Perry & Co. v. New South Ins. Brokers of Georgia, Inc.

• Decision Date: 23 February 1987
• Docket Number: No. 73905,73905
• Citation: 354 S.E.2d 852,182 Ga.App. 84
• Parties: PERRY & COMPANY et al. v. NEW SOUTH INSURANCE BROKERS OF GEORGIA, INC. et al.
• Court: Georgia Court of Appeals

Page 852

354 S.E.2d 852

182 Ga.App. 84

PERRY & COMPANY et al. v. NEW SOUTH INSURANCE BROKERS OF GEORGIA, INC. et al.

No. 73905.

Court of Appeals of Georgia.

Feb. 23, 1987.

Rehearing Denied March 10, 1987.

Certiorari Denied April 30, 1987.

E. Lewis Hansen, C. Michael Johnson, Harold N. Hill, Jr., Atlanta, for appellants.

Wade K. Copeland, Wayne D. McGrew III, Atlanta, for appellees.

DEEN, Presiding Judge.

Appellants Perry & Company and its president Richard C. Perry appeal from a jury verdict and judgment in favor of appellees New South Insurance Brokers of Georgia (New South) and Southern Insurance Company (Southern). New South, a general insurance agency, was hired by Southern, a Texas corporation, to sell and manage its insurance policies in the state of Georgia. New South contracted with Perry & Company to finance policies issued by Southern through the efforts of New South. The action was initiated by appellees against appellants on the grounds that appellants had committed fraud in the handling of insurance policy cancellations and had also engaged in certain conduct which constituted tortious interference with New South's business, resulting in substantial losses. Perry & Company counterclaimed alleging that it had validly cancelled 852 insurance policies and was entitled to a refund of unearned premiums which appellees refused to pay.

The evidence before the jury was sufficient to establish that under the terms of the agreement entered into by the parties thousands of policies were written and financed by Perry. The insured would finance his policy by making a down payment to the agent who procured the policy, who would forward that to New South. The remainder of the policy was financed by the insured through an agreement with Perry signed at the time of the application. Perry would pay New South the balance of the premium owed and the insured was required to make monthly payments to Perry for his unpaid portion of the coverage. In the event the insured failed to make a monthly payment, Perry was entitled to begin cancellation procedures. Under the agreement between Perry and New South, Perry was to issue the insured a "ten day notice of intent to cancel," with notice also to be sent to New South. However, there was evidence that Perry actually sent this notice only to the insured and the procuring agent and no documents concerning the ten-day notice of cancellation were ever sent directly to New South. If Perry failed to receive payment during the ten-day period, under the agreement it was to issue a cancellation notice to the insured and to New South. Under OCGA § 33-22-13 it was also required that Southern be notified of the cancellation. Unknown to appellees, however, Perry held its copy of the cancellation notice for an additional seven days, and if payment was received during that time would send the insured a document entitled a "reinstatement request," which in actuality operated to reinstate the policy. If the insured did not make a payment during the seven-day period Perry would then send New South a cancellation notice. By this practice, New South and Southern were at risk during the seven-day period in the event of a claim of loss, since no valid cancellation had occurred. Thus, if a loss arose, Southern had to pay it; if there were no loss, Southern and New South had to refund the prepaid premiums to Perry. It was shown that Perry also received payments from insureds after the seven-day period and after it had sent New South notice of cancellation, in which case Perry kept the payment from the insured as well as any refunded unearned premiums.

The jury returned a verdict in favor of New South for $200,000 compensatory damages jointly and severally against Perry & Company and Richard C. Perry; $69,500 in punitive damages against Perry & Company and $1 in punitive damages against Richard C. Perry; $10,000 to Southern as compensatory damages against Perry & Company and Richard C. Perry jointly and severally; and $1 in punitive damages to Southern from both Perry & Company and Richard C. Perry. On Perry's counterclaim against New South it was awarded $69,500.

1. Appellant Perry & Company contends that it was entitled to a directed verdict or judgment notwithstanding the verdict on its counterclaim in the amount of $135,646.68, because appellees admitted both in their pleadings and in testimony that this amount was owed as unearned premiums after cancellation of the policies of 852 insureds. New South alleged in its original complaint that after appellants' purported scheme and fraudulent acts became known to it, it withheld payment of those unearned premiums which it believed to be validly cancelled. At trial a representative of New South testified that the claimed amount of $135,646.38, which was based upon figures and documents produced by Perry, "[sounded] right." However, he also stated that it was appellees' position that this amount was "not owed." Moreover, the pre-trial order which controlled the course of the trial recited that although Perry contended that the amount of unearned premiums withheld by New South exceeded $139,000, "this amount remains uncertain." The pre-trial order also specifically delineated as issues to be determined by the jury whether appellees withheld unearned premiums from Perry and, if so, how many dollars in unearned premiums were actually withheld.

Under the circumstances, we are unable to agree with appellants that either the pleadings or the cited testimony constituted an admission in judicio so as to mandate a recovery of the amount Perry claimed to be owed. A primary issue in the case was whether Perry was owed any amount of unearned premiums as a result of its actions in creating ineffective cancellations. While under OCGA § 24-3-30 either party may avail itself of allegations or admissions made in the pleadings, "[s]uch admissions, later amended, are not conclusive, and may be 'explained or disproved by the [party]. [Cits.]' [Cit.] Moreover, the rule that a party will not be allowed to disprove an admission made in his pleading without first withdrawing it from the record applies only to admissions of fact and is not applicable to an admission which is merely an opinion on the part of the party making it as to its legal effect. [Cit.]" Scott v. Jefferson, 174 Ga.App. 651, 652(1), 331 S.E.2d 1 (1985). Accord Aiken v. Dept. of Transp., 171 Ga.App. 154(2), 319 S.E.2d 58 (1984).

2. Nor do we agree with appellants that there could be no fraud as a matter of law from gratuitously permitting the insureds seven extra days to cure their past due payments after cancellation of their policies, because this practice was authorized by the loan agreement between Perry and the insured. This court made it clear in Balboa Ins. Co. v. Hunter, 165 Ga.App. 273, 299 S.E.2d 91 (1983) that the statutory regulations governing premium finance cancellations and the return of unearned premiums in effect during the time involved here (OCGA §§ 33-22-14(a) and 33-24-44(c)) must be read in pari materia, and that therefore a cancellation is ineffective if a tender of the unearned premium is not made within 15 days of notice of cancellation. ¹ See also Alexander Underwriters Gen. Agency v. Lovett, 177 Ga.App. 262, 339 S.E.2d 368 (1985). "The notice requirements of the statutes regarding cancellation of insurance policies are mandatory and require strict compliance and failure to adhere to the requirements results in noncancellation of the policy. [Cits.]" Penn. Nat. Mut. Cas. Ins. Co. v. Person, 164 Ga.App. 488, 490(1), 297 S.E.2d 80 (1982).

Once a policy was cancelled, any payments accepted by Perry became unearned premiums owed back to the insured. If not paid within 15 days, the cancellation was voided and Southern was obligated by Perry's actions, of which it had no knowledge, to provide coverage. Moreover, if there was no cancellation Perry was not entitled to any refund of unearned premiums, and it was for these reasons that New South withheld the money that Perry asserted it was owed.

Perry's argument that these provisions are not applicable here because it was operating as a bank rather than as a part of the insurance industry ignores the fact that by the exercise of the state's regulatory powers over premium finance companies, their role has been recognized "as forming an integral part of the insured-insurer relationship." Cochran v. Paco, Inc., 409 F.Supp. 219, 222 (N.D.Ga.1975). "As a matter of law, all existing and valid statutory provisions extend into and form an integral part of all contracts of insurance to which they are applicable. In case of conflict between the policy and the statutory provisions, the latter control." Thames v. Piedmont Life Ins. Co., 128 Ga.App. 630(1), 197 S.E.2d 412 (1973). "Regardless of the terms of the [premium finance agreement], the minimum requirement for cancellation includes a return of the unearned premium within 15 days unless a rate investigation is necessary. No such investigation has been here alleged." Powell v. Lititz Mut. Ins. Co., 419 F.2d 62, 66 (5th Cir.1969). Hence the conflicting terms of the financing agreement cannot be enforced. Cf. Johnson v. Southeastern Fid. Ins. Co., 178 Ga.App. 431(3), 343 S.E.2d 709 (1986).

The jury, by awarding Perry less than the amount it contended it was owed, must have concluded that many of the purported cancellations were in fact void. The evidence presented at trial was sufficient to authorize a determination that Perry had a long-standing policy of not cancelling on the date stated in the notice of cancellation, but of providing an additional seven days of coverage for the insured without the knowledge of the insurer. Thus the trial court correctly refused to direct a verdict or grant appellants' motion for j.n.o.v. on this issue. Cf. Penn. Nat. Mut. Cas. Ins. Co. v. Person, supra.

3. Appellants' enumerations of error based upon appellees' failure to prove their...