Court Opinion

ID: 2816418
Source: CourtListenerOpinion
Date Created: 2015-07-10 21:02:10.942727+00
Date Added: 2024-06-11T12:25:41.982134
License: Public Domain

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 of workers’ 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 Classifi-
cation Premium Adjustment Program. The parties refer to 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 other rating 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 Modifica-
tion 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 infla-
tion—was a premium-stabilization measure 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 effec-
tively nullified its ICC credit for these 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’ compensation insurance is premised on retrospec-
tive 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 unlim-
ited. 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 over-
age. Id. The insured must receive advance notice if the insur-
ance 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 mini-
mum 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 listed the 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’s policies by 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
reflecting the adjusted premium and an endorsement reflecting
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 condi-
tions. 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 insur-
        ance between you (the employer named in Item
        1 of the Information Page) and us (the insurer
        named on the Information Page). The only agree-
        ments related to this insurance are stated in this
        policy. The terms of this policy may not be chang-
        ed 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 year West Bend issued an endorsement reflecting the
credit due to Procaccio under the Illinois Contracting Classifi-
cation 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 pre-
       mium 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 for the 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 Modifica-
tion credit—by the amount it anticipated Procaccio would
receive as its ICC credit when the National Council’s calcula-
tion 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. The Department declined 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 for the contested
policy years. The judge awarded damages of $259,933 plus
$72,439.20 in prejudgment interest. This award fully compen-
sated 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 endorse-
ments. 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 expres-
sion 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 parol-
evidence 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) OF CONTRACTS § 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 contain-
ing 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 integra-
tion clause precludes consideration of prior and contemporane-
ous 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 Declara-
       tions 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 en-
       dorsement 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 agree-
ments. Rather, the Changes clause prevents unilateral modifi-
cations 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 Appel-
late 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) OF CONTRACTS § 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 inte-
grated, 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 contem-
plate 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 Modifica-
tion credit as it did. We do not see how. The endorsement’s
reference to the “proper premium adjustment factor” can only
be read to refer to 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 insurers use 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 of rules, 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 RATING PLANS. ALL INFORMATION
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 under the 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. When altering an already properly set
rate, an endorsement must conform to the insurer’s rating plan
in order for the 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 Depart-
ment. 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 Schedule Rating Plan authorizes
a broad range for each of these risk characteristics. For exam-
ple, 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 agree-
ment” 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 Modifica-
tion 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 limita-
tions 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 longer followed. 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, West Bend simply recharacterizes Procaccio’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 wrongdoer from profiting by his improper action. Expecta-
tion 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 particu-
lar 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 similar-
ity 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 per-
       son 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. But the whole purpose 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, FARNSWORTH ON CONTRACTS § 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, and as 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 employ-
ment 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 improp-
erly 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 for the 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.