specially concurring:
I write this special concurring opinion to express my disagreement with the majority’s direction to the trial judge that the 1996 amendment to section 154 of the Insurance Code will not apply on remand.
The majority launches a preemptive strike at the anticipated contention or, as the majority refers to it, the “simplistic argument” that applying the amendment prospectively “amounts to sanctioning the notion that Brandt had a vested right to lie in order to obtain insurance.” 302 Ill. App. 3d at 170. Unfortunately, like the British at Singapore, the majority aims its guns in the wrong direction.
Having cited First of America Trust Co. v. Armstead, 171 Ill. 2d 282, 664 N.E.2d 36 (1996), the majority then proceeds to ignore its teaching, instead constructing a contract theory never suggested in the trial court or in this court. For that reason alone the majority’s absorption of statute theory is inappropriate in this case. See Haudrich v. Howmedica, Inc., 169 Ill. 2d 525, 536, 662 N.E.2d 1248 (1996).
Armstead tells us “the better approach is to apply the law that applies by its terms at the time of the appeal, unless doing so would interfere with a vested right.” Armstead, 171 Ill. 2d at 289.
The real question is whether Brandt had a vested right to receive a policy with the written application attached. The statute in effect at the time the policy was issued said the application must have been attached if the insurance company were to defend on the basis of the insured’s material misrepresentation. The statute in effect at the time the trial judge ruled on the summary judgment motion eliminated the attachment requirement. The judge applied the amended version.
The amended section 154 did not eliminate the requirement that there be a written application containing the material misrepresentation being relied on by the insurance company to defeat coverage. It eliminated the need to attach the application to the policy. It is the act of attachment that the majority elevates to a presumed contract term.
The trial judge did not apply the amended statute retroactively. A retroactive change in the law is “one that takes away or impairs vested rights acquired under existing laws, or creates a new obligation, imposes a new duty, or attaches a new disability in respect of transactions or considerations 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 a property interest.” Armstead, 171 Ill. 2d at 291. The court held the plaintiff did not have the vested right to register its underground storage tanks pursuant to the Gasoline Storage Act (430 ILCS 15/4(b)(1)(A) (West 1992)) as it existed before an amendment to the Act. The reason:
“However, there is no vested right in the mere continuance of a law. [Citation.] The legislature has an ongoing right to amend a . statute. [Citation.] In addition, the change in the 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 may take away. For example, a statutorily created dramshop action for loss of support could be eliminated by a repealing statute enacted after the injury took place. Cruz v. Puerto Rican Society, 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 periodic alimony provisions, was held to be subject to an amended statute that precluded modification. In re 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 was created by statute and was not enshrined in common law.
The amendment to section 154 did not create any new obligations or duties with respect to a past transaction, that is, the insurance policy. Nor did it effect a complete and unconditional demand or exemption that may be equated with a property interest. The policy remained the same. All that changed was a procedural bar to an insurance company claiming the insured’s material misrepresentation bars coverage. In short, the previous requirement that the written application containing the alleged material misrepresentation be attached to the policy does not fit within Armstead’s definition of a vested right.
Section 154 was not repealed. It was reenacted with the attachment requirement intentionally omitted. 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 too high a price. It is the contents of the written application that matter. If a material misrepresentation is written down by the insured or the insured’s agent, what does it matter that the application was not attached to the policy? The insured is charged by law with knowing what is in it.
Recognizing that it has to find a vested right somewhere, the majority revives a time-honored fiction: Statutory provisions applicable to insurance policies that are in effect at the time the policy 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 the light of existing 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 motorist protection (Estate of Toney, 100 Ill. App. 2d 271, 241 N.E.2d 116); ways of computing time to do an act (McMahon v. Chicago Mercantile Exchange, 221 Ill. App. 3d 935, 582 N.E.2d 1313 (1991)); the right of condominium owners to cancel a lease agreement during a certain period (S&D Service, Inc. v. 915-925 W. Schubert Condominium Ass’n, 132 Ill. App. 3d 1019, 478 N.E.2d 478 (1985)); and the time limitation expressly contained in the policy for filing a lawsuit that seeks coverage for a theft loss (Weisberg v. Royal Insurance Co., 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 that should have been in the contract but was omitted. ,
I suspect Time and Brandt would be surprised to learn they bargained for a contract term requiring 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 was presumed 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] operates unfairly against a litigant who justifiably acted in reliance on the prior law.” Nelson v. Miller, 11 Ill. 2d 378, 383, 143 N.E.2d 673 (1957). See Clouse v. Heights Finance Corp., 156 Ill. App. 3d 975, 510 N.E.2d 1 (1987) (amended statutory penalty provision of Consumer Installment Loan Act (Ill. Rev. Stat. 1985, ch. 17, par. 5401 et seq.) applied to loan transactions entered into before the amendment because it is a change in remedy, not substance); Winter & Hirsch, Inc. v. Passarelli, 122 Ill. App. 2d 372, 259 N.E.2d 312 (1970) (amended statute providing for penalties for usurious rates of interest applied to preamendment loan transaction because it was a change in remedy). See also Dardeen v. Heartland Manor, Inc., 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 an essential term of the contract, it should take the next inevitable step: declare that applying the amended statute in this case unconstitutionally impairs the obligation of contract. See Ill. Const. 1970, art. I, § 16. The fact that the constitutional issue was not raised by the parties should not deter the majority. Neither was the term of the contract theory. The argument, of course, falls of its own weight.
Nobody suggests Brandt was acting in reliance on the preamendment attachment requirement. There is nothing unfair about applying the amended section 154 to the unattached written application in this case. Time seeks to assert a remedy it clearly is entitled to — a material misrepresentation used to obtain coverage should defeat that coverage. That, too, is a firmly rooted 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 statute was to allow for objective evidence of negotiations at the time of application for the protection of the insured from possible frauds by insurance agents in falsifying answers given by the insured when applying for insurance. See 215 ILCS 5/154 (West 1994); Gibraltar Casualty Co. v. A. Epstein & Sons, International, Inc., 206 Ill. App. 3d 272, 277, 562 N.E.2d 1039 (1990).” (Emphasis in original and added.) 302 Ill. App. 3d at 170.
But. the majority’s attachment-requirement-is-part-of-contract theory does more than that. Even if the trier of fact finds Ruth was Brandt’s agent when the application was filled out, Brandt gets protection from her own fraud unless the jury also finds the written application was attached to the policy when sent to Brandt. That is not protecting the insured. That is empowering the insured to tell lies in order to obtain insurance, something more than a “simplistic argument.”
There is nothing unfair about allowing the insurance company to assert its defense if the jury were 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. It clearly says if the answer to question 4 (prior treatment for diabetes) is YES, she gets no coverage.
Obviously, if the jury were to find Ruth was acting as Time’s agent when the application was submitted, Time should and would be estopped from asserting its material misrepresentation defense. See Boyles v. Freeman, 21 Ill. App. 3d 535, 315 N.E.2d 899 (1974). But if Ruth was acting as Brandt’s agent, there is no legitimate interest, statutory or social, in protecting her right to make material misrepresentations on her application. Our supreme court has said: In ascertaining the legislature’s intent, this court has a duty to avoid a construction of the statute that would defeat the statute’s purpose or yield an absurd or unjust result. See Cummins v. Country Mutual Insurance Co., 178 Ill. 2d 474, 479, 687 N.E.2d 1021 (1997).
I fear that has happened in this case.