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People v. Progressive General Ins. Co.

JULY 21, 1967.




Interlocutory appeal from the Circuit Court of Cook County; the Hon. CORNELIUS J. HARRINGTON, Judge, presiding. Order affirmed.


This is an interlocutory appeal from an order of the Circuit Court of Cook County directing the rehabilitation of the defendant Progressive General Insurance Company (hereafter referred to as Progressive). This order was entered first on the 19th day of May 1967 and was reentered as an amended order on the 22nd day of May 1967. The findings upon which they were based are identical in both the original and the amended order. The Director of Insurance was ordered to take possession of the property, business and affairs of Progressive, to proceed to conduct the business of Progressive and to remove the causes which necessitated the proceedings. The basic issue on this appeal is whether the chancellor was justified, on the basis of the record before him, in taking over the business and assets of Progressive, and vesting them in the Director of Insurance.

The present action began in October, 1965. Extensive hearings were held before the master in chancery and the trial court. It was found that Progressive and its president, Charles Hoffman, Jr. had committed several serious violations of the Illinois Insurance Code. Some of the more serious violations are as follows: (1) Loans in the aggregate amount of $812,000 were made to Hoffman, personally in violation of Insurance Code, section 124.2; (2) Immediately prior to the issuance of quarterly reports by Progressive, Hoffman secured bank loans, which aggregated close to $1,000,000 executed by Progressive Agency and secured by all of the uncollected premiums due to Progressive on policies outstanding, in violation of section 505 of the Insurance Code; (3) Premiums were transmitted in bulk instead of being identified to individual policies in violation of Rule 9.08 of the Department of Insurance; and (4) The defendant operated under an exclusive agency agreement without ever submitting the agreement to the Director of Insurance for approval as required by section 141 of the Insurance Code, all as shown in the findings in the original and the amended order.

During the pendency of these proceedings, Charles Hoffman, Jr., Progressive's president, was indicted, tried and convicted in the United States District Court on charges arising out of his association with the present defendant and the Mutual Insurance Exchange over which he had complete control. Upon the conviction of Hoffman, the Director of Insurance moved for the appointment of a rehabilitator and for other relief. Following the taking of evidence the chancellor found that the defendant was operating without a surety bond as required by Rule 9.04, supra; that each of the newly elected officers and directors were long-standing associates of Charles Hoffman, Jr. and that Charles Hoffman, Jr. retained ownership and control over Progressive. Based on these findings the chancellor issued the order which is the subject of this appeal.

The insurance industry is one which affects a great many people. For this reason the courts have held that the insurance business is one which effects the public interest and is subject to the supervision and control of the state. People ex rel. Benefit Ass'n v. Miner, 387 Ill. 393, 56 N.E.2d 353; People ex rel. American Bankers Ins. Co. v. Palmer, 363 Ill. 499, 2 N.E.2d 728. The sections of the Insurance Code under which the Director proceeded in this case reflect the concern of the State of Illinois in this area. Chapter 73, section 800 is as follows:

"Sec. 800. Grounds for rehabilitation and liquidation of domestic company

"Whenever any domestic company

"(a) is insolvent; or

"(b) has refused to submit its books, papers, accounts, records or affairs to the reasonable inspection or examination of the Director or his actuaries, supervisors, deputies, or examiners; or

"(c) has neglected or refused to observe an order of the Director to make good within the time prescribed by law any deficiency, whenever its capital, if a stock company, or its required surplus, if a company other than stock, shall have become impaired; or

"(d) has, by articles of consolidation, contract of reinsurance or otherwise, transferred or attempted to transfer its entire property or business not in conformity with this Code, or entered into any transaction the effect of which is to merge substantially its entire property or business in any other company without having first obtained the written approval of the Director pursuant to the provisions of this Code; or

"(e) is found to be in such condition that its further transaction of business would be hazardous to its policyholders, or to its creditors, or to the public; or

"(f) has violated its charter or any law of this State or has exceeded or is exceeding ...

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