MOUNT VERNON – St. Clair County Circuit Judge Lloyd Cueto correctly denied arbitration in a dispute over workers' compensation premiums, Fifth District appeals judges ruled on April 13.

The decision clears the way for Cueto to determine whether Zurich American Insurance overcharged Keeley and Sons, a construction company in East St. Louis.

Like Cueto, Fifth District judges rejected Zurich's plea to enforce an arbitration clause that appeared in a side agreement but not in the workers' compensation policy.

Keeley and Sons claims Zurich overcharged by $274,270 on premiums for 2003 and 2004.

Zurich's policy set a standard premium and allowed adjustment by an experience rating modification factor.

The policy provided that if the "retrospective calculation" was less than the premium Keeley and Sons paid, Zurich would refund the difference to Keeley and Sons.

It provided that if the retrospective calculation was greater than the premium Keeley and Sons paid, Keeley and Sons would pay the difference to Zurich.

The parties separately executed an "incurred loss retrospective rating agreement," setting rules for calculations and providing binding arbitration of disputes.

Last year, when Keeley and Sons sued Zurich, the insurer moved to dismiss the complaint and compel arbitration.

Zurich urged Cueto to apply the arbitration provision in the rating agreement, arguing that both agreements were necessary to determine damages.

Cueto denied the motion, finding Keeley and Sons chose to sue under the policies and not under the rating agreement.

Cueto ruled that he couldn't extend the reach of the arbitration provision by construction or implication.

On appeal, Fifth District judges held that the claims for breach of the policy do not also amount to a dispute arising out of the rating agreement.

"Here, the plaintiff chose not to bring a cause of action for a breach under the incurred loss retrospective rating agreement," Justice James Wexstten wrote.

"Instead, the plaintiff's theory of liability against the defendant hinges upon its allegations
that the defendant breached the policies by using the incorrect experience modification factor," he wrote.

He wrote that Keeley and Sons considered the rating agreement irrelevant to its

He wrote that "the retrospective premium is merely a by-product of the allegedly miscalculated standard premium."

Presiding Justice Melissa Chapman and Justice James Donovan concurred.

Charles Philbrick of Wheaton represented Keeley and Sons.

Michael Nester, of Donovan, Rose, Nester and Joley in Belleville, represented Zurich.

So did Steven Whitmer, Hugh Balsam and Bryan Deaton, all of Chicago.

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