Decision Date11 January 2001
Docket NumberNo. 50,50
Citation362 Md. 361,765 A.2d 587
CourtMaryland Court of Appeals

James R. Chason (Leora R. Simantov of Whiteford, Taylor & Preston, L.L.P., on brief), Towson, for appellants.

James R. Schraf of Lipshultz and Hone, Chartered, Silver Spring, for appellees. Argued before BELL, C.J., and ELDRIDGE, RAKER, WILNER, CATHELL, HARRELL and LAWRENCE F. RODOWSKY, (Retired, specially assigned), JJ.


This case involves an analysis of the fiduciary duty that an agent owes to its principal. Appellant, Insurance Company of North America et al. (INA),1 filed a Complaint in the Circuit Court for Baltimore County against William Ray Miller, II, appellee, and North American Risk Management, Inc. (NARM),2 alleging several causes of action, including conversion, breach of fiduciary duty, and negligence arising out of Miller's knowledge of, and participation in, a premium diversion scheme. Appellant filed a Motion for Partial Summary Judgment for the breach of fiduciary duty claim against Mr. Miller, which was denied by the Circuit Court.3

When the case went to trial on November 30, 1999, appellant proceeded against appellee on the claims for breach of fiduciary duty and negligence. After the evidentiary phase of the bench trial was concluded, the trial judge entered judgment in favor of NARM on all claims, and entered judgment in favor of appellee on the claims for conversion and "suit on account." Then the Circuit Court, prior to closing arguments, requested that the parties prepare trial memoranda on the relevant law concerning the fiduciary duty that an agent owes to a principal. Closing arguments took place on December 10, 1999, after which the Circuit Court entered judgment in favor of appellee on all remaining counts. Appellant filed a timely notice of appeal to the Court of Special Appeals. On our own initiative, we granted review prior to argument in the Court of Special Appeals. Appellant presents two questions to this Court:

1. Did the trial court err by ruling that Miller did not breach any fiduciary duties and was not negligent by obtaining premium financing for an insurance premium of an INA insured, and using the funds to pay another premium financing company, instead of paying the funds directly to INA for the premium due?

2. Did the trial court err by ruling that Miller was not an agent of INA for the purpose of collecting premiums and forwarding premiums to INA, and, as a result, did not breach any fiduciary duties by failing to do so?

We answer both questions in the affirmative. Under the circumstances here present, appellee was an agent of INA for the purpose of collecting and forwarding premiums, which imposed upon him a fiduciary duty to INA, which he breached by failing to forward to INA the relevant premiums and/or by not notifying INA, or timely sharing with INA his knowledge, that the premiums at issue were being improperly diverted. Additionally, appellee breached his fiduciary duty to INA when he actively participated in obtaining premium financing for an insurance premium of an INA insured, and used the funds to return to another premium financing company monies due it on a completely unrelated transaction, instead of causing the funds to be remitted directly to INA for the premium due it. We also hold that appellee's actions in the double financing scheme, at a minimum, could constitute negligence. Accordingly, we reverse the ruling of the Circuit Court for Baltimore County and shall remand the case to that court for further proceedings consistent with this opinion.

I. Facts

Appellee has been a licensed insurance agent in the State of Maryland since 1992. Appellee worked at J.L. Hickman & Company, Inc.,4 a Texas-based insurance brokerage, from approximately 1993 to early 1997, when the Hickman Agency went out of business. The Hickman Agency's primary line of business was writing coverage for the funeral industry. At some point prior to August 1995, appellee became the Chief Operating Officer and Executive Vice President of the Hickman Agency, and held himself out as such. He was paid a salary as an employee of the Hickman Agency and earned commissions on insurance sales generated by himself and the Hickman Agency.

Effective August 1, 1995, the Hickman Agency entered into a CIGNA Agency Company Agreement with INA. This agreement was signed by appellee as Chief Operating Officer and Executive Vice President of the Hickman Agency. The agreement created a principal-agent relationship between INA and the Hickman Agency, respectively, from August 1, 1995 until the Hickman Agency ceased operations in early 1997. The agreement provided:

1 Our Relationship

a Authority. You will act as our agent for those lines of business and those territories in which you and we[5] are both licensed and where we specifically authorize you to do business....


2 Your Authority and Duties


b Collection of Premiums.


3 All premiums, including return premiums, which you receive are our property. You will hold such premiums as a trustee for us. This trust relationship and our ownership of the premiums will not be affected by our books showing a creditor-debtor relationship, the amount of balances at stated periods or your retention of commissions. Unless we agree otherwise in writing, you must maintain premium monies in a separate bank account and not mingle such monies with your own funds.

On at least two separate occasions, Mr. Miller acknowledged that his personal relationship with INA was that of agent and principal. At trial, Mr. Miller, through counsel, stipulated that he was an appointed agent for INA from October 1995 through the Spring of 1997. Additionally, in a third-party action filed by appellee in the Circuit Court for Baltimore County against Utica Mutual Insurance Company, case number 03-C-97-007281, he again recognized the principal-agent relationship between INA and himself and that the provisions of the agreement applied to him individually. INA has brought this complaint against appellee for his actions and involvement in a complex double financing scheme. According to Ms. Mannino's6 testimony, the Hickman Agency had three bank accounts: Account Number 346 was a money market account; Account Number XXXXX was referred to as a commission account; and Account Number 722 was a trust account to which premium trust monies were to be deposited so as to be available to pay premiums to insurance carriers. These accounts were not managed properly—as discussed, infra, the premium dollars, intentionally, were not held "in trust" at the agency.

The Hickman Agency and appellee7 were required under Maryland insurance regulations and its agreement with the CIGNA Companies to hold premium dollars paid by an insured or a premium financing company in trust for INA.8 On redirect examination, Mr. Miller acknowledged that it was a general practice that an insurance company would expect proceeds of a premium financing agreement to be paid directly to it, without being retained by the insurance agency. The Hickman Agency's cash flow management plan involved agents, including appellee, obtaining an insurance policy for a customer and setting up an installment payment plan for the premium due with the insurance company. The agent would not always inform the insured of the installment plan. At the same time, the agent, in this case appellee, would obtain financing of the same premium amount for the insured through a premium financing company.

Generally, the premium financing company would pay the full amount of the premium to the Hickman Agency, with the expectation that the full amount would be paid directly to the insurance company. However, under the scheme utilized by the Hickman Agency and known to appellee, the full amount received from the premium financing company was not immediately paid over to insurance companies, including INA. Instead, the Hickman Agency would deposit the premium payment into its own bank account, and only pay the insurance company the amount of the "installment" that the insurance company believed, as a result of information furnished by the agency, was due. The insured's premiums would generally be used to repay the premium financing company over a period of time. Apparently, neither the insureds, nor the premium financing companies, nor the insurer were aware of the scheme.9

The money that improperly remained with the Hickman Agency was moved with appellee's knowledge and sometimes with his active participation out of the trust account and was apparently used to pay other expenses within the Hickman Agency. This was true for premiums paid to the Hickman Agency on INA accounts as well as accounts of other insurance companies. In other words, the premiums were held "out-of-trust." By depositing the full amount of the insured's premium advanced by the premium financing company (or the insured) into its own bank account, the Hickman Agency had the benefit of having the money (or part of it) for its own use from the time the money was received until the money was needed to pay installments to the insurance company.10

Appellee was aware of, and actively participated in, and was in charge of, several accounts that had this "double financing" scheme in place. The evidence presented on the record demonstrates that he was responsible for signing checks and sending premium payments to INA for "installments" that INA believed were due on numerous accounts. Mr. Miller admitted, during direct examination, that "it wouldn't be necessary for the insured to stretch out payments over time with an installment plan if they had an insurance premium financing plan in place...." Ms. Suzanne DiSanti, a financial coordinator for the CIGNA Companies, testified that no "rule or regulation or policy of the CIGNA Companies allow the use of premium funds for anything other...

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