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Bergman & Lefkow Ins. Agency v. Flash Cab Co.

JUNE 4, 1969.

BERGMAN & LEFKOW INSURANCE AGENCY, PLAINTIFF,

v.

FLASH CAB COMPANY AND PUBLIC TAXI SERVICE, INC., DEFENDANTS. FLASH CAB COMPANY AND PUBLIC TAXI SERVICE, INC., COUNTERPLAINTIFFS-APPELLEES,

v.

WILLIAM B. SHAPIRO, SAMUEL N. BERGMAN, AND BERGMAN & LEFKOW INSURANCE AGENCY, INC., COUNTERDEFENDANTS-APPELLANTS.



Appeal from the Circuit Court of Cook County; the Hon. NATHAN J. KAPLAN, Judge, presiding. Judgments affirmed.

MR. JUSTICE MCNAMARA DELIVERED THE OPINION OF THE COURT.

Counterdefendants, William B. Shapiro, Samuel N. Bergman and Bergman and Lefkow Insurance Agency, Inc., appeal from judgments entered in favor of counterplaintiffs Flash Cab Company and Public Taxi Service, Inc. The counterclaim alleged, in effect, that counterdefendants had, through misrepresentations and failure to disclose pertinent facts, induced counterplaintiffs to place their insurance with a financially unsound company. After a jury trial on the counterclaim, judgment was entered in favor of Flash Cab in the amount of $44,657.18 and in favor of Public Taxi in the amount of $28,876.08. Counterdefendants appeal from those judgments and the denial of their post-trial motions, contending that the judgments should be reversed for the following reasons: (1) that there was a total absence of proof of any misrepresentation; (2) that there was no basis in the evidence for a finding that appellants had failed to disclose an interest in the insurance company they recommended to the cab companies; (3) that because of the lack of privity between the parties the cab companies had no standing to sue; (4) that the cab companies dealt with Shapiro as a principal on his own behalf, and not as an agent for the other appellants; (5) that Bergman and Lefkow Insurance Agency, Inc. was not in existence at the time of the purported misrepresentation and therefore could not be liable. In the alternative, appellants contend that the cause should be remanded for a new trial because the trial court erred in admitting certain evidence; that the trial court erred in the giving of a certain instruction to the jury; that the verdict was against the manifest weight of the evidence; and that, assuming appellants would be liable, they are entitled to certain offsets against the judgments.

Flash Cab Company and Public Taxi Service, Inc. are Illinois Corporations. Arthur Dickholtz owns and is president of Flash Cab, and is the major shareholder of Public Taxi.

From 1959 until June 24, 1961, Shapiro was an employee of Berkow Corporation and Bergman and Lefkow Insurance Agency, Inc., and a vice-president of Bergman Exchange Agency, Inc. From June 24, 1961 until 1965, he was vice-president of Bergman and Lefkow Insurance Agency, Inc. From 1959 Bergman was president of these various companies.

Bergman and Lefkow Insurance Agency, Inc. was incorporated in Illinois on June 24, 1961. Shortly thereafter, it purchased substantially all of the stock of Bergman and Lefkow Insurance Service, Inc., Berkow Corporation, Bergman Exchange Agency, Inc., and Bergman Exchange Agency, Inc. of Miami. Bergman and his wife were the old companies' shareholders who sold their interests to the new corporation. All of these corporations were located in one office in Chicago, and Bergman and Shapiro sold insurance through all of them. Dickholtz and Shapiro had known each other for several years. Shapiro had been engaged primarily in cab insurance, and Dickholtz had purchased insurance from him on several occasions. From 1956 to 1959, Dickholtz purchased the cab company insurance from an insurance company which then went into liquidation. In November, 1959, Dickholtz had a conversation with Shapiro in which he said that his insurance carrier had just gone into liquidation and that he would like to get into a program whereby the cab companies could control their claims. Shapiro stated that he could not make a definite proposal, but would check with his office. In the early part of 1960, as the result of a proposal made by Shapiro, Dickholtz met with Shapiro and Bergman in their office, but rejected a proposed arrangement because of his inability to make a necessary deposit. In October, 1960, Shapiro advised Dickholtz that a suitable arrangement could be worked out with Exchange Casualty and Surety Co., a company that Bergman and he had formerly owned. Dickholtz testified that Shapiro informed him that only he could put this deal together because of his former affiliation with the company. He further testified that he agreed to pay Shapiro $50 per week if the arrangement were to materialize, and that he believed that Exchange would also pay him a commission. Dickholtz told Shapiro that, because of his previous unfavorable experience with insurance, he had to be careful in selecting an insurance program for the cab companies. Dickholtz testified that, while discussing Exchange's proposal with Shapiro,

". . . he advised me that the company was financially sound and I should have no qualms whatsoever about the capabilities of the company in carrying this risk, and that he was recommending the company, and that I should rely entirely upon his vast knowledge in this matter, having been a former officer of the company and a previous owner."

A memorandum of this meeting was prepared by Dickholtz and was introduced into evidence. This memorandum indicated that the weekly payment to Shapiro was for consulting services. Shapiro testified that he consulted with Dickholtz regarding claims about approximately eight times, each discussion taking no more than 45 minutes.

On November 8, 1960, Shapiro, Dickholtz and two representatives of Exchange met, and on the following day Shapiro notified Dickholtz by mail that an agreement may have been reached. That letter was written on Bergman and Lefkow Insurance Agency stationery and was signed "Bergman and Lefkow Insurance Agency, W.B. Shapiro."

After a series of meetings and conversations, a final agreement was reached on January 1, 1961. The agreement authorized Dickholtz to solicit applications for insurance and to issue and countersign insurance policies. He was to retain 29 percent of the premiums as commission and for fees and expenses. Policies for cabs operated by both cab companies, countersigned by Dickholtz as authorized agent for Exchange, were issued. The net premiums collected, after the 29 percent deductions, were deposited to the premium account of Exchange. The commission was retained by Flash Cab, and the fees were kept in a personal account of Dickholtz known as the Taxi Drivers Emergency Fund. All claims arising out of the operations of the cabs were disposed of by Dickholtz or the cab companies. The claims were paid out of the Emergency Fund, and were then deducted from premiums due on a monthly basis. The weekly payments to Shapiro were made from this fund.

In March, 1962, Dickholtz was informed by Exchange and by the Illinois Director of Insurance that Exchange's license had been revoked by the Michigan Insurance Department. Exchange also informed him that all agents' licenses were cancelled. After he was notified that Exchange had been placed in receivership, Dickholtz contacted Shapiro and asked, "What is Bergman and Lefkow going to do about this?" Shapiro replied that he would talk to Bergman and advise Dickholtz of their decision. Shapiro subsequently informed Dickholtz that Bergman had stated that he was going to back up the claims of the older office clients, but that Flash Cab was on its own.

The net premium paid to Exchange during the insured period was $241,301.03. Testimony for the cab companies indicated that $60,255.66 was retained as commission, while testimony for appellants indicated that the commission amounted to $68,141.14.

Exchange was owned by a holding company, Exchange Management Company, until May 15, 1959. Bergman was president of both companies; Shapiro was secretary-treasurer of the insurance company and vice-president of the holding company. On May 15, 1959, the holding company sold Exchange to Donald Elbel for $160,000. In addition Elbel agreed to pay the holding company one-half of the saving, if any, of loss and loss expense reserves of Exchange upon liquidation of the same. A final settlement of the additional consideration was to be had on June 30, 1960, but no saving was realized. After the sale to Elbel, Shapiro became vice-president of Exchange and served until March 9, 1960.

Paul Plesko, a certified public accountant, testified as an expert witness for the cab companies as to the financial conditions of Exchange. He had examined the annual reports of the company filed with the Director of the Illinois Department of Insurance for the years 1957 through 1961. According to his testimony, Exchange suffered a loss from operations in 1957, 1958 and 1959. Policyholders' surplus was $702,667 at the end of 1957; $518,601 at the end of 1958; and $439,748 at the end of 1959. During 1958, shareholders contributed assets valued at $150,000, and in 1959 they contributed assets valued at $740,000. Of this latter contribution, $315,000 consisted of stock not listed on any exchange or in any over-the-counter list. Plesko testified that Exchange would have been insolvent except for these contributions. Loss reserves for the three years were substantially below actual loss experience; the companies' liquid assets declined about one-half; and total assets also declined.

The cab companies also attempted to introduce testimony from Plesko concerning the financial condition of Exchange as of December 31, 1960, as reflected in its annual report filed in March, 1961. Appellants objected to the testimony on the grounds that it was irrelevant and the objection was sustained. However the 1960 and 1961 annual reports were admitted into evidence. These reports indicated on their face that the company's liquid assets and its ratio of liquid assets to total assets continued to decline in 1960, while the percentage deficiency in the reported reserves continued to increase. There was also a further decline in the ratio of liquid assets to total loss reserves in 1960.

In March 1959, prior to the sale to Elbel, Exchange ceased writing new business and did not resume until October 1959.

The jury returned a verdict for the amounts paid out by the cab companies in settlement of accident claims which they assumed after Exchange's failure, and fees and ...


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