Citizens Casualty Co. v. American Glass Co., 9361.

• Decision Date: 13 February 1948
• Docket Number: No. 9361.,9361.
• Citation: 166 F.2d 91
• Parties: CITIZENS CASUALTY CO. OF NEW YORK v. AMERICAN GLASS CO.
• Court: U.S. Court of Appeals — Seventh Circuit

166 F.2d 91 (1948)

CITIZENS CASUALTY CO. OF NEW YORK v. AMERICAN GLASS CO.

No. 9361.

Circuit Court of Appeals, Seventh Circuit.

February 13, 1948.

Werner W. Schroeder, Theodore W. Schroeder, and Charles Leviton, all of Chicago, Ill., for appellant.

Harold T. Halfpenny, Richard F. Hahn, and James F. Flanagan, all of Chicago, Ill., for appellee.

Before MAJOR and MINTON, Circuit Judges, and LINDLEY, District Judge.

MAJOR, Circuit Judge.

This appeal is from an order of the District Court, entered March 13, 1947, allowing defendant's motion to dismiss the plaintiff's amended complaint, and dismissing the same. Plaintiff, a New York corporation, is an insurance company, licensed and authorized to do business in the State of Illinois, and is in the business of writing policies of insurance covering loss due to breakage of plate glass. Defendant is an Illinois corporation, engaged in the business of selling and installing plate glass.

The amended complaint contains seven counts. Count 1 recites, among other things, that the plaintiff in writing plate glass insurance issued two forms of policies with respect to the payment of premiums, one form requiring the payment of the entire premium upon the issuance of the policy or shortly thereafter, and the other form being a "premium retention policy" requiring payment of 50% of the premium upon issuance of the policy and the balance only in the event of a loss. The policies provided that in case of loss, payment could be made the policyholder in cash or by replacement of the glass. The policyholder was given the privilege of requesting immediate replacement or postponing replacement until a later period. If he adopted the latter alternative, plaintiff issued a written "rider" admitting liability. The postponed replacements are carried on plaintiff's records as "abeyance losses."

On February 19, 1942, the plaintiff and defendant entered into a contract effective from January 1, 1942, to January 1, 1943, providing, among other things, that the defendant was to replace glass in accordance with the provisions of the policies issued by the plaintiff for locations in the metropolitan area of the City of Chicago, State of Illinois, make said inspections and surveys and recommendations as to repairs and improvements, make minor repairs necessary to safeguard the insured glass against breakage. The plaintiff, among other things, agreed to pay the glass company 46% of the premiums earned each month, and 46% of any retentions which became due.¹

It is alleged that plaintiff has performed all the conditions of the contract and has paid or credited defendant with all amounts due it and that certain "abeyance losses" which occurred in 1942 were replaced by defendant, but on September 16, 1945, the defendant notified plaintiff that it would no longer replace any losses and since said date has refused to replace such losses and disaffirmed its obligation under the contract. It is alleged, as of September 16, 1945, there was due to policyholders from plaintiff on the unpaid riders, $1331.51, and from the policyholders sustaining such losses retention premiums amounting to $751.74, of which last mentioned sum defendant is entitled to a credit of 46%, or $345.80, making a total due plaintiff from defendant of $985.71.

In the alternative, it is alleged that the defendant having been a party to a somewhat similar contract which had been ruled illegal in a 1936 opinion of the Attorney General of Illinois and knowing said opinion but not disclosing such knowledge to plaintiff (which had no knowledge of said opinion) made the representation that it would submit the contract or a similar contract to the insurance department of Illinois for approval, and thereafter did obtain the opinion from the insurance director heretofore referred to, and that plaintiff had done everything in its power to comply with the Illinois insurance laws. Defendant knowingly misled and induced plaintiff to enter into such contracts and when to its advantage to do so refused to perform its obligations, relying on the Attorney General's opinion to protect it from liability. Plaintiff paid defendant 46% of the earned premiums, defendant did not entirely perform its obligations and was therefore unjustly enriched in the sum of $1000. Judgment is demanded in the sum of $985.71 and costs, or, in the alternative, $1000 and costs.

The allegations of counts 2, 3 and 4 are similar to those of count 1, except they are based upon three subsequent annual contracts in effect successively from January 1, 1943, to January 1, 1946. The percentage of premiums which the defendant was to receive under these contracts was reduced to 43%. Under the terms of the 1943, 1944 and 1945 contracts, there is claimed to be due respectively the sums of $6247.34, $4742.11 and $26083.65. On the unjust enrichment theory, judgment is asked in the sums of $6500, $5000 and $27000, for each period of time respectively.

Count 5, in addition to the pertinent allegations of count 1, alleges that after certain retention premiums had been paid under policies whereby a portion of the premium was paid, the balance not to be collected until a breakage occurred, defendant, pursuant to the terms of a verbal agreement, collected such retention premiums from plaintiff's policyholders and retained the entire amount, although it was entitled to retain only 43% of such amount; that is to say, the defendant collected $2138.50, of which plaintiff was entitled to 57% or $1218.95, for which plaintiff asks judgments.

Count 6 reiterates the pertinent allegations of count 1 and alleges that plaintiff from time to time advanced sums to defendant to apply on payments which might become due from plaintiff to defendant; that as of September 1, 1945, plaintiff had overpaid the defendant $370.21; that on September 4, 1945, plaintiff advanced to defendant the further sum of $3000, to apply on any sums which might become due from plaintiff to defendant under the contract during the balance of the year; that there are no offsets due defendant and that defendant owes the sum of $3370.21, together with interest on $3000 from September 4, 1945; that in the alternative, defendant fraudulently received the said sums, intending then to repudiate the contract, and was unjustly enriched in said sum of $3370.21.

Count 7 is a recapitulation of the previous counts and alleges that the defendant is indebted to plaintiff in the total sum of $42,647.97 and interest, or that in the alternative, defendant has been unjustly enriched in the sum of $44,089.16.

Defendant's motion to dismiss the amended complaint for failure to state a claim upon which relief could be granted is predicated upon the following reasons:

"1. The contracts, and each of them, upon which plaintiff bases its claims, are null, void, unenforceable and against public policy and Section 173 of the Illinois Insurance Code, for the reason that said contracts are contracts of insurance entered into by the defendant, which is not alleged to be authorized and empowered to engage in the business of insurance.

"2. The contracts, and each of them, upon which plaintiff bases its claims, are null, void, unenforceable and against public policy, for the reason that the plaintiff has no insurable interest in the subject matter of said contracts and said contracts are therefore gambling contracts."

We experience some difficulty in ascertaining just what issue or issues are presented on this appeal. While the defendant states in its brief that the court below found that the contracts relied upon are contracts of insurance and therefore regulated by statute, we find nothing in the record to support the assertion. In fact, there is nothing to indicate on what basis the amended complaint was dismissed other than the reasons assigned in the motion to dismiss. Moreover, defendant in its brief expressly disclaims that it is relying upon any contention that the contracts are gambling contracts or that they are ultra vires. This concession appears to eliminate the necessity for consideration of paragraph 2 of defendant's motion to dismiss as a basis for sustaining the order appealed from.

Defendant contends that the contracts in suit are insurance contracts, and it being unauthorized to do an insurance business and the contracts not being approved by the Director of Insurance of the State of Illinois, that they are void and unenforceable. The plaintiff contends that the contracts are not insurance contracts but are contracts for the rendition of service or, in the alternative, that they are reinsurance contracts. The plaintiff further contends that irrespective of the category to which these contracts may be assigned, lack of authority on the part of the defendant to enter into such contracts cannot be utilized by it as a defense.

A number of authorities from other states are cited by the parties in support of their respective contentions. The questions for decision being controlled by Illinois law, particularly the Illinois Insurance Code, we think we need not be too much concerned with authorities from other jurisdictions.

We have no difficulty in rejecting plaintiff's contention that the contracts are nothing more than service contracts. It is true that the defendant was obligated to render on behalf of the plaintiff a large amount of service, which the plaintiff under its contracts with the insureds was required to perform, and if the contracts had provided that the defendant be compensated only for the service actually performed, they would be typical service contracts. But such is not the situation. It was provided that defendant receive from the plaintiff 46% (or 43%) of the amount of premiums collected or earned by the plaintiff on policies issued by it. Defendant was entitled to this percent of the premiums irrespective of whether the plaintiff sustained any loss on account of the policies which it had issued. As to the...