In re Liquidation of Coronet Insurance Co.

FIFTH DIVISION
July 24, 1998

Nos. 1-97-2332 and 1-97-2523 (cons.)

IN RE LIQUIDATION OF CORONET ) Appeal from the
INSURANCE COMPANY, et al. ) Circuit Court of
) Cook County.
(THE PEOPLE OF THE STATE OF ILLINOIS )
ex rel. MARK BOOZELL, Director of )
Insurance for the State of Illinois, )
as Liquidator of CORONET INSURANCE )
COMPANY, )
)
Plaintiff-Appellant, )
)
and )
)
ILLINOIS INSURANCE GUARANTY FUND, )
)
Intervenor-Appellant, )
)
v. ) No. 96 CH 13422
)
CORONET INSURANCE COMPANY, an Illinois )
Insurance Company, NATIONAL ASSURANCE )
INDEMNITY COMPANY, an Illinois )
Insurance Company, and CROWN CASUALTY )
COMPANY, an Illinois Insurance Company, )
)
Defendants, )
)
and )
)
DAVID KREISMAN & ASSOCIATES, ) Honorable
) Ellis E. Reid,
Claimant-Appellee.) ) Judge Presiding.

JUSTICE HOURIHANE delivered the opinion of the court:

Plaintiff People of the State of Illinois ex rel. Mark
Boozell, Director of Insurance for the State of Illinois, and
intervenor Illinois Insurance Guaranty Fund appeal from an order
of the circuit court adjudging David Kreisman & Associates (DKA)
a first-priority administrative claimant under section 205 of the
Illinois Insurance Code (215 ILCS 5/205 (West 1996)). Together,
plaintiff, intervenor and amicus curiae National Conference of
Insurance Guaranty Funds raise several contention on appeal. For
the reasons that follow, we reverse and remand.
BACKGROUND
On December 10, 1996, plaintiff filed a verified complaint
for conservation of assets and injunctive relief against
defendant Coronet Insurance Company. Shortly thereafter, an
agreed order was entered adjudging Coronet insolvent and placing
same under the control and direction of plaintiff for purposes of
liquidation.
DKA was later notified by plaintiff that its association
with Coronet, as one of its attorneys, was concluded as of
December 24, 1996, and that all Coronet litigation files in its
possession must be returned. DKA resisted, arguing that because
it was owed attorney fees and costs from Coronet, a common law
retaining lien attached to those files, thus permitting it to
continue in possession thereof until paid. Plaintiff objected,
whereupon DKA petitioned the circuit court for "a deposit or
security in lieu of the firm's retaining lien for fees and costs
owed." Following a hearing, the circuit court entered an order
requiring DKA to release its Coronet litigation files to
plaintiff, without prejudice to its assertion of a common law
retaining lien. The matter then proceeded to a hearing on the
ability of DKA to assert a common law retaining lien.
In support of such a lien, DKA argued that pursuant to In re
Liquidation of Prestige Casualty Co., 276 Ill. App. 3d 698, 659 N.E.2d 50 (1995), and In re Liquidation of Mile Square Health
Plan of Illinois, 218 Ill. App. 3d 674, 578 N.E.2d 1075 (1991),
its common law retaining lien was well-taken, and that subsequent
amendments to certain sections of the Insurance Code "did not
expressly or impliedly overrule" that authority.
Plaintiff responded in opposition, arguing that to require
the posting of security, as requested, would be the equivalent of
allowing DKA to obtain the priority of a secured creditor after
the filing of the complaint for conservation. Such a result,
according to plaintiff, would contravene the explicit
distribution priorities set forth within section 205(b) of the
Insurance Code, which assigns such preferred priority only to
those claims "that are secured by liens perfected prior to the
filing of the complaint." (Emphasis added.) 215 ILCS
5/205(1)(b)(West 1996).
Plaintiff further argued that the plain language of amended
sections 189 and 191 of the Insurance Code (215 ILCS 5/189, 191
(West 1996)) preclude common law retaining liens, and thus
overrule In re Liquidation of Prestige Casualty Co. and In re
Liquidation of Mile Square Health Plan of Illinois insofar as
each affirms the continued viability of common law retaining
liens in liquidation actions.
Finally, plaintiff argued that public policy considerations
militate against the allowance of such liens in that requiring
the posting of such security "could soon render the estate unable
to pay more deserving creditors under the statutory priority
scheme, namely the insureds."
On April 7, 1997, after entertaining arguments from counsel,
the circuit court held that DKA was entitled to assert a common
law retaining lien against the Coronet estate. The circuit court
further adjudged DKA a secured creditor of the Coronet estate.
Also scheduled at that time was another hearing, wherein the
circuit court would assess the value of the aforementioned
secured claim.
Plaintiff duly moved for reconsideration. Plaintiff also
argued that resolution of the aforementioned lien required more
than simply conducting a hearing thereon. According to
plaintiff, section 209 of the Insurance Code (215 ILCS 5/209
(West 1996)) sets forth "a comprehensive set of procedures
respecting the filing and determination of claims against an
insolvent insurer," procedures wholly ignored by both DKA and the
circuit court.
Prior to the entry of a final order, intervenor was granted
leave to join the underlying litigation. It also moved the
circuit court to reconsider its adjudication of DKA as a second-
priority secured creditor. Intervenor argued that a common law
retaining lien "is a possessory lien that merely gives the
attorney a right to retain the litigation files in his or her
possession ***," and therefore the holder of such cannot be
deemed a secured creditor. It further argued that the circuit
court was without authority to rely upon general equitable
principles to alter the specific distribution priorities set
forth within section 205 of the Insurance Code. Like plaintiff,
intervenor maintained that In re Liquidation of Prestige Casualty
Co. and In re Liquidation of Mile Square Health Plan of Illinois
had been overruled by the amendments to sections 189 and 191 of
the Insurance Code insofar as the former affirmed the continued
viability of common law retaining liens in liquidation actions.
A hearing was held on May 20, 1997. Therein, the circuit
court assessed DKA's secured claim at $73,677.10. The circuit
court further adjudged DKA a first-priority administrative
claimant, and therefore immediately payable.
DISCUSSION
I.
Plaintiff, intervenor and amicus curiae raise several
contentions regarding the effect of certain amendments to the
Insurance Code, the most important of which concern the continued
viability of common law retaining liens in liquidation actions.
Specifically, each contends that sections 189 and 191 of the
Insurance Code, as amended, abolished the common law retaining
lien in liquidation actions.
The primary purpose of statutory construction is to
ascertain and effectuate the intention of the legislature, the
most reliable indication of which is the very language employed.
In re S.G., 175 Ill. 2d 471, 480, 677 N.E.2d 920 (1997); People
v. Woodard, 175 Ill. 2d 435, 443, 677 N.E.2d 935 (1997). To that
end, words are to be given their plain and ordinary meaning, and
each provision considered in light of all others. Barnett v.
Zion Park District, 171 Ill. 2d 378, 389, 665 N.E.2d 808 (1996).
Indeed, different provisions of the same amendatory act must be
read so as to harmonize and give effect to each, if possible.
See People ex rel. Funk v. Hagist, 401 Ill. 536, 541, 82 N.E.2d 621 (1948); People ex rel. Little v. Peoria & Eastern Ry. Co.,
383 Ill. 79, 88, 48 N.E.2d 407 (1943); People ex rel. Vuagniaux
v. City of Edwardsville, 284 Ill. App. 3d 407, 413, 672 N.E.2d 40
(1996). Likewise, a construction which does not give effect to a
certain provision or which tends to promote inconsistency among
provisions is to be avoided. In re Marriage of Lasky, 176 Ill. 2d 75, 89-90, 678 N.E.2d 1035 (1997).
A common law retaining lien is a possessory lien in favor of
an attorney for unpaid fees, and "exists on all papers or
documents of the client placed in the attorney's hands in his
professional character or in the course of his employment ***."
Sanders v. Seelye, 128 Ill. 631, 637-38, 21 N.E. 601 (1889).
Such a lien allows an attorney to retain possession of a client's
files until such time as his fees are paid or adequate security
posted. In re Liquidation of Mile Square Health Plan of
Illinois, 218 Ill. App. 3d at 677-78; Upgrade Corp. v. Michigan
Carton Co., 87 Ill. App. 3d 662, 664, 410 N.E.2d 159 (1980).
In 1991, this court held that common law retaining liens
were well-taken in liquidation actions under the Insurance Code.
In re Liquidation of Mile Square Health Plan of Illinois, 218
Ill. App. 3d at 681. In 1995, however, several sections of the
Insurance Code were amended, including sections 189 and 191.
Pub. Act 89-206, eff. July 21, 1995. Section 191, as amended,
provides as follows:
"The Director and his successor and
successors in office shall be vested by
operation of law with the title to all
property, contracts, and rights of action of
the company as of the date of the order
directing rehabilitation or liquidation. The
Director is entitled to immediate possession
and control of all property, contracts, and
rights of action of the company, and is
further authorized and directed to remove any
and all records and property of the company
to the Director's possession and control or
to such other place as may be convenient for
the purposes of efficient and orderly
administration of the rehabilitation or
liquidation. All persons, companies, and
entities shall immediately release their
possession and control of any and all
property, contracts, and rights of action of
the company to the Director including, but
not limited to, bank accounts and bank
records, premium and related records, and
claim, underwriting, accounting, and
litigation files. The entry of an order of
rehabilitation or liquidation creates an
estate that comprises all of the liabilities
and assets of the company. The filing or
recording of such order in the office of the
recorder or the Registrar of Titles in any
county of this State shall impart the same
notice that a deed, bill of sale or other
evidence of title duly filed by such company
would have imparted." (Emphasis added.) 215
ILCS 5/191 (West 1996).
Amended section 191 vests title to all property of an
insolvent insurer in the Director of Insurance, by operation of
law, upon the entry of an order directing rehabilitation or
liquidation. 215 ILCS 5/191 (West 1996). It also requires the
immediate release of all property belonging to an insolvent
insurer to the Director of Insurance, including litigation files.
215 ILCS 5/191 (West 1996). Those provisions are mandatory and
admit of no exception. As should be obvious, the practical
effect of those provisions is the elimination of the right to
retain the property of an insolvent insurer. Indeed, if one is
under a duty to immediately release certain property, ipso facto,
there is no right to retain that property, and if there is no
right to retain that property, there is no basis upon which to
assert a common law retaining lien. In short, the mandatory duty
announced within amended section 191 abolished the right to
assert a common law retaining lien against an insolvent insurer
in a liquidation action under the Insurance Code.
That section 189 of the Insurance Code was also amended in
1995 to provide that a circuit court "may issue such other
injunctions or such other orders as may be deemed necessary to
prevent waste of assets or the obtaining, asserting, or enforcing
of preferences, judgments, attachments, or other like liens,
including common law retaining liens, or the making of any levy
against [an insolvent insurer] or its property and assets while
in the possession and control of the Director" (emphasis
added)(215 ILCS 5/189 (West 1996)), does not alter or otherwise
negate the plain meaning of section 191. Indeed, the provisions
of section 189 are entirely consonant with those of section 191;
that is to say, the former serve as the means by which a circuit
court may enforce the mandatory duty announced within section
191, when necessary. Accordingly, to construe the provisions of
section 189 as allowing the continued assertion of common law
retaining liens against insolvent insurers in liquidation
proceedings, as DKA implicitly does, simply ignores the manifest
purpose of that section. Moreover, such a construction
effectively emasculates the clear and unambiguous mandate enacted
within section 191.
To be clear, section 189 vests a circuit court with the
authority and means to protect the property of an insolvent
insurer against dissipation and other forms of compromise,
including the assertion of a common law retaining lien, during
liquidation proceedings. It does not vest a circuit court with
the authority or means to do otherwise; that is to say, section
189 does not provide a circuit court with the authority or means
to allow the assertion of a common law retaining lien against an
insolvent insurer in liquidation proceedings under the Insurance
Code. As such, the circuit court exceeded its authority in
allowing DKA to assert a common law retaining lien against the
Coronet estate.
II.
Plaintiff, intervenor and amicus curiae also contend that in
adjudging DKA a second-priority secured creditor, and later, a
first-priority administrative claimant, the circuit court ignored
the specific distribution provisions set forth within section 205
of the Insurance Code.
Section 205 of the Insurance Code prioritizes the various
claims brought against an insolvent insurer's estate for purposes
of distribution. First and foremost are administrative claims.
215 ILCS 5/205(1)(a)(West 1996). Second are secured claims. 215
ILCS 5/205(1)(b)(West 1996). Fourth are "[c]laims by
policyholders, beneficiaries, insureds and liability claims
against insureds covered under insurance policies or insurance
contracts issued by the company ***." 215 ILCS 205(1)(d)(West
1996). Seventh are claims of general creditors. 215 ILCS
5/205(1)(g)(West 1996). DKA was a general creditor. See People
ex rel. Schacht v. Prestige Casualty Co., 287 Ill. App. 3d 577,
580, 678 N.E.2d 785 (1997).
In a liquidation action, a circuit court is vested with only
as much authority as is provided by the Insurance Code; equitable
remedies in contradiction to those plainly set forth within the
Insurance Code are therefore precluded. In re Liquidation of
Security Casualty Co., 127 Ill. 2d 434, 447-48, 537 N.E.2d 775
(1989); People ex rel. Palmer v. Peoria Life Insurance Co., 357 Ill. 486, 490-91, 192 N.E. 420 (1934); People ex rel. Palmer v.
Central Mutual Insurance Co. of Chicago, 313 Ill. App. 84, 95-96,
39 N.E.2d 400 (1942).
Here, the circuit court ignored the provisions of section
205 and, pursuant to its equitable powers, adjudged DKA a second-
priority secured creditor, and later, a first-priority
administrative claimant. That, too, was error.
III.
Plaintiff, intervenor and amicus curiae further contend that
the circuit court committed certain other procedural errors; to
wit, determining the value of DKA's claim through means other
than the proof of claim procedures set forth within the Insurance
Code, failing to assess the value of that aforementioned claim to
the Coronet estate and requiring that DKA be paid prior to the
claim bar date.
Section 208 of the Insurance Code (215 ILCS 5/208 (West
1996)) requires that "all persons who may have claims against [an
insolvent] insurer shall present the same to the Liquidator,
Rehabilitator or Conservator, as the case may be, at a place
specified in the notice for filing claims within such time as may
be fixed by order of the Court." Section 209 sets forth the
procedures by which such proofs of claim are administered. 215
ILCS 5/209 (West 1996). A hearing before a circuit court is not
among those procedures. The circuit court erred in ignoring the
provisions of sections 208 and 209.
So, too, did the circuit court err in ordering plaintiff to
pay DKA prior to the claim bar date. Section 210 of the
Insurance Code (215 ILCS 5/210 (West 1996)) permits distribution
of an insolvent insurer's estate only "after the last day fixed
for the filing of proof of claims ***." (Emphasis added.) Here,
the claim bar date was December 24, 1997. Accordingly, ordering
plaintiff, on May 20, 1997, to pay DKA was in violation of
section 210, and therefore improper.
IV.
Plaintiff, intervenor and amicus curiae lastly contend that
the circuit court's reliance upon its own notions of equity
jeopardized the orderly and efficient administration of the
underlying liquidation as well as the interests of all
beneficiaries to the Coronet estate. Indeed, according to
plaintiff, intervenor and amicus curiae, elevation of DKA from
seventh-priority general creditor to first-priority
administrative claimant, served only to increase the possibility
that more deserving claimants will receive less upon liquidation.
The various orders of the circuit court do not comport with
the underlying purpose of Article XIII of the Insurance Code (215
ILCS 5/187 et seq. (West 1996)), which is the "protect[ion] of
individual policyholders and other claimants without permitting
certain classes of creditors to place themselves in a superior
position." Lincoln Tower Insurance Agency, Inc. v. Boozell, 291
Ill. App. 3d 965, 970, 684 N.E.2d 900 (1997). In fact, those
orders, which, together, served to elevate DKA to a first-
priority claimant, are in opposition to such purpose, and
therefore improper.
CONCLUSION
For the aforementioned reasons, the April 7, 1997, and May
20, 1997, orders of the circuit court are reversed, and this
matter remanded for proceedings not inconsistent with this
opinion.
Reversed and remanded.

HOFFMAN, P.J., and THEIS, J., concur.