In re Taylor Agency, Inc., 00-12425-WSS.

• Decision Date: 14 June 2001
• Docket Number: No. 00-12425-WSS.,No. 00-12428-WSS.,00-12425-WSS.,00-12428-WSS.
• Citation: 281 B.R. 354
• Parties: In re the TAYLOR AGENCY, INC., d/b/a Taylor Insurance Agency, Inc., Debtor. In re Patricia Lynn Taylor, Debtor.
• Court: U.S. Bankruptcy Court — Southern District of Alabama

281 B.R. 354

In re the TAYLOR AGENCY, INC., d/b/a Taylor Insurance Agency, Inc., Debtor In re Patricia Lynn Taylor, Debtor.

No. 00-12425-WSS.

No. 00-12428-WSS.

United States Bankruptcy Court, S.D. Alabama.

June 14, 2001.

COPYRIGHT MATERIAL OMITTED

William H. Hardy, Jr., Mobile, AL, for Siuprem, Inc.

Carol H. Stewart and Michael Leo Hall, Birmingham, AL, for Morgan Premium Finance, Inc.

Winston R. Grow, Mobile, AL, for American Resources Insurance Company.

Michael J. Clemmer, Birmingham, AL, for Premium Assignment Corporation.

C. Michael Smith and William A. Kimbrough, Jr., Mobile, AL, for Debtors.

ORDER

WILLIAM S. SHULMAN, Bankruptcy Judge.

This matter came before the Court on the trial of the involuntary bankruptcy proceeding filed against the Taylor Agency, Inc., (hereinafter referred to as the "Taylor Agency"), and Patricia Lynn Taylor (hereinafter individually referred to as "Taylor" and jointly referred to as "Debtors"), and the motion of the Debtors requesting that the Court abstain or dismiss the proceedings. After a hearing on the merits, the Court took this matter under submission.

FINDINGS OF FACT

The petitioning creditors, Morgan Premium Finance, Inc. (hereinafter referred to as "Morgan"), American Resources Insurance Company (hereinafter referred to as "American"), and Siuprem, Inc. (hereinafter "Siuprem") initiated this involuntary proceeding on June 22, 2000 by filing an involuntary petition against Taylor and the Taylor Agency. Premium Assignment Corporation (hereinafter referred to as "Premium") joined as a petitioning creditor on October 19, 2000. The Debtors filed answers to the involuntary petition and filed motions to abstain or dismiss the proceeding.

Premium and American hold judgments against The Taylor Agency totaling over $303,000.00. Morgan and Siuprem are insurance premium finance companies that did business with the Debtors. The Taylor Agency is a corporation, now defunct, that operated as an insurance agency in Gilbertown, Alabama and Taylor was its president.

In the course of doing business, the Debtors would put together insurance policies for their clients, and Morgan and Siuprem would from time to time, enter into a financial arrangement whereby they would finance the premiums. Drafts or checks would be issued by them to the Taylor Agency on behalf of the insured. These would be deposited in a bank account of the Taylor Agency to be used for payment of the premium to various insurance companies providing insurance to the insured.

Siuprem filed suit against the Debtors in the United States District Court, Southern District of Alabama, in September 1999. The complaint alleged that the Debtors negligently made advances on behalf of Siuprem and other premium finance companies on behalf of the same insured and that the Debtors committed fraud in obtaining loans to finance the insurance premiums. In addition, exhibits admitted in evidence reflect a number of checks issued by The Taylor Agency returned for insufficient funds. (Exhibit SIUP-G). The Taylor Agency agreed to indemnify Suiprem for any losses under the draft authority. (Exhibit SIUP-B). In all, Siuprem has claims against the Taylor Agency for approximately $517,000.00.

Morgan placed into evidence documents that showed the Taylor Agency liable to Morgan for checks returned for insufficient funds and for unearned premiums which were due to be paid back to Morgan when certain insurance contracts were canceled. The approximate amount due to Morgan from the Taylor Agency based on these sums totaled $51,000.00 plus other fees and charges.

The Alabama Department of Insurance filed a 31 count complaint against Taylor on February 25, 2000 charging that she had violated the Alabama Insurance Code by making intentional misrepresentations, engaging in fraudulent conduct, failing to account for and pay funds over to an insurer, or others, and misappropriating, converting, or unlawfully withholding money belonging to insurers or others. (See Exhibit MP-14).

An emergency order to cease and desist was entered by the Alabama Department of Insurance on February 25, 2000. On April 12, 2000, an order was entered upon the default of Taylor to respond to the complaint. The order found that she had committed the violations set forth in the complaint, and revoked her agency and broker licenses. The order further required that she turn over any funds and premiums which she received and held in trust, and also ordered her to reimburse all monies owed to insureds, insurers, or others for monies owed as a result of the insurance transactions contained in the complaint. (Exhibit MP-16).

The evidence further shows that Taylor signed insurance premium finance agreements with both Siuprem and Morgan as an agent/broker, whereby she agreed to refund any unearned commissions and unearned premiums, thereby creating personal liability for at least part of the indebtedness owed by the Taylor Agency. (Exhibit MP-19, 21; Exhibit Siup-D).

American submitted into evidence a complaint which was filed in the Circuit Court of Mobile County, Alabama against the Taylor Agency and Taylor alleging that the Taylor Agency owed American for premiums collected, but not paid, and for certain commissions which should have been refunded to American. Individual liability against Taylor was claimed because of an indemnity agreement dated November 20, 1991, wherein the complaint alleged Taylor agreed to reimburse American for losses sustained by the failure of the Taylor Agency to make payment to American. (See Exhibit AR-5). The indemnity agreement was executed as follows: "Lynn M. Taylor, Sec.Tres., of the Taylor Agency, Inc.".

The Taylor Agency was issued an errors and omission insurance policy by Employer's Reinsurance Corporation covering the period from May 20, 1999 to May 20, 2000. (See Ex. Siup. M). The named insured is "The Taylor Agency, Inc.", and the term "insured" is defined in Section V to include the named insured and any owner, partners, executive officer, or employee of the named insured while acting within the scope of that person's duties.

Under the policy, Employers Reinsurance Corporation agreed to pay the liability imposed on the insured for damages caused by:

(a) any negligent act, error, or omission of the Insured or any person for whose acts the Insured is legally liable ...

(§ 1(a)).

The original exclusions appearing on page 3 of Form ERC 1219J were amended by the endorsement PAL-11 which states:

IT IS AGREED that this policy is extended to cover dishonest, fraudulent, criminal, or malicious acts committed by an employee of the Named Insured, and paragraph (a) of the section of this policy captioned "Exclusions" is hereby amended accordingly. The coverage provided by this Endorsement shall extend to the Named Insured and any Insured provided that such insured did not personally participate or ratify the dishonest, fraudulent, or criminal act.

The Taylor Agency would appear, therefore, to be insured against dishonest, fraudulent, criminal, or malicious acts committed by its employee Taylor.

CONCLUSIONS OF LAW

DISMISSAL UNDER § 303(b)(1)

The Debtors raised in their reply brief the issue that the petitioning creditors have not met their burden under 11 U.S.C. § 303(b)(1).¹ Specifically, Debtors claim that less than three of the petitioning creditors hold a claim against the Debtors that is not contingent as to liability. The facts in the case clearly show that as to the Taylor Agency, all four of the petitioning creditors hold non-contingent claims, some of which are liquidated in the form of a judgment. However, the evidence is less clear with respect to the individual debtor, Patricia Lynn Taylor. Premium had a summary judgment entered against the Taylor Agency and had no resolution of its suit against Taylor, individually. (See Exhibits PAC 1 and 2). Nor was any evidence introduced at trial that would show what the nature of Premium's suit was as to Taylor. American filed suit against the Taylor Agency in state court on theories of an itemized account and breach of contract, and sued Taylor on an indemnity agreement. (See Exhibits AR 2 and 4).

Siuprem and Morgan have shown Taylor individually liable pursuant to their premium finance agreements which she executed. However, American relies on the indemnity agreement which was signed by Taylor, but executed in a corporate capacity. The language of the indemnity refers to "we, the undersigned" and the only signature is that of Taylor as secretary-treasurer of the Taylor Agency, Inc. In the case of Marriott International, Inc. v. deCelle, 722 So.2d. 760 (Ala.1998) a creditor sued to collect on a guaranty from the debtor's president in his individual capacity. Although the guaranty agreement that deCelle signed was in his representative capacity as president, the body of the guaranty contract stated that the undersigned "individual" guarantees the debt of Sum Big Stores, Inc. The facts in the instant case are similar. The Alabama Supreme Court reversed the trial court which had dismissed the suit. The Court stated that "taken, as a whole, the guaranty contract is inconsistent as to whether Mr. deCelle signed in his representative capacity. Thus, the contract is ambiguous as to whether the parties intended Mr. deCelle to guarantee the debt in his individual capacity." deCelle, 722 So.2d at 763 (citations omitted).

The burden is on the petitioning creditor to establish a prima facie case that there is no bona fide dispute or that the claim is not contingent as to the liability. In determining whether a creditor's claim is subject to a "bona fide dispute" within the meaning of Section 303(b)(1), the courts have adopted an objective standard. In the Matter of Earl Sims, 994 F.2d 210 (5th Cir.1993); In re Eastown Auto Co., 215 B.R. 960 (6th Cir. BAP 1998).

A bona fide dispute exists "if there is a genuine issue of material fact that bears upon the debtor's liability, or a...