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Estergard Et Al., Inc. v. Carragher

OPINION FILED APRIL 21, 1982.

ESTERGARD, EBERHARDT & ACKERMAN, INC., PLAINTIFF-APPELLANT,

v.

GEORGE CARRAGHER, DEFENDANT-APPELLEE.



APPEAL from the Circuit Court of Champaign County; the Hon. ARTHUR D. NICOL, Judge, presiding.

JUSTICE WEBBER DELIVERED THE OPINION OF THE COURT:

This appeal presents questions of agency law; specifically, the nature of the relationship of an insurance agent to an insurance broker and the scope of any duty growing out of that relation. In a suit over an uncollected, and presumably uncollectible, premium the circuit court of Champaign County in a trial held at bench found in favor of the defendant, both as to the plaintiff's complaint and as to defendant's counterclaim. Plaintiff appeals and we affirm.

Plaintiff is a general insurance agency licensed to do business in this State; defendant is an insurance broker licensed to sell all types of insurance in this State. Over a period of about 15 years prior to the events in controversy here the parties had had a continuing business relationship. Defendant's business consisted principally of life, health and accident insurance which he generally placed through one particular carrier. When defendant obtained business which his usual carrier could not, or would not, underwrite, he placed the business with plaintiff, who would in turn place the risk with one of the companies represented by it. Plaintiff and defendant would then divide the commission. Plaintiff would bill defendant through his open brokerage account, and defendant generally would pay within 30 days. No written agreement to this effect was ever executed, but both parties were in agreement as to the relationships. Defendant dealt with the insureds and plaintiff dealt with the carriers.

In 1977 defendant placed with plaintiff the business of obtaining a worker's compensation and liability policy which was requested by one of his customers, East Central Mechanical Contractors, Inc. (East Central). Plaintiff placed the risk with one of the companies it represented, Indiana Group, Inc. (Indiana). Plaintiff's relationship with Indiana was spelled out in an agency agreement which was placed into evidence. The portion of that agreement which is pertinent to this appeal states as follows:

"Agent shall be liable and fully responsible for payment of premiums to Company on all insurance and bonds (other than `Company Collectible' renewal premiums), placed by or through Agent with Company including earned premiums on binders, whether or not such premiums are collected or collectible from insureds, provided however, that Agent is relieved of responsibility for any additional or renewal premiums for non-cancellable bonds, or developed by audit on any policy or bond subsequent to the termination of same, by waiving the commission thereon and sending written notice of such waiver to Company within 60 days from the billing date of such additional or renewal premiums, and in such event Company shall have the right to collect such premiums in any manner."

This provision is commonly referred to as the "relief clause" and we gather from the evidence in this case that it is a usual one in insurance agency contracts. Under its provisions, any additional or renewal premiums developed by audit after the termination of a policy may become the responsibility of the carrier, provided the agent waives his commission and gives timely notice.

The relief clause is the focal point of the instant case. East Central went out of business in December 1978, and the policy was not renewed. A final audit was made in April 1979, and a substantial sum was found due. In May 1979 East Central requested a review of the audit. However, defendant testified that he viewed this as a delaying tactic and felt that the premium generated by the audit would be uncollectible. He further testified that he informed plaintiff that collection would be a problem.

Two principal points are in dispute over the relief clause, and the evidence is in conflict over them: (1) whether defendant asked plaintiff to exercise the clause, and if so, when; and (2) whether plaintiff told defendant that the relief clause was a 30-day clause when in fact it was a 60-day clause.

It is not disputed that plaintiff paid the audited premium to Indiana in June 1979 and received its commission; and that it then billed defendant, who attempted to collect from East Central. In July 1979 defendant requested plaintiff to arrange a meeting among plaintiff, defendant, and the principals of East Central. This meeting was held in the latter part of that month, and it is not disputed that the East Central people explained that they could not pay the item and refused to sign a personal note in favor of defendant for the amount due.

The evidence then falls into conflict. Plaintiff's president testified that at the July 1979 meeting defendant for the first time asked him to invoke the relief clause. He also stated that he had not turned the matter back to Indiana because defendant had never notified him of the difficulty; further, that he was reluctant to involve Indiana because Indiana would take a "dim view" of the matter, but that he would have done so if requested by defendant.

Defendant's testimony was quite to the contrary. He stated that he told plaintiff in December 1978, when East Central went out of business, that there would be trouble collecting the audited premium; that he so informed plaintiff again after the April 1979 audit; that after the May 1979 review, he asked plaintiff to get Indiana involved; and that he made the statement to plaintiff again at the July 1979 meeting.

Defendant further testified that when he asked plaintiff in May 1979 to get Indiana involved, plaintiff's president told him that the relief clause was a 30-day clause and that the time had passed.

In September 1979 defendant made a payment to plaintiff in an effort to satisfy what he believed to be his obligation. This payment is the subject matter of his counterclaim. According to his testimony, it was after this payment was made that he discovered the 60-day provision of the relief clause.

Plaintiff's basic position is that relief clauses are a well-known provision of agency contracts and that defendant, as an experienced insurance man, should have been aware of it and requested its timely exercise; since he did not, plaintiff should prevail. Defendant, on the other hand, while admitting knowledge ...


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