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Breach of contract claim for unissued comp policy may proceed



An insurer's claim for breach of contract against Travelers Cos. Inc. in a dispute over an unissued workers compensation policy may proceed, a district court hero Friday.

The U.S. District Court of the Illinois District dismissed Westport Insurance Co.'s claims for promissory estoppel and reformation, but found that a jury would need to decide on an exchange between an agent and an underwriter for New York City-based travelers constituted a valid contract in Westport Insurance Corp. by Travelers Indemnity Co

Overland Park, Kansas-based Westport, now a subsidiary of Swiss Re Corporate Solutions, filed a complaint against Travelers after it was settled in a confidential lawsuit with an injured employee of R&H Muffler Co., a Midas franchise in Crest Hill, Illinois, as its errors and omissions insurer, in exchange for an assignment from R&H or any claims against Travelers.

When R&H realized its workers comp coverage had lapsed in 201

3, it contacted an agent who, on Oct. 9, 2013, submitted the companyâ € ™ s request for coverage and supporting rating information for a policy with an immediate effective date through Travelers ’I system. The I-unit system generates a draft proposal for an insurance policy at a quoted premium. For proposals covering small risks, the system will allow the agent to issue the policy and bind Travelers, but larger risk proposals were referred to as an underwriter.

The agent submitted a draft proposal with an annual premium of almost $ 20,000, and the policy was referred to an underwriter. The agent claimed that the entity allows agents to mark proposals "for issue," meaning that a policy would immediately issue an underwriter approved the proposal. However, a traveler underwriter testified that a policy would never issue until an agent explicitly placed an order to bind coverage. An underwriter can do so through the system or verbally. Travelers underwriters use a separate system to track proposals that have been approved but not as a reminder to follow up with agents about their proposals.

The underwriter sends the agent back and six-page proposal identical to the draft proposal except for a correction to R & H's legal name. The agent thanked here via email and notified R&H that he had secured coverage from Travelers. However, no policy was issued and R&H was never billed for a premium.

On Nov. 15, 2013, one of R & H's employees was injured on the job. The company tendered the claim to Travelers, which denied it because there was no policy. The agent reached out to Travelers and insisted that the agency had bound the workers comp policy in October. The underwriter said that the agent had not covered coverage, but offered to provide retroactive coverage if the agent submitted a "no known loss" letter confirming that R&H did not incur any workers compensation losses between Oct. 9 and Nov. 18, which the agent could not submit. Travelers issued R&H effective policy Dec. 13 after the agency submitted a draft proposal and the agent instructed the underwriter to issue the proposal along with a commencement date and provided billing instructions.

Westport argued that the Oct. 9, 2013, exchange between the agent and the Travelers underwriter formed a contract, and that Travelers had therefore breached that by failing to issue the policy.

Travelers argued that for high-risk policies like the one for R&H, the agent receives a draft proposal, which is then referred to an underwriter who responds with an authorized proposal, and that the agent must agree to the proposal by ordering Travelers to bind coverage. Travelers argued that the underwriter emailed the offer proposal, but that the agent failed to accept and order the issuance of the policy.

The district court noted that in Illinois, an order to constitute a contract with offer and acceptance, "the acceptance must conform to the sacrifice. ”The court found it undisputed that the underwriter's proposal did not match the agent's original draft proposal because she corrected the business name. The court noted that the evidence could be found at the agent's response of "Ok thanks" to the underwriter's coverage proposal so that his email constituted acceptance of the policy, but also found that too many questions of fact remained that included the

The court, however, granted Travelers motions for summary judgment on Westport's claims of promissory estoppel and reformation.

Neither Travelers nor Westport could be reached for comment.


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