Pre-Fab Transit Co. v. Northbrook Property and Cas. Ins. Co.
| Decision Date | 17 September 1992 |
| Docket Number | No. 4-91-0835,PRE-FAB,4-91-0835 |
| Citation | 600 N.E.2d 866,235 Ill.App.3d 103,175 Ill.Dec. 623 |
| Parties | , 175 Ill.Dec. 623 TRANSIT CO., a Corporation, Plaintiff-Counterdefendant-Appellee, v. NORTHBROOK PROPERTY AND CASUALTY INSURANCE COMPANY, a Corporation; and Northbrook Indemnity Company, a Corporation, Defendants-Counterplaintiffs-Appellants. |
| Court | United States Appellate Court of Illinois |
Dunn, Goebel, Ulbrich, Morel & Hundman, Bloomington, (John L. Morel, of counsel), for appellant.
Edward H. Rawles, Reno, O'Byrne & Kepley, P.C., Champaign, for appellee.
Defendants, Northbrook Property and Casualty Insurance Company and Northbrook Indemnity Company (Northbrook), issued insurance policies to plaintiff, Pre-Fab Transit Company (Pre-Fab), which contained a standard premium and retrospective premium endorsement. Pre-Fab filed a declaratory judgment action seeking construction of the retrospective premium endorsement to these policies. Northbrook filed an answer and counterclaim against Pre-Fab to collect the retrospective premium owed plus interest. Northbrook contended that the retrospective premium owed to it by Pre-Fab is $382,167 plus interest; Pre-Fab contended that the premium owed under the retrospective premium endorsement is $99,286. The trial court construed the retrospective premium endorsement to provide that the maximum and minimum retrospective premiums were to be calculated by line of insurance, i.e., auto liability, workers' compensation, employer liability, and general liability; and then the maximum and minimum retrospective premiums for each line of insurance were to be combined to produce the actual minimum and maximum retrospective premiums. This decision concurred with Pre-Fab's contentions. The trial court found that Pre-Fab owed Northbrook $99,286, and Northbrook appeals. We reverse and remand.
Northbrook entered into a contract of insurance with Pre-Fab. Under the contract, the coverage began on July 1, 1984, and continued until July 1, 1985. Pre-Fab was engaged in the trucking business and employed various drivers and other employees in conjunction with its business.
The policies Northbrook issued to Pre-Fab included a business auto policy covering truckers' liability, a business auto policy (which provided coverage for physical damage to those vehicles either owned by Pre-Fab or under permanent lease to them), a commercial inland marine policy, a general automobile liability policy covering trailers and semitrailers, and various workers' compensation and employer's liability policies. The policies provided workers' compensation coverage in multiple States by endorsement with variable rates per State.
Northbrook issued Pre-Fab a retrospective premium endorsement, one-year plan, multiple lines, because Pre-Fab chose to have the cost of insurance rated retrospectively. The endorsement explained how the retrospective premium would be determined. The retrospective premium endorsement was on a standardized form, copyrighted by the National Council on Compensation Insurance and used with its permission.
Due to the high frequency and the severity of accidents, the premium was increased on March 1, 1985, through the balance of the policy term. No other changes occurred in the coverages nor were any other policies issued.
Pre-Fab paid the standard premium owed to Northbrook. A dispute arose over the amount of the premium Pre-Fab owed to Northbrook that was generated pursuant to the retrospective rating plan endorsement. On November 3, 1986, Pre-Fab sent a check to Northbrook for $94,124.81, the amount of premium that Pre-Fab claimed it owed Northbrook under the retrospective rating plan endorsement. Northbrook returned the check and informed Pre-Fab that it owed Northbrook more than $400,000.
Pre-Fab filed a multicount complaint and, later, a first-amended complaint against Northbrook. Northbrook filed an answer with affirmative defenses and a counterclaim. Later, Northbrook filed an amended counterclaim to recover its premium due on the retrospective rating plan endorsement.
Both parties agreed that the contract was unambiguous (but each had its own interpretation) and that a question of law was presented to the circuit court as to the retrospective premium endorsement. The dispute involved the method and manner of calculating the retrospective premium pursuant to the endorsement.
The circuit court agreed with the parties that the contract language was unambiguous. It held that the contract called "for the combination of the multiple lines after figuring basic premium percentages, tax multipliers and the minimum and maximum retrospective premium for the differing lines of insurance." (Emphasis added.) As previously noted, this interpretation concurred with Pre-Fab's formula regarding computation of the retrospective premium. The trial court granted Pre-Fab's request for declaratory relief, held that Pre-Fab owed Northbrook $99,286, and denied Northbrook's amended counterclaim. This appeal followed.
General principles regarding the construction and interpretation of insurance contracts do not differ from those controlling other contracts. (Zitnik v. Burik (1946), 395 Ill. 182, 186, 69 N.E.2d 888, 890.) The Illinois Supreme Court has written that "[t]he construction of a contract and the determination of the rights and obligations of the parties to the contract are questions of law, the determination of which rests exclusively with the court." (Zurich Insurance Co. v. Raymark Industries, Inc. (1987), 118 Ill.2d 23, 58, 112 Ill.Dec. 684, 700, 514 N.E.2d 150, 166; see also Oldweiler v. Peoples Bank (1987), 161 Ill.App.3d 317, 320, 112 Ill.Dec. 878, 880, 514 N.E.2d 541, 543.) An insurance contract must be interpreted from an examination of the complete document and not an isolated part. (Zurich, 118 Ill.2d at 50, 112 Ill.Dec. at 696, 514 N.E.2d at 162.) When evidence before the trial court is entirely documentary, the appellate court is not bound by the trial court's finding, and may independently construe the document unrestrained by the trial court's determination. Oldweiler, 161 Ill.App.3d at 320, 112 Ill.Dec. at 880, 514 N.E.2d at 543.
The primary objective in construing a contract is to effectuate the parties' intentions when entering the agreement. Absent ambiguity, the intention of the parties must be gathered from the language used in the contract, not from a party's construction of that language. Lenzi v. Morkin (1984), 103 Ill.2d 290, 293, 82 Ill.Dec. 644, 645, 469 N.E.2d 178, 179; Board of Governors of State Colleges & Universities v. Illinois Educational Labor Relations Board (1988), 170 Ill.App.3d 463, 470, 120 Ill.Dec. 728, 731, 524 N.E.2d 758, 761.
A contract is ambiguous if it is subject to more than one reasonable interpretation. The existence of an ambiguity in a contract must be determined as a question of law by the court. (Quake Construction, Inc. v. American Airlines, Inc. (1990), 141 Ill.2d 281, 288, 152 Ill.Dec. 308, 312, 565 N.E.2d 990, 994.) If the terms of an alleged contract are ambiguous or capable of more than one interpretation, parol evidence is admissible to ascertain the parties' intent. Quake Construction, 141 Ill.2d at 288, 152 Ill.Dec. at 312, 565 N.E.2d at 994.
A document is not ambiguous merely because the parties fail to agree upon its meaning. (First National Bank v. Country Mutual Insurance Co. (1988), 175 Ill.App.3d 860, 866, 125 Ill.Dec. 363, 367, 530 N.E.2d 521, 525.) Insurance contracts must be construed according to the sense and meaning of the terms which the parties have used. Zitnik, 395 Ill. at 186, 69 N.E.2d at 890.
The issue in this case involves the calculation of a retrospective premium in the standard form insurance policy between Northbrook and Pre-Fab. A retrospective premium endorsement provides flexible premiums based on the insured's loss experience. A retrospective premium enables an insurer to determine its incurred losses with finality and to adjust the final premium in relation to the loss experience. Aetna Life & Casualty Co. v. Anfinsen Plastic Molding Co. (1977), 47 Ill.App.3d 146, 5 Ill.Dec. 525, 361 N.E.2d 848.
The title of the retrospective premium endorsement in the present case states that it includes "multiple lines" of insurance. According to the endorsement, it applies to "any policy listed in the schedule." The policies listed in the schedule are workers' compensation, employer's liability, automobile liability coverage, and general liability coverage. The calculation of the retrospective premium is explained within the endorsement.
The amount of the retrospective premium depends on five standard elements and two elective elements. The five standard elements are the standard premium, the basic premium, incurred losses, converted losses, and taxes. The "standard premium" is the premium that Northbrook would charge during the policy period for the insurance, subject to the retrospective plan if Pre-Fab had not chosen the retrospective premium. Pre-Fab chose the application of two elective elements, the "excess loss" premium and the "retrospective development" premium. The "maximum retrospective premium factor" is 130% of the standard premium and the "minimum retrospective premium factor" is 56% of the standard premium.
The endorsement provided as follows:
"C. Retrospective Premium Formula.
Insurance policies listed in the Schedule will be combined with this policy to calculate the retrospective premium. If the policies provide insurance for more than one insured, the retrospective premium will be determined for all insureds combined, not separately for each insured.
1. Retrospective premium is the sum of basic premium, converted losses, and taxes, plus the excess loss premium and retrospective development premium elective elements if you chose...
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