Homeowners Choice, Inc. v. Aon Benfield, Inc.
(N.D. Ill., September 10, 2012)
Homeowners Choice Property and Casualty Insurance Company (Homeowners Insurance) is a subsidiary of Homeowners Choice, Inc. (Homeowners Choice). Homeowners Insurance signed a broker authorization contract (contract) with Aon Benfield (Aon) designating Aon as its broker of record beginning July 1, 2007. On March 31, 2009, the parties entered into a revenue-sharing agreement so that Aon would pay Homeowners Choice a portion of commissions that it received from Homeowner Insurance’s reinsurance placements. In March 2010, Homeowners Insurance notified Aon that it would be using a different reinsurance broker for reinsurance placements effective June 1, 2010. On May 14, 2010, Homeowners Choice notified Aon that under the contract, it was owed $659,943 as an annual fee.
In a breach of contract action commenced by Homeowners Choice, Aon argued that pursuant to paragraph 2 of the contract, it owed Homeowners Choice nothing. The contract provided, in pertinent part:
2. No annual fee shall be due for any net brokerage revenue derived from the subject business that is less than $1,000,000, nor shall an annual fee be payable subsequent to any decision by [Homeowners Choice] to terminate or replace [Aon] as its reinsurance intermediary-broker for any portion of the subject business. In addition, in the event [Aon] is terminated as [Homeowners Choice]’s reinsurance intermediary-broker for any subject business prior to the end of the agreement year, [Homeowners Choice] shall promptly reimburse [Aon] for all Annual Fees previously paid by [Aon] under this agreement. [Homeowners Choice] agrees to reimburse [Aon] for any and all costs and expenses associated with collecting any reimbursement.
Both parties moved for summary judgment. Whether Aon owed Homeowners Choice an annual fee for 2009-2010 was a matter of contract interpretation. Throughout the contract, the phrase “subject business” was used. Aon argued that the term referred to all of Homeowner’s Choice’s reinsurance contracts, including those after the agreement year. Homeowner’s Choice argued that “subject business was limited to the agreement year. The court agreed with Aon’s interpretation of the contract that “subject business” includes, but is not limited to, reinsurance purchased by Homeowners Insurance during the agreement year. The court determined that paragraph 2 of the agreement created a condition precedent to Aon’s obligation to pay, and therefore the court was not obligated to accept Homeowner’s Choice’s argument as a matter of law.
Homeowner’s Choice argued that Aon’s construction of paragraph 2 created an unlawful penalty clause or alternatively, an impermissible forfeiture on Homeowner’s Choice. Ultimately, the court agreed with Aon that paragraph 2 was a condition, not a penalty or liquidated damages clause. The court determined that, on the record before it, it could not granter either party judgment as a matter of law. The parties’ cross-motions for summary judgment were denied.