Appeals from the United States District Court for the Northern District of Illinois, Eastern Division. No. 99 C 2651--Harry D. Leinenweber, Judge.
Before Bauer, Manion, and Rovner, Circuit Judges.
The opinion of the court was delivered by: Rovner, Circuit Judge
These appeals arise from two rulings by the district court quashing non-wage garnishments served by The Society of Lloyd's, a foreign corporation that oversees the London insurance market, against Patrick J. Collins and Eugene Callahan, American members of insurance syndicates that Lloyd's manages. Lloyd's asserts district court error but we affirm.
Although Lloyd's oversees the London insurance market, the insurance is written by its underwriting members. See Soc'y of Lloyd's v. Ashenden, 233 F.3d 473 (7th Cir. 2000). Because these members, also known as "names," do not have limited liability, their personal assets are at risk if insured parties were to obtain a judgment worth more than the assets of the member that insured them. In the late 1980s and early 1990s the Lloyd's-supervised members incurred aggregate underwriting losses exceeding $12 billion.
Facing financial ruin, Lloyd's created a company in 1996 to reinsure the risks underwritten by its members. Lloyd's financed this reinsurance venture by levying a mandatory assessment against its names. Ninety-five percent of the names took advantage of a discounted rate and voluntarily paid this reinsurance premium. In 1998 Lloyd's obtained money judgments in England against names who refused to pay, including Collins, for approximately $433,000, and Callahan, for approximately $551,000.
Collins and Callahan, however, refused to pay the money judgments. Consequently, Lloyd's initiated proceedings to collect on the judgments by filing them in the district court in Chicago and issuing "citations" pursuant to the Illinois Uniform Foreign Money-Judgments Recognition Act, 735 ILCS 5/12-618-626. The Act allows a judgment holder to depose judgment debtors regarding their assets; to impose a lien on those assets; and to command the debtors to turn over seizable assets to satisfy the judgments. See Soc'y of Lloyd's, 233 F.3d at 475-76; Bank of Aspen v. Fox Cartage, Inc., 533 N.E.2d 1080, 1083 (Ill. 1989). The district court upheld the validity of the judgments against Collins and Callahan; this court affirmed in November 2000, see Soc'y of Lloyd's, 233 F.3d 473.
While the above-described litigation was pending, Lloyd's issued garnishments to execute the judgments against Collins and Callahan. Lloyd's caused a garnishment summons and interrogatories to be served on the Northwestern Mutual Life Insurance Company ("Northwestern"), which answered that it held nine life insurance policies owned by Collins and valued at more than $1 million. Collins then moved to declare the policies exempt from garnishment on the ground that his wife is the intended beneficiary of the policies. Lloyd's responded that it was seeking only those premium payments (totaling approximately $120,000) paid since 1996, when the debt arose. The district court, however, declared that Lloyd's could not garnish Collins's life insurance policies for the value of those premiums because it did not establish that Collins made the premium payments with intent to defraud or to convert nonexempt assets into exempt assets.
Lloyd's also caused a garnishment summons to be served on the First National Bank of LaGrange, where Callahan had a joint checking account with his wife, Kathleen. The bank answered that it held over $12,000 in the account. Kathleen then moved to release the funds from the account. The district court granted her motion, quashed the garnishment, and released the funds. The court concluded that Lloyd's could not garnish funds from the account because they belonged to Kathleen.
On appeal Lloyd's argues that the court erred by declaring Collins's life insurance premiums exempt from garnishment and by concluding that the funds in the Callahans' joint checking account really belonged to Kathleen and not her husband, the judgment debtor. We disagree.
Collins is a retired insurance agent for Northwestern. Between 1966 and 1980 he purchased nine life insurance policies with his wife as the direct beneficiary. Collins became a Lloyd's name in 1988. Lloyd's is attempting to garnish a sum equal to the insurance premiums paid by Collins since 1996 (approximately $30,000 per year). Under Illinois law life insurance policies may be garnished in limited circumstances: (1) if purchased with the intent of converting nonexempt property into exempt property; or (2) if purchased in fraud of creditors. 735 ILCS 5/12-1001. Lloyd's contends that it is entitled to garnish Collins's premium payments under either exception, but it wrongly assumes that the statutory provision applies in the first place. Collins purchased the policies years before his involvement with Lloyd's and ...