Professional Ins. Management v. Ohio Cas. Group

• Decision Date: 29 February 2000
• Docket Number: CIV.A. 00-060 (JBS). Bankruptcy No. 94-13602. Adversary No. 94-1312.,No. CIV.A. 99-5919 (JBS),CIV.A. 99-5919 (JBS)
• Citation: 246 BR 47
• Parties: PROFESSIONAL INSURANCE MANAGEMENT, Plaintiff-Appellee, v. THE OHIO CASUALTY GROUP OF INSURANCE COMPANIES, et al., Defendants-Appellants. and Professional Insurance Management, Plaintiff-Appellee, v. The Ohio Casualty Group Of Insurance Companies, et al., Defendants-Appellants.
• Court: U.S. District Court — District of New Jersey

246 B.R. 47 (2000)

PROFESSIONAL INSURANCE MANAGEMENT, Plaintiff-Appellee, v. THE OHIO CASUALTY GROUP OF INSURANCE COMPANIES, et al., Defendants-Appellants. and Professional Insurance Management, Plaintiff-Appellee, v. The Ohio Casualty Group Of Insurance Companies, et al., Defendants-Appellants.

Nos. CIV.A. 99-5919 (JBS), CIV.A. 00-060 (JBS). Bankruptcy No. 94-13602. Adversary No. 94-1312.

United States District Court, D. New Jersey.

February 29, 2000.

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Samuel Mandel, Moorestown, NJ and Michael A. Zindler, Markowitz & Zindler, Lawrenceville, NJ for Plaintiff-Appellee.

Carl J. Soranno, Charles X. Gormally, Brach, Eichler, Rosenberg, Silver, Bernstein, Hammer & Gladstone, Roseland, NJ for Defendants-Appellants.

OPINION

SIMANDLE, District Judge:

                                                Table of Contents
                Introduction .........................................................52
                  I. BACKGROUND ......................................................53
                 II. DISCUSSION ......................................................58
                     A. Jurisdiction and Standard of Review ..........................58
                        1. Appellate Jurisdiction ....................................58
                        2. Standard of Review on Appeal ..............................60
                        3. Primary Jurisdiction.......................................60
                     B. Whether PIM Was Terminated At Will or For Cause ..............62
                     C. Recoupment ...................................................65
                     D. Constructive Trust ...........................................68
                     E. Interest .....................................................69
                     F. Contempt......................................................71
                III. CONCLUSION ......................................................74
                

Introduction

This matter is before this Court on appeals of rulings entered in the Bankruptcy Court, the Honorable Judith Wizmur presiding, in a dispute between an insurance company and its former agent. In opinions dated July 12, 1999 and September 22, 1999, and Orders dated, respectively, July 30, 1999 and October 14, 1999, the Bankruptcy Court ruled that defendants-appellants, The Ohio Casualty Group of Insurance Companies ("Ohio Casualty"), must turn over to plaintiff, Professional Insurance Management ("PIM" or "Debtor"), $216,569.79 in owed commissions, plus additional commissions that continue to be earned. Since that time, the Bankruptcy Court has also ordered that Ohio Casualty also pay interest on that amount and has held Ohio Casualty in contempt for failure to pay over the moneys due by the deadline set by the Bankruptcy Court. Ohio Casualty appeals¹ those orders to this Court and asks this Court to reject the Bankruptcy Court's findings of fact and conclusions of law regarding the issue of contempt. For the reasons stated herein, this Court will affirm the Bankruptcy Court's orders to pay over commissions and interest, and this Court vacates the Bankruptcy Court's finding of contempt.

I. BACKGROUND

The facts of this case are set out at length in previous opinions of this Court. Largely, this Court refers the reader to the facts as stated by the Bankruptcy Court in the July 12, 1999 and September 22, 1999 Opinions; though Ohio Casualty disputes some of these facts, upon an independent review of the record, this Court finds that none of the factual findings were clearly erroneous.² By way of background for this Opinion, this Court will summarize the most relevant facts and procedural history.

Debtor/Appellee, Professional Insurance Management ("PIM"), is a licensed New Jersey insurance agent that produces both personal and commercial lines of insurance. In 1982, PIM entered into an agency relationship with the Ohio Casualty Group of Insurance Companies and its subsidiaries. Under the Ohio Casualty-PIM agency agreement, PIM was to market Ohio Casualty's personal and commercial insurance policies by locating customers, determining their insurance needs, and selling them appropriate Ohio Casualty insurance. In the case of personal automobile insurance, Ohio Casualty was to collect premiums directly from the policy holders and then send commissions to PIM. Other premiums, such as those on commercial insurance, were collected by PIM, who sent the money to Ohio Casualty minus the sales commissions. The agency agreement allowed Ohio Casualty to cancel the contract on 90 days notice.

For those insurance premiums which were paid through PIM (personal automobile insurance), Ohio Casualty provided PIM and its other agents with a monthly account statement detailing each insurance account, the type of insurance, the gross premium, the commission rate, and details of the amounts currently due, past due, and due in the future. The statements were compiled on the last day of the month and PIM would receive them at the beginning of the next month. PIM would compare its own records with the statement and reconcile the items in the "currently due" column, placing a check mark next to each item that it would pay or take a credit on, and "line off" entries with which it disagreed, explaining why it disagreed and "carrying forward" that item to the past due column on the next monthly statement. Some items remained in that column for months while the parties resolved them. The undisputed payments would be totaled and paid by check and through credits representing either credit vouchers or amounts deposited into PIM's account by Ocasco Budget Company, Ohio Casualty's premium financing arm.

The reconciliation and payments were due by the fifteenth of the month, at which time Ohio's Agency Accounts Department would review the reconciliation, either agreeing that PIM was correct that a particular item was not due or disagreeing with PIM and therefore placing a "please remit" code next to the disputed item in the past due column. Ohio Casualty had further review procedures in place when an item remained unpaid. Ohio Casualty became concerned about PIM's accounting practices because 25% or more of the amount due on PIM's statements was typically "past due," causing Ohio Casualty to worry that PIM was "floating money." The process continued in this fashion.

In 1992 and 1993, PIM paid approximately 96-98% of its premiums with Ocasco premiums or with cash received from other premium financing companies or the insureds themselves. Ohio Casualty allowed PIM to use credits to pay currently-due amounts even though the credit taken might be from a different insured's policy than the one for which PIM was paying Ohio Casualty and retaining its premiums; the Ocasco Budget manual provided that the credit voucher "may be used to pay any balance currently due to Ohio and does not have to be used to pay the premium of the policy financed." (Trial Ex. P-8, p. 3.)

There was a history of accounting problems with PIM dating back to 1989. Part of these problems included that PIM would take credits prematurely (i.e., before policy numbers were issued, before credit vouchers were returned, or before Ocasco deposited moneys into PIM's account). Other problems included that PIM would make payment one to five days late. Ohio Casualty would complain to PIM about its practices and temporarily suspend PIM as an agent or deny PIM the opportunity to use Ocasco Budget financing, only to reinstate PIM's privileges that same day or within a few days.

On November 15, 1993, Ohio Casualty, through its Branch Manager, David Himes, sent a letter to PIM that provided that Debtor would "no longer have the authority to write new business or bind coverage effective November 19, 1993," and that the agency relationship was terminated effective March 1, 1994. Four days later, Ohio Casualty issued the "official form letter" establishing the procedures for renewals. For example, for the first twelve months after March 1, 1994, PIM could request renewal of policies in writing; for personal automobile insurance policies only, the insured could choose to renew its policy after the twelve-month period through PIM, while renewals on all other policies after the twelve-month period would not go through PIM. The parties dispute the reason for the termination. According to Ohio Casualty, PIM had failed to account for premiums due the Company and for conversion of premiums. According to PIM, it was terminated because it was unwilling to violate the Fair Automobile Insurance Reform Act of 1990 ("FAIRA"), N.J.S.A. 17:33B-1 et seq.

In the months after the Notice of Termination was sent, monthly statements continued to be sent, reconciliations conducted, and payments made by PIM. Continued correspondence confirmed Ohio's intention to renew commercial policies through PIM for one year. The Notice of Termination itself, as well as forms Ohio Casualty submitted to the New Jersey Department of Insurance noticing PIM's termination, stated that the reasons for termination were "Poor loss ratio; continued accounting differences and continued pay off sic problems with premium finance companies and canceled accounts." PIM unsuccessfully sought injunctive relief, first in federal court and then in state court, after this termination.

Beginning in January 1994, after the Notice of Termination was sent, PIM began to take "improper credits" through selfhelp.³ For example, at one point, PIM took a $9,095.52 credit against premiums due to Ohio Casualty because PIM claimed that a producer had a "restrictive covenant." (Debtor's Ex. 11 to Debtor's Motion to Expunge Ohio Casualty's Claim.) Another time, PIM improperly took a $52,000 offset. (Id. at Ex. 10.) After January 1994, PIM applied credit for commissions owed on personal lines that Ohio Casualty began to withhold in October of 1993. As a result, as of the date of bankruptcy filing on August 4, 1994, PIM owed Ohio Casualty approximately $252,000. PIM's acts in withholding those sums were not...