Appeal from the Appellate Court for the First District; heard
in that court on appeal from the Circuit Court of Cook County,
the Hon. Harold A. Siegan, Judge, presiding.
JUSTICE MILLER DELIVERED THE OPINION OF THE COURT:
The plaintiffs brought this action in the circuit court of Cook County seeking individual and class relief against the defendants, insurance companies, for fraud and for a violation of the Uniform Deceptive Trade Practices Act (Ill. Rev. Stat. 1981, ch. 121 1/2, par. 311 et seq.) arising from the sale of underinsured-motorist coverage with limits of $15,000 per person and $30,000 per occurrence (15/30). The plaintiffs Gary M. Glazewski, Lori A. Glazewski, Robert Sandoval, and Ella Shaw had purchased coverage in that amount from defendants Coronet Insurance Company, American Ambassador Insurance Company, and Industrial Fire and Casualty Company between January 1981 and March 1982. The plaintiffs alleged that the coverage had no value because of the way in which "underinsured" was then defined by statute. In the first two counts the plaintiffs requested compensatory damages, injunctive relief, and costs and attorney fees; they also requested punitive damages under the fraud count. The propriety of a third count, alleging a violation of the Illinois Insurance Code (Ill. Rev. Stat. 1981, ch. 73, par. 613 et seq.), is not at issue here.
In the trial court the defendants who had sold the coverage to the plaintiffs moved to dismiss all three counts for failure to state a cause of action. The plaintiffs had also named as defendants a number of insurance companies from whom they had not purchased underinsured-motorist coverage. These defendants Allied American Insurance Company, Allstate Insurance Company, Comet Casualty Company, Heritage Insurance Group, Liberty Mutual Insurance Company, Merit Insurance Company, Prestige Casualty Company, Royal Insurance Company, and Safeway Insurance Company moved to dismiss the action for lack of standing. Without expressing the reasons for his decision, the trial judge dismissed the plaintiffs' second amended complaint with prejudice; accordingly, he did not decide the plaintiffs' separate motion for certification of plaintiff and defendant classes.
On appeal, the appellate court held that the complaint stated causes of action for fraud and deceptive trade practices against those defendants who had sold the coverage to the plaintiffs. The court also held that the plaintiffs lacked standing to bring an action against insurance companies that had not sold them the coverage. The court believed that certification of plaintiff and defendant classes had properly been held in abeyance. 126 Ill. App.3d 401.
A petition for leave to appeal (94 Ill.2d R. 315(a)) was filed by the plaintiffs, who, in cause No. 60773, contended that the appellate court erred in holding that they did not have standing to sue the defendants from whom they had not purchased the coverage. Petitions for leave to appeal were also filed by several of the defendant insurance companies who, in cause Nos. 60670 and 60777, contended that the appellate court erred in finding that causes of action were stated under the fraud and deceptive-practices counts. We allowed the petitions and, on our own motion, consolidated the appeals for oral argument and disposition.
At the time in question, insurance companies in Illinois were required to offer underinsured-motorist coverage in addition to uninsured-motorist coverage. (See Ill. Rev. Stat., 1980 Supp., ch. 73, par. 755a-2.) Section 143a-2(3) of the Illinois Insurance Code (Ill. Rev. Stat., 1980 Supp., ch. 73, par. 755a-2(3)) defined "underinsured motor vehicle" as one "for which the sum of the limits of liability under all bodily injury liability insurance policies or under bonds or other security required to be maintained under Illinois law applicable to the driver or to the person or organization legally responsible for such vehicle and applicable to the vehicle, is less than the limits for underinsured coverage provided the insured as defined in the policy at the time of the accident." That section further provided: "The limits of liability for an insurer providing underinsured motorist coverage shall be the limits of such coverage, less those amounts actually recovered under the applicable bodily injury insurance policies, bonds or other security maintained on the underinsured motor vehicle." (Ill. Rev. Stat., 1980 Supp., ch. 73, par. 755a-2(3).) Effective March 1, 1980, the minimum bodily-injury coverage in Illinois had been raised to 15/30. (Ill. Rev. Stat., 1980 Supp., ch. 95 1/2, pars. 7-203, 7-317(b)(3).) Because the minimum limits for underinsured-motorist coverage would not exceed the minimum insurance carried by an Illinois resident, the plaintiffs argue that they could never collect on 15/30 underinsured-motorist coverage following an accident in Illinois with an Illinois resident. They also contend that the insurance would not pay in any other circumstance. Although the plaintiffs also argue before this court that if the coverage did have value, it was misrepresented, the complaint alleged only that the coverage was worthless, and we shall proceed on that basis.
A complaint may survive a motion to dismiss if the facts alleged state a cause of action (People ex rel. Fahner v. Carriage Way West, Inc. (1981), 88 Ill.2d 300, 308), and the complaint "reasonably informs the opposite party of the nature of the claim * * * which he or she is called upon to meet" (Ill. Rev. Stat. 1983, ch. 110, par. 2-612(b)). To state a cause of action for fraud, a complaint "must plead sufficient acts or facts relied upon to establish the fraud" (Hart v. Brown (1949), 404 Ill. 498, 503), and fraud must be a necessary or probable inference from the facts alleged (Browning v. Heritage Insurance Co. (1975), 33 Ill. App.3d 943, 948). The plaintiff must allege that the defendant made a false representation of a material fact knowing or believing it to be false and doing it for the purpose of inducing the plaintiff to act. The plaintiff must also allege his reasonable belief in and reliance on the statement to his detriment. (Roda v. Berko (1948), 401 Ill. 335, 339-40; Foster v. Oberreich (1907), 230 Ill. 525, 527; Mother Earth, Ltd. v. Strawberry Camel, Ltd. (1979), 72 Ill. App.3d 37, 48.) Here, the plaintiffs alleged that the defendants, by their conduct, represented that the coverage had value. The plaintiffs also alleged that the defendants knew that the representations were false, that the representations were made for the purpose of inducing the plaintiffs to purchase insurance, and that in reasonable reliance on the representations, the plaintiffs purchased the coverage in question. We conclude that these allegations are sufficient to state a cause of action for fraud.
A representation may be made by words, or by actions or other conduct amounting to a statement of fact. (Racine Fuel Co. v. Rawlins (1941), 377 Ill. 375, 380; Leonard v. Springer (1902), 197 Ill. 532, 538.) With respect to conduct, a person who trades in commodities represents that the trades are backed by cash or a margin account. (United States v. Dial (7th Cir. 1985), 757 F.2d 163, 169.) A president of a corporation who personally issues stock represents by his conduct that the stock is valid. (Hutchings v. Tipsword (Mo. Ct. App. 1962), 363 S.W.2d 40; see also Stern v. National City Co. (D. Minn. 1938), 25 F. Supp. 948, 951, 957, aff'd 110 F.2d 601, rev'd on other grounds (1941), 312 U.S. 666, 85 L.Ed. 1110, 61 S.Ct. 823.) Here, the plaintiffs allege not that they were overcharged for something that had some value, but rather that they were charged premiums for coverage that had no value. We are of the opinion that the issuance of coverage by an insurance company in return for a premium is a tacit representation to the consumer that the coverage has value. Assuming for purposes of a motion to dismiss that plaintiffs' allegations that the coverage has no value are true, we find that the insurance company defendants have made a false representation as to the value of the coverage by issuing it without disclosing that it had no value.
Because we find that plaintiffs have alleged misrepresentation by conduct, we do not address their further contention that the insurance companies owed a fiduciary or a good-faith duty to their customers to disclose that the coverage had no value.
The defendants contend that they cannot be held liable for fraud because the legislature required them to offer the coverage in question. That did not authorize them to sell it in a false and misleading manner, however. Moreover, the failure of the Director of Insurance to order discontinuance of the coverage (see Ill. Rev. Stat., 1980 Supp., ch. 73, par. 755(2)) before it was issued to plaintiffs does not preclude a common law action for fraud. Under section 143(2), no approval by the Director is required before the policy is issued, and the Director has discretion whether to review generally used riders and endorsements. Although the Director's inaction may create an inference that the policy contains no misleading clauses (see Bernadini v. Home & Automobile Insurance Co. (1965), 64 Ill. App.2d 465, 467-68), it is not an explicit authorization to the insurance company to offer and sell the policy in a misleading manner.
The plaintiffs alleged in the second count of their complaint that the defendants' misrepresentations and omissions violated section 2 of the the Uniform Deceptive Trade Practices Act (Ill. Rev. Stat. 1981, ch. 121 1/2, par. 312) (Uniform Act), which provides:
"A person engages in a deceptive trade practice when, in the course of his business, ...