Aetna Life & Casualty Co. v. Anfinsen Plastic Molding Co.

Citations: 47 Ill. App. 3d 146; 361 N.E.2d 848; 5 Ill. Dec. 525; 1977 Ill. App. LEXIS 2395Docket: No. 76-18

Court: Appellate Court of Illinois; March 29, 1977; Illinois; State Appellate Court

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An appeal was made regarding a judgment from the Kane County circuit court favoring Aetna Life Casualty Company against Anfinsen Plastic Molding Co. in a dispute over additional premiums billed by Aetna, which Anfinsen refused to pay. Anfinsen had previously been insured by Aetna for workmen’s compensation under an annual policy at excess rates due to poor performance over three years. In April 1970, Aetna suggested a retrospective premium rating plan for Anfinsen, which would calculate premiums based on incurred losses over a three-year period. The policy could be canceled at any time by either party with appropriate notice.

Aetna filed for summary judgment, but Anfinsen countered, alleging that broker Konen represented the policy as a fixed three-year plan, assuring that any additional premiums would be averaged at the end of the term and not based solely on one year’s losses. During trial, Anfinsen’s defense relied heavily on testimony from Konen, who confirmed that he explained to Anfinsen’s president, Mr. LaHam, that the insurance policy was indeed a three-year contract, with no representation made that it would be a one-year policy. The motion for summary judgment was denied, leading to a bench trial to resolve the merits of the case.

Mr. Konen confirmed his understanding that Aetna’s policy was misrepresented as a noncancelable three-year policy, aligning with statements made by Mr. Van Hart. Anfinsen argues that the cancellation after one year (actually a nonrenewal) was wrongful, seeking either to bar Aetna from recovering additional premiums or to reform the policy to reflect a three-year term. Aetna counters that there is a significant distinction between a “three-year plan” and a three-year policy, asserting that the policy was never represented as noncancelable. Both parties retained the right to cancel: the insured by returning the policy and the insurer with ten days’ written notice. While Konen testified that the policy was marketed as a three-year retroactive plan, he did not indicate that it was noncancelable. The policy contained standard cancellation provisions, and evidence shows that Aetna agents did not claim the policy was noncancelable. Anfinsen's claim that Aetna should not collect earned premiums lacks substantiation, as no damages were alleged regarding higher costs incurred due to the cancellation. Although Anfinsen might have a case for damages if it could prove additional insurance costs, it failed to present such evidence. The request for reformation of the policy is deemed impractical since Anfinsen obtained replacement insurance, making it impossible to extend Aetna's coverage retroactively.

Anfinsen’s claim against Aetna for reformation of an insurance policy is unconvincing, as two of the three years in question involved another carrier and resulted in double premiums for 1971-1973. Reformation requires evidence of fraud in the inducement or mutual mistake of fact, neither of which Anfinsen adequately established. Specifically, there was no fraud since Aetna's decision not to renew occurred only near the end of the first policy year, and Anfinsen had already benefitted from claims paid. Although LaHam believed he was promised a three-year, noncancelable policy, the evidence suggests that Aetna's agent sold a three-year retrospective premium calculation plan, with no indication of misrepresentation. LaHam’s misunderstanding did not constitute a basis to disavow the contract, which clearly stated its terms and Aetna’s cancellation rights. The policy’s cancellation after one year was justified due to underwriting concerns related to Anfinsen’s loss history and safety compliance. Therefore, no agreement not to cancel can be inferred from the offer of a three-year plan, and the circuit court's judgment is affirmed.