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Butts v. Estate of Butts

FEBRUARY 17, 1970.

ROBERT P. BUTTS AND COMPANY, CLAIMANT-APPELLEE,

v.

ESTATE OF ROBERT P. BUTTS, JR., DEFENDANT-APPELLANT.



Appeal from the Circuit Court of Sangamon County; the Hon. GEORGE P. COUTRAKON, Judge, presiding. Affirmed.

TRAPP, J.

Defendant appeals from an order of the Circuit Court allowing a claim of $95,298.63 against the Estate of Robert P. Butts, Jr., as a preferred 5th-class claim under the statute, in favor of Robert P. Butts and Company.

Robert P. Butts and Company, a corporation, hereinafter designated claimant, had commission contracts for sale of insurance policies of various insurance companies, including Lincoln Casualty Company of which it was the controlling shareholder. Claimant is in receivership and the casualty company is in rehabilitation under the jurisdiction of the Illinois Insurance Department.

The 1,500 shares of outstanding stock of claimant corporation were owned as follows: Robert P. Butts, Sr., 1,200 shares; Robert P. Butts, Jr., the decedent here, 100 shares; two brothers of the decedent, 100 shares each. Robert P. Butts, Sr. was president of the claimant company, and the decedent, Robert P. Butts, Jr., was secretary-treasurer and also a director. The decedent was also president and director of Lincoln Casualty Company. There is no dispute that decedent owed claimant $95,298.63 in respect to variously labelled advances at the time of his death, August 8, 1964.

Upon appeal it is urged that the claim may only be allowed as a 7th-class general claim, rather than a 5th-class preferred claim, under chapter 3, § 202, Ill Rev Stats 1967, and that as to the total amount claimed the sum of $17,250 is barred by the 5-year statute of limitations which is effective as to unwritten contracts and the conversion of property.

Section 505 of the Illinois Insurance Code (Ill Rev Stats 1967, c 73, par 1065.52), provides in part:

"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."

Rule 31.13 of the Illinois Insurance Department, after repeating that portion of the statute, quoted above, provides in part:

"Effective as of the date hereinafter fixed, all such funds hereinafter referred to as `premium funds' shall not in any manner be commingled with any other funds or monies not of such fiduciary character and such funds shall be deposited in a special demand (checking) account which shall be established for such purpose and shall be titled `Premium Fund Trust Account.' Such account shall, in the case of resident brokers and all agents, be maintained with a national banking association or state banking corporation having banking offices at and within the State of Illinois."

This rule also requires the keeping of complete records of the source of funds and all disbursements subject to the inspection of the Department of Insurance for three (3) years.

Claimant company maintained a Premium Fund Trust Account, but did not deposit all premiums received in said account as required by the Department rule. Albert O. Eck, Jr., certified public accountant, testified to year-end deficiencies, that is amounts by which the Premium Fund Trust Account was short deposits of premiums actually collected as follows:

March 31, 1959 $107,153.44 March 31, 1960 276,493.14 March 31, 1961 232,107.60 March 31, 1962 432,797.85 March 31, 1963 422,051.75 March 31, 1964 368,615.54

Since the deficient premium sums were actually collected, they were in fact, contrary to the departmental rule, commingled with general funds of the claimant company. All sums paid to the decedent were paid from the general funds with which the premium funds were commingled.

Defendant contends that since decedent was not an "express trustee" of funds with respect to claimant, the claim cannot be allowed as a 5th-class claim. The definition of a 5th-class ...


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