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Western Life Ins. Co. v. Chapman

AUGUST 13, 1975.




APPEAL from the Circuit Court of Cook County; the Hon. F. EMMETT MORRISSEY, Judge, presiding.


The plaintiff, Western Life Insurance Company of America, brought this suit in the Circuit Court of Cook County against the defendants, George and William Chapman, to recover premiums on life insurance policies collected by the defendants.

The issue for review is whether the judgment of the trial court was against the manifest weight of the evidence.

Western Life Insurance Company of America (Western) is a Missouri corporation which is qualified to do business in the State of Illinois and to issue life insurance contracts in Illinois. In 1964, George Chapman became a general agent for Western, and in January of 1966, George's brother, William became a Western agent under George's general agent's agreement.

Although George was the general agent, William had his own agent's agreement with Western, and they operated the business under the joint trade name of the Western Life Agency. The Western Life Agency's checking accounts were joint accounts in the names of George and William Chapman, and they filed partnership returns which indicated the income was divided equally.

In 1970, George and William opened a joint trade-name account with the Beverly Bank, entitled the Western Life Agency Premium Trust Fund Account. Premium funds were reported to Western as follows: Each month Western would send to the Chapmans a duplicate list of all policyholders which included the policy number and monthly premium due. The Chapmans would delete policies which were cancelled or lapsed, add any reinstatements, and remit the copy to Western with a check drawn on the Premium Trust Fund Account for the net premium due Western (gross premiums collected, less the applicable agent commission).

Prior to December, 1970, George became delinquent in remitting premiums, and to cure the delinquency, executed an addendum to his agent's contract providing for the payment of the $16,840.93 deficiency. By May of 1972, there was again a delinquency in reporting and remitting premium payments. In April and May of 1972, William had drawn eight checks on the Premium Trust Fund Account at the Beverly Bank, payable to the Western Life Insurance Company of America totaling $12,630.41. Before these checks cleared the banks, George, with William's knowledge, withdrew substantially all the funds from the Premium Trust Fund Account and deposited them in a personal account. When the checks were presented to the Beverly Bank, they were dishonored. After the funds were withdrawn, the account was closed and a new account was opened in the Hyde Park Bank. Thereafter, William deposited Western premiums in that account even though it was not a premium trust fund account.

On or about June 20, 1972, Western terminated the agent agreements of both George and William Chapman, and on September 8, 1972, George ceased to be qualified to act as an insurance agent in Illinois. Nevertheless, William continued to operate the Western Life Agency and continued to collect premiums on both his and George's accounts until May of 1973. A total of $24,747.48 was collected, $12,296.75 from William's accounts and $12,450.73 from George's accounts. None of these funds was reported to Western.

On February 22, 1973, Western instituted this action seeking the following relief: recovery of the $12,630.41 in dishonored checks, the balance due under the December, 1970 agreement from George, injunctive relief, and recovery of the $24,747.48 of premiums which had not been reported.

In October of 1974, this matter was called for trial against both defendants. George Chapman failed to appear and the plaintiff proceeded to trial against William Chapman. At the close of the case, a default judgment was entered against George, but the court entered judgment for William, stating that the evidence did not support the allegations in the complaint. The plaintiff appeals from that judgment.

On appeal the plaintiff argues that William Chapman was a fiduciary with respect to Western and was accountable for the premium funds William collected on both his and his brother's accounts. William argues he was merely an employee of the Western Life Agency which was owned by his brother as a sole proprietorship, and any wrongdoing by his brother cannot be imputed to him.

Section 505 of the Illinois Insurance Code (Ill. Rev. Stat. 1971, ch. 73, § 1065.52) and Rule 31.13 of the Illinois Insurance Department Rules & Regulations expressly provide that an insurance agent is a fiduciary and that premium funds cannot be commingled or converted to one's own use.

Section 505 provides in relevant 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 ...

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