Articles Posted in Breach of Contract

An insurance company defended a construction firm against a claim by a condo association for defective design and construction of a building, as it thought the claim arose during the company’s policy period. The insurance company was not estopped from later denying payment for the claim when it was discovered that the claim had in fact arisen 10 years before the policy went into effect.

In 2002, the Blue Moon Lofts Condominium Association filed a complaint against The Structural Shop, Ltd in Illinois state court seeking damages arising out of TSS’s allegedly defective design and construction of a building. Blue Moon served notice of action to TSS’s registered agent, Thomas Donohoe on November 2002. TSS never responded to the notice or appeared in the state court action to defend itself, leading in May 2003 to the state court declaring the company in default. In 2009, the state court entered a default judgment and set the damages amount at $1,356,435 plus costs.

Many years later, Essex Insurance Company sold TSS a policy for claims first made against TSS from May 2012 to May 2013. Essex knew nothing about the prior litigation. For a time, both TSS and Essex believed that Blue Moon had failed to properly serve TSS in 2002, and thus had first brought notice of the claim to TSS in 2012 when it attempted to collect the default judgment. Laboring under this mistaken belief, TSS petitioned the state court to vacate the default judgment. The court granted the motion and vacated the judgment. TSS then informed Essex of the developments and Blue Moon’s claim. Essex, unaware that Blue Moon had properly served TSS in 2002, considered the claim to have arisen during the policy period and thus acted on its duty to defend TSS. Continue reading ›

In most cases, when an insurance company has a duty to defend an insured, the insurance company gets to pick the attorney that defends the business or individual being sued. Insurance companies often use what is known as “panel counsel,” an attorney or law firm that an insurance company regularly uses to represent its insureds.  Many times, the interests of the insurance company and the insured are aligned: resolve the case for the least amount of money possible. But sometimes a conflict of interest exists that causes their interests to diverge. In such instances, the insured is generally entitled to select its own attorney and the insurance company still has to pay the reasonable cost of defense. What circumstances constitute a conflict of interest though? In Xtreme Protection Services, LLC v. Steadfast Ins. Co., the First District found that the possibility of a large award of punitive damages created a conflict of interest that entitled the insured to select its own independent attorneys.

In October 2016, Xtreme Protection Services, LLC (“Xtreme”) was named as a defendant in a lawsuit filed by David Isreal which alleged claims of assault and intentional infliction of emotional distress among other causes of action. The plaintiff alleged that Xtreme, acting though one of its employees, placed listening devices in Mr. Isreal’s office, attached GPS devices to his vehicle, and sent him numerous harassing text messages. The plaintiff sought compensatory damages of $120,000 and more than $4 million in punitive damages.

Xtreme, a security services company, had an “armed security services” liability policy issued by Steadfast Insurance Company (“Steadfast”). The policy included an indemnity for bodily injury and property damage but expressly excluded coverage for intentional conduct and punitive damages. After being sued, Xtreme retained an attorney who tendered the complaint to Steadfast for coverage. Steadfast advised that it would retain its own counsel to defend Xtreme. Steadfast then retained counsel for Xtreme under a reservation of rights based on the punitive damages exclusion and on the basis that the underlying complaint alleged intentional conduct. Xtreme notified Steadfast that it did not want to be represented by Steadfast’s selected counsel due to a conflict of interest between Steadfast and Xtreme.

Xtreme later filed suit against Steadfast seeking a declaration that Xtreme was entitled to select its own counsel because of the conflict of interest caused by the possibility of a large punitive damages award. Steadfast sought its own declaration that it no longer had a duty to defend Xtreme because Xtreme had breached its duty to cooperate with Steadfast. After cross-motions for judgment on the pleadings, the trial judge found that the conflict of interest caused by the potential of a large punitive damages award in the underlying lawsuit entitled Xtreme to select its own counsel. Continue reading ›

Contracts are ubiquitous. Every company is a party to numerous different contracts. Leases, purchase agreements, vendor agreements, supply contracts, and employment agreements are just a few of the contracts that a company typically enters in the normal course of business. The parties to a contract expect the other to live up to its obligations as set forth in the written contract. One important rule that many companies and business owners are not aware of, however, is that oral modifications to the terms of a contract can trump the written obligations in a contract, even if the contract expressly prohibits oral modifications.

The recent case of Miller UK Limited v. Caterpillar Inc. demonstrates the significant consequences of this rule. In Miller, the parties entered a written agreement in which Miller agreed that it would “not disclose to Caterpillar any confidential or proprietary information unless our two companies otherwise first agree in writing.” Subsequently, at a meeting between the companies, the parties orally agreed to keep any information shared at the meeting confidential. At that same meeting, Miller shared confidential and proprietary information with Caterpillar concerning technical specifications for a coupling system Miller had developed which allowed earthmover and excavator vehicles to attach shovels, buckets, and other attachments to their mechanical arms quickly without requiring the vehicle operator to leave its cab. Caterpillar later developed its own coupling system that was similar to Miller’s system.

Miller sued Caterpillar for breach of contract and violation of the Illinois Trade Secret Act (“ITSA”). A jury ultimately awarded Miller $16 million on its breach of contract claim and $74.6 million on its ITSA claim. After trial, Caterpillar sought to have the verdict vacated. Caterpillar argued that none of the information Miller shared at the meeting could be considered confidential because the parties’ written contract prohibited sharing confidential or proprietary information without first entering a written nondisclosure agreement. Consequently, Caterpillar argued, because the information was shared without such an agreement, Miller could not as a matter of law prove a trade secret misappropriation claim under ITSA—as proof that the plaintiff took appropriate steps to keep a trade secret confidential is a requirement of an ITSA claim. Continue reading ›

Two companies entered into an exclusive distribution agreement for a medical bed that was marketed to hospitals and long term care facilities. The agreement contained a provision automatically extending the exclusivity period if the distributor agreed to purchase at least $200,000 of beds in 2011. Though the CEO of the distributor orally agreed to purchase $800,000 worth of beds in December 2010, the manufacturer still attempted to cancel the agreement six months later and enter into an exclusive agreement with a competitor of the distributor. The court found that damages from this breach were foreseeable and consequential under New York law, and awarded the distributor just over $1 million as a result.

VitalGo manufacturers a hospital bed called the Total Lift Bed that can incline to a near 90-degree angle with the occupant harnessed and upright. The bed is used by hospitals when treating obese and elderly patients. The most expensive models of the bed can exceed $10,000. Kreg Therapeutics, Inc. sells and rents specialty medical equipment to medical providers. It sought a distribution arrangement with VitalGo for the beds.

The companies negotiated and entered into an agreement in December 2009. Kreg received exclusive distribution rights in Indiana, Illinois, Wisconsin, and Atlanta, Georgia. The exclusivity lasted until 2011, but the contract provided for an extension of the period. Kreg could obtain an extension by choosing to make a minimum purchase commitment of $200,000 in each of its four territories before January 2011. If Kreg did so, the exclusivity period automatically extended for an additional year. Six months after signing the initial agreement, the two companies added an amendment. The amendment granted Kreg exclusivity in several new territories, including parts of Florida, New Jersey, and St. Louis, Missouri. Kreg gained exclusivity in these territories through May 2012. The amendment did not, however, specify whether the new date applied to the original territories as well.

In June 2011, Ohad Paz, VitalGo’s CEO and Managing Director, emailed Craig Poulos, Kreg’s President, complaining that Kreg had not performed under the contracts as required to maintain exclusivity. Kreg responded that it was willing to make minimum purchase commitments for the remainder of 2011, but that it wanted an update on design problems that Kreg had raised with VitalGo. A week later, RecoverCare, a competitor of Kreg, issued a press release announcing a nationwide exclusivity arrangement for the TotalLift bed. VitalGo and RecoverCare entered into a multi-year agreement in August 2011. In September 2011, Kreg requested five new beds from VitalGo, and VitalGo refused to fill the order. Kreg then filed suit. Continue reading ›

When officers of a corporation misrepresented the capacity of the corporation to meet requirements of an RFID manufacturing project, the district court allowed some claims for breach of contract, quantum meruit, and unjust enrichment to proceed. The court also dismissed some claims against the individual officers of the corporation, based on questions regarding the existence of valid contracts between the client and the officers.

A-1 Packaging Solutions, Inc. is a corporation that selects and provides RFID (Radio Frequency Identification) technologies from a variety of manufacturers to provide custom solutions for customers. Fiberteq hired A-1 to design an asset and inventory tracking system for its facility in Danville, Illinois. A-1 contacted several manufacturers and distributors who provided the relevant technology, in search of options to complete the system.

Dr. William Davidson and Jan Svoboda, the Chief Technology Officer and President of Firefly RFID systems, were one company contacted by A-1. In response, Davidson and Svoboda told A-1 that Firefly had expertise in RFID hardware and deployments, and had the capability to build the system that A-1 had designed. As part of the negotiation, A-1 specified to Firefly that any rights to the software created by Firefly were required to be transferred to A-1. Firefly agreed. A-1 then retained Firefly to assist in designing and building the RFID system for Fiberteq. Continue reading ›

Where an agreement between two corporations specified that the parties were required to obtain subrogation waivers for enumerated insurance policies, and the claim was later made to the insurance company under a non-listed type of policy, the insurance company was entitled to recover the amount paid out under claim from the liable party.

ArcelorMittal leased lift truck tractors from Gallo Equipment Co. under a written contract. The contract was entered into in January 2011. In September 2012, one of the tractors caught fire at one of ArcelorMittal’s steel mills. The tractor was maintained by Arcelor mechanics under the supervision of a Gallo employee, and Arcelor was responsible for the loss. Arcelor offered to compensate Gallo for the loss, but Gallo rejected the offer as too low. Gallo then submitted a claim to its insurer, Travelers Property Casualty Company. Travelers settled the claim for $305,625.

In June 2015, Travelers, as subrogee of Gallo, filed a complaint against Arcelor in the Circuit Court of Cook County for negligence and breach of contract. Travelers later dismissed its negligence claim. Travelers alleged that Arcelor was responsible for any damage to the tractor and that Arcelor was responsible for the cost to replace or repair the tractor. Travelers thus sought recovery for the amount it paid to Gallo. Continue reading ›

Where a construction manager overstated amount in mechanic’s lien by more than 100%, and overstatement consisted of work performed by other contractors that manager did not have a contractual relationship with, the circuit court did not err in granting summary judgment to restaurant owner alleging constructive fraud on part of the construction manager.

In August 2017, MEP Construction filed suit against Truco MP and Randhurst Improvements seeking to foreclose upon a mechanic’s lien and other relief. The complaint alleged that Truco and MEP entered into a verbal contract in April 2014 in which MEP would provide construction management and related services to Truco for the purpose of building out Truco’s restaurant in Mount Prospect, Illinois. MEP alleged that it fully performed the work it was required to perform as of May 2015 and that Truco paid only $612,447.15 of $791,781.16. MEP recorded a mechanic’s lien in September 2015 with the Cook County Recorder of Deeds. Continue reading ›

When a contract dispute arose between two telecommunications companies over the rates charged during the switching process of telephone call transmission, district court committed error in granting partial summary judgment to plaintiff, as it was likely that the same facts and issues would appear before the appellate court in the future after the FCC resolved certain regulatory issues.

Local Exchange Carriers and Interexchange Carriers are types of telecommunications service providers. LECs operate in limited geographical regions, and IXCs transport calls between them, enabling consumers to make long distance telephone calls. IXCs pay a fee in exchange for access to an LEC’s network. These rates are set either by regulatory agencies or in negotiated agreements between the IXC and the LEC.

In February 2009, Peerless Network, a LEC, and Verizon, an IXC, entered into one such agreement. The contract provided for lower rates for certain switching services. If a rate in the agreement did not apply, Peerless billed Verizon at its tariff rates, which were the rates that Peerless had filed with the Federal Communications Commission. In 2013, the relationship between Peerless and Verizon broke down, and Verizon began withholding payment. In September 2014, after negotiations failed to resolve the dispute, Peerless sued Verizon.

Peerless’ complaint alleged several counts, including breach of the Tandem Service Agreement, and breach of federal and state tariffs. Verizon asserted that Peerless was not entitled to the higher rates that it charged, due to its status as an Access Stimulator, which is a LEC that charges high rates to companies engaged in high volume call services, such as adult entertainment calls, chat lines and “free” conference call lines. Such LECs charge high rates to IECs and then pass a portion of the tariff revenue back to the companies that generated the high call volume. In turn, the FCC regulates the maximum rates that LECs meeting this definition can charge. Continue reading ›

Where a beverage distributor fell behind on license payments and failed to hit required annual sales targets, the trial court did not err at trial when it admitted evidence of threats made by a manager at beverage distributor and declined to interrupt jury deliberations.

Playboy Enterprises International, Inc. is a corporation with its principal place of business in California. Playboy derives substantial revenue from licensing its name and bunny-head logo to entities who sell products as varied as apparel, handbags, luggage, and fragrances. PlayBev is a limited liability company based in Utah, which was formed in 2006 for the purpose of creating and selling a non-alcoholic drink.

PlayBev and Playboy entered into an exclusive license agreement in December 2006. Playboy agreed to license the Playboy marks to PlayBev for use on the Playboy Energy Drink. The license agreement provided that PlayBev would pay Playboy minimum annual royalties, beginning at $1 million and later increasing to $2 million, for the use of the marks. The agreement also required PlayBev to achieve certain annual sales. The original principals of PlayBev did not have experience with beverage marketing or distribution. In 2007, the PlayBev principals sold their interest in PlayBev to Iehab Hawatmeh, the CEO of Cirtran Beverage Corporation. CTB had experience in marketing consumer products. PlayBev subsequently contracted with CTB to manufacture and distribute the Playboy Energy Drink. Continue reading ›

Where an insurance agent’s contract with Allstate was terminated for failure to meet performance goals, and the insurance company subsequently denied the agent’s request to transfer the book of business to the agent’s husband, instead selling to the wife of the agent’s former supervisor, the trial court erred in dismissing agent’s claims for breach of contract and breach of the covenant of good faith and fair dealing.

In 2004, Ray McKnight, a territory manager for Allstate Insurance began recruiting Mary Slay to become an exclusive Allstate insurance agent in Lake City, Florida. Ray offered Mary the opportunity to purchase an existing book of business from a retiring agent, Rick Bringger. Ray, however, failed to disclose that he had a conflict of interest, as his wife, Faye McKnight, wanted to purchase an Allstate agent’s book of business and open up her own office in Lake City in direct competition with Mary. Ray also failed to disclose that Allstate was in the process of canceling approximately 30% of the policies in Bringger’s book of business and that Allstate had begun the process of non-renewing all mobile home policies, commercial policies, and landlord and rental policies in Florida.

In reliance on Ray’s representations, Mary retired from her job, obtained an $800,000 loan to purchase Bringger’s book of business, and signed an exclusive agency agreement with Allstate. Mary worked as an exclusive agent reporting directly to Ray, and she subsequently grew her book of business. A few months later, Ray’s wife Faye opened an exclusive Allstate agency, competing directly with Mary’s agency. Mary’s business was also harmed by the subsequent announcement by Allstate that it would no longer write commercial insurance policies in Florida and that it would not renew 95,000 homeowner insurance policies. Allstate also implemented substantial price increases, and in 2008 had its license to write new policies suspended by the Florida Insurance Commission due to its failure to comply with a subpoena. Continue reading ›