Downey v. Humphreys

• Decision Date: 16 February 1951
• Court: California Court of Appeals Court of Appeals
• Parties: DOWNEY v. HUMPHREYS. Civ. 17605.

Page 484

227 P.2d 484

102 Cal.App.2d 323

DOWNEY v. HUMPHREYS.

Civ. 17605.

District Court of Appeal, Second District, Division 3, California.

Feb. 16, 1951.

Fred N. Howser, Atty. Gen., Walter L. Bowers, Asst. Atty. Gen., for appellant.

Betts, Ely & Loomis, Los Angeles, for respondent.

VALLEE, Justice.

Appeal by plaintiff as liquidator of insurance companies from a judgment of non-suit in an action against an agent to recover unremitted insurance premiums.

Independence Indemnity Company, a Pennsylvania corporation (referred to as Independence), for some time prior to November 1, 1931, Public Indemnity Company, a New Jersey corporation (referred to as Public), for some time prior to December 31, 1932, and International Reinsurance Corporation, a Delaware corporation (referred to as International), for some time prior to April 19, 1933, had been engaged in the insurance business in California. Defendant became general agent in California of Independence prior to 1929, of Public July 1, 1929, and of International about November 1, 1931.

The complaint alleged, and the answer admitted, that prior to April 19, 1933, all the assets and liabilities of Independence and Public were transferred to and assumed by International.

About November 1, 1931 (the exact date is not definitely fixed, but it is not material), Independence was 'taken over' by International; that is, International acquired all of its assets and assumed all of its liabilities. Independence then ceased to function as a corporation. Thereafter International designated its Independence policies as 'Independence Indemnity Underwriters, Division of International Reinsurance Corporation,' and all business that had been and was thereafter written was the business of International. Defendant did not continue as agent of Independence after it was 'taken over' by International; he dealt solely with International and was its general agent with respect to its Independence business.

On December 31, 1932, International 'took over' Public; it acquired all of its assets and assumed all of its liabilities. Public then ceased to function as a corporation. Thereafter International designated its Public policies as 'Public Indemnity Underwriters, Division of International Reinsurance Corporation,' and all business that had been and was thereafter written was the business of International. After International 'took over' Public, the latter's business was handled by International's method of doing business without regard to Public's contracts. Defendant did not continue as general agent of Public after it was 'taken over' by International; he dealt solely with International with respect to the business of public; he was general agent of International with respect to its Public division; and he was under the jurisdiction of the Pacific Coast manager of International.

There was evidence that on July 1, 1929, defendant entered into a written general agency contract with Public which provided in part: 'The General Agent shall collect and will be responsible for the payment of the premium on any policy, contract of insurance or suretyship, or renewal thereof issued by, through or on account of his agency, whether through agents, sub-agents, brokers, or otherwise, and all premiums, monies, securities, chattels or other property of whatever kind, received or collected by said General Agent shall be securely and honestly held by him subject to the instructions of the Company and while so held shall constitute a Fiduciary Trust to be used by the General Agent for no personal or other purpose inconsistent with such trust.'

The original contract was not produced. A copy which did not bear defendant's signature was introduced in evidence. One witness testified that defendant had signed the original. There was much evidence that defendant did not have a written contract with Public; that the arrangement was oral and that defendant would not and did not sign the original of the copy produced. As this is an appeal from a judgment of nonsuit, we must give plaintiff the benefit of the evidence which tends to sustain his averments, and assume that during the time he was general agent for Public--that is, until December 31, 1932,--defendant was working under the written contract. Mr. Dempsey, who was Pacific Coast manager of Independence until it was 'taken over' by International, and vice-president and Pacific Coast manager of International thereafter, testified that after Public was 'taken over' by International on December 31, 1932, regardless of how Public had handled its business, he merged it with International and handled it his own way; that he did not know how Public handled it; that he handled it 'without regard to Public's contracts or even looking to see if there were any.'

There was no evidence that defendant ever entered into a written contract with Independence or with International. The uncontradicted evidence was that he did not. Mr. Dempsey testified that at all times his (International's) arrangements with defendant were oral.

Defendant reported monthly--to Independence until it was 'taken over' by International, thereafter to International with respect to Independence business, to Public until it was 'taken over' by International, thereafter to International with respect to Public business--on what is called a 'bordereau' or 'account current,' showing business written, premiums due, premiums collected, commissions allowable, unearned premiums, debits and credits, and net. He remitted to the companies between the 15th and 25th of the third month following the month in which the business was written. The amount due the companies from defendant was the premiums collected, less unearned premiums, less his commission. The companies 'did not care' where defendant 'got the money as long as he paid the premiums on policies written'; nor did they look to the policyholders for payment; they looked only to defendant. They required defendant to pay the premiums on insurance written if it was in effect 60 days; 'didn't care whether he collected it [them] or not'; 'depended on Mr. Thomas Humphreys for payment of the amount owing to the company, regardless of who the policy holders were, or when they paid'; the companies 'depended upon the credit of Mr. Humphreys, and not upon anything else.' If he extended credit to policyholders 'that was his business.' Mr. Dempsey testified that he did not consider money collected by defendant on policies 'as a trust account.'

An unearned premium is that portion of a premium which has not been earned by reason of the fact that the policy has been cancelled; it is the premium for the unexpired term of the policy. When a policyholder cancelled a policy he looked to defendant for the unearned premium. The understanding and the course of business between the companies and defendant was that if there was a cancellation of a policy after a premium had been paid the policyholder would get back all of the unearned premium from defendant and the companies would credit him with the amount.

Defendant did not, and he was not required to, segregate the premiums collected on behalf of any of the companies (he was general agent for more than 20 insurance companies) in a separate account or as trust funds. With the knowledge and consent of the companies, he deposited premiums collected from all companies he represented and his personal funds in his general commercial account, and paid money owing to the companies from that account. Bills sent to policyholders were sent on defendant's billheads, without the name of any insurance company.

In March, 1933, because of rumors as to the financial instability of International, defendant told Mr. Dempsey, 'I think the company is going to blow.' Dempsey replied, 'I'll tell you what do: We will know this in a little while. You can hold back the December premiums. * * * It will give you just that much more money to replace if they do blow, but I don't think they are going to.'

On April 19, 1933, International was adjudged insolvent and receivers were appointed by the Court of Chancery, County of New Castle, Delaware. The record is not at all clear, but apparently on the same day a receiver of International was appointed by the superior court of the county of Los Angeles and a temporary restraining order issued restraining International and its attorneys, agents and employees from transacting any further business. The order was served on a vice-president of International on April 20, 1933. It was not served on defendant. He did not learn of the appointment of the receiver until some time in May, 1933. The uncontradicted evidence was that he did not hear of the restraining order. On June 28, 1933, plaintiff was appointed liquidator of International by the superior court of the county of Los Angeles, and on July 24, 1933, of Independence and Public by the superior court of the city and county of San Francisco.

Prior to April 19, 1933, defendant had issued a number of policies of insurance in International, Independence and Public and had collected $13,539.94 in premiums from such policyholders which he did not remit. Prior to April 19, 1933, he issued a number of policies in these companies and after April 19, 1933, collected $5,177.51, premiums on the policies which he did not remit.

On April 19, 1933, defendant learned of the appointment of the receivers in Delaware. He testified that he did not do any further business for International. On the same day, he replaced all of the existing policies which he had written in International, Independence, and Public by getting other companies 'to accept the coverage blanket' and within 15 days wrote new policies. He used the $13,539.94 which he had on hand on April 19, 1933, and the $5,177.51 which he collected thereafter, in replacing the insurance. In addition to these moneys, he used $6,000 of his own funds in purchasing the new policies. The money which ...