Union Mut. Cas. Ins. Corp. v. Ins. Budget Plan, Inc.

• Decision Date: 18 May 1935
• Citation: 291 Mass. 62,195 N.E. 903
• Parties: UNION MUT. CASUALTY INS. CORPORATION v. INSURANCE BUDGET PLAN, Inc., et al.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

291 Mass. 62

195 N.E. 903

UNION MUT. CASUALTY INS. CORPORATION

v.INSURANCE BUDGET PLAN, Inc., et al.

Supreme Judicial Court of Massachusetts, Suffolk.

May 18, 1935.

Suit in equity by a receiver in the name and behalf of the Union Mutual Casualty Insurance Corporation against the Insurance Budget Plan, Incorporated, and others. From an interlocutory decree sustaining plaintiff's exception to the master's report and confirming the report as modified, plaintiff appeals, and, from a final decree, both plaintiff and defendants appeal.

Affirmed.Appeal from Superior Court, Suffolk County; Goldberg, Judge.

R. Wait, of Boston, for plaintiff.

A. V. A. Thomason and C. S. Hartwell, both of Boston, for defendants.

FIELD, Justice.

This bill in equity was brought by a receiver, appointed by the superior court, in the name and behalf of the Union Mutual Casualty Insurance Corporation (herein referred to as the plaintiff or the plaintiff corporation), a corporation organized under the laws of the state of New York which had been engaged in this commonwealth in the business of issuing policies of liability insurance on the mutual plan-particularly to owners of motor vehicles-to obtain an accounting by the defendant Insurance Budget Plan, Inc. (herein referred to as the defendant), a corporation organized under the laws of this commonwealth, for premiums on insurance policies written by this defendant for the plaintiff corporation. The defendant filed an answer containing a counterclaim. The case was referred to a master who made a report. An interlocutory decree was entered, sustaining an exception of the plaintiff thereto and confirming the report as so modified. Thereafter a final decree was entered dismissing the counterclaim of the defendant, adjudging that the defendant owes the plaintiff the sum of $6,166.77, and providing for payment thereof and for costs. The defendant appealed from the interlocutory decree confirming the master's report and both the plaintiff and the defendant appealed from the final decree.

The case involves the interpretation of a so called agency agreement between the plaintiff and the defendant, made October 22, 1930, and the rights of the parties thereto in the events which have happened. By this agreement the defendant was to procure applications for insurance in the plaintiff corporation and collect premiums thereon and was to receive commissions of fixed percentages ‘on the net premiums (i. e., the gross premiums paid to Company [the plaintiff] less premiums returned to the insured) paid to the Company on all policies of insurance procured by or through the Agent under this Agreement.’ The agreement in paragraphs 5, 6 and 8, provided: ‘5. The Agent [the defendant] shall keep in books or records, the form of which shall be approved by the Company, an accurate account of all policies written or renewed for the Company and shall render to the Company at such times as may be required by the Company a statement of the business written and the amounts due the Company thereon, and the amounts due the Company thereon are to be remitted by the Agent whether received by him or not, as follows: On the 20th of the month following the date of issuance for all annual policies written; on extended payment policies secured by notes effective January 1st, 1931, thirty (30%) per cent of the annual premium is to be paid on January 10th; 20% on March 10th; 20% on May 10th; 20% on July 10th and 10% on September 10th, with similar arrangements on extended payment policies issued after January 1st, 1931, in accordance with the further instructions of the Company. 6. The Company reserves the right during the term of this contract, or in the event of its cancellation, without releasing the Agent in any way, to make collections of any premiums not remitted and paid to the Company in accordance with the conditions imposed in the preceding paragraph. When such collections are made by the Company, the commissions due the Agent shall be computed on the actual amount collected less the cost of making the collections. * * * 8. The monies and other properties received by the Agent for and on behalf of the Company shall be held by the Agent in a fiduciary capacity and shall not be used by the Agent for any purpose whatsoever except for transmittal to the Company, and the Agent shall be liable to the Company for all such monies and properties received by the Agent, its employees and representatives.’ The agreement provided also that the defendant should ‘make a short rate or pro rata charge and collect for the earned portions of policies returned for cancellation or recalled, as the case may be’ and that ‘commissions shall accrue only on such net premiums as are actually paid to the Company, and shall be payable on the date of the payment of such net premiums.’

The defendant did some business on ‘open accounts.’ In doing this business it charged to the insured or to the defendant's agents procuring the business the full amount of the annual premiums. But the principal part of the defendant's business consisted of ‘financing automobile insurance accounts.’ In doing this business the defendant took from the insured under each policy ‘a note for the full amount of the premium from the date of the policy to be effective to the end of the calendar year plus a finance charge of 10%.’ Provisions ordinarily were made for an initial payment and for eight equal monthly instalment payments of the balance of the premium and the charge for financing. And the note contained a power of attorney to the payee or any holder thereof on default by the maker to cancel the policy and to collect any return premium or dividend, an assignment to the payee or any holder of the note, unless and until the obligation of the maker thereof was discharged by full payment, of the right of the maker to cancel the insurance and his right to any return premium or dividend and an authorization to the payee to ‘REPLACE THIS INSURANCE IN ANY OTHER INSurance company at his discretion.’ Compare Chamberlain v. Employers' Liability Assurance Corp., Ltd. (Mass.) 194 N. E. 310. All the insurance policies written by the defendant for the plaintiff corporation ‘included as a major part of the coverage the compulsory Massachusetts Automobile Liability Insurance.’ On or about February 21, 1931, the Commissioner of insurance of the commonwealth ‘notified the plaintiff that its surplus was not properly kept and stated that the plaintiff should withdraw from the Commonwealth’ or the commissioner would institute proceedings ‘to eject the plaintiff from said Commonwealth.’ On or about March 11, 1931, as of March 16, 1931, the plaintiff, by reason of this request of the commissioner withdrew from the commonwealth.All insurance policies written by the defendant for the plaintiff under the agency agreement were cancelled as of March 16, 1931. On May 26, 1931, the plaintiff corporation was dissolved by decree of the Supreme Court of the state of New York, on grounds which do not appear specifically in the master's report, and all its assets and affairs were transferred to the superintendent of insurance of that state. On July 30, 1931, the receiver in this commonwealth was appointed.

The premiums on policies of insurance written by the defendant for the plaintiff before March 11, 1931, for the periods from the dates the insurance attached to the end of the year 1931 amounted to $88,000 (including $13,000 on ‘open accounts' and $75,000 on ‘financed accounts'), and the commissions on this amount would have been $15,900. The premiums prorated to March 16, 1931, would have amounted to $14,000 and the commissions on this amount would have been $3,000. The defendant, so far as it was able, as of March 16, 1931, replaced in other companies insurance formerly with the plaintiff, but in many instances of ‘financed accounts' the persons insured refused to permit the defendant so to replace insurance. The full premiums on policies not replaced amounted to $35,000. After such replacement of insurance the defendant retained the notes above referred to and applied the amounts collected thereon and on ‘open accounts' to the payment of premiums on insurance replaced by it. The defendant collected $13,000-the full amount of the premiums-on ‘open accounts.’ It agreed before the master for the purposes of this case that the aggregate amount of premiums collected by it was $50,000. And the defendant turned over to counsel for the plaintiff at the request of the plaintiff accounts to the amount of $2,727 upon which $197 was collected by such counsel. Some of the policies not replaced may have been cancelled for failure to pay instalments to the defendant on notes or for violation of the automobile laws. But the master was unable to find the extent to which such policies were so cancelled.

The amount adjudged by the final decree to be due from the defendant to the plaintiff was the amount of premiums prorated to March 16, 1931, treated as ‘earned premiums,’ less deductions for amounts paid by the defendant to the plaintiff, or collected directly by the plaintiff, and for the defendant's commissions computed on the basis of such earned premiums. The defendant contends that it does not owe to the plaintiff more than the amount of the earned premiums, less proper deductions, but that it is entitled to commissions on the full amount of the premiums and, therefore, is entitled to recover on its counterclaim. The plaintiff contends that the defendant owes it the full amount of the premiums, less proper deductions, and concedes that if this contention is sustained, the defendant is entitled to commissions on the full amount of the premiums. The plaintiff contends also that the amounts collected by the defendant are held by it in trust for the plaintiff.

First. The amount owed by the defendants to the plaintiff, disregarding proper deductions, was the amount of the premiums prorated to March...