West v. Western Cas. and Sur. Co.

Citation846 F.2d 387
Decision Date23 June 1988
Docket NumberNo. 87-1938,87-1938
PartiesPaul Benjamin WEST, Plaintiff-Appellee, v. The WESTERN CASUALTY AND SURETY COMPANY, a corporation, Defendant- Appellant.
CourtUnited States Courts of Appeals. United States Court of Appeals (7th Circuit)

John W. Leskera, Dunham, Bowman & Leskera, East St. Louis, Ill., for defendant-appellant.

Jerome Mirza, Jerome Mirza & Assoc., Ltd., Bloomington, Ill., for plaintiff-appellee.

Before WOOD, Jr., and RIPPLE, Circuit Judges, and ESCHBACH, Senior Circuit Judge.

RIPPLE, Circuit Judge.

In this diversity action, the Western Casualty and Surety Company (Western) appeals from a jury verdict in favor of Paul West, the appellee, in the amount of $3 million in compensatory damages and $2 million in punitive damages. Mr. West sued Western, his employer's workers' compensation insurance carrier, claiming that it committed fraud by deceiving him about his rights under the Illinois Structural Work Act, Ill.Rev.Stat. ch. 48, para. 69. For the reasons set forth in this opinion, we believe that the jury verdict must be left undisturbed. However, we remand the case to the district court so that it may clarify its judgment regarding Western's right to a set-off for future workers' compensation payments made to Mr. West. Accordingly, we affirm in part and remand in part.

I Facts

On April 23, 1979, Mr. West was rendered a paraplegic when he fell from a scaffold. At the time, Mr. West was performing carpentry work on the new home of Richard Mills, an architect, in McLean County, Illinois. No one saw Mr. West fall from the scaffold, and Mr. West has no idea how he fell.

Mr. West was employed to work on Mr. Mills' home by Tom Schieber, with whom Mr. Mills had contracted to build his home. Mr. West and Mr. Schieber were close personal friends. At the time of the accident, Mr. Schieber was insured by Western for $100,000 of workers' compensation coverage and $300,000 of manufacturer and contractor coverage. The latter policy was not directly applicable to Mr. West's injury because it excluded claims made by an employee. Western has paid all of Mr. West's medical bills and he has received the maximum amount available to him under the Illinois Workers' Compensation Act. Mr. West never brought an action against Mr. Mills for violating the Illinois Structural Work Act, although Illinois law recognizes such an action. Ill.Rev.Stat. ch. 48, para. 69.

After the accident, the West family was visited several times by Gordon Stiely, claims manager and adjuster for Western's office in Decatur, Illinois. Memoranda introduced at trial showed that Western was very concerned that Mr. West would contact an attorney and bring a Structural Work Act suit against Mr. Mills. Western feared that Mr. Mills would then bring a third-party action against Mr. Schieber, substantially increasing Western's potential liability. Memoranda from Mr. Stiely to his supervisors at Western repeatedly referred to Mr. Stiely having the case "under control." Testimony offered at trial suggested that the phrase "control" meant that Mr. Stiely was successfully convincing Mr. West not to contact an attorney. Mr. Stiely kept the case "under control" by visiting Mr. West on several occasions and communicating with him often. The correspondence between them that was admitted at trial showed that Mr. Stiely went to great lengths to develop a friendship with Mr. West, and that these efforts were successful. The West family invited Mr. Stiely for lunch; they gave him cherry pie; they expressed concern for his health; and they clearly trusted him. They also sent Mr. Stiely a Christmas card, which Mr. Stiely promptly reported to his supervisors as evidence of his "rapport" with the Wests. See Plaintiff's Ex. 35. Mr. Stiely always sent thank you notes to the Wests after their meetings, and he was never bashful in complimenting Mrs. West on her culinary skills.

During the two years after the accident, Western engaged in conduct intended to ensure that Mr. West would not contact an attorney. For example, Western deliberately chose not to interview witnesses who had been at the scene of the accident for fear that this might motivate Mr. West to contact an attorney. When Mr. West wondered why workers' compensation checks were being sent to him by an attorney, Western began sending the checks from another source. When Mr. West requested reimbursement for expenses that Western considered dubious under the workers' compensation scheme, Western paid some of the expenses. As the expiration of the statute of limitations approached for filing a Structural Work Act suit, Mr. Stiely refused to respond to Mr. West's phone calls. Western also delayed a hearing on Mr. West's workers' compensation claim until after the statute of limitations had run.

Mr. West does not contend that the above actions, standing alone, were adequate to state a cause of action against Western for fraud. Rather, Mr. West's claim is that Western committed fraud by deliberately misrepresenting to him his legal rights. According to the testimony of Mr. West and his wife, 1 Mr. Stiely told them that they did not need a lawyer because Western would protect their legal rights and ensure that they received everything they were legally entitled to receive. Mr. West specifically testified, at one point, that Mr. Stiely told him that he had no legal rights other than workers' compensation. Western did not deny at trial that it did not want Mr. West to consult with an attorney. However, Western denied that Mr. Stiely made any factual misrepresentations to Mr. West, and it claimed that Mr. Stiely told Mr. West of the Structural Work Act and of his right to bring a suit under that Act. Western also argued that Mr. West told Mr. Stiely that he did not want to file a Structural Work Act suit because he wanted to avoid doing anything that could potentially harm Mr. Schieber, Mr. West's employer and close friend. Faced with these contradictory versions of the facts, the jury apparently believed Mr. West. It awarded him $3 million in compensatory damages and $2 million in punitive damages.

II The District Court Opinion

Western filed a post-trial motion seeking a judgment notwithstanding the verdict or, in the alternative, a new trial. This motion alleged more than 150 trial errors, including all of the contentions now raised on appeal. The district court filed an order on May 11, 1987, denying Western's requested relief. West v. Western Casualty, No. 82-5167, order (S.D.Ill. May 11, 1987) [hereinafter Order]; R. 60.

The first argument raised by Western was that Mr. West's action was barred by the exclusivity provision of the Illinois Workers' Compensation Act, Ill.Rev.Stat. ch. 48, para. 138.5(a). The district court held that this exclusivity provision did not bar Mr. West's fraud action because Mr. West's injury from the alleged fraud did not arise out of the course of his employment, but arose out of his relationship with Western as a result of his workers' compensation claim. The court said that "[t]he alleged fraud practiced on the plaintiff in this case was not directly arising out of the workmens [sic] compensation claim but only incidentally so." Order at 6.

The district court then determined that the evidence presented at trial was sufficient to justify the award of compensatory and punitive damages. The court, referring back to its earlier denial of Western's motion for a directed verdict, concluded that there was sufficient evidence from which a jury could conclude that Western had made a misrepresentation of fact and that Mr. West had reasonably relied on that misrepresentation.

With respect to the imposition of punitive damages, the district court determined that punitive damages could permissibly be imposed against Western because the jury reasonably could conclude that Mr. Stiely was employed in a managerial capacity by Western and that he influenced policy decisions by Western. The court then said that there was "evidence in this case from which the jury could have found that Stiely's conduct was so egregious as to rise to the level warranting the award of punitive damages." Id. at 8.

The district court then determined that it had properly instructed the jury with respect to the Structural Work Act. Western contended that Mr. West should have been required to prove conclusively that he could have recovered under the Structural Work Act before he could be entitled to prevail in a fraud action. The court held that this argument was meritless because the court had instructed the jury about the elements of a Structural Work Act claim and about the elements of damage that would have been recoverable in such a case.

III Analysis
A. Exclusivity of Workers' Compensation

Western argues that Mr. West's fraud action should have been barred under the exclusivity provision of the Illinois Workers' Compensation Act. In relevant part, the exclusivity provision of the Workers' Compensation Act reads:

No common law or statutory right to recover damages from the employer [or] his insurer ... for injury or death sustained by any employee while engaged in the line of his duty as such employee, other than the compensation herein provided, is available to any employee who is covered by the provisions of this Act....

Ill.Rev.Stat. ch. 48, para. 138.5(a).

In Robertson v. Travelers Ins. Co., 95 Ill.2d 441, 69 Ill.Dec. 954, 448 N.E.2d 866 (Ill.1983), the Illinois Supreme Court interpreted this statute to bar an action against an insurance company for intentional delay in making workers' compensation payments. The rationale for this interpretation was that the Workers' Compensation Act expressly provides for the payment of penalties to a claimant when "there has been any unreasonable or vexatious delay of payment...." Ill.Rev.Stat. ch. 48, para. 138.19(k). Because the Workers' Compensation Act permits a claimant to obtain penalties...

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