Royal Maccabees Life Ins. Co. v. Malachinski, 96 C 6135.

• Decision Date: 30 March 2001
• Docket Number: No. 96 C 6135.,96 C 6135.
• Citation: 161 F.Supp.2d 847
• Parties: ROYAL MACCABEES LIFE INSURANCE COMPANY, Plaintiff/Counter-defendant, v. Leon S. MALACHINSKI, D.O., Defendant/Counter-plaintiff.
• Court: U.S. District Court — Northern District of Illinois

161 F.Supp.2d 847

ROYAL MACCABEES LIFE INSURANCE COMPANY, Plaintiff/Counter-defendant, v. Leon S. MALACHINSKI, D.O., Defendant/Counter-plaintiff.

No. 96 C 6135.

United States District Court, N.D. Illinois, Eastern Division.

March 30, 2001.

COPYRIGHT MATERIAL OMITTED

Steven R. McMannon, Christopher John Robison, Michael J. Smith & Associates, Chicago, IL, Michael J. Smith, Chicago, IL, Patrick Justin McGuire, Patrick J. McGuire P.C., Chicago, IL, for plaintiff.

Michael Charles Goode, Chicago, IL, Harold Marc Saalfeld, Waukegan, IL, for defendant.

MEMORANDUM OPINION AND ORDER

GUZMAN, District Judge.

Pending is plaintiff Royal Maccabees Life Insurance Company's ("Royal Maccabees") motion for summary judgment and defendant Leon Malachinski's cross-motion. For the reasons set forth below, the Court grants Royal Maccabees' motion and denies Malachinski's cross-motion.

Facts

Royal Maccabees is a life insurance company. Malachinski applied for and was issued a disability insurance policy by Royal Maccabees.

On January 10, 1991, Malachinski met with Irwin Cohen in response to a direct mail solicitation he received from Cohen which invited him to set up a consultation with him to discuss his insurance needs. Cohen specialized in the sale of disability insurance for medical and dental professionals. He was licensed to sell insurance for several different companies and served as an intermediary between the insurance company and the potential insured. At this meeting, Malachinski and Cohen discussed Malachinski's insurance needs and Cohen recommended that Malachinski submit an application for disability insurance with Royal Maccabees. Malachinski adopted the recommendation, and Cohen filled out the application after conversing with Malachinski.

On the application for disability insurance, question 19(a) specifically asks the applicant for information regarding "insurance in force, applied for or applying to reinstate." In response, the application only listed Malachinski's insurance policy with Provident Life Insurance Company for $4,200 per month. No other company was listed in response to this question. After the application was completed by Cohen, Malachinski reviewed and signed it.

Based on the representations supplied in the application, Royal Maccabees issued to Malachinski a policy of disability insurance with a monthly disability benefit of $1,800. This disability policy contained a provision that allowed Malachinski the option to increase his monthly disability benefits by $1,000 after having the policy for a specified period of time. On or about March 12, 1992, Malachinski exercised that option and increased his monthly benefit amount. On that date, Malachinski submitted a renewal application for disability insurance. Again, the application requested information in section 19(a) with respect to "insurance in force, applied for or applying to reinstate." The response written on the application again listed Malachinski's insurance policy with Provident and with Royal Maccabees. No other insurance company was listed.

On March 1, 1995, Malachinski filed a claim of disability. Royal Maccabees approved the claim and remitted to Malachinski the amount of $12,712 for his disability benefits for the period of March 10, 1995 through July 10, 1995. Subsequent to Malachinski's first claim for disability benefits, he filed additional claims for disability benefits and in response thereto, Royal Maccabees remitted to Malachinski additional disability payments on the policy up to and including the period from July 10, 1995 through June 10, 1996 in the total amount of $38,136.

At some point after distributing these monies, Royal Maccabees discovered that at the time Malachinski submitted his January 10, 1991 and March 12, 1992 application to Royal Maccabees, he also had in force group disability insurance coverage with Union Mutual Life Insurance Company ("Union Mutual") in the amount of $6,250 per month. However, in reviewing both applications, Royal Maccabees found no written reference to the Union Mutual policy in question 19(a) or anywhere else. Further investigation by Royal Maccabees also revealed that Malachinski's policy with Union Mutual was in effect during the period of March 10, 1995 through June 10, 1996 when the defendant was accruing benefits from Royal Maccabees.

Shortly after this discovery, Royal Maccabees terminated their policy with Malachinski and filed this suit. In their two-count complaint, plaintiff alleges that Malachinski made material misrepresentions on his January 10, 1991 application and that because Royal Maccabees relied on those misrepresentations, they should be allowed to now rescind the contract and recoup the disability payments it provided to him.

Discussion

Summary judgment is appropriate if the pleadings, answers to interrogatories, admissions, affidavits and other materials show "that there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law." FED. R. CIV. P. 56(c). A genuine issue exists if "there is sufficient evidence favoring the nonmoving party for a jury to return a verdict for that party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). The moving party bears the burden of establishing the absence of any disputed facts. Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). When a properly supported motion for summary judgment has been made, the opposing party must then set forth specific facts showing that there is a genuine issue for trial. Howland v. Kilquist, 833 F.2d 639, 642 (7th Cir.1987). The nonmovant may not rest upon mere allegations in the pleadings or upon conclusory statements in affidavits; rather he must support his contentions with proper documentary evidence. Celotex, 477 U.S. at 324, 106 S.Ct. 2548. Moreover, the opposing party is entitled to the benefit of all favorable inferences that can reasonably be drawn from the underlying facts but not every conceivable inference. De Valk Lincoln Mercury, Inc. v. Ford Motor Co., 811 F.2d 326, 329 (7th Cir.1987). It is in light of this standard that the Court examines the parties' arguments.

I. Cohen's Relationship to Malachinski

Malachinski opines that Royal Maccabees "waived" its right to rescind the insurance contract because he told his insurance man, Irwin Cohen, about his other disability coverage with Union Mutual group¹ and thus Cohen's knowledge is attributable to Royal Maccabees. However, this Court finds, as a matter of law, that Cohen was acting as a broker and the insured's agent, not as Royal Maccabees' agent, and thus any knowledge Cohen may have had is not imputed to Royal Maccabees.

"Although the question whether an insurance broker is the agent of the insured or the insurer is generally one of fact, when the evidence clearly shows that the broker is the agent of the insured, it becomes a matter of law." Lazzara v. Howard A. Esser, Inc., 802 F.2d 260, 264 (7th Cir.1986). Illinois courts have defined an insurance broker as:

[O]ne 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.

Galiher v. Spates, 129 Ill.App.2d 204, 262 N.E.2d 626, 628 (4th Dist.1970); see, e.g., City of Chicago v. Barnett, 404 Ill. 136, 88 N.E.2d 477, 481 (1949). An insurance agent, on the other hand, has an exclusive, fixed, and permanent relationship to an insurance company that the agent represents and has certain duties and allegiances to that company. See Roby v. Decatur Steel Erectors, Inc., 59 Ill.App.3d 720, 17 Ill.Dec. 71, 375 N.E.2d 1355, 1359 (4th Dist.1978); Galiher, 262 N.E.2d at 628.

Under Illinois law, the knowledge of an insurance "broker" generally cannot be imputed to the insurance company. Economy Fire & Cas. Co. v. Bassett, 170 Ill.App.3d 765, 121 Ill.Dec. 481, 525 N.E.2d 539, 542 (5th Dist.1988). Whether a person is an agent or a broker is determined by his or her acts in a particular transaction. See Barnett, 88 N.E.2d at 481; Galiher, 262 N.E.2d at 628. Illinois courts have applied a four-part test to determine whether an intermediary is an agent or broker: (1) who called the intermediary into action; (2) who controls its actions; (3) who pays the intermediary² and (4) whose interests the intermediary represented. See Roby, 17 Ill.Dec. 71, 375 N.E.2d at 1359.

Based on these criteria, the undisputed facts clearly show that Cohen was an insurance broker whose knowledge, if any, as to Malachinski's existing disability coverage with another insurance company is not attributable to Royal Maccabees. In his deposition, Cohen testified that he was an independent insurance broker with no exclusive relationship with any insurance company, including Royal Maccabees. Additionally, it was Malachinski who initiated his contact with Cohen after requesting a meeting with him in response to Cohen's general solicitation mail advertisement. Further, Malachinski controlled Cohen's actions at all times regarding his request for disability coverage through Maccabees. Indeed, Cohen testified that he represented Malachinski and worked in his interest to obtain the most suitable and affordable life insurance policy to fit his client's needs. Cohen testified that he recommended Royal Maccabees insurance but it was Malachinski who ultimately adopted his recommendation and ordered him to place the request with the plaintiff on his behalf. Further, it should be noted that Cohen had no obligation to recommend any particular insurer, as he did regular business with several dozen companies, including Royal Maccabees, and had no fixed or permanent relationship with any company. Lastly, in his...