West Bend Mutual Insurance Co v. Procaccio Painting & Drywall C
2015 U.S. App. LEXIS 11946
7th Cir.2015Background
- Procaccio Painting purchased workers’ compensation insurance from West Bend; Procaccio qualified annually for a substantial Illinois Contracting Classification (ICC) premium credit calculated post-renewal by the National Council on Compensation Insurance.
- West Bend initially estimated Procaccio’s annual premiums and routinely issued endorsements later to apply the ICC credit after National Council calculation.
- For 2006, 2007, and 2010, West Bend issued inflated Schedule Modification credits at renewal and later reduced those credits when ICC endorsements issued, effectively offsetting the ICC credit.
- Procaccio denied any oral agreement authorizing this “fronting”/offset procedure; West Bend claimed an oral agreement with Procaccio’s president and relied on its endorsement authority.
- Procaccio audited West Bend’s charges, filed a regulatory complaint, and sued; the district court held the policy was an integrated written contract, barred parol evidence of any oral side agreement, found West Bend breached the policy, and awarded damages plus prejudgment interest.
- On appeal the Seventh Circuit affirmed: the policy was integrated, the offset procedure was not authorized by the written policy or rate filings, equitable defenses failed, and prejudgment interest was properly awarded from the audit dates.
Issues
| Issue | Procaccio’s Argument | West Bend’s Argument | Held |
|---|---|---|---|
| Whether the insurance policy was integrated, barring parol evidence of an alleged oral agreement to front the ICC credit | Policy contains an "only agreements" clause; written policy was the complete expression; oral side agreement inadmissible | Policy’s reservation of future endorsements shows not integrated; oral agreement permitted evidence | Policy was fully integrated; parol evidence of contemporaneous oral agreement barred |
| Whether policy language or endorsements authorized offsetting the ICC credit by reducing the Schedule Modification credit | No contractual language permits offset; ICC and Schedule Modification credits are distinct; offset breached policy | General endorsement authority and ICC endorsement implicitly allowed the temporary inflation and later reduction | No policy provision authorized using the Schedule Modification credit as an offset; insurer failed to show a written basis for the procedure |
| Whether West Bend’s actions complied with its Schedule Rating Plan and Illinois rate-filing obligations | Insurer must justify credits under its filed Schedule Rating Plan; West Bend offered no admissible evidence the lower credits were the "true" ones | Offset preserved final premium conformity and was a premium-stabilization benefit; final premiums conformed to filed rates | West Bend did not produce non-parol evidence showing the Schedule Modification figures were properly set; cannot rely on alleged oral stipulation |
| Applicability of equitable defenses (laches, equitable estoppel) to bar Procaccio’s recovery | Recovery is for breach of contract (expectation damages); laches/estoppel inapplicable where written integrated contract forecloses contemporaneous oral modification | West Bend relied on Procaccio president’s representations and delay; equitable defenses should apply | Laches inapplicable to this legal contract claim; equitable estoppel would undermine the parol-evidence rule and fails |
Key Cases Cited
- J & B Steel Contractors, Inc. v. C. Iber & Sons, Inc., 642 N.E.2d 1215 (Ill. 1994) (integration and parol-evidence principles)
- Gen. Cas. Co. of Ill. v. Carroll Tiling Serv., Inc., 796 N.E.2d 702 (Ill. App. Ct. 2003) (contract integration clause construed)
- Air Safety, Inc. v. Teachers Realty Corp., 706 N.E.2d 882 (Ill. 1999) (latent ambiguity and parol evidence)
- Petrella v. Metro-Goldwyn-Mayer, Inc., 134 S. Ct. 1962 (U.S. 2014) (distinguishing laches and statutory limitations in legal claims)
- Twenhafel v. State Auto Prop. & Cas. Ins. Co., 581 F.3d 625 (7th Cir. 2009) (prejudgment interest under Illinois law on amounts due under written instruments)