Commonwealth v. Guardian Fire Insurance

Opinion by Kephart, J., The contract between the Guardian Fire Insurance Company and Dickson and Tweedale, general agents, provided “that the said general agents shall receive as compensation for all their services under the contract forty (40%) per cent, of the net premiums on policies written by them for said company, which net premiums shall be the gross premiums as reported, less the premiums and reinsurance effected.” The company was insolvent when the receiver was appointed and a large number of outstanding policies were forthwith cancelled: Dean & Son’s App., 98 Pa. 101; Law v. Waldron, 230 Pa. 458; Law v. Waldron, 55 Pa. Superior Ct. 639. There were certain amounts of unearned or returned premiums due to the policyholders from these cancelled policies. The general agents of the company had received their commission on these unearned premiums, and by agreement with the general agents thirty per cent, of these unearned premiums had been paid to the appellant, as a local agent. The questions- presented by this appeal are: (1) Whether the commissions received by a general or local agent on unearned premiums should be refunded or accounted for to the company, and (2) Whether the legal relation which this local agent held to the insurance company was such that he could be compelled to pay to the insurance company the commissions on the unearned premiums. If there be any doubt as to the custom of all agents to return to the company their commissions on unearned [206] premiums, as affecting the general agents, we rest our conclusion on the contract between the general agents and the insurance company. It there specifically provided that their compensation was based upon net premiums, which were defined to be gross premiums as reported, less return premiums. This contemplated the cancellation of policies either by the insured, by the act of the company, or through legal proceedings such as receivership: Milwaukee Mechanics’ Insurance Co. v. Warren & Lanktree, et al., 150 Cal. 346. The local agents had no written contract with the company; they were appointed under a provision in the general agents’ contract, as follows: “They (the general agents) shall have power to appoint and remove subordinate and local agents for the business of the company throughout the territory, and shall use their best judgment in making such appointments......Out of said commission or compensation, so allowed to said general agents, (40,%) they shall pay......all commissions to agents and brokers.” It is contended that the agents thus appointed were not the agents of the insurance company, but were the agents of Dickson and Tweedale; that there is no usage in Pennsylvania, which established the practice of refunding commissions on unearned premiums, and that the company could not enforce against this local agent any equity or right which it had against its general agents. This matter came before the court below in the audit of the accounts of the receiver, when, a claim was made by the local agent for return premiums on cancelled policies assigned to him after the receiver was appointed. The court below found that the local agents were not entitled to any greater rights to compensation than had Dickson and Tweedale, whose commission by contract was limited to net premiums. Citing United States Life Insurance Company v. Hessburg, 27 Ohio 393. We think the facts of this case are sufficiently developed to say that the local agents are bound by their ap [207] pointment, duties and conduct with respect to their dealings with the insurance company. The general agents had power to employ local agents to transact the business of the company. These agents were the agents of the company. They dealt directly with the policyholder. They had power to bind the company. Dickson and Tweedale had the power of appointment. It is true that their compensation was to be worked out originally through the general agents’ contract, but it is likewise true that in fact it was worked out through the company directly and these local agents regarded themselves as being bound to that extent by the general agents’ contract. The local agent submitted monthly reports to the insurance company, detailing all business done by him, and in that report he deducted from the amount due to him the commission on the returned or unearned premiums of policies of insurance that had been cancelled and settled by him. A list of these cancelled policies, with checks for the amounts due the company, were attached. He cannot now disavow these acts and say that he can only be dealt with through the general agents. It does not alter the conditions, in so far as this local agent is concerned, that a judgment was recovered by the receiver against the general agents, which judgment was intended to include the commission on unearned premiums. Any amount distributed to the receiver as part liquidation of the claim against a local agent, for commissions on unearned premiums, would be credited to the judgment against the general agents, in so far as such commissions were included therein; nor could the general agents have any claim against the local agent for the commission here adjudicated. All the parties interested were before the auditors and the disposition of the matter is in such shape that no injustice can be done by charging to the local agent the commissions on the unearned premiums. The local agent took an assignment of the returned premiums due to a large number of policyholders after [208] the decree appointing the receiver. The auditor set off the dividend on these claims for returned or unearned premiums against commissions on unearned premiums due to the company. As stated above, when the decree of dissolution was entered it ipso facto worked a cancellation of the policy. The right to the return of unearned premiums immediately existed. When the local agent a few days later took an assignment of these returned premiums, it took the assignment subject to the rules of law controlling persons who purchase accounts against insolvent companies and who at the same time are indebted to the insolvent company. A preference cannot thereby be acquired. The rights of the receiver became fixed at the time of his appointment and at the same time the rights of creditors in insolvent concerns attached. Parties must stand or fall by the condition of things in existence at the time of the appointment of a receiver. A person indebted to an insolvent corporation cannot, after the appointment of a receiver, purchase or acquire from the creditors their claims against the corporation, and endeavor, by set-off, to evade the full payment of his indebtedness to such corporation. Every creditor was entitled to his pro rata share of the debt due from the appellant on account of commissions on unearned premiums : High on Receivers, 4th Ed.; Bosler v. Exchange Bank, 4 Pa. 32; Singerly v. Fox, 75 Pa. 112; Section 81, Smith on Receivers. The assignments of error are overruled and the decree of the court below is affirmed.