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Howard Freedberg v. Ohio National Insurance Company

August 3, 2012

HOWARD FREEDBERG,
PLAINTIFF-APPELLANT,
v.
OHIO NATIONAL INSURANCE COMPANY, AND DENNIS W. MCCABE, D/B/A D.W. MCCABE
DEFENDANTS-APPELLEES.



Appeal from the Circuit Court of Cook County No. 07 CH 37687 and Honorable Associates, Kathleen M. Pantle, Judge Presiding.

The opinion of the court was delivered by: Presiding Justice Epstein

PRESIDING JUSTICE EPSTEIN delivered the judgment of the court, with opinion. Justices McBride and Howse concurred in the judgment, and opinion.

OPINION

¶ 1 Plaintiff, Dr. Howard Freedberg, purchased a life insurance policy from defendants, the Ohio National Insurance Company (Ohio National) and Dennis W. McCabe, d/b/a D.W. McCabe and Associates (McCabe), in December 2004. Plaintiff filed the instant case on December 20, 2007, alleging that McCabe's misrepresentations induced him to purchase the policy. Plaintiff now appeals from: (1) the circuit court's November 24, 2010, order granting summary judgment in favor of defendants on both counts of plaintiff's verified complaint (for rescission and violations of the Consumer Fraud and Deceptive Business Practices Act (815 ILCS 505/1 et seq. (West 2006)); and (2) the circuit court's February 17, 2011 order denying plaintiff's motion to file a verified amended complaint (for fraud). For the following reasons, we affirm.

¶ 2 BACKGROUND

¶ 3 In the fall of 2004, plaintiff sought financial advice from his sister, Lori Komisar, who has a business degree from the University of Illinois and had worked as a trader for a large New York firm. Plaintiff was under a court order, entered in his divorce case, to maintain a certain level of insurance for his five children. He relied on his sister because he had "zero financial background."

¶ 4 Komisar referred plaintiff to McCabe, an agent of Ohio National. Plaintiff first spoke to McCabe in the fall of 2004. Plaintiff and McCabe also met several times and discussed plaintiff's goals. McCabe sold plaintiff the life insurance required by the divorce settlement and order. In addition to protecting his children, plaintiff also wanted to protect his assets from potential creditors and to pay off the mortgage on his residence. Plaintiff requested that McCabe review plaintiff's other life insurance policies that he owned at the time (with First Colony and Sun Life). Plaintiff did not inform McCabe that, at the time, plaintiff had a pending lawsuit against him by a former business partner. McCabe suggested a whole life policy and showed plaintiff other options.

¶ 5 On October 11, 2004, McCabe sent plaintiff the term life insurance policy he had purchased to satisfy the divorce settlement agreement and order, as well as an application for a new policy based on his initial review of plaintiff's policies with the other companies. Thereafter, Komisar advised McCabe that his banker had recommended plaintiff purchase a $1 million annuity.

¶ 6 On November 11, 2004, McCabe sent a letter to Komisar showing her two options for plaintiff with summaries of each. Option I was life insurance with a discounted premium.

Option II was a single premium deferred annuity. In his letter, McCabe explained that in both cases they were "not subject to creditors."

¶ 7 On December 1, 2004, plaintiff met with McCabe in person for the first time. McCabe's affidavit states that the meeting occurred at Fingerweights Corporation in Wheeling and that Komisar was also present. During his deposition, plaintiff testified that he had no independent recollection of how many meetings he had with McCabe in 2004 and believed there were three or four meetings. Plaintiff could not recall the specifics of any of the meetings. He could recall that McCabe told him he could take money out of the policy to pay off his house and that there would be no problems, penalties or repercussions. Plaintiff signed an application for the whole life insurance policy that he eventually purchased (the Policy). Plaintiff did not choose either of the two options that had been presented but, instead, chose a whole life policy that had the same $4.5 million death benefit but had a lower premium than the $256,000 annual premium illustrated with Option I. Plaintiff's monthly payments were $18,000 for an annual premium of $216,000.

¶ 8 In a letter dated December 2, 2004, McCabe documented plaintiff's decision and also advised plaintiff that, based on the $18,000 monthly premium, the cash value at age 65 would be over $1.2 million (plaintiff was 49 at the time). According to the affidavit of Ray Spears, the second vice president of underwriting at Ohio National, he received plaintiff's application on December 2, 2004.

¶ 9 In December 2004, plaintiff discussed his purchase of the policy with his financial advisor, Jarvis Friduss, a certified public accountant. Friduss was not familiar with Ohio National and referred plaintiff to Steve Braun, an agent for Northwestern Mutual Life Insurance Company. On December 8, 2004, Braun faxed plaintiff: (1) information on how cash value is exempt from creditors in Illinois; (2) a company comparison of Northwestern Mutual and Ohio National; and (3) an illustration showing premiums of $18,000 per month for 4 years. Braun also told plaintiff that he "would be curious to see an illustration from Ohio National." Plaintiff ultimately did not purchase a policy from Northwestern Mutual.

¶ 10 Meanwhile, Ohio National processed plaintiff's application. As part of the process, Ohio National created a policy delivery receipt on or about December 8, 2004. On December 8, 2004, Ohio National sent, via Federal Express, the original policy and a policy acknowledgment receipt to Dennis McCabe. According to Spears's affidavit, McCabe received the original policy and the policy acknowledgment receipt on December 9, 2004. The Policy was issued by Ohio National with a face amount of $4,500,000.

¶ 11 In his deposition, McCabe testified that he met with plaintiff, plaintiff's estate-planning attorney John Worthen, and Komisar on February 10, 2005, in plaintiff's office. He testified that he reviewed the Policy with plaintiff and Komisar before John Worthen arrived. He also testified that he provided the Policy to plaintiff along with the delivery receipt. Plaintiff signed the delivery receipt and the body of the document refers to the Policy. The delivery receipt is dated February 10, 2005.

¶ 12 In late 2005, the lawsuit filed against plaintiff by his former business partner went to trial. In January 27, 2006, judgment was entered against plaintiff in the amount of $422,400. In January 2006, plaintiff had a meeting with Friduss and the two discussed the Policy. Plaintiff testified in his deposition that he "probably went home and tried to find the policy for [Friduss] and could not find the policy." Plaintiff also testified that Friduss "probably had asked [him] at that point to obtain a copy of the policy." Plaintiff conceded that he did not "recall if he explicitly had asked [him] and that he did not have "100 percent independent recollection to those facts." In his deposition, Friduss acknowledged that he spoke to McCabe in January 2006, but had "no independent memory" of the conversation.

¶ 13 On February 22, 2006, plaintiff, Friduss, McCabe, and Worthen met in Friduss's office. During the meeting, McCabe first learned of the lawsuit and the judgment against plaintiff. McCabe testified in his deposition that it was his understanding that the purpose of the meeting was to review plaintiff's estate plan and that there were questions regarding whether plaintiff could afford his insurance premiums. McCabe also stated that there was a discussion regarding taking the cash value out of the Policy and the interest rate. McCabe stated that plaintiff was upset and stated it was the first time he had heard of loan interest on the Policy.

¶ 14 Friduss testified in his deposition that he had no independent recollection of ever seeing the Policy, but if he did it would probably have been in February 2006 at the meeting with McCabe. In his deposition, plaintiff was asked if he "reviewed the policy with [Friduss] sometime in March 2006," and plaintiff responded, "[a]t some point I did, yes." In his verified complaint, plaintiff states "[i]n about March 2006, [plaintiff] finally obtained a copy of the [Policy.]" According to plaintiff's verified complaint, after he reviewed the Policy, "[i]t became apparent to [plaintiff and Friduss], that the [P]olicy did not have any provision that would permit [plaintiff] to withdraw cash value from the [P]olicy without penalties or charges, and [that plaintiff] had not been given any discount from the regular premium for such policies."

¶ 15 During his deposition, Friduss also discussed email communications between McCabe and himself in March and April 2006 regarding the purported 20% discount plaintiff had received when he obtained the Policy. Specifically, Friduss asked McCabe if that discount would be lost if the premium payments were reduced. Friduss noted that at no time did McCabe say that the 20% discount did not exist and that, instead, McCabe responded that he would call Ohio National to see how the request to reduce premiums while maintaining the discount would be accomplished.

¶ 16 On October 25, 2006, plaintiff, through his attorneys, sent a written demand to Ohio National for rescission of the Policy and demanded return of all premiums. At the same time that plaintiff sent the demand for rescission to Ohio National, he was in the process of taking steps to replace the Policy with a similar policy from Northwestern Mutual. By letter dated November 30, 2006, Ohio National refused to rescind the policy or return the premiums. Its decision was based, in part, on plaintiff's application for a replacement policy. Ohio National noted that the premium for this replacement policy was near the minimum premium required to support a $4.5 million death benefit and that the replacement policy provided little or no ability to generate cash value, which was a stated goal of plaintiff's when he applied for the Policy on December 1, 2004. Ohio National also stated that it hoped to retain plaintiff as a valued customer.

¶ 17 The parties apparently tried to resolve the situation. During this time, Ohio National continued to automatically withdraw the $18,000 premium from plaintiff's checking account. According to an affidavit of Robert J. Slobig, one of plaintiff's attorneys, he sent a letter to Ohio National on September 12, 2007 advising it that plaintiff had taken steps to stop the automatic payment because it was inconsistent with his desire to obtain rescission. Ohio National then began collecting the $18,000 monthly premium by means of an "Automatic Premium Loan" as allowed per the Policy.

¶ 18 According to Slobig's affidavit, by letter dated November 21, 2007, Ohio National rejected plaintiff's demand for rescission and a refund of his premiums. On December 20, 2007, plaintiff filed a two-count verified complaint for rescission and violations of the Consumer Fraud and Deceptive Business Practices Act (815 ILCS 505/2 et seq. (West 2006)).

¶ 19 On or about February 1, 2008, plaintiff filed a motion for temporary relief to preserve the status quo, requesting a temporary order restraining and enjoining Ohio National from charging premiums, interest, loans or other amounts against the Policy, but allowing hm to maintain the Policy's benefits. On February 4, 2008, the circuit court denied plaintiff's motion. Plaintiff surrendered the policy on February 19, 2008. Plaintiff also applied for, and obtained, two term life insurance policies.

¶ 20 On June 16, 2010, defendants filed a motion for summary judgment. On November 12, 2010, before the trial court ruled on defendants' motion for summary judgment, plaintiff filed a motion for leave to file a verified amended complaint. The proposed amended complaint added claims for common law fraud, negligence, and negligent misrepresentation.

ΒΆ 21 On November 24, 2010, the circuit court granted summary judgment in favor of defendants on both counts of plaintiff's verified complaint. On February 17, 2011, the circuit court denied plaintiff's motion to file a ...


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