Court Opinion

ID: 9745214
Source: CourtListenerOpinion
Date Created: 2023-08-26 22:41:48.64542+00
Date Added: 2024-06-11T07:24:57.642473
License: Public Domain

PRESIDING JUSTICE GREIMAN, specially concurring in part and dissenting in part: I agree with the majority’s observations with respect to the contract clause in the United States Constitution, but believe that the Illinois statutes vary the meaning of "mutuality” as a condition for the right of setoff. The elements of mutuality are often repeated in the decisions of the bankruptcy and state courts. See Turner v. Small Business Administration, 59 F.3d 1041 (10th Cir. 1995); In re Lopes, 197 B.R. 15 (Bankr. D.R.I. 1996); In re County of Orange, 183 B.R. 609 (Bankr. C.D. Cal. 1995); Stamp v. Insurance Co. of North America, 908 F.2d 1375 (7th Cir. 1990); In re Knedlik, 192 B.R. 559 (Bankr. D. Kan. 1995); Westamerica Bank v. United States of America, 178 B.R. 493 (N.D. Cal. 1995); In re Medina, 177 B.R. 335 (Bankr. D. Or. 1994); In re Pyramid Industries, Inc., 170 B.R. 974 (Bankr. N.D. Ill. 1994); In re Ross-Viking Merchandise Corp., 151 B.R. 71 (Bankr. S.D.N.Y. 1993); In re Lakeside Community Hospital, 151 B.R. 887 (N.D. Ill. 1993); Fabe v. Facer Insurance Agency, Inc., 773 F.2d 142 (7th Cir. 1985); Ducker v. Lohrey, 33 B.R. 973 (Bankr. S.D. Ohio 1983). However, the right of setoff was also founded in equitable principles. See Turner, 59 F.3d 1041; Ducker, 33 B.R. 973. I would consider the Illinois statutory scheme with both of these observations in mind. Moreover, I would give effect to all of the provisions of the Insurance Code and assume, as I am so obliged, that our General Assembly did not intend that certain sections of the Code be ignored. Section 206 of the Insurance Code provides for the setoff of mutual debts and further states that unearned premiums shall not be the subject of such setoffs. 215 ILCS 5/206 (West 1996). Section 508.1 of the Code requires that all premiums collected be placed in a trust account, safe from the creditors of the insurance producer. 215 ILCS 5/508.1 (West 1996). In the instant appeal, the insurance producer only seeks to set off "earned” premiums. Why would the legislature make a distinction between earned and unearned premiums in section 206? Surely, it is aware that all premiums collected are required to be placed in a trust account. Accordingly, there would be no need to distinguish the two classifications since setoff of both would be prohibited by reason of the fiduciary capacity in which the insurance producer served by reason of section 508.1, thus creating the lack of mutuality that the majority recognizes. Why the need to address "unearned premiums” in a separate paragraph in section 206? Since we are required to give effect to all of the language of any statute, we can assume that the legislature meant to make a real distinction and that, without that language, the legislature thought that both earned and unearned premiums might be set off. But section 508.1 creating the trust accounts would make both types of premiums beyond the right of setoff because of the lack of mutuality. We must construe both of these sections in pari materia to provide the meaningful statutory scheme envisioned by our legislature to protect the consumer public and allow fairness between the insurance carriers and the insurance providers. Courts have been willing to waive the issue of mutuality. In Ducker, the debtor rather than the creditor was a fiduciary as a matter of law and had sold property belonging to the creditor for which the creditor received no credit, although one of the parties was clearly a fiduciary. The court concluded that there might be exceptions to the general rule that setoff is unavailable where the parties lack the necessary element of mutuality. The Ducker court stated: "Although formal logic may dictate that setoff be denied either party, where inconsistent relations are found to exist, We have no difficulty in finding that, in the instant case, such a denial of setoff would plainly exalt form over substance.” (Emphasis omitted.) Ducker, 33 B.R. at 976-77. Moreover, the case upon which the majority relies, Fabe v. Facer Insurance Agency, Inc., 588 F. Supp. 1330, 1333 (C.D. Ill. 1984)1 , is inapposite since its focus was upon the lack of mutuality with respect to unearned commissions. Plaintiff in the instant appeal does not seek unearned commissions or earned and unearned collected premiums but rather limits its requests to earned commissions to which the cases cited do not appear to respond. The majority also relies upon the language of a regulation adopted by the Department of Insurance and cites section 3113.40(g) of the Illinois Administrative Code for the proposition that: "[a]ll monies deposited into a PFTA [(Premium Fund Trust Account)] are considered to be fiduciary funds until lawfully withdrawn.” 50 Ill. Adm. Code § 3113.40(g) (1994). Reading on, however, section 3113.40(h)(3) provides that commissions due the producer may be lawfully withdrawn from the PFTA. Again, I must ask why the legislature, being aware of the issue of mutuality, and the Director of Insurance, who understands that portions of the regulation may be in conflict, would be so obscure when it would be so easy to state that obligations may not be set off from the PFTA after an order of liquidation? . Accordingly, I would allow a setoff for such earned commissions.  The majority opinion cites only the district court opinion; however, this case was appealed to the Seventh Circuit Court of Appeals and is cited at Fabe, 773 F.2d 142.