Piedmont Premium Service, Inc. v. South Carolina Ins. Co., 21577

• Decision Date: 30 September 1981
• Docket Number: No. 21577,21577
• Citation: 277 S.C. 99,283 S.E.2d 828
• Court: South Carolina Supreme Court
• Parties: PIEDMONT PREMIUM SERVICE, INC., Respondent, v. SOUTH CAROLINA INSURANCE COMPANY, Appellant.

Page 828

283 S.E.2d 828

277 S.C. 99

PIEDMONT PREMIUM SERVICE, INC., Respondent, v. SOUTH CAROLINA INSURANCE COMPANY, Appellant.

No. 21577.

Supreme Court of South Carolina.

Sept. 30, 1981.

R. Bruce Shaw and Thornwell F. Sowell, III, of Nelson, Mullins, Grier & Scarborough, Columbia, for appellant.

Robert C. Wilson, Jr., of Haynsworth, Perry, Bryant, Marion & Johnstone, Greenville, for respondent.

LEWIS, Chief Justice:

This appeal is taken from a judgment for actual and punitive damages entered for respondent after jury trial of an action for breach of contract. The complaint alleged that the appellant had wrongfully refused to return certain monies paid to the appellant's agent and that this breach of contract was accompanied by misrepresentations amounting to a fraudulent act. At trial the appellant made timely motions for a directed verdict and for judgment notwithstanding the verdict, which motions were denied. We affirm the holding of the trial court as to actual damages but reverse as to the award of punitive damages.

At the time this controversy arose, the respondent was engaged in premium financing, which is the business of providing loans to prospective purchasers of insurance. The typical finance transaction consists of a loan agreement by the terms of which a lender makes premium payments directly to the insurer on behalf of a customer. This practice is called "premium servicing" in South Carolina and is governed by statute. See Section 38-27-10 et seq., Code of Laws of South Carolina, 1976.

The record discloses that respondent provided premium servicing for automobile insurance to customers of Southern Surety of Greenwood, a "designated agent" of the appellant within the meaning of Section 38-37-150, Code. There is no dispute that Southern Surety was authorized to act as the appellant's agent in the collection of insurance premiums and was known to the respondent as such. Dispute arises over certain payments made by the respondent to Southern Surety which were converted by the latter to its own use. These wrongful conversions took several forms: in some instances, payments on legitimate insurance applications were diverted outright ; in other cases, fraudulently inflated premium amounts were quoted to the respondent and the premium payments were then appropriated wholly or in part; finally, fictitious or forged insurance applications were submitted to the respondent to generate loans the proceeds of which were retained by Southern Surety.

Ultimately this scheme was discovered, but not before the respondent had made substantial payments. It appears that the respondent attempted to cancel the policies of some of its defaulting customers prior to the discovery of wrongdoing by Southern Surety. After the fraud was revealed, its demands for reimbursement were renewed but were steadfastly rejected by the appellant. This suit followed.

The common law rule, of course, is that a party lacking a contractual relation or privity with an insurer cannot recover premiums that are paid as a loan to the insured even where payment is made directly to the insurer's agent. 44 C.J.S., Insurance, Section 405(b), p. 1389; Couch on Insurance, 2d...