August 1999 / Edelman, Combs & Latturner Sues Payday Lender For Issuing "Police Warrent" Collection Letters

EDELMAN, COMBS & LATTURNER SUES PAYDAY LENDER FOR ISSUING "POLICE WARRANT" COLLECTION LETTERS

The Chicago law firm of Edelman, Combs & Latturner has filed a class action lawsuit alleging that a 500% "payday loan" firm, Nationwide Budget Finance, violated the Fair Debt Collection Practices Act by sending consumers in Illinois and Indiana letters such as the following:

POLICE WARRANT INTENDED

THIS LETTER WILL SERVE AS A FINAL NOTICE . . .

WE HAVE CONTACTED THE CITY OF CHICAGO POLICE DEPARTMENT. THEY ARE AWARE OF YOUR BAD CHECK WITH NATIONWIDE BUDGET FINANCE

IT IS A FELONY TO WRITE A BAD CHECK IN THE STATE OF ILLINOIS

YOUR FAILURE TO RESPOND TO THIS NOTICE WITHIN 72 HOURS WILL RESULT IN US APPLYING FOR A WARRANT FOR YOUR ARREST.

WE HAVE EXHAUSTED ALL AVAILABLE EFFORTS AND ARE LEFT NO OTHER ALTERNATIVE. . . .

The lawsuit was filed in federal district court in Chicago. Garrett v. Nationwide Budget Finance, Inc., 99 C 5712.

"Payday loans" are short term, very high interest rate loans. Nationwide Budget Finance's loans are typically two weeks in duration and carry annual percentage rates of over 500%. Nationwide routinely obtains a post-dated check. The loans are typically "rolled over" on multiple occasions.

"Payday loans" are generally made to consumers facing financial emergencies. Once a consumer obtains a "payday loan," he or she will often be unable to pay it off except from the proceeds of additional "payday loans." Often, the "payday loans" force the borrowers into unnecessary bankruptcies.

Edelman, Combs & Latturner concentrates in representation of consumers against lenders, car dealers, debt collectors, and other businesses.

Daniel A. Edelman stated that "The only reason payday lenders obtain postdated checks is to threaten use of the bad check statutes for failure to repay a loan. Threatening criminal prosecution for failure to repay a 500% loan is outrageous. The threats are generally not intended to be carried out. In Illinois, the bad check statute does not even apply to a postdated check which the lender obviously knows is worthless when issued."

Daniel A. Edelman

EDELMAN, COMBS & LATTURNER

135 S. LaSalle Street, Suite 2040

Chicago, Illinois 60603

312-739-4200

(312) 419-0379 (FAX)

EDELMAN, COMBS & LATTURNER SUES

SHORT TERM LOANS AND ITS COLLECTION LAWYER The Chicago law firm of Edelman, Combs & Latturner has filed a class action lawsuit against a "payday loan" firm, Short Term Loans, LLC, for violating the Truth in Lending Act in connection with 365% "payday loans."

The lawsuit also alleges violation of the Fair Debt Collection Practices Act. Short Term Loans filed a collection suit in the Circuit Court of Cook County seeking to collect $1,057.90 plus attorney's fees and costs on a $396.25 loan. Its collection lawyer then sent a letter to the debtor stating that Short Term Loans "have reached an agreement with the judge," to not collect an additional $300 in interest.

Plaintiff's attorney Daniel A. Edelman said that "This was one of the most outrageous collection tactics I have seen. Any debtor who got that would think that his case had already been decided and that there was no point in resisting the lawsuit."

The case was filed in federal district court in Chicago. O'Brien v. Short Term Loans, LLC, 99 C 6091.

"Payday loans" are short term, very high interest rate loans. The loans are typically two weeks in duration and carry annual percentage rates of 100% to over 1800%. The lender generally obtains a post-dated check as a means of repayment. The loans are typically "rolled over" on multiple occasions.

Edelman, Combs & Latturner concentrates in representation of consumers against lenders, car dealers, debt collectors, and other businesses.

Daniel A. Edelman

EDELMAN, COMBS & LATTURNER

135 S. LaSalle Street, Suite 2040

Chicago, Illinois 60603

312-739-4200

(312) 419-0379 (FAX)

August 19, 1999, Thursday

SECTION: Pg. 1

LENGTH: 971 words

HEADLINE: Insurance broker: Was he agent for insured or for insurer?

BYLINE: THEODORE POSTEL; for insured or for insurer?

BODY:

Summary judgment for the defendant insurer was reversed where the insurance broker who placed plaintiff's insurance allegedly knew of plaintiff's diabetes and failed to include that information on plaintiff's application. However, a question of fact remained, based on the language of a licensing agreement and testimony describing general practices under that agreement, as to whether the broker was acting as the agent of the defendant insurer such that the broker's knowledge could be imputed to the insurer, thereby precluding the insurer from rejecting coverage.

Brandt v. Time Insurance Co., Illinois Appellate Court, First District. 302 Ill.App.3d 159, 704 N.E.2d 843, 235 Ill.Dec. (1998).

Elements of today's case were reported in yesterday's column. The issue involved in yesterday's column was whether an insurance company has a general duty to investigate the truthfulness of answers on an application for insurance. The issue involved in today's column is whether the broker was the agent of the insurer or of the insured.

The trial court granted summary judgment to the insurance company, finding that plaintiff failed to disclose her true medical history on the application and, therefore, rendered the policy void. Plaintiff appealed, contending that the failure to disclose her medical history was the agent's fault in that Jacqueline Brandt contended that the insurance agent, Douglas Ruth, completed the application after procuring her signature on a blank copy. Relying on the general agency contract in force between ICG and Time, Brandt alleged that (1) Ruth, as ICG's agent, was authorized to solicit insurance on behalf of Time; (2) Ruth acted as Time's subagent when he filled out Brandt's application; (3) Ruth's misrepresentation as to Brandt's diabetes was, therefore, imputed to Time; and (4) Time was estopped from relying on the misrepresentation in the application as a basis for rescission of its policy.

The Illinois Appellate Court, in an opinion written by Justice Thomas E. Hoffman, with Justice Warren D. Wolfson specially concurring, ruled as follows:

In his deposition testimony, Ruth identified a document that he described as an agent licensing agreement 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 the Agent agrees that he is an independent contractor and has no authority to act for or on behalf of the Agency or to bind the Agency to any contract on any matter without the express approval in writing of the Agency.'

The record also contains a General Agency Contract' between ICG and Timewhich provided that ICG was authorized to recommend agents to solicit insurance for Time and that ICG could collect initial premiums up to a certain monetary limit. Under the section entitled Field Underwriting,' ICG was responsible for (1) asking all questions and correctly recording all answers on applications for insurance and for immediately sending such applications to Time's Home Office, and (2) complying with and carrying out all administrative rules of Time.' ICG was also required to make available to Time all information which came into its possession concerning the underwriting of the risk....

Viewing this evidence in the light most favorable to Brandt, a trier of fact could determine that Ruth acted, in this instance, as a soliciting agent for ICG and a subagent for Time. Ruth testified that he was a party to an agent licensing agreement' with ICG. Although the contract between Ruth and ICG states that the agent is an independent contractor, we note that a party may be both an independent contractor and an agent for another. In any case, whether the parties' relationship is that of principal and agent or owner and independent contractor is a question of fact unless the relationship is indisputably clear....

If Ruth acted as Time's subagent, his knowledge of Brandt's diabetic condition could be imputed to Time and Time would thereby be estopped from avoiding the policy. An insurer is estopped from avoiding a policy for untrue representations in the application where the insured discloses facts to the agent ad the agent, in filling out the application, does not state the facts as they are disclosed to him but instead inserts conclusions of his own or answers inconsistent with the facts. The insurer cannot rely on incorrectly recorded answers, even when the insured knows that the agent has entered answers different from the ones he gave, where the incorrect answers are entered pursuant to the agent's advice, suggestion or interpretation. The agent's knowledge of the truthfulness of the statements is imputed to the insurer. It is only where the applicant has acted in bad faith, either on his own or in collusion with the insurer's agent, that a court will refuse to impute the knowledge of the agent to the insurance company.

In viewing the evidence in the light most favorable to Brandt, we conclude that a question of fact remains as to whether Ruth acted as Time's agent and, thus, whether his knowledge of the misrepresentation could be imputed to Time. For this reason, the trial court erred in entering summary judgment in favor of Time. We reverse the order of summary judgment in favor of Time on counts 1 and 2, and remand this cause for further proceedings...."

Edelman & Combs of Chicago (Daniel A. Edelman, Cathleen M. Combs, James O. Latturner and Ignacio D. Maramba of counsel) for appellant.

Peterson & Ross of Chicago (William A. Chittenden III and Laura A. Smith of counsel) for appellee.

August 18, 1999, Wednesday

SECTION: Pg. 1

LENGTH: 845 words

HEADLINE: Insurer's duty to investigate truthfulness of application answers

BYLINE: THEODORE POSTEL; truthfulness of application answers

BODY:

In actions for violation of the Illinois Consumer Fraud and Deceptive Business Practices Act to recover damages sustained as a consequence of the insurance company's refusal to pay a claim under a health insurance policy for failure to investigate the truthfulness of answers given to questions asked on an application for insurance, the appeals court found there was no general duty to investigate the truthfulness of said answers. This is a case of first impression.

Brandt v. Time Insurance Co., Illinois Appellate Court, First District. 302 Ill.App.3d 159, 704 N.E.2d 843, 235 Ill.Dec. 270 (1998).

The plaintiff, Jacqueline Brandt, filed an action in the Cook County Circuit Court against the defendant, Time Insurance Co., and others to recover damages she allegedly sustained as a consequence of Time's refusal to pay her claims under a health insurance policy.

Brandt's complaint set forth claims against Time for breach of contract (count 1), fraud (count 9), and a violation of the Illinois Consumer Fraud and Deceptive Business Practices Act (count 10).

Brandt was diagnosed as a Type II diabetic in 1988. Beginning in 1990, Douglas Ruth, an insurance broker, assisted Brandt in obtaining health insurance policies. In 1994, Brandt was issued two short-term medical (STM) insurance policies, which provided coverage for a maximum of six months and were intended to provide interim coverage while she sought a comprehensive medical insurance policy. Brandt's STM policies excluded her diabetes from coverage as a preexisting condition.

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

4. Within the last five (5) days, have you, your spouse, or any dependent tobe covered, ever received any medical or surgical diagnosis or treatment including medication for: heart or circulatory system disorder including heart attack or chest pain, stroke, diabetes, cancer...

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

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

On or around Aug. 1, 1995, while her Time STM policy was in effect, Brandt was diagnosed with terminal stomach cancer. Brandt incurred medical bills for treatment of the cancer, which she submitted to Time for payment. Before paying out on Brandt's claims, Time discovered that Brandt had suffered from diabetes since 1988 and had been treated for her condition within the five-year period prior to her application for its STM policy. Time denied Brandt's claim for benefits and notified her on Oct. 30,. 1995, that it was rescinding the STM policy.

The trial judge, Richard E. Neville, dismissed counts 9 and 10 of Brandt's complaint for failure to state causes of action, including within its order the requisite finding of appealability under Supreme Court Rule 304(a). Plaintiff appealed.

The Illinois Appellate Court, in an opinion written by Justice Thomas E. Hoffman, with Justice Warren D. Wolfson specially concurring, ruled as follows:

Although our research has not disclosed any Illinois cases specifically addressing this issue, it has long been the law in Illinois that an insurer has no general duty to investigate the truthfulness of answers given to questions asked on an application for insurance.

Our courts have recognized that an insurance company has the right to rely on the truthfulness of the answers given by an insurance applicant, and the insured has the corresponding duty to supply complete and accurate information to the insurer.' Commercial Life Insurance v. Lone Star Life Insurance Co., 727 F.Supp. 467, 471 (N.D. Ill. 1989).

Since Illinois law imposes no duty on an insurer to conduct an independent investigation of insurability before issuing an insurance policy and Time made no representation as to when, or if, it would investigate the truthfulness of the information contained in Brandt's application, Brandt cannot predicate her claims for fraud and violation of the Consumer Fraud Act on the allegations that Time engaged in post-claim or retroactive underwriting.

We conclude that counts 9 and 10 fail to state causes of action for which Brandt would be entitled to relief, and we affirm the trial court's dismissal...."

Edelman & Combs of Chicago (Daniel A. Edelman, Cathleen M. Combs, James O. Latturner and Ignacio D. Maramba of counsel) for appellant.

Peterson & Ross of Chicago (William A. Chittenden III and Laura A. Smith of counsel) for appellee.