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Peo. Ex Rel. Baylor v. Bell Mut. Cas. Co.

OPINION FILED JUNE 25, 1973.

THE PEOPLE EX REL. JAMES BAYLOR, DIRECTOR OF INSURANCE, APPELLANT,

v.

BELL MUTUAL CASUALTY CO. ET AL. — (ZELMA CHATMAN, APPELLEE.) — LIONEL LINDHEIMER, JR. ET AL., APPELLEES,

v.

JAMES BAYLOR, DIRECTOR OF INSURANCE, APPELLANT.



No. 44935. — APPEAL from the Appellate Court for the First District; heard in that court on appeal from the Circuit Court of Cook County; the Hon. DONALD J. O'BRIEN, Judge, presiding.

No. 45237. — APPEAL from the Appellate Court for the First District; heard in that court on appeal from the Circuit Court of Cook County; the Hon. JOHN J. LUPE, Judge, presiding.

MR. JUSTICE KLUCZYNSKI DELIVERED THE OPINION OF THE COURT:

LORD, BISSELL & BROOK, of Chicago (R.R. McMAHAN, of counsel), for appellant.

JACK JOSEPH, of Chicago (JOSEPH and FRIEDMAN, of counsel), for appellees.

These are appeals from the Appellate Court of Illinois, First District, involving liquidation proceedings pursuant to article XIII of the Illinois Insurance Code (Ill. Rev. Stat. 1965, ch. 73, pars. 799-833). They were consolidated for decision by order of this court.

In the Chatman case (44935) Bell Mutual Casualty Company was a domestic, assessable, mutual insurance company with membership of over 22,000 policyholders. As such, the bylaws of Bell Mutual were required to contain a provision necessary to provide for contingent liability of its policyholders in an amount equal to "not less than one nor more than ten times the specific premium or premium deposit stated in the policy." (See Ill. Rev. Stat. 1965, ch. 73, par. 654.) The provision relating to contingent liability, with limited exceptions, was to be clearly stated in each policy. Ill. Rev. Stat. 1965, ch. 73, par. 667; see also People ex rel. Bolton v. Crossley, 36 Ill.2d 298.

Such liability was not merely predicated upon an order of liquidation, as here, but arose if the Director of Insurance determined that the assets of a mutual company were insufficient. The Director was then to instruct the company to assess its policyholders to alleviate the deficiency. If this was unsuccessful, the Director was authorized to proceed in accordance with article XIII of the Insurance Code. (Ill. Rev. Stat. 1965, ch. 73, par. 672.) We note that the Director under present law is still empowered to order that a company levy the appropriate assessment against its policyholders if their policies contain a provision for contingent liability. If such procedure fails to alleviate the company's financial deficiency then the Director is similarly authorized to institute action under article XIII. Ill. Rev. Stat., 1972 Supp., ch. 73, par. 672.

The Illinois Department of Insurance and the Director of Insurance filed a complaint in the circuit court of Cook County on July 6, 1965, alleging that Bell Mutual was insolvent and operating contrary to law, and praying that the company be placed in liquidation pursuant to article XIII of the Insurance Code. On that date the court ordered the Director of Insurance to take possession of the property, business and affairs of the company. Bell Mutual filed an answer and the matter was referred to a master who found that Bell Mutual had a total insolvent condition as to policyholders (claimants) and creditors of some $938,000. The company was ordered into liquidation and the Director was appointed liquidator on September 9, 1965. Claimants and creditors of the company were notified of the liquidation proceedings, and dates were set for filing of claims.

On June 29, 1967, pursuant to section 207 of the Insurance Code (Ill. Rev. Stat. 1965, ch. 73, par. 819), the court ordered an assessment to be levied against those policyholders of Bell Mutual who were such during the twelve-month period preceding the date of the liquidation order. The liquidator thereafter reported to the court that the amount of assessment against each policyholder, which he deemed necessary, was an amount equal to one annual premium.

The court then confirmed the assessment and spread it of record on January 19, 1968. Notice pursuant to section 207(4) of the Insurance Code (Ill. Rev. Stat. 1967, ch. 73, par. 819(4)) was given to each policyholder within the time as provided by statute.

Petitioner, Zelma Chatman, an assessed policyholder, on March 15, 1968, filed a petition on behalf of herself and all policyholders similarly situated. According to her brief filed herein she sought to intervene for the purpose of asserting that the methods utilized by the Director of Insurance to spread the assessment under the order of January 19, 1968, which she asserts constituted a judgment order against the policyholders, were illegal, improper and contrary to law. She further states that she did not seek to intervene for the purpose of asserting that the assessment was unnecessary, improper or excessive in total amount. The liquidator moved to strike and dismiss her petition, which motion was granted on June 11, 1969.

Zelma Chatman appealed from this order. While this appeal was pending in the appellate court, section 207 of the Insurance Code, which authorized the Director of Insurance, as liquidator, to levy and collect assessments, was repealed by the Illinois General Assembly on August 7, 1969. On that same date section 207.1 of the Insurance Code became effective, which provided as follows: "Upon the entry of an order of liquidation any provision in the policies of a company providing for a contingent liability of the policyholders shall become void." (Ill. Rev. Stat. 1969, ch. 73, par. 819.1.) Thereafter the Director terminated all efforts to collect and enforce all remaining uncollected assessments including that of Zelma Chatman.

The appellate court reversed and remanded the cause with directions to allow the petitioner to intervene in the liquidation proceedings. (People ex rel. Baylor v. Bell Mutual Casualty Co., 2 Ill. App.3d 17.) We granted leave to appeal.

In the Lindheimer case (45237), plaintiffs, on behalf of themselves and all other claimants and creditors of Multi-State Inter-Insurance Exchange, which had been ordered into liquidation prior to August 7, 1969, sought declaratory relief in an action at law in the circuit court of Cook County. Multi-State was governed by the provisions of article IV of the Insurance Code dealing with reciprocal companies as these related to contingent liability of its policyholders. (See Ill. ...


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