Casualty Insurance Co. v. Kendall Enterprises, Inc.

SIXTH DIVISION
March 6, 1998

No. 1-97-1502

CASUALTY INSURANCE COMPANY, ) Appeal from the
) Circuit Court of
Plaintiff-Appellant, ) Cook County
)
v. )
)
KENDALL ENTERPRISES, INC., )
a Corporation and ARTHUR BASTYR, ) Honorable
) Aaron Jaffe,
Defendants-Appellees. ) Judge Presiding.

JUSTICE QUINN delivered the opinion of the court:

Plaintiff, Casualty Insurance Company, filed a complaint for
declaratory judgment against defendants Kendall Enterprises, Inc.
(Kendall), and Kendall's employee, Arthur Bastyr, claiming that
it had cancelled Kendall's workers' compensation policy and
therefore was not obligated to defend Kendall or pay benefits to
Bastyr. The circuit court granted defendant Arthur Bastyr's
motion to dismiss. Plaintiff contends on appeal that the trial
court "erroneously deferred resolution of this insurance coverage
dispute" to the Illinois Industrial Commission (Commission).
The record on appeal consists of one volume of common law
record, which establishes the following. Plaintiff issued a
workers' compensation and employer's liability insurance policy
to Kendall, with effective dates from November 1, 1991, through
November 1, 1992. Following an injury on September 16, 1992,
Bastyr filed with the Commission an application for adjustment of
claim for workers' compensation benefits against Kendall under
case No. 93 WC 46263. He also filed other applications for
adjustment of claim, in No. 93 WC 37819 naming plaintiff as
Kendall's insurer, and naming others who may have been liable if
plaintiff was not the workers' compensation carrier for Kendall.
The matters were consolidated and the parties appeared at an
arbitration hearing before the Commission held on December 30,
1993, March 29, 1994, and March 30, 1994.
The Commission's arbitrator issued a decision on April 20,
1995, and a "corrected" decision on June 22, 1995, finding the
following. Bastyr, who received accidental injuries arising out
of his employment when he fell from planks into the basement of a
home under construction, was an employee of Kendall. Bastyr was
temporarily totally disabled for 75 weeks as a result. The
parties were operating under the jurisdiction of the Workers'
Compensation Act (Act). 820 ILCS 305/1 et seq. (West 1996).
Kendall entered into a contract to perform carpentry work at
the Harbor Ridge Development in Zion, Illinois. The contractor
employing Kendall received a certificate of insurance from
Kendall showing that Kendall was covered by a workers'
compensation insurance policy in effect from November 1, 1991,
through November 1, 1992. An agreed stipulation of facts between
the contractor and plaintiff established that plaintiff issued
policy No. WC-91-033962 to Kendall, and a copy of the certificate
of insurance showing workers' compensation coverage was issued by
plaintiff to the contractor on behalf of the insured Kendall.
At the hearing, plaintiff presented the testimony of
employee Nancy Petroski, who was in charge of issuing,
terminating and cancelling insurance policies. A copy of the
notice of cancellation of the policy because of nonpayment of
premiums which was sent to Kendall was produced with attached
proof of mailing. It was stipulated that a notice of
cancellation was received by the insurance agent, American
Insurance Agency. Petroski testified that after a cancellation
is typed, a copy is kept for their file and a copy is sent to the
National Council on Compensation Insurance (NCCI). NCCI was the
agent of the Commission which compiled and monitored insurance
information. Petroski's log of cancelled policies, prepared for
internal company use, included Kendall's. Her records contained
a "notice of the cancellation that should be sent to the NCCI."
On cross-examination, Petroski admitted that she did not see the
notice mailed and did not have personal knowledge that a notice
of cancellation of the policy was mailed to or received by the
NCCI. Additionally, her file did not contain a stamped copy of a
receipt of notice of cancellation by the NCCI nor did plaintiff
have a standard practice in place to verify the receipt by the
NCCI of a notice of cancellation.
The deposition testimony of Jeanne Whitlock, customer
service manager at the NCCI, established that she was familiar
with the policies in place for an insurance company to file a
policy after it was written and for filing a notice of
cancellation of a policy. After an "exhaustive search" of all
NCCI data bases and microfilms pursuant to subpoena, Whitlock did
not find either an original filing of the policy or a notice of
any filing of a cancellation.
The arbitrator concluded that plaintiff could not provide
conclusive proof of receipt of a notice of cancellation by the
NCCI as required by the statute. The arbitrator determined that
under the strict standard to which an insurance company is held
when it attempts to cancel a policy for the nonpayment of a
premium, plaintiff's evidence did not establish that Kendall's
policy was cancelled pursuant to the Act and Commission rules.
Thus, because plaintiff did not properly cancel its workers'
compensation policy, it remained jointly liable with Kendall for
benefits to Bastyr.
The arbitrator found the following facts in support of his
decision that Kendall was insured by plaintiff under the Act.
The Act states that such insurance shall not be cancelled or
terminated until at least 10 days after receipt by the Commission
of notice of its cancellation or termination. See 820 ILCS
305/4(b) (West 1996). Industrial Commission Rule 7100.50 states
that no termination notice shall be accepted by the Commission or
the NCCI unless filed on a form prescribed and furnished by those
agencies. Such notice shall contain the carrier name, NCCI
carrier code, insured's name and address, federal identification
number, the number and effective dates of the policy, and the
reason for termination. See 50 Ill. Adm. Code 7100.50 (1986).
The arbitrator also found that Kendall's delay in payment
was unreasonable and ordered Kendall to pay $2,500 in penalties.
The arbitrator determined that Bastyr was entitled to $357.20 per
week for a period of 75 and 6/7 weeks for his temporary disabling
condition which had "not yet reached a permanent condition"
pursuant to the Act. Kendall was to pay the further sum of
$16,268.65 for necessary medical, surgical and hospital services.
The arbitrator found in addition that plaintiff was guilty
of "unreasonable and vexatious conduct" by offering in writing to
pay Bastyr $4,466.66 in consideration for delaying the hearing of
his case. Plaintiff had not paid the agreed upon sum at the time
of the hearing. Plaintiff was ordered to pay $13,903.62 as a
penalty for its conduct, and attorney fees of $2,780.20. The
arbitrator's decision of June 22, 1995, concluded that unless a
petition for review was filed with the Commission within 30 days,
the decision would be entered as the decision of the Commission.
Plaintiff filed a complaint for declaratory judgment in the
circuit court of Cook County on March 29, 1996, claiming that it
was not liable under its policy WC91-33962 for Bastyr's claim
"pending as cause No. 91 WC 8403 in the Illinois Industrial
Commission" and was not liable for benefits to Bastyr regarding
the September 16, 1992, accident. Plaintiff alleged that it
cancelled Kendall's insurance policy for nonpayment of premium
effective June 3, 1992, mailed notification of the cancellation
to Kendall's insurance agent and to the NCCI. Plaintiff attached
a copy of the notice of cancellation forwarded to Kendall and a
copy of the notice of cancellation allegedly forwarded to the
NCCI.
Defendant Bastyr filed a motion to dismiss the complaint
pursuant to section 2-619 of the Civil Practice Law (735 ILCS
5/2-619 (West 1996)), claiming that plaintiff had been made a
party to case No. 93 WC 37819 before the Commission, and had
appeared, presented evidence and defended the coverage issue.
Questions of fact had already been determined by the Commission
which established plaintiff's liability for claims. Defendant
stated that petitions for review had been filed and were pending
before the Commission and attached an order of the Commission
setting a briefing schedule listing filing dates of May 15, 1996,
and 15 days following for responses. Defendant contended
therefore that although the circuit court had primary
jurisdiction, it should decline to grant declaratory relief and
the matter should be referred to the Commission for findings.
The court granted defendant's motion to dismiss plaintiff's
complaint and denied plaintiff's motion for reconsideration.
Plaintiff appeals, contending the court erred. Plaintiff
characterizes the issue as a question of law which the court
should have determined. Defendant contends that the Commission
properly determined the question of fact, plaintiff's improper
cancellation, which resolved the issue.
A reviewing court will determine the propriety of the
granting of a motion to dismiss de novo. Toombs v. Champaign,
245 Ill. App. 3d 580, 583 (1993). The purpose of a motion to
dismiss under section 2-619 of the Civil Practice Law (735 ILCS
5/2-619 (West 1996)) is to dispose of issues of law and easily
proved issues of fact at the outset of a case. Zedella v.
Gibson, 165 Ill. 2d 181, 185 (1995). The question on appeal is
"whether the existence of a genuine issue of material fact should
have precluded the dismissal or, absent such an issue of fact,
whether dismissal is proper as a matter of law." Kedzie & 103rd
Currency Exchange v. Hodge, 156 Ill. 2d 112, 116-17 (1993).
The circuit court and the Commission had concurrent
jurisdiction over questions arising under the Act. See Employers
Mutual Companies v. Skilling, 163 Ill. 2d 284, 287 (1994). Under
the doctrine of primary jurisdiction, a court should refer a
matter to an administrative agency when it has special expertise
to help resolve the controversy or where there is a need for
uniform standards. Skilling, 163 Ill. 2d at 288-89. A ruling on
a question of law, which could "foreclose needless litigation,"
is best addressed by the circuit court. Skilling, 163 Ill. 2d at
289.
Despite plaintiff's contention that its complaint for
declaratory judgment presented a question of law and did not
raise a question of fact, the complaint asserted that plaintiff
cancelled Kendall's policy and mailed notification of the
cancellation to Kendall, to Kendall's insurance agent, "and to
the NCCI." The complaint stated that plaintiff had no duty to
defend Kendall or provide any workers' compensation benefits to
Bastyr because the policy had been cancelled before Bastyr's
injury. These issues had been decided against plaintiff by the
Commission's arbitrator following a hearing at which plaintiff
presented evidence and attempted to defend its position. In
effect, plaintiff is actually contesting the administrative
findings of fact regarding this issue, which were properly
determined by the Commission. See Textile Maintenance v.
Industrial Comm'n, 263 Ill. App. 3d 866, 870 (1994); see also
Parro v. Industrial Comm'n, 167 Ill. 2d 385, 396 (1995)
(Commission's role is to judge credibility, weigh evidence, draw
appropriate inferences and accept one party's evidence); Gano
Electric Contracting v. Industrial Comm'n, 260 Ill. App. 3d 92,
95 (1994) (on review, all findings of Commission including
whether a notice was timely will not be disturbed unless against
the manifest weight of the evidence); Rush-Presbyterian-St.
Luke's Hospital v. Industrial Comm'n, 258 Ill. App. 3d 768, 772,
774 (1994) (Commission's findings of fact given great deference).
This case is procedurally distinct from Skilling, where the
Commission had not made factual findings regarding the issue and,
unlike plaintiff in our case, the insurance company contested the
authority or jurisdiction of the Commission to hear the case.
See Employers Mutual Companies v. Skilling, 256 Ill. App. 3d 567,
569-70 (1994). Here, plaintiff's complaint contained assertions
of fact regarding whether it had effectively cancelled Kendall's
insurance policy. The Commission had held a hearing over several
days, heard evidence and issued findings of fact contrary to
plaintiff's position. In addition, the cause was still pending
on review before the Commission when plaintiff filed its
complaint. Thus, we find no error in the court's dismissal of
plaintiff's complaint for declaratory judgment.
Accordingly, we affirm the judgment of the circuit court.
Affirmed.
GREIMAN and ZWICK, JJ., concur.