The Fifth Appellate Court has denied an appeal of East St. Louis' largest landholder, holding that the FAIR Plan complied with statute when it refused to renew property insurance coverage for the Sieron family.
Justice Steven McGlynn delivered the court's opinion Friday stating that the FAIR Plan did not "redline" the Sierons when it denied renewing coverage for the family's properties in 2002. The family owns close to 700 single family houses, mostly in impoverished areas in East St. Louis.
The Sierons appealed FAIR Plan's decision to a state board, but a St. Clair County Circuit Court in 2004 upheld the board's order. The Sierons claimed FAIR Plan's refusal to provide coverage was against the manifest weight of the evidence, constitutionally invalid and contrary to law -- and essentially "redlined" them.
"In this case, there is no question that the FAIR Plan loss history associated with the Sieron properties is unusually high for the type of risk involved when compared to similar properties in the area that are not owned by the Sierons," McGlynn wrote.
FAIR Plan provide basic, affordable fire and homeowners property insurance in urban areas to property owners unable to purchase coverage through the standard insurance market.
In the late 1990s, a FAIR Plan investigation found that the East St. Louis area had the largest number of fire losses in the state. The investigator also found that the policies placed through Sieron & Associates, Inc., had loss ratios of 517%, 434%, and 586% for 1999, 2000, and 2001. In almost every instance of loss, a Sieron individual or entity owned the property for which Sieron & Associates, Inc., had obtained insurance.
McGlynn wrote, "In comparison to other East St. Louis area properties insured by the FAIR Plan, the Sieron properties had loss ratios that were four to five times higher than the loss ratios for similar properties that were not owned by a Sieron entity."
"Accordingly, we find that the FAIR Plan Association's decision not to renew the Sieron policies complies with the FAIR Plan statute and the approved underwriting standards."
Justices Goldenhersh and Melissa Chapman "reluctantly" concurred.
"Courts are not legislatures and judges are not legislators," wrote Goldenhersh and Chapman. "Given these statutory provisions and the evidence in this appeal, we cannot say that this court's decision is against the manifest weight of the evidence or contrary to law. The inherent contradiction in this statute, which is self-defeating regarding its legislative intent, is appropriately a matter for the General Assembly and not for this court.
"We urge the legislature to examine this statute, its applications, and its effects in light of express legislative intent and deal with the inherent contradiction that exists. We are sure that a de facto redlining of an urban area is not the intent with which the statute was passed and the FAIR Plan created."
For more than 50 years, the Sieron family and its entities have bought depressed properties from mortgage companies, banks, and foreclosure auctions and have sold them to individuals on a contract-for-deed basis.
"When buying a property under a typical contract-for-deed arrangement, an agreement is reached that the property may be bought if the intended buyer first makes all the payments and complies with all other contractual obligations," McGlynn wrote.
"In other words, the Sierons retain the title to the property, and the 'buyer' does not accumulate any monetary equity in the property until the last payment is made. If at any time the 'buyer' fails to make a payment, the Sierons can repossess the property and resell it.
"Although the Sierons still own the property, Sieron & Associates, Inc., collects a fee for the 'sale.' Moreover, the 'buyer' must make most of the repairs on the property, and the 'buyer' must pay all the taxes and all the insurance premiums. To that end, most 'buyers' obtain insurance through Sieron & Associates, Inc., which secures insurance on these properties, for a commission of 10%, through the FAIR Plan."
McGlynn also clarified the court's opinion. He wrote, "...we clarify that if any contract buyer has any insurable interest in a Sieron property, the buyer cannot be denied FAIR Plan insurance coverage on the property upon reapplication simply because of the claims history of the Sierons or because the Sierons, too, have an interest in the property.
"We reiterate that the Illinois FAIR Plan is meant to insure people who are unable to purchase coverage through the standard insurance market for reasons beyond their control. Lumping the loss history of the Sierons in with the buyers–the people who are actually living in these houses–would leave the buyers uninsured and unfairly negates the purpose of the FAIR Plan.
"There are less draconian ways for the FAIR Plan Association to accomplish its goals than to deny good-faith applicants, without a questionable loss history, from securing coverage."
McGlynn wrote that not all property owners are "entitled" to insurance coverage.
"Basic underwriting insurance standards still apply. 215 ILCS 5/524(5) (West 2004). If the property is simply not an insurable risk, the FAIR Plan is not required to issue or renew a policy of insurance. 215 ILCS 5/524(5) (West 2004).
"The FAIR Plan Association's actions being challenged here involve the nonrenewal of existing policies upon their expiration. There are no conclusions of property inspectors at issue here, and section 524 simply says nothing regarding the renewal or nonrenewal of existing FAIR Plan policies."
He also wrote that the Sierons did not support their argument that FAIR Plan's decision was against the manifest weight of the evidence, that the insurer's decision was not vague and that they were not denied due process.
McGlynn also wrote that FAIR Plan did not redline the Sierons.
"We take the allegation of 'redlining' very seriously. Having outlined the historical definition and practice of 'redlining' targeted for elimination by Illinois's statutory scheme, we see neither de jure nor de facto 'redlining' in this matter," McGlynn wrote. "The Sierons make no citation to the record to support the allegation, and this court's review of the record finds none. The evidence shows that the FAIR Plan Association continues to insure properties in East St. Louis but merely has chosen not to insure Sieron properties."