Babiarz v. Stearns

• Decision Date: 30 June 2016
• Docket Number: No. 1–15–0988.,1–15–0988.
• Citation: 404 Ill.Dec. 880,57 N.E.3d 639
• Parties: Darlene BABIARZ, Plaintiff–Appellant, v. Timothy STEARNS, an Individual, T.J. Stearns, Inc., an Illinois Corporation, and Allianz Life Insurance Company of North America, a Minnesota Corporation, Defendants–Appellees.
• Court: United States Appellate Court of Illinois

57 N.E.3d 639

404 Ill.Dec. 880

Darlene BABIARZ, Plaintiff–Appellant

v.Timothy STEARNS, an Individual, T.J. Stearns, Inc., an Illinois Corporation, and Allianz Life Insurance Company of North America, a Minnesota Corporation, Defendants–Appellees.

No. 1–15–0988.

Appellate Court of Illinois, First District, Fourth Division.

June 30, 2016.

Neil E. Holmen and Matthew W. Casey, both of Walker Wilcox Matousek LLP, of Chicago, for appellant.

James L. Kopecky and Daryl M. Schumacher, both of Kopecky Schumacher Bleakley Rosenburg PC, of Chicago, for appellees Timothy J. Stearns and TJ Stearns, Inc.

Nancy L. Hendrickson, of Hendrickson Law Firm, of Chicago, and Ronald Goss and Jason R. Brost, both of Carlton Fields Jorden Burt, P.A., of Washington, D.C., for appellee Allianz Life Insurance Company of North America.

OPINION

Justice COBBS delivered the judgment of the court, with opinion.

¶ 1 This appeal arises from plaintiff Darlene Babiarz's purchase of three annuities from defendant Allianz Life Insurance Company of North America (Allianz) at the suggestion of defendant Timothy J. Stearns. Dissatisfied with the annuities as an investment vehicle, Babiarz filed a complaint in the circuit court of Cook County alleging breach of fiduciary duty, negligent misrepresentation, violation of the Consumer Fraud and Deceptive Business Practices Act (815 ILCS 505/2 (West 2012) ), violation of the Illinois Securities Law of 1953 (815 ILCS 5/12 (West 2012) ), common-law fraud, breach of contract to confirm annuities were suitable, breach of contract to investigate plaintiff's complaints, and negligent suitability review. Allianz and Stearns (defendants) filed motions for summary judgment and the trial court granted those motions as to the breach of fiduciary duty, Illinois Securities Law, negligent misrepresentation, common-law fraud, breach of contract to investigate Babiarz's complaints, and negligent suitability review claims. The consumer fraud claim proceeded to a bench trial at which the court granted a directed verdict in defendants' favor.¹ The remaining claim for breach of contract to confirm annuities were suitable was disposed of at a jury trial, at which the jury found in defendants' favor. Babiarz now appeals, contending that the trial court erred in granting summary judgment on her breach of fiduciary duty, Illinois Securities Law, negligent misrepresentation, and common law fraud claims because the annuities at issue in this case were securities, not insurance products. She further contends that because a fiduciary relationship existed, she was excused from reading the annuities contracts. In addition, she asserts that the court erred in granting summary judgment on the negligent suitability review claim because the Moorman doctrine does not apply. Finally, she argues that the court improperly determined the statute of limitations had run on her consumer fraud claim. We affirm the judgments of the trial court.

¶ 2 BACKGROUND

¶ 3 On August 16, 2011, Babiarz filed a complaint against Stearns and T.J. Stearns, Inc. (collectively Stearns), in the circuit court of Cook County. Subsequently, she filed a second amended complaint on August 8, 2013, in which she added Allianz as a defendant, and then a third amended complaint on October 14, 2014. In the third amended complaint, Babiarz alleged that Stearns made the following misrepresentations or omissions in selling her the Allianz annuities:

“a. That the annuities were the best investment vehicle for Mrs. Babiarz's life insurance proceeds;

b. Failed to disclose that the annuities did not provide Mrs. Babiarz with an income stream;

c. Failed to disclose that if money needed to be withdrawn from the annuities in order to satisfy Mrs. Babiarz's living expenses, large surrender fees and income tax penalties would be triggered by the annuities if a withdrawal was made; and

d. That this was a proper and suitable investment vehicle given Mrs. Babiarz's assets, liabilities, expenses, and financial needs;

e. Assured Mrs. Babiarz that the Endurance 15 would generate income substantially in excess of the 4% the State Farm account was paying;

f. Erroneously advised Mrs. Babiarz that she would have access to her money whenever she needed it; and

g. told Mrs. Babiarz that if she ever needed cash she could simply call him and he would have a check sent to her.”

¶ 4 Thereafter, defendants filed motions for summary judgment asserting the annuities were insurance products and therefore Babiarz's claims must be dismissed because the Illinois Code of Civil Procedure (Code) (735 ILCS 5/1–101 et seq. (West 2012)) limits breach of fiduciary claims involving insurance producers and registered insurance firms to situations where funds have been misappropriated. They further argued that pursuant to the Code, all of Babiarz's claims were time-barred. In ruling on the motions, the court found the fixed indexed annuities (FIAs) were insurance products and granted summary judgment in defendants' favor on the breach of fiduciary duty and Illinois Securities Law claims. The court further found that Babiarz did not reasonably rely on any alleged misstatements or omissions and therefore claims for negligent misrepresentation and common-law fraud could not be stated. Additionally, the court granted summary judgment in defendants' favor on the negligent suitability review claim based on the Moorman doctrine.

¶ 5 Prior to trial, Babiarz submitted an expert witness report from Jeffrey Miller as a proposed expert in the field of investment advising and investment recommendations. In ruling on whether Miller could be qualified as an expert, the court concluded that he could be “properly qualified as an expert as to the situations where an annuity is a suitable investment.” However, the court barred Miller from giving his opinion as to the standard of care of an investment advisor because the claims based on breach of fiduciary duty had been dismissed.

¶ 6 The case proceeded to a bench trial on the consumer fraud claim and a jury trial on the claim for breach of contract to confirm annuities were suitable. The following facts were established at trial. Stearns is an investment advisor, securities broker, and insurance agent. He is the president of T.J. Stearns, Inc., a registered branch of LaSalle St. Securities, LLC. He is also a registered insurance producer with the Illinois Insurance Department and an appointed insurance agent for approximately 15 to 20 insurance companies, including Allianz. Allianz is an insurance company licensed by the Illinois Insurance Department. The terms of Stearns' appointment with Allianz were established by an agent agreement (Agreement). The Agreement identifies Stearns as an independent contractor with freedom to contract with other insurance companies. The Agreement also specifically authorized Stearns:

“1. to solicit * * * applications * * * and to forward the applications to [Allianz] for [ ] consideration;

2. to collect the full initial premium for policies to be issued and submit promptly to the Company all premiums collected;

3. to deliver policies in accordance with any delivery requirements of the Company on a timely basis; and

4. to make reasonable efforts to maintain the Company's policies in force and to provide reasonable assistance to policy holders.”

¶ 7 Allianz provides its appointed insurance agents with a “Compliance Guide.” The compliance guide describes the best practices in selling Allianz annuities and what is required of Allianz insurance agents. Pursuant to the compliance guide, agents must evaluate the client's income and expenses, understand the client's short-term and long-term goals, assess the client's risk tolerance, understand the client's tax status, and consider the client's stage of life. Consistent with these requirements, agents must obtain information regarding a client's expenses such as mortgages, utilities, and grocery bills prior to selling them an annuity and keep a record of issues discussed with the client. The compliance guide further advises agents to encourage their clients to read the consumer brochure and “Statement of Understanding.” In addition, agents are urged to discuss the information these documents contain in detail to ensure the features, benefits, surrender charges/schedules, and costs of the product are understood. The guide advises agents:

“Your clients need a full, unbiased explanation of their options to make informed decisions. Although these disclosures are included with the Allianz marketing and sales materials, disclosure is not just about providing brochures and other documents you hope your clients will read. You must be actively involved leading a discussion and checking for full understanding.”

¶ 8 Babiarz testified that her husband, Joe Babiarz, passed away in 2009. Joe had a State Farm life insurance policy from which Babiarz received a $1 million benefit. Initially, the money was in an account with State Farm in which it earned interest at the rate of 4.5%² and Babiarz was paid monthly installments of $2200. Babiarz decided to withdraw the money from the State Farm account and invest the life insurance proceeds. A good friend recommended Stearns to Babiarz as an investment advisor and she contacted him. Babiarz first met with Stearns on March 9, 2009.

¶ 9 Stearns testified that from talking to mutual acquaintances, he knew that Babiarz had at least two children in college, multiple properties, and $1 million from the life insurance policy. At the March 9 meeting, Babiarz confirmed these assets and expenses. Despite the fact that Babiarz had three children, two of whom were in college, Stearns accepted without further inquiry Babiarz's alleged statement that the family expenses were only $2000 a month. Stearns admitted that he failed to ask Babiarz whether she had a mortgage on any of her properties. The notes Stearns took at the meeting list her assets as: New—$255,000 (newly purchased home); 1000 shares of GE—$20 (per share);...