United States District Court, Northern District of Illinois, E.D
November 5, 1982
INTERNATIONAL ADMINISTRATORS, INC. AND SHELDON HARRISON, PLAINTIFFS,
LIFE INSURANCE COMPANY OF NORTH AMERICA, DEFENDANT.
The opinion of the court was delivered by: Shadur, District Judge.
MEMORANDUM OPINION AND ORDER
International Administrators, Inc. ("IAI") and its President
Sheldon Harrison ("Harrison") initially sued Life Insurance
Company of North America ("LINA"), claiming interference with
IAI's contractual relationships, interference with prospective
advantage, breach of contract and defamation. LINA in turn
filed a two-count counterclaim. IAI has moved to dismiss the
Counterclaim, apparently (though not specifically designated)
under Fed.R.Civ.P. ("Rule") 12(b)(6) for failure to state a
cause of action. For the reasons stated in this memorandum
opinion and order, IAI's motion is denied.
Counterclaim Count I*fn1
Count I depicts the following version of events*fn2:
Insurance broker IAI, acting for the Iowa Department of the
American Legion ("Iowa
Legion"), solicited LINA to underwrite various group insurance
policies for members of the Iowa Legion (Ans. ¶ 11). As
administrator of those insurance programs IAI assertedly
maintained records*fn3 "for the benefit of and in trust for
the policyholder, the insureds, and . . . LINA" (Count I ¶ 4).
For several months after its termination as administrator, IAI
refused to turn over its records to the Iowa Legion, LINA or a
successor administrator (Count I ¶ 7). Without the information
in those records, LINA (or the successor administrator) could
not have billed the individual subscribers, jeopardizing their
continued coverage. To avoid that prospect, LINA expended more
than $26,000 to generate its own substitute list.
In LINA's view those allegations disclose actionable
fiduciary and contractual improprieties by IAI. IAI's
infractions assertedly stem from its role as LINA's agent or
alternatively as trustee of an express trust whose
beneficiaries included the Iowa Legion, the individual
subscribers and LINA.
Without offering any legal support for its own motion,*fn4
IAI contends LINA's cited authorities do not transmute its
legal theories into a cognizable claim. IAI also assails Count
I on factual grounds*fn5 — arguments wholly inappropriate at
the pleading stage.
Standards governing complaints (or counterclaims) are
On a motion to dismiss, a complaint must be
construed in the light most favorable to the
plaintiff, the allegations thereof being taken as
true; and, if it appears reasonably conceivable
at trial the plaintiff can establish a set of
facts entitling him to some relief, the complaint
should not be dismissed.
Mathers Fund, Inc. v. Colwell Co., 564 F.2d 780
, 783 (7th Cir.
1977). Nor is this Court limited by the theories advanced by
the pleading's author. See Craft v. Board of Trustees,
516 F. Supp. 1317
, 1323 (N.D.Ill. 1981).
Under those liberal criteria Count I withstands scrutiny
— at least under Illinois principles of agency law.*fn6 Both
parties agree IAI acted as an insurance broker in obtaining
LINA-underwritten insurance coverage for the Iowa Legion. See
Complaint ¶ 3 and Answer ¶ 11. Galiher v. Spates,
129 Ill. App.2d 204, 206, 262 N.E.2d 626, 628 (4th Dist. 1970)
defined such a broker:
An insurance broker is one who procures insurance
and acts as middleman between the insured and the
insurer, and solicits insurance business from the
public under no employment from any special
company, but, having secured an order, places the
insurance with the company selected by the
insured, or, in the absence of any selection by
him, with the company selected
by such broker. 22 ILP Insurance § 71, at 102.
And as the Illinois Supreme Court characterized the difference
between the insurance broker and agent relationships over 30
years ago, City of Chicago v. Barnett, 404 Ill. 136, 142,
88 N.E.2d 477, 481 (1949) (emphasis added, citation omitted):
A broker is distinguished from an agent in that a
broker sustains no fixed and permanent employment
by, or in relation to, any principal, but holds
himself out for employment by the public
generally, his employment in each instance being
that of a special agent for a single
object . . ., whereas an agent sustains a fixed
and permanent relation to the principal he
represents and owes a permanent and continued
allegiance. A broker does not cease to be a broker
because he may also in some transactions act as the
agent of either or both of the parties thereto.
See also Browder v. Hanley Dawson Cadillac Co., 62 Ill. App.3d 623,
629, 20 Ill.Dec. 138, 143, 379 N.E.2d 1206
, 1211 (1st
Thus Illinois law clearly allows for at least the
possibility of an insurance broker (in this case IAI) serving
as the agent of the insurer (here LINA). Questions as to the
broker's status have always been regarded as factual. See
Browder, 62 Ill. App.3d at 629, 20 Ill.Dec. at 143, 379 N.E.2d
at 1211; Galiher, 129 Ill.App.2d at 207, 262 N.E.2d at 628.
Accordingly IAI's motion to dismiss Count I must fail.*fn7
Counterclaim Count II
Count II ¶¶ 8 and 9 allege IAI "failed and refused to remit
promptly to LINA premiums collected by IAI on group insurance
plans" both during and after its tenure as administrator. Count
II seeks damages (in the form of interest) for the temporary
loss of use of the premium funds.
LINA again invokes fiduciary precepts in the trust context
to provide Count II's legal underpinning. Characterizing the
premiums received by IAI as the trust res, LINA claims the
right to recover interest for trust property wrongfully
withheld. Without sharing (either with this Court or opposing
counsel) the legal research that it may be hoped prompted the
filing of its motion,*fn8 IAI simply denies in conclusory
fashion any statutory, contractual or fiduciary basis for
LINA's "trust" theory cannot now prevail because of the same
potential shortcomings discussed at n. 6. But a provision of
the Illinois Insurance Code (apparently overlooked by LINA),
Ill.Rev.Stat. ch. 73, § 1065.52, supplies enough of a
foundation to keep Count II in court:*fn10
Any premiums or other monies which an agent or
broker collects from an insured
and which are to be paid to the agent's or
broker's employer, a company, or its agents
because of the assumption of liability through
the issuance of policies or contracts for
insurance, shall be held by the agent or broker
in a fiduciary capacity and shall not be
misappropriated or converted to his own use or
illegally withheld by the agent or broker.
Any company which directly or through its agents
delivers in this State to any insurance broker a
policy or contract for insurance pursuant to the
application or request of such broker, acting for
an insured other than himself, shall be deemed to
have authorized such broker to receive on its
behalf payment of any premium which is due on
such policy or contract for insurance at the time
of its issuance or delivery or which becomes due
thereon not more than 90 days thereafter.
In the case of an open accounts receivable with
the balance payable to an agent or broker within
a specified period of 90 days or less, and the
balance is not fully paid within such period, a
late charge not exceeding 1 1/2% per month may be
added by the agent or broker to the unpaid
balance to induce payment of the premium.
Whenever an agent or broker knowingly
misappropriates or converts to his own use or
illegally withholds premiums, in the amount of
$150 or less he is guilty of a Class A
misdemeanor and for a second and subsequent
violation he is guilty of a Class 4 felony; when
an agent or broker knowingly misappropriates or
converts to his own use or illegally withholds
premiums in excess of the amount of $150 he is
guilty of a Class 3 felony.
Thus, by statutory fiat IAI acts as the agent of the insurer
in handling the premiums collected from the insureds. See,
Davidson v. Comet Casualty Co., 89 Ill. App.3d 720, 723-24, 44
Ill.Dec. 943, 946, 412 N.E.2d 19
, 22 (2d Dist. 1980).
True enough the statute does not in terms state whether a
broker — who as an insured's agent holds collected premiums
"in a fiduciary capacity" — occupies that capacity in
relationship to the insurer as well as the insured. Nonetheless
the references to "illegally withhold[ing]" premiums
inferentially carry some notions of timeliness.*fn11 And that
is enough, at least at this threshold stage of the litigation,
to survive a Rule 12(b)(6) motion.
IAI has not produced anything to negate the facial
plausibility of both counts of LINA's Counterclaim under
Illinois law. Its motion to dismiss is therefore denied, and
it is ordered to file its reply to the Counterclaim on or
before November 15, 1982.