FIRST DIVISION

						mmMarch 29, 2002

No. 1-00-3340

In re LIQUIDATION OF				)		Appeal from the

INTER-AMERICAN INSURANCE COMPANY OF		)		Circuit Court of 

ILLINOIS (Employers Reassurance		)		Cook County

Corporation,			         	)   	

							)

		Plaintiff-Appellant,		)	

							)

			v.				)		No. 91 CH 10189

							)

Nathaniel S. Shapo, Director of 		)

Insurance,						)		The Honorable

							)		Ronald C. Riley,

		Defendant-Appellee).		)		Judge Presiding.

	JUSTICE COUSINS delivered the opinion of the court:	

	Appellant Employers Reassurance Corporation (ERAC) was one of seven reinsurers of now-insolvent life insurance provider Inter-American Insurance

Company of Illinois (Inter-American).  There were five reinsurance agreements

in force between Inter-American and ERAC.  In 1988, certain aspects of the

segregated agreements were consolidated by the parties into a reinsurance

agreement known as the "Segregated Asset Portfolio Agreement" (SAPA).  But,

the insuring agreements in the original contracts were not modified.  Inter-

American became insolvent and was declared insolvent on December 23, 1991, and

the circuit court affirmed the Director of the Illinois Department of

Insurance as the statutory liquidator (the Liquidator).  

	ERAC contended that its agreement with Inter-American was "executory" as

to policyholders who had not died at liquidation.  However, the Liquidator

contended that the agreement was not executory.  The matter was resolved in

the Liquidator's favor on a cross-motion for declaratory relief.  The trial

court, after a full trial, also decided that ERAC had breached its reinsurance

agreements with Inter-American by not paying the bills tendered to it by the Liquidator.  During trial, the Liquidator requested leave to file its third amended counterclaim.  In its final ruling, the trial court granted the

Liquidator leave to file his amended counterclaim.  

	ERAC now presents the following issues upon appeal:  (1) whether the

contracts were executory; (2) whether the trial court erred in denying ERAC's

motion for directed finding; (3) whether the trial court erred in granting the

Liquidator's third motion to amend; and (4) assuming the trial court properly

granted the Liquidator's third motion to amend, whether Inter-American

provided consideration under the contract and established waiver by clear and

convincing evidence.

	For the reasons stated below, we affirm.

BACKGROUND

	Inter-American entered into reinsurance contracts (Treaties) with ERAC,

formerly known as Puritan Life Insurance Company, between 1984 and 1986. 

Pursuant to these Treaties, Inter-American was to cede reinsurance premiums to

ERAC and ERAC was to assume the reinsurance as reported by Inter-American

according to the Treaties.  In December 1987, the Department advised Inter-

American that it would not approve of the Treaties because, in the

Department's view, they did not reflect a transfer of investment risk from the

ceding company, Inter-American, to the reinsurer, ERAC.  Amended Treaties were

due to the Department on or before March 15, 1988.  If not amended and

received by then, the Department would "take action to disapprove the treaty

and reserve credit will be disallowed."

	To address the concerns of the Department, the parties entered into the

agreement known as the SAPA in March 1988, nunc pro tunc January 1, 1988.  The SAPA required Inter-American to establish and maintain assets in a portfolio. 

Articles V and VI of the SAPA required quarterly and year-end reporting of the

investment results to ERAC.  The insolvency clause in the SAPA provided, in

part:

	   "The ceding insurer [Inter-American] and the reinsurer [ERAC] agree

that, in the event of the insolvency of the ceding insurer, as to all

reinsurance made, ceded, renewed or otherwise becoming effective after

the effective date of this agreement, the reinsurance shall be payable

by the reinsurer on the basis of the amount of liability of the ceding

insurer under the contract or contracts reinsured, without diminution

because of the insolvency of the ceding insurer."

The SAPA further provided:  "The total amount of the portfolio shall be

adjusted by the REINSURED as of the end of each calendar year" as described by

New York State Insurance Department Regulation 126 (Regulation 126).  Inter-

American made quarterly reports to ERAC from March 1988 through June 1991 and

submitted reinsurance premium payments to ERAC. 	

	Inter-American was declared insolvent on December 23, 1991.  In

September 1992, the Liquidator filed a petition to conditionally reject the

"surplus relief agreements" entered into by Inter-American and to declare that

they were not executory.  ERAC filed a cross-motion for declaratory relief. 

In April 1994, ERAC filed a motion for summary judgment on its cross-motion

for declaratory relief.  The court later allowed ERAC’s motion for summary

judgment to be withdrawn.  In September 1994, the liquidation court ruled that

the policyholders who had not died by the date of liquidation could file

claims against the estate for the current net present value of their policies.  The court also approved the Liquidator's methodology for calculating the value

of the policies.  

	The Liquidator filed a renewed cross-motion for declaratory relief

against ERAC on July 26, 1995.  ERAC filed its amended cross-motion for

declaratory relief on the same date.  In September 1995, the circuit court

ruled that the reinsurance contracts were not executory.  ERAC and Alabama

Reassurance Company (Alabama Re) appealed that ruling.  The Illinois Appellate

Court dismissed the appeal in an unpublished order as premature.  See In re Liquidation of Inter-American Insurance Co., 284 Ill. App. 3d 1112, 708 N.E.2d 1272 (1996).  

	 In November 1995, the Liquidator moved to dismiss counts II through VII

of ERAC's amended cross-motion for declaratory relief.  The circuit court

denied the motion and ordered the Liquidator to answer those counts.  In its

answer, the Liquidator asserted its affirmative defenses:  (1) laches; (2) waiver and estoppel; and (3) negligence by Inter-American.  Additionally, the

Liquidator presented a counterclaim for breach of contract.

	In January 1997, ERAC moved to dismiss the Liquidator's counterclaim and

filed its responses to the Liquidator's affirmative defenses.  The Liquidator

filed an amended counterclaim asserting breach of contract and quantum meruit.  ERAC filed a motion to dismiss the Liquidator’s quantum meruit claim and also filed an answer to the breach of contract claim.  The parties submitted an

agreed order dismissing the quantum meruit count.

	An agreed pretrial stipulation was filed by the parties in May 1998.  On

May 11, 1998, the Liquidator filed its revised second amended counterclaim,

which alleged that Inter-American performed all of its material obligations under the Treaties and  that ERAC breached the contract by refusing to pay the

sums to Inter-Americans policyholders.  The trial commenced in June 1998.

	Rick Browne of Inter-American testified for the Liquidator that when he

discussed the SAPA drafts with James Maughn of ERAC, they discussed Inter-

American's "ability to do Regulation 126 type testing or asset adequacy

analysis, that Inter-American at that time was not equipped, did not have the

systems to do that, but that we would--we both knew that it was a requirement

that insurance companies were going to have to do this type of testing in the

near future."  Browne had several conversations with Maughn relative to what

assets where in the segregated asset portfolio and what sort of reporting was

provided to ERAC by Inter-American.  Browne did not recall any specific

request from Maughn to perform Regulation 126 analysis and he never told

Maughn that Inter-American had conducted Regulation 126 analysis. 

	Browne further testified that at year-end 1990, Inter-American had not

updated the segregated asset portfolio listing to reflect transactions for

1990.  When Browne discovered that the individuals responsible for completing

the work had not updated the portfolio, he and Inter-American actuary Terrence

Erickson resolved that they would estimate the investment returns that should

be credited to ERAC under the agreements, based on their knowledge of the

historic performance of the portfolio and their general historic knowledge of

what transactions were likely to have occurred.  

	Browne stated that during "1989, 1990, or the first six months of 1991,"

no one from ERAC came in to inspect the records of Inter-American pertaining

to the portfolio.  Inter-American prepared quarterly reports and typically

sent them to ERAC auditor Laura Fields.  He stated that she would contact Inter-American if she observed errors or if she had questions about the

reports.  He further testified that Inter-American paid ERAC the quarterly

amounts due for the reinsurance ERAC provided.  Browne recalled having a 20-

minute phone conversation with Fields in approximately March 1990 informing

her that estimates had been made.   

	In November 1991, Browne met with Laura Fields, James Maughn, and a

reinsurance intermediary from Mystic Reinsurance in Inter-American’s Chicago

offices.  At that meeting, they discussed the Department's investigation and

Inter-American's "need to do cash flow scenario testing on the [ERAC] block of

business, and at that meeting Mr. Maughn suggested that Mystic Reinsurance

might be able to help us with that type of cash flow testing."  Browne did not

recall any complaints regarding the use of estimated figures during that

meeting.			

	Peter Gallanis, a special deputy receiver for the Department, testified

that when Inter-American went into liquidation, Inter-American had not paid

all of its liabilities under its insurance policies.  Gallanis further

testified that Inter-American's nonpayment did not release ERAC from its

reinsurance obligations.

	Raymond Schlude, Jr., a consulting actuary, testified on behalf of the

Liquidator.  He was asked to assist the Liquidator in determining whether and

how much ERAC owed Inter-American's estate for reinsurance.  Schlude stated

that in his investigation, he reviewed the asset portfolio as of December 31,

1988, but did not find a portfolio as of December 31, 1989.  He also testified

that Inter-American was specifically required by the SAPA to conduct

Regulation 126 analysis.  He further testified that based on the reports that he made, "Employers Re owes Inter-American 9.55 million on the date of

liquidation." 

	ERAC moved for a directed finding after the direct examination of Browne

and the full testimony of Gallanis and Schlude.  That motion was denied.  The

following day, after the cross-examination of Rick Browne and the close of the

Liquidator's case in chief, ERAC renewed its motion for directed finding. 

That motion was also denied. 

	ERAC accountant Laura Fields testified for ERAC that she conducted an

audit of Inter-American in 1988.  In March 1990, Fields received a fax from 

Inter-American actuary Erickson that included the annual accounting for year- end 1989.  There was a notation on that fax transmittal that indicated to

Fields that the portfolio listing would follow.  Months later, Fields called

Inter-American to follow up on the portfolio listing that she had not yet

received.  At that time, no one at Inter-American informed her that Inter-

American had stopped maintaining the portfolio.  Fields testified that Browne

never told her that Inter-American had stopped maintaining the portfolio.  She

stated that as an accountant, she did not have the authority to change any of

the terms of the SAPA.  Fields recalled that the year-end 1990 report from

Inter-American reflected an unanticipated increase in the amount of surplus

relief that ERAC granted them.

	Fields further testified that she, James Maughn, and an ERAC internal

audit employee met with Rick Browne in Chicago on November 5, 1991.  She

recalled that they discussed the asset listing and other concerns.  Jim

Knutson of Inter-American asked Fields to accompany him to his office to

retrieve the listing.  However, "he couldn't seem to place his hands on it," so she asked him to send it to her by mail.  She never received it.  During

the first week of December 1991, Fields returned to Chicago for an unrelated

audit and notified Inter-American that she would be by to pick up the listing. 

She recalled receiving a packet of information but later discovered that "[i]t

was not what [she] asked for."

	James Maughn, ERAC's chief actuary and senior executive, testified at

trial that he had a telephone conversation with Rick Browne prior to the

completion of the SAPA.  In that conversation, "we agreed to try to work

something out that would have some element of risk in it that would be deemed

acceptable to them [the Department]."  The agreement "was the maximum risk

transfer which we found acceptable to enter into relative to Inter-American,

and had the Department chosen not to approve it, that was okay with us." 

Maughn testified that per the agreement, Inter-American was not required to

place the potential pledged assets in an escrow or trust.  However, there

would have been consequences if Inter-American chose to sell those pledged

assets and purchased other assets once they had been placed in the asset

portfolio.  Maughn stated that while the agreement required that Regulation

126 testing be conducted at "calendar year-end," it would have been

appropriate and accurate to conduct it quarterly.  He stated that the

agreement called for a "calendar year matching" but did not "necessarily

require that they provide that to us."  

	Maughn recalled that there was an audit of Inter-American at the end of

1988 and the end of 1990.  Maughn spoke to Rick Browne of Inter-American via

telephone on October 31, 1991, regarding his desire to "review the actual

investment results and return on the portfolio as well as see the actual assets in the segregated asset portfolio."  He explained that ERAC was "trying

to figure out the reserve correction and we need an explanation for that and

whether it's appropriate and whether or not we want evidence that if there is

an adjustment necessary to the portfolio that they have in fact been making

it, as required by the agreement."  During that telephone conversation with

Browne, Maughn was not told that Inter-American was no longer maintaining the

portfolio. 

	While in Chicago on other business in November 1991, Maughn stopped by

the Inter-American offices.  Maughn, Rick Browne and Jim Knutson participated

in a meeting on November 5, 1991.  Maughn recalled that during the meeting,

"We discussed the requirements under our agreement about maintaining the

segregated asset portfolio, including the asset liability analysis, which it

also requires, and in essence, we were told we would be given the portfolio,

but we were also told that they had not been doing the analysis in accordance

with the agreement at this time."  He further testified that, "The point is I

suppose we could have walked away.  They weren't performing under the

agreement, but we did acknowledge that with the portfolio, it would be

possible-- it would be possible with the portfolio to establish what the

appropriate amounts of relief they should have been reporting was."  He stated

that at this November 5, 1991, meeting, Inter-American was still promising to

provide the portfolio.  He further testified, "In fact, they were still asking

us for additional relief at this point.  When we subsequently learned that

they aren't maintaining the portfolio, it kind of becomes clear why they

didn't tell us at this meeting."  In a letter written on November 19, 1991,

from Maughn to Browne, Maughn indicated that ERAC was still looking forward to getting the portfolio of assets as maintained over the years.  

	Maughn reviewed the packet of documents provided to Fields in December

1991 and he described it as "garbage" and "it in no way, shape or form is it

close to the portfolio of assets and an indication of what had been invested

and reinvested, sold, bought, balances."  Maughn testified that this packet

was the first indication that Inter-American was not maintaining the

portfolio.

	During trial, on June 12, 1998, ERAC moved to voluntarily dismiss,

without prejudice, its amended cross-motion for declaratory relief.  That

motion was granted.  

	The Liquidator filed a motion for leave to file its third amended

counterclaim on June 15, 1998.  The Liquidator's third amended counterclaim

alleged breach of contract and asserted that Inter-American had substantially

performed all of its material obligations under the treaties as of the date of

liquidation.  In the alternative, the amendment alleged that the Liquidator

and Inter-American substantially performed all of their material obligations

under the SAPA "except insofar as they had been waived by ERAC expressly and

by consistent course of performance."  ERAC objected to the amendment.  The

court took the motion to amend under advisement. 

	In its May 23, 2000, ruling, the trial court granted the Liquidator

leave to file its third amended complaint and found in favor of the

Liquidator.  Relative to the existence of consideration, the court held that

"[c]ertainly ERAC knew that Inter-American had not performed the Regulation

126 testing" and ERAC "certainly benefitted from its relationship with Inter-

American."  Finally, based on the testimony of Raymond Schlude, an ERAC actuary, the court found that the Liquidator presented an adequate basis for

the court to award damages.

	On June 23, 2000, the Liquidator filed a motion for prejudgment interest

on the court's award of $9,552,215.  On August 25, 2000, the court granted the

Liquidator's motion for prejudgment interest on the breach of contract claim

award and ordered ERAC to pay a total of $11,137,177 million to the

Liquidator.

ANALYSIS

I

	The first issue is whether the SAPA provides coverage for the "Class C"

claims presented to it after Inter-American’s liquidation.  For purposes of

this appeal, Class C insureds generally involved living insureds with no

claims at the time of Inter-American's insolvency.  ERAC asserts that the SAPA

was an executory contract that the Liquidator did not assume and under which

it has no postliquidation rights.  ERAC asks that the lower court decision be

reversed.  The Liquidator responds that the contracts were not executory on

the date of liquidation because Inter-American's material obligations with

respect to reinsurance "then-owed" had all been performed.

	The Liquidator also asserts that ERAC has waived its argument that ERAC

had no contractual obligation to Class C policyholders.  We agree.  During a

pretrial hearing on September 7, 1994, before the Honorable Edward C. Hofert,

the following colloquy occurred:

	   "MR. SUNU [ERAC attorney]:  When Inter-American went into liquidation

in December of 1991, that policyholder knew exactly what the cash

surrender value of his policy was.  And we believe that that is the value that the policyholder claims should be.  

	   It is set forth in the contract documents between Inter-American and

the policyholder.  We believe it is a fair -- 

	   THE COURT: Is there anything in the policy itself which would

enlighten us as to the expectations of the policyholder?

	   MR. SUNU: I think that's the cash surrender value.

	* * *

	   MR. SUNU: Your honor, we as a reinsurer, we are not saying we don't  	have to pay these claims.

	   THE COURT: You are just saying that the amount should be less?

	   MR. SUNU: That's right.  Because we believe that the formula that they are using is inflating the policyholder's claim value.

	   THE COURT: All right."

The court ruled as follows:

	   "THE COURT: All right. ***

	   The court feels that the insurance companies and reinsurance

companies have a duty to the policyholders.

	   To what extent that duty is, is dependent to the extent that, I

suppose, it is measured by the damage which is afforded to that

particular party.

	   * * *

	   And I believe the reinsurance company by virtue of taking the

premiums accepts the risk, a risk that they could ameliorate by cautious

audit and so forth.

	   Under the circumstances, I will approve the Liquidator's plan and overrule the objections.  And will sign an order to that effect." 

(Emphasis added.)

	In November 1995, during a hearing before Judge McBride on 

the parties' cross-motions for declaratory judgment, attorney William Snyder

for Alabama Re stated to the court:

	   "MR. SNYDER: There was never any issue of this litigation as to whether policyholders who fell within example C, people who had survived

and simply had policies in place, had some claim against the estate.  The only issue is that to be valued." (Emphasis added.)

	Judge McBride ruled:

	   "THE COURT: *** Having reviewed all of that, I'm going to grant the

liquidator's request for declaratory relief, and I find that the

contracts are not executory.  

	   Although the liquidator asked for alternative relief, I'm finding

today that the contracts are not executory.  

	   I'll enter an order to that effect, and those obligations at the

time, as of the date of liquidation, are going to be recoverable.

	   So that is the order.  It may be written up as such.  And that is

based upon the authority, and I find that the authority cited by the

liquidator is more persuasive, and in particular, In re Sudbury.  So

that will be the order today."

Based on these colloquies, we hold that ERAC has waived its argument that the

reinsurance contracts do not provide coverage for the Class C living insureds

at the time of insolvency.  Even if the argument were not waived, we would

nonetheless hold that the contracts were not executory at the time of liquidation.

	The construction of an insurance policy is a question of law subject to

de novo review.  American States Insurance Co. v. Koloms, 177 Ill. 2d 473, 479-80, 687 N.E.2d 72 (1997).  Although there is no precise definition of what

contracts are executory, they are generally contracts on which performance

remains due to some extent on both sides.  In re Reda, 54 B.R. 871 (Bankr. N.D. Ill. 1985).  The widely accepted definition provides that a contract is

executory if the "obligation[s] of both the bankrupt and the other party to

the contract are so far unperformed that the failure of either to complete

performance would constitute a material breach excusing performance to the

other."  In re Liquidation of Inter-American Insurance Co. of Illinois, 303 Ill. App. 3d 75, 97, citing V. Countryman, Executory Contracts in Bankruptcy: Part I, 57 Minn. L. Rev. 439, 460 (1973).  

	Section 194 of the Illinois Insurance Code (215 ILCS 5/194 (West 1994))

provides:

	   "The rights and liabilities of the company and of its creditors,

[and] policyholders *** shall be fixed as of the date of the entry of

the Order directing liquidation or rehabilitation unless otherwise

provided by Order of the Court."  215 ILCS 5/194 (West 1994).

	Relative to the instant case, the trial court in deciding that the

reinsurance contracts were not executory at the time of liquidation found In re Sudbury, 153 B.R. 776 (Bankr. N.D. Ohio 1993), instructive.  In Sudbury, the bankruptcy debtor requested a declaration that its insurance policies and

related premium agreements were not executory contracts.  Sudbury, 153 B.R. at 776.  In that case, the insurers adjusted, administered, and paid claims arising from occurrences that took place during the policy period.  Sudbury, 153 B.R. at 777.  The court ruled that the insurance polices of the insolvent

company were not executory contracts.  Sudbury, 153 B.R. at 778.  The Sudbury court reasoned that "denying executory contract status to the Policies would

not impair the Insurer's rights or remedies. *** Therefore, not treating the

Policy as an executory contract will not affect the [i]nsurers."  Sudbury, 153 B.R. at 780. 

	In our view, when Inter-American became insolvent, its failure to

maintain the portfolio did not excuse ERAC's performance.  Inter-American paid

premiums to ERAC and ERAC accepted those payments.  ERAC's duty, in turn, was

to provide reinsurance.  Because the contracts were not executory, ERAC was

still obligated under them.  Importantly, in the instant case, based upon a

formula that has been recognized and accepted for determining the value of

policies when the policyholders are alive when an insolvency occurs, the

parties stipulated that the policies at issue had a net value of $9.55

million.  In our view, the trial court did not err in finding that the

reinsurance agreement obligated ERAC to pay the Class C insureds the net

present value of their policies at the time of Inter-American's liquidation.  

II

	ERAC also contends that the trial court erred when it denied its motion

for directed finding.  The Liquidator responds that ERAC waived its right to

appeal that denial when it introduced its own evidence and did not renew the

motion at the close of its case in chief.  Generally, where a defendant elects

to present evidence following the denial of his motion for a directed finding,

any error in the trial court's ruling on the motion is waived unless the defendant renews the motion at the close of all the evidence.  People v. Clark, 221 Ill. App. 3d 303, 310, 581 N.E.2d 722 (1991); People v. Wilson, 143 Ill. 2d 236, 245, 572 N.E.2d 937 (1991).  The record reveals that ERAC's

motion was not renewed at the close of all the evidence.  Therefore, ERAC's

contention has been waived. 

	Even if ERAC's argument had not been waived, we hold that the trial

court's decision to deny ERAC's motion for a directed verdict was not against

the manifest weight of the evidence.  See Denis F. McKenna Co. v. Smith, 302 Ill. App. 3d 28, 31, 704 N.E.2d 826 (1998).  In support of its motion for directed verdict, ERAC argued that the Liquidator had not met its burden of

proving that Inter-American met all of the material obligations of the

contract.  The Liquidator responded that ERAC acquiesced to Inter-American's

noncompliance and ERAC would gain an unfair advantage by being allowed to walk

away from the contract after the acquiescence. 

	To meet the burden in a breach of contract action, the plaintiff must

establish an offer and acceptance, consideration, definite and certain terms

of the contract, plaintiff's performance of all required contractual

conditions, the defendant's breach of the terms of the contract, and damages

resulting from the breach.  Mannion v. Stallings & Co., 204 Ill. App. 3d 179, 186, 561 N.E.2d 1134 (1990).  At the time of ERAC's first motion for directed

verdict, Rick Browne of Inter-American, actuary Raymond Schlude, and special

deputy Gallanis all testified for the Liquidator.  Their testimony provided

information as to the offer, the acceptance, the terms of the contract, Inter-

American's fulfillment of the material terms of the contract by paying

premiums to ERAC, the fact that ERAC refused to pay to Class C policyholders, and the damages ERAC still owed to the Inter-American estate. 

III

	At trial, ERAC argued that the Liquidator’s third motion to amend was

untimely and changed the theory of the entire case.  On appeal, ERAC maintains

that the trial court erred in allowing the Liquidator to amend his

counterclaim.  The Liquidator responds that ERAC was not prejudiced by the amendment.

	In Illinois, courts are encouraged to freely and liberally allow the

amendment of pleadings.  Barille v. Sears Roebuck & Co., 289 Ill. App. 3d 171, 179, 682 N.E.2d 118 (1997).  The circuit court has broad discretion in ruling

upon motions to amend pleadings, and its ruling will not be disturbed absent

an abuse of discretion.  Barille, 289 Ill. App. 3d at 179.  To determine whether the circuit court abused its discretion, four factors are considered: 

(1) whether the proposed amendment is timely; (2) whether previous

opportunities to amend the pleading can be identified; (3) whether other

parties will sustain prejudice or surprise by virtue of the proposed

amendment; and (4) whether the proposed amendment will cure the defective

pleading.  Barille, 289 Ill. App. 3d at 179.  

	Amendments ordinarily will not be permitted after trial has begun if the

proposed amendment raises matters of which the pleader had full knowledge at

the time of interposing the original pleading and there is no excuse for

failing to raise those matters in the original pleading.  Bank of Chicago v. Park National Bank, 266 Ill. App. 3d 890, 904, 640 N.E.2d 1288 (1994).  A trial court has broad discretion to allow the addition of new defenses on just

and reasonable terms at any time before final judgment so long as other parties do not thereby sustain undue prejudice or surprise.  See 735 ILCS 5/2-

616 (West 1994).  

	In our view, the trial court did not abuse its discretion in allowing

the Liquidator to file its third amended complaint.  The record shows that the

Liquidator's answer to counts II through VI of ERAC's amended cross-motion for

declaratory relief and counterclaim included the affirmative defense of

waiver.  Moreover, in light of the fact that at the time of the filing of the

third amended complaint, ERAC sought dismissal of its counterclaims, it stands

to reason that the Liquidator wished to preserve its affirmative defense

absent those counterclaims.

IV

	ERAC's final contention is that the trial court erred in holding that

the Liquidator established the waiver of strict compliance with the terms of

the contract.  We hold that the court did not err in finding that ERAC waived

strict compliance.  Parties to a contract have the power to waive provisions

placed in the contract for their benefit and such a waiver may be established

by conduct indicating that strict compliance with the contractual provisions

will not be required.  Whalen v. K mart Corp., 166 Ill. App. 3d 339, 343, 519 N.E.2d 991 (1988).  An implied waiver of a legal right may arise when conduct

of the person against whom waiver is asserted is inconsistent with any other

intention than to waive it.  Whalen, 166 Ill. App. 3d at 343.  Whether there was in fact a waiver of contractual provisions depends upon the intent of the

nonbreaching party.  Whalen, 166 Ill. App. 3d at 343.  If a party has intentionally relinquished a known right, either expressly or by conduct

inconsistent with an intent to enforce that right, the party has waived it and may not thereafter seek judicial enforcement.  Whalen, 166 Ill. App. 3d at 343.  Whether waiver has occurred is a question of fact when the material

facts are in dispute or where reasonable minds might differ in the inferences

to be drawn from undisputed facts.  Melrose Park National Bank v. Carr, 249 Ill. App. 3d 9, 16, 618 N.E.2d 839 (1993).  

	 The trial court in the instant case outlined the indications and

implications of ERAC's conduct.  The court wrote in its final order:     

	   "Certainly ERAC knew that Inter-American had not performed the

Regulation 126 testing as set forth in the SAPA yet ERAC continued to

receive payments from Inter-American.  If the testing was a material

breach, it was waived by ERAC's conduct.  ERAC did not demand the

testing and therefore cannot now be heard to complain." 

Further the court wrote, "Here ERAC certainly benefitted from its relationship

with Inter-American.  It is uncontested that ERAC received a fee for its

services although my notes do not reflect the amount.  I find that we do have

consideration."  It is our view that ERAC accepted reinsurance premium

payments from Inter-American over an extended period without complaining of or

objecting to Inter-American's method of portfolio maintenance.  Therefore,

ERAC waived strict compliance with the Inter-American's portfolio maintenance.

	For the foregoing reasons, we affirm the holding of the trial court.  

	Affirmed.

	tTullULLY ANDand McNULTY, JJ., Cconcur.ONCUco