McRaith v. Bdo Seidman, Llp

Decision Date27 May 2009
Docket NumberNo. 1-06-1430.,No. 1-07-0959.,1-06-1430.,1-07-0959.
Citation391 Ill. App. 3d 565,909 N.E.2d 310
PartiesMichael T. McRAITH, Director of the State of Illinois Division of Insurance, solely in his capacity as statutory and court-affirmed Liquidator of Coronet Insurance Company, Crown Casualty Company and National Assurance Indemnity Company, Plaintiff-Appellee, v. BDO SEIDMAN, LLP, f/k/a BDO Seidman, Defendant-Appellant. Michael T. McRaith, Director of the State of Illinois Division of Insurance, solely in his capacity as statutory and court-affirmed Liquidator of Coronet Insurance Company, Crown Casualty Company and National Assurance Indemnity Company, Plaintiff-Appellant, v. BDO Seidman, LLP, f/k/a BDO Seidman, Defendant-Appellee (BDO Seidman, LLP, Third-party Plaintiff, v. Clyde W. Engle; Glenn J. Kennedy; Richard A. Leonard; Paul H. Albritton, Jr.; Lee N. Mortenson; Everett A. Sisson; Robert Spiller; Peter Henry Bergman; David John Blears; Howard Friedman; John Charles Russell; Michael Joseph Tucker; RDIS Corporation; Telco Capital Corporation; Wisconsin Real Estate Investment Trust; Hickory Furniture Company; Sunstates Corporation; Indiana Financial Investors Inc.; Normandy Insurance Agency, Inc.; Sew Simple Systems, Inc.; Sunstates Equities, Inc.; Sunstates Financial Services, Inc.; Alba-Waldensian Holdings Company; RMHC (Delaware), Inc.; Wellco Holdings Company; Sunstates Realty Group, Inc.; and Michael T. McRaith, in his capacity as Director of the State of Illinois Division of Insurance, Third-party Defendants).
CourtUnited States Appellate Court of Illinois

Tabet, DiVito & Rothstein, LLC (Gary L. Prior, of counsel), McDermott, Will & Emery, LLP (William P. Schuman, of counsel), and Schuyler, Roche & Crisham, P.C., all of Chicago (Jean M. Prendergast, of counsel), for Appellant.

Robinson, Curley & Clayton, P.C., Chicago (Alan F. Curley and Robert L. Margolis, of counsel), for Appellee.

MODIFIED UPON REHEARING

Justice QUINN delivered the opinion of the court:

This consolidated appeal arises from: (1) the interlocutory appeal of a certified question pursuant to Supreme Court Rule 308 (155 Ill.2d R. 308) regarding whether a private tolling agreement may indefinitely extend the statutory limitation period for refiling a claim under section 13-217 of the Code of Civil Procedure (Code) (735 ILCS 5/13-217 (West 2006)) and the five-year statute of repose for accountants pursuant to section 13-214.2(b) of the Code (735 ILCS 5/13-214.2(b) (West 2006)) (No. 1-06-1430); and (2) the decision of the circuit court of Cook County to dismiss counts I, II and III of a lawsuit commenced by plaintiff, Director of the State of Illinois Division of Insurance Michael T. McRaith, acting in his capacity as statutory and court-affirmed liquidator (the Liquidator) on behalf of the insolvent third-party insurance company claimants (No. 1-07-0959). The lawsuit alleged, inter alia, that defendant, BDO Seidman, LLP, formerly known as BDO Seidman (BDO), committed negligence and breach of contract in its public accounting and auditing services provided to the third-party insurance companies. In its order dismissing the Liquidator's lawsuit, the circuit court held that the "sole owner" doctrine barred the claims of the third-party insurance companies against BDO.

Pursuant to the supreme court's November 29, 2006, supervisory order, we decide whether the parties' private tolling agreement extended the statute of limitations for refiling a claim under section 13-217 and the five-year statute of repose for accountants pursuant to section 13-214.2(b). In addition, we determine whether the circuit court properly dismissed counts I, II and III of the Liquidator's lawsuit under Code section 2-619 (735 ILCS 5/2-619 (West 2006)).

For the following reasons, in appeal number 1-06-1430, we cannot answer the certified question as phrased, but we do hold that the parties' private tolling agreement effectively extended both sections 13-214.2(b) and 13-217 and, therefore, the Liquidator's claims against BDO are not time-barred. Further, in appeal number 1-07-0959, we reverse the circuit court's decision to dismiss counts I, II and III of the Liquidator's September 22, 2005 complaint against BDO and remand for further proceedings. We also find, as a matter of first impression, that the imputation doctrine does not apply to the director of the State of Illinois Division of Insurance (IDI) when acting as an insolvent insurance company liquidator under the statutory authority provided by the Illinois Insurance Code (215 ILCS 5/1 et seq. (West 2006)) and Civil Administrative Code of Illinois (20 ILCS 5/5-1 et seq. (West 2006)).

I. BACKGROUND
A. Facts Relevant to Both Appeals

Plaintiff is the director of the IDI and has appeared in this action in his statutory and court-affirmed capacity as liquidator of the third-party insurance companies, Coronet Insurance Company (Coronet), Crown Casualty Company (Crown) and National Assurance Indemnity Company (National Assurance) (collectively, the Insurance Companies). Defendant is a national certified public accounting firm with offices in Chicago.

The Insurance Companies are Illinois-domiciled companies that principally sold automobile insurance to individuals. Crown and National Assurance were wholly owned subsidiaries of Coronet. During their years of operation, the Insurance Companies were regulated by the IDI. Each of the Insurance Companies was declared insolvent and ordered into liquidation by the circuit court beginning with Coronet on December 24, 1996, National Assurance on January 3, 1997, and Crown on January 31, 1997.

The parties do not dispute that, at all relevant times, the insurance companies were owned by corporate entities owned and controlled by third-party defendant, Clyde W. Engle. The parties also do not dispute that, at all relevant times, Engle dominated and controlled the insurance companies. In addition to being the ultimate owner of the Insurance Companies and third-party defendant corporations, Engle was chairman of the board of directors and chief executive officer for each of the insurance companies and third-party defendants RDIS Corporation, Telco Capital Corporation, Hickory Furniture Company, Indiana Financial Investors, Inc., Wisconsin Real Estate Investment Trust, Sunstates Corporation and Normandy Insurance Agency, Inc. In addition, Engle served as a director or trustee of the other third-party defendant corporations.

BDO audited the insurance companies pursuant to the Civil Administrative Code and issued audit reports on their financial statements for the years 1992, 1993 and 1994. BDO began work on the 1995 audits, but did not complete them or issue any statutory statement opinions for that year.

During the time period when BDO provided auditing services to the insurance companies, Illinois law required an annual audit of licensed insurers by a certified public accountant or an independent accounting firm. Specifically, Title 50, section 925, of the Administrative Code provided that "[a]nnual audited financial reports must be filed by all insurers1 with the Director [of the Illinois Department of Insurance] on or before June 1, for the year ended December 31 immediately preceding." 50 Ill. Adm. Code § 925.40 (1991). "[A]n independent certified public accountant or accounting firm who has a license to practice issued by the state in which he resides or has his principle place of business" was required to perform the annual audit. 50 Ill. Adm.Code § 925.30, 925.60(a) (1991). "The insurer shall obtain a letter from such accountant, and file a copy with the Director, stating that the accountant is aware of the provisions of the Illinois Insurance Code * * * relat[ing] to accounting and financial matters and affirming that he will express his opinion on the financial statements in terms of their conformity to the statutory accounting practices prescribed or otherwise permitted by the Department [of Insurance] * * *." 50 Ill. Adm.Code § 925.60(b) (1991). The Administrative Code stated that "[t]he purpose of this Part is to improve the Illinois Insurance Department's surveillance of the financial condition of insurers by requiring an annual examination by independent certified public accountants of the financial statements reporting the financial condition and the results of operations of insurers." 50 Ill. Adm.Code § 925.20 (1991). The contents for the annual audited financial report included, inter alia: (1) the accountant's report; (2) a balance sheet reporting admitted assets, liabilities, capital and surplus; (3) a statement of operations or statement of revenues and expenses; (4) a statement of changes in financial position or cash flows; and (5) a statement of changes in capital and surplus. 50 Ill. Adm.Code § 925.50(b) (1991). The Administrative Code provided that the accountant's examination of the insurer's financial statements "shall be conducted in accordance with generally accepted auditing standards." 50 Ill. Adm.Code § 925.90 (1991). The director was not precluded from ordering, conducting or performing examinations of insurers under his jurisdiction, including the financial condition and operations of such insurers. 50 Ill. Adm.Code § 925.20 (1991).

In addition, the Administrative Code provided requirements for notification of an adverse financial condition. "The insurer required to furnish the annual audited financial report shall require the independent certified public accountant to immediately notify in writing an officer or director of the insurer of any determination by that independent certified public accountant that the insurer has materially misstated its financial condition as reported to the Director as of the December 21 immediately preceding, or of any determination that the insurer does not meet the minimum capital and surplus requirement of the Illinois Insurance Code * * *." 50 Ill. Adm.Code § 925.100(a) (1991). Further, "[i]f the...

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