C.I.S. Northwest, Inc. v. Berjac of Portland, Inc.

• Jurisdiction: Oregon
• Parties: C.I.S. NORTHWEST, INC., Appellant, v. BERJAC OF PORTLAND, INC., Respondent. A8501-00356; CA A38096.
• Citation: 87 Or.App. 233,742 P.2d 618
• Court: Oregon Court of Appeals
• Decision Date: 09 September 1987

Page 618

742 P.2d 618

87 Or.App. 233

C.I.S. NORTHWEST, INC., Appellant, v. BERJAC OF PORTLAND, INC., Respondent.

A8501-00356; CA A38096.

Court of Appeals of Oregon.

Argued and Submitted Oct. 6, 1986.

Decided Sept. 9, 1987.

George W. McLean, Jr., Seattle, Wash., argued the cause and filed the briefs for appellant.

James P. Laurick, Portland, argued the cause and filed the brief for respondent.

Before BUTTLER, P.J., JOSEPH, C.J., and ROSSMAN, J.

BUTTLER, Presiding Judge.

Plaintiff, an insurance broker, brought this action against defendant, an insurance premium financing company, to recover money that it had paid to defendant pursuant to defendant's demand under ORS 746.515. The trial court dismissed the complaint for failure to state ultimate facts sufficient to constitute a claim. ORCP 21A(8). We reverse.

We assume that the facts pleaded in plaintiff's complaint are true. Sommerfeldt v. Trammell, 74 Or.App. 183, 187, 702 P.2d 430 (1985). The complaint alleges that Trans-Carrier Insurance Agency requested plaintiff to locate insurance companies that would provide insurance for Trans-Carrier's clients. Plaintiff did so and, after the policies were issued, Trans-Carrier asked defendant to finance the premiums on some of the policies. ¹ Defendant entered into contracts with Trans-Carrier's clients under which it agreed to provide premium financing. Before defendant had paid the premiums pursuant to the financing agreements, plaintiff directed defendant to pay the premiums to plaintiff, not to Trans-Carrier, and stated that Trans-Carrier had no authority to collect the premiums for plaintiff. In spite of that notice, defendant paid the premiums to Trans-Carrier, which did not forward them to plaintiff. Plaintiff also alleged that Trans-Carrier was a broker and was not an appointed agent for plaintiff or the insurance companies that issued the policies.

Trans-Carrier subsequently lost its license to conduct insurance business. The insurance companies cancelled the policies before they expired, whereupon defendant demanded that plaintiff, as representative of the insurance companies, "return" to it the unearned premiums that defendant had financed and paid to Trans-Carrier, pursuant to ORS 746.515(1). ² The insurance companies involved have assigned their rights to plaintiff. Plaintiff paid an amount equal to the unearned premiums to defendant, because it believed that ORS 746.515 required it to do so, and then brought this action to recover the money from defendant.

Plaintiff alleges three claims, in the alternative: (1) for a declaration that, if the statute requires that plaintiff pay unearned premiums that were not paid to it or its agent by defendant, the statute is unconstitutional; (2) breach of contract, in that plaintiff was a third-party creditor beneficiary of the financing contracts between defendant and the insureds; and (3) negligence on the part of defendant in paying premiums to Trans-Carrier with knowledge that Trans-Carrier was not the agent of plaintiff or the insurers and that Trans-Carrier would not forward the money to plaintiff.

The initial question is whether ORS 746.515 required plaintiff to pay the amount of the unearned premiums to defendant, even though plaintiff had notified defendant that Trans-Carrier was not authorized to collect premiums for plaintiff and that defendant should pay the premiums directly to plaintiff. Plaintiff first argues that Trans-Carrier was neither its nor the insurers' agent and that, therefore, defendant's payment to Trans-Carrier did not constitute payment to plaintiff. An "agent" is defined in ORS 731.062:

" 'Agent' means a person appointed by an insurer to solicit applications for insurance or to negotiate insurance on its behalf, and, if authorized so to do by the insurer, to effect and countersign insurance policies."

Neither plaintiff nor the insurers appointed Trans-Carrier to solicit insurance on their behalf. Rather, Trans-Carrier, a broker, requested that plaintiff, also a broker and agent for the insurance companies, locate insurers that would insure Trans- Carrier clients. Each party represented its own interest and clients. Although an agency relationship may be created by implication, custom, estoppel or ratification, see Ramstead v. North-West Insurance, 252 Or. 423, 450 P.2d 538 (1969), none of those situations is present here.

The original definition of "agent" in the Insurance Code included one who collects premiums on behalf of an insurer. Or.Laws 1917, ch. 203, § 4a(1); see Paulson v. Western Life Insurance Co., 292 Or. 38, 54, 636 P.2d 935 (1981). In 1967, the Insurance Code was reorganized and the definition of "agent," other than an appointed agent, was consolidated in ORS 744.165(1). The part of the definition referring to one who collects premiums has been deleted. Defendant argues that Trans-Carrier was plaintiff's agent for purposes of premium collection by virtue of ORS 744.165(1):

"Except as provided in a group contract of insurance under subsection (2) of this section, any person who solicits or procures an application for insurance shall in all matters relating to the application for insurance and the policy issued in consequence of the application be regarded as the agent of the insurer issuing the policy and not the agent of the insured. Any provisions in the application and policy to the contrary are invalid and of no effect whatever."

That statute, as well as its predecessors, creates an agency, apart from the common law, for limited purposes when one "solicits or procures" an application for insurance. Paulson v. Western Life Insurance Co., supra, 292 Or. at 60, 636 P.2d 935. Apparently, it matters not whether the solicitation is made on behalf of the insurer or the insured. The agency so created is limited to matters relating to an application for insurance and the policy issued in consequence of the application. The statute has been applied only to misstatements on applications for insurance and interpretation of policy language. Hiransomboon v. Unigard Mutual Ins. Co., 46 Or.App. 493, 497, 612 P.2d 306 (1980). Presumably, it would apply to representations made by the "agent" to the insured. Assuming that Trans-Carrier comes within the statute for those limited purposes, there is nothing in it that creates an agency relationship between Trans-Carrier and plaintiff for the purpose of collecting premiums from defendant. Accordingly, defendant's payment to Trans-Carrier did not make it plaintiff's agent.

Defendant, however, contends that it is not necessary that Trans-Carrier be an agent of plaintiff under the terms of ORS 746.515. We do not agree that the statute requires an insurer to "return" unearned premiums if no premiums have been paid to it or its agent. Not only would that make no sense, but the return of something necessarily implies that it has been received.

Defendant also contends that, if it is necessary to find an agency relationship, the legislature has designated Trans-Carrier plaintiff's agent for the purpose of allocating the burden of returning the unearned premiums. This conclusion follows, it argues, because the last two sentences of ORS 746.515(1) provide that "if the insurer elects to return the premium through the agent" and the agent fails to transmit it to the financier, then the insurer is required to pay the premium directly to the financier. That provision assumes an agency relationship between the insurer and one to whom the insurer returns the premium for transmittal to the financier; it does not create one. Imposing liability on the principal for the default of its agent is consistent with well-established common law principles.

Finally, defendant contends that Bonneville Auto Ins. v. Ins. Div., 53 Or.App. 440, 632 P.2d 796 (1981), requires that plaintiff be held responsible to it under the statute. However, there is a critical distinction: in that case, the one who collected the premiums from the premium financier and who failed to pay them to the insurer was the licensed agent of the insurer. We said:

"Either [Bonneville] or Berjac must ultimately bear the loss from [the agent's] misuse of financed premiums. [The agent] was [Bonneville's] licensed agent, although it may also have been...