{
  "id": 2601047,
  "name": "K. R. Cork and T. D. Redhead, Joint Liquidators of the British Commercial Insurance Company, Limited, a British Corporation, Plaintiffs-Appellees, v. Associated International Insurance Managers, Inc., an Illinois Corporation, Defendant-Appellant",
  "name_abbreviation": "Cork v. Associated International Insurance Managers, Inc.",
  "decision_date": "1965-04-26",
  "docket_number": "Gen. No. 49,702",
  "first_page": "331",
  "last_page": "340",
  "citations": [
    {
      "type": "official",
      "cite": "58 Ill. App. 2d 331"
    }
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  "court": {
    "name_abbreviation": "Ill. App. Ct.",
    "id": 8837,
    "name": "Illinois Appellate Court"
  },
  "jurisdiction": {
    "id": 29,
    "name_long": "Illinois",
    "name": "Ill."
  },
  "cites_to": [
    {
      "cite": "267 Ill App 478",
      "category": "reporters:state",
      "reporter": "Ill. App.",
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    {
      "cite": "156 Ill App 467",
      "category": "reporters:state",
      "reporter": "Ill. App.",
      "case_ids": [
        5316410
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      "year": 1910,
      "opinion_index": 0,
      "case_paths": [
        "/ill-app/156/0467-01"
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  "last_updated": "2023-07-14T19:12:10.724902+00:00",
  "provenance": {
    "date_added": "2019-08-29",
    "source": "Harvard",
    "batch": "2018"
  },
  "casebody": {
    "judges": [
      "BUEMAN, P. J. and KLUCZYNSKI, J., concur."
    ],
    "parties": [
      "K. R. Cork and T. D. Redhead, Joint Liquidators of the British Commercial Insurance Company, Limited, a British Corporation, Plaintiffs-Appellees, v. Associated International Insurance Managers, Inc., an Illinois Corporation, Defendant-Appellant."
    ],
    "opinions": [
      {
        "text": "ME. JUSTICE MURPHY\ndelivered the opinion of the conrt.\nThis is an action by an insolvent British insurance company to recover the balance of premiums collected for it in Illinois by defendant, an Illinois licensed insurance broker. Defendant appeals from a decree in favor of plaintiff for $5,999.90.\nDefendant contends (1) that section 121(4) of the Illinois Insurance Code (Ill Rev Stats, c 73, \u00b6 733) bars plaintiff from maintaining this action in any court in Illinois; and (2) in any event, payment of losses out of funds collected as premiums was proper and necessary to the fulfillment of the agreement between the parties. The matter was submitted to the court on the pleadings and a stipulation of facts.\nIn February 1954, plaintiff, British Commercial Insurance Company, Limited, was a British corporation, engaged in a general insurance business, but it was not authorized or licensed by the Illinois Director of Insurance to write contracts of insurance in the State of Illinois.\nDefendant, Associated International Insurance Managers, Inc., an Illinois corporation, engaged in insurance brokerage in Chicago, was licensed as a broker and \u201csurplus line\u201d agent under section 445 of the Illinois Insurance Code (c 73, \u00b6 1057) on July 20, 1953, and is currently so licensed.\nOn February 26, 1954, British Commercial and defendant Associated entered into a so-called \u201cOpen Cover Agreement,\u201d which authorized Associated to issue policies or other documents binding British Commercial as insurer on certain types of insurance risks located in the United States. Pursuant to this agreement, defendant Associated negotiated risks in Illinois, underwritten by British Commercial in accordance with the agreement on a \u201csurplus line\u201d basis, pursuant to section 445 of the Illinois Insurance Code. Defendant represented other similar insurers and would bind each of the insurers for a specific portion of the risk insured.\nUnder the agreement, defendant Associated collected the premium on the \u201csurplus line\u201d risks, usually at rates considerably higher than standard. From these premiums Associated deducted its commission and deposited the balance of the premium in separate bank accounts in Chicago for British Commercial and the other similar insurers, in accordance with their percentage participation in the \u201csurplus line\u201d risk. The bank account for plaintiff was entitled \u201cAssociated International Insurance Managers, Inc. \u2014 British Commercial Account, ...\u201d\nAs losses occurred and expenses were incurred, Associated would withdraw from these bank accounts funds sufficient to pay the losses and expenses, and if the accounts did not contain sufficient funds to pay them, Associated would request the companies involved to transfer additional funds to Chicago. Associated reported monthly to British Commercial the nature and indentity of risks bound, the gross and net premiums collected, losses reported to it, and losses and expenses paid by it. The agreement was terminated on December 31, 1957. After the termination, under the terms of the agreement plaintiff remained liable for losses arising out of risks incurred prior to termination, and defendant continued to pay losses from the funds which it had on hand.\nOn September 14, 1959, British Commercial failed, and joint liquidators were appointed in Great Britain. On or about September 14, 1959, defendant was notified by the liquidators of the voluntary liquidation, and that no action of any kind should be taken on behalf of British Commercial without prior written consent of the liquidators.\nOn November 23,1959, plaintiff received a statement from defendant Associated for the month of October, showing a balance in the British Commercial account of $5,999.90 as of September 30,\u2019 1959. On November 23, 1959, a letter was sent by the liquidators to defendant Associated demanding payment of the $5,999.90. On June 6, 1960, defendant Associated withdrew the balance of the British Commercial account but did not forward it to the plaintiff liquidators, and the instant action was filed in September, 1960.\nThe amended complaint substantially alleged the foregoing. Defendant\u2019s answer included as separate defenses (1) that plaintiff may not maintain the cause of action in Illinois, and (2) \u201cthat all the funds by it at any time held for British Commercial Insurance Company, Limited, have been exhausted, properly paid to persons having claims against said British Commercial prior to the time of the liquidation.\u201d The court decreed that \u201cplaintiff has standing to bring and prosecute this action in this Court,\u201d and \u201cthat judgment be and is hereby entered in favor of plaintiff, British Commercial Insurance Company, Limited for the benefit of said joint liquidators. . . .\u201d\nInitially, defendant contends that \u201csubsection 4 of section 121 of the Illinois Insurance Code . . . effectively bars this plaintiff from maintaining the present action in this or any other court of this state.\u201d Defendant relies on the following part of subsection (4):\n\u201c. . . no company transacting insurance business in this State without a certificate of authority shall be permitted to maintain an action at law or in equity in any court of this State to enforce any right, claim or demand arising out of the transaction of such business until such company shall have obtained a certificate of authority. . . .\u201d\nDefendant argues that although \u201csection 121 of the Illinois Insurance Code legalizes the transaction of certain types of insurance business by unauthorized companies, to-wit: permitting agents licensed under section 445 to place business with these unauthorized companies, . . . this limited grant of authority does not impliedly and certainly does not expressly carry with it any right on behalf of an unauthorized company to bring an action in the courts of this State. The legislature expressly has denied this privilege to such unauthorized companies by the language of subsection 4 of section 121.\u201d\nDefendant\u2019s contention requires consideration of the provisions of subsection (1) of section 121 and of section 445 of the Insurance Code. Subsection (1) of section 121 (Transacting Business Without Certificate of Authority Prohibited) (c 73, \u00b6 733) reads as follows:\n\u201cIt shall be unlawful for any company to enter into a contract of insurance as an insurer or to transact insurance business in this State, without a certificate of authority from the Director; provided that this subsection shall not apply to contracts procured by agents under the authority of section 445, nor to contracts of reinsurance.\u201d [Emphasis supplied.]\nSection 445 (Surplus line license) (c 73, \u00b6 1057) provides:\n\u201cAny agent or broker licensed in Illinois, may upon payment of an annual license fee ... be licensed to procure policies or contracts . . . from companies which are not authorized to do business in this State and which have complied with Section 445.1, where such agent or broker is, after diligent effort unable to procure policies or contracts to cover the kind or kinds of business required from the companies duly authorized and licensed to transact business in this State.\u201d\nDefendant further argues that \u201cthe legislative purpose in enacting subsection 4 of section 121 is to close the courts to suits by all unauthorized companies, whether their contracts are procured by agents licensed under section 445 or not. The provisions of this statute do not reflect an unreasonable, arbitrary or capricious attitude on the part of the legislature but merely its concern with protecting the rights of its citizens. Because it permits some unauthorized companies to write certain risks in this State, this permission does not have to be enlarged to open the courts of this State to these companies to the same extent they are open to authorized and qualified companies. . . . Lawfully it may withhold from unauthorized companies privileges which it grants to authorized companies, including the right to maintain an action in the courts of this State.\u201d\nPlaintiff argues that defendant\u2019s interpretation of the legislative purpose of subsection (4) \u2014 \u201cto close the courts to suits by all unauthorized companies, whether their contracts are procured by agents licensed under section 445 or not\u201d \u2014 is illogical and inconsistent with the purpose and policy of the Insurance Code and the holding of this court in Equitable Mut. Fire Ins. Co. v. McCrae, 156 Ill App 467 (1910). In that case, a Canadian insurance company, not licensed to do business in Illinois, brought suit against an agent who was licensed to procure insurance in unauthorized companies on a \u201csurplus line\u201d basis, pursuant to statute, for premiums collected by the agent. One of the defenses was that plaintiff was not entitled to bring suit because it failed to comply with the statute regulating the doing of business in this State by foreign corporations. The court held (p 471), \u201cas a matter of law, that plaintiff, a non-resident insurance company, in issuing its policies through defendant, licensed by the State as agent to transact that kind of business, was not doing business in this State contrary to the statutes.\u201d The court relied on \u201cAn Act of the State legislature in force July 1, 1903, and now forming a part of chapter 73, Revised Statutes, title \u2018Insurance\u2019, [which] provides for the licensing of brokers to write fire insurance policies in fire insurance companies not authorized to do business under the laws of this state,\u201d and considered this statute sufficient to exempt the \u201cnon-resident fire insurance companies\u201d from the provisions of any other statutory regulations affecting alien insurance companies.\nAlthough the Equitable case was decided long before the enactment of the present \u201cIllinois Insurance Code\u201d (1937), the reasoning and theory of the Equitable case apply here. Subsection (1), section 121, clearly states that \u201cthis subsection shall not apply to contracts procured by agents under the authority of section 445. . . .\u201d As it is undisputed that the contracts of insurance procured by defendant were under the authority of section 445, we believe it to be a reasonable interpretation that subsection (4) does not apply to contracts procured under the proviso of subsection (1). As stated by plaintiff, \u201cthe prohibition against bringing suits is simply a means of enforcing compliance with our statutes requiring authorization and deterring the transacting of unauthorized insurance business. If the \u2018surplus line\u2019 transactions are authorized, there is no legitimate purpose in denying to \u2018surplus line\u2019 insurers access to the courts.\u201d \"We agree with plaintiff and hold that the trial court was correct in determining that plaintiff \u201chas standing to bring and prosecute this action\u201d in the Circuit Court of Cook County, Illinois.\nWe consider next defendant\u2019s contention that \u201cpayment of losses ont of funds collected as premiums was proper and necessary to the fulfillment of the agreement between the parties.\u201d\nDefendant states it was stipulated that all of the expenses and losses paid were incurred and paid by reason of casualties which occurred prior to December 31, 1957, the date of termination; that Article Nine of the Agreement indicates that \u201cboth Associated and British Commercial contemplated British Commercial remaining liable after the date the agreement was terminated for all losses arising before the termination\u201d; and that \u201cit was under the terms of this agreement that Associated came into possession of the funds in dispute. It was also in accordance with the terms of this agreement that it paid out these funds in losses.\u201d\nPlaintiff argues that the \u201cOpen Cover Agreement\u201d provided that defendant was to act as agent of plaintiff in negotiating risks to which plaintiff was to be bound; that the bank account was a trust fund held by defendant for the benefit of plaintiff; and that the establishment of a trust account was intended by Article Eleven of the Agreement, which reads as follows:\n\u201cAccounts & Balances:\nThe Coverholder shall render monthly accounts based on a recapitulation of premiums, return premiums and paid losses as provided in Articles Six and Ten. The balances due shall be remitted into the Insurers\u2019 Trust Account in Chicago, Illinois.\u201d\nThe bank account established by defendant in its own name carried an additional title designation of \u201cBritish Commercial Account.\u201d It was stipulated that in this account defendant deposited \u201cbalances remaining from month to month on the portion of the portfolio underwritten by plaintiff constituting premiums received less losses, return premiums and expenses, . . . and the moneys so deposited were withdrawn from said account as needed to pay losses and expenses, which fact was reported monthly to the plaintiff.\u201d\nWe believe that the Agreement between the parties established defendant as plaintiff\u2019s agent, reposing in defendant the authority to receive premium payments for plaintiff, to hold them in a segregated bank account, and to withdraw amounts necessary to \u201cpay losses and expenses.\u201d The authority of defendant to make any further disbursements from the bank account was effectively revoked by the notice of plaintiff\u2019s liquidators sent to defendant on or about September 14, 1959. (3 Am Jur2d, Agency, \u00a7 37.) The notice read, in part: \u201c[No] . . . document whatsoever must be signed or initialled for or on behalf of The British Commercial Insurance Co. Ltd., nor must any instruction or authorization of any kind whatsoever be given to any . . . person on behalf of the Company, without the prior written consent or authorization of the Liquidators. . . .\u201d Payments of losses by defendant to claimants, and charged to the bank account after receiving this notice, were in violation of these directions, and were made without authority. The losses paid by defendant to claimant were not \u201cproper and necessary.\u201d As said in the Bestatement of Agency, 2nd Ed, \u00a7 417, p 278:\n\u201cAn agent who has received anything on account of his principal cannot defeat the claim of the principal upon the ground that a third person has a right superior to the principal\u2019s unless: (a) the agent has been divested of it by, or has delivered it to, the holder of the paramount title. . . .\u201d [Comment (a) stating:] \u201cIf the agent surrenders possession without a judgment against him, he normally takes the,risk that the claimant is not entitled to the subject matter.\u201d\nSince the defendant released funds from the bank account without any compulsion of a judgment against it (the risks under the claimants\u2019 policies were incurred by plaintiff), the defendant assumed the risk of liability to the plaintiff for the funds so dispensed. (Eestatement of Agency, 2nd Ed, \u00a7 382 with Comment e, \u00a7 402.) Under the terms of the notice of September 14, 1959, the defendant could have protected itself against this risk by requesting \u201cwritten consent or authorization of the Liquidators\u201d to pay the losses. It also might have been able to bring a declaratory judgment action to determine its rights and responsibilities in regard to the bank account balance.\nThe object of a liquidation proceeding is to treat all creditors in an equitable manner, and defendant\u2019s use of plaintiff\u2019s funds, to pay plaintiff\u2019s obligations, defeated the object of the liquidation proceeding \u2014 the equal sharing by creditors in the assets of an insolvent in proportion to their claims. (People v. Marquette Nat. Fire Ins. Co., 267 Ill App 478 (1932).) We conclude the judgment against defendant for $5,999.90 was proper.\nFor the reasons given, the decree of the trial court is affirmed.\nAffirmed.\nBUEMAN, P. J. and KLUCZYNSKI, J., concur.",
        "type": "majority",
        "author": "ME. JUSTICE MURPHY"
      }
    ],
    "attorneys": [
      "Heineke, Conklin & Schrader, of Chicago (Paul H. Heineke, of counsel), for appellant.",
      "Ashcraft, Olson, Beach, Kimball, Alexander & Edmonds, of Chicago (Norman L. Olson, Jr., of connsel), for appellee."
    ],
    "corrections": "",
    "head_matter": "K. R. Cork and T. D. Redhead, Joint Liquidators of the British Commercial Insurance Company, Limited, a British Corporation, Plaintiffs-Appellees, v. Associated International Insurance Managers, Inc., an Illinois Corporation, Defendant-Appellant.\nGen. No. 49,702.\nFirst District, First Division.\nApril 26, 1965.\nHeineke, Conklin & Schrader, of Chicago (Paul H. Heineke, of counsel), for appellant.\nAshcraft, Olson, Beach, Kimball, Alexander & Edmonds, of Chicago (Norman L. Olson, Jr., of connsel), for appellee."
  },
  "file_name": "0331-01",
  "first_page_order": 341,
  "last_page_order": 350
}