In the

United States Court of Appeals

For the Seventh Circuit

No. 13-2252

WEST BEND MUTUAL INSURANCE

COMPANY,

Plaintiff-Appellant,

v.

PROCACCIO PAINTING & DRYWALL

COMPANY, INC.,

Defendant-Appellee.

Appeal from the United States District Court 

for the Northern District of Illinois, Eastern Division.

No. 12-CV-06425 — Harry D. Leinenweber, Judge. 

ARGUED DECEMBER 9, 2013 — DECIDED JULY 10, 2015

Before WILLIAMS, SYKES, and HAMILTON, Circuit Judges.

SYKES, Circuit Judge. This case requires us to explore the

arcana ofworkers’ compensation insurance—more specifically,

the complex formula used to calculate an employer’s annual

premium for this coverage.
2 No. 13-2252

For many years Procaccio Painting & Drywall Company,

Inc., a large Illinois construction contractor, purchased its

workers’ compensation insurance from West Bend Mutual

Insurance Company, a Wisconsin-based insurer. Because

Procaccio paid above-average wages, it was entitled to a

special premium credit under the Illinois Contracting Classification Premium Adjustment Program. The parties referto this

as the “ICC credit,” so we’ll use that shorthand too. The

amount of the ICC credit was calculated by a third party—the

National Council on Compensation Insurance (“National

Council”)—but typically not until after West Bend renewed

Procaccio’s annual policy and estimated its new premium

based on otherrating factors. As a high-wage union contractor

with a large work force, Procaccio was entitled to a substantial

ICC credit every year.

This litigation concerns three policy years: 2006, 2007, and

2010. West Bend’s general practice was to apply the ICC credit

via an endorsement to the policy after the National Council

determined the amount. During these three years, however,

West Bend largely offset the ICC credit by simultaneously

reducing a different credit, known as the Schedule Modification credit, which it had temporarily inflated when initially

estimating Procaccio’s premium at the time the policy was

renewed. This manipulation of the two credits—artificially

inflating one and later using the other to offset the inflation—was apremium-stabilizationmeasure intended to benefit

Procaccio by ensuring that it did not have to pay excessive

monthly premiums while waiting for the National Council to

calculate the ICC credit. Or so says West Bend.
No. 13-2252 3

The problem is that the insurance policy doesn’t mention

this credit-offset procedure. West Bend claims that Procaccio’s

president orally blessed the arrangement.Procaccio denies that

and raises the parol-evidence rule to block any evidence of an

oral “side agreement” to “front” the ICC credit in this way.

Procaccio contends that West Bend’s offset procedure effectively nullified its ICC credit forthese policy years, resulting in

substantial overcharges. The district court agreed and awarded

a large sum in damages.

We affirm. The insurance policy contained no agreement to

adjust the Schedule Modification credit after the ICC credit

became due. West Bend needs parol evidence to prove its

version of the parties’ agreement, but the insurance contract

was fully integrated so any evidence of an oral understanding

with Procaccio’s president is inadmissible. And while West

Bend had the unilateral right to issue endorsements, that

authority is cabined by contractual and statutory restrictions

on its ability to alter its rates. In short, even if the Schedule

Modification credit was artificially inflated for these policy

years, West Bend was not permitted to reduce it based on

Procaccio’s ICC credit.

I. Background

Workers’ compensationinsurance ispremised on retrospective ratings. An employer’s premium depends upon (among

other things) its actual payroll and the classification of its

employees—data that changes during the course of a policy

year. Accordingly, the insurer sets the final premium after the
4 No. 13-2252

policy lapses, and until then the employer pays a series of

estimated premiums. Because of the ongoing need to update

the policy, the insurance contract generally gives the insurer

the unilateral right to modify the contract by subsequent

endorsement. As the facts determining the employer’s rating

change, the insurer will issue endorsements reflecting the

changes.

But the insurer’s right to issue endorsements is not unlimited. Illinois heavily regulates how workers’ compensation

insurers formulate their rates. 215 ILL. COMP. STAT. 5/456. State

law mandates that insurance companies file manuals of

classifications, rules, and rates within 30 days after they

become effective. Id. § 5/457. The law requires insurers to apply

the “correct classifications, payrolls and other factors of a

rating system to compute premiums.” Id. § 5/462b. If an

insurance company incorrectly calculates the premium to the

detriment of an insured, the company must refund the overage. Id. The insured must receive advance notice if the insurance company attempts to raise rates by more than 30% when

renewing a policy. Id. § 5/143.17a. Finally, the parties can cabin

the premium by contracting for a specific formula and minimum and maximum premiums. 

To give an oversimplified example of how this system

works in practice, suppose a car wash has two types of

employees: those who operate the car washing machines and

the salespersons behind the cash register. The car wash may

pay a rate of $2 for every $1,000 of payroll for those who

operate the machines and $1 for every $1,000 of payroll for the
No. 13-2252 5

salespersons. This specific rate—$2 for machine operators and

$1 for salespersons—is fixed ex ante pursuant to the insurance

company’s filed rate plan. But the actual premium can only be

calculated ex post: The car wash will add and lose employees

during the course of the year, and employees will work extra

hours or take days off, depending on workload and personal

circumstances. Consequently, the car wash will pay the final

premium after its policy has expired and it has submitted

actual employment information for the year to the insurer.

Procaccio first contracted with West Bend for workers’

compensation insurance in 2001 and renewed the policy

annually through at least 2010. The three policies at issue here

cover the 2006, 2007, and 2010 calendar years. 

West Bend’s policies were form contracts created by the

National Council. Each policy had several components. The

first was the “information sheet,” which identified the insured

and the actual or estimated premium. The information sheet

also listedthe endorsements. The second component contained

the primary terms and conditions—this was the “policy” in the

conventional sense. The final component was a series of

endorsements, including those for the Schedule Modification

credit and the ICC credit. 

As we’ve noted, workers’ compensation policies are

continually updated throughout the policy year. West Bend

updated Procaccio’spoliciesby issuing new information sheets

and endorsements to reflect changes in the employer’s payroll

history and other elements of the premium formula. For

example, when the National Council issued the ICC credit,
6 No. 13-2252

West Bend would send Procaccio a new information sheet

reflectingthe adjusted premium and an endorsementreflecting

the credit. West Bend calculated Procaccio’s final premium in

an audit conducted during the month of March or April

following the expiration of each annual policy.

1

The policies issued to Procaccio for the three years in

question here contained materially identical terms and conditions. Each one contained the following clause:

A. The Policy

This policy includes at its effective date the

Information Page and all endorsements and

schedules listed there. It is a contract of insurance between you (the employer named in Item

1 of the Information Page) and us (the insurer

named on the Information Page). The only agreements related to this insurance are stated in this

policy. The terms of this policy may not be changed or waived except by endorsement issued by

us to be part of this policy.

(Emphasis added.) Because the three policies were identical in

all relevant respects, we will refer to them collectively as “the

policy” unless the context requires otherwise.

1 The actual dates of West Bend’s audits were April 24, 2007 (for the 2006

policy); March 25, 2008 (for the 2007 policy); and April 18, 2011 (for the

2010 policy).
No. 13-2252 7

Every yearWest Bend issued an endorsement reflecting the

credit due to Procaccio under the Illinois Contracting Classification Premium Adjustment Program, which subsidizes

employers that pay above-average wages by reducing their

workers’ compensation premiums. The amount of the subsidy

depends on the size of the employer’s work force and its

average hourly wage. As a large, high-wage union employer,

Procaccio usually received a sizable ICC credit every year,

sometimes exceeding $100,000.

To obtain the ICC credit (also called the ICC “factor”),

Procaccio had to apply to the National Council, which is tasked

with calculating the amount of the credit. This calculation,

however, was often unavailable at policy-renewal time, when

West Bend had to re-estimate Procaccio’s annual premium. So

the policy carried the following general endorsement:

The premium for the policy may be adjusted by

an Illinois Contracting Classification Premium

Adjustment factor. The factor was not available

when the policy was issued. If you qualify, or if

an estimated factor has been applied, we will

issue an endorsement to show the proper premium adjustment factor after it is calculated.

When the National Council later calculated the amount of

Procaccio’s ICC credit, West Bend would issue a specific

endorsement applying the credit to the previously estimated

premium.

Because Procaccio usually received a large ICC credit every

year, West Bend claims that the parties agreed to a special
8 No. 13-2252

arrangement forthe 2006, 2007, and 2010 policy years whereby

West Bend would “front” the credit to Procaccio. The insurer

did this by inflating a different credit—the Schedule Modification credit—by the amount it anticipated Procaccio would

receive as its ICC credit when the National Council’s calculation eventually became available. When the actual ICC credit

issued, West Bend then decreased the previously inflated

Schedule Modification credit, essentially using the ICC credit

as an offset. West Bend refers to this process as its “premium

adjustment procedure.”

More specifically:

(1) In 2006 West Bend issued an initial Schedule

Modification credit of 51.7%, but reduced the

credit to 30% in a January 26, 2006 endorsement,

amounting to a reduction in the credit of

$180,681.

(2) In 2007 West Bend issued an initial Schedule

Modification credit of 53%, but reduced the

credit to 30% in a January 2, 2007 endorsement,

amounting to a reduction in the credit of $78,053.

(3) In 2010 West Bend issued an initial Schedule

Modification credit of 10%, but reduced the

credit to 7% in a March 25, 2010 endorsement,

amounting to a reduction in the credit of $1,199.

If West Bend’s allegations about the offset procedure are

true, this method of fronting the credit was odd. The ICC credit

and the Schedule Modification credit are separate adjustments
No. 13-2252 9

to the premium. Insurance companies use the Schedule

Modification credit to adjust premiums based on workplace

risk factors not otherwise adequately reflected in the premium

formula. These adjustments are spelled out in a Schedule

Rating Plan. (We’ll explain this part of the premium formula in

more detail later.)

West Bend contends that Doris Procaccio, the company’s

president, orally agreed to this fronting arrangement after

West Bend agents personally explained it to her and sent her

written information about it via e-mail. Procaccio denies that

allegation.

In 2011 Procaccio retained an auditing firm to review its

workers’ compensation insurance for excessive charges. The

auditors found what they thought were overcharges and on

Procaccio’s behalf sent a letter to the Illinois Department of

Insurance alleging that West Bend had overcharged Procaccio

during the three policy years based on the credit-offset

procedure we’ve just described. The Department concluded

that the offsets were not authorized by Illinois law, see

§ 5/143.17a, though it acknowledged that the arrangement was

“beneficial to the insured,” obliquely suggesting that Procaccio

would reap a windfall by keeping the benefit of both the

inflated Schedule Modification credit and the full ICC credit.

West Bend requested a hearing, arguing that

section 5/143.17a, which regulates how an insurance company

provides notice before materially altering its rates, was

inapplicable. TheDepartmentdeclined the request, concluding

that the parties’ dispute did not raise a regulatory concern but
10 No. 13-2252

instead was a contract matter between the insurer and its

insured.

West Bend then brought this suit seeking a declaratory

judgment that the credit offsets were proper and no refund

was owed. Procaccio counterclaimed alleging that West Bend

breached the insurance policy and also violated Illinois

insurance law, § 5/462b, because the procedure used to alter

the premiums did not comport with the insurer’s Schedule

Rating Plan. 

Ruling on Procaccio’s motions to dismiss and for summary

judgment, the district judge held that the insurance policy was

an integrated contract and therefore parol evidence of an oral

agreement to front Procaccio’s ICC credit was barred. Because

the credit-offset procedure was extracontractual, the judge

concluded that West Bend’s premium adjustments breached

the insurance policy, resulting in overcharges forthe contested

policy years. The judge awarded damages of $259,933 plus

$72,439.20 in prejudgment interest. This award fully compensated Procaccio; there was no need to address the additional

claim that the offsets violated Illinois insurance law.

II. Discussion

The judgment combines rulings on Procaccio’s motions to

dismiss and for summary judgment, which we review de novo.

See Carter v. City of Milwaukee, 743 F.3d 540, 543 (7th Cir. 2014)

(summary judgment); Bonte v. U.S. Bank, N.A., 624 F.3d 461,

463 (7th Cir. 2010) (motion to dismiss). Illinois law controls this
No. 13-2252 11

dispute. See Ryerson Inc. v. Federal Ins. Co., 676 F.3d 610, 611–12

(7th Cir. 2012).

Illinois courts interpret insurance policies under the same

rules of construction as other contracts. Hobbs v. Hartford Ins.

Co. of the Midwest, 823 N.E.2d 561, 564 (Ill. 2005). Insurance

contracts are construed as a whole, and policy language is

interpreted in accordance with its plain meaning. Gen. Cas. Co.

of Ill. v. Carroll Tiling Serv., Inc., 796 N.E.2d 702, 707–08 (Ill.

App. Ct. 2003). Unambiguous language is given effect unless

it violates public policy. Hobbs, 823 N.E.2d at 564.

A. West Bend’s Policy Was Integrated

For West Bend to prevail, it must prove that Procaccio

agreed to the credit-offset procedure we’ve described above.

On its face the insurance policy contains no such agreement.2

West Bend’s case depends on parol evidence of a separate

understanding between the parties. But the parol-evidence rule

bars extrinsic evidence of separate terms if the written contract

was integrated—that is, if it was intended to be the final and

complete expression of the parties’ agreement. So our first

question is whether the insurance contract was integrated. We

conclude that it was.

2 West Bend insists that its authority to offset the credits can be found by

implication from a broad reading of its general authority to issue endorsements. We address this argument in the next section.
12 No. 13-2252

A written contract is fully integrated when it is intended by

the parties to be a complete and exclusive statement of the

agreement’s terms; a contract is only partially integrated if it is

intended as an incomplete expression (though a final expression on certain terms). See J & B Steel Contractors, Inc. v. C. Iber

& Sons, Inc., 642 N.E.2d 1215, 1219–20 (Ill. 1994); RESTATEMENT

(SECOND) OF CONTRACTS § 210 (1981). When a contract is fully

integrated, the parol-evidence rule bars evidence of prior or

contemporaneous agreements within the scope of the written

contract. If a contract is only partially integrated, the parolevidence rule permits evidence of consistent additional terms,

but parol evidence may not be used to explain the writing or

to introduce terms that contradict the written agreement. Merk

v. Jewel Food Stores Div. of Jewel Cos., 945 F.2d 889, 892–93 (7th

Cir. 1991); RESTATEMENT(SECOND)OFCONTRACTS§ 213. Finally,

if the contract is integrated, parol evidence is not admissible for

the purpose of showing that a facially unambiguous provision

contains a latent ambiguity. Air Safety, Inc. v. Teachers Realty

Corp., 706 N.E.2d 882, 885 (Ill. 1999).

As we’ve noted, West Bend’s policy contains the following

clause: “The only agreements related to this insurance are stated in

this policy. The terms of this policy may not be changed or waived

except by endorsement issued by us to be part of this policy.” This is

standardized language common to many insurance contracts.

In a case involving identical policy language, the Illinois

Appellate Court held that the contract was integrated.3 Carroll

3 The court in Carroll Tiling Service ultimately found an ambiguity in the

(continued...)
No. 13-2252 13

Tiling Serv., 796 N.E.2d at 708 (explaining that the “only

agreement” language “limits the terms of the insurance

contract to those contained in the policy”).

Other courts too have held that insurance policies containing similar language are integrated. See, e.g., State Farm Mut.

Auto. Ins. Co. v. Rodriguez, 987 N.E.2d 896, 905 (Ill. App. Ct.

2013) (finding that logically equivalent language—“[t]his

policy contains all of the agreements between [certain

parties]”—is an integration clause); see also Woods Masonry, Inc.

v. Monumental Gen. Cas. Ins. Co., 198 F. Supp. 2d 1016, 1031

(N.D. Iowa 2002); Curran v. Indus. Comm’n of Ariz., 752 P.2d

523, 524 (Ariz. Ct. App. 1988); Liberty Mut. Ins. Co. v. Ben Lewis

Plumbing, Heating & Air Conditioning, Inc., 710 A.2d 338, 342

(Md. Ct. Spec. App. 1998); Nat’l Union Fire Ins. Co. of Pittsburgh

v. St. Barnabas Cmty. Enters., 851 N.Y.S.2d 473, 474 (N.Y. App.

Div. 2008).

West Bend argues that the policy was not integrated

because it allowed for future endorsements. The possibility of

future endorsements does not defeat integration. An integration clause precludes consideration of prior and contemporaneous oral agreements; it says nothing about the parties’ ability to

amend or negotiate new contractual terms in the future. See In

re Vic Supply Co. Inc. v. Bank One Ill., N.A., 227 F.3d 928, 933 (7th

3

 (...continued)

relationship between two provisions in the policy and thus admitted

extrinsic evidence. See Gen. Cas. Co. of Ill. v. Carroll Tiling Serv., Inc.,

796 N.E.2d 702, 708 (Ill. App. Ct. 2003).
14 No. 13-2252

Cir. 2000). The fact that West Bend reserved the right to amend

the policy by subsequent written endorsement does not

address the question whether the policy was integrated with

respect to prior or contemporaneous oral terms.

West Bend cites two cases to support its position that the

policy was not integrated. The first construed policy language

appearing under the heading “Changes” and addressing how

the policy could be amended:

This Policy contains all the agreements between

you and us concerning the insurance afforded.

The first Named Insured shown in the Declarations is authorized to make changes in the terms

of this policy with our consent. This policy’s

terms can be amended or waived only by endorsement issued by us and made a part of the

policy.

Cincinnati Ins. Co. v. River City Const. Co., 757 N.E.2d 676, 681

(Ill. App. Ct. 2001), overruled on other grounds by Home Ins. Co. v.

Cincinnati Ins. Co., 821 N.E.2d 269 (Ill. 2004). The Illinois

Appellate Court concluded that this language “does not

express the parties’ intent to establish the contract as their

entire and integrated agreement superceding all other agreements. Rather, the Changes clause prevents unilateral modifications of the policy.” Id. West Bend’s second case is a decision

of a federal district court in Northern Illinois simply following

the holding of Cincinnati Insurance without further analysis. See

Longview Aluminum, L.L.C. v. United Steel Workers of Am.,

213 F. Supp. 2d 876, 881 (N.D. Ill. 2002).
No. 13-2252 15

We’re not persuaded that these cases undermine the plain

meaning of the “only agreements” clause in West Bend’s

policy. Read as a whole, the provision at issue in Cincinnati

Insurance focused on how the policy could be changed; it was

titled “Changes,” after all, and the second and third sentences

of the provision addressed mutual amendments and unilateral

endorsements by the insurance company. More importantly,

however, the Cincinnati Insurance court never explained how

the first sentence in the “Changes” clause—“[t]his Policy

contains all the agreements between you and us concerning the

insurance afforded”—was insufficient as an integration clause.

The “all agreements” language is unambiguous and ordinarily

indicates that the contract is integrated, as the Illinois Appellate Court held in another case. See State Farm Mut. Auto. Ins.

Co., 987 N.E.2d at 905 (holding that identical “all agreements”

language—“[t]his policy contains all of the agreements

between [the parties]”—is an integration clause). 

Moreover, as we’ve already noted, an insurance policy can

be both integrated and also reserve the insurer’s right to issue

endorsements. To repeat: integration clauses exclude extrinsic

evidence of prior and contemporaneous agreements; they do not

preclude later contractual amendments in accordance with

rights reserved in the contract. The Cincinnati Insurance court

overlooked this point, and the district court in Longview simply

followed Cincinnati Insurance with no independent analysis.

For these reasons, we do not find either case persuasive.

Nor are we permitted to look to extrinsic evidence for the

purpose of determining whether the insurance contract is
16 No. 13-2252

integrated in the first place. For cases outside the scope of the

Uniform Commercial Code, Illinois courts look to the writings

alone to determine whether a contract is integrated, which is a

question of law for the court. Davis v. G.N. Mortg. Corp.,

396 F.3d 869, 878 (7th Cir. 2005); J & B Steel Contractors,

642 N.E.2d at 1219; Eichengreen v. Rollins, Inc., 757 N.E.2d 952,

957 (Ill. App. Ct. 2001). Illinois thus breaks from the modern

approach, which permits parol evidence to determine whether

the contract is integrated. J & B Steel Contractors, 642 N.E.2d at

1219. See generally RESTATEMENT(SECOND) OFCONTRACTS § 214

(adopting the modern approach).

Accordingly, West Bend’s case stumbles as it leaves the

gate. The insurance contract expressly provides that the only

agreements between West Bend and Procaccio are those stated

in the policy. West Bend’s case relies on a separate agreement

with Mrs. Procaccio. But where, as here, the contract is integrated, the parties are limited to the four corners of the written

agreement for any matter within the scope of the agreement.

Because West Bend’s policy was integrated, parol evidence of

the alleged separate agreement is inadmissible.

B. Nothing in the Insurance Policy Allows the Credit Offsets

With parol evidence off the table, West Bend must establish

a basis for the credit-offset procedure in the language of the

policy itself. The insurer claims that several provisions contemplate the procedure, if only implicitly. First, West Bend points

to the ICC Adjustment Endorsement, which states: 
No. 13-2252 17

The premium for the policy may be adjusted by

an Illinois Contracting Classification Premium

Adjustment factor. The factor was not available

when the policy was issued. If you qualify, or if

any estimated factor has been applied, we will

issue an endorsement to show the proper premium

adjustment factor after it is calculated.

(Emphasis added.) West Bend argues that the highlighted

language authorized it to manipulate the Schedule Modification credit as it did. We do not see how. The endorsement’s

reference to the “proper premium adjustment factor” can only

be read to referto the subject matter of the endorsement, which

is the ICC credit (or “factor”). Nothing in this language implies

the authority to offset another, completed unrelated credit by

the amount of the ICC credit.

Second, West Bend relies on its general authority to issue

endorsements, arguing that endorsements are valid and

enforceable parts of the policy. That’s certainly true, see

Rockford Mut. Ins. Co. v. Econ. Fire & Cas. Co., 576 N.E.2d 1141,

1144 (Ill. App. Ct. 1991), but it doesn’t help West Bend’s

position. The insurer’s authority to adjust the Schedule

Modification credit by endorsement is subject to contractual

and regulatory limits.

Workers’ compensation insurersuse Schedule Rating Plans

to adjust their premiums to account for risk characteristics not

encompassed by other rating factors. West Bend’s Schedule
18 No. 13-2252

Rating Plan identified six workplace-safety characteristics,

together with a range of permissible modifications.4

As a general matter, the policy states that the premium

“will be determined by our manuals ofrules, rates, rating plans

and classifications. We may change our manuals and apply the

changes to this policy if authorized by law or a governmental

agency regulating this insurance.”5 And Illinois law requires

insurance companies to “apply correct classifications, payrolls

and other factors of a rating system to compute premiums.”

§ 5/462b.

4 Risk Characteristics Range of Modification

1. Premises–Upkeep, condition 20% credits – 30% debit

2. Classification Peculiarities 15% credits – 30% debit

3. Medical Facilities 10% credits – 30% debit

4. Safety Devices 10% credits – 30% debit

5. Employees—Selection, 20% credits – 30% debit

 training, supervision and

 experience

6. Management 10% credits – 30% debit

The total range of modifications could not exceed 70%, either as credits or

debits.

5 Another page contained similar language: “THE PREMIUM FOR THIS

POLICY WILL BE DETERMINED BY OUR MANUALS OF RULES,

CLASSIFICATIONS, RATES, AND RATINGPLANS.ALLINFORMATION

REQUIRED BELOW IS SUBJECT TO VERIFICATION AND CHANGE BY

AUDIT. ADJUSTMENT OF PREMIUM SHALL BE MADE ANNUALLY.”
No. 13-2252 19

The district judge was underthe impression that West Bend

conceded that any “changes must conform to its manuals of

rules, rates, rating plans and classifications.” The judge

accordingly concluded that West Bend violated the policy by

altering the Schedule Modification credit without justifying the

change based on the relevant risk characteristics in its Schedule

Rating Plan.

This reasoning rests on a faulty understanding of West

Bend’s position. West Bend conceded only that the final

premium had to comport with its Schedule Rating Plan. The

policy required West Bend to apply its rating plan, and Illinois

law mandates that workers’ compensation insurers apply

correct classifications, based on their rating plans, to compute

an employer’s premium.Whenaltering an already properly set

rate, an endorsement must conform to the insurer’s rating plan

in orderforthe final premium to comport with the plan. But if,

for example, an initial credit is set at an erroneous level, an

endorsement correcting the credit would result in a premium

that complied with both the policy and Illinois insurance law,

even if the amount of the adjustment itself could not be justified

by the factors listed in the insurer’s rating plan.

So although West Bend agrees that the actual final premium

must be based on correct classifications and rates it had on file

with the Illinois Department of Insurance, it insists that these

requirements are irrelevant to the premium-adjustment

procedure at issue here. West Bend thus argues that its

Schedule Rating Plan does not control how the insurer and its

insured may agree to structure the premium, and that in the
20 No. 13-2252

end, Procaccio’s final premiums for the three contested policy

years conformed to its approved rates on file with the Department. Put more succinctly, West Bend argues that fronting the

ICC credit through the Schedule Modification credit did not

actually alter Procaccio’s final premium. Rather, Procaccio

simply received the benefit of not having to pay a higher

estimated premium while awaiting the calculation of its ICC

credit.

For this argument to work, West Bend must show that the

initial Schedule Modification credits issued during the three

policy years were not the “true” credits. For example, in 2006

West Bend initially issued a Schedule Modification credit of

51.7% and later reduced it to 30% when Procaccio’s ICC credit

issued. West Bend’s argument rests on the premise that 30% is

the true Schedule Modification credit, while the initial 51.7%

included both the true credit and the estimated ICC credit.

As we’ve noted, the premium discount reflected by the

Schedule Modification credit is determined by West Bend’s

filed rates, which look to such safety factors as the employer’s

upkeep of its workplace, the existence of safety equipment, and

the presence of medical facilities on the premises. West Bend

may have some discretion in setting the precise Schedule

Modification credit because its ScheduleRatingPlanauthorizes

a broad range for each of these risk characteristics. For example, the Schedule Rating Plan authorizes a 10% credit to 30%

debit for the presence or absence of onsite medical facilities.

But it’s not at all clear whether West Bend’s rating plan
No. 13-2252 21

meticulously controls the credit or debit amount within this

range, or if West Bend exercises discretion.

If West Bend’s rating plan controls the exact amount of

credit or debit issued, then West Bend should be able to

produce evidence showing which of the two figures was the

true Schedule Modification credit for the contested policy

years. The factors listed in the Schedule Rating Plan—the

condition of Procaccio’s premises, the existence of safety

features, and so on—are extrinsic facts that justify a certain

rate. In fact, the Schedule Rating Plan itself requires West Bend

to maintain evidence justifying the specific credit or debit it

provides to the insured. And unlike the alleged “side agreement” to front the ICC credit, none of this evidence would be

barred by the parol-evidence rule. In essence, West Bend is

arguing that if it did anything improper in determining the

Schedule Modification credit, it was in setting the initial credit

at an inflated level, not in subsequently modifying it. But to

support this claim, West Bend needed to produce evidence

(apart from inadmissible parol evidence) showing that the

lower credits during the contested policy years are in fact the

true ones. It has not proffered any such evidence.

Instead, West Bend has framed its case around the alleged

oral agreement with Mrs. Procaccio. This amounts to an

argument that the true Schedule Modification credit was set by

stipulation during the contested policy years. But West Bend

cannot make that case without resorting to parol evidence.

In sum, we find no support in the policy for West Bend’s

assertion that the Schedule Modification credit during these
22 No. 13-2252

three policy years included both the true Schedule Modification credit and the ICC estimate. Nor has West Bend explained

how, without resorting to inadmissible parol evidence, it could

prove an agreement to front the ICC credit by temporarily

inflating the Schedule Modification credit.

C. Defenses

West Bend also raises two affirmative defenses to

Procaccio’s counterclaims: laches and equitable estoppel.

Neither defense applies.

1. Laches

Laches is a defense to liability “when a party’s failure to

timely assert a right has caused prejudice to the adverse

party.” Van Milligan v. Bd. of Fire & Police Comm’rs, 630 N.E.2d

830, 833 (Ill. 1994). The defense has two elements: “lack of due

diligence by the party asserting the claim and prejudice to the

opposing party.” Id. West Bend raises a colorable claim that

Procaccio’s failure to assert an overcharge claim after the 2006

policy year took unfair advantage of its contract assumptions

in the 2007 and 2010 policy years. See Monson v. County of

Grundy, 916 N.E.2d 620, 623 (Ill. App. Ct. 2009) (“The doctrine

of laches is grounded on the principle that courts are reluctant

to come to the aid of a party who knowingly slept on his rights

to the detriment of the other party.”). 
No. 13-2252 23

Traditionally, laches is a defense to an equitable claim

“based on the maxim, ‘vigilantibus non dormientibus aequitas

subvenit,’ meaning ‘equity aids the vigilant, not those who

sleep on their rights.’” Ikelionwu v. United States, 150 F.3d 233,

237 (2d Cir. 1998) (quoting Ivani Contracting Corp. v. City of New

York, 103 F.3d 257, 259 (2d Cir. 1997)). With the merger of law

and equity, equitable defenses have been allowed in actions at

law. Maksym v. Loesch, 937 F.2d 1237, 1248 (7th Cir. 1991). But

cf. Petrella v. Metro-Goldwyn-Mayer, Inc., 134 S. Ct. 1962, 1973

(2014) (invoking the distinction between law and equity and

stating that where Congress has provided a statute of limitations for an action at law, “this Court has cautioned against

invoking laches to bar legal relief”).

As a general matter, Illinois courts have recognized that

laches can apply beyond equity to actions at law. See, e.g.,

Monson, 916 N.E.2d at 624; Bill v. Bd. of Ed., 812 N.E.2d 604, 612

(Ill. App. Ct. 2004). For example, in Bill the Illinois Appellate

Court stated:

While we agree that traditionally, statutes of

limitation were generally applied to legal actions

and the laches doctrine was applied to those

actions based in equity, such “mechanical”

applications are no longerfollowed. Courts have

applied laches to “equity-like” actions, such as

mandamus, to quasi-equitable suits, to actions

where equitable considerations are at the heart of

a claim actually based in law, as well as to purely

legal claims.
24 No. 13-2252

812 N.E.2d at 612 (citation omitted).

This court too has recognized that Illinois has begun to

erode the distinction between legal and equitable defenses.

Nature Conservancy v. Wilder Corp. of Del., 656 F.3d 646, 649–51

(7th Cir. 2011). Still, we have yet to find a case in which an

Illinois court has applied laches to bar a breach-of-contract suit

seeking only monetary damages. Id. at 650–51. West Bend has

not identified one, nor has it argued that developments in

Illinois law require us to revisit our precedent and apply laches

to a breach-of-contract claim. 

Instead, WestBendsimplyrecharacterizesProcaccio’s claim

in equitable terms. Because Procaccio sought damages in the

amount of the excess premiums it paid, West Bend argues that

Procaccio’s counterclaim is really an equitable claim for

disgorgement.

This argument cannot be squared with Illinois law on

contract damages. “The measure of damages for breach of

contract is the amount that will compensate the aggrieved

party for the loss ‘which either fulfillment of the contract

would have prevented or which the breach of it has entailed.’”

Santorini Cab Corp. v. Banco Popular N. Am., 999 N.E.2d 46, 52

(Ill. App. Ct. 2013) (quoting LeFevour v. Howorka, 586 N.E.2d

656, 658 (Ill. App. Ct. 1991)). Disgorgement recovers the benefit

that the defendant gained from the wrong, thereby preventing

the wrongdoerfrom profiting by his improper action. Expectation damages, on the other hand, measure the loss to the

injured party caused by the breach; they restore the injured

party to the place it would have been in had the contract been
No. 13-2252 25

performed. See E. Allan Farnsworth, Your Loss or My Gain? The

Dilemma of the Disgorgement Principle in Breach of Contract,

94 YALE L.J. 1339, 1341 (1985). Illinois, like other states, applies

expectation damages to breach-of-contract actions. Santorini

Cab Corp., 999 N.E.2d at 52 (“The purpose of damages is to put

the nonbreaching party into the position he or she would have

been in had the contract been performed ... .” (quoting

Walker v. Ridgeview Constr. Co., 736 N.E.2d 1184, 1187 (Ill. App.

Ct. 2000)).

In a dispute over a price set by contract, as this one is, these

measures are equal. By mispricing its product, West Bend only

gained what Procaccio lost. But the happenstance in a particular case that a party’s loss equals the wrongdoer’s gain does

not transform a breach-of-contract action into an equitable

action for disgorgement. Cf. Sundance Homes, Inc. v. County of

DuPage, 746 N.E.2d 257, 270 (Ill. 2001) (cautioning, with respect

to avoiding a statute of limitations, that “the shrewd

advocate ... will attempt to manipulate the outcome by casting

his action as one in equity in order to take advantage of the

amorphous quality of laches analysis”). Laches does not apply.

2. Equitable Estoppel

In the alternative, but on essentially the same rationale,

West Bend argues that equitable estoppel applies. The similarity is unsurprising; in substance, laches is a doctrine of

estoppel. Maksym, 937 F.2d at 1248.

To claim equitable estoppel, a party must demonstrate that:
26 No. 13-2252

(1) the other person misrepresented or concealed

material facts; (2) the other person knew at the

time he or she made the representations that

they were untrue; (3) the party claiming estoppel

did not know that the representations were

untrue when they were made and when they

were acted upon; (4) the other person intended

or reasonably expected that the party claiming

estoppel would act upon the representations;

(5) the party claiming estoppel reasonably relied

upon the representations in good faith to his or

her detriment; and (6) the party claiming

estoppel would be prejudiced by his or her

reliance on the representations if the other person is permitted to deny the truth thereof.

Geddes v. Mill Creek Country Club, Inc., 751 N.E.2d 1150, 1157

(Ill. 2001).

West Bend can raise equitable estoppel as an affirmative

defense only if it reasonably relied upon Mrs. Procaccio’s oral

representations.Butthe wholepurpose of an integration clause

is to declare that there are no previous or contemporaneous

agreements not contained in the written contract. See E.ALLAN

FARNSWORTH,FARNSWORTHONCONTRACTS§ 7.3 (3d. ed. 2004).

West Bend renews its argument that the insurance policy is not

integrated, but we have decided otherwise. West Bend drafted

the policy and its endorsements, andas a sophisticated contract

partner, it easily could have included the terms of the

premium-adjustment procedure somewhere in the policy
No. 13-2252 27

documents. Using equitable estoppel to admit evidence of a

separate contemporaneous oral agreement would circumvent

the basic purpose of the parol-evidence rule. Cf. Prentice v.

UDC Advisory Servs., Inc., 648 N.E.2d 146, 153 (Ill. App. Ct.

1995) (refusing to extend promissory estoppel in a way that

would undermine the parol-evidence rule). Equitable estoppel

does not apply.

D. Prejudgment Interest

In a separate order, the district court awarded prejudgment

interest from the date of West Bend’s annual audits for each of

the three contested policy years. West Bend objects and argues

that a refund became due (if at all) only after Procaccio alerted

it of a dispute about the final premium. We review the district

court’s ruling for an abuse of discretion. Twenhafel v. State Auto

Prop. & Cas. Ins. Co., 581 F.3d 625, 631 (7th Cir. 2009).

The Illinois Interest Act grants interest of 5% per year “for

all moneys after they become due on any ... instrument of

writing.” 815 ILL. COMP. STAT. 205/2. Insurance policies are

“instruments of writing” under this section, so prejudgment

interest is recoverable from the time the money became “due”

under the policy. Twenhafel, 581 F.3d at 631; N.H. Ins. Co. v.

Hanover Ins. Co., 696 N.E.2d 22, 27 (Ill. App. Ct. 1998). Amounts

are due only if they are fixed or easily calculated. Twenhafel,

581 F.3d at 631. A good-faith dispute “does not preclude the

recovery of prejudgment interest on money due under an

instrument of writing.” N.H. Ins., 696 N.E.2d at 28.
28 No. 13-2252

Under the policies, Procaccio’s final premium became due

when West Bend applied the actual premium basis and proper

classifications under the policy. As we’ve explained, workers’

compensation insurance involves retrospective ratings, so the

final premium was calculated during an audit after the policy

year ended, when West Bend knew Procaccio’s actual employment data for the year. See § 5/462b (requiring insurance

companies to apply correct classifications and refund excess

premiums). The precise amount West Bend owed for improperly lowering the Schedule Modification credit by the amount

of the ICC credit was ascertainable at that time. This was so

even if West Bend had a good-faith argument that its offset

procedure did not breach the insurance contract.

West Bend has cited no authority forthe proposition that an

amount due under a written instrument becomes fixed or

readily ascertainable only after the counterparty gives fair

warning of a dispute about payment. The district court

correctly awarded prejudgment interest from the date of West

Bend’s audit for each of the three contested policy years.

III. Conclusion

As the Illinois Department of Insurance implied, the end

result of West Bend’s unusual manipulation of the ICC and

Schedule Modification credits may be a windfall to Procaccio.

But the credit-offset procedure is extracontractual, and any

evidence of an oral agreement authorizing it is inadmissible.

AFFIRMED.