MICHAEL LOZOSKY v. THE STATE OF ILLINOIS (2001)

ORDER ON MOTION TO DISMISS

This negligent misrepresentation claim is brought by claimant Michael J. Lozosky against the Board of Trustee of the University of Illinois (the University), seeking $13,266.62 damages allegedly suffered due to Claimant's reliance on erroneous medical insurance coverage information provided by Respondent's employee while claimant was a student at the University. We have jurisdiction over this tort claim under /8(d) of the Court of Claims Act (705 ILCS 505/8(d)).

This claim is before us on the Claimant's amended complaint and the Respondent's/2-615 motion to dismiss for failure to state a cause of action under the Moorman economic loss doctrine and its/2-619 motion to dismiss for failure to exhaust administrative remedies (by failing to exhaust alternative sources of recovery against the University's insurer) under Rule 60 (74 Ill. Admin. Code 790.60), which implements /22 of the Court of Claims Act (705 ILCS 505/22).

Nature of the Claim

In his amended complaint, Mr. Lozosky alleges that after he injured his knee (in a snowmobile accident) while enrolled as a student at the University, he was repeatedly assured by the University's Office of Human Resources that the University's medical insurance policy, maintained with NAHGA, Inc., would cover all medical expenses associated with [the knee] injury. (Am.Compl.,fff4, ff2-4.) Claimant alleges that he asked the employee, Ms. Evelyn Tillman, whether the University's policy would cover the surgery to repair his knee, and that she assured him that the surgical expenses were covered (id., f7), but that after he had the surgery, NAHGA, Inc. denied coverage ((id., f9), leaving him with $13,266.62 of medical expenses and bills, of which $5,000 was paid by his automobile insurer (State Farm Insurance Co.), to which he assigned $5,000 of his claim (id., ff13-15, 21).

The amended complaint alleges a duty on Ms. Tillman in her capacity as an employee in Respondent's Human Resources Office to use care in obtaining and communicating information upon which others may reasonably be expected to rely (Compl., f6), as well as a duty to provide Claimant with adequate information regarding medical insurance coverage provided by Respondent (id., f10). Claimant alleges that she breached that duty by failing to use care in obtaining adequate information and by communicating false information to Claimant regarding medical insurance coverage (id., f11) and that she was acting within the scope of her employment (id., f18).

The/2-615 Moorman Motion to Dismiss

Respondent has moved to dismiss the amended complaint for failure to state an action for economic damages under the Moorman doctrine which generally precludes recovery in tort, particularly in negligent misrepresentation, for economic loss, deriving from Moorman Mfg. Co. v. National Tank Co., 91 Ill. 2d 69, 435 N.E. 2d 443 (1982), and as more recently applied in University of Chicago Hospitals v. United Parcel Service, 231 Ill. App. 3d 602, 596 N.E. 2d 688 (1st Dist.1992), and as reaffirmed in Fireman's Fund Ins. Co. v. SEC Donohue, Inc., 176 Ill. 2d 160, 679 N.E. 2d1197 (1997) and Brogan v. Mitchell International, Inc., 181 Ill. 2d 178, 692 N.E. 2d 276 (1998).

Respondent acknowledges the exception of the Moorman doctrine where one who is in the business of supplying information for the guidance of others in their business transactions makes negligent misrepresentations (Moorman, supra, 435 N.E.2d at 452), but contends that this case does not fall under the exception because the claimant'ss amended complaint does not and cannot allege that the respondent is in the business of supplying information (Memorandum of Law in Support of Motion to Dismiss First Amended Complaint [respondent's Memo], at 3), relying principally on University of Chicago Hospitals, supra (holding that an employer insurance carrier is not in the business of providing information and under Moorman cannot be liable for economic damages for negligent misrepresentation).

Claimant's Arguments that Moorman does not apply.

In opposition, the claimant's relies on the in the business of supplying information exception to the Moorman doctrine, and alternatively asks us to extend fiduciary principles to the University-student relationship to circumvent Moorman. Claimant argues that:

(1) his amended complaint alleged that Respondent was in the business of furnishing information upon which others may reasonably be expected to rely, including information regarding medical insurance provided to students (Response to Motion to Dismiss First Amended Complaint [claimant's Response], at 1);

(2) University of Chicago Hospitals is not factually on point in that Respondent is not an insurer but is the employer of a[n] official who had a duty to communicate accurate information to students regarding health insurance coverage (id., at 2);

(3) the Illinois test for determining whether a defendant is in the business of supplying information for the guidance of others in their business transactions is whether the product of the relationship is a tangible object (i.e., a product) which could readily be described in a contract or whether it is intangible, relying on Fireman's Fund Ins. Co., supra, and that the [coverage] information in this case was not ancillary to the sale of a tangible object. * * * The intended end result was mere information therefore, the instant case falls within the exception to the Moorman doctrine (id., at 2-3); and

(4) Respondent, much like a broker, merely supplies the means by which students procure medical insurance. Illinois law provides that the relationship of an insurance broker and the proposed insured is a fiduciary one. [citation omitted] Thus, a broker owes an extra-contractual fiduciary duty to the insured. [citation omitted] It should be found that such a duty is owed by Respondent to the students (id., at 4).

Respondent's Reply on Moorman

In reply to the Claimant's arguments, the respondent (respondent's reply, at 3-6):

(a) maintains that University of Chicago Hospitals, supra, is not distinguishable because it absolutely covers [the] defendant a[n] insurance carrier that carried the health insurance policy relating to its employee just as the University is an insurance carrier that carried the insurance relating to its student in this case;

(b) cites federal decisions that follow University of Chicago Hospitals and hold that insurance carriers are not in the business of supplying information (Asad v. Hartford Life Ins. Co., 116 F.Supp. 960 (N.D.Ill.2000)) and that a negligent misrepresentation of [insurance] coverage does not support recovery in Illinois, Decatur Mem. Hosp. v. Connecticut. Gen l. Life Ins. Co., 990 F.2d 925, 928 (7th Cir. 1993);

(c) urges that the providing information exception to Moorman is to be construed narrowly, citing Gerdes v. John Hancock Mut. Life Ins. Co., 712 F.Supp. 692, 699 (N.D.Ill. 1989) (since every possible defendant normally provide(s) some sort of information in the course of their business, courts must construe narrowly the negligent misrepresentation exception to the Moorman doctrine, lest the exception swallow the rule); and other federal court decisions;

(d) characterizes the Claimant's argument as a quasi-equity argument that the Moorman exceptions should cover cases where the defendant owes a tort duty to prevent the harm, and argues that all tort/negligence law requires a duty, so duty alone cannot lift a case out of the Moorman doctrine and that the quasi-equity argument is foreclosed by the Illinois Supreme Court's decision Moorman bar[s] recovery of solely economic losses in tort even when the plaintiff has no other remedy against the defendant, Gerdes, supra, 712 F.Supp. at 701.

(e) replies to Claimant's analogy to insurance brokers fiduciary duty, by arguing that the brokers duty is irrelevant in light of [Moorman] holdings directly applicable to insurers and insurance carriers, citing Decatur Mem. Hosp., supra; University of Chicago Hospitals, supra; Asad, supra; and International Surplus Lines Ins. Co. v. Fireman's Fund Ins. Co., 1989 WL 99771, at 2 (N.D. Ill.) (In Illinois no fiduciary relationship exists between an insurer and an insured.)

Analysis

We agree with the Respondent that the application of the Moorman doctrine to this case is controlled by University of Chicago Hospitals v. United Parcel Service, 231 Ill.App. 3d 602, 596 N.E.2d 688 (1st Dist. 1992). As pointedly observed by the Seventh Circuit in Decatur Mem. Hosp. v. Connecticut Gen l. Life Ins. Co., 990 F.2d 925, 928 (7th Cir. 1993) in a recitation that remains true today and is equally applicable to the case now before this court:

We went looking for cases in Illinois in which a firm told a provider that a patient was insured, changing its tune after the provider had rendered services. The only case of this kind that we could find squarely holds that a negligence representation of coverage does not support recovery. University of Chicago Hospitals v. United Parcel Service [citation omitted] (1st Dist. 1992). Accord, International Surplus Lines Insurance Co. v. Fireman's Fund Insurance Co. [citation omitted] (N.D.Ill.). Both of these cases rely on Moorman Manufacturing Co. v. National Tank Co. [citation omitted] (1982), which holds that purely economic injury attributable to a negligent misrepresentation is not actionable in Illinois unless the defendant is in the business of supplying information for the guidance of others in their business transactions. [citation omitted]. University of Chicago Hospitals and International Surplus Lines hold employees and their medical carriers are not in the business of supplying information to providers of medical services.

* * *

* * * The point of the Hospital's claim is that it did not succeed in forming a contract [with the insurer] providing for reimbursement, making tort remedies exclusive. * * * Still the Hospital has not tried to persuade us that the Supreme Court of Illinois is likely to disapprove University of Chicago, and we are left with the decisions of intermediate state tribunals.

Nothing in the Illinois caselaw since Justice Scariano's opinion in University of Chicago Hospitals, supra, casts doubt on the vitality of its holding that insurance carriers are not in the business of supplying [insurance coverage] information for purposes of the Moorman doctrine. Our Supreme Court's later decisions that unqualifiedly reaffirm Moorman and its application to the furnishing of services fail to provide any support to this Claimant's arguments, even as that court determines, on a case-by-case and profession-by-profession basis, the applicability of the Moorman exception for those in the business of supplying information for the guidance of others in their business transactions. See, Fireman's Fund Ins. Co. v. SEC Donohue, Inc., 176 Ill. 2d 160, 679 N.E.2d 1197 (1997); Brogan v. Mitchell International, Inc., 181 Ill. 2d 178, 692 N.E.2d 276 (1998); Congregation of the Passion, Holy Cross Province v. Touche Ross & Co., 159 Ill. 2d 137, 636 N.E.2d 503 (1994).

In University of Chicago Hospitals, supra, the insurance carrier/employer was held not to be in the business of supplying insurance coverage information for its employee-insureds. We hold that that conclusion applies equally to the University, as an insurance carrier: the University is not in the business of supplying insurance coverage information for its student-insureds.¹ Until a different conclusion as to the business of insurance carriers is reached as a matter of law by the Illinois courts or a different result is mandated by the legislature, this court will follow the weight of Illinois judicial authority, which on this issue remains the University of Chicago Hospitals decision.

Moreover, whatever else might be said of the University's business -- even assuming arguendo that the University is generally in the business of information, as if higher education and research can be so simplistically characterized for purposes of this arcane legal analysis -- it seems clear to this court that the University is not in the business of supplying this particular kind of information and certainly not for the guidance of others in their business transactions within the meaning and purpose of the Moorman doctrine.

Since our decision is grounded on specific precedent on insurance carriers and on our narrow finding that the University is not in the insurance coverage information business, we need not address the larger (and more interesting) issue of whether a State agency can ever be in the business of providing information for the guidance of others in their business transactions within the Moorman exception, and if so, what factors govern that determination.

It remains only to dispose of the Claimant's strenuous but rejected arguments that seek to evade or circumvent the University of Chicago Hospitals decision.

First, the amended complaint does not allege, as Claimant contends, that the University was in the business of furnishing insurance coverage information. The amended complaint does allege that Ms. Tillman, in her capacity as an employee in [the University's] Human Services Office, had such a duty. (See, Am. Compl.,f6.) That is not the same as the University (or the State) having the duty.

It appears that Claimant is arguing that the University itself created a legal duty to the Claimant that takes it out of the Moorman doctrine by giving its employee a work assignment. That has Moorman exactly backwards. The Moorman exceptions turns on the defendant's business and not its employees job descriptions. As the Gerdes court aptly observed, that kind of broadening of the Moorman exception to encompass any information in which a defendant incidentally deals in its operations would swallow the rule. This court will not swallow that argument.

Claimant's novel argument also turns respondeat superior on its ear. Claimant is contending that a patron of a business (or as here a beneficiary of a State program) can sue for damages based on an employee's breach of his job duties. That theory would transpose employer-employee contractual duties into tort duties to third parties. This court cannot swallow that argument either.

Second, we reject the Claimant's proffered distinction of University of Chicago Hospitals, supra, on the basis that the defendant in that case was not an insurer. The decision explicitly held that the defendant was an insurance carrier, as is the University here. 231 Ill.App. 3d at 606.

Third, the tangible object or product test articulated by our Supreme Court is not, as claimant now urges, the Illinois test for determining whether a defendant is in the business of supplying information under Moorman. The product test may determine when a particular business or occupation is not a service provider or not an information supplier e.g., as distinguished from product manufacturers and assemblers that are covered by Moorman -- but it is not the sole determinant of whether one is engaged in the business of supplying information or particular kinds of information.² Because we find that the University is not in the business of providing this service or this kind of insurance information in the first instance, we do not reach or apply the product test.

Fourth, we reject the claimant's effort to extend the fiduciary obligations on insurance brokers to insurance carriers (who are providing a benefit to their employees or clientele, as the University here does for its student) as a basis for circumventing the Moorman doctrine. We decline for three primary reasons: (1) the argument has no perceivable merit, as there is simply no viable analogy between professional brokers and insurance carriers who are mostly employers and institutions, (2) Illinois caselaw not only fails to support this argument, but is contrary, as the respondent points out, and (3) this court is the wrong forum in which to argue for an unprecedented expansion of Illinois fiduciary liability that finds no support in statute and no basis in judicial decision.

In light of our holding that this claim is barred by the Morman economic loss doctrine, it is not necessary to address the respondent's exhaustion argument.

Conclusion

For the reasons set forth above, it is hereby ORDERED;

1. Respondent's motion to dismiss this claim for failure to state a cause of action for economic damages under the Moorman doctrine is granted;

2. Respondent's motion to dismiss this claim for failure to exhaust remedies is denied as moot; and

3. This claim is dismissed

FOOTNOTES

1.  We note that the alleged misrepresentation of coverage in University of Chicago Hospitals, supra, was made to the medical provider (the hospital plaintiff), whereas the University's alleged misrepresentation in this case was apparently made to the student, and it is allegedly the student who suffered the disputed economic damages here. Neither party suggests that this might be a material distinction, we do not find it to be so.

2.  The product test also serves to distinguish among service providers in the business of providing information to exclude from Moorman's information supplier exception those service professions and occupations that provide information incidental to a tangible product (i.e., an exception to the exception). Fireman's Fund Ins. Co. v. SEC Donohue, Inc,. 176 Ill. 2d 160, 169 (1997) (holding, for this reason, that design engineers are outside the Moorman negligent misrepresentation exception).We note that three Justices (two now retired) of the Illinois Supreme Court dissented from the case-by-case determination of which professional services are, and which are not, covered by the Moorman doctrine, which is largely determined by the product test:The majority has seen fit to continue a piecemeal approach by applying the Moorman doctrine to professional malpractice of architects and now engineers but not to attorneys or accountants. In so doing, this court has plac[ed] trial judges and litigants in the unenviable position of guessing which additional professionals will receive protection under Moorman's economic loss doctrine.

EPSTEIN, J.

Fireman's Fund Ins. Co. v. SEC Donohue, Inc., supra, at 170 (Heiple, C.J., joined by Harrison and Nickels, JJ., dissenting).