In Westport Insurance Corp. v. M.L. Sullivan Insurance Agency, Inc., No. 15 C 7294, 2017 U.S. Dist. LEXIS 1527 (N.D. Ill. Jan. 5, 2017), an Illinois federal district court underscored the importance of a policy’s damages requirement when it granted judgment on the pleadings in favor of Westport Insurance Corporation and against its insured M.L. Sullivan Insurance Agency.
In the underlying suit, American Inter-Fidelity Exchange (AIFE) alleged Sullivan and one of its employees provided false information about insurance premiums due and requested damages representing the difference in premium amounts AIFE lost. As background, Sullivan had served as a broker and acquired from AIFE insurance for trucking and interstate transportation companies. Notably, Sullivan reported information about the power units and miles driven, and AIFE set premium amounts based on the information it had received from Sullivan. Sullivan, however, allegedly misrepresented the insureds’ information, leading AIFE to believe it was owed a lower premium amount, whilst Sullivan kept the difference between what the insured paid Sullivan and what Sullivan tendered to AIFE.
Sullivan sought a defense from Westport and, in response, Westport brought a declaratory action seeking a determination that it was not required to defend or indemnify Sullivan. Sullivan’s Professional Liability Insurance Policy issued by Westport provided coverage for claims that “seek damages arising from a wrongful act.” The policy then defined “damages” as excluding “reimbursement or return of premiums or funds” for professional services rendered by Sullivan.
In granting Westport’s motion for judgment on the pleadings, the district court concluded that AIFE’s complaint failed to satisfy the policy’s definition of damages. While the complaint alleged Sullivan’s misreporting of information was a negligent act, and thus a “wrongful act,” the recovery sought in the complaint was not within the policy’s definition of damages because it explicitly excluded “reimbursement or return of premiums.” Sullivan tried to assert that AIFE’s request for compensatory damages involved more than just the withheld premium payments and also included damages for “lost profits, lost business, damage to good will and reputation.” Nonetheless, the district court saw through the argument and reasoned that AIFE brought the suit in order to recover the wrongfully withheld premiums. The district court was also nonplussed by Sullivan’s argument that AIFE’s inclusion of the phrase “all such further and other relief” was something other than mere boilerplate language. As such, AIFE’s complaint failed to seek damages within the purview of the policy.
This case reminds insurers and insureds alike that not only must a complaint contain allegations of wrongdoing that would potentially fall within the policy’s coverage, the complaint must also seek a type of relief covered by the policy.