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Dorfman v. Gerber

OCTOBER 24, 1962.

ALLEN M. DORFMAN AND UNION INSURANCE AGENCY OF ILLINOIS, PLAINTIFFS-APPELLEES,

v.

JOSEPH S. GERBER, DIRECTOR OF INSURANCE OF THE STATE OF ILLINOIS, DEFENDANT-APPELLANT.



Appeal from the Circuit Court of Cook County; the Hon. JOHN E. PAVLIK, Judge, presiding. Judgment order reversed, and order of director of insurance reinstated. MR. JUSTICE MCCORMICK DELIVERED THE OPINION OF THE COURT.

Rehearing denied December 11, 1962.

This is an appeal by the Director of Insurance of the State of Illinois under the Administrative Review Act (Ill Rev Stats c 110, §§ 264-279) from a judgment order of the Circuit Court of Cook County reversing the Director's action revoking the insurance broker's and agent's licenses of Allen M. Dorfman and Union Insurance Agency of Illinois.

Allen M. Dorfman and his mother, Rose Dorfman, were partners in the Union Insurance Agency of Illinois. In July 1959 Allen M. Dorfman and the agency were served with notices from the Director of Insurance that a hearing would be held for the purpose of determining the eligibility of Dorfman and the agency to retain their agent's and broker's licenses. A hearing on the preferred charges was held on August 6, 1959 before hearing officer Lawrence A. Berman. At the hearing the evidence disclosed that on May 10, 1953 the agency had entered into a group general agency agreement with Union Casualty & Life Insurance Company, hereafter referred to as the Company. (The Company apparently as a result of successive changes in management became known as Mount Vernon Life Insurance Company of New York, and ultimately as Northeastern Life Insurance Company of New York.) Paragraph nine of this agreement provided as follows:

"All monies received for or on behalf of the Company, while in the custody of the General Agent shall be held as a fiduciary trust. They shall not be used for any purpose whatsoever, but are to be reported upon and transmitted to the Company in accordance with its instructions."

Section 505 of the Illinois Insurance Code (Ill Rev Stats 1959, c 73, § 1065.52) provides:

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

"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 ninety (90) days thereafter."

Since Dorfman obtained his insurance broker's license he has written insurance in excess of $100,000,000 total premiums. The agency had written group insurance policies for a Chicago local of an international union. When any of the insureds under this group policy were laid off from work they were permitted to make minimum payments each month so that they might maintain their insurance in full force and effect. At first the agency sent these remittances directly to the Company. On or about May 15, 1954 the Company instructed the agency that when it had collected these small premium payments it should not remit them as they were received but should accumulate them and send a single remittance periodically. It was admitted that for a period of three years the plaintiff collected these funds, amounting approximately to $51,461, and sent none of them to the Company. It was also admitted that Dorfman treated these funds as his own personal funds. Dorfman in referring to the money in this account stated: ". . . I treated it as my own money." He further stated: "I felt I could use this money in any manner, shape or form I wanted to — to buy theatre tickets or automobiles or pay employees or whatever I wished; as long as I paid our bills, I felt I had the right to use these funds as though it was my own money; that is, in fact, what I did in the case of these layoff premiums."

Eighteen canceled checks were admitted into evidence showing that these funds were applied for personal uses and made payable to various payees in various amounts, including two to Dorfman himself for $2,000 and $4,000, one to the agency for $5,000, and one to himself as general agent for $1,000. On March 11, 1957 Dorfman drew a check for $39,155.33 on this layoff premium account and forwarded it to the Company. On June 21, 1957 Dorfman drew a check for the remaining balance of the account, $12,306.31, and deposited it in The Exchange National Bank of Chicago. The named payee on the check was Mount Vernon Life Insurance Company. On the reverse side of the check there was an endorsement which read as follows: "Pay Exchange National Bank of Chicago or Order, Mount Vernon Life Insurance Company." Immediately below this was the plaintiff Dorfman's signature as endorsement, which read: "Allen M. Dorfman." The deposit slip accompanying the check directed that the money was to be placed in his personal account. The bank accordingly followed his directions. After five months had elapsed an employee of Dorfman called attention to this deposit and steps were taken to send these funds to the insurance company. It was stipulated by counsel for Dorfman and the agency that at least 97% of the layoff premiums were not remitted to the Company during the 90-day period as is required by section 502 of the Insurance Code.

On September 30, 1959 the hearing officer found that (1) Union Insurance Agency of Illinois was delinquent more than 90 days in remitting premiums to Northeastern Life Insurance Company of New York; (2) Allen M. Dorfman had misappropriated or converted to his own use or illegally withheld monies required to be held in a fiduciary capacity; (3) Allen M. Dorfman fraudulently endorsed a check drawn by Union Insurance Agency of Illinois on this fiduciary premium account at The Exchange National Bank of Chicago in the amount of $12,306.31 and payable to the order of Mount Vernon Life Insurance Company, and deposited it in his personal bank account. The hearing officer recommended that the plaintiffs' insurance broker's and agent's licenses be revoked.

On October 8, 1959 the Director of Insurance adopted the findings and recommendations of the hearing officer and revoked the respective licenses. On October 21, 1959 a petition for rehearing was denied.

An appeal was taken under the provisions of the Administrative Review Act to the Circuit Court of Cook County, and on July 14, 1961 the court reversed the Director's order of revocation. From this judgment order of the Circuit Court this appeal is taken.

The Director of Insurance contends in this court that the facts upon which the order of revocation was based were undisputed, that the order of the trial court reversing the revocation order is contrary to the facts and contrary to the law, and that the trial court further erred in reversing the revocation order because it considered the penalty imposed by the Director of Insurance for the statutory violation too severe. The plaintiffs, Allen M. Dorfman and Union Insurance Agency of Illinois, contend that the judgment order of the trial court is fully in accordance with the law, that the order of revocation was against the manifest weight of the evidence, and that the hearing officer and Director of Insurance were biased and had received information outside of the record in the case.

The proper procedure involving appeals under the Administrative Review Act has been so many times stated by the courts of this State that it would seem unnecessary to again reiterate those statements. In Mitchell v. Sackett, 27 Ill. App.2d 335, 169 N.E.2d 833, we held that the ...


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