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Fabe v. Facer Insurance Agency Inc.

September 9, 1985

GEORGE FABE, SUPERINTENDENT OF INSURANCE, STATE OF OHIO, COLUMBUS, OHIO, LIQUIDATOR OF PROPRIETORS' INSURANCE COMPANY (AN OHIO CORPORATION), PLAINTIFF-APPELLEE,
v.
FACER INSURANCE AGENCY, INC., DEFENDANT-APPELLANT



Appeal from the United States District Court for the Central District of Illinois, Danville Division, No. 83-2101, Harold A. Baker, Judge.

Author: Gibson

Before ESCHBACH and POSNER, Circuit Judges, and GIBSON, Senior Circuit Judge.*fn*

GIBSON, Senior Circuit Judge.

Facer Insurance Agency, Inc. (Facer) appeals from the district court's*fn1 order granting summary judgment to the plaintiff George Fabe (Fabe). Fabe is the Superintendent of Insurance of the State of Ohio, and appears here as liquidator of Proprietors' Insurance Company (PIC), an Ohio corporation with its principal place of business in Ohio. Fabe brought this diversity action seeking to recover premiums and commissions from Facer, a Delaware corporation with its principal place of business in Illinois. Both Fabe and Facer agree that Illinois law controls. We affirm the district court's grant of summary judgment.

I. FACTS

Until 1981, PIC was in the business of insuring against aviation risks. On January 17, 1980 PIC and Facer entered an Agency Agreement, which was executed and performed in Illinois. By the terms of this contract, Facer was appointed PIC's agent for procuring applications for aviation insurance in Illinois, and for collecting and receiving premiums for such insurance. The Agency Agreement read in relevant part:

1. [T]he Agent may collect, receive, and receipt premiums on insurance proposals tendered to and accepted by the Company, and may hold such premiums as a trustee, separate and apart from all the other moneys belonging to the agent and retain out of premiums so collected, as full compensation for business placed with the company, commissions * * *.

The Agent's account on the Company's books evidencing a debtor-creditor account is deemed merely a record of business transacted. Neither the keeping of an account in such form, nor the rendering of same, nor failure to enforce prompt remittance, nor alteration in compensation rate, nor compromise or settlement shall be considered waiver of the trust relationship as to premiums collected by the Agent.

2. Money due the Company on business placed by the Agent with the Company shall be paid in full no later than forty-five (45) days following the end of the month in which policies become effective.

If the Company shall return or refund to any insured the whole or any part of premiums from which the Agent has retained commissions and/or charges, the Agent shall promptly repay to such insured the same proportionate part of retained commissions and/or charges.

After issuance by the Company of any contract of insurance directly to an insured, the Agent shall be liable to the Company for the earned premium on each policy or binder of insurance solicited and written through the Agent, whether the same shall have been collected or not.

Pursuant to this agreement, Facer solicited proposals and PIC wrote insurance contracts, for which Facer collected and forwarded premiums and retained commissions. On July 30, 1981, Robert L. Ratchford, Jr., then Superintendent of Insurance of the State of Ohio, was appointed Conservator of PIC by the Court of Common Pleas of Franklin County, Ohio, to oversee the liquidation of PIC.*fn2 Ratchford as liquidator notified Facer between July 30 and September 4, 1981, that all of the insurance policies procured by Facer for PIC were cancelled due to PIC's liquidation.

PIC's records show that as of July 30, 1981, Facer owed PIC $20,453.47 on account as total premiums, both earned and unearned, for insurance policies procured through Facer. As of that date, $3,609.75 of the total $20,453.47 premiums had been earned. On January 31, 1982, Facer's commissions on unearned premiums, resulting from the cancellation of the PIC policies, totalled $9,580.75. Fabe claims that Facer is liable for all of the premiums due on July 30, regardless of whether the policies were subsequently cancelled, or whether the premiums had actually become earned prior to that date. Fabe also contends that Facer must seek its remedy for any offset for unearned commissions as a general creditor of PIC in the Ohio liquidation proceedings.

In response, Facer asserts that it is not liable to PIC for unearned premiums, because the insolvency of PIC and the cancellation of the policies relieved Facer of its contractual responsibility to forward premiums. Further, Facer states that it had already refunded all unearned commissions to the cancelled policyholders, as it contends was required by the Agency Agreement. When Facer informed Fabe of its intention to pay only earned premiums, Fabe brought this action in the district court. The court granted Fabe's motion for summary judgment in Fabe v. Facer Insurance Agency, Inc., 588 F. Supp. 1330 (C.D. Ill. 1984). The court held that the Illinois statute governing the rights of agents to set-offs against insurance companies in the ...


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