Dod Technologies v. Mesirow Ins. Services

• Decision Date: 14 February 2008
• Docket Number: No. 1-06-3300.,1-06-3300.
• Citation: 887 N.E.2d 1
• Parties: DOD TECHNOLOGIES, Individually and on Behalf of All Others Similarly Situated, Plaintiff-Appellant, v. MESIROW INSURANCE SERVICES, INC., and John Doe Companies 1-10, Defendants-Appellees.
• Court: United States Appellate Court of Illinois

887 N.E.2d 1

DOD TECHNOLOGIES, Individually and on Behalf of All Others Similarly Situated, Plaintiff-Appellant, v. MESIROW INSURANCE SERVICES, INC., and John Doe Companies 1-10, Defendants-Appellees.

No. 1-06-3300.

Appellate Court of Illinois, First District, Fourth Division.

February 14, 2008.

Rehearing Denied May 9, 2008.

David S. Klevatt, Chicago, for DOD Technologies.

Goldberg, Kohn, Bell, Black, Rosenbloom & Moritz, Ltd., Chicago, for Mesirow Insurance Services.

Justice MURPHY delivered the opinion of the court:

Plaintiff, DOD Technologies, brought a five-count putative class-action complaint against defendant, Mesirow Insurance Services, Inc., plaintiff's insurance broker, alleging that defendant received contingent commissions from insurers without informing plaintiff. The trial court granted defendant's motion to dismiss pursuant to section 2-615 of the Code of Civil Procedure (Code) (735 ILCS 5/2-615 (West 2004)) on the basis that (1) section 2-2201 of the Code (735 ILCS 5/2-2201 (West 2004)) precludes claims for breach of fiduciary duty and (2) plaintiff failed to allege actual damages or reliance on the alleged concealment.

I. BACKGROUND

Plaintiff's second amended complaint alleges as follows. Defendant is a licensed Illinois insurance broker, or "insurance producer." An insurance producer is "a person required to be licensed under the laws of this State to sell, solicit, or negotiate insurance." 215 ILCS 5/500-10 (West 2004).

Plaintiff provided defendant with confidential and proprietary information with the expectation that defendant would seek the desired insurance at the lowest possible price. Standard industry practice is for consumers to make a single payment to the broker that includes both the insurer's premium and the broker's commission; the producer deducts the commission and forwards the premium to the insurer. Defendant also received "contingent commissions" from insurers, including Hartford Insurance Company, for its placement of insurance for plaintiff and other putative class members. The contingent commissions were based on three factors: (1) the aggregate amount of business referred to the insurer paying the kickbacks, (2) the "loss ratio" performance of the book of business referred to that insurer, and (3) renewals.

Defendant did not disclose its receipt of the contingent commissions to plaintiff. These undisclosed financial incentives caused defendant to refer business to a paying insurer even if the policy and rates quoted by that insurer were not the most advantageous for the customer. These kickbacks, which should have been returned to plaintiff like any other rebate inflated the cost of insurance to consumers and created a conflict preventing brokers from acting in the customers' best interest. Had plaintiff known about the contingent commissions, it would have been more diligent in its selection of insurance. Approximately 10% or more of defendant's revenues as an insurance broker is derived from kickbacks.

Plaintiff's second amended complaint alleges breach of fiduciary duty, consumer fraud, fraudulent concealment, unjust enrichment, and accounting. Plaintiff based its breach of fiduciary duty count on section 500-80(e) of the Illinois Insurance Code (215 ILCS 5/500-80(e) (West 2004)), which requires an insurance producer to disclose fees not directly attributable to premiums, and section 2-2201, which precludes breach of fiduciary duty actions against insurance producers but excepts claims based on the wrongful retention or misappropriation of premiums. In alleging that the statute of limitations should be tolled due to defendant's fraudulent concealment and misrepresentation, plaintiff quoted a portion of defendant's Web site, which provided:

"Our philosophy is to provide sound and unbiased advice with an emphasis on protecting your interests at all times. Rather than focusing on one area, we are adept at reviewing your entire situation, integrating personal and professional goals to identify and eliminate any areas of vulnerability. We are committed to being a resource for you."

The trial court dismissed counts I, IV, and V (breach of fiduciary duty, unjust enrichment, and accounting) on the basis that section 2-2201 of the Code precludes claims for breach of fiduciary duty. Counts II and III (consumer fraud and fraudulent concealment) were dismissed because there was no proof of actual damages or reliance on the alleged concealment.

II. ANALYSIS

A. Motion to Dismiss

A motion to dismiss pursuant to section 2-615 attacks the legal sufficiency of the complaint. R & B Kapital Development, LLC v. North Shore Community Bank & Trust Co., 358 Ill.App.3d 912, 920, 295 Ill.Dec. 95, 832 N.E.2d 246 (2005). A court reviewing an order granting a section 2-615 motion takes all well-pled facts as true. R & B, 358 Ill.App.3d at 920, 295 Ill.Dec. 95, 832 N.E.2d 246. "On review of a section 2-615 dismissal, the reviewing court must determine whether the allegations of the complaint, when interpreted in [the] light most favorable to the plaintiff, sufficiently set forth a cause of action on which relief may be granted." R & B, 358 Ill. App.3d at 920, 295 Ill.Dec. 95, 832 N.E.2d 246. We review a dismissal pursuant to section 2-615 de novo. Collins v. Superior Air-Ground Ambulance Service, Inc., 338 Ill.App.3d 812, 815, 273 Ill.Dec. 494, 789 N.E.2d 394 (2003).

Although plaintiff makes frequent references to the trial court's abuse of discretion, a dismissal pursuant to section 2-615 is reviewed de novo. Collins, 338 Ill.App.3d at 815, 273 Ill.Dec. 494, 789 N.E.2d 394.

1. Breach of fiduciary duty

Plaintiff argues that the trial court erred in dismissing its claims for breach of fiduciary duty, unjust enrichment, and accounting because it has alleged the existence of a fiduciary relationship between plaintiff and defendant. Defendant responds that section 2-2201 of the Code precludes claims for breach of fiduciary duty.

To state a claim for breach of fiduciary duty, a plaintiff must establish (1) a fiduciary duty on the part of the defendant, (2) the defendant's breach of that duty, and (3) damages that were proximately caused by the defendant's breach. Neade v. Portes, 193 Ill.2d 433, 444, 250 Ill.Dec. 733, 739 N.E.2d 496 (2000). Historically, Illinois has recognized that the relationship between an insured and his broker, acting as the insured's agent, is a fiduciary one. AYH Holdings, Inc. v. Avreco, Inc., 357 Ill.App.3d 17, 32, 292 Ill. Dec. 675, 826 N.E.2d 1111 (2005); Perelman v. Fisher, 298 Ill.App.3d 1007, 1011, 233 Ill.Dec. 88, 700 N.E.2d 189 (1998).

In 1996, the General Assembly enacted Public Act 89-638 (Pub. Act 89-638, § 5, eff. January 1, 1997), which added section 2-2201 of the Code. Section 2-2201 provides:

"(a) An insurance producer * * * shall exercise ordinary care and skill in renewing, procuring, binding, or placing the coverage requested by the insured or proposed insured.

(b) No cause of action brought by any person or entity against any insurance provider, registered firm, or limited insurance representative concerning the sale, placement, procurement, renewal, binding, cancellation of, or failure to procure any policy of insurance shall subject the insurance producer, registered firm, or limited insurance representative to civil liability under standards governing the conduct of a fiduciary or fiduciary relationship except when the conduct upon which the cause of action is based involves the wrongful retention or misappropriation by the insurance producer, registered firm, or limited insurance representative of any money that was received as premiums, as a premium deposit, or as payment of a claim.

* * *

(d) While limiting the scope of liability of an insurance producer, registered firm, or limited insurance representative under standards governing the conduct of a fiduciary or a fiduciary relationship, the provisions of this Section do not limit or release an insurance producer, registered firm, or limited insurance representative from liability for negligence concerning the sale, placement, procurement, renewal, binding, cancellation of, or failure to procure any policy of insurance." (Emphasis added.) 735 ILCS 5/2-2201 (West 2004).

The goal of a court when construing a statute is to ascertain the legislature's intent, "and the surest indicator * * * is the language in the statute." Department of Public Aid ex rel. Schmid v. Williams, 336 Ill.App.3d 553, 556, 271 Ill. Dec. 198, 784 N.E.2d 416 (2003). "To this end, a court may consider the reason and necessity for the statute and the evils it was intended to remedy, and will assume the legislature did not intend an * * * unjust result." In re Marriage of Beyer, 324 Ill.App.3d 305, 309, 257 Ill.Dec. 406, 753 N.E.2d 1032 (2001). A court may not supply omissions, remedy defects, substitute different provisions, add exceptions, limitations, or conditions, or otherwise change the law so as to depart from the plain meaning of the language employed in the statute. Beyer, 324 Ill.App.3d at 309-10, 257 Ill.Dec. 406, 753 N.E.2d 1032. If the language of the statute is clear, its plain and ordinary meaning must be given without resorting to other aids of construction. Beyer, 324 Ill.App.3d at 310, 257 Ill.Dec. 406, 753 N.E.2d 1032.

Since the enactment of section 2-2201, the relationship between an insured and its broker continues to be a fiduciary one. See Perelman, 298 Ill.App.3d at 1013, 233 Ill.Dec. 88, 700 N.E.2d 189 (an insured's failure to read the terms of a policy was not an absolute bar to recovery against his broker for breach of fiduciary duty); Cincinnati Insurance Co. v. Guccione, 308 Ill.App.3d 220, 224, 241 Ill.Dec. 658, 719 N.E.2d 787 (1999) (a question of fact existed as to whether the broker breached his fiduciary duty to the insured by misleading him about the nature and potential cost of his policy). Rather than eliminate the fiduciary relationship between the insured and the...