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Highway Ins. Co. v. Korman

MARCH 25, 1963.

HIGHWAY INSURANCE COMPANY (FORMERLY METROPOLITAN INSURANCE COMPANY), PLAINTIFF-APPELLANT,

v.

CLYDE L. KORMAN, DEFENDANT-APPELLEE.



Appeal from the Circuit Court of Cook County; the Hon. THOMAS E. KLUCZYNSKI, Judge, presiding. Reversed and remanded with directions.

MR. JUSTICE ENGLISH DELIVERED THE OPINION OF THE COURT.

Rehearing denied May 20, 1963.

Plaintiff's complaint and amended complaint were both stricken, and, after a hearing on defendant's motion to strike a second amended complaint, the trial court again concluded that plaintiff had not stated a cause of action. An order was, therefore, entered striking the second amended complaint without leave to amend further, and the cause was dismissed. Plaintiff appeals.

Although part of plaintiff's brief questions the sufficiency of defendant's motion to strike, we shall consider the case, as did the trial court, on the question of whether or not the complaint itself states a cause of action. The facts to be recited in this opinion will be those alleged in the complaint, since those allegations, together with reasonable intendments therefrom, are to be taken as true for the purposes of this appeal. (Doner v. Phoenix Joint Stock Land Bank of Kansas City, 381 Ill. 106, 112, 45 N.E.2d 20; Moroni v. Intrusion-Prepakt, Inc., 24 Ill. App.2d 534, 541, 165 N.E.2d 346.)

In reviewing the facts, we consider ourselves to be guided by two provisions of the Practice Act. They are:

Pleadings shall be liberally construed with a view to doing substantial justice between the parties. (§ 33(3).)

No pleading is bad in substance which contains such information as reasonably informs the opposite party of the nature of the claim or defense which he is called upon to meet. (§ 42(2).)

And, since defendant's motion is not supported by any affidavits, the grounds for the motion must appear on the face of the complaint. (§ 48(1).)

The complaint has to do with the relations between defendant and plaintiff insurance company *fn1 from 1942 to 1958. Defendant was vice-president of plaintiff, a member of its board of directors, and, with Harry V. Gralnek, a member of its two-man finance committee. Defendant's duties included collection of premiums and other fees due to plaintiff, and supervision of its records with respect thereto. As members of the finance committee, defendant and Gralnek directed the financial and investment portions of plaintiff's business. Gralnek, who was also a director, was plaintiff's secretary and treasurer, and was responsible for receipt of all funds paid to plaintiff. *fn2

(Count I) R.C. Brusslan & Co., a partnership, did business as insurance agents, selling policies written by plaintiff. Brusslan, on behalf of plaintiff, collected premiums due to plaintiff from assureds under policies written by plaintiff. In late 1948 or early 1949, Gralnek told Brusslan that money thus collected by Brusslan on behalf of plaintiff and so due to plaintiff should be paid by checks payable to Gralnek. Brusslan, thereafter, did deliver to Gralnek, in payment of money thus due to plaintiff, checks and drafts payable to Gralnek personally, and he deposited them, not in plaintiff's account, pursuant to his duty as plaintiff's treasurer, but in various banks to the credit of his own individual account. A list of such checks so delivered during the period May, 1955 to April, 1958 is attached to the complaint, and the amounts thereof total $683,744.63. Other similar checks aggregating some $600,000 were also thus delivered and deposited, but plaintiff did not yet have specific data on them.

Approximately half of this money was paid by Gralnek to defendant, who knew of and encouraged these payments by Brusslan, and, in fact, expressly directed Brusslan on numerous occasions to make such payments to Gralnek. A partial list of such payments to defendant by date and amount (totaling more than $200,000) is attached to the complaint, and additional amounts were so paid, but plaintiff did not yet have specific data as to such payments. Defendant received such payments from Gralnek knowing that the money belonged to plaintiff and he wrongfully appropriated it to his own use.

Defendant and Gralnek disguised and concealed their misappropriation of this money by false and misleading statements to other officers and employees of plaintiff, and by false, fraudulent, inaccurate and incomplete entries in plaintiff's books and records. They reconciled the Brusslan account on plaintiff's books by unlawfully crediting to it various receipts from other sources. Plaintiff first learned of these misappropriations and fraudulent actions in 1958, and complaint was filed in January, 1959.

(Count II) Defendant and Gralnek, as partners, also carried on an insurance agency business under the name of "The Highway Agency." This agency sold insurance written by plaintiff, collected premiums and remitted them to plaintiff, and received from plaintiff commissions earned, from time to time. Prior to May 31, 1958, defendant and Gralnek, as vice-president and treasurer, respectively, and despite their fiduciary relationship with plaintiff, caused plaintiff to pay to The Highway Agency advances against commissions to be earned by the agency in the future. On the date referred to, the amount of this overdraw against unearned commissions was $125,312.88. In June, 1958 a statement of such account was rendered by plaintiff to defendant, as a partner of the agency, but he and Gralnek have failed and refused to pay the amount due.

(Count III) Defendant, as vice-president of plaintiff, and despite his fiduciary obligations as such, at various times caused checks to be drawn on plaintiff, and plaintiff's money thus wrongfully paid out in satisfaction of plaintiff's own personal debts and those of his family and friends. These checks were so drawn without authorization by plaintiff's board of directors, and defendant falsified plaintiff's records to indicate that the checks had been drawn in payment of policy claims against plaintiff. This deception was not discovered until October, 1958. A list of some 125 such checks, with amounts, dates and payees, is attached to the complaint, and there are many more as to which plaintiff did not yet have specific data. Plaintiff has not been reimbursed for any of these expenditures.

(Count IV) Defendant knew that Gralnek was misappropriating plaintiff's funds to his own use; that Gralnek, as a general partner of The Highway Agency, owed plaintiff $125,312.88; that Gralnek was using plaintiff's funds for payment of his own personal debts and those of his family and friends; that Gralnek had not repaid to plaintiff the sums thus misappropriated by him from time to time. Despite this knowledge and despite defendant's fiduciary obligation to plaintiff, defendant did not disclose this information to the board of directors or other responsible officers of plaintiff, and took no action to stop or prevent such unlawful dissipation of plaintiff's funds by Gralnek or to recover such funds from him. On the contrary, defendant negligently and improperly failed to perform his duties to plaintiff, and concealed the misappropriations through the falsification of records and otherwise, as a result of which plaintiff sustained loss and damage in the amount of $2,000,000.

(Count V) Through defendant's breaches of his fiduciary obligations to plaintiff, he diverted large amounts of plaintiff's funds to his own purposes. Because of his concealment of such unlawful acts through alteration and destruction of plaintiff's records, the full extent of plaintiff's damages cannot be determined without an accounting by defendant. Defendant is a constructive trustee of the money and property of which plaintiff has thus been defrauded by defendant, and plaintiff is entitled to restitution or the declaration of an equitable lien on the proceeds and profits of such fraud.

Defendant contends as to Count I that it does not state an action against him because it does not show that the allegedly misappropriated funds ever belonged to plaintiff. It is his theory that Brusslan collected premiums as agent of the assureds, not as agent of plaintiff; that the payment of these amounts to Gralnek instead of to plaintiff left a simple debtor-creditor relationship between Brusslan and plaintiff; and that plaintiff can recover from Brusslan the amounts which it seeks to obtain in this suit from defendant.

It should be remembered that Count I alleges that Brusslan collected the premiums due to plaintiff "on plaintiff's behalf." That is a clear allegation of an agency relationship between Brusslan and plaintiff; and moneys so ...


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