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National Consol. Indus. v. Dept. of Ins.





APPEAL from the Circuit Court of Cook County; the Hon. RICHARD L. CURRY, Judge, presiding.


National Consolidated Industries, Ltd. (hereinafter "NCI") appeals from that part of an order of February 21, 1978, affirming the decision of the Department of Insurance (hereinafter "department") by its then Director finding it subject to the Illinois Vision Service Plan Act (Ill. Rev. Stat. 1975, ch. 32, par. 651 et seq.) (hereinafter "Act"). Illinois Vision Services, Inc. (hereinafter "IVS"), cross-appeals from that part of the same order reversing the department's decision permitting it to intervene in the administrative proceedings below.

For the reasons hereinafter stated, we affirm.

In April of 1976, the department notified NCI that pursuant to section 10 of the Act (Ill. Rev. Stat. 1975, ch. 32, par. 660) and sections 401, 402 and 403 of the Illinois Insurance Code (Ill. Rev. Stat. 1975, ch. 73, pars. 1013, 1014 and 1015), a hearing would be held to determine whether it was "* * * engaging in unlawful acts and practices in violation of sections 3 and 8 of the * * * Act (Ill. Rev. Stat. 1975, ch. 32, pars. 653 and 658) * * *" by operating a vision service plan without being incorporated or chartered under the Act. Prior to the hearing IVS sought to intervene in the proceedings, alleging that it was chartered, licensed and operating under the Act; that it had encountered competition from NCI; and that it stood to be adversely affected by a final order pursuant to a hearing. Intervention was allowed on June 15, 1976.

The hearing was held on April 15, 1977. Dr. Bernard Koenig, chairman of NCI, was called as a witness by the department. His testimony was as follows: NCI was a corporation organized under the laws of Delaware and had begun doing business in Illinois in 1971. It provided professional optometric services, including eye examinations and prescriptions and fitting of eyeglasses and contact lenses, through four outlets located in the Chicago metropolitan area and staffed by 16 to 18 persons each. It employed four licensed optometrists, paid on a weekly salary basis, who were free to do other professional work on an independent basis, but did not do so at the time of the hearing.

NCI provided the bulk of its services to the employees of one corporation and those of other businesses represented by two labor unions, having written agreements with the corporation and unions in question. One of these agreements admitted into evidence, between NCI and Local No. 743 of the Warehouse, Mail Order, Office, Technical and Professional Employees Union, International Brotherhood of Teamsters (hereinafter "union"), was represented by Dr. Koenig as typical of the others. By its terms NCI provided its prepaid optical services program to all persons for whom the union acted as collective bargaining agent. Under the program, embodied in a document attached to NCI's agreement with the union and the basis of each of its contracts, employees were charged only for "cosmetic" items such as prescription sunglasses and contact lenses. The benefits were detailed in a booklet prepared by NCI and distributed to union members.

NCI was paid on a monthly basis by the employers with whom the union had collective bargaining contracts. At the time of the hearing, the cost to employers was $1.15 per week for employees with a spouse or dependents and $.62 per week for single employees. These figures were produced by NCI through a statistical determination of the number of people in a normal family group, followed by a projection of the frequency of use of optical services based on that determination. NCI's expenses in providing the services contracted for were then estimated in order to arrive at the cost of the plan to employees. Dr. Koenig acknowledged that if as the result of a miscalculation payments from employers were insufficient to cover its expenses, NCI would have been required to "go off payroll" to fulfill its agreements. No reserved funds were maintained to cover such a contingency.

Dr. Koenig was the only witness to testify at the hearing. NCI made no claim at the hearing or thereafter to being incorporated under the Act or to having otherwise complied with its terms.

The hearing officer found, inter alia, that intervention by IVS was proper; that NCI was doing business as a vision service plan as contemplated by the Act and did not qualify for any of the exemptions provided for therein; and that NCI was not incorporated under the provisions of the Act and consequently in violation of section 3, which makes operation of a vision service plan "* * * unlawful for any person, except a * * * corporation incorporated under this Act * * *" (Ill. Rev. Stat. 1975, ch. 32, par. 653). He recommended that NCI be ordered to cease and desist from operating its plan in Illinois until chartered pursuant to the Act. On October 4, 1977, the then Director of the department adopted the findings and recommendations of the hearing officer and ordered NCI accordingly.

NCI sought judicial review of said order pursuant to the Administrative Review Act (Ill. Rev. Stat. 1975, ch. 110, par. 264 et seq.). On February 21, 1978, the circuit court found the department's position "* * * supported by the evidence in the record and * * * in accordance with the law * * *" in all but intervention by IVS and affirmed the Director's decision except as to the latter issue. This appeal followed.

NCI's two pronged argument is that its operation does not constitute a vision service plan within the intendment of the Act, or, that if it does, it is nonetheless exempt from the requirements of the Act under section 3. Its initial claim is grounded in the following definition contained in section 2(b) of the Act (Ill. Rev. Stat. 1975, ch. 32, par. 652(b)):

"`Vision service plan' means a plan or system under which vision service may be rendered to a subscriber or other beneficiary by a qualified optometrist or qualified clinic, at the expense of a vision service plan corporation, in consideration of prepayments made or contracted future payments to be made by or on behalf of a subscriber." (Emphasis added.)

Based upon the emphasized language, NCI avers that since it provides goods and services to its clients through its own employees, rather than by arrangement with a third party, "vision service" is not rendered at its expense. In this respect NCI attempts to distinguish in terms of the Act's coverage between service plans (in which reimbursement is made by the service plan corporation directly to a separate provider of services) and insurance plans (in which the recipient of the services pays the provider thereof and is in turn reimbursed by the insurance company) on one hand, and NCI's operation on the other: the latter never involves a separate financial intermediary holding prepayments to be dispersed to others since NCI's own employees provide the ultimate goods and services. By this argument the "at the expense" phrase of section 2(b) is mere surplusage unless construed as excluding from coverage under the Act a plan like NCI's in which the corporation itself provides the vision services.

NCI also points to the definition of "subscription certificate" contained in section 2 of the Act, which provides that such certificate shall contain, inter alia, "* * * conditions upon which a vision service plan corporation shall be liable to pay for vision service rendered * * *" (Ill. Rev. Stat. 1975, ch. 32, par. 652(f)) (emphasis added). According to NCI, the emphasized phrase further evinces a legislative intention that services ...

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