In re Dorsey, Bankruptcy No. 92 B 20299. Adv. No. 92 A 01694.
| Decision Date | 09 December 1993 |
| Docket Number | Bankruptcy No. 92 B 20299. Adv. No. 92 A 01694. |
| Citation | 162 BR 150 |
| Parties | In re John DORSEY, Debtor. Wayne CASEY and Louise Casey, Plaintiffs, v. TRANSPORT LIFE INSURANCE COMPANY, Keith Wood Agency, Inc., and John Dorsey, Defendants. |
| Court | U.S. Bankruptcy Court — Northern District of Illinois |
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Alexander S. Knopfler, Chicago, IL, Trustee.
M. Scott Michel, Chicago, IL, U.S. Trustee.
Norman H. Lehrer, Lehrer, Flaherty & Canavan, P.C., Wheaton, IL, for Wayne Casey and Louise Casey, debtors/plaintiffs.
Michael A. Klysh, Michael A. Klysh, P.C., Chicago, IL, for John Dorsey, defendant.
This matter comes before the Court on the complaint of Wayne Casey and Louise Casey (the "Caseys") for a determination of the dischargeability of a certain debt owed to them by debtor/defendant, John Dorsey ("Dorsey") alleged to be non-dischargeable pursuant to 11 U.S.C. § 523(a)(6). For the reasons set forth herein, having considered the pleadings and the testimony of the parties, the Court finds and concludes that the debt is non-dischargeable and enters judgment in favor of the Caseys against Dorsey.
The Court has jurisdiction to entertain this matter pursuant to 28 U.S.C. § 1334 and General Rule 2.33(A) of the United States District Court for the Northern District of Illinois. It is a core proceeding under 28 U.S.C. § 157(b)(2)(I).
Some of the background and facts are contained in an earlier Opinion of the Court. See Casey v. Transport Life Ins. Co., 1993 WL 340928, 1993 LEXIS 1250 (Bankr. N.D.Ill. Aug. 19, 1993). Dorsey was formerly employed as an insurance agent by Keith Wood Agency, Inc., and incidental to his employment, sold certain health insurance to the Caseys. He met with the Caseys in April, 1990 to propose a health insurance plan for them and their children. Wayne Casey explained to Dorsey that they were looking for less expensive health insurance with comparable coverage because of a substantial increase in premiums by the carrier writing their current policy. Both Caseys testified that Dorsey was furnished their existing policy to review. After he reviewed same, he represented that he had a policy to offer with better coverage and benefits, though it would not save them much on premiums. Wayne Casey noticed a reference on the back page of the materials he was furnished by Dorsey, concerning what Casey described as a $10,000.00 "exclusion." Advising Dorsey that he was concerned with this (as the current policy had only a $500.00 deductible), and did not want a large exclusion or deductible, both Caseys testified that Dorsey stated they should not worry. Under Dorsey's proposal they were getting a major medical policy with a $10,000.00 "exclusion" which would be covered by a supplement as part of the program. Mrs. Casey was unaware of the reference to the exclusion in either the enrollment form application or the policy that was ultimately issued.
The principal concern of Mrs. Casey was the adequacy of coverage because the couple had four children. According to her testimony, Dorsey stated that the plan he proposed would give comparable coverage to what they had, plus additional benefits at reduced rates. She corroborated her husband's testimony that the "supplement" would cover the $10,000.00 "exclusion" or gap in benefits in the main policy Dorsey was proposing. Dorsey also represented there would be no problem covering her pre-existing medical conditions. Based on Dorsey's representations they agreed to buy the policies and subsequently let their existing policy lapse. The Caseys gave Dorsey two checks which were cashed for the initial premiums.
Several weeks later after the policies were received, Mrs. Casey reviewed same, and was surprised to note that they contained exceptions for her pre-existing medical conditions. This resulted in a subsequent phone call between the Caseys and Dorsey. According to the Caseys, Dorsey stated that the underwriting department of the carrier had tightened underwriting requirements and standards, which resulted in the exceptions for her pre-existing conditions. He proposed to meet with them to discuss writing another policy with another company. When Dorsey did not appear, their subsequent calls to Keith Wood Agency, Inc. revealed that Dorsey was no longer employed with the agency. Later that summer, one of the Caseys' sons was hospitalized for emergency surgery. The policy purchased through Dorsey only paid approximately $4,000.00 of that bill, and the Caseys were compelled to personally pay the $10,000.00 portion of the bill not covered under the policy.
Dorsey testified that he has been in the business of selling health insurance programs for over ten years. He previously owned his own insurance agency. He stated that he proposed to the Caseys a major medical policy with ample coverage, but which had a benefit commencement point below which the Caseys would be self-insured for the first $10,000.00 of their covered medical expenses. The policy terms, which Dorsey said he explained when he made the sale to the Caseys, provided full coverage after the applicable commencement point. Dorsey testified he explained the supplemental benefits to them and admitted taking their checks. He disputed ever speaking with them again after taking their applications for the policy with the supplemental benefits. Although Dorsey admitted he was authorized by the insurance carrier to take applications, he stated he did not have a copy of the policy with him because, as he testified, he was not allowed to carry a specimen policy to show prospective customers. Dorsey also denied being aware that such customers relied on his representations. He further denied ever stating the coverage afforded the Caseys under the subject policy sold was as good as, or better than that which they had under their existing health insurance program.
Prior to this matter, the Caseys sued Dorsey and others in the Circuit Court for the Eighteenth Judicial Circuit, DuPage County, Illinois, and obtained a default judgment against Dorsey for $12,000.00 plus costs. That judgment was subsequently amended to include an additional award of $10,000.00 for punitive damages. Thereafter, Dorsey filed under Chapter 7 of the Bankruptcy Code, and has since received his discharge.
The party seeking to establish an exception to the discharge of a debt bears the burden of proof. In re Martin, 698 F.2d 883, 887 (7th Cir.1983). The United States Supreme Court has held that the burden of proof required for establishing an exception to discharge is a preponderance of the evidence. Grogan v. Garner, 498 U.S. 279, 286-287, 111 S.Ct. 654, 659-60, 112 L.Ed.2d 755 (1991). To further the policy of providing the debtor a fresh start in bankruptcy, "exceptions to discharge are to be construed strictly against a creditor and liberally in favor of a debtor." In re Zarzynski, 771 F.2d 304, 306 (7th Cir.1985).
Section 523 of the Bankruptcy Code enumerates specific exceptions to the dischargeability of debts. The Caseys allege that Dorsey's judgment debt arises from willful and malicious conduct, and as such is non-dischargeable pursuant to the specific exception found in section 523(a)(6). It provides as follows:
In order for a debt to be held nondischargeable under section 523(a)(6), the creditor has the burden of proving that the injury resulted from an act that was both willful and malicious. Dornik v. Maurice, 138 B.R. 890, 896 (Bankr.N.D.Ill.1992), aff'd, No. 92 C 4043, 1992 WL 308535, slip op. (N.D.Ill. Oct. 19, 1992), quoting In re Kimzey, 761 F.2d 421, 424 (7th Cir.1985); United Bank of Southgate v. Nelson, 35 B.R. 766, 768 (N.D.Ill.1983); Taradash v. Pokorny, 143 B.R. 179, 182 (Bankr.N.D.Ill.1992); In re Dvorak, 118 B.R. 619, 627 (Bankr.N.D.Ill. 1990); In re Hopkins, 82 B.R. 952, 953 (Bankr.N.D.Ill.1988). The term "willful" means "deliberate or intentional," and "malicious" means "wrongful and without just cause or excuse even in the absence of personal hatred, spite or ill will." In re Condict, 71 B.R. 485, 487 (N.D.Ill.1987); In re Meyer, 7 B.R. 932, 933 (Bankr.N.D.Ill.1981).
Courts have consistently used this definition of willful. See e.g., In re Scarlata, 979 F.2d 521, 527 (7th Cir.1992); In re McGuffey, 145 B.R. 582, 585-586 (Bankr. N.D.Ill.1992); In re Iaquinta, 98 B.R. 919, 924 (Bankr.N.D.Ill.1989). The Seventh Circuit has not yet defined the term "malicious" for purposes of section 523(a)(6). This Court, however, adheres to the liberal definition of "malicious" which includes implied or constructive malice as well as actual malice. See McGuffey, 145 B.R. at 585-587. The debtor need not act with ill will or malevolent purpose towards the injured party. In re Hallahan, 78 B.R. 547, 550 (Bankr.C.D.Ill. 1987), aff'd, 113 B.R. 975 (C.D.Ill.1990), aff'd, 936 F.2d 1496 (7th Cir.1991). Thus, a wrongful act done intentionally, which necessarily produces harm and is without just cause or excuse, may constitute a willful and malicious injury. Moreover, the Seventh Circuit has stated that to except a debt from discharge under section 523(a)(6), the creditor must show that the debtor knew his acts would automatically or necessarily cause the creditor's injury. Scarlata, 979 F.2d at 526. Following decisions of other judges, this Judge has previously held that punitive damage awards are not dischargeable under section 523(a)(6). See Katahn Assocs., Inc. v. Wien, 155 B.R. 479 (Bankr.N.D.Ill.1993).
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