Find Legal Information

FOURTH DIVISION

Filed: 12/10/98

Nos. 1-97-2913 & 1-98-0143 (cons.)

JUSTICE HOFFMAN delivered the opinion of the court:

The plaintiff, Jacqueline Brandt, filed the instant action against the defendant, TimeInsuranceCompany (Time), and others to recover damages she allegedly sustained as a consequence ofTime's refusal to pay her claims under a health insurance policy. Brandt's complaint as amendedset forth, inter alia, claims against Time for breach of contract (countI), a violation of section155 of the Illinois Insurance Code (215 ILCS 5/155 (West 1996)) (count II), fraud (count IX),and a violation of the Illinois Consumer Fraud and Deceptive Business Practices Act (ConsumerFraud Act) (815 ILCS 505/1 et seq. (West 1996)) (count X). On July17, 1997, the circuit courtdismissed counts IX and X of Brandt's complaint for failure to state causes of action, includingwithin its order the requisite finding of appealability under Supreme Court Rule 304(a) (134 Ill.2d R. 304(a)). Brandt filed a timely notice of appeal from that order which was docketed in thiscourt as appeal No. 1-97-2913. Thereafter, on January 8, 1998, the circuit court grantedsummary judgment in favor of Time on counts I and II of Brandt's complaint, again includingwithin its order the requisite finding of appealability under Supreme Court Rule 304(a). Brandtfiled a timely notice of appeal from the January 8 order which was docketed in this court asappeal No. 1-98-0143.

Brandt died after the filing of her appeals and Howard E. Tuma, Special Administrator ofBrandt's Estate, was substituted as the appellant. In the interest of clarity, however, we shallcontinue to refer to Brandt as the plaintiff. We consolidated Brandt's appeals and, for the reasonswhich follow, we now (1) affirm the July 17, 1997, order of the circuit court dismissing countsIX and X, (2) reverse the summary judgment entered on January 8, 1998, in favor of Time oncounts I and II, and (3) remand this cause to the circuit court for further proceedings consistentwith this opinion.

Brandt was diagnosed as a Type II diabetic in 1988. Beginning in 1990, Douglas Ruth, aninsurance broker, assisted Brandt in obtaining health insurance policies. In 1994, Brandt wasissued two Short Term Medical (STM) insurance policies which provided coverage for amaximum of six months and were intended to provide interim coverage while she sought acomprehensive medical insurance policy. Brandt's STM policies excluded her diabetes fromcoverage as a pre-existing condition.

In March 1995, Ruth informed Brandt that her current STM policy was about to expire andrecommended that she apply for an STM policy offered by Time. Ruth completed the Timeapplication for Brandt and answered the questions contained therein, including thefollowing:

"4. Within the last five (5) years, have you, your spouse, or any dependentto be covered,ever received any medical or surgical diagnosis or treatment including medication for: heartor circulatory system disorder including heart attack or chest pain; stroke; diabetes; cancer;***.

***

Note: The policy *** cannot be issued if YES is answered on any questions,2-4."

Ruth answered "No" to question 4, although he knew of Brandt's diabetic condition. RuthsentBrandt's application with her premium check to Insurance Consulting Group (ICG), a companywhich processes insurance applications for policies issued by Time. Time issued the policy toBrandt, effective April 4, 1995.

On or around August 1, 1995, while her Time STM policy was in effect, Brandt wasdiagnosedwith terminal stomach cancer. Brandt incurred medical bills for treatment of the cancer whichshe submitted to Time for payment. Before paying out on Brandt's claims, Time discovered thatBrandt had suffered from diabetes since 1988 and had been treated for her condition within thefive year period prior to her application for its STM policy. Time denied Brandt's claim forbenefits and notified her on October 30, 1995, that it was rescinding the STM policy.

Brandt filed the instant action against Time, Ruth, and Ruth's company, Lenox FinancialServices, Inc., on April 4, 1996. Brandt's complaint alleged, interalia, that Ruth obtained hersignature on a blank application for Time's STM policy, represented to her that he would fill itout accurately, and then recklessly filled out the application without indicating that Brandtsuffered from diabetes. According to her complaint, Brandt had never seen the completedapplication until Time refused to honor the policy. Brandt alleged that Time was precluded fromrelying on Brandt's diabetes as a basis for denying coverage since it failed to attach theapplication to the policy (see 215 ILCS 5/154 (West 1994)). Brandt claimed that, by refusing tohonor the policy, Time breached its contract of insurance (count I) and violated section 155 oftheInsurance Code (215 ILCS 5/155 (West 1996)).

Time filed its answer along with affirmative defenses alleging that the STM policy was voidabinitio since the misrepresentations in Brandt's application were material to Time'sdecision toaccept the risk, were material to the hazard assumed by Time, and were made with the intent todeceive.

On December 2, 1996, Brandt amended her complaint, adding two new counts alleging thatTime's practice of "post-claim underwriting" constituted common law fraud (count IX) and anunfair and deceptive trade practice under the Consumer Fraud Act (815 ILCS 505/1et seq. (West1996)) (count X). Time moved to dismiss counts IX and X for failure to state causes of action. The trial court granted the motion and Brandt was given leave to replead within 28 days. Noamended complaint was filed and counts IX and X were dismissed with prejudice.

I. APPEAL FROM THE DISMISSAL OF COUNTS IX AND X

On appeal from a motion to dismiss under section 2-615 of the Code of Civil Procedure (735ILCS 5/2-615 (West 1996)), this court must determine whether the complaint alleges factswhich,if proved, would entitle the plaintiff to relief. Charles v. Siegfried, 165 Ill. 2d 482,485-86, 651N.E.2d 154 (1995). Our review is de novo. Kaden v.Puchinski, 287 Ill. App. 3d 546, 548, 678N.E.2d 792 (1997).

In order to plead an action for fraud, the plaintiff must allege: that the defendant made a falsestatement of material fact, knowing or believing that the statement was false, with the intentionofinducing the plaintiff to act; that the plaintiff reasonably relied on the truth of the statement andacted thereon; and that the plaintiff suffered damages which were proximately caused by heraction in reliance upon the statement. Siegel v. Levy Organization DevelopmentCo., 153 Ill. 2d534, 542-43, 607 N.E.2d 194 (1992). The basic elements of a deception claim under section 2 ofthe Consumer Fraud Act (815 ILCS 505/2 (West 1996)) are: (1) a deceptive act or practice; (2)the defendant's intent that the plaintiff rely on the deception; and (3) that the deception occurredin the course of conduct involving trade or commerce. Connick v. Suzuki MotorCo., 174 Ill. 2d482, 501, 675 N.E.2d 584 (1996).

Counts IX and X of Brandt's complaint allege that Time improperly practiced "post-claimunderwriting." Brandt claims that an insurer must investigate the information on an applicationbefore, or within a reasonable time after, issuing a policy. According to Brandt, issuing a policyand then waiting until a claim is made before investigating the insurability of the applicantperpetrates a fraud upon the applicant and the public. Brandt also claims that this constitutes anunfair and deceptive business practice. Brandt cites to a number of extrajurisdictional cases insupport of her argument that the practice of "post-claim underwriting" (see e.g.White v.Continental General Insurance Co., 831 F. Supp. 1545 (D. Wyo. 1993)), or "retroactiveunderwriting" (see e.g. Meyer v. Blue Cross and Blue Shield, 500N.W.2d 150 (Minn. App.1993)), should preclude an insurer from rescinding its policy or disclaiming liability after a claimhas been made.

Although our research has not disclosed any Illinois cases specifically addressing this issue,it haslong been the law in Illinois that an insurer has no general duty to investigate the truthfulness ofanswers given to questions asked on an application for insurance. See Bageanis v.AmericanBankers Life Insurance Co., 783 F. Supp. 1141, 1146 (N. D. Ill. 1992); see alsoApolskis v.Concord Life Insurance Co., 445 F. 2d 31, 36 (7th Cir. 1971); Metropolitan LifeInsurance Co. v.Moravec, 214 Ill. 186, 188, 73 N.E. 415 (1905); National Blvd. Bank v.Georgetown LifeInsurance Co., 129 Ill. App. 3d 73, 472 N.E.2d 80 (1984). Our courts have recognizedthat "[a]ninsurance company has the right to rely on the truthfulness of the answers given by an insuranceapplicant, and the insured has the corresponding duty to supply complete and accurateinformation to the insurer." Commercial Life Insurance v. Lone Star LifeInsurance, 727 F.Supp. 467, 471 (N.D. Ill. 1989). Since Illinois law imposes no duty on an insurer to conduct anindependent investigation of insurability before issuing an insurance policy and Time made norepresentation as to when, or if, it would investigate the truthfulness of the information containedin Brandt's application, Brandt cannot predicate her claims for fraud and violation of theConsumer Fraud Act on the allegation that Time engaged in post-claim or retroactiveunderwriting. We conclude that counts IX and X fail to state causes of action for which Brandtwould be entitled to relief, and we affirm the trial court's dismissal in appeal No. 1-97-2913.

II. APPEAL FROM SUMMARY JUDGMENT ON COUNTS I ANDII

We now address appeal No. 1-98-0143, in which Brandt contends that the trial courterroneouslygranted summary judgment in favor of Time on counts I and II, based on breach of contract andviolation of section 155 of the Insurance Code, respectively.

A motion for summary judgment may be granted only when "the pleadings, depositions, andadmissions on file, together with the affidavits, if any, show that there is no genuine issue as toany material fact and that the moving party is entitled to a judgment as a matter of law." 735ILCS 5/2-1005(c) (West 1996). The trial court is under a duty to consider such evidence strictlyagainst the movant and in the light most favorable to the opposing party. Kolakowski v.Voris, 83Ill. 2d 388, 398, 415 N.E.2d 397 (1980). If the evidentiary material could lead to more than onereasonable conclusion or inference, the court must adopt the conclusion or inference that is themost favorable to the opponent of the motion. Lapidot v. Memorial MedicalCenter, 144 Ill.App. 3d 141, 147, 494 N.E.2d 838 (1986). Our review of an order granting summary judgmentisde novo. Crum & Forster Managers Corp. v. ResolutionTrust Corp., 156 Ill. 2d 384, 390, 620N.E.2d 1073 (1993). Accordingly, we independently examine the evidence presented in supportof and in opposition to a motion for summary judgment, apply the same standards that the trialcourt was obliged to apply, and determine whether the movant is entitled to judgment as a matterof law. Arra v. First State Bank & Trust Co., 250 Ill. App. 3d 403, 406, 621N.E.2d 128 (1993).

To defeat or avoid a policy on the grounds of misrepresentation or false warranty, the insurermust first show that the misrepresentation was made with actual intent to defraud or that itmaterially affected the risk. Inter-Insurance Exchange v. Milwaukee Mutual InsuranceCo., 61Ill. App. 3d 928, 931, 378 N.E.2d 391 (1978). In its motion for summary judgment on counts Iand II, Time contended that, under section 154 of the Insurance Code (215 ILCS 5/154 (West1996))), Brandt's failure to disclose her true medical history on the application rendered thepolicy void as a matter of law. According to Time, Brandt's misrepresentation materiallyaffected both its acceptance of the risk and the risk assumed because Time would not have issuedthe policy had it known about Brandt's illness. In support of its motion, Time submitted a copyof the completed application and the affidavit of a Time supervisor confirming that Timerescinded Brandt's policy after it became aware of her diabetic condition. Time attached part ofRuth's deposition in which he indicated that Brandt signed the application after he went over thequestions with her. Time also attached an excerpt of Brandt's evidence deposition in which sheidentified her signature on the application.

In response, Brandt argued that Time failed to show that she misrepresented her medicalhistory. Brandt contended that Ruth completed the application after procuring her signature on a blankcopy. Relying on the General Agency Contract in force between ICG and Time, Brandt allegedthat (1) Ruth, as ICG's agent, was authorized to solicit insurance on behalf of Time; (2) Ruthacted as Time's subagent when he filled out Brandt's application; (3) Ruth's misrepresentation asto Brandt's diabetes was, therefore, imputed to Time; and (4) Time was estopped from relying onthe misrepresentation in the application as a basis for rescission of its policy. Brandt also allegedthat Time was precluded from relying on the misrepresentation because it failed to attach theapplication to the policy issued to her as required by section 154 of the Insurance Code (215ILCS 5/154 (West 1994)).

Time replied that it was irrelevant whether Ruth or Brandt filled out the application becauseRuthwas acting as Brandt's insurance broker for the purpose of completing the application andobtaining the policy. Time referred to Brandt's complaint in which she alleged that Ruth servedas her financial and investment advisor and insurance broker and, as such, owed her a fiduciaryduty. Time further maintained that the 1996 amendment to section 154 of the Insurance Codeapplied to this action; thus, Time was no longer required to prove physical attachment of theapplication when relying on a misrepresentation therein as a basis for rescission.

The trial court entered summary judgment on counts I and II in favor of Time. In so ruling,thetrial court implicitly accepted Time's argument that Ruth acted as Brandt's agent with respect tothis transaction. However, our review of the evidence indicates that a question of fact remains asto whether Ruth acted as Time's agent when he completed the policy application.

A. RUTH'S AGENCY

An insurance agent generally acts as the agent of the insurer (State Security InsuranceCo. v.Burgos, 145 Ill. 2d 423, 431, 583 N.E.2d 547 (1991)), while an insurance broker acts asan agentof the insured (State Security Insurance Co. v. Frank B. Hall & Co., 258 Ill.App. 3d 588, 595,630 N.E.2d 940 (1994)). However, an insurance broker can be an agent of an insurer for alimited purpose, such as soliciting insurance, while not thereby becoming a general agent of theinsurer. Zannini v. Reliance Insurance Co., 147 Ill. 2d 437, 452, 590 N.E.2d 457(1992). Thus, aperson's conduct during a transaction, not his title, determines whether he is an agent of theinsurance company or an agent for the insured. Zannini, 147 Ill. 2d at 452-53. Thefactors to beconsidered in this determination include: (1) who first set the individual in motion, (2) who couldcontrol his action, (3) who was to pay him, and (4) whose interest he was there to protect. Krause v. Pekin Life Insurance Co., 194 Ill. App. 3d 798, 805, 551 N.E.2d 395(1990). Whetheran individual is acting as an agent for the insured or the insurer is generally a question of fact,and only when the evidence clearly shows the person is the agent of the insured does the issuebecome one of law. Allied American Insurance Co. v. Ayala, 247 Ill. App. 3d 538,552, 616N.E.2d 1349 (1993).

In his deposition testimony, Ruth identified a document which he described as an agentlicensingagreement between himself and ICG. The record contains a contract between Ruth and ICG(formerly the Combined Employers Association) which indicates that ICG, the "Agency,"employed Ruth, the "Agent," as an independent sales person. However, the contract states that"[t]he Agent agrees that he is an independent contractor and has no authority to act for or onbehalf of the Agency or to bind the Agency to any contract on any matter without the expressapproval in writing of the Agency."

The record also contains a "General Agency Contract" between ICG and Time whichprovidedthat ICG was authorized to recommend agents to solicit insurance for Time and that ICG couldcollect initial premiums up to a certain monetary limit. Under the section entitled "FieldUnderwriting," ICG was responsible for "(1) asking all questions and correctly recording allanswers on applications for insurance and for immediately sending such applications to Time'sHome Office, and (2) complying with and carrying out all administrative rules of Time." ICGwas also required to make available to Time all information which came into its possessionconcerning the underwriting of the risk.

Ingrid Faro, an employee of ICG, testified in her deposition that it was ICG's procedure toissueSTM policies out of their office after receiving an application from a soliciting agent. Accordingto Faro, ICG would then send the policy with a copy of the application back to the agent toreview for accuracy and deliver to his client.

Viewing this evidence in the light most favorable to Brandt, a trier of fact could determinethatRuth acted, in this instance, as a soliciting agent for ICG and a subagent for Time. Ruth testifiedthat he was a party to an "agent licensing agreement" with ICG. Although the contract betweenRuth and ICG states that the agent is an independent contractor, we note that a party may be bothan independent contractor and an agent for another. Letsos v. Century 21-New WestRealty, 285Ill. App. 3d 1056, 1065, 675 N.E.2d 217 (1996). In any case, whether the parties' relationship isthat of principal and agent or owner and independent contractor is a question of fact unless therelationship is indisputably clear. Letsos, 285 Ill. App. 3d at 1065.

If Ruth acted as an agent for ICG, he was responsible, under the General Agency Contractbetween ICG and Time, for asking questions and correctly recording answers on Brandt'sapplication. Ruth's name is handwritten on the application as "Agent." Ruth admitted that hecompleted Brandt's application and may have even done so after she signed it. Ruth sent theapplication to ICG, and ICG printed the policy and then sent it back to him along with hiscommission check. Ruth was then responsible for mailing the policy to Brandt. Since Ruth'sactions were, to a certain extent, regulated by the General Agency Contract between ICG andTime, a trier of fact could find that Ruth was acting on Time's behalf in this instance as itssubagent.

If Ruth acted as Time's subagent, his knowledge of Brandt's diabetic condition could beimputedto Time and Time would thereby be estopped from avoiding the policy. An insurer is estoppedfrom avoiding a policy for untrue representations in the application where the insured disclosesfacts to the agent and the agent, in filling out the application, does not state the facts as they aredisclosed to him but instead inserts conclusions of his own or answers inconsistent with the facts. See Boyles v. Freeman, 21 Ill. App. 3d 535, 539, 315 N.E.2d 899 (1974). Theinsurer cannot relyon incorrectly recorded answers, even when the insured knows that the agent has entered answersdifferent from the ones he gave, where the incorrect answers are entered pursuant to the agent'sadvice, suggestion, or interpretation. Logan v. Allstate Life Insurance Co., 19 Ill.App. 3d 656,660, 312 N.E.2d 416 (1974). The agent's knowledge of the truthfulness of the statements isimputed to the insurer. Logan, 19 Ill. App. 3d at 660-61. It is only where theapplicant has actedin bad faith, either on his own or in collusion with the insurer's agent, that a court will refuse toimpute the knowledge of the agent to the insurance company. Logan, 19 Ill. App.3d at 661.

In viewing the evidence in the light most favorable to Brandt, we conclude that a question offactremains as to whether Ruth acted as Time's agent, and, thus, whether his knowledge of themisrepresentation could be imputed to Time. For this reason, the trial court erred in enteringsummary judgment in favor of Time. We reverse the order of summary judgment in favor ofTime on counts I and II, and remand this cause for further proceedings.

B. SECTION 154 OF THE INSURANCE CODE

Having reversed the summary judgment in favor of Time, we could end our analysis. However,if, on remand, the trier of fact finds that Ruth was not acting as Time's agent, the trial court mustdetermine whether to apply the amended version of section 154 of the Insurance Code. Consequently, we will address this issue.

When Time issued Brandt's STM policy in April 1995, section 154 provided that, in orderfor aninsurer to rely on a misrepresentation contained in the application as a basis for avoiding aninsurance policy, the application must have been attached to the policy and made a part thereof. 215 ILCS 5/154 (West 1994)); National Union Fire Insurance Co. v. Continental IllinoisCorp.,658 F. Supp. 781, 787 (N.D. Ill. 1987); Economy Fire & Casualty Co. v.Thornsberry, 66 Ill.App. 3d 225, 227, 383 N.E.2d 780 (1978). An insurer's inability to allege and prove suchphysical attachment was fatal to its attempted reliance on the unattached documents as the basisfor rescission. National Union Fire Insurance Co., 658 F. Supp. at 787.

A question of fact remains as to whether a copy of Brandt's completed application wasattachedto Time's STM policy. Faro's affidavit states that she attached a copy of the completedapplication to the policy and mailed it to Ruth. Ruth testified that it was his belief that theapplication was attached to the policy he mailed to Brandt because that was the usual procedure,however, he could not specifically recall whether it was attached. Brandt testified in her evidencedeposition that she never saw the completed application until Time rescinded the policy.

Two months after Brandt filed her complaint, Public Act 89-413 eliminated the requirementthata copy of the application be attached to an insurance policy and made a part thereof before amisrepresentation contained therein could be asserted as a basis to avoid the policy. See Pub.Act89-413, eff. June 1, 1996 (amending 215 ILCS 5/154 (West 1994)). Accordingly, insurancecarriers are no longer precluded from declaring a policy null and void in those instances wherethe completed application containing the misrepresentations or inaccuracies has not beenattachedto the issued policy.

Brandt contends that the version of section 154 in force when her policy was issued in April1995applies to this action and that Time's failure to attach a copy of her completed application to thepolicy precluded it, as a matter of law, from disclaiming liability based on a misrepresentation inher application.

In First of America Trust v. Armstead, 171 Ill. 2d 282, 664 N.E.2d 36 (1996),our supreme courtheld that new legislation may not be retroactively applied to pending suits or preexisting causesof action where doing so would affect a vested right. The court defined vested rights as interestsprotected from legislative interference by our due process clause. Armstead, 171Ill. 2d at 289. "Whether a particular expectation rises to the level of a vested right is not capable of precisedefinition, but it is one that is so far perfected that it cannot be taken away by legislation, and itmay consist of 'a complete and unconditional demand or exemption that may be equated with aproperty interest.'" Harraz v. Snyder, 283 Ill. App. 3d 254, 262, 669 N.E.2d 911(1996), quotingArmstead, 171 Ill. 2d at 291.

In the absence of language to the contrary, the laws and statutes pertinent to a contract and inforce at the time the contract is executed are considered a part of that contract as though theywere expressly incorporated therein. S & D Service, Inc. v. W. 915-925 SchubertCondominiumAssn., 132 Ill. App. 3d 1019, 1023, 478 N.E.2d 478 (1985); Hindu IncenseManufacturing Co. v.MacKenzie, 403 Ill. 390, 392, 86 N.E.2d 214 (1949). Contracting parties are presumed tohaveentered into the contract with a knowledge of the existing laws as they relate to their agreement. McMahon v. Chicago Mercantile Exchange, 221 Ill. App. 3d 935, 945, 582 N.E.2d1313 (1991). By entering into a contract, and by not excluding or modifying the effects of the various laws, thecontracting parties are deemed to have accepted these laws as part of their agreement. S& DService, Inc., 132 Ill. App. 3d at 1023.

Statutory provisions applicable to insurance policies which are in effect at the time the policyisissued are treated as part of the agreement. Weisberg v. Royal Insurance Co., 124Ill. App. 3d864, 868, 464 N.E.2d 1170 (1984). A party's rights under an insurance contract become "vested"when the policy is issued, rather than when the rights thereunder are asserted. Weisberg, 124 Ill.App. 3d at 871-72. When Brandt was issued her policy, section 154 of the Insurance Coderequired that a copy of the application be attached to the policy before the insurer could rely on amisrepresentation contained therein to avoid the policy, and this requirement became an impliedterm of the policy. Accordingly, Brandt acquired a vested right to claim that Time's failure toattach the application to the policy precluded it from relying on any misrepresentation containedtherein.

We reject the contention that the 1996 amendment to section 154 of the Insurance Codeconstituted a mere change in statutory remedy or procedure, and applying the amendmentprospectively amounts to sanctioning the notion that Brandt had a vested right to lie in order toobtain insurance. This simplistic argument ignores the primary purpose of the pre-amendmentstatute which was to allow for objective evidence of negotiations at the time of application fortheprotection of the insured from possible frauds by insurance agents in falsifyinganswers given bythe insured when applying for insurance. See 215 ILCS 5/154 (West 1994); GibralterCasualtyv. A. Epstein and Sons, 206 Ill. App. 3d 272, 277, 562 N.E.2d 1039 (1990). In suchcases, if theapplication was not attached to the policy so that the insured could examine it carefully, shelabored under the mistaken impression that she was protected by the policy issued to her when,inactuality, she may not have coverage. See Inter-Insurance Exchange, 61 Ill. App.3d at 931-32. Brandt was issued a policy effective April 4, 1995. She allegedly did not become aware of themisrepresentation in her application until after she was diagnosed with stomach cancer in August1995 and Time rescinded the policy. Brandt was entitled to allege and prove her claims againstTime under the law as it existed on the effective date of her policy. Thus, we conclude that thetrial court erroneously applied the amended version of section 154 of the Insurance Code in thisaction, and we instruct the trial court on remand to apply that version of section 154 in effect atthe time Brandt was issued her policy.

For the foregoing reasons, we affirm the trial court's dismissal of counts IX and X in appealNo.1-97-2913. In appeal No. 1-98-0143, we reverse summary judgment on counts I and II andremand for further proceedings consistent with this opinion.

No. 1-97-2913--Affirmed.

No. 1-98-0143--Reversed and remanded.

McNAMARA, J., concurs, and WOLFSON, J., specially concurs.

JUSTICE WOLFSON, specially concurring:

I write this special concurring opinion to express my disagreement with the majority'sdirectionto the trial judge that the 1996 amendment to section 154 of the Insurance Code will not apply onremand.

The majority launches a preemptive strike at the anticipated contention or, as the majorityrefersto it, the "simplistic argument," that applying the amendment prospectively "amounts tosanctioning the notion that Brandt had a vested right to lie in order to obtain insurance." Unfortunately, like the British at Singapore, the majority aims its guns in the wrongdirection.

Having cited First of America Trust v. Armstead, 171 Ill. 2d 282, 664 N.E.2d36 (1996), themajority then proceeds to ignore its teaching, instead constructing a contract theory neversuggested in the trial court or in this court. For that reason alone the majority's absorption ofstatute theory is inappropriate in this case. See Haudrich v. Howmedica, Inc., 169Ill. 2d 525,536, 662 N.E.2d 1248 (1996).

Armstead tells us "***the better approach is to apply the law that applies by itsterms at the timeof the appeal, unless doing so would interfere with a vested right." Armstead, 171Ill. 2d at 289.

The real question is whether Brandt had a vested right to receive a policy with the writtenapplication attached. The statute in effect at the time the policy was issued said the applicationmust have been attached if the insurance company were to defend on the basis of the insured'smaterial misrepresentation. The statute in effect at the time the trial judge ruled on the summaryjudgment motion eliminated the attachment requirement. The judge applied the amendedversion.

The amended section 154 did not eliminate the requirement that there be a writtenapplicationcontaining the material misrepresentation being relied on by the insurance company to defeatcoverage. It eliminated the need to attach the application to the policy. It is the act of attachmentthat the majority elevates to a presumed contract term.

The trial judge did not apply the amended statute retroactively. A retroactive change in thelaw is"one that takes away or impairs vested rights acquired under existing laws, or creates a newobligation, imposes a new duty, or attaches a new disability in respect of transactions orconsiderations already past." Armstead, 171 Ill. 2d at 290.

Armstead gives us a working definition of a "vested right."

It is a "complete and unconditional demand or exemption that may be equated with apropertyinterest." Armstead, 171 Ill. 2d at 291. The Court held the plaintiff did not havethe vested rightto register its underground storage tanks pursuant to the Gasoline Storage Act as it existed beforean amendment to the Act. The reason:

"However, there is no vested right in the mere continuance of a law.(Citation) Thelegislature has an ongoing right to amend a statute. (Citation) In addition, the change inthe statute did not create a new obligation or duty with respect to a past transaction.." Armstead, 171 Ill. 2d at 291.

There is nothing new about the idea that the legislature may give and the legislature maytakeaway. For example, a statutorily created dramshop action for loss of support could be eliminatedby a repealing statute enacted after the injury took place. Cruz v. Puerto RicanSociety, 154 Ill.App. 3d 72, 76, 506 N.E.2d 667 (1987). And a settlement agreement in a divorce case,negotiated in reliance on an existing statute concerning the power of courts to modify periodicalimony provisions, was held to be subject to an amended statute that precluded modification.Inre Support of Josic, 78 Ill. App 3d 347, 397 N.E.2d 204 (1979).

In Cruz and Josic the pivotal fact was that the claimed right wascreated by statute and was notenshrined in common law.

The amendment to section 154 did not create any new obligations or duties with respect to apasttransaction, that is, the insurance policy. Nor did it effect a complete and unconditional demandor exemption that may be equated with a property interest. The policy remained the same. Allthat changed was a procedural bar to an insurance company claiming the insured's materialmisrepresentation bars coverage. In short, the previous requirement that the written applicationcontaining the alleged material misrepresentation be attached to the policy does not fit withinArmstead's definition of a vested right.

Section 154 was not repealed. It was reenacted with the attachment requirementintentionallyomitted. I believe that was a considered judgment by the legislature, a decision that, on balance,depriving an insurance company of its defense because of a failure to attach was extracting toohigh a price. It is the contents of the written application that matters. If a materialmisrepresentation is written down by the insured or the insured's agent, what does it matter thatthe application was not attached to the policy? The insured is charged by law with knowing whatis in it.

Recognizing that it has to find a vested right somewhere, the majority revives a time-honoredfiction: Statutory provisions applicable to insurance policies which are in effect at the time thepolicy is issued are treated as part of the agreement.

I do not challenge the notion that "all contracts are presumed to have been executed in thelight ofexisting law." Smiley v. Estate of Toney, 100 Ill. App. 2d 271, 276, 241 N.E.2d 116 (1968).

The presumption might be useful when deciding which statute applies to: uninsured motoristprotection (Estate of Toney); ways of computing time to do an act(McMahon v. ChicagoMercantile Exchange, 221 Ill. App. 3d 935, 582 N.E.2d 1313 (1991)); theright of condominiumowners to cancel a lease agreement during a certain period (S&D Service v. 915-925W. SchubertCondominium Association, 132 Ill. App. 3d 1019, 478 N.E.2d 478 (1985));and the timelimitation expressly contained in the policy for filing a lawsuit that seeks coverage for a theftloss. Weisberg v. Royal Insurance Company of America, 124 Ill.App 3d 864, 464 N.E.2d 1170(1984).

It seems to me the presumption of incorporation was intended to make a contract complete,inserting statutory provisions where required for public policy purposes or to supply a term thatshould have been in the contract but was omitted.

I suspect Time and Brandt would be surprised to learn they bargained for a contract termrequiring attachment to the policy of an application containing a materially false statement.

No Illinois case has held, until now, that the attachment provision of old section 154 waspresumed to be a term of the contract. There is another principle of law that should be used here:applying an amendment of a statute to a prior relationship "creates a problem only if it operatesunfairly against a litigant who justifiably acted in reliance on the prior law." Nelson v.Miller, 11Ill. 2d 378, 383, 143 N.E.2d 673 (1957). See Clouse v. Heights Finance Corp., 156Ill. App. 3d975, 510 N.E.2d 1 (1987) (Amended statutory penalty provision of Consumer Installment LoanAct applied to loan transactions entered into before the amendment because it is a change inremedy, not substance); Winter & Hirsch, Inc. v. Passarelli, 122 Ill. App. 2d372, 259 N.E.2d312 (1970) (Amended statute providing for penalties for usurious rates of interest applied topre-amendment loan transaction because it was a change in remedy). See also Dardeen v.Heartland Manor, 297 Ill. App. 3d 684, 696 N.E.2d 1279 (1998).

If the majority is right when it holds the former section 154 attachment requirement is anessential term of the contract, it should take the next inevitable step: declare that applying theamended statute in this case unconstitutionally impairs the obligation of contract. See Ill. Const.1970, article I, section 16. The fact that the constitutional issue was not raised by the partiesshould not deter the majority. Neither was the term of the contract theory. The argument, ofcourse, falls of its own weight.

Nobody suggests Brandt was acting in reliance on the pre-amendment attachmentrequirement. There is nothing unfair about applying the amended section 154 to the unattached writtenapplication in this case. Time seeks to assert a remedy it clearly is entitled to--a materialmisrepresentation used to obtain coverage should defeat that coverage. That, too, is a firmlyrooted principle of law. Metropolitan Life Insurance Co. v. Moravec, 214 Ill. 186,73 N.E. 415(1905).

Here, the majority correctly observes that "the primary purpose of the pre-amendment statutewasto allow for objective evidence of negotiations at the time of application for the protection of theinsured from possible frauds by insurance agents in falsifying answers given by theinsured whenapplying for insurance. See 215 ILCS 5/154 (West 1994); GibraltarCasualty Company v. A.Epstein and Sons, 206 Ill. App. 3d 272, 277, 562 N.E.2d 1039 (1990)." (Emphasis inoriginal.)

But the majority's attachment-requirement-is-part-of- contract theory does more than that. Evenif the trier of fact finds Ruth was Brandt's agent when the application was filled out, Brandt getsprotection from her own fraud unless the jury also finds the written application was attached tothe policy when sent to Brandt. That is not protecting the insured. That is empowering theinsured to tell lies in order to obtain insurance, something more than a "simplisticargument."

There is nothing unfair about allowing the insurance company to assert its defense if the jurywere to find Ruth was acting as Brandt's agent and the written application was not attached. After all, Brandt admitted she received the blank application with her policy. It is easy to read. Itclearly says if the answer to question 4 (prior treatment for diabetes) is YES, she gets nocoverage.

Obviously, if the jury were to find Ruth was acting as Time's agent when the application wassubmitted, Time should and would be estopped from asserting its material misrepresentationdefense. See Boyles v. Freeman, 21 Ill. App. 3d 535, 315 N.E.2d 899 (1974). Butif Ruth wasacting as Brandt's agent, there is no legitimate interest, statutory or social, in protecting her rightto make material misrepresentations on her application. Our supreme court has said:

"In ascertaining the legislature's intent, this court has a duty to avoid aconstruction of thestatute that would defeat the statute's purpose or yield an absurd or unjust result." Cummins v. Country Mutual Insurance Company, 178 Ill. 2d 474,479, 687 N.E.2d 1021(1997).

I fear that has happened in this case.