                                          No. 3–10–0584

                          Opinion filed February 24, 2011
______________________________________________________________________________

                          IN THE APPELLATE COURT OF ILLINOIS

                                        THIRD DISTRICT

                                             A.D., 2011

THE RICHARD W. McCARTHY TRUST          )     Appeal from the Circuit Court
DATED SEPTEMBER 2, 2004, as            )     of the 14th Judicial Circuit,
amended, and THE ESTATE OF             )     Rock Island County, Illinois
RICHARD McCARTHY,                      )
                                       )
       Plaintiffs-Appellees,           )
                                       )
       v.                              )
                                       )     No. 09-L-80
ILLINOIS CASUALTY COMPANY,             )
a Mutual Insurance Company,            )
                                       )
       Defendant-Appellant             )
                                       )
(John R. Klockau, an Individual,       )
and Allen Messer, an Individual,       )     Honorable
                                       )     Mark A. Vandewiele,
       Defendants).                    )     Judge, Presiding.
______________________________________________________________________________

      PRESIDING JUSTICE CARTER delivered the judgment of the court, with opinion.
      Justice O’Brien concurred in the judgment and opinion.
      Justice McDade specially concurred, with opinion.
______________________________________________________________________________

                                             OPINION

       Plaintiff, the Richard W. McCarthy Trust (the trust), brought suit against defendant, Illinois

Casualty Company (the company), seeking, among other things, to have the trial court order the

company to specifically perform its obligation under certain surplus notes, held by the trust, to file
an application with the Illinois Department of Insurance for approval to redeem the surplus notes. 1

The trial court granted the trust’s partial motion for summary judgment on count VII of the complaint

for specific performance.2 The company filed an interlocutory appeal to challenge the trial court’s

ruling. We affirm the trial court.

                                                  FACTS

         Richard W. McCarthy was an attorney and a member of the board of directors of the

company. The company is now a mutual insurance company but was previously an inter-insurance

exchange and its affairs were managed by an attorney-in-fact known as Blackhawk, Incorporated.

McCarthy was a shareholder in Blackhawk. In or around 2003, the company decided to purchase

Blackhawk. The company entered into a stock purchase agreement with McCarthy and the other

shareholders to purchase all of the outstanding shares of Blackhawk.

         During the negotiations on the matter, in January of 2004, the president of the company at

the time, John Klockau, sent McCarthy a letter. Of relevance to this appeal, the January 2004 letter

stated, in pertinent part, as follows:

                           “Pursuant to a stock purchase agreement to purchase your shares of stock of

                   Blackhawk, Incorporated, you will receive Convertible Subordinated Guaranty Fund


         1
             The Estate of Richard McCarthy was later added to the suit as an additional plaintiff.

Because both entities’ interests in this appeal are relatively the same, we will only refer to the

trust.
         2
             Other counts of the complaint pertained to defendants, John R. Klockau and Allen

Messer. Those counts are not before this court on appeal, and Klockau and Messer have not filed

briefs in this appeal.

                                                     2
                Notes. Paragraph 13. of that Note prohibits assignment without the written consent

                of [the company].

                        This letter is intended to provided you with that consent of assignment of the

                Notes, in whole or in part, subject to the terms and conditions stated herein.

                        1. Assignment to Richard W. McCarthy Living Trust (or similar estate

                planning tool) is approved. For this assignment, the assignee will be entitled to the

                benefits of Paragraph 14. of the Note, thus allowing your Trustee/Successor Trustee

                to request for redemption of the Note which will then require [the company] to make

                application for permission to redeem to the Illinois Department of Insurance.

                        2. Assignment to John S. Callas is approved. For this assignment, the

                assignee will not be entitled to the benefits of Paragraph 14. of the Note.”

        McCarthy subsequently entered into the stock purchase agreement with the company.

Pursuant to that agreement, in February and July of 2004, the company issued four surplus notes (the

notes) to McCarthy in exchange for McCarthy’s Blackhawk stock and other cash consideration. The

total principal amount of the notes was $1.6 million, which was to be paid back over a 30-year period

at certain fixed rates of interest. Of relevance to this appeal, the notes provided, in pertinent part, as

follows:

                        “1. No part of the principal or interest hereof shall be paid or payable except

                after prior authorization for payment thereof by the Director of Insurance of the State

                of Illinois. The Company’s obligation to pay is subordinate to the insurance claims

                of policyholders of the Company in accordance with the terms of Section 56 of the

                Illinois Insurance Code.


                                                    3
        ***

        3. No payment of accrued interest or repayment of the principal amount

hereof shall be made or authorized in whole or in part if such payment or repayment

would reduce the capital and surplus of the Company to less than the sum of 18.5

million dollars ($18,500,000). No part of the obligation to pay principal or accrued

interest may be offset or subject to recoupment with respect to any liability owed to

the Company. No agreement or interest securing this note, whether existing on the

date hereof or subsequently entered into, applies to the obligation of the Company

under this note.

                                 ***

        6. Repayment of the principal hereof and payment of the interest hereon shall

be and is hereby subordinated to the prior payment of, or provision for, all general

liabilities of the Company and the claims of the policyholders and the creditors of the

Company, but shall rank superior to the claim, interest and equity of the shares or

shareholders of the Company ***.

                                 ***

        13. This note may not be assigned without the written consent of the

Company.

        14. In the event of the death of the owner who is also original holder of this

Note, the Company agrees upon request of the deceased Note holder’s estate to make

timely application to the Director of Insurance of the State of Illinois for approval to

retire the unpaid principal and pay the accrued interest to the estate of the deceased


                                   4
                   Note owner, subject to the other terms and conditions of this Note.

                           ***

                           16. The terms hereof may be amended, modified and altered from time to time

                   by the mutual agreement of the parties subject to the prior approval thereof by the

                   Director of Insurance of the State of Illinois.”[3]

        In September of 2004, McCarthy created a living trust. McCarthy was the initial trustee of

the trust and John S. Callas, who was McCarthy’s law partner and also a member of the company’s

board of directors, was successor trustee of the trust. In November of 2005, McCarthy sent the

company a letter requesting a change in the ownership designation of the notes. The letter provided,

in pertinent part, as follows:

                           “In connection with my estate plan, I have established a revocable living trust,

                   and I am hereby requesting TRANSFER and do hereby ASSIGN, all of my right, title

                   and interest in [the notes] currently titled in my name individually to my living trust

                   as specified below.

                                                    ***

                           Please change the ownership designation on each account or certificate to:

                   Richard McCarthy, Trustee of the Richard McCarthy Living Trust U/T/A dated

                   September 2, 2004.4

                           My trust is a ‘Grantor Trust.’ Under the provisions of Treasury Regulations


        3
            The language contained in paragraph No. 16 above was actually in paragraph No. 15 in

the fourth note.
        4
            The date in this portion of the letter was handwritten.

                                                      5
                Sections 1.671-4(b)(2), 1.671-4(b)(8), and 301.6109-1(a)(2)(i), all interest or other

                items of income will continue to be reported under my personal social security

                numbers, as in the past. It is my understanding that you will not impose any penalty

                by reason of this transfer. If that understanding is not correct, please notify me prior

                to affecting the requested transfer.

                        I understand this transfer will have no effect on the payment due or amounts

                scheduled to [be] paid under the terms and conditions of the [notes]. I trust [the

                company] will notify, as necessary, the Illinois Department of Insurance and any other

                regulatory body or agency affected by the transfer.” (Emphases in original.)

       On the second page of the November 2005 letter, a blank was provided or added for Klockau,

as the company president, to sign and date the letter, under the typewritten notation, “[a]ssignment

hereby accepted and verifying transfer on behalf of the note holder.” (Emphases in original.) The

company board (the board) issued a memorandum authorizing Klockau to accept and approve the

assignment. Klockau signed the second page of the November 2005 letter under the typewritten

notation and dated it November 1, 2005. In December of 2005, the company notified the Department

of Insurance (the Department) that McCarthy had requested permission to assign ownership of the

notes from himself to the trust and that the board had approved the request. The Department noted

on the letter from the company that “no regulatory action [was] required” for the change in ownership

of the notes.

       McCarthy died in April of 2008. In June of 2008, Callas, as successor trustee of the trust,

sent a letter to the company requesting that the company redeem the notes and requesting that the

company send a letter to the Department for approval of redemption. The board rejected the trust’s

request, stating that: (1) it was not convinced that the trust had the right to request redemption under

                                                   6
paragraph No. 14 of the notes; and (2) it did not believe that the company was in a financial position

to currently redeem the notes. The board noted in the letter that due to increased claims costs and

the downturn in the equities market, the surplus of the company had been adversely affected. The

board went on to state that it did not believe that the Department would grant such a request and that

it also did not believe that it was in the best interests of the policyholders of the company to deplete

the surplus of the company by $1.6 million. The trust sent additional requests to the company

requesting that the company redeem the notes and requesting that the company send a letter to the

Department for approval. The company denied those requests, as well.

       In June of 2009, the trust filed the instant action. Count VII of the second amended

complaint, which was directed at the company, was for specific performance and sought to have the

trial court order the company to send a letter to the Department to request approval for redemption

of the notes. The trust later filed a motion for partial summary judgment on count VII of the

complaint for specific performance. The company opposed summary judgment. Extensive pleadings

were filed in support of, and in opposition to, the motion.

       A hearing was held on the motion in July of 2010. At the time of the hearing, the trial court

had before it numerous supporting documents, including: the notes; the January 2004 letter; the

November 2005 letter; the board approval of the November 2005 request for assignment; the

company’s letter to the Department notifying the Department of the assignment, with the notation

by the Department that no regulatory action was required; and various affidavits. After hearing the

arguments of the attorneys, the trial court took the matter under advisement. The trial court later

issued a lengthy detailed written ruling granting the trust’s motion for partial summary judgment on

count VII for specific performance. The trial court found, among other things, that: (1) the January

2004 letter clarified or amended the company’s position with regard to paragraphs Nos. 13 and 14

                                                   7
of the notes; (2) the November 2005 letter was an attempt to modify the terms of the notes; (3) the

terms of the modification, as contained in the November 2005 letter, were ambiguous; (4) when the

November 2005 letter was considered with the January 2004 letter, the only conclusion that could

be reached was that the intent of the parties in the modification was to allow McCarthy to transfer

ownership of the notes to the trust and to allow the trust to redeem the notes upon McCarthy’s death

(that the trust would have the same rights as the original holder of the notes); (5) the company had

no discretion under paragraph No. 14 of the notes to refuse to request permission from the

department for redemption of the notes; and (6) the business judgment rule did not allow the

company to ignore its obligation under the notes. The trial court also made a finding pursuant to

Illinois Supreme Court Rule 304 (eff. February 26, 2010) that there was no just reason to delay

enforcement or appeal of its ruling. The company filed an interlocutory appeal to challenge the trial

court’s grant of partial summary judgment for the trust.

                                             ANALYSIS

       On appeal, the company argues that the trial court erred in granting partial summary judgment

for the trust on count VII of the complaint for specific performance. In support of its argument, the

company asserts that: (1) paragraph No. 14 of the notes is clear and unambiguous, does not give the

trust the right to redeem the notes, and should be enforced as written; (2) the January 2004 letter is

merely part of the negotiations leading up to the notes, is barred by the parol evidence rule, and

should not be considered in the summary judgment proceeding; (3) even if the January 2004 letter

is properly considered, it is not binding upon the company because it was not approved by the board

or by the Department, or at the very least, a question of fact remains as to the issue of approval; (4)

the trial court incorrectly found that the November 2005 letter was ambiguous, that it had to be read

in conjunction with the January 2004 letter, and that it amended the term of the notes to allow the

                                                  8
trust to seek redemption upon McCarthy’s death; (5) even if the November 2005 letter modified the

terms of the trust, the modification was not effective because it was not approved by the board or the

Department, and only a change in the ownership of the notes was approved; (6) any argument by the

trust that ownership of the notes did not change has no legal merit; (7) the trial court erred in finding

that the board did not have discretion to consider the company’s financial condition in deciding

whether to request approval for redemption from the Department; and (8) the board’s decision not

to request approval for redemption from the Department is protected by the business judgment rule.

The company asks that we reverse the trial court’s grant of partial summary judgment for the trust

on count VII of the complaint for specific performance.

        The trust argues that the trial court’s grant of partial summary judgment in its favor on count

VII of the complaint was proper and should be affirmed. The trust asserts that: (1) the change on the

name of the notes from McCarthy individually to McCarthy as trustee of the trust does not change

ownership of the notes and, thus, McCarthy, through the trust, is still the holder of the notes and is

entitled to request redemption under the plain language of paragraph No. 14 of the notes; (2) any

ambiguity that exists arises from the company’s assertion that McCarthy, through the trust, is not still

the holder of the notes; (3) the January 2004 letter is admissible as parol evidence to address the

ambiguity in the November 2005 letter; (4) when the January 2004 letter and the November 2005

letter are read together, the only conclusion that can be reached is that the trust has the same right

as the original note holder to request redemption of the notes under paragraph No. 14; and (5) the

business judgment rule does not authorize the board to ignore the company’s contractual obligations

or to avoid payment of the company’s ongoing financial obligations without justification. The trust

asks that we affirm the trial court’s grant of partial summary judgment in its favor on count VII of

the complaint for specific performance.

                                                   9
        The purpose of summary judgment is not to try a question of fact, but to determine if one

exists. Adams v. Northern Illinois Gas Co., 211 Ill. 2d 32, 42-43 (2004). Summary judgment should

be granted only where the pleadings, depositions, admissions, and affidavits on file, when viewed in

the light most favorable to the nonmoving party, show that there is no genuine issue as to any material

fact and that the moving party is clearly entitled to a judgment as a matter of law. 735 ILCS 5/2-

1005(c) (West 2008); Adams, 211 Ill. 2d at 43. In appeals from summary judgment rulings, the

standard of review is de novo. Adams, 211 Ill. 2d at 43.

        Although the parties in this case have made numerous assertions in support of their

arguments, in our opinion the issue in this case ultimately turns on whether the November 2005 letter,

and the subsequent agreement to that letter by the company, constituted a valid modification of the

notes, and if so, the effect of that modification on paragraph No. 14 of the notes. Thus, we will

consider first whether the November 2005 letter was a modification of the notes.

        A modification of a contract is a change in one or more aspects of a contract that introduces

new elements into the details of the contract or cancels some of them but leaves the general purpose

and effect of the contract undisturbed. Schwinder v. Austin Bank of Chicago, 348 Ill. App. 3d 461,

468 (2004). Parties to a contract are generally free to modify the contract by mutual assent or

agreement, as long as the modification does not violate law or public policy. Schwinder, 348 Ill. App.

3d at 468. “Under Illinois law, a valid modification of a contract must satisfy all the criteria essential

for a valid original contract, including offer, acceptance, and consideration.” Schwinder, 348 Ill. App.

3d at 468. When a modification is inconsistent with a term of a prior contract between the same

parties, the modification is interpreted as including an agreement to rescind the inconsistent term in

the prior contract. Schwinder, 348 Ill. App. 3d at 469. “The modified contract is regarded as

creating a new single contract consisting of so many of the terms of the prior contract as the parties

                                                   10
have not agreed to change, in addition to the new terms on which they have agreed.” Schwinder, 348

Ill. App. 3d at 469.

       In the instant case, in the November 2005 letter, McCarthy sought to change the ownership

designation of the notes, while still leaving the remaining terms of the notes intact. The purpose of

the November 2005 letter is consistent with the definition of a modification. See Schwinder, 348 Ill.

App. 3d at 468. Moreover, paragraph No. 16 of the notes specifically provides that the notes could

be modified from time to time by mutual agreement of the parties, subject to the approval of the

Department.5 We conclude, therefore, as the trial court found, that the November 2005 letter was

an attempt to modify the terms of the notes. We also conclude, contrary to the company’s assertion

on appeal, that the company approved the modification. The record is clear on that matter. Klockau,

as president of the company, indicated his approval by signing the second page of the November 2005

letter, an action he was authorized to take by resolution of the board. The record is also clear that

the Department approved the modification when it noted on the letter sent to it by the company that

no regulatory action was required. Under the circumstances of this case, we find that the November

2005 letter, with the subsequent agreement by the company and approval by the Department, was a

valid modification of the notes. See Schwinder, 348 Ill. App. 3d at 468-69.

       A more difficult question, in our opinion, is the effect of that modification on paragraph No.

14 of the notes. That question requires us to interpret the terms of the modification. The

interpretation of any contract is a question of law and is subject to de novo review on appeal in

accordance with the general rules applicable to contract interpretation. Gallagher v. Lenart, 226 Ill.

2d 208, 219 (2007); Schwinder, 348 Ill. App. 3d at 469. The primary goal of contract interpretation



       5
           Paragraph No. 15 in the fourth note.

                                                  11
is to give effect to the intent of the parties. Virginia Surety Co. v. Northern Insurance Co. of New

York, 224 Ill. 2d 550, 556 (2007). In determining the intent of the parties, a court must consider the

contract document as a whole and not focus on isolated portions of the document. Gallagher, 226

Ill. 2d at 233; Premier Title Co. v. Donahue, 328 Ill. App. 3d 161, 164 (2002). If the language of

a contract is clear and unambiguous, the intent of the parties must be determined solely from the

language of the contract document itself, which should be given its plain and ordinary meaning, and

the contract should be enforced as written. Virginia Surety Co., 224 Ill. 2d at 556; J.M. Beals

Enterprises, Inc. v. Industrial Hard Chrome, Ltd., 194 Ill. App. 3d 744, 748 (1990); Reaver v.

Rubloff-Sterling, L.P., 303 Ill. App. 3d 578, 581 (1999). However, if the contract language is

ambiguous, the meaning of the contract language must be ascertained through a consideration of

extrinsic evidence. Gallagher, 226 Ill. 2d at 233.

        The determination of whether a contract is ambiguous is a question of law for a court to

decide. Meyer v. Marilyn Miglin, Inc., 273 Ill. App. 3d 882, 888 (1995). That the parties disagree

on the meaning of a term of a contract does not, in itself, render that term of the contract ambiguous.

Meyer, 273 Ill. App. 3d at 888. Rather, a contract is ambiguous when the language used in the

contract is susceptible to more than one reasonable interpretation. Nicor, Inc. v. Associated Electric

& Gas Insurance Services Ltd., 223 Ill. 2d 407, 417 (2006). If a court determines that a contract is

ambiguous, extrinsic evidence may be considered by the trier of fact in determining the intent of the

parties. Meyer, 273 Ill. App. 3d at 888.

        After reviewing the November 2005 letter, we find that the terms of the modification, as

expressed in the letter itself, are ambiguous. Specifically, the language of the letter pertaining to the

effect of the modification on paragraph No. 14 of the notes is susceptible to more than one reasonable

interpretation. See Nicor, Inc., 223 Ill. 2d at 417. Thus, we must consider extrinsic evidence to

                                                   12
determine the intent of the parties. See Gallagher, 226 Ill. 2d at 233; Meyer, 273 Ill. App. 3d at 888.

        Normally, when the contract term in question is ambiguous, a question of fact exists, which

must be determined by the trier of fact, and summary judgment may not be granted. See Loyola

Academy v. S & S Roof Maintenance, Inc., 146 Ill. 2d 263, 272 (1992); William Blair & Co., L.L.C.

v. FI Liquidation Corp., 358 Ill. App. 3d 324, 342 (2005). However, under the unique circumstances

of the present case, an exception to the general rule applies and summary judgment may be granted

because the extrinsic evidence submitted by the parties leaves no genuine issue of material fact in

dispute. See William Blair & Co., L.L.C., 358 Ill. App. 3d at 342 (summary judgment is generally

inappropriate when the contract term in question is ambiguous, unless the evidence submitted by the

parties leaves no genuine issue of material fact in dispute as to that term). When the November 2005

letter in the instant case is considered with the January 2004 letter, it is clear that the intent of the

parties was to allow McCarthy to change the form of ownership of the notes to his trust for estate

planning purposes and that his trust would still be allowed to redeem the notes upon his death under

paragraph No. 14 of the notes.6 As the trial court noted, that is the only conclusion that can be

reached when the two letters are read together. No genuine issue of material fact remains as to the

interpretation of the modification. Although Klockau submitted an affidavit to dispute the meaning

of the January 2004 letter, the January 2004 letter was not ambiguous and Klockau’s affidavit cannot



        6
            Contrary to the assertion of the trust, there is no question under Illinois law that the

change in the name on the notes from McCarthy individually to McCarthy as trustee of the trust

was a change in the ownership of the notes. The trust is a separate legal entity. See Hanley v.

Kusper, 61 Ill. 2d 452, 461 (1975); Pierce v. Chester Johnson Electric Co., 117 Ill. App. 3d 867,

868 (1983).

                                                     13
be used to dispute the meaning of the January 2004 letter.

       Having determined that the November 2005 letter was a modification of the notes and the

effect of that modification on paragraph No. 14 of the notes, we now consider two of the remaining

assertions made by the company in support of its argument on appeal. The first assertion is that the

company had discretion to consider its financial condition before submitting any request for

redemption of the notes to the department. We do not agree. The language of paragraph No. 14 of

the notes is clear and unambiguous and provides no such discretion to the company. That portion

of paragraph No. 14 was not affected by the later modification.

       The only remaining consideration is the company’s assertion that the business judgment rule

protects its decision not to request approval from the Department for redemption of the notes. The

company’s attempt to apply the business judgment rule to facts of this case, however, is somewhat

misguided. The business judgment rule, which presumes that corporate directors act in the best

interests of the corporation, is intended to protect corporate directors from liability and generally

comes into play when a cause of action is based upon mismanagement of the company. See

Willmschen v. Trinity Lakes Improvement Ass'n, 362 Ill. App. 3d 546, 550 (2005); Stamp v. Touche

Ross & Co., 263 Ill. App. 3d 1010, 1015 (1993). However, in count VII of the complaint in the

instant case, the trust did not seek to hold the directors liable for mismanagement of the company.

Rather, the trust merely sought to compel the company to honor its obligation under the notes and

to request approval from the Department for redemption of the notes. Thus, under the facts of this

case applicable to count VII of the complaint, the business judgment rule does not apply.

       For the foregoing reasons, we affirm the judgment of the circuit court of Rock Island County.

       Affirmed.

       JUSTICE McDADE, specially concurring:

                                                 14
       I am in complete agreement with the majority’s decision in all respects save one. For the

reasons that follow, I do not find the November 2005 documents to be ambiguous and would,

therefore, find no need to consider the January 2004 documents as extrinsic evidence. Thus I would

affirm the trial court’s allowance of partial summary judgment, but on different grounds, and would

also affirm, as has the majority, its decisions concerning ICC’s obligation to respond to the request

for information from the Department of Insurance.

       Richard McCarthy formed the Richard W. McCarthy Trust on September 2, 2004. In

November 2005, McCarthy made a written request to change ownership of the notes to the trust. The

November letter reads, in pertinent part, as follows:

                        "In connection with my estate plan, I have established a

               revocable living trust, and I am hereby requesting TRANSFER and do

               hereby ASSIGN, all of my right, title and interest in [the notes]

               currently titled in my name individually to my living trust as specified

               below.

                                                ***

                        Please change the ownership designation on each account or

               certificate to: Richard McCarthy, Trustee of the Richard McCarthy

               Living Trust U/T/A dated September 2, 2004.

                        My trust is a ‘Grantor Trust.’ Under the provisions of Treasury

               Regulations Sections 1.671-4(b)(2), 1.671-4(b)(8) and 301.6109-

               1(a)(2)(I), all interest or other items of income will continue to be

               reported under my personal social security numbers, as in the past. It

               is my understanding that you will not impose any penalty by reason

                                                 15
                of this transfer. If that understanding is not correct, please notify me

                prior to affecting [sic] the requested transfer.

                        I understand this transfer will have no effect on the payment

                due or amounts scheduled to [be] paid under the terms and

                conditions of the [notes]." (Emphasis added.)

Pursuant to a memorandum issued by the board of Illinois Casualty Company (ICC) authorizing

acceptance and approval of the transfer, ICC’s president, John R. Klockau, signed the second page

of the letter, accepting and verifying the transfer and dating it November 1, 2005. In December, ICC

notified the Department of Insurance of McCarthy’s request and its approval. The Department noted

on the company’s letter that there was "no regulatory action required."

        I find no ambiguity in these documents. McCarthy’s written request is that he be allowed to

transfer "all" of his right, title and interest in the notes from himself as an individual to himself as

trustee of the Richard W. McCarthy Trust. "All" is not ambiguous. It conveys McCarthy’s intent

to transfer and assign every right, every title and every interest he currently holds to his living trust.

He expresses that request and intent without any reservation.

        McCarthy does not stop with that clear and unequivocal declaration of the parameters of his

request. He further states his understanding that the transfer will be effected without "any penalty

by reason of this transfer," and asks ICC to notify him, prior to effecting the transfer, if his

understanding (that "all" of his right, title and interest can be transferred and assigned without "any

penalty") is not correct.

        Then he clarifies his understanding even further: this transfer will have no effect on the

payment due or amounts "scheduled to be paid under the terms and conditions of the [notes]."

(Emphasis added.)

                                                   16
       It appears to me that McCarthy made his request and his understanding of its effect perfectly

clear and unequivocal.

       ICC responded with equal clarity. The ICC board authorized its president, John Klockau, to

accept and approve the requested transfer and then notified the Department of Insurance of the

transfer. At no time did ICC advise McCarthy that his "understanding" of a transfer without penalty

to any of his rights was incorrect to the extent that neither he nor any successor trustee would be

treated as an "original holder" following transfer. Nor did ICC advise McCarthy that paragraph 14

would not apply to any "amounts scheduled to [be] paid under the terms and conditions of the

[notes]" because neither McCarthy nor any successor trustee would be treated as or deemed to be

the "original holder."   Nor did ICC advise the Department of Insurance that although the

transfer/assignment had been granted, the assignees would not have the right to seek accelerated

payment pursuant to paragraph 14.

       The majority has found, and I agree, that this agreement was capable of being modified by

agreement of the parties and that the transfer and assignment effected a modification as requested of

ICC by McCarthy. Slip op. at 10-11. Given this modification, there is no need to consider or decide

whether the transfer of the notes constituted a change of ownership. By the transfer on McCarthy’s

requested terms, ICC gave up its right to enforce the "original holder" requirement for accelerated

payment upon the death of McCarthy, the grantor of the trust.

               In my opinion, this court should construe the contract to mean precisely what it says:

that McCarthy requested, and ICC agreed, to assign all of his rights, including his rights under

paragraph 14, to the trust. Further, the plain language of the November letter shows that ICC agreed

to McCarthy’s request without limitation or modification. The November letter did not need to

specifically reference accelerated payment if it referenced all of McCarthy’s rights because those

                                                 17
rights included accelerated payment. Similarly, the Board’s approval did not have to specifically

reference paragraph 14 to find that it agreed to transfer the rights granted under paragraph 14 to the

trust. The approval was of the request to assign all rights to the trust.

       ICC argues that its December 2005 letter to the Department, notifying it of the action

requested in the November letter, is also consistent with ICC’s interpretation of the effect of the

November letter because it does not request the Department’s permission to change the terms of the

notes to allow the trust to request accelerated payment when the terms of the notes provide that only

the original holder may request accelerated payment. ICC argues its interpretation is consistent with

paragraph 13 of the notes, which contemplates transfer of ownership without Department approval.

The Department’s response that no regulatory action was required is also consistent with its

interpretation based on sections 301.30 and 301.70 of title 50 of the Illinois Administrative Code (50

Ill. Adm. Code 3001.30, 301.70 (2010)).

       Section 301.30 of title 50 of the Administrative Code provides, in pertinent part, as follows:

                       "Guaranty Fund or Guaranty Capital certificates issued

               pursuant to Section 56 of the Illinois Insurance Code [215 ILCS 5/56]

               shall be submitted, in duplicate, for the approval of the Illinois

               Director of Insurance (Director) prior to being issued by the company.

               The certificate must state that, all payments of principal and/or interest

               must be approved by the Director; and that the obligation of the

               company under such certificate may not be offset or be subject to

               recoupment with respect to any liability or obligation owed to the

               company; and that no agreement or interest securing such certificate,

               whether existing on the date of such certificate or subsequently

                                                  18
               entered into, applies to the obligation under such certificate." 50 Ill.

               Adm. Code 301.30 (2010).

Section 301.70 of Title 50 of the Administrative Code reads as follows:

                       "A company may only retire guaranty funds and guaranty

               capital and make payment of interest on any indebtedness as provided

               under Section 56 of the Illinois Insurance Code ***. No payment

               shall be authorized by the Director unless:

                                        a) The company's surplus as

                               regards policyholders is reasonable in

                               relation to its outstanding liabilities and

                               adequate for its financial needs (the

                               determination of the reasonableness

                               and adequacy of surplus shall include

                               consideration of the following factors:

                               premium volume as referenced in

                               Sections 144 and 244.1 of the Illinois

                               Insurance Code (Code) ***; lines of

                               business and additional authority as

                               referenced in Sections 4, 11, 39, and

                               245.23 of the Code *** and Section 2-

                               1   of    the   Health     Maintenance

                               Organization     Act     ***;   reserves,

                               company size and operational history

                                                   19
                               as referenced in Section 113 of the

                               Code ***), and

                                       b) Such payment will not

                               reduce the company's surplus as

                               regards policyholders to less than that

                               currently required under Section 43 of

                               the Illinois Insurance Code ***, and

                                       c) Such payment is consistent with the terms of

                               the certificate approved pursuant to Section 301.30 of

                               this Part." 50 Ill. Adm. Code 301.70 (2010).

       ICC’s argument that an assignment of McCarthy’s rights under paragraph 14 to the trust

would require regulatory approval lacks statutory support. ICC cites no support for finding that an

assignment of rights in an existing agreement is subject to regulatory approval. Section 56 of the

Illinois Insurance Code merely provides for the right to "provide for a surplus either by accumulating

a guaranty fund or a guaranty capital." 215 ILCS 5/56 (West 2006). Section 301.30 of title 50 of

the Administrative Code does not address the assignment of rights under a certificate that has been

previously approved by the Director. That interpretation is supported by the Department’s response

that no regulatory action was required to assign McCarthy’s rights under the notes despite clear

evidence that this was precisely what the parties may have intended. Under the parties’ agreement

as reflected in the November letter, the actual terms of the original notes remained the same. The

rights of the original holder were transferred to the trust, but the actual terms of the notes did not

change.

       For the foregoing reasons, I would find that the November 2005 documents are unambiguous

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and that there is no need and no legal justification to rely on extrinsic evidence to determine their

meaning and effect.

       I agree with the reasoning of the majority in all other respects and concur in affirming the trial

court’s judgment.




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