Philips Electronics N v. v. New Hampshire Insurance

728 N.E.2d 656, 312 Ill. App. 3d 1070, 245 Ill. Dec. 574
CourtAppellate Court of Illinois
DecidedMarch 31, 2000
Docket1 — 99 — 1130, 1 — 99 — 1175 cons.
StatusPublished
Cited by16 cases

This text of 728 N.E.2d 656 (Philips Electronics N v. v. New Hampshire Insurance) is published on Counsel Stack Legal Research, covering Appellate Court of Illinois primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Philips Electronics N v. v. New Hampshire Insurance, 728 N.E.2d 656, 312 Ill. App. 3d 1070, 245 Ill. Dec. 574 (Ill. Ct. App. 2000).

Opinion

JUSTICE HARTMAN

delivered the opinion of the court:

Plaintiffs Philips Electronics N.Y and Philips Electronics North America Corporation, doing business as Advance Transformer Company (collectively Philips), brought suit against the defendant insurers from whom it had purchased fidelity insurance policies (collectively Fidelity Insurers). Philips alleged that the Fidelity Insurers breached the insurance contracts for failure to indemnify Philips for its claimed losses and for damages allegedly caused by the Fidelity Insurers’ misconduct and fraud during its claims-handling process. The circuit court dismissed the counts alleging claims-handling misconduct on forum non conveniens grounds; dismissed the count alleging the Fidelity Insurers’ violation of Illinois’ Consumer Fraud and Deceptive Business Practices Act (Consumer Fraud Act) (815 ILCS 505/1 et seq. (West 1996)) also on the grounds of forum non conveniens-, and dismissed the counts alleging breach of insurance contract and fraud as barred by the doctrine of res judicata. Philips appeals 1 , raising as issues whether (1) the court erred in dismissing the breach of contract and fraud counts as barred by res judicata-, and (2) the court abused its discretion in dismissing its claims-handling fraud and misconduct, and Consumer Fraud Act counts on forum non conveniens grounds.

Philips Electronics N.Y is a corporation organized and existing under the laws of the Netherlands with its principal place of business in Eindhoven, Netherlands. Its subsidiary, Philips Electronics North America Corporation (PENAC), is a corporation organized and existing under the laws of Delaware with its principal place of business in New York; PENAC does business in Illinois under the name Advance Transformer Company (Advance). Advance is based in Rosemont, Illinois, and manufactures electronic ballasts, triggering devices used for starting and regulating flourescent lamp fixtures.

Between December 31, 1993, and December 31, 1994, Philips was insured by the Fidelity Insurers, a group of major foreign insurance companies, under “comprehensive crime” policies. 2 Those comprehensive crime policies indemnified Philips for losses resulting from fraudulent or dishonest acts committed by employees. 3 Philips was covered under a total of three policies: a primary, an excess and a deductible policy. The primary policy (and the excess policy, by incorporation) provided expressly for “United Kingdom,” or English, law to govern the construction, meaning and interpretation of the policy terms; the deductible policy also provided for the application of “English” law.

All but two of the Fidelity Insurers operated in the London insurance market. Two insurers entered into the contract with Philips in the United States; the remaining 11 insurers entered into the contract in London, England. Most of the 13 insurers have limited ties to Illinois: only one is incorporated in Illinois; seven are incorporated in England; and the remainder are incorporated elsewhere in the United States, Italy or Belgium. The policies were negotiated in London between a Lloyd’s of London broker, on behalf of Philips, and 11 of the Fidelity Insurers; the policies were entered into in London and were structured to give Philips a deductible of $2,780,000.

In late 1994, Philips notified the Fidelity Insurers (at their London office) of a planned claim for potential losses. On August 31, 1995, Philips submitted an 88-page “Proof of Loss” prepared “on behalf of [PENAC]” pursuant to policy requirements. Philips’ Proof of Loss consisted of more than 200 exhibits and a lengthy narrative, detailing the nature of its claims. Those claims centered upon the alleged dishonest and illegal conduct of its employee Theodore Filson, president of Advance.

According to Philips’ Proof of Loss, Filson, his wife and two other Advance employees and their wives formed a fraudulent travel agency, using it to defraud Philips by dishonest overcharging. The Proof of Loss also described how Filson knew that the electronic ballasts’ design contained an inherent flaw, yet he continued to sell and ship the defective ballasts in order to preserve or increase the appearance of Advance’s performance. Filson’s remuneration while president of Advance consisted of a salary, bonuses and an incentive plan; the amount of the bonus and incentive depended upon performance of Advance with regard to sales, income and inventory. In essence, the more ballasts that were sold, the more Filson would receive. As long as the ballast flaws remained undetected, Filson would retain his position, earn his bonuses and continue to embezzle money through the fraudulent travel agency scheme. The Proof of Loss therefore alleged that the shipment of defective ballasts was done, at least, with the dual purpose of maintaining the travel business fraud and of earning bonuses which Filson otherwise would not have earned. Philips terminated Filson and the other employees, but not before Filson had allowed shipment of the defective ballasts to Philips’ customers.

As a result of Filson’s dishonest conduct, Philips claimed losses of “at least $28,063,982.” Specifically, Philips claimed $910,721.58 “embezzled by Filson *** through the fraudulent travel business” (the travel fraud); a $24,935,260.75 loss “resulting from the replacement of [the] defective product Filson fraudulently and dishonestly *** shipped into the market” (the defective ballast fraud); $218,000 in unearned bonuses paid to Filson (the bonus fraud); and “at least $2,000,000 in investigation fees.” Additionally, Philips estimated its potential losses resulting from the replacement of defective parts to be “in excess of $100,000,000.” Philips also reserved the right to amend or supplement the Proof of Loss as it continued to investigate its mounting losses.

Concerned that the allegation of Filson’s deliberate placement of defective products into circulation on the market should not be made public, Philips further notified the Fidelity Insurers that “[t]he information contained herein is confidential and is not to be used *** for any other purpose. The release of this information to others without our express consent will be considered a breach of your fiduciary and contractual obligations under the policy.” (Emphasis in original.) Accordingly, Philips urged upon the Fidelity Insurers the importance of keeping the Proof of Loss confidential and made it plain that it desired to resolve any dispute with the Fidelity Insurers by arbitration or some other form of alternative dispute resolution.

Negotiations between Philips and the Fidelity Insurers regarding coverage of claims began shortly after notice was given. To that end, in late 1994 and 1995, Philips’ attorney, Patrick Ardis, met with the Fidelity Insurers’ independent claims adjuster, Edward Davies, in London and Illinois. As part of his investigation, Davies interviewed former and current employees of Advance and requested additional documentation from Philips. Philips provided substantial amounts of documents and information to assist Davies’ investigation.

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Bluebook (online)
728 N.E.2d 656, 312 Ill. App. 3d 1070, 245 Ill. Dec. 574, Counsel Stack Legal Research, https://law.counselstack.com/opinion/philips-electronics-n-v-v-new-hampshire-insurance-illappct-2000.