Old Sec. Life Ins. Co. v. Continental Illinois Nat. Bank and Trust Co. of Chicago, s. 82-3067
| Decision Date | 30 August 1984 |
| Docket Number | Nos. 82-3067,82-3068,s. 82-3067 |
| Parties | 5 Employee Benefits Ca 1859 OLD SECURITY LIFE INSURANCE COMPANY, et al., Plaintiffs-Appellees, v. CONTINENTAL ILLINOIS NATIONAL BANK AND TRUST CO. OF CHICAGO, Defendant-Appellant. Robert J. BAKER, et al., As Trustees of Central States, Southeast and Southwest Areas Health and Welfare Fund, Intervening Plaintiffs-Appellees, v. OLD SECURITY LIFE INSURANCE COMPANY, et al., Intervening Defendants-Appellants, and Continental Illinois National Bank and Trust Co. of Chicago, Intervening Defendant-Appellant. |
| Court | U.S. Court of Appeals — Seventh Circuit |
Gary M. Elden, Reuben & Proctor, Chicago, Ill., for plaintiffs-appellees.
James L. Coghlan, Coghlan, Joyce, Nellis & Kelly, Chicago, Ill., for intervening plaintiffs-appellees.
Stephen M. Shapiro, Mayer, Brown & Platt, Chicago, Ill., for defendant-appellant.
Before ESCHBACH and FLAUM, Circuit Judges, and SWYGERT, Senior Circuit Judge.
Old Security Life Insurance Company ("Old Security") brought this diversity action against Continental Illinois National Bank and Trust Company ("Continental") to recover $1.5 million allegedly transferred by the bank from Old Security's account without authorization. The Trustees of the Central States, Southeast and Southwest Areas Health and Welfare Fund ("Fund") intervened. The Fund alleged that the money in the account consisted of premiums obtained from the Fund by Old Security through a conspiracy to defraud. Accordingly, the Fund claimed a superior right to any recovery the insurance company might ultimately obtain against the bank.
The action was bifurcated, and Old Security prevailed in its action against Continental. Judgment was entered for the insurance company, but execution on the judgment was stayed pending adjudication of the rights of the intervenor. Trial was then had before a second judge on the Fund's claim, and the Fund prevailed. The district court vacated the previous judgment and entered judgment against the Bank and in favor of the Fund.
We have determined that the district court correctly decided the issues in this complex litigation. However, because we have determined that the court incorrectly vacated its judgment in favor of the insurance company, we remand the case for reinstatement of the judgment in favor of Old Security, and entry of judgment in favor of the Fund.
Joseph Hauser was an insurance promoter in the business of soliciting and obtaining labor union insurance contracts for companies he owned. Hauser's reputation in the insurance industry was unsavory. 1 In 1974, he gained control of Florida-based Farmers National Life Insurance Company ("Farmers National"), and hired two actuaries, Brian Kavanagh and John Boden, to run the company. Farmers National was licensed in only six southern states, and its principals intended to write labor group policies in states outside the areas covered by their licenses. In order to accomplish that goal, Farmers National entered into an agreement with Old Security in March 1975, under which Farmers National would produce union group insurance contracts and write the business on Old Security policies. Old Security would receive a 2% fee for allowing this arrangement, and Farmers National would bear 100% of the risk and control 98% of the premiums. 2
Shortly after concluding the Farmers National-Old Security agreement ("Farmers agreement"), Hauser, Kavanagh and Boden were introduced to Len Teeuws of Tolley International Corporation ("Tolley International"). Tolley International was a financial consulting firm for several labor union insurance funds. Teeuws was apparently quite helpful in obtaining insurance contracts for Old Security under the Farmers agreement. For instance, bid specifications for one Indiana union insurance fund ("Indiana Fund") were circulated under Tolley International's name. They were, in fact, prepared in part by John Boden of Farmers National, who tailored the recommendations to the Old Security insurance plan that Farmers National was selling. 3 Teeuws also submitted a report to a Massachusetts labor fund detailing recommendations for group insurance. This report was prepared in part by Boden, who also prepared Old Security's bid for the contract. Both of these labor groups awarded insurance contracts to Old Security.
In 1975, the Central States, Southeast and Southwest Areas Health and Welfare Fund ("Fund") decided to terminate its contract for group insurance and, for the first time in twenty years, to award the life and disability coverage through competitive bidding. Executive Director Daniel Shannon had direct responsibility for insurance placement, and he assigned control of the bidding to Teeuws, the Fund's insurance advisor. Teeuws was to select companies which would be invited to bid, prepare bid specifications, analyze proposals made by insurance companies, and recommend an insurer for award of the contract by the trustees. One of the conditions of Teeuws's contract was that he would not recommend an insurer from whom he was receiving commissions. At the time Teeuws accepted the Fund assignment, he was receiving commissions from Old Security in connection with the Indiana Fund contract.
It is uncontested that Teeuws, Hauser, and Boden agreed that Teeuws would place Old Security on the bid list in exchange for Hauser's commitment to assist Teeuws in obtaining new union business.
By the end of 1975, Farmers National was insolvent and under investigation by the Florida Department of Insurance. The Miami newspapers published a series of articles describing the relationship between Hauser and the company. Lawrence Lee, an attorney for an Arizona union group, investigated Farmers National in connection with an Old Security-Farmers National proposal. He was told by the Florida insurance department that Farmers National was connected with Hauser, that it had been injected with questionable assets which were being investigated by the department, and that it had been fined $5,000 for failing to disclose both Hauser's ownership and a loan to one of its directors. Lee contacted Richard Halford, vice-president at Old Security in charge of union group insurance, and related the information he had received. Halford assured Lee that he was aware of Hauser's reputation, but that Hauser was no longer involved with Farmers National. Halford then called Kavanagh, who told him that Hauser had no official capacity with the company, and that the financial problems had been cleared up. Halford did not attempt to check the accuracy of Kavanagh's representations with the Florida Department of Insurance.
Hauser controlled a second company, Family Provider Life Insurance Company ("Family Provider"). In 1975, the company had no business, no office, and assets of $50,000. Because of Farmers National's insolvency, Hauser decided to activate Family Provider, and its assets were increased to $250,000, the minimum required to conduct business in Arizona, where the company was licensed. In January 1976, Boden and Kavanagh met with Halford and Robert Barton, president of Old Security, to propose a new agreement between Old Security and Family Provider for the purpose of obtaining the Fund business. Both Barton and Halford considered Family Provider and Farmers National to be "synonymous" and believed that Kavanagh and Boden had the authority to speak for either company. 4
Barton and Halford knew that Family Provider was a dormant company, and that its size would have precluded any consideration of it by the Fund. Nevertheless, they entered into an agreement with Family Provider whereby that company could direct the investment of 80% of the Fund's premiums, in return for Old Security allowing the business to be written on its policies. The Family Provider interests dictated the terms of the agreement because that company's principals had the contacts necessary to get Old Security on the Fund bid list. Both Kavanagh and Boden recalled that the Old Security officers were told that Hauser could deliver the Fund contract. While neither Boden nor Kavanagh identified the person at the Fund over whom Family Provider had influence, Barton testified:
At the time the [Fund] case was proposed to Old Security, it was my understanding that one of the principals of Family Provider had an inside connection at the ... Fund that would enable Old Security's name to be put on the bid list .... They told us they would get a bid proposal, and they did. I think it was obvious they had some connection.
Barton testified that he may have considered Tolley International to be Family Provider's inside connection, but that inquiry about the identity of the insider "would have served no purpose."
Old Security's bid proposal on the Fund contract was prepared by Family Provider and reviewed by Halford. Teeuws had informed Family Provider that a 3% retention rate (profit percentage) would make Old Security competitive, and that rate was included on the original bid. Family Provider's interest was not revealed on the bid, nor was the fact that Old Security paid commissions to Teeuws in connection with the Indiana Fund contract. While the bids were pending, Halford received updated information on the progress of Old Security's proposal, and was told that Prudential Insurance Company was the top competitor. Teeuws informed Boden that Prudential's bid offered to pay interest on a portion of the premium reserves. Halford considered this information helpful. He authorized Family Provider to reduce the retention rate by up to one-half per cent if the Fund agreed to be responsible for claims processing.
At the meeting of the Fund trustees on April 30, Teeuws was asked for his evaluations. He replied that Old Security had the better proposal for a one-year contract, and Prudential...
To continue reading
Request your trial
-
In re Midway Airlines, Inc., Bankruptcy No. 91 B 06449
...and (3) a third party must rely on the principal's conduct to the third-party's detriment. Old Sec. Life Ins. Co. v. Continental Ill. Nat'l Bank & Trust Co., 740 F.2d 1384, 1392 (7th Cir.1984); Evanston Bank, 623 F.Supp. at 89. The Court concludes that Midway failed to prove that Northwest ......
-
Evanston Bank v. Conticommodity Services, Inc.
...has no authority to act contrary to the known wishes and instructions of his principal. Old Security Life Insurance Co. v. Continental Illinois National Bank, 740 F.2d 1384, 1391 (7th Cir.1984). For example, when the agent's acts or assertions conflict with the reasonable inferences that ca......
-
In re Republic Fabricators, Inc.
...that a right will not be enforced and causes him to act to his detriment in reliance on that belief." Old Security Life Ins. v. Continental Ill. Nat. Bank, 740 F.2d 1384, 1392, 5 EBC 1859 (7th Cir.1984). "Estoppel by silence," includes a change of position and reliance on the silence and an......
-
In re Stoecker
...inferences from the Debtor's invocation of the Fifth Amendment privilege. See, e.g., Old Security Life Ins. Co. v. Continental Illinois Nat. Bank & Trust Co. of Chicago, 740 F.2d 1384, 1398 (7th Cir.1984). 6. The Use Tax Allegedly Owed By Chandler Arose on September 30, Additionally, IDOR a......