Summary
finding that under Illinois law, a conversion may arise if the money is specified in an identifiable fund
Summary of this case from In re McKnewOpinion
No. 00 C 5467
March 5, 2001
MEMORANDUM OPINION AND ORDER
Conseco Group Risk Management Company ("CGRM"), Conseco Medical Insurance Company ("CMIC"), and Conseco Life Insurance Company ("CLIC") (collectively "Conseco") sue Ahrens Financial Systems, Inc. ("AFS") for breach of contract (Count I); breach of fiduciary duty (Count II); tortious interference with contractual relations; tortious interference with prospective economic benefit; defamation; disparagement; and damage to business and reputation (Count III); money owed (Count IV); money had and received (Count V); conversion (Count VD; restitution (Count VII); punitive damages (Count VIII); and injunctive relief (Count IX).
In its counterclaim, AFS sues Conseco for negligence (Count I); fraudulent misrepresentation (Count II); tortious interference with prospective business advantage (Count IV); and breach of contract (Count V). Conseco and AFS move for partial summary judgment, pursuant to Fed.R.Civ.P. 56. Conseco further moves to dismiss portions of AFS' counterclaims and affirmative defenses, pursuant to Fed.R.Civ.P. 12 (b)(6).
AFS' claim for breach of good faith and fair dealing (Count VI) was dismissed with prejudice. AFS' claims for negligent misrepresentation (Count III), accounting (Count VII), and quantum meruit (Count VIII) were dismissed without prejudice.
BACKGROUND
I. The parties
All facts are undisputed unless otherwise noted. AFS is a Kansas corporation with its principal place of business in Kansas. CGRM and CLIC are Indiana corporations with their principal places of business in Illinois. CMIC is an Illinois corporation with its principal place of business in Illinois.
Prior to June 2000, Conseco issued medical stop loss insurance treaties and policies to employers with a minimum of 15-25 employees. Employers purchase stop loss insurance to limit the amount they pay for their employees' health insurance claims. These employers self-insure up to a certain amount and then obtain stop loss insurance for expenses exceeding this coverage. Conseco spread its risk throughout the insurance market by means of reinsurance contracts and treaties.
II. Relationship between the parties
AFS served as a managing general underwriter ("underwriter") for Conseco's stop loss business, pursuant to a contract entitled "Managing General Underwriting and Agency Agreement" ("the contract"). AFS entered into the contract with a Conseco subsidiary on June 21, 1996. The contract was effective by its terms as of July 1, 1995. After acquiring the subsidiary, Conseco became a party to the contract on June 7, 1999.
Under the original contract terms, Conseco retained only a small portion of the underwriting risk. Marketing, claim handling, and insurance premium administration was left to AFS and other underwriters in the network.
AFS had a variety of fiduciary, contractual, and payment distribution duties. Stop loss insurance claims submitted for employer reimbursement were to be paid from a fiduciary account and a claims account. AFS maintained custody and control of these accounts. Conseco contends AFS only was permitted to distribute account funds for reasons stated in the contract, unless Conseco gave written consent to other expenditures. The contract permitted AFS to retain compensation up to 27.5% of gross premium when making net remittances to Conseco.
III. "At risk" fees
Beginning with policies issued in 1998, the parties discussed making a portion of the fees payable to AFS under the contract "at risk." The "at risk" provision was requested by the reinsurer, Overseas Partners Limited ("OPL"). Under the "at risk" arrangement, AFS would return up to 2% of its fees to the reinsurers if losses from the underlying policies exceeded agreed-upon amounts. Conseco never modified its underwriting contract with AFS to reflect the "at risk" arrangement. However, the "at risk" arrangement is included in reinsurance agreements between Conseco and its reinsurers.
IV. Procurement of reinsurance
On July 1, 1999, AFS decided not to renew an agreement with its other insurance carrier. Conseco became AFS' sole excess loss insurance carrier. As a result, AFS transferred more business to Conseco.
In August 1999, AFS' principal, John Ahrens, visited Conseco's office in Chicago and met with Conseco's second vice president in charge of excess loss business, Patrick Nicholas ("Nicholas"). Nicholas indicated Conseco intended to take a more active role in procurement of reinsurance for the 2000 treaty year. Specifically, Nicholas told Ahrens Conseco intended to pursue a "golden partner" arrangement with Employers Reassurance Corporation ("ERC").
Conseco representatives met with ERC in July 1999 to request that ERC offer a quote to reinsure all of Conseco's stop loss business, including business produced and managed by AFS. At this meeting, ERC requested that Conseco provide ERC with information relating to Conseco's stop loss business. ERC representatives explained they needed the information to properly evaluate Conseco's business. By October 1, 1999, each of AFS' reinsurers stated their intention not to renew their agreements for 2000.
In January 2000, ERC contacted Conseco for the second time to request Conseco's business information. Conseco never provided the requested information to ERC. Under Article VII of the contract, Conseco had the right to terminate the contract immediately if the underlying reinsurance for the policies underwritten by AFS terminated. Conseco never secured reinsurance for the 2000 year.
On December 6, 1999, Conseco notified AFS that it was suspending AFS's underwriting authority. AFS received a confirmation letter the next day. The reinsurance applicable to the policies underwritten and sold by AFS expired on December 31, 1999. Conseco stated the contract termination would be effective January 1, 2000.
V. Modifications to the parties' original agreement
Shortly after notifying AFS about the contract termination, Conseco asked AFS to be an underwriter beginning January 1, 2000. Conseco contends under the terms of this agreement, AFS would issue quotes, do limited underwriting, and issue policies, all for lower fees.
Conseco asserts AFS performed the sub-underwriting duties but took excess compensation. Conseco further contends AFS eventually failed to provide required documents and, therefore, was demoted to a "sub-producer" position. As a "sub-producer," AFS was required to obtain approval for every policy sold.
AFS disputes Conseco's characterization of their agreement after January 1, 2000. AFS asserts it rejected Conseco's sub-underwriting offer and that Conseco continued to treat AFS as its underwriter. AFS further asserts it continued to fulfill its responsibilities under the original contract. According to AFS, even if the contract terminated on December 31, Conseco gave AFS full underwriting authority as a sub-underwriter on January 4, 2000.
VI. Conseco's entrance into the stop loss business
On January 19, 2000, Conseco and AFS management met in Kansas. Conseco expressed a desire to gradually take over the administration of excess loss business written by AFS. AFS agreed to a gradual take-over of stop loss administration.
In a February 2000 meeting, Conseco representatives requested that AFS turn over a copy of AFS' proprietary software application. AFS did not own this software. Conseco wanted to use the software in its own administration of medical stop loss business. Conseco never utilized the software in its own stop loss business because the software would not work with Conseco's systems. Therefore, Conseco never signed a licensing agreement for use of the software, On June 29, 2000, Conseco notified AFS that it was immediately leaving the stop loss insurance field.
Stop loss insurance treaties and policies already issued by Conseco remain in force and will remain in force until they expire by their terms over approximately the next three years.
VII. AFS' "critical updates"
On June 30, 2000, AFS began publishing written statements about Conseco to third parties, including third party administrators handling accounts insured by Conseco. The statements were made in documents titled "Critical Update." The June 30, 2000 update stated, "Conseco's final underwriting actions had escalated recently to the point of being irrational, and in my opinion, very detrimental to your clients. Conseco's announcement yesterday to completely exit the stop loss market, may explain their recent final underwriting actions." Cmplt. Ex. D. The July 5, 2000 update stated:
The following statement was released to us from Conseco: "for an August 1, 2000 or earlier effective date, Conseco will consider the employer's application if all documents necessary to issue the treaty or policy (including but not limited to the check and disclosure statement) are received by Conseco in Chicago at the address listed below, on or before the close of business this Friday, July 7, 2000. of course, all such quotes and applications remain subject to normal underwriting practices." . . . The steps which Conseco are taking, are unusual but none the less must be addressed immediately (emphasis added). Id. at Ex. E.
The July 6, 2000 update stated:
As of late yesterday, Conseco has now informed AFS that unless an application had already been issued for a group's signature, no policy or treaty would be forthcoming. In fact, Conseco had ceased approving applications last week prior to the announcement to leave the Stop Loss market. Therefore, our records indicate that the following groups have not had an application issued by Conseco and consequently will not be eligible for coverage through Conseco . . . The manner in which Conseco has chosen to handle this decision has put AFS, you and your client in a tough situation (emphasis added). Id. at Ex. F.
The July 26, 2000 update stated:
During a meeting yesterday, Conseco announced its intention to take over all administration functions (i.e., premium collection, policy issue and claim paying functions) with regard to Conseco's stop loss business with effective dates on January 1, 2000. This action is very surprising and disappointing in light of Conseco's recent decision to leave the stop loss marketplace.
AFS strongly disagrees with this decision by Conseco as I believe that a transfer of these administrative functions in mid-year is clearly not in the best interest of you or your clients . . .
After the notice and effective dates of the change in administration, any 2000 premium and/or claim submissions that may be sent to AFS will be forwarded to Conseco . . . However, based on Conseco's abrupt departure from the loss market and its refusal to honor pending quotes at the time of its departure, I do not expect that Conseco will be concerned with the impact of its decision to assume the administration and any confusion or delays such decision has or will create) may have on you, AFS or your customers (emphasis added). Id. at Ex. G
III. Parties' claims
AFS contends Conseco began to make various decisions in January 2000 that caused AFS to lose business, including: (1) placing new restrictions on insurance renewals; (2) increasing premiums; (3) changing its underwriting guidelines and causing customer frustration; (4) prohibiting AFS from quoting excess loss business without Conseco's approval; (5) failing to underwrite or quote many of AFS' present customers; (6) usurping control over reinsurance funding of claim payments; and (7) failing to provide AFS with sufficient funds to pay 1999 claims. Additionally, AFS contends Conseco (1) set harsh timelines for finalizing stop loss policies, (2) missed deadlines, which caused coverage denial, and (3) violated numerous states "insurance filing regulations.
Conseco asserts, not later than May 2000, AFS began systematically looting, converting, concealing, improperly disbursing, depleting, and misappropriating funds from the fiduciary and claims accounts. Conseco further contends AFS refused to provide an accounting for those funds or provide documentation for pending claims related to health insurance and reinsurance coverage. Finally, Conseco asserts AFS' statements in the "critical updates" were defamatory.
DISCUSSION
I. Summary judgment standard
Summary judgment is appropriate when the moving papers and affidavits show there is no genuine issue of material fact and the movant is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986); King v. National Human Resource Committee, Inc., 218 F.3d 719, 723 (7th Cir. 2000). Once a moving party has met its burden, the nonmoving party must go beyond the pleadings and set forth specific facts showing there is a genuine issue for trial. Fed.R.Civ.P. 56(e); Silk v. City of Chicago, 194 F.3d 788, 798 (7th Cir. 1999). The court considers the record as a whole and draws all reasonable inferences in the light most favorable to the party opposing the motion. Bay v. Cassens Transport Co., 212 F.3d 969, 972 (7th Cir. 2000). A genuine issue of material fact exists when "the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986); Insolia v. Philip Morris, Inc., 216 F.3d 596, 599 (7th Cir. 2000).
II. Summary judgment claims
Conseco moves for summary judgment on the following: (1) claims pertaining to the "at risk" fees; (2) AFS' claims relating to Conseco's failure to obtain reinsurance for year 2000; and (3) AFS' claims regarding Conseco's acquisition and use of AFS' software. Conseco further moves to dismiss AFS' affirmative defense and counterclaims relating to Conseco's failure to comply with state insurance regulations.
AFS moves for summary judgment on the following: (1) CGRM's breach of contract claims; (2) defamation; (3) tortious interference with contractual relations and prospective economic benefit; (4) disparagement; (5) four of Conseco's breach of contract claims; (6) conversion; (7) Conseco's claims for damages relating to the "at risk" fees; (8) AFS' in pari delicto affirmative defense.
A. "At Risk" Fees
Condition precedent
Conseco contends AFS breached the underwriting contract by refusing to pay "at risk" fees. To prevail on a breach of contract claim, a plaintiff must prove: "(1) the existence of a valid and enforceable contract; (2) performance by the plaintiff; (3) breach of contract by the defendant; and (4) resultant injury to the plaintiff." Gonzalzles v. American Express Credit Corp., 733 N.E.2d 345, 351 (Ill.App.Ct. 2000); See also Carroll v. Acme-Cleveland Corp., 955 F.2d 1107, 1114-15 (7th Cir. 1992). "When a contract is the subject of a summary judgment motion, the appropriateness of summary judgment will turn on the clarity of the contract terms under scrutiny." Capital Options Inv., Inc., 958 F.2d 186, 188 (7th Cir. 1992) (citing Old Republic Ins. Co. v. Federal Crop Ins. Corp., 947 F.2d 269, 274 (7th Cir. 1991)) (internal citations omitted).
Conseco contends AFS agreed to pay 1998 and 1999 "at risk" fees, evidenced by oral statements, letters from AFS' representatives, and Conseco-reinsurer agreements. Conseco's Statement of Material Facts ("Conseco Facts") at ¶¶ 11-13, 16, 18. However, AFS offers evidence to show (1) written modification of the basic underwriting contract was a condition precedent to its payment of "at risk" fees and (2) Conseco never modified the contract. AFS' Statement of Additional Facts ("AFS Additional Facts") at ¶¶ 1-3. "A condition precedent is one which must be performed before a contract becomes effective or which is to be performed by one party to an existing contract before the other party is obligated to perform." McKee v. First National Bank of Brighton, 581 N.E.2d 340, 341 (Ill.App.Ct. 1991). In response, Conseco presents evidence to establish the "at risk" fees agreement did not hinge on the actual underwriter contract being modified in writing. Conseco's Response To AFS' Additional Facts ("Conseco Resp. To Add. Facts") at ¶ 1; Conseco's Material Facts, Ex. 3 at 31-32; Exs. 6, 11, and 13. A genuine issue of material fact exists as to whether a condition precedent existed for the "at risk" fees agreement.
Statute of frauds
The statute of frauds bars recovery under a contract incapable of performance within one year unless it is evidenced by a writing executed by the party against whom the agreement is to be enforced. Prodromos v. Howard Savings Bank, 692 N.E.2d 707, 710 (Ill App. Ct. 1998). AFS asserts the statute of frauds applies because any agreement regarding the "at risk" fees would be an oral modification to the underwriting agreement. Conseco contends the statute of frauds does not bar its claims because (1) Conseco has fully performed its part of the agreement and (2) AFS is equitably estopped from asserting this defense.
AFS' contention that Conseco's claim for the fees at risk fail as a matter of law because the fees are not payable until the end of January 2001 is moot since it is now March 2001.
Conseco's defense of equitable estoppel fails as a matter of law because Conseco failed to "plead and prove a misrepresentation on the part of the defendant." Dickens v. Quincy College Corp., 615 N.E.2d 381, 385-86 (Ill.App.Ct. 1993). However, it is undisputed Conseco fully performed under the alleged oral modification to the agreement by allowing AFS to issue stop loss coverage. Supp. Mayo Aff. at ¶ 6. Complete performance on the part of one of the parties to the oral agreement bars application of the statute of frauds. Time Warner Sports Merchandising v. Chicagoland Processing Corp., 974 F. Supp. 1176, 1177 (N.D. Ill. 1997). Therefore, the statute of frauds does not apply in this case. Damages
The issue of whether the reinsurance agreement was incorporated into the underwriting agreement is moot for purposes of the statute of frauds defense.
AFS further asserts that even if Conseco could establish AFS breached an "at risk" fee agreement, Conseco still could not recover contract damages. In support of this assertion, AFS offers evidence to show the alleged fees are owed to the reinsurers, not AFS. AFS' Statement of Material Facts ("AFS Facts"), Ex. H at 159, 161. Conseco offers no evidence to dispute the fact that the "at risk" fees were owed to the reinsurers. Instead, Conseco attempts to justify recovery by offering evidence to show it would be obligated to reimburse the reinsurers if Conseco does not pay. Supp. Mayo Aff. at ¶ 6.
1. Legal Subrogation
Under the principles of legal subrogation, "where property of one person is used in discharging an obligation owed by another . . ., under such circumstances that the other would be unjustly enriched . . . the former is entitled to be subrogated to the position of the obligee. . . . " American National Bank and Trust Company of Chicago v. Weyerhaeuser Company, 692 F.2d 455, 460 (7th Cir. 1982). Legal subrogation is an equitable right. Id. In order to obtain relief, the subrogee must have already paid the debt or claim under which the subrogee asserts its rights. Id. at 461. Conseco has offered no evidence to suggest it has reimbursed reinsurers for "at risk" fees. Therefore, Conseco cannot recover under subrogation principles.
Additionally, Conseco contends it should recover damages as a third party beneficiary to the agreement between AFS and the reinsurers. "In order for a third party to have a right to sue, the contract must be undertaken for the plaintiffs direct benefit and the contract itself must affirmatively make that intention clear." E.B. Harper Company, Inc. v. Nortek, Inc., 104 F.3d 913, 921 (7th Cir. 1997) (internal citations omitted). Conseco fails to offer evidence establishing the reinsurance agreement was undertaken for its direct benefit. Furthermore, there is no evidence to suggest the contract makes that intention clear.
2. Quantum meruit and unjust enrichment
Conseco further contends it has a right to recover under the doctrines of quantum meruit and unjust enrichment. If parties have an express contract which governs their relationship, neither party can sue the other on unjust enrichment grounds. Williams v. National Housing Exchange, Inc. Apx., 949 F. Supp. 650, 653 (N.D. Ill. 1996). This rule applies even if the express contract "does not cover the specific subject upon which the unjust enrichment claim is based . . ." Id. Similarly, quantum meruit claims cannot be maintained when the parties' relationship is governed by an express contract. Murray v. ABT Associates, Inc., 18 F.3d 1376, 1379 (7th Cir. 1994).
It is undisputed that the underwriting agreement governed AFS' and Conseco's relationship. The parties merely dispute the terms of that contract, namely whether it was modified to include the alleged "at risk" fees agreement. Disputes over the terms of a contract does not justify quantum meruit or unjust enrichment relief. See Ampat/Midwest Corp. v. Broady Sente Hanrath Rubel Ltd. et al., No. 84 C 5426, 1985 WL 1947, at * 3 (N.D. Ill. 1985) (quantum meruit action cannot be maintained when it is an enforceable contract exists between the parties and the parties merely dispute the terms of the contract). Conseco has failed to offer any theory justifying its recovery of "at risk" fees. Accordingly, AFS' motion for summary judgment regarding the "at risk" fees is granted.
B. Negligence and fraudulent misrepresentation counterclaims based on Conseco's efforts to procure reinsurance
The arguments regarding money owed, money had and received, and conversion of "at risk" fees are moot.
AFS' negligence and fraudulent misrepresentation counterclaims are based, in part, on Conseco's efforts to obtain reinsurance for the 2000 treaty year. To prove negligence, AFS must establish Conseco owed AFS a duty of care and breached that duty. See e.g., Williams v. National Railroad Passenger Corp., 161 F.3d 1059, 1062 (7th Cir. 1998). AFS contends Conseco breached its duty to reasonably and diligently procure reinsurance and to regularly provide AFS with updates.
To prove fraudulent misrepresentation, AFS must establish: (1) Conseco made a false statement of material fact; (2) Conseco knew the statement was untrue; (3) Conseco intended to induce AFS to act; (4) AFS acted in reliance on the truth of Conseco's statement; and (5) AFS sustained damages as a result of the reliance. See Quinn v. McGraw-Hill Companies, Inc., 168 F.3d 331, 335 (7th Cir. 1999). AFS contends Conseco intentionally made misrepresentations when it claimed it would zealously pursue reinsurance.
Conseco asserts this court should rule as a matter of law that it did not breach any duty owed to AFS in regard to obtaining reinsurance and did not misrepresent its intention to zealously procure reinsurance, Conseco offers evidence to show it took reasonable steps to acquire reinsurance, and these efforts failed because of market conditions. Conseco Facts at ¶¶ 19-25. However, AFS offers evidence to show that Conseco did not take all reasonable steps to obtain reinsurance. Specifically, AFS offers evidence to show Conseco did not provide the requested information to ERC, the target reinsurance company, and told ERC that Conseco was taking its business elsewhere. AFS Add. Facts at ¶¶ 5-9. A genuine issue of material facts exists as to whether Conseco took all reasonable steps in procuring reinsurance.
III. Fraudulent Misrepresentation Counterclaim Relating To the Software Application
Conseco moves for summary-judgment on AFS' fraudulent misrepresentation counterclaim to the extent the claim is based on Conseco's alleged promise to execute a software licensing agreement with AFS. AFS admits it never possessed ownership rights of the application. Conseco contends this admission mandates summary judgment in its favor because "Conseco hardly could have falsely promised to license something AFS had no power to license." Conseco's Motion For Partial Summary Judgment, p. 10. AFS offers no evidence to show Conseco made a false promise to execute a licensing agreement for the software. Accordingly, Conseco's motion for summary judgment on this issue must be granted.
Pursuant to agreement among the parties, AFS' claim for breach of contract regarding Conseco's failure to execute a license agreement will be dismissed.
IV. CGRM Breach of Contract Claims
AFS asserts CGRM lacks standing as a party to Conseco's breach of contract claims. CGRM may only sue to enforce the underwriting contract if it is in privity with AFS or is a third-party beneficiary under the contract. General Electric Capital Corp. v. Equifax Services, Inc., 797 F. Supp. 1432, 1445 (N.D. Ill. 1992). CGRM does not allege that it was a third-party beneficiary to the contract. In addition, AFS contends CGRM is not in privity with AFS because the contract was not executed on its behalf. AFS bases this assertion on testimony given by Patrick Nicholas ("Nicholas"), one of Conseco's designees. Nicholas testified CGRM executed the contract on behalf of CLIC and CMIC and not on its own behalf. AFS Facts at ¶ 59; Ex. I at 152.
Conseco asserts AFS madejudicial admissions that estop the company from now challenging CGRM's standing. Conseco points to the fact that the name "Conseco" was used to refer to CGRM, CLIC, and CMIC throughout the parties' statement of facts; AFS made the following admissions establishing privity with "Conseco": (1) AFS served as Conseco's underwriter; (2) AFS and Conseco were parties to a valid and enforceable contract; (3) Conseco had duties under the contract; and (4) Conseco breached the contract. Conseco Resp. to AFS Statement of Material Facts ("Conseco Resp. to AFS Facts") at ¶ 59. These admissions undisputedly establish "Conseco" was in privity of contract with AFS.
AFS asserts Conseco tried to hide CGRM's lack of standing by lumping the three entities under the name "Conseco." AFS further contends that any judicial admissions it made in regard to CGRM's standing are legal conclusions and, therefore, are not binding. It is true that legal conclusions are not binding as judicial admissions. See e.g., Dabertin v. HCR Manor Care, Inc., 68 F. Supp.2d 998, 1000 (N.D. Ill. 1999). However, this is not a case where AFS merely admitted to CGRM's legal standing. AFS made numerous factual admissions that establish CGRM's standing as a matter of law. "Factual admissions are binding on a party as a judicial admission unless withdrawn or amended." Id. (internal citations omitted). AFS never withdrew or amended its factual admissions. Moreover, AFS cannot claim it was blind-sided by Conseco's inclusion of CGRM in the collective term "Conseco" because AFS used the same term to refer to CGRM in both its answer and statement of facts. Accordingly, summary judgment must be denied on CGRM's contract claims.
E. Defamation
AFS contends Conseco's defamation claims fail as a matter of law because: (1) the statements in the "critical updates" are merely AFS' opinions; (2) Conseco is a public figure and failed to plead and prove actual malice on the part of AFS; and (3) the statements are protected by the Illinois Fair Comment Privilege.
The first question to be answered in a defamation action is whether the statements at issue are defamatory. There are two types of defamation: defamation per se and defamation per quod. Defamation per se involves words which by themselves injure reputation, whereas defamation per quod requires an allegation of extrinsic circumstances to show how the words cause damage. J. Tacket v. Delco Remy Division of General Motors Corp., 937 F.2d 1201, 1204 (7th Cir. 1991).
Factual statements and opinions implying a factual basis are actionable as either per se or per quod defamation, but pure statements of opinion are never defamatory. Milkovich v. Lorain Journal Co., 497 U.S. 1, 20 (1990). In Illinois, a statement of fact is not shielded from a defamation action by the preface "in my opinion." Haynes v. Alfred A. Knopf Inc., 8 F.3d 1222, 1227 (7th Cir. 1993). However, if it is clear "the speaker is expressing a subjective view, an interpretation, a theory, conjecture, or surmise, rather than claiming to be in possession of objectively verifiable facts, the statement is not actionable." Id.
In the June 30th update, AFS uses the words "irrational" and "very detrimental to your clients" to describe Conseco's actions. In the July 5th and July 6th updates, AFS discusses verifiable steps taken by Conseco and then describes those steps as "unusual" and putting clients "in a tough situation." These three updates are not defamatory because the opinions do not contain a "provably false factual connotation." Milkovich, 497 U.S. at 20; See also Sullivan v. Conway, 157 F.3d 1092, (7th Cir. 1998). AFS was purportedly reporting on Conseco's actions and asserting its interpretation of those actions with subjective language.
The July 26th update is more troubling due to AFS' statement about Conseco's "refusal to honor pending requests." This comment is factual and its truth can be evaluated in a defamation suit. Therefore, the statement about Conseco's refusal to honor pending requests could be per se defamatory. See Appraisers Coalition v. Appraisal Institute, 845 F. Supp. 592, 610 (N.D. Ill. 1994) ("a statement that imputes an inability to perform or want of integrity in the discharge of duties of office or employment is one of four categories of statements that are considered defamatory per se in Illinois") (internal citations omitted).
The remaining statements in the July 26th report are not defamatory for the reasons discussed in reference to the other "critical updates."
AFS further contends Conseco is a public figure and, therefore, subject to stricter defamation pleading requirements. A public figure can only recover in a libel action if he or she can prove the alleged defamatory statement was made with actual malice. New York Times v. Sullivan, 376 U.S. 254, 279-80 (1964). Actual malice refers to knowledge that the statement was false or reckless disregard as to whether the statement was false. Id.
In Brown Williamson Tobacco Corp. v. Jacobson, the Seventh Circuit observed, "If the purpose of the public figure-private person dichotomy is to protect the privacy of individuals who do not seek publicity or engage in activities that place them in the public eye, there seems no reason to classify a large corporation as a private person." 713 F.2d 262, 273 (7th Cir. 1983). On remand, the district court found that the corporation Brown Williamson was a public figure because of its advertising and sale of goods. Brown Williamson Tobacco Corp. v. Jacobson, 644 F. Supp. 1240, 1247 (N.D. Ill. 1986) ( rev'd on other grounds). The case was again appealed to the Seventh Circuit, and the court confirmed that the corporation was a public figure. Brown Williamson Tobacco Corp. v. Jacobson, 827 F.2d 1119, 1128 (7th Cir. 1987). The Brown Williamson reasoning applies in this case.
AFS offers evidence to show Conseco has sought publicity and engaged in activities that place the corporation in the public eye. Conseco has engaged in a multi-million dollar national marketing campaign since 1999, which was aimed at spreading its products throughout the Midwest. As part of this campaign, Conseco has published advertisements on the quality of its services in national publications, including "Time," "Newsweek," and various trade publications. AFS Facts at ¶¶ 1, 2, 34-38. Accordingly, Conseco is a public figure.
As a public figure, Conseco must plead and prove actual malice. Conseco contends it adequately alleged actual malice. To support this assertion, Conseco points to pleadings stating the defamatory statements were malicious and made with malice. Cmplt. at ¶ 27(e), 42. However, Illinois courts draw a distinction between common law malice and actual malice. Common law malice denotes ill will and evil motive, whereas actual malice denotes knowledge of or reckless disregard for the falsity of a defamatory statement. Winters v. Greeley, 189 Ill. App.3d 590, 594 (1989). To satisfy the malice requirement in a defamation suit, a plaintiff must plead the statement was made with knowledge of its falsity or reckless disregard as to its truth. New York Times, 376 U.S. at 279-80. Conseco has not satisfied this pleading requirement. Moreover, Conseco has not offered evidence from which a reasonable jury could find actual malice on the part of AFS. In defamation cases requiring proof of actual malice, summary judgment should be granted if the plaintiffs do not arguably possess "clear and convincing evidence" of actual malice. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 254 (1986). Conseco argues actual malice can be inferred from the facts of this case. This assertion is insufficient for purposes of summary judgment. There is no evidence to support a reasonable inference of actual malice. Accordingly, summary judgment is granted in favor of AFS as to Conseco's defamation claim.
The issue of whether AFS' comments are protected by the Illinois Fair Comment Privilege is moot.
F. Disparagement
Although there is some dispute over whether a claim for commercial disparagement remains viable in Illinois, the court assumes for purposes of this motion that a disparagement claim is still actionable. See e.g., Richard Wolf Medical Instruments Corp. v. Dory, 723 E.Supp. 37, 42 (N.D. Ill. 1989) (commercial disparagement is still actionable in Illinois); Appraisers Coalition, 845 F. Supp. at 610 (same); Crinkley v. Dow Jones and Co., 67 Ill. App.3d 869, 876 (1978) (same); Suhadolnik v. City of Springfield, 184 Ill. App.3d 155, 184 (1989) (same). "To state an action for commercial disparagement, the plaintiff must show that the Defendant made false and demeaning statements regarding the quality of another's goods and services." Appraisers Coalition, 845 F. Supp. at 610.
If Conseco cannot establish AFS' words in the "critical updates" are defamatory factual statements, the company cannot establish the statements amount to commercial disparagement. See Barry Harlem Corp. v. Kraff 273 Ill. App.3d 388, 393, 396 (1995) (plaintiff cannot make out a case for commercial disparagement when the statements at issue are opinions rather than defamatory statements). As discussed above, the only AFS statement in the "critical updates" that could be considered defamatory is the statement about Conseco's alleged refusal to honor pending requests. This statement also implicates the quality of Conseco's services. Therefore, a jury could find the statement to be commercially disparaging. See Crinkley, 67 Ill.App.3d at 877 (statements can be considered defamatory and commercially disparaging). There is no actual malice requirement for commercial disparagement actions. Accordingly, Conseco has offered sufficient evidence to support a disparagement action, but only in regard to AFS' statement about Conseco's refusal to honor pending requests.
G. Tortious Interference With Contractual Relations and Prospective Economic Benefit
Conseco contends AFS tortiously interfered with Conseco's contractual relations and prospective economic benefit by publishing false and derogatory statements in the critical updates. To establish tortious interference with contractual relations in Illinois, a plaintiff must show: (1) a valid contract existed; (2) defendant knew the contract existed; (3) defendant intentionally and maliciously induced the breach of contract; (4) the breach of contract was caused by defendant's wrongful conduct; and (5) plaintiff suffered damage as a result. J. Fitzpatrick v. Catholic Bishop of Chicago, 916 F.2d 1254, 1256 (7th Cir. 1990).
To establish tortious interference with business expectancy in Illinois, a plaintiff must prove: (1) existence of a valued business relationship or expectancy; (2) defendant's knowledge of the relationship or expectancy; (3) intentional interference causing breach or termination; and (4) injury to the plaintiff. Promatek Industries, Ltd v. Equitrac Corp., 185 F.R.D. 520, 525 (N.D. Ill. 1999).
AFS claims Conseco's tortious interference claims fail as a matter of law because Conseco does not offer evidence to establish the existence of a valid and enforceable contract with AFS' reinsurers or producers, who were the recipients of the critical updates. However, Conseco offers evidence to show it had an independent business relationship with some of AFS' reinsurers, producers, and insured groups. Conseco Resp. to AFS Facts at ¶ 45; Conseco Add. Facts at ¶ 22. AFS also points out that Conseco no longer sells stop loss insurance. This assertion does not justify summary judgment because Conseco continues to sell certain types of insurance, including group life insurance. Id. AFS' customers purchased Conseco's group life insurance. Id. Accordingly, summary judgment on Conseco's tortious interference claims must be denied.
H. Breach of the Underwriting Agreement
Conseco alleges AFS breached its duties under the underwriting agreement. Cmplt. ¶¶ 13, 33. AFS contends the deposition testimony of Conseco's corporate designees indicates Conseco has no evidentiary support for some of these claimed breaches.
First, Conseco alleges AFS failed to promptly deliver certificates and other items. Cmplt. 13(b), 33. AFS offers evidence to show Conseco's corporate designees were not aware of any instances in which AFS failed to satisfy this duty. AFS Facts at ¶ 47. However, Conseco has presented sufficient evidence to support this claim. Review of Conseco's records suggests AFS issued policies and treaties with respect to the Oncology-Hematology Associates of Central Illinois, P.C. account four months late and to the FHC Hotel Management Company account nine months late. Conseco Add. Facts at ¶ 24. Furthermore, the evidence suggests that after taking over administration of the stop loss business, (1) Conseco found many treaties had not been issued by AFS as required, and (2) Conseco was required to take care of the problem itself, increasing transition expenses. Id.
Second, Conseco alleges AFS failed to provide financial reports and information. Cmplt. 13(1), 33. In support of its summary judgment motion, AFS points to the fact Nicholas indicated he did not know whether AFS failed to provide reports to Conseco between 1998 and 2000. AFS Facts at ¶ 53. However, Conseco offers evidence showing AFS failed to give Conseco documentation for amounts attributed to override commissions and for amounts paid out of Conseco's "lockbox" account. Conseco Add. Facts at ¶ 29.
Third, Conseco alleges AFS failed to satisfactorily handle routine customer service correspondence and general clerical and administrative functions. Cmplt. ¶¶ 13(n), 33. AFS offers evidence showing Conseco's corporate designees could not provide information regarding this alleged breach. AFS Facts at ¶ 49. Although there is conflicting testimony, Conseco presents sufficient evidence to support this breach of duty claim. Conseco offers evidence to show AFS failed to document overpayment recoveries and to account for recovered funds. Conseco Facts at ¶ 33. Additionally, Conseco offers evidence to show AFS failed to obtain approval for claim payments over $100,000. as required. Id. at ¶ 31. Conseco also offers evidence suggesting AFS failed to maintain and provide adequate records for the fiduciary account. Id. at ¶ 28.
Fourth, Conseco alleges AFS failed to perform other administrative services. Cmplt. ¶¶ 13(o), 33. AFS points to the fact Conseco's corporate designee had no knowledge or information regarding this alleged breach. AFS Facts at ¶ 49. Conseco offers evidence to show AFS failed to provide "5500" forms for Golden Sky Systems, Inc. Conseco Add. Facts at ¶ 32. Furthermore, Conseco offers evidence to show AFS failed to process claims, which were found in the office of John Ahrens' brother when Conseco took over the administration of the stop loss business. Id. at ¶ 34. Conseco offers sufficient evidence to support each of its breach of contract claims.
I. Conversion
Conseco contends AFS is liable for converting funds from the fiduciary and claims accounts. To establish conversion, Conseco must prove: (I) AFS' unauthorized and wrongful assumption of control, dominion, or ownership over Conseco's property; (2) Conseco's right in the property; (3) Conseco's right to the immediate possession of the property, which is absolute and unconditional; and (4) Conseco's demand for possession. Sutherland v. O'Malley, 882 E.2d 1196, 1200 (7th Cir. 1989).
AFS asserts Conseco's conversion claim fails as a matter of law because several of Conseco's allegations negate the claim. Conseco alleges AFS withdrew funds from a fiduciary account and a claims account over which AFS had "custody and control . . . as part of its . . . responsibilities; [and] . . . maintains custody and control . . . to the present day." Cmplt. at ¶¶ 12, 22. AFS contends this allegation acknowledges AFS was contractually responsible for maintaining custody and control of the accounts and thus disproves that AFS' control was wrongful.
It is true Conseco gave AFS control over the fiduciary and claims accounts, but the control was limited. It is undisputed the funds were to be used for specific purposes. Conseco offers evidence to show AFS did not use the funds for the agreed purposes. Conseco Resp. To AFS Facts, Ex. 2 at ¶ 9. Therefore, AFS' control over the funds could be found to be unauthorized and wrongful. See Roderick Development Investment Co., Inc. v. Community Bank of Edgewater, 282 Ill. App.3d 1052, 1064 (1996) (citing Unified Services, Inc. v. Home Insurance Co., 218 Ga. App. 85, 88 (1995)) (conversion can be established when a defendant fails to transfer money given to it for a specific purpose).
AFS cites DeKalb Bank v. Purdy, 562 N.E.2d 1223 (Ill.App.Ct. 1990) and Kerwin v. Balhatchett, 147 Ill. App. 561 (1909) to stand for the proposition that plaintiffs cannot pursue an action for conversion when the money at issue was given to the defendant for a particular purpose. These cases dealt with trover, not conversion. Thus, they are not controlling.
Conseco points out that its conversion action is also based on documents and files that AFS refused to return on demand. AFS asserts Conseco offers no evidence to show these records belonged to Conseco. This contention is unpersuasive. Conseco offers evidence to support a reasonable inference the documents belonged to Conseco. Conseco Add. Facts at ¶¶ 29, 35-36.
AFS further contends bank accounts may not be the subject of a conversion action. However, the funds in the bank accounts is at issue. Money can be converted under Illinois law if the money is specified in an identifiable fund. Roderick Development Investment Co., Inc., 282 Ill.App.3d at 1058. See also South Central Bank and Trust Co. v. Citicorp Credit Services, Inc., 811 E.Supp. 348, 353 (M.D. Ill. 1992). The money Conseco claims AFS converted is from identifiable funds: the fiduciary and the claims accounts.
The requirement that a plaintiff must specify the amount of money allegedly converted is more problematic. The funds at issue were established to pay benefits to entities other than Conseco. See Cmplt. at ¶ 12. See also Cmplt. at ¶ 1 (alleging AFS was required to pay health insurance claims from funds it converted); ¶ 2b (alleging conversion of money paid in trust to be used for insurance claims); ¶ 13j (identifying AFS' obligation to maintain a claims account to pay claims and benefits).
Conseco does not offer evidence to establish an identifiable amount of money it is owed from these funds. Conseco merely alleges it has been damaged "in an amount to be determined at trial, but which is at least $10,000,000." Cmplt. at ¶ 55. "Where the plaintiffs right is merely to an indeterminate sum of money, a conversion action cannot successfully be maintained." Sutherland v. O'Malley, 882 F.2d 1196, 1200 (7th Cir. 1989) (citing Mid-America Fire Marine Ins. Co. v. Middleton, 82 Ill.Dec. 555, 559 (1984)) (internal quotations omitted). When indeterminate sums of money are at issue, a defendant may be held liable for debt rather than conversion. Id; See also Roderick Development Investment Co., Inc., 282 Ill.App.3d at 1058. Due to the fact that other entities admittedly have claims to a portion of the funds, the amount owed to Conseco is indeterminate. See Sutherland 882 F.2d at 1200-1201. Accordingly, summary judgment in favor of AFS is appropriate on Conseco's conversion claim.
J. Costs of Administering the Medical Stop Loss Business
Conseco claims damages in excess of $600,000 for costs incurred in administering the medical stop loss business. AFS contends Conseco cannot recover under this theory because Conseco voluntarily assumed the duty of administration of the medical stop loss business. However, Conseco's claim is not based simply on taking over administration of the business, but rather on AFS' actions during the transition. Conseco offers evidence to show AFS was contractually required to cooperate in the transition, and AFS' refusal to do so increased Conseco's expenses. Conseco Additional Facts at ¶ 36. Accordingly, a reasonable jury could find for Conseco with respect to its claim for costs associated with its administration of the medical stop loss business.
K. Claims Relating to State Regulatory Violations
AFS offers evidence to show Conseco participated in wrongdoing by not filing medical stop loss treaties and policies for state approval within states where approval is required. AFS Facts at ¶¶ 62-69. AFS further contends the funds that is allegedly owed are the product of a nationwide illegal enterprise to which AFS was an "unwitting partner."
1. Abstention
Conseco contends this court must refrain from hearing AFS' claims pertaining to alleged violations of state insurance regulations based on Burford abstention principles. See Burford v. Sun Oil Co., 319 U.S. 315 (1943). Under Burford, federal courts may refrain from hearing claims when: (1) they involve "difficult questions of state law bearing on policy problems of substantial public import whose importance transcends the result in the case at bar . . ." and (2) federal review "would be disruptive of state efforts to establish a coherent policy with respect to a matter of substantial public concern." International College of Surgeons v. City of Chicago, 153 F.3d 356, 362 (7th Cir. 1996) (citingQuackenbush v. Allstate Ins. Co., 517 U.S. 706, 726-27 (1996)) (internal quotations omitted); Kendall-Jackson Winery, Ltd. v. Branson, 82 F. Supp.2d 844, 861 (M.D. Ill. 2000). The Burton abstention doctrine only applies when equitable or discretionary relief is sought. Quackenbush, 517 U.S. at 730. AFS seeks monetary damages. Therefore, this court must exercise jurisdiction over AFS' claims regarding state insurance regulations.
2. AFS' Damages
Conseco contends AFS cannot recover on its counterclaims to the extent they are based on Conseco's alleged non-compliance with state insurance regulations. Specifically, Conseco asserts AFS has failed to offer sufficient evidence to establish damages based on these alleged violations. AFS fails to offer any evidence from which any specific damages can be discerned. At most, AFS claims to have been exposed to some speculative risk of action by regulatory authorities. This unsupported claim is insufficient to withstand summary judgment. Accordingly, AFS' counterclaims must be dismissed to the extent they are based on Conseco's alleged failure to comply with state insurance regulations. 3. In pari delicto
Conseco's argument pertaining to the Employee Retirement Income Security Act ("ERISA") is moot.
AFS asserts the equitable defense of in pari delicto. Protection of the public is the intended purpose of this defense. Stevens v. Rooks Pitts and Poust, 289 Ill. App.3d 991, 999 (1997). This defense bars recovery when the plaintiff "has participated in some of the same sort of wrongdoing as the defendant." Pinter v. Dahl, 486 U.S. 622, 632 (1988). When both parties have engaged in wrongdoing, a court typically will leave both parties where it finds them. Stevens, 289 Ill.App.3d at 999. However, courts will not apply this defense to bar the claims of a guilty plaintiff when doing so would detrimentally affect the public. Id.
AFS' sole basis for this defense is Conseco's alleged violations of state insurance laws. Even if AFS could establish its claim, the defense of in pari delicto would not apply. AFS' allegations of Conseco's wrongdoing involve technical violations of state insurance laws. In contrast, Conseco's claims involve, in part, AFS' misappropriation of funds belonging to the public. If Conseco establishes its claims, barring Conseco's recovery would essentially enable AFS to obtain a windfall. In comparing the nature of the parties alleged wrongdoing, barring AFS' liability would detrimentally affect the public. AFS' affirmative defense must be dismissed.
CONCLUSION
The cross-motions for partial summary judgment and dismissal are granted in part and denied in part. Conseco's motion for summary judgment is granted for the following: (1) fraudulent misrepresentation claims relating to software application; (2) AFS' affirmative defense; and (3) claims involving alleged state regulatory violations. Conseco's motion is denied for the following: (1) breach of contract claims regarding fees at risk and (2) negligent and fraudulent misrepresentation counterclaims based on Conseco's efforts to procure reinsurance.
AFS' motion for summary judgment is granted for the following: (1) all claims pertaining to fees at risk; (2) defamation; (3) conversion of funds in fiduciary and claims accounts; and (4) some of Conseco's disparagement claims. AFS' motion is denied for the following: (1) all CGRM's breach of contract claims; (2) Conseco's disparagement claims pertaining to AFS' statement about pending requests; (3) tortious interference with contractual relations and prospective economic benefit; (4) breach of the software agreement; and(5) claims regarding the costs of administering the medical stop loss business.