Estate of Corning, Matter of

• Decision Date: 02 May 1985
• Parties: In the Matter of the ESTATE OF Erastus CORNING, II, Deceased. Aurora, Inc., et al., Respondents; Elizabeth P. Corning, Individually and as Executrix of the Estate of Erastus Corning, II, Deceased, et al., Appellants.
• Court: New York Supreme Court — Appellate Division

Page 477

488 N.Y.S.2d 477

108 A.D.2d 96

In the Matter of the ESTATE OF Erastus CORNING, II, Deceased.

Aurora, Inc., et al., Respondents;

Elizabeth P. Corning, Individually and as Executrix of the

Estate of Erastus Corning, II, Deceased, et al., Appellants.

Supreme Court, Appellate Division,

Third Department.

May 2, 1985.

Hiscock & Barclay, Albany (Kenneth J. Connolly, Albany, of counsel), for Elizabeth P. Corning, appellant.

Roche & Wolkenbreit, P.C., Albany (Robert P. Roche, Albany, of counsel), for E. Lloyd Rogers and others, appellants.

J. Richard Williams, P.C., Albany, for Aurora, Inc., respondent.

Jerome K. Frost, Troy, for Albany Associates, Inc., respondent.

Before MAHONEY, P.J., and KANE, CASEY, WEISS and LEVINE, JJ.

MAHONEY, Presiding Justice.

Erastus Corning, II died May 28, 1983, a resident of the City and County of Albany. His last will and testament, duly admitted to probate on June 13, 1983, named his widow, Elizabeth P. Corning, sole beneficiary and executrix of his estate. Among the assets of his estate were 160 shares of the capital stock of Albany Associates, Inc., a general insurance agency formed by Corning and others in 1932 which is licensed for and has acted as an insurance agent and/or broker for approximately 34 insurers authorized to sell life, health and property insurance against loss or damages of any kind. In 1962, Corning became the sole stockholder of Albany Associates. He thereafter served as president and a member of the board of directors together with J. Otto Fausel and E. Lloyd Rogers, who joined the corporation on June 9, 1947 and August 1, 1957, respectively. In return for his services as corporate officer and director, Corning, like Fausel and Rogers, received a salary. Albany Associates further paid Corning a commission based upon the volume of insurance premiums attributed to his efforts and also paid him proceeds from an employee profit-sharing plan established by the corporation in 1975. While Fausel and Rogers entered into employment contracts with Albany Associates, there is no record of any such contract between Corning and the corporation.

The employment contracts entered into between Albany Associates and Fausel and Rogers, each dated April 1, 1964, provide that Fausel and Rogers had the right to receive 50% of the commissions received by Albany Associates on the business produced by them. The contracts additionally set forth the salaries Fausel and Rogers were to receive in consideration for their duties as corporate officers and directors. The contracts also granted them the right to all business credited to their personal accounts and the right, upon completion of their employment, to inspect the corporate records of their personal accounts and be furnished a list by the corporation of policies solicited by them that expired each month.

In order to determine the amount of the commission and profit-sharing plan payments due Corning, Albany Associates maintained an internal bookkeeping system whereby the business produced by him could be distinguished from the business produced by Fausel and Rogers and the business produced by the agency itself. This internal bookkeeping system consisted of separate records or ledgers, commonly called a "book of business" or "expirations", in which Corning, Fausel and Rogers each kept their list of customers and information relevant to insurance policies issued to paid customers. These ledgers were designated "ECII" for Corning's clients, "JOF" for Fausel's clients and "ELR" for Rogers' clients. In addition to the records established by Corning, Fausel and Rogers, an "agency" ledger was established to delineate insurance policies generated by clients whose business was not attributable to the direct efforts of either Corning, Fausel or Rogers. No commissions were paid on account of this business and the income generated thereby went directly to corporate earnings. The compensation each received from the business they generated was above and beyond the salaries each received as officers and directors of Albany Associates.

In 1968, Corning entered into an agreement with Aurora, Inc., a New York corporation in the business of selling insurance, whereby, upon Corning's death, all of the stock he then owned in Albany Associates would be sold to Aurora. The purchase price of the stock was to be the "book value of said stock", which was to be determined by the value of said stock on December 31 of the year previous to Corning's death, as reflected in the accountant's year-end annual report.

After Corning's death, his son, Erastus Corning, III, was made a director and an officer of Albany Associates. Believing that the "book of business" marked "ECII" was the property of Corning's estate, Mrs. Corning, as executrix of the estate, entered into an agreement to sell those expirations to Fausel and Rogers. Thereafter, Fausel and Rogers entered into an agreement with Erastus Corning, III, wherein the latter would purchase said list of expirations from them within 30 days of their respective deaths or within 30 days of their respective retirement from Albany Associates.

This proceeding was commenced in Surrogate's Court on or about September 14, 1983 by the service of an order to show cause and petition upon Mrs. Corning, as executrix of her husband's estate. Said proceeding, which was commenced by Aurora, sought: (1) delivery of the stock of Albany Associates owned by Corning, (2) an order by the court stating who owns the "book of business" marked "ECII", and (3) an injunction directing Fausel, Rogers and Erastus Corning, III to refrain from disposing of any assets or property of Albany Associates and from acquiring any assets and/or obligations except in the ordinary course of the conduct of the insurance business, and further enjoining them from engaging in any such conduct as may be contrary to Business Corporation Law §§ 715 and 717.

On or about September 19, 1983, the stock of Albany Associates owned by Corning was transferred to Aurora by Mrs. Corning as contemplated by the August 6, 1968 purchase agreement. On September 27, 1983, at a meeting of the board of directors of Albany Associates, Erastus Corning, III, was removed as president and he subsequently resigned his position as a director of Albany Associates.

Appropriate answers were interposed and an amended petition by Aurora was filed which recognized the transfer of the stock of Albany Associates and, in addition, included a claim for damages in the sum of $500,000 for alleged violation of Business Corporation Law §§ 715 and 717. A counterclaim for a similar amount was interposed by the intervenors, Fausel, Rogers and Erastus Corning, III, which was followed by a claim on behalf of Albany Associates requesting the same relief sought by Aurora. Following motions for summary judgment, Surrogate's Court granted a motion for partial summary judgment to petitioners ^* by deciding, among other things, that: (1) the issue regarding the transfer of stock was moot, (2) petitioners were necessary and interested parties to the litigation, (3) all laws of the State of New York that affect the estate are reviewable by the court, (4) a trial would be held with respect to damages, and (5) the "book of business" marked "ECII" is the property of Albany Associates. Consequently, Surrogate's Court denied the motion of the intervenors and Mrs. Corning to declare the "book of business" the property of the estate. The intervenors and Mrs. Corning now appeal these rulings.

The first issue to be resolved on this appeal concerns that portion of the decree which determined the "book of business" marked "ECII" to be the property of Albany Associates.

In the insurance industry, the term "book of business" or "expirations" has a definite and well-recognized meaning. It refers to a copy of the policy issued to the insured and contains "the date of the insurance policy, the name of the insured, the date of its expiration, the amount of insurance, premiums, property covered and terms of insurance" (V.L. Phillips & Co. v. Pennsylvania Threshermen & Farmers' Mut. Cas. Ins. Co., 199 F.2d 244, 246 (4th Cir.,1952) cert. denied 345 U.S. 906, 73 S.Ct. 645, 97 L.Ed. 1342).

Contrary to the operation of normal agency principles, whereby the principal has ownership rights in the lists of customers and other similar data obtained during the agency, it is the custom and practice in the insurance field that, in the absence of a contract to the contrary, the independent insurance agent owns the expirations at the termination of his agency. The practice is a protection of the work product of the individual agent and represents a valuable asset in the nature of goodwill (Fred Miller Co. v. Empire Fire & Mar. Ins. Co., 503 F.2d 751, 755 (8th Cir.,1974); V.L. Phillips & Co. v. Pennsylvania Threshermen & Farmers' Mut. Cas. Ins. Co., supra, p. 246; Alliance Ins. Co. v. City Realty Co., 52 F.2d 271, 276 (D.C.1931); Garrett v. American Family Mut. Ins. Co., 520 S.W.2d 102 [Mo.App.]; 16B J. Appleman, Insurance Law and Practice § 9026, at 352-353 [1981] ). This universal custom is a main premise under which the American insurance industry functions and is known as the American Agency System (Woodruff v. Auto Owners Ins. Co., 300 Mich. 54, 58-59, 1 N.W.2d 450, 452; Garrett v. American Family Mut. Ins. Co., supra, p. 112). Such a custom has been recognized in New York for many years and is acknowledged by all parties (National Fire Ins. Co. v. Sullard, 97 App.Div. 233, 89 N.Y.S. 934). Where the parties disagree, however, is on the issue of who owns the "book of business" identified as "ECII" as between Albany Associates and Corning's estate.

Resolution of this ownership issue mandates an examination of the daily operations of the particular parties (see Otto v. Imperial Cas. & Ind. Co., 277 F.2d 889, 895 [8th Cir.1960] ). Here, the record demonstrates that by contract with the various insurers, Albany...