M.G. Skinner and Associates Insurance Agency, Inc. and Western Consolidated Premium Properties, Inc., Plaintiffs-Appellants,
Norman-Spencer Agency, Inc., Defendant-Appellee.
January 14, 2016
from the United States District Court for the Northern
District of Illinois, Eastern Division. No. 12-cv-3481 -
Robert W. Gettleman, Judge.
Flaum and Ripple, Circuit Judges, and Peterson, District
PETERSON, DISTRICT JUDGE.
case arises out of a complex insurance transaction that ended
badly because the supposed insurance turned out to be a
complete fraud. Despite the complexities of the broader
transaction and the litigation that it spawned, this appeal
presents, essentially, a single question: whether
Norman-Spencer Agency, Inc., an Ohio insurance agency, owed a
duty to M.G. Skinner and Associates Insurance Agency, Inc.
and Western Consolidated Premium Properties, Inc., two
entities that had engaged a chain of sub-brokers to procure
insurance for a vast collection of real property.
Skinner and Associates and Western Consolidated Premium
Properties, plaintiffs-appellants here, contend that
defendant-appellee Norman-Spencer Agency was one of the
sub-brokers in the chain, and thus it owed them a duty of
reasonable care in procuring the insurance, which
Norman-Spencer Agency breached by failing to point out
obvious signs that the ultimate provider of the insurance was
dishonest. But according to Norman-Spencer Agency, it was
never asked and it never agreed to procure insurance for
plaintiffs-appellants, and thus it owed them no duty. The
district court agreed with Norman-Spencer Agency, and in
separate orders, granted summary judgment in its favor,
against each plaintiff-appellant. We agree with the district
court and affirm both orders.
Norman-Spencer Agency, Inc., which we will call
Norman-Spencer, is an Ohio-based insurance agency. We will
leave Norman-Spencer to the side for the moment and begin the
story with appellants.
Western Consolidated Premium Properties, Inc. (WCPP), a
California corporation, is a risk purchasing group through
which the owners or managers of commercial property can
purchase insurance. Appellant M.G. Skinner and Associates
Insurance Agency, Inc. (MGSA), also a California corporation,
is an insurance broker that acts as the program administrator
for WCPP. Michael Skinner is the sole shareholder of both
WCPP and MGSA. WCPP and its affiliated broker MGSA represent
more than 600 commercial properties, including office
buildings, shopping centers, and residential complexes. The
total insured value of these properties is nearly $3.5
2011, MGSA sought renewal coverage for the WCPP properties.
MGSA contracted with MC Risk Services, LLC (MC Risk), a Texas
insurance broker specializing in hab-itational and commercial
real estate, to procure the renewal insurance for WCPP. Jed
Morash was co-owner of MC Risk. Insurance placements as large
as this one commonly involve sub-brokers. In this case, MC
Risk engaged National Condo & Apartment Insurance Group
LLC (NCAIG), an Ohio insurance broker. NCAIG's sole
member is Kenneth Littlejohn. NCAIG had previous
insurance-placement experience with Michael A. Ward and his
company JRSO, LLC. By November 1, 2011, Littlejohn and Morash
intended to place the WCPP coverage with JRSO. The chain of
brokers was thus complete: from MGSA, to MC Risk, to NCAIG,
and ultimately to Ward and JRSO, who would provide the
that Ward and JRSO did not provide insurance. As it turns
out, Ward had created a fictitious insurance policy for WCPP
that was not actually backed by a legitimate insurer. Ward
was convicted of wire fraud, sentenced to 10 years in prison,
and ordered to pay more than $9 million in restitution to
various victims of his fraud, including WCPP.
that's the main arc of the story. To fit Norman-Spencer
in, we must backtrack and add some details.
the property groups in the WCPP program was Myan Management
Group, representing dozens of commercial and multi-unit
residential properties in the southwest. The Myan properties
had a history of losses, and Morash (at MC Risk) thought that
cheaper coverage could be obtained by splitting the Myan
properties off from the main WCPP group. So, with
Littlejohn's advice, MGSA and MC Risk agreed to place
Myan Management directly with JRSO for insurance. The Myan
Management coverage was bound effective October 1, 2011, the
premium was invoiced on October 4, and paid on November 3.
But this coverage was also fictitious.
previous deals in which NCAIG had worked with Ward and JRSO,
they had used Mulberry Insurance Services as program
administrator. But Mulberry's work had been
unsatisfactory, so NCAIG's Littlejohn recommended to Ward
that he replace Mulberry with Norman-Spencer as program
Littlejohn, and Norman-Spencer's president, Brian Norman,
met on November 11, 2011, to discuss Norman-Spencer's
potential retention as the JRSO program administrator.
Following that meeting, Norman drafted a document titled
"Memorandum of Understanding" that purported to
outline the agreement between Ward and Norman. Among the
terms of this agreement was that Norman-Spencer would issue a
backlog of approximately 64 already-bound policies in
exchange for $25, 000, and that going forward, Norman-Spencer
would underwrite and issue policies for the JRSO program. The
memorandum of understanding was never signed, but
Norman-Spencer was paid the $25, 000 and began issuing the
backlogged policies. The 64 backlogged policies included Myan
Management's coverage, but not WCPP's.
pushed to be involved in more business with Ward. But
whatever the terms of Ward and Norman-Spencer's November
11, 2011, agreement, Ward did not allow Norman-Spencer to be
involved in the WCPP placement. In December 2011, Norman and
Littlejohn (for NCAIG) discussed Norman-Spencer accepting a
reduced commission to convince Ward to allow Norman-Spencer
into the WCPP placement. But Ward never let Norman-Spencer
into the deal. Littlejohn said this was because Ward thought
the margin would be "too thin" if Norman-Spencer
earned a commission on the placement.
the way, Norman became aware of facts that MGSA and WCPP
contend should have been "red flags" showing
Ward's lack of trustworthiness. In November 2011, Norman
discovered an order of conservation issued against Ward and
JRSO by the Circuit Court of Cook County that Norman thought
could cause concern about Ward's ability to bind
coverage. Norman knew that Ward worked out of his home
following the order of conservation's provision
confiscating JRSO's property. When Norman asked Ward for
a copy of Ward's reinsurance agreement, Ward delayed for
over a month before producing a signed agreement, and even
then, that agreement had irregularities that might have made
it suspicious. But Norman-Spencer did not inform WCPP or MGSA
about these problems.
December 2011, MC Risk gave WCPP a quote for the renewal
coverage on JRSO letterhead, stating that Ward and JRSO had
obtained coverage for WCPP. WCPP accepted the quote and paid
more than $1.3 million as an initial installment of the
premium. In the process, at least four insurance proposals
were prepared for the WCPP coverage under the JRSO program.
The various proposals were prepared on the letterheads of MC
Risk, NCAIG, North American Capacity Insurance Company, and
JRSO. None of the proposals or any pricing information came
through Norman-Spencer. MC Risk and NCAIG each received a
commission from the premium; Norman-Spencer did not.
Ward's fraud was discovered, the Myan Management coverage
was reincorporated into the WCPP placement. MGSA and WCPP
ultimately procured new insurance that cost more than ...