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Safeway Insurance Co. v. Daddono

September 27, 2002

SAFEWAY INSURANCE COMPANY, PLAINTIFF-APPELLANT,
v.
LOUIS T. DADDONO AND KENNETH KHANO, DEFENDANTS-APPELLEES
(ALL PRO INSURANCE AGENCY, INC., DEFENDANT).



Appeal from the Circuit Court of Cook County Honorable Sheldon Gardner, Judge Presiding.

The opinion of the court was delivered by: Justice Quinn

UNPUBLISHED

Plaintiff, Safeway Insurance Company (Safeway), brought this action for breach of fiduciary duties against All Pro Insurance Agency, Inc., (All Pro), and two individuals, defendant Louis T. Daddono and defendant Kenneth Khano. The trial court dismissed the counts against the individual defendants but granted Safeway leave to amend. Finally, the trial court dismissed Safeway's fifth amended complaint against Daddono and Khano individually with prejudice. Safeway now appeals.

On appeal, Safeway argues that the trial court erred in dismissing its complaint where the complaint adequately stated a cause of action against Daddono and Khano for violation of the Illinois Insurance Code (215 ILCS 5/508.1 (West 1996)) and breach of fiduciary duty.

For the reasons that follow, we hold that the trial court correctly granted Daddono's and Khano's motions to dismiss.

I. BACKGROUND

Safeway is an insurance company licensed to issue automobile insurance policies in the State of Illinois. All Pro was an insurance firm registered as an insurance producer in the State of Illinois. As an insurance producer, All Pro would act as an agent or broker in soliciting insureds for insurance companies and would, in turn, receive a percentage of all paid premiums as a commission. Louis T. Daddono and Kenneth Khano were licensed insurance producers in the State of Illinois and were the sole shareholders of All Pro.

On May 1, 1996, Safeway and All Pro entered into a written contract that authorized All Pro to sell Safeway's insurance policies to the public. The contract provided that All Pro would receive 20% of all paid premiums as commission for the sales.

Pursuant to section 508.1 of the Illinois Insurance Code (215 ILCS 5/508.1 (West 1996)), all money received by a producer for selling or renewing insurance policies was to be held by the producer in a fiduciary capacity for the benefit of the insurer. This account is commonly referred to as a premium fund trust account, or "PFTA." In accordance with the statute, All Pro set up and maintained such an account at North Bank.

On July 18, 1997, Safeway filed suit against All Pro, and Daddono and Khano individually. The complaint alleged counts in breach of contract, fraud and conversion. The trial court dismissed the counts pled against Daddono and Khano individually and granted Safeway leave to amend. In its fifth amended complaint, Safeway alleged All Pro, Daddono and Khano violated the Insurance Code and breached fiduciary duties to Safeway by misappropriating, mishandling and/or withholding from Safeway premiums collected on Safeway policies. Safeway alleged that Daddono and Khano were individually liable as they were the sole shareholders and officers of All Pro and were the only signators on All Pro's PFTA.

Specifically, the fifth amended complaint alleged that All Pro, Daddono and Khano withheld premiums, allowed the balance in the PFTA to be less than the amount deposited less lawful withdrawals, allowed the PFTA to have a negative balance on four specific dates, misappropriated fiduciary funds, acted in a financially irresponsible manner, commingled funds, failed to maintain cash receipts, failed to maintain a cash disbursement register, failed to document in writing commissions withdrawn from the PFTA, failed to support PFTA journal entries with receipts, and failed to maintain books and record for seven years. The fifth amended complaint alleged that Safeway sustained money damages in the amount of $22,079.

The trial court dismissed Safeway's fifth amended complaint as to Daddono and Khano with prejudice. In the same order, the trial court granted All Pro's motion to dismiss and granted Safeway 28 days to "attach the missing exhibits to the fifth amended complaint." Safeway now timely appeals the judgment as to Daddono and Khano individually.

II. ANALYSIS

Safeway argues that the trial court erred in dismissing its fifth amended complaint where the complaint adequately stated a cause of action against Daddono and Khano individually for violations of the Illinois Insurance Code and breach of fiduciary duty. Safeway additionally argues ...


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