecuting any affirmative claims against AMICO outside of the Illinois proceeding. On May 8, 2013, the circuit court entered an order of liquidation with a finding of insolvency, which converted the rehabilitation into a statutory liquidation and again enjoined the bringing of or prosecuting any claims against AMICO outside of the Illinois proceeding. Lumbermens Mutual Casualty Company (Lumbermens) is the successor to AMICO.
¶ 5 A New Jersey court enforced the Illinois anti-suit injunction and dismissed the Board's counterclaim for liquidated damages without prejudice to the Board's right to bring the claim in the Illinois proceeding. In July 2013, the Board filed a petition for relief in Illinois from the anti-suit injunction so that its counterclaim could be pursued in New Jersey. The circuit court denied the Board's petition and confirmed that the Board could not assert its delay claims in New Jersey. A bench trial in New Jersey was held on AMICO's claims, and on May 19, 2015, the law division of the Superior Court of New Jersey entered a final judgment in favor of AMICO for $2,647,115.37.
¶ 6 The Board filed a claim against AMICO in the Illinois proceeding, contending that AMICO was liable to the Board for liquidated and actual damages for delays in project construction. The Board sought $14,022,883.34 plus interest in liquidated damages and $1,471,017.96 plus interest in actual damages.
¶ 7 Subsequently, the liquidator for Lumbermens filed a motion to disallow the Board's claim. In part, the liquidator contended that the Board was not entitled to liquidated damages for delayed substantial completion because the Board took occupancy in time for the 2002 school year. The liquidator further asserted that the Board was not entitled to liquidated damages for delayed substantial completion of various interim milestones and the Board could not recover actual damages per the terms of the construction contract and applicable law.
¶ 8 The Board filed a response, noting that the liquidator had proffered the Board's expert reports from the New Jersey proceedings. The Board stated that Contract 1A was substantially complete on December 8, 2004, and Contract 1B was substantially complete on November 17, 2004. The Board further contended in part as follows. The Board's dates of substantial completion were presumptively established by the architect's certifications, which could be overcome only by proof of fraud or bad faith. Moreover, the liquidator should be estopped from disavowing the architect's dates of substantial completion because AMICO relied on those dates to obtain judgment against the Board in New Jersey. The New Jersey court also held that liquidated damages may be awarded even after a building is occupied and operational. The Board maintained that it could recover both liquidated and actual damages under the construction contracts.
¶ 9 On May 9, 2017, the circuit court entered a written order that granted the liquidator's motion to disallow the Board's claim and stated in part as follows. Although at oral argument, the Board had requested an evidentiary hearing if its claim was disallowed, the Illinois Insurance Code (Code) ( 215 ILCS 5/1 et seq. (West 2014) ) did not require an evidentiary hearing. Further, the Board had the burden to show that it could be reasonably inferred from the proof presented on the claim that the Board would be able to obtain a judgment on the counterclaim that was initially pursued in New Jersey.
¶ 10 The court discussed the Board's monetary claims. Under the construction contract, the Board could assess liquidated damages until the date of substantial completion. For Contracts 1A and 1B, that date was September 2002, according to temporary certificates of occupancy and statements from the Board's superintendent. Further, there was evidence that the architect was biased and acted arbitrarily and that the Board's expert reports were "flawed in many respects." The Board's claim for liquidated damages for Contract 1C was related to issues with the Somserset School's chimney. The court found that any delay pertaining to the chimney demolition was directly caused by Vitetta and the Board, in that neither of them understood the existing condition of the structure when the project began. Also, the Board's claims for liquidated damages for alleged missed interim milestones were meritless. Further, the Board was not entitled to actual damages under New Jersey law.
¶ 13 On appeal, the Board first contends that it was entitled to an evidentiary hearing before its claims were disallowed. The Board argues that the Code expresses a legislative policy to indulgently permit contingent claims and, moreover, that nothing in the statute allows a court to summarily disallow a contingent claim without an evidentiary hearing where substantial evidence supports the claim. The Board further states that its claims in New Jersey were dismissed because of AMICO's insolvency, but the Board was granted the right to adjudicate its claims in the Illinois proceeding. According to the Board, without an evidentiary hearing, the Board will be denied a fair opportunity to present its claims in either New Jersey or Illinois.
¶ 15 A claimant must receive written notice if a claim is denied by the Director of Insurance. Id. § 209(11)(a). The claimant may file a written objection with the Director; if the objection does not change the determination, the Director "shall petition the court for a hearing as soon as practicable." Id. § 209(11)(b)....
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