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United States District Court, Northern District of Illinois, E.D

November 5, 1982


The opinion of the court was delivered by: Shadur, District Judge.


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 lenient indeed:

  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 Dist. 1978).

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 Count II.*fn9

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.

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