DOD TECHNOLOGIES, Indiv. and on Behalf of All Others Similarly Situated, Plaintiff-Appellant, v. MESIROW INSURANCE SERVICES, INC., et al., Defendants-Appellees.
No. 1-06-3300
First District (4th Division)
February 14, 2008
May 9, 2008
381 Ill. App. 3d 1042
Kenneth S. Ulrich, David E. Morrison, and Mary E. Anderson, all of Goldberg, Kohn, Bell, Black, Rosenbloom & Moritz, Ltd., of Chicago, for appellee Mesirow Insurance Services, Inc.
JUSTICE MURPHY delivered the opinion of the court:
Plaintiff, DOD Technologies, brought a five-count putative class-action complaint against defendant, Mesirow Insurance Services, Inc., plaintiff‘s insurance broker, alleging that defendant received contingent commissions from insurers without informing plaintiff. The trial court granted defendant‘s motion to dismiss pursuant to
I. BACKGROUND
Plaintiff‘s second amended complaint alleges as follows. Defendant is a licensed Illinois insurance broker, or “insurance producer.” An insurance producer is “a person required to be licensed under the laws of this State to sell, solicit, or negotiate insurance.”
Plaintiff provided defendant with confidential and proprietary information with the expectation that defendant would seek the desired insurance at the lowest possible price. Standard industry practice is for consumers to make a single payment to the broker that includes both the insurer‘s premium and the broker‘s commission; the producer deducts the commission and forwards the premium to the insurer. Defendant also received “contingent commissions” from insurers, including Hartford Insurance Company, for its placement of insurance for plaintiff and other putative class members. The contingent commissions were based on three factors: (1) the aggregate amount of
Defendant did not disclose its receipt of the contingent commissions to plaintiff. These undisclosed financial incentives caused defendant to refer business to a paying insurer even if the policy and rates quoted by that insurer were not the most advantageous for the customer. These kickbacks, which should have been returned to plaintiff like any other rebate, inflated the cost of insurance to consumers and created a conflict preventing brokers from acting in the customers’ best interest. Had plaintiff known about the contingent commissions, it would have been more diligent in its selection of insurance. Approximately 10% or more of defendant‘s revenues as an insurance broker is derived from kickbacks.
Plaintiff‘s second amended complaint alleges breach of fiduciary duty, consumer fraud, fraudulent concealment, unjust enrichment, and accounting. Plaintiff based its breach of fiduciary duty count on
“Our philosophy is to provide sound and unbiased advice with an emphasis on protecting your interests at all times. Rather than focusing on one area, we are adept at reviewing your entire situation, integrating personal and professional goals to identify and eliminate any areas of vulnerability. We are committed to being a resource for you.”
The trial court dismissed counts I, IV, and V (breach of fiduciary duty, unjust enrichment, and accounting) on the basis that
II. ANALYSIS
A. Motion to Dismiss
A motion to dismiss pursuant to
Although plaintiff makes frequent references to the trial court‘s abuse of discretion, a dismissal pursuant to
1. Breach of fiduciary duty
Plaintiff argues that the trial court erred in dismissing its claims for breach of fiduciary duty, unjust enrichment, and accounting because it has alleged the existence of a fiduciary relationship between plaintiff and defendant. Defendant responds that
To state a claim for breach of fiduciary duty, a plaintiff must establish (1) a fiduciary duty on the part of the defendant, (2) the defendant‘s breach of that duty, and (3) damages that were proximately caused by the defendant‘s breach. Neade v. Portes, 193 Ill. 2d 433, 444 (2000). Historically, Illinois has recognized that the relationship between an insured and his broker, acting as the insured‘s agent, is a fiduciary one. AYH Holdings, Inc. v. Avreco, Inc., 357 Ill. App. 3d 17, 32 (2005); Perelman v. Fisher, 298 Ill. App. 3d 1007, 1011 (1998).
In 1996, the General Assembly enacted Public Act 89—638 (Pub. Act 89—638, §5, eff. January 1, 1997), which added
“(a) An insurance producer *** shall exercise ordinary care and skill in renewing, procuring, binding, or placing the coverage requested by the insured or proposed insured.
(b) No cause of action brought by any person or entity against any insurance producer, registered firm, or limited insurance representative concerning the sale, placement, procurement, renewal, binding, cancellation of, or failure to procure any policy of insurance shall subject the insurance producer, registered firm, or limited insurance representative to civil liability under standards governing the conduct of a fiduciary or fiduciary relationship except when the conduct upon which the cause of action is based involves the wrongful retention or misappropriation by the insurance producer, registered firm, or limited insurance representative of any money that was received as premiums, as a premium deposit, or as payment of a claim.
***
(d) While limiting the scope of liability of an insurance producer, registered firm, or limited insurance representative under standards governing the conduct of a fiduciary or a fiduciary relationship, the provisions of this Section do not limit or release an insurance producer, registered firm, or limited insurance representative from liability for negligence concerning the sale, placement, procurement, renewal, binding, cancellation of, or failure to procure any policy of insurance.” (Emphasis added.)
735 ILCS 5/2—2201 (West 2004) .
The goal of a court when construing a statute is to ascertain the legislature‘s intent, “and the surest indicator *** is the language in the statute.” Department of Public Aid ex rel. Schmid v. Williams, 336 Ill. App. 3d 553, 556 (2003). “To this end, a court may consider the reason and necessity for the statute and the evils it was intended to remedy, and will assume the legislature did not intend an *** unjust result.” In re Marriage of Beyer, 324 Ill. App. 3d 305, 309 (2001). A court may not supply omissions, remedy defects, substitute different provisions, add exceptions, limitations, or conditions, or otherwise change the law so as to depart from the plain meaning of the language employed in the statute. Beyer, 324 Ill. App. 3d at 309-10. “If the language of the statute is clear, its plain and ordinary meaning must be given without resorting to other aids of construction.” Beyer, 324 Ill. App. 3d at 310.
Since the enactment of
Plaintiff argues that its complaint falls within the exception to
Defendant argues that wrongful retention or misappropriation “plainly means diverting funds intended to pay premiums for another wrongful purpose, such as placing money received as premiums into a broker‘s operating account rather than into a premium trust account, or failing to pay money received as a premium to the insurer.” Despite defendant‘s interpretation of the “plain” meaning of the statute, it only cites Western Life Insurance Co. of America v. Chapman, 31 Ill. App. 3d 368 (1975). In Western Life, an insurance agent violated a provision of the Insurance Code providing that premiums collected by insurance agents were held in a fiduciary capacity and could not be ” ‘misappropriated or converted to his own use or illegally withheld’ ” when he gave premium money to his brother or placed it in an account that was not a premium trust account. Western Life Insurance, 31 Ill. App. 3d at 372, quoting Ill. Rev. Stat. 1971, ch. 73, par. 1065.52.
Also instructive is case law interpreting
While these cases are instructive as to how courts have interpreted misappropriation or conversion, the case at bar presents a different set of facts. The trial court granted the
According to the complaint, plaintiff provided defendant with confidential and proprietary information with the expectation that defendant would seek the desired insurance at the lowest possible price. The complaint alleged that the contingent commissions were based on the aggregate amount of business referred to the insurer paying the kickbacks, the “loss ratio” performance of the book of business referred to that insurer, and renewals. According to the complaint, these undisclosed incentives caused defendant to refer business to a paying insurer even if the policy and rates quoted by that insurer were not the most advantageous for the customer. We note that a court interpreting a statute will assume that the legislature did not intend an unjust result (Beyer, 324 Ill. App. 3d at 309); the placement of policies that are not the most advantageous for the consumer is most certainly unjust. We hold that the placement of policies with companies that were not the most advantageous for the consumers constitutes “the wrongful *** misappropriation” of money received as premiums.
It is not the undisclosed incentives that constitute misappropriation. Rather, the undisclosed incentives, as alleged in the complaint, were what led defendant to place certain policies without regard for the customer‘s needs and in breach of its fiduciary duty. We hold that a producer misappropriates premiums within the terms of
We find that
2. Unjust enrichment
Defendant also argues that the unjust enrichment count should be dismissed because a contract governs the relationship between the parties. Defendant did not raise this argument in its motion to dismiss the second amended complaint, and plaintiff did not respond to the argument in its reply brief. While an appellant who fails to raise an issue in the trial court waives that issue, an appellee may raise an issue on review that was not presented to the trial court in order to sustain the judgment, as long as the factual basis for the issue was before the trial court. Schanowitz v. State Farm Mutual Automobile Insurance Co., 299 Ill. App. 3d 843, 848 (1998).
A claim for unjust enrichment cannot be asserted when a specific contract exists between the parties and concerns the same subject matter. Zadrozny v. City Colleges, 220 Ill. App. 3d 290, 295 (1991). The complaint only alleges that plaintiff “retained” defendant, and the contract attached to the complaint appears to be between plaintiff and Hartford Insurance. Under these circumstances, we do not believe that whether a “specific” contract concerning “the same subject matter” can be determined. Accordingly, we reject defendant‘s argument.
3. Consumer fraud
Plaintiff alleges that defendant violated the
To establish a claim under the Consumer Fraud Act, plaintiff must show that (1) defendant committed a deceptive act or practice; (2) defendant intended for plaintiff to rely on the deception; (3) the deception occurred in the course of conduct involving trade or commerce; (4) plaintiff suffered actual damages; and (5) plaintiff‘s damages were proximately caused by defendant‘s deceptive conduct.
To bring a civil action for damages, the Consumer Fraud Act requires that a plaintiff suffer “actual damage.”
In White v. DaimlerChrysler Corp., 368 Ill. App. 3d 278, 287 (2006), the plaintiff alleged that the value of his Jeep was diminished by a defective exhaust manifold. The court acknowledged that diminution of value has been held to be a legally cognizable injury under the Act; however, the plaintiff did not specify how the value of his Jeep had been diminished. White, 368 Ill. App. 3d at 287. “He never says he would have done anything differently, like bargain for a lower price or refuse to buy the vehicle, if he had known about exhaust manifold failures.” White, 368 Ill. App. 3d at 287. While this is not a diminution-of-value case, it is significant that plaintiff‘s only allegation as to what it would have done differently (which is in a different count) is that it would have been “more diligent in its selection of insurance” and would have required competing bids from defendant. Thus, plaintiff does not allege that it would have refused to use defendant‘s services if it had known of the contingent commissions or that it would have bargained for better insurance prices while still using defendant as a broker.
Plaintiff contends on appeal that it is sufficient that “the basic elements of actual damage are pleaded but not that they are proved at this stage.” It cites Pappas v. Pella Corp., 363 Ill. App. 3d 795, 805 (2006), which is distinguishable; the plaintiffs in that case alleged that they suffered actual damage because their windows underwent rotting and deterioration.
Defendant argues that an additional reason for dismissing the consumer fraud count is that it did not allege the omission of a material fact. The Consumer Fraud Act defines a deceptive act as “the use
Defendant also claims that section 10b(1), which provides that the Act does not apply to “[a]ctions or transactions specifically authorized by laws administered by any regulatory body or officer acting under statutory authority of this State or the United States” (
We affirm the dismissal of the consumer fraud count.
4. Fraudulent concealment
As with the consumer fraud count, the trial court dismissed the fraudulent concealment count on the basis that it failed to allege actual damages or reliance. To establish fraudulent concealment, a plaintiff must allege (1) the concealment of a material fact; (2) the concealment was intended to induce a false belief, under circumstances creating a duty to speak; (3) the innocent party could not have
While the fraudulent concealment count alleges that defendant intended that plaintiff rely on its misrepresentation and concealment, it does not allege that plaintiff actually relied on anything. The consumer fraud count does allege that plaintiff relied on “faulty information” given by defendant, but it does not specify what this “faulty information” is.
The trial court also ruled that plaintiff failed to allege actual damages. This count alleges that plaintiff “suffered actual damages“; elsewhere, plaintiff alleges that it was damaged by increased premiums and profits that defendant received from the undisclosed contingent commissions. Defendant cites Huls v. Clifton, Gunderson & Co., 179 Ill. App. 3d 904, 909 (1989), where the plaintiffs, who were purchasers of two businesses, claimed that the defendant‘s failure to disclose its relationship with the sellers caused it to offer to pay a price greater than the equity value of the businesses, ” ‘which excess value such purchaser might not [have been] willing to pay had such disclosures been made.’ ” (Emphasis omitted.) The court found that the plaintiffs failed to state a cause of action for fraudulent concealment because they did not sufficiently allege damages. Huls, 179 Ill. App. 3d at 909. “[P]laintiffs’ fail to allege that what they received was not worth the money they paid for it or that they could have purchased the companies for less. Furthermore, they do not state they would not have purchased the companies had they known about the lack of independence between the businesses and defendant.” Huls, 179 Ill. App. 3d at 909. See also State Security Insurance Co. v. Frank B. Hall & Co., 258 Ill. App. 3d 588, 589-90 (1994). Here, while plaintiff alleges that its premiums were inflated, it does not allege that it would not have purchased its chosen insurance had it known of the contingent commissions.
5. Affirmative matter
Plaintiff argues that defendant‘s motion to dismiss should have been stricken or denied because it relied on a report prepared by the Insurance Information Institute. Defendant responds that citation to secondary sources is proper in a
B. Requests to Admit
On May 11, 2005, plaintiff served defendant with requests for production of documents, requests to admit, and interrogatories. The next day, defendant filed a motion to dismiss, and in the order setting a briefing schedule, the court stayed discovery during the pending motion to dismiss. On June 23, 2005, upon agreement of the parties, portions of the complaint were dismissed and plaintiff was granted leave to file a first amended complaint. Defendant filed a motion to dismiss the first amended complaint and to stay discovery on September 22, 2005. On October 4, 2005, the court stayed all discovery pending the resolution of defendant‘s motion to dismiss. In its response to defendant‘s motion to dismiss the first amended complaint, plaintiff argued that certain facts should be admitted because defendant failed to respond to the requests to admit. On December 6, 2005, the trial court struck “all previously filed discovery and requests to admit” and stayed discovery until further order of the court. The trial court noted that plaintiff was not barred from renewing the requests to admit in the future.
Plaintiff argues that the trial court abused its discretion when it refused plaintiff‘s request to deem facts admitted under Supreme Court Rule 216 (
The trial court has great latitude in ruling on discovery matters. Mutlu v. State Farm Fire & Casualty Co., 337 Ill. App. 3d 420, 434 (2008). A trial court‘s rulings on such matters will not be disturbed
Furthermore, in arguing that defendant “simply did not respond,” plaintiff ignores that the trial court stayed discovery during defendant‘s pending motions to dismiss. Indeed, while plaintiff argues that the trial court needed “good cause” under Rule 183 to excuse defendant‘s failure to respond, it fails to address the trial court‘s discretion to stay discovery while a motion to dismiss is pending. In Adkins Energy, LLC v. Delta-T Corp., 347 Ill. App. 3d 373 (2004), the court found that the trial court did not err when it stayed discovery until ruling on the defendant‘s motion to dismiss, even though the case could have been resolved earlier or settled if discovery had not been postponed. “We cannot say that it was a manifest abuse of discretion for the trial court to stay discovery until it ruled on the motion to dismiss, because if a cause of action had not been stated, discovery would have been unnecessary.” Adkins Energy, 347 Ill. App. 3d at 381. Similarly, in Redelmann v. Claire-Sprayway, Inc., 375 Ill. App. 3d 912 (2007), this court affirmed the trial court‘s stay of discovery pending the resolution of a motion to dismiss because it was unwilling to permit the plaintiff to “go on a fishing expedition.” Redelmann, 375 Ill. App. 3d at 927. Here, as in Redelmann, the trial court stated that plaintiff might be in a position to renew the requests to admit in the future. Also, plaintiff has failed to explain how the requests to admit would help it overcome the pleading deficiencies in its complaint. See Redelmann, 375 Ill. App. 3d at 927.
Although plaintiff argues that a stay was not in effect from June 23, 2005, when the original complaint was dismissed, until October 4, 2005, when the court stayed all discovery pending the resolution of defendant‘s motion to dismiss, the court struck all filed discovery when it dismissed the first amended complaint. A trial court may
The trial court did not abuse its discretion when it stayed discovery and struck plaintiff‘s requests to admit.
III. CONCLUSION
In summary, because we find that the conduct alleged in plaintiff‘s complaint constituted the “misappropriation” of money received as premiums, we reverse the dismissal of counts I, IV, and V. We affirm the dismissal of the consumer fraud and common law fraud counts as well as the trial court‘s rulings regarding discovery.
Affirmed in part and reversed in part; cause remanded.
NEVILLE, P.J., and CAMPBELL, J., concur.