INTERN. ADM'RS, INC. v. Life Ins. Co. of North Am., 82 C 625.

• Decision Date: 05 November 1982
• Docket Number: No. 82 C 625.,82 C 625.
• Citation: 553 F. Supp. 82
• Parties: INTERNATIONAL ADMINISTRATORS, INC. and Sheldon Harrison, Plaintiffs, v. LIFE INSURANCE COMPANY OF NORTH AMERICA, Defendant.
• Court: U.S. District Court — Northern District of Illinois

553 F. Supp. 82

INTERNATIONAL ADMINISTRATORS, INC. and Sheldon Harrison, Plaintiffs, v. LIFE INSURANCE COMPANY OF NORTH AMERICA, Defendant.

No. 82 C 625.

United States District Court, N.D. Illinois, E.D.

November 5, 1982.

John R. Ruddy and Robert J. Becker, Chicago, Ill., for plaintiffs.

William J. Holloway and Michael J. Leech, Hinshaw, Culbertson, Moelmann, Hoban & Fuller, Chicago, Ill., for defendant.

MEMORANDUM OPINION AND ORDER

SHADUR, District Judge.

International Administrators, Inc. ("IAI") and its President Sheldon Harrison ("Harrison") initially sued Life Insurance Company of North America ("LINA"), claiming interference with IAI's contractual relationships, interference with prospective advantage, breach of contract and defamation. LINA in turn filed a two-count counterclaim. IAI has moved to dismiss the Counterclaim, apparently (though not specifically designated) under Fed.R.Civ.P. ("Rule") 12(b)(6) for failure to state a cause of action. For the reasons stated in this memorandum opinion and order, IAI's motion is denied.

Counterclaim Count I¹

Count I depicts the following version of events²:

Insurance broker IAI, acting for the Iowa Department of the American Legion ("Iowa Legion"), solicited LINA to underwrite various group insurance policies for members of the Iowa Legion (Ans. ¶ 11). As administrator of those insurance programs IAI assertedly maintained records³ "for the benefit of and in trust for the policyholder, the insureds, and ... LINA" (Count I ¶ 4). For several months after its termination as administrator, IAI refused to turn over its records to the Iowa Legion, LINA or a successor administrator (Count I ¶ 7). Without the information in those records, LINA (or the successor administrator) could not have billed the individual subscribers, jeopardizing their continued coverage. To avoid that prospect, LINA expended more than $26,000 to generate its own substitute list.

In LINA's view those allegations disclose actionable fiduciary and contractual improprieties by IAI. IAI's infractions assertedly stem from its role as LINA's agent or alternatively as trustee of an express trust whose beneficiaries included the Iowa Legion, the individual subscribers and LINA.

Without offering any legal support for its own motion,⁴ IAI contends LINA's cited authorities do not transmute its legal theories into a cognizable claim. IAI also assails Count I on factual grounds⁵ — arguments wholly inappropriate at the pleading stage.

Standards governing complaints (or counterclaims) are lenient indeed:

On a motion to dismiss, a complaint must be construed in the light most favorable to the plaintiff, the allegations thereof being taken as true; and, if it appears reasonably conceivable at trial the plaintiff can establish a set of facts entitling him to some relief, the complaint should not be dismissed.

Mathers Fund, Inc. v. Colwell Co., 564 F.2d 780, 783 (7th Cir.1977). Nor is this Court limited by the theories advanced by the pleading's author. See Craft v. Board of Trustees, 516 F.Supp. 1317, 1323 (N.D.Ill. 1981).

Under those liberal criteria Count I withstands scrutiny — at least under Illinois principles of agency law.⁶ Both parties agree IAI acted as an insurance broker in obtaining LINA-underwritten insurance coverage for the Iowa Legion. See Complaint ¶ 3 and Answer ¶ 11. Galiher v. Spates, 129 Ill.App.2d 204, 206, 262 N.E.2d 626, 628 (4th Dist.1970) defined such a broker:

An insurance broker is one who procures insurance and acts as middleman between the insured and the insurer, and solicits insurance business from the public under no employment from any special company, but, having secured an order, places the insurance with the company selected by the insured, or, in the absence of any selection by him, with the company selected by such broker. 22 ILP Insurance § 71, at 102.

And as the Illinois Supreme Court characterized the difference between the insurance broker and agent relationships over 30 years ago, City of Chicago v. Barnett, 404 Ill. 136, 142, 88 N.E.2d 477, 481 (1949) (emphasis added, citation omitted):

A broker is distinguished from an agent in that a broker sustains no fixed and permanent employment by, or in relation to, any principal, but holds himself out for employment by the public generally, his employment in each instance being that of a special agent for a single object ..., whereas an agent sustains a fixed and permanent relation to the principal he represents and owes a permanent and continued allegiance. A broker does not cease to be a broker because he may also in some transactions act as the agent of either or both of the parties thereto.

See also Browder v. Hanley Dawson Cadillac Co., 62 Ill.App.3d 623, 629, 20 Ill.Dec. 138, 143, 379 N.E.2d 1206, 1211 (1st Dist. 1978).

Thus Illinois law clearly allows for at least the possibility of an insurance broker (in this case IAI) serving as the agent of the insurer (here LINA). Questions as to the broker's status have always been regarded as factual. See Browder, 62 Ill. App.3d at 629, 20 Ill.Dec. at 143, 379 N.E.2d at 1211; Galiher, 129 Ill.App.2d at 207, 262 N.E.2d at 628. Accordingly IAI's motion to dismiss Count I must fail.⁷

Counterclaim Count II

Count II ¶¶ 8 and 9 allege IAI "failed and refused to remit promptly to LINA premiums collected by IAI on group insurance plans" both during and after its tenure as administrator. Count II seeks damages (in the form of interest) for the temporary loss of use of the premium funds.

LINA again invokes fiduciary percepts in the trust context to provide Count II's legal underpinning. Characterizing the premiums received by IAI as the trust res, LINA claims the right to recover interest for trust property wrongfully withheld. Without sharing (either with this Court or opposing counsel) the legal research that it may be hoped prompted the filing of its motion,⁸ IAI simply denies in conclusory fashion any statutory, contractual or fiduciary basis for Count II.⁹

LINA's "trust" theory cannot now prevail because of the same potential shortcomings discussed at n. 6. But a provision of the Illinois Insurance Code (apparently overlooked by LINA), Ill.Rev.Stat. ch. 73, § 1065.52, supplies enough of a foundation to keep Count II in court:¹⁰

Any premiums or other monies which an agent or broker collects from an insured and which are to be paid to the agent's or broker's employer, a company, or its agents because of the assumption of liability through the issuance of policies or contracts for insurance, shall be held by the agent or broker in a fiduciary capacity and shall not be misappropriated or converted to his own use or illegally withheld by the agent or broker.

Any company which directly or through its agents delivers in this State to any insurance broker a policy or contract for insurance pursuant to the application or request of such broker, acting for an insured other than himself, shall be deemed to have authorized such broker to receive on its behalf payment of any premium which is due on such policy or contract for insurance at the time of its issuance or delivery or which becomes due thereon not more than 90 days thereafter.

In the case of an open accounts receivable with the balance payable to an agent or broker within a specified period of 90 days or less, and the balance is not fully paid within such period, a late charge not exceeding 1½% per month may be added by the agent or broker to the unpaid balance to induce payment of the premium.

Whenever an agent or broker knowingly misappropriates or converts to his own use or illegally withholds premiums, in the amount of $150 or less he is guilty of a Class A misdemeanor and for a second and subsequent violation he is guilty of a Class 4 felony; when an agent or broker knowingly misappropriates or converts to his own use or illegally withholds premiums in excess of the amount of $150 he is guilty of a Class 3 felony.

Thus, by statutory fiat IAI acts as the agent of the insurer in handling the premiums collected from the insureds. See, Davidson v. Comet Casualty Co., 89 Ill. App.3d 720, 723-24, 44 Ill.Dec. 943, 946, 412 N.E.2d 19, 22 (2d Dist.1980).

True...