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In re Liquidation of Coronet Insurance Co.

July 24, 1998

IN RE LIQUIDATION OF CORONET INSURANCE COMPANY, ET AL. (THE PEOPLE OF THE STATE OF ILLINOIS EX REL. MARK BOOZELL, DIRECTOR OF INSURANCE FOR THE STATE OF ILLINOIS, AS LIQUIDATOR OF CORONET INSURANCE COMPANY, PLAINTIFF-APPELLANT, AND ILLINOIS INSURANCE GUARANTY FUND, INTERVENOR-APPELLANT,
v.
CORONET INSURANCE COMPANY, AN ILLINOIS INSURANCE COMPANY, NATIONAL ASSURANCE INDEMNITY COMPANY, AN ILLINOIS INSURANCE COMPANY, AND CROWN CASUALTY COMPANY, AN ILLINOIS INSURANCE COMPANY, DEFENDANTS, AND DAVID KREISMAN & ASSOCIATES, CLAIMANT-APPELLEE.)



The opinion of the court was delivered by: Justice Hourihane delivered the opinion of the court:

Appeal from the Circuit Court of Cook County.

No. 96 CH 13422

Honorable Ellis E. Reid, judge Presiding.

Plaintiff People of the State of Illinois ex rel. Mark Boozell, Director of Insurance for the State of Illinois, and intervenor Illinois Insurance Guaranty Fund appeal from an order of the circuit court adjudging David Kreisman & Associates (DKA) a first-priority administrative claimant under section 205 of the Illinois Insurance Code (215 ILCS 5/205 (West 1996)). Together, plaintiff, intervenor and amicus curiae National Conference of Insurance Guaranty Funds raise several contention on appeal. For the reasons that follow, we reverse and remand.

BACKGROUND

On December 10, 1996, plaintiff filed a verified complaint for conservation of assets and injunctive relief against defendant Coronet Insurance Company. Shortly thereafter, an agreed order was entered adjudging Coronet insolvent and placing same under the control and direction of plaintiff for purposes of liquidation.

DKA was later notified by plaintiff that its association with Coronet, as one of its attorneys, was concluded as of December 24, 1996, and that all Coronet litigation files in its possession must be returned. DKA resisted, arguing that because it was owed attorney fees and costs from Coronet, a common law retaining lien attached to those files, thus permitting it to continue in possession thereof until paid. Plaintiff objected, whereupon DKA petitioned the circuit court for "a deposit or security in lieu of the firm's retaining lien for fees and costs owed." Following a hearing, the circuit court entered an order requiring DKA to release its Coronet litigation files to plaintiff, without prejudice to its assertion of a common law retaining lien. The matter then proceeded to a hearing on the ability of DKA to assert a common law retaining lien.

In support of such a lien, DKA argued that pursuant to In re Liquidation of Prestige Casualty Co., 276 Ill. App. 3d 698, 659 N.E.2d 50 (1995), and In re Liquidation of Mile Square Health Plan of Illinois, 218 Ill. App. 3d 674, 578 N.E.2d 1075 (1991), its common law retaining lien was well-taken, and that subsequent amendments to certain sections of the Insurance Code "did not expressly or impliedly overrule" that authority.

Plaintiff responded in opposition, arguing that to require the posting of security, as requested, would be the equivalent of allowing DKA to obtain the priority of a secured creditor after the filing of the complaint for conservation. Such a result, according to plaintiff, would contravene the explicit distribution priorities set forth within section 205(b) of the Insurance Code, which assigns such preferred priority only to those claims "that are secured by liens perfected prior to the filing of the complaint." (Emphasis added.) 215 ILCS 5/205(1)(b)(West 1996).

Plaintiff further argued that the plain language of amended sections 189 and 191 of the Insurance Code (215 ILCS 5/189, 191 (West 1996)) preclude common law retaining liens, and thus overrule In re Liquidation of Prestige Casualty Co. and In re Liquidation of Mile Square Health Plan of Illinois insofar as each affirms the continued viability of common law retaining liens in liquidation actions.

Finally, plaintiff argued that public policy considerations militate against the allowance of such liens in that requiring the posting of such security "could soon render the estate unable to pay more deserving creditors under the statutory priority scheme, namely the insureds."

On April 7, 1997, after entertaining arguments from counsel, the circuit court held that DKA was entitled to assert a common law retaining lien against the Coronet estate. The circuit court further adJudged DKA a secured creditor of the Coronet estate. Also scheduled at that time was another hearing, wherein the circuit court would assess the value of the aforementioned secured claim.

Plaintiff duly moved for reconsideration. Plaintiff also argued that resolution of the aforementioned lien required more than simply conducting a hearing thereon. According to plaintiff, section 209 of the Insurance Code (215 ILCS 5/209 (West 1996)) sets forth "a comprehensive set of procedures respecting the filing and determination of claims against an insolvent insurer," procedures wholly ignored by both DKA and the circuit court.

Prior to the entry of a final order, intervenor was granted leave to join the underlying litigation. It also moved the circuit court to reconsider its adjudication of DKA as a second-priority secured creditor. Intervenor argued that a common law retaining lien "is a possessory lien that merely gives the attorney a right to retain the litigation files in his or her possession ***," and therefore the holder of such cannot be deemed a secured creditor. It further argued that the circuit court was without authority to rely upon general equitable principles to alter the specific distribution priorities set forth within section 205 of the Insurance Code. Like plaintiff, intervenor maintained that In re Liquidation of Prestige Casualty Co. and In re Liquidation of Mile Square Health Plan of ...


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