Midwest Commercial Funding LLC v. Cincinnati Specialty Underwriters Insurance Company

Filing 38

DECISION AND ORDER DENYING 27 Motion to Dismiss for Failure to State a Claim (Counts II-IV) by Marsh & Mclennan Agency LLC; DENYING as MOOT 37 Rule 7(h) Expedited Non-Dispositive Motion to Clarify the Court's July 5, 2017 Schedule Modification Order by Midwest Commercial Funding LLC. Signed by Judge Lynn Adelman on 9/25/17. (cc: all counsel) (gc)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF WISCONSIN
MIDWEST COMMERCIAL
FUNDING, LLC,
Plaintiff,
v.

Case No. 16-C-0885

CINCINNATI SPECIALTY
UNDERWRITERS INSURANCE
COMPANY, et al.,
Defendants.
______________________________________________________________________
DECISION AND ORDER
The plaintiff, Midwest Commercial Funding, LLC (“Midwest”), is the lender and
mortgagee for a property located on Farwell Avenue in Milwaukee, Wisconsin.

In

January 2016, the water lines at the property burst, causing substantial damage to the
building.

Midwest made a claim for this loss to its insurer, Cincinnati Specialty

Underwriters Insurance Company (“Cincinnati”).

After Cincinnati denied the claim,

Midwest commenced this action for breach of contract. Initially, Midwest sued only
Cincinnati. However, Midwest has since filed an amended complaint adding Midwest’s
insurance agency, Marsh & McLennan Agency, LLC (“Marsh”), to the case. Midwest
alleges that if the Cincinnati policy does not cover the loss, then Marsh was negligent in
procuring that policy for Midwest. In addition, Midwest alleges that Marsh did not have
a license that, under Wisconsin law, an insurance agency must have in order to
participate in the procurement of the type of insurance that Midwest purchased from
Cincinnati. Midwest alleges that Marsh’s not having this license rendered the Cincinnati
policy illegal.

The Wisconsin Statutes contain two provisions imposing liability on a person who
assists in the procurement of an illegal insurance policy. The first is Wis. Stat. § 618.39,
which provides, in part, that “[n]o person may do an insurance business in this state if
the person knows or should know that the result is or might be the illegal placement of
insurance.”

Wis. Stat. § 618.39(1).

The statute makes any person who does so

“personally liable to any claimant under the policy for any damage proximately caused
by the person’s violation.”

Id. § 618.39(2).

Such damage, the statute says, “may

include damage resulting from the necessity of replacing the insurance in an authorized
insurer or the failure of the unauthorized insurer to perform the insurance contract.” Id.
The second provision, Wis. Stat. § 618.44, provides in relevant part as follows:
An insurance contract entered into in violation of this chapter is
unenforceable by, but enforceable against, the insurer. . . . If the insurer
does not pay a claim or loss payable under the contract, any person who
assisted in the procurement of the contract is liable to the insured for the
full amount of the claim or loss, if the person knew or should have known
the contract was illegal.
Midwest claims that these two provisions make Marsh liable for the loss relating to the
Farwell property.

It reasons that because Marsh’s having procured the insurance

without a proper license renders the Cincinnati policy illegal, and because Cincinnati
has not paid the claim, Marsh is liable for the amount of the loss.
Marsh has moved to dismiss the counts against it under §§ 618.39 and 618.44
for failure to state a claim upon which relief can be granted.

See Fed. R. Civ. P.

12(b)(6). Marsh contends that any claim under these statutes has not yet accrued
because the statutes make Marsh’s liability contingent on two events that have not yet
occurred: (1) entry of a judgment requiring Cincinnati to pay Midwest’s loss, and (2)
Cincinnati’s subsequently failing to satisfy the judgment. But Marsh’s reading of these
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statutes is not supported by their text.

Neither statute makes a person’s liability

contingent on the court’s entering a judgment against the insurer who issued the illegal
policy or that insurer’s failing to satisfy the judgment.

Rather, the contingency

mentioned in § 618.39 is “failure of the unauthorized insurer to perform the insurance
contract,” and the contingency mentioned in § 618.44 is the insurer’s “not pay[ing] a
claim or loss payable under the insurance contract.” In the present case, Midwest has
alleged that this contingency has occurred: it alleges that the Farwell loss is covered by
the Cincinnati policy, that it made a claim under the policy, and that Cincinnati denied
the claim. An insurer’s denying a claim that is covered by the policy is, to use the
language of § 618.39(2), a failure to perform the insurance contract.

Likewise, an

insurer’s denying a claim that is covered by the contract is, to use the language of
§ 618.44, a failure to pay a claim or loss payable under the contract.

Thus, the

complaint alleges that the only contingency required by these statutes has occurred.
Marsh urges me to adopt the interpretation of § 618.44 offered by another judge
of this court in Ratajczak v. Beazley Solutions, Ltd., No. 13-C-045, 2014 WL 3057158
(E.D. Wis. July 7, 2014). In that case, Chief Judge Griesbach held that an insured has
not stated a claim against an insurance agency under § 618.44 if it has not alleged that
the insurer who issued the illegal policy “might not pay a judgment entered against it.”
Id. at *3. However, I can find nothing in the reasoning of this case that explains why,
under the text of the statute, an insurer’s refusing to pay the claim is not enough to
trigger the agent’s liability, and why the insured must instead wait to sue the agent until
it has obtained a judgment against the insurer and the insurer has failed to satisfy it.
Chief Judge Griesbach seemed to think that an insured should not be able to look to the
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agent for immediate payment when the insurance company is also a defendant in the
case and “stands ready, willing and able to pay any judgment entered against it.” Id. at
*4. But whether or not a plaintiff has stated a claim for relief against one defendant
does not turn on whether the plaintiff has chosen to join a second defendant to the suit.
And certainly nothing in the text of § 618.44 suggests that the insurer’s having been
joined as a defendant prevents the plaintiff from also seeking relief from the agency.
What matters under the statute is whether the insurer had refused to pay a covered
claim before the plaintiff filed suit against the agency.

Here, Midwest alleges that

Cincinnati refused to pay a covered claim, and therefore its suit against Marsh is not
premature.
Of course, in this case, it has yet to be determined that the Farwell claim is
covered by the Cincinnati policy. But because we are at the pleading stage, all that
matters is that Midwest has alleged that the claim is covered, and that Cincinnati did not
pay it. Neither statute makes the agency’s liability contingent on the insurer’s refusing
to pay the claim after a court has determined that the claim is covered. Thus, the
judicial determination does not have to precede the plaintiff’s suit against the agency.
For these reasons, IT IS ORDERED that Marsh’s motion to dismiss (ECF No. 27)
is DENIED.
IT IS FURTHER ORDERED that Midwest’s motion for clarification of the court’s
scheduling order (ECF No. 37) is DENIED as MOOT.

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Dated at Milwaukee, Wisconsin, this 25th day of September, 2017.

/s Lynn Adelman
LYNN ADELMAN
United States District Judge

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