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Lawndale Restoration Limited Partnership v. Acordia of Illinois

July 25, 2006


Appeal from the Circuit Court of Cook County. Honorable Lee Preston, Judge Presiding.

The opinion of the court was delivered by: Justice Wolfson

Defendants Acordia of Illinois, Inc. (Acordia) and Ralph Aulenta (Aulenta) are insurance producers who secure insurance on behalf of their clients and receive a commission from the insurance company. The plaintiffs (Lawndale), providers of low income housing in Chicago, were Acordia's clients. Lawndale filed a complaint alleging Acordia wrongfully collected insurance premiums in excess of the premiums charged by the insurers.

Lawndale's complaint contains counts alleging fraud and breach of fiduciary duty; it also seeks an accounting. Lawndale moved for partial summary judgment on portions of Count I, the fraud count, alleging, among other things, a violation of section 507.1 of the Insurance Code. 215 ILCS 5/507.1 (West 2000) (repealed by P.A. 92-386 § 10, eff. Jan. 1, 2002, replaced by 215 ILCS 5/500-80 (West Supp. 2002)).

The trial court denied the motion and certified two questions for interlocutory appeal, pursuant to Supreme Court Rule 308(a) (155 Ill. 2d R. 308(a)). We agreed to answer the two questions. After closer examination, we have decided to answer only one of them, the question that asks whether Acordia's insurance compliance self-evaluative audit document is protected from disclosure in this case. We hold it is not.


In its fraud count, Count I, Lawndale alleges Acordia provided insurance brokerage services in its capacity as an insurance producer. An insurance producer is "an individual who solicits, negotiates, effects, procures, renews, continues or binds policies of insurance covering property or risks located in Illinois." 215 ILCS 5/491.1 (West 2000) (repealed by P.A. 92-386 § 10, eff. Jan. 1, 2002, replaced by 215 ILCS 5/500-10 (West Supp. 2002)). Aulenta, the president of Acordia, was personally involved in providing insurance brokerage services to Lawndale.

In paragraph 8 of the fraud count, under the "Facts" section, Lawndale sets out former section 507.1 of the Illinois Insurance Code. Under section 507.1, an insurance producer may not receive compensation from a client without memorializing the arrangement in a separate written document signed by the client, clearly specifying the amount or extent of the fee. Lawndale contends Acordia collected amounts in excess of the actual cost of insurance coverage without disclosing the true cost of the insurance. In paragraph 8, Lawndale alleges these amounts constitute fees received in violation of the Insurance Code.

From 1990 through 1999, Lawndale says, Acordia obtained insurance policies for Lawndale and misrepresented the cost of the premiums. The amounts of the inflated premiums were stated in various documents. Lawndale repeatedly says Acordia made "false and fraudulent representations, pretenses, and promises" concerning the cost of insurance and premiums. Based on the representations, Lawndale paid the excess premiums. Acordia intentionally concealed its scheme to defraud Lawndale by sending false premium notices, binders, invoices, and declaration pages to Lawndale and its agents. As a direct and proximate result of Acordia's alleged fraud, Lawndale was damaged in an amount exceeding $50,000. Lawndale also requests punitive damages for "intentional and tortious conduct."

In its breach of fiduciary duty count, Lawndale alleges Acordia was required to use Lawndale's funds solely for the purpose of purchasing insurance coverage. In paragraph 20, Lawndale cites section 507.1 of the Insurance Code to support its claim of fiduciary duty. Lawndale alleges Acordia wrongfully retained the funds received from Lawndale without disclosing the excess amounts in writing. It says Acordia used the funds for purposes other than securing insurance coverage, in violation of the Code. Lawndale requests damages in excess of $50,000.

Lawndale filed a motion for partial summary judgment directed only at portions of Count I. In the motion, Lawndale said Aulenta was indicted on 14 counts of money laundering, mail fraud, and engaging in monetary transactions with illegally obtained proceeds. In January 2004, Aulenta stipulated in a plea agreement to having defrauded Lawndale out of $1,718,162. He admitted he "styled the excess premium payments from Lawndale as a fee to Acordia or its predecessor entity, but never disclosed to Lawndale that he was charging it a fee or the fee amount, even though he admits this was improper." Citing section 507.1 of the Insurance Code, Lawndale requested partial summary judgment in the amount Aulenta admits he overcharged Lawndale plus interest. Lawndale did not allege any elements of fraud in its motion, nor is fraud mentioned in the motion.

In response, Acordia contended Lawndale's motion for partial summary judgment is based solely on section 507.1 and not on any cause of action appearing in the complaint. Acordia contended section 507.1 does not provide for a private right of action.

The trial court agreed with Acordia, finding no private right of action is implied under section 507.1 of the Insurance Code. 215 ILCS 5/507.1 (West 2000). The court denied the motion for partial summary judgment.

Lawndale brought a motion to compel Acordia to disclose a document previously identified by Acordia as "Memorandum prepared by counsel re: alleged fraud in anticipation of litigation," and listed on Acordia's privilege log as Item 20 ("Document 20"). The document is a memorandum prepared by Acordia's outside counsel describing the results of a 1999 internal company-wide audit of Acordia's accounts. The memorandum is directed to Acordia and the Illinois Department of Insurance.

The court granted Lawndale's motion to compel, finding defendant waived the self-evaluative privilege under section 155.35 of the Insurance Code. 215 ILCS 5/155.35 (West 2000). The court based its decision on a prior ruling in another case. In Village of Rosemont v. Acordia of Illinois, Inc., No. 01 L 016214 (April 23, 2003), the trial court found Acordia had waived its privilege by voluntarily disclosing to the Department of Insurance the same document involved in this case.

That order was not appealed.

The trial court certified the following two questions for appeal, pursuant to Supreme Court Rule 308(a) (155 Ill. 2d R. 308(a)):

(1) "whether plaintiffs have an implied private right of action for Acordia's alleged violations of Section 507.1 of the Illinois Insurance Code;"

(2) "whether Acordia's disclosure of the document subject to Plaintiffs' Motion to Compel to the Illinois Department of Insurance waived any privilege accorded to the document pursuant to the Illinois Insurance Compliance Self-Evaluative Privilege Act, 215 ILCS 5/155.35, the work-product doctrine (IL ...

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