Southwestern Indem. Co. v. Cimarron Ins. Co.

• Decision Date: 14 April 1960
• Docket Number: No. 3711,3711
• Citation: 334 S.W.2d 831
• Parties: SOUTHWESTERN INDEMNITY COMPANY, Appellant, v. CIMARRON INSURANCE COMPANY, Appellee.
• Court: Texas Court of Appeals

Page 831

334 S.W.2d 831

SOUTHWESTERN INDEMNITY COMPANY, Appellant, v. CIMARRON INSURANCE COMPANY, Appellee.

No. 3711.

Court of Civil Appeals of Texas, Waco.

April 14, 1960.

Rehearing Denied May 5, 1960.

Beard, Kultgen & Beard, Waco, for appellant.

Turner, White, Atwood, McLane & Francis (L. Ray Pearce), Dallas, for appellee.

McDONALD, Chief Justice.

This is a suit brought by Southwestern Indemnity Company as plaintiff, against Cimarron Insurance Company to recover for losses incurred by Southwestern as a result of the fraud of one Rymer; the contention being that Cimarron had, with knowledge, partaken of the benefits of the fraud of Rymer. Rymer had been a local recording agent of both Southwestern and Cimarron. Cimarron cancelled its contract with Rymer in July, 1957, at which time Rymer owed Cimarron money for Cimarron's part of premiums collected by Rymer but not remitted to Cimarron. On December 31, 1957 Cimarron cancelled all its policies which Rymer had written. Cancellation was effective as of January 10, 1958. Because of the cancellation, the Cimarron policyholders were entitled to a refund of the unearned portion of the premium on their policies. Cimarron did not make this refund to the policyholders. Instead, it credited Rymer's account on its books. Rymer did not make any refund to the policyholders. Instead, he rewrote the policies (here involved), with Southwestern. At the time the Cimarron policies were rewritten in Southwestern, Rymer was insolvent. Shortly afterwards Southwestern discovered Rymer's financial condition and cancelled his agency contract. Southwestern then cancelled the policies Rymer had rewritten with it. Subsequently it paid return premiums on some of these policies and reinstated others. Southwestern sues Cimarron for the amount of return premiums it paid on the rewritten Cimarron policies, together with the amount of loss it suffered for premiums not paid to it by Rymer of the policies it reinstated.

Trial was to a jury which, in answer to special issues submitted by the court, found:

1) That Cimarron knew that Rymer could not pay the premiums owed on its policies at the time it cancelled such policies.

2) That Cimarron also knew Rymer would try to place the cancelled policies with other insurance companies.

3) That Cimarron knew Rymer would probably be unable to pay the premiums on the new policies.

4) That there was no reasonable probability that Rymer could pay Southwestern for the replacement policies which it wrote.

5) That Rymer knew that he could not pay for these policies.

6) That Rymer concealed his insolvency in order to induce Southwestern to write the new policies.

7) That Southwestern was unaware of Rymer's insolvency when it wrote the policies in question and would have cancelled Rymer's authority to write them, had it known the truth.

8) That Southwestern paid out $1,209.09 in return premiums on these policies.

9) That with respect to the policies which it reinstated, it suffered a loss of $2,086.67.

10) That Rymer had been instructed by Southwestern not to rewrite with it policies cancelled wholesale by another company, and

11) That Southwestern's acceptance of an assignment of a balance due Rymer from Cimarron was not a waiver of its rights against Cimarron.

The Trial Court, after receiving the foregoing verdict, refused plaintiff's motion for judgment on the verdict, and rendered judgment for defendant Cimarron, non obstante veredicto.

Southwestern appeals, contending that the Trial Court erred in rendering judgment non obstante veredicto for Cimarron and in refusing to render judgment for plaintiff because: a) Rymer defrauded Southwestern and b) Cimarron was liable for Rymer's fraud.

Plaintiff, Southwestern, plead fully the factual situation here detailed. The proof fully sustains the pleadings. The only question presented being, whether, as a matter of law, relief is afforded in such situation.

The elements of fraud are: 1) misrepresentation of a material fact; 2) with intention to induce action or inaction; 3) reliance by the plaintiff; and 4) damage. Avery Co. v. Harrison Co., Com.App., 267 S.W. 254. To conceal where there is a duty to reveal amounts to misrepresentation. There is a duty to reveal where the relationship between the parties is one of confidence and trust. Long v. Martin, Tex.Civ.App., 234 S.W. 91, Er. Dis.

There is no question but that Rymer practiced a fraud upon Southwestern. Rymer did not reveal his insolvency to Southwestern. He had such duty because he was the company's agent. Instead, he wrote insurance with them to replace wholesale cancellation of policies he had previously written in Cimarron Insurance Company, when he knew he was insolvent and could not remit Southwestern's part of the premiums. Southwestern suffered damages as the result of this fraud in the amount of $3,296.76.

Cimarron is liable for Rymer's fraud if Rymer was Cimarron's agent, or if Cimarron knowingly benefited from the fraud. Cimarron contends that Rymer was not its agent since they had previously cancelled Rymer's agency contract. But when it cancelled the policies written through Rymer's agency, it became liable to the policyholders to pay the unearned premium. This obligation was due to the policyholders, not to Rymer. Cimarron did not pay its policyholders. It simply credited Rymer's account. Thus it in effect paid over the policyholders' money to Rymer. Rymer did not have authority from the policyholders to receive such payment. See Gulf Insurance Co. v. Beckville, Tex.Civ.App.1931, 38 S.W.2d 828 (W/E Ref.) When Cimarron credited Rymer's account with the return premiums, it in effect constituted Rymer its agent to handle the matter for it. The jury found that Cimarron expected that Rymer would discharge its liability to the policyholders by procuring new policies from another company. We think Rymer may well have been Cimarron's agent when he procured the Southwestern policies. However, under the undisputed factual situation, we think it becomes immaterial as to whether Rymer was Cimarron's agent, in that Cimarron becomes liable in any event for the reasons hereinafter set out. Cimarron set in motion the chain of circumstances which resulted in Southwestern's injury, and then accepted the benefit of the fraud practiced upon Southwestern by Rymer. If Cimarron had done that which it ought to have done, and was by law bound to do, that is, paid the policyholders the unearned premium due them on the policies which Cimarron was cancelling, Cimarron could not have been liable. But Cimarron knew Rymer was insolvent, and the only way it could ever collect from Rymer the money Rymer owed it was to credit his account with the unearned premiums due the policyholders, and 'expect' him to rewrite the policies elsewhere, knowing he could not remit to the company amounts due for the policies so rewritten. It worked out in that manner, and Rymer rewrote the policies with Southwestern and in so doing, committed a fraud upon them. The jury so found and the record sustains such finding. Cimarron partook of the benefits of the fraudulent transaction practiced by Rymer upon Southwestern and became liable for the assets received. 20A Tex.Jur. p. 124, citing many cases, states:

'Partaking of the benefits of a fraudulent transaction ordinarily makes the participants principals and liable as such.'

Brach v. Moen, 8 Cir., 35 F.2d 475, 482, expresses the rule thusly:

'Under the general rule it has been held that one knowingly accepting the benefits of fraud is liable not only where he knew of and consented to the fraud at the time it was perpetrated, but also where he was personally innocent and had neither authorized nor known of the fraud at the time of its commission. The doctrine is most frequently applied where a principal accepts the benefits of his agent's fraud; but liability under the doctrine may exist apart from the theory of agency.'

Our Supreme Court adheres to such rule in Pierce v. Fort, 60 Tex. 464; and this court in King v. Cliett, Tex.Civ.App., 1930, 31 S.W.2d 350. W/E Ref. holds that all who participate in a fraud, or who receive benefits from a fraud, are liable in damages to the party defrauded to the extent of the benefits received. As noted, Cimarron, in its zeal to collect the moneys due from the known insolvent Rymer, set in motion the chain of circumstances in which Rymer defrauded Southwestern. Then Cimarron accepted nearly $3,300 of the benefits inuring from such fraud. The record reflects that Cimarron expected Rymer to do exactly what he did. Cimarron knew that its loss was going to be shifted to plaintiff, or to some other insurance company similarly situated. This was equivalent to a knowledge of the fraud itself; and Cimarron thereafter participated in the benefits of the fraud. Cimarron knowingly benefited from Rymer's fraud and for such reason is liable for the benefits received.

We think that one should not profit by his own wrongdoing. Cimarron did not refund the unearned premiums to the policyholders, as was its duty to do when it cancelled the policies. That money belonged to the policyholders, and not to Cimarron and not to Rymer. But Cimarron knew Rymer was insolvent and the only way it could ever collect Rymer's debt to it was to credit these unearned premiums to Rymer's account, and 'expect' that Rymer would issue policies with some other company to 'take care of' the policyholders in lieu of the premium refund to which they were entitled. Rymer did just this; he rewrote the policies with Southwestern when he...