United States District Court, Northern District of Illinois, E.D
October 29, 1985
HAIM ELRAD, PLAINTIFF,
UNITED LIFE AND ACCIDENT INSURANCE COMPANY, DEFENDANT.
The opinion of the court was delivered by: Aspen, District Judge:
MEMORANDUM OPINION AND ORDER
Dr. Haim Elrad ("Elrad") sued United Life and Accident
Insurance Co. ("United"), alleging misrepresentation in
connection with United's sale to him of a life insurance policy.
The case was originally filed in Illinois state court, but United
removed to this Court under 28 U.S.C. § 1441(b), basing
jurisdiction on diversity of citizenship. Once here, United
promptly moved to dismiss the case, while Elrad moved to remand
the case to state court. For the following reasons, United's
motion is granted and Elrad's is denied.
The allegations of the complaint, viewed in the light most
favorable to Elrad and assumed to be true, state the following.
On October 12, 1981,*fn1 Robert Smith, acting as United's agent,
sold a life insurance policy to Elrad. Smith allegedly induced
Elrad to buy the policy by falsely representing that the policy
was a "whole-life" rather than "term" policy, and that he could
deduct from his federal income tax interest he would incur to
finance a loan to pay for the policy. Relying on those
misrepresentations, Elrad borrowed money from Professional
Funding Corp. to pay for the premiums.
Elrad claims that the interest is not lawfully tax deductible,
and that the policy is a term rather than whole-life one. He
seeks recovery under three state law theories. Count I alleges a
violation of Ill.Rev.Stat. ch. 73, § 761, a provision of the
Illinois Insurance Code prohibiting misrepresentations as to the
terms or benefits of a policy.*fn2 Count II rests on §§ 1-203 and
2-302 of the Uniform Commercial Code ("UCC"), Ill.Rev.Stat. ch.
26, §§ 1-203, 2-302 (1983), which respectively prescribe good
faith in performing contracts subject to the UCC and proscribe
unconscionable clauses in contracts governed by the UCC. Count
III alleges violations of the Illinois Consumer Fraud and
Deceptive Business Practices Act, Ill.Rev.Stat. ch. 121 1/2, ¶
262 (1983), and the Uniform Deceptive Trade Practices Act,
Ill.Rev.Stat. ch. 121 1/2, ¶ 312 (1983). None of these theories
can defeat United's motion to dismiss.
The Petition for Removal
As a threshold matter, we must rule on Elrad's opposition to
United's petition to remove this case from state court. Elrad
does not dispute that diversity jurisdiction is proper from the
face of his complaint: he is a citizen of Illinois while United
is incorporated in and has its principal place of business in New
Hampshire. Moreover, the amount in controversy exceeds $10,000,
and United has complied with the non-jurisdictional requirements
for removal set forth in 28 U.S.C. § 1446.
Elrad's argument is that the case was not "providently" removed
under 28 U.S.C. § 1447(c). He points out there were related state
court cases involving the same subject matter, and that judicial
economy compels that the cases be tried together. In one state
case, Professional Funding Corp. sued Elrad for not paying on the
insurance funding agreement. Elrad counterclaimed and also
brought in United and its alleged agent Smith as third-party
defendants. But the state court dismissed the third-party claim
against United, suggesting that Elrad refile the complaint and
move to consolidate it with the first suit. Elrad refiled, but
United removed the case here before Elrad could file his motion
At the outset, we observe that the term "provident" in §
1447(c) is not a broad invitation to this Court to decline
jurisdiction simply for reasons of economy. It simply refers to
basic non-jurisdictional requirements such as the posting of a
bond. It is now well established that a district court cannot
remand an otherwise properly removed case for discretionary or
policy reasons. See Thermitron Products, Inc. v. Hermansdorfer,
423 U.S. 336, 343-44, 96 S.Ct. 584, 589-90, 46 L.Ed.2d 542
(1976); Ryan v. State Bd. of Elections of State of
Ill., 661 F.2d 1130, 1133 (7th Cir. 1981). Since this case
satisfies the jurisdictional and non-jurisdictional requirements
of §§ 1441 and 1446, respectively, there is no basis for
remanding this case.*fn3 Thus, the motion to remand is denied.
Having so ruled, we may now turn our attention to United's attack
on the complaint.
Count I: No Private Right of Action
United is correct that no private right of action exists for a
violation of Ill.Rev.Stat. ch. 73, § 761. Section 761(5) provides
that any company who violates that section "shall be guilty of a
business offense and shall be required to pay a penalty of
[between $100 and $1,000], to be recovered in the name of the
People of the State of Illinois by the State's Attorney of the
county in which the violation occurs. . . ." At least one
Illinois court has held that in enacting this section the
Illinois legislature pre-empted the remedies for violations of §
761, foreclosing a private right of action. See Glazewski v.
Allstate Ins. Co., 126 Ill.App.3d 401, 410-11, 81 Ill.Dec. 349,
466 N.E.2d 1151, 1157-58 (1st Dist. 1984), aff'd in part, rev'd
in part on other grounds, 108 Ill.2d 243, 91 Ill.Dec. 628,
483 N.E.2d 1263 (1985). Elrad has not attempted to distinguish
Glazewski or otherwise address this challenge to Count I.
Accordingly, we follow Glazewski and grant United's motion to
dismiss Count I.*fn4
Count II: UCC Does Not Apply
We must also reject Elrad's claim that United's alleged
misrepresentations are subject to the UCC. He has cited no
authority to support his novel assertion. He claims that United's
conduct was unconscionable under Section 2-302 of the Code, but
Article II applies only to the sale of goods. See Ill.Rev.Stat.
ch. 26, ¶ 2-102 (1983). We disagree with Elrad's strained
argument that a sale of life insurance is somehow the sale of a
"good." See ¶ 2-105 (defining "good"). He also claims that
United's conduct violated the "obligation of good faith" imposed
by ¶ 1-203 of the UCC. But of course ¶ 1-203 applies only to a
"contract or duty within" the UCC, and Elrad has not shown how
his insurance contract is within the Code. While an insurance
contract is a "commercial transaction," not all commercial
transactions fall within the Code. Indeed,
[t]he . . . Code does not apply to the sale of realty
(except fixtures), yet these are undeniably
commercial matters. The Code does not apply to the
formation, performance, and enforcement of insurance
contracts. . . .
White & Summers, Uniform Commercial Code (2d Ed. 1980) at 6.
Finding no basis for holding that the UCC can apply to Elrad's
claim, we dismiss Count II.
Count III: Statute of Limitations
Actions under the Consumer Fraud and Deceptive Business
Practices Act contain a three-year limitation period.
Ill.Rev.Stat. ch. 121 1/2, ¶ 270a, § 10a(e) 1983).*fn5
This limitation provision applies as well to Elrad's related
claim under the Uniform Deceptive Trade Practices Act,
Ill.Rev.Stat. ch. 121 1/2, § 311 et seq. (1983). See Chgo. Bd.
Options Exchange v. Connecticut Gen'l Life Ins. Co., 553 F. Supp. 125,
129 (N.D.Ill. 1982), rev'd on other grounds, 713 F.2d 254
(7th Cir. 1983). Elrad bought the policy in dispute in October
1981 and filed his suit in state court well over three years
later, in July 1985. United claims that the suit is therefore
Elrad's brief response is that the limitations clock did not
begin running until October 3, 1984, which is when he allegedly
learned that the interest on his separate funding agreement is
not tax deductible. He also claims that the finance charge was
not to begin until October 12, 1984. Thus, Elrad essentially
argues (1) that the so-called "discovery rule" applies to his
suit under the two trade regulation acts, and (2) that he
discovered the misrepresentation in October 1984. Even if the
discovery rule does apply to this case, Elrad's claim was
The Seventh Circuit has applied the discovery rule to a suit
under the Uniform Deceptive Trade Practices Act, although it did
so without discussing or citing Illinois law. See Chicago Bd.
Options Exchange, 713 F.2d at 261 ("CBOE"). One Illinois case did
not expressly hold that the discovery rule applies to suits under
the Act, but held that the plaintiff there had not sufficiently
pled facts to withstand a motion to dismiss even under
application of the discovery rule. See Sommer v. United Savings
Life Ins. Co., 128 Ill.App.3d 808, 819, 84 Ill.Dec. 77,
471 N.E.2d 606, 615 (1984). We will assume that Illinois courts would
apply a "discovery rule" to suits under the Act.*fn6 Under such a
rule, the limitations clock does not begin to tick until the
plaintiff learns or in the exercise of due diligence should have
learned of all of the elements of injury stemming from the
allegedly deceptive acts. See CBOE, 713 F.2d at 261; also, e.g.,
Knox College v. Celotex Corp., 88 Ill.2d 407, 414-17, 58 Ill.Dec.
725, 430 N.E.2d 976, 979-80 (1981). In Knox College, the Illinois
Supreme Court explained what the phrase, "knows or should have
known of the injury," means:
This court has recently considered the discovery rule
in depth in two cases, and has adopted a construction
of the rule which can be termed neither narrow nor
expansive. That is, we have held that the event which
triggers the running of the statutory period is not
the first knowledge the injured person has of his
injury, and, at the other extreme, we have also held
that it is not the acquisition of knowledge that one
has a cause of action against another for an injury
he has suffered. Rather, we have held in Witherell v.
Weimer (1981), 85 Ill.2d 146, 156, 52 Ill.Dec. 6,
421 N.E.2d 869 and Nolan v. Johns-Manville Asbestos
(1981), 85 Ill.2d 161, 171, 52 Ill.Dec. 1,
421 N.E.2d 864, that the statute starts to run when a person
knows or reasonably should know of his injury and
also knows or reasonably should know that it was
wrongfully caused. In those cases it was made clear
that the term "wrongfully caused" does not mean that
the plaintiff must have knowledge of the defendant's
negligent conduct before the statute is triggered.
The term "wrongfully caused," as we have used that
term in stating the rule must be viewed as a general
or generic term, and not a term of art. This is
apparent from the holdings of Nolan and Witherell
that the use of the term does not connote knowledge
of negligent conduct or knowledge of the existence of
a cause of action.
At some point, the injured person becomes possessed
of sufficient information concerning his injury and
its cause to put a reasonable person on inquiry to
determine whether actionable conduct is involved. At
that point under the discovery rule, the running of
the limitations period commences. As we held in
Witherell and Nolan, this is usually a question of
fact, and as we view the facts before us, it is a
question of fact in this case.
88 Ill.2d at 414-17, 58 Ill.Dec. 725, 430 N.E.2d at 979-81.
Regardless of when Elrad actually knew of the alleged
misrepresentation, we think there is no genuine issue of fact
that more than three years have passed since Elrad reasonably
should have known of his injury and should have known that it was
In reaching this conclusion we must clear up some superficial
factual confusions. First, the complaint alleges that Smith sold
Elrad the policy in October 1983. But United has tendered an
affidavit of an employee, as well as copies of the relevant
insurance forms, which show that the policy was issued in October
1981. Elrad has not rebutted this evidence, by affidavit or
otherwise. Under Rule 56(e), then, we hold that no genuine issue
of fact exists that Elrad's policy was first issued in October
1981.*fn7 Second, Elrad contends in his "Reply to Defendant's Motion
to Dismiss" at 3 that the finance charge, according to a separate
funding agreement, was to begin on October 12, 1984, and that he
learned on October 3, 1984, that the interest was not tax
deductible. Neither assertion is supported by document or
affidavit. In contrast, United counters with two notes signed by
Elrad, one dated October 12, 1981, and another dated October 12,
1982, which show that regardless of when Elrad first learned or
believed that the interest was not deductible, he actually began
accruing interest at an 8% annual rate as early as October 12,
1981. Elrad has not rebutted this documentary evidence.
Accordingly, we hold that no genuine issue exists that interest
began accruing on his funding of United's policy on October 12,
1981. Indeed, his unsubstantiated assertion to the contrary in
his response flirted with the sanctions of Fed.R.Civ.P. 11.
Having established this factual framework, we hold that Elrad
should have learned that his interest payments were not
deductible at least by April 15, 1982, the next "tax day"
following his financing agreement. He gives no reason whatsoever
why he failed to discover the problem by then or could not have
done so in the exercise of due diligence. Accordingly, we dismiss
Count III as time-barred to the extent it is based on Smith's
alleged misrepresentation concerning the deductibility of
interest payments. Count III is also based on an alleged
misrepresentation that the policy was "whole-life" rather than
"term." Elrad has made no argument or showing at all as to when
he discovered this misrepresentation or why he should not have
discovered it within three years before filing the suit. Thus, we
also dismiss Count III as time-barred to the extent it is based
on this second alleged misrepresentation.
For the foregoing reasons, we deny Elrad's motion to remand to
state court and grant United's motion to dismiss the complaint in
its entirety. In light of this ruling, we do not reach United's
other challenges to the complaint, and we express no opinion on
their merit.*fn8 It is so ordered.