Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-2_04-cv-00296/USCOURTS-caed-2_04-cv-00296-6/pdf.json

Nature of Suit Code: 110
Nature of Suit: Insurance
Cause of Action: 28:1332 Diversity-Insurance Contract

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IN THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF CALIFORNIA

VESTA FIRE INSURANCE CORP., ) 02:04-cv-0296-GEB-PAN

)

 Plaintiff, )

)

v. ) ORDER

)

INSURANCE VENTURES, INC.; ) 

PAUL MCNEECE ROESSER; RONALD )

CLARK COLTON; STEPHANIE )

FRANCIS SMITH; CARL FRANK; )

LAW OFFICES OF COLTON )

& ROESSER; DOES 1 THROUGH 10, )

)

 Defendants. )

)

Plaintiff Vesta Fire Insurance Corp. (“Vesta”) moves for

partial summary judgment/adjudication of its claims against Defendants

Insurance Ventures (“IV”), Roland Clark Colton (“Colton”), and Paul

McNeese Roesser (“Roesser”) (collectively “Defendants”). 

Specifically, Vesta asks that Defendants be declared fiduciaries of

Vesta with regard to the treatment of Vesta’s policyholders’ premium

payments, that Defendants be found to have breached their fiduciary

duties, and that Defendants be found to have violated California

Insurance Code sections 1733 and 1734. Vesta also asks that IV be

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1 The facts are undisputed unless otherwise noted.

2 Defendants contend that they subcontracted with Equity

Insurance Administrators (“EIA”), not EIM, to administer Vesta’s premium

trust accounts. Defendants, however, offered no evidence in support of

this contention.

2

found to have breached its contract with Vesta. Defendants oppose the

motion.

FACTS1

On or about October 31, 2002, Vesta entered into a General

Agency Agreement (“Agreement”) with IV under which IV was appointed

Vesta’s non-exclusive general agent for the purpose of procuring

homeowner’s insurance business in California. (Pl.’s Statement of

Undisputed Facts (“Pl.’s SUF”) at 1-2.) Under the Agreement, IV was

responsible for collecting, receiving, and managing in trust all of

Vesta’s policyholders’ premiums until they were remitted to Vesta. 

(Id. at 3.) All policyholder premiums collected by IV on Vesta

polices remained the property of Vesta. (Id. at 10-12.) 

Pursuant to a subcontract, Equity Insurance Managers (“EIM”)

collected Vesta’s premiums and performed other administrative duties

for IV.2 (Id. at 36-38.) The Agreement provided that IV would be

solely responsible for performance of the duties and tasks set forth

in the Agreement, whether performed by IV or EIM. (Id. at 39-41.) 

In March 2003, IV commenced selling homeowner’s insurance on

behalf of Vesta. (Id. at 9.) In June 2003, Vesta discovered that IV

had not established a separate trust account for the deposit of

Vesta’s policyholders’ premiums which IV collected. (Id. at 58.) 

Rather, Vesta’s policyholders’ premiums were being deposited into a

trust account established for Explorer Insurance Company/Insurance

Company of the West (“Explorer/ICW”), an insurance company IV had been

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writing homeowner’s policies for prior to contracting with Vesta. 

(Id. at 59.) Vesta requested IV to establish a separate premium trust

account for the deposit of Vesta’s policyholders’ premiums, which IV

did on July 16, 2003. (Id. at 60, 63-68.) Vesta also requested that

Rick Espino, Jennifer Wiedrick, and James Watje be made signatories on

this trust account. (Id. at 156-157.) IV responded to this request

by making Jennifer Wiedrick a signatory on the account, but IV never

made Rick Espino and James Watje signatories as requested. (Id. at

159.)

IV’s failure to initially establish a separate account for

Vesta’s premiums led Vesta to request that Baumann, Raymondo & Company

(“Baumann”), an independent accounting firm, inspect IV’s and EIM’s

files in October 2003. (Id. at 69.) At the conclusion of the

inspection, Baumann determined that IV owed Vesta $2,923,925 of

unremitted premiums. (Id. at 72.) Subsequently, Vesta demanded that

IV pay these premiums and that IV perform a full accounting of all

unremitted premiums. (Id. at 73, 76-77.) IV failed to remit the

funds Baumann found to be owed to Vesta and did not provide an

accounting. (Id. at 78.) It was later revealed that IV also

transferred money from Vesta’s premium trust account to the

Explorer/ICW checking account without Vesta’s knowledge or approval. 

(Id. at 94-138.)

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28 3 The standards applicable to Vesta’s motion are well

known, and need not be repeated here.

4

DISCUSSION3

I. Fiduciary Relationship

A. IV

Vesta argues that IV is its fiduciary as to policyholders’

premiums collected on behalf of Vesta, because IV is Vesta’s agent

under the terms of the Agreement. IV was an agent of Vesta since it

is undisputed that under the Agreement IV had the power to bind Vesta

to insurance policies with third parties and that IV did bind Vesta to

homeowner’s insurance policies. (Pl.’s SUF at 1-2, 9.) See Lewis v.

Sup. Court of Los Angeles County, 30 Cal. App. 4th 1850, 1869 (1994)

(discussing elements of an agency and fiduciary relationship). It is

also undisputed that under the Agreement IV was solely responsible for

receiving and managing the premium payments on policies it sold on

Vesta’s behalf. (Id. at 3.) Thus IV was Vesta’s fiduciary under

section 1733 and 1734 of the California Insurance Code. California

Insurance Code section 1733 (“section 1733") provides that:

[a]ll funds received by any person acting as an insurance

agent . . . as premium . . . under any policy of insurance

. . . are received and held by that person in his or her

fiduciary capacity.

California Insurance Code section 1734 (“section 1734") enumerates the

responsibilities of one acting in a “fiduciary capacity” under section

1733. Since IV has not presented any evidence that raises a genuine

issue of material fact as to the obligations it owed Vesta, Vesta

prevails on this portion of its motion.

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B. Colton and Roesser

Vesta argues that Colton and Roesser are its fiduciaries as

to the policyholder premiums it collected on behalf of Vesta based on

two separate theories. First, Vesta argues section 1733 makes Colton

and Roesser its fiduciaries. Second, Vesta argues that California

trust law establishes that Colton and Roesser are its fiduciaries. 

Vesta has failed to carry its burden on either theory. Therefore,

this portion of Vesta’s motion is denied. 

II. Breach of Fiduciary Duty

Vesta argues that Defendants breached fiduciary duties owed

to Vesta. Colton and Roesser, however, have not been shown to be

fiduciaries of Vesta. However, IV was Vesta’s fiduciary and owed

Vesta a duty to manage Vesta’s premiums in Vesta’s best interest. 

Love v. Fire Ins. Exchange, 221 Cal. App. 3d 1136, 1149 (1990). 

A. Improper use of Vesta’s funds

Vesta argues that IV breached its fiduciary duty to manage

Vesta’s funds in Vesta’s best interest when it: (1) took Vesta funds

to pay Explorer/ICW and (2) used Vesta funds to secure a letter of

credit for the benefit of Explorer/ICW. IV was not authorized to use

Vesta’s funds for the benefit of another. Mid-States Ins. Co. v. Am.

Fid. & Cas. Co., Inc., 234 F.2d 721, 726 (9th Cir. 1956); Middlesex,

124 Cal. App. 3d at 572-573. 

It is undisputed that IV took funds from Vesta’s premium

trust account and deposited them into Explorer/ICW’s account. (Pl.’s

SUF at 88-130.) IV counters since this money was later repaid to

Vesta, Vesta does not prevail on this portion of its motion. This

argument does not raise a genuine issue of material fact on Vesta’s

showing that IV wrongfully used Vesta funds to pay Explorer/ICW.

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IV also argues it could not have used Vesta funds to secure

the letter of credit because there were insufficient Vesta funds to do

so. However, IV has not presented any evidence in support of this

argument. Therefore, Vesta prevails on this portion of its motion.

B. Failure to account

Vesta argues that IV breached its fiduciary duty by failing

to account for Vesta’s commingled premium funds. IV owed Vesta a duty

to account for the Vesta’s funds that were commingled with

Explorer/ICW funds. Mid-States Ins. Co., 234 F.2d. at 727 (requiring

fiduciary to account for principal’s commingled trust funds). It is

undisputed that IV failed to perform an accounting of Vesta’s premium

payment funds after they were commingled with Explorer/ICW funds. 

(Pl.’s SUF at 50-60, 78.) Therefore, Vesta prevails on this portion

of its motion. 

C. Failure to disclose material information to Vesta

Vesta argues that IV breached its fiduciary duty to Vesta by

not informing Vesta that it had: (1) commingled Vesta’s premiums, (2)

transferred Vesta funds to Explorer/ICW, and (3) secured a letter of

credit with Vesta’s premium payments as collateral. A fiduciary must

disclose all material facts to its principal concerning the subject of

its agency; failure to do so constitutes a breach of fiduciary duty. 

Ziswasser v. Cole & Cowan, Inc., 164 Cal. App. 3d 417, 421 (1985). 

Since it is undisputed that IV failed to disclose to Vesta that it had

commingled Vesta’s premiums and transferred Vesta funds to

Explorer/ICW, Vesta prevails on this portion of its motion. 

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D. Failure to follow Vesta’s instructions

Vesta argues IV breached its fiduciary duty to Vesta by not

following Vesta’s instructions: (1) to provide Vesta’s staff with

signature authority on Vesta accounts, (2) to establish a separate

trust fund account for Vesta’s premiums, and (3) to not sell

homeowner’s policies in contravention of Vesta’s underwriting

guidelines. 

It is undisputed that IV established a separate trust

account for Vesta’s premiums upon Vesta’s request. It is also

undisputed that Rick Espino and James Watje were never made

signatories on Vesta’s premium trust account despite Vesta’s request

that they be made signatories. It is also undisputed that IV sold

homeowner’s policies in contravention of Vesta’s underwriting

guidelines. Therefore, Vesta prevails on this portion of its motion. 

E. Commingling funds 

Vesta argues that IV breached its fiduciary duty to Vesta by

failing to establish a separate trust account for Vesta’s premium

payments until four months after IV began selling Vesta policies and

collecting premiums. (Id. at 60.) Under section 1734, IV was

proscribed from commingling insurance premiums it collected on behalf

of Vesta. See Cal. Ins. Code § 1734(b). Since it is undisputed that

IV commingled Vesta and ICW/Explorer premiums, Vesta prevails on this

portion of its motion. 

III. Breach of Contract

Vesta alleges IV breached the Agreement by: (1) commingling

the funds of Vesta and Explorer/ICW, (2) failing to secure a surety

bond, (3) failing to give access to Vesta’s premium trust account, (4)

improperly paying itself commissions, (5) paying Explorer/ICW with

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Vesta funds, and (6) selling policies in contravention of Vesta’s

instructions. 

A. Commingling of funds

The Agreement required IV to maintain Vesta’s policyholders’

premiums in a separate trust account. (Pl.’s SUF at 10.) Vesta has

presented undisputed evidence that IV did not create a separate trust

account for Vesta’s funds and commingled Vesta’s funds with those of

Explorer/ICW. (Id. at 50-52, 55-60.) Therefore, Vesta prevails on

this portion of its motion.

B. Surety bond

The Agreement also required IV to secure a surety bond for

the benefit of Vesta. (Id. at 77.) It is undisputed that IV never

secured the required surety bond. (Id. at 81-83.) Therefore, Vesta

prevails on this portion of its motion. 

C. Access to accounts

Further, the Agreement required IV to permit Vesta to access

and examine Vesta’s policyholders’ premium trust account. (Id. at

147.) Vesta, however, concedes that Jennifer Wiedrick was given

access to the policyholders’ premium trust account. Therefore, Vesta

does not prevail on this portion of its motion. 

D. Excessive commissions

The Agreement provided IV was entitled to a commission of

twenty-two percent on premiums collected. (Id. at 37.) Vesta has

presented uncontroverted evidence that IV paid itself commissions

based on the amount of policies written instead of on premiums

actually collected. (Id. at 42-47.) IV rejoins that a complete

accounting of all transactions reveals it was underpaid commissions. 

Even if IV is correct in this assertion, the assertion does not

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controvert Vesta’s showing that IV calculated and collected

commissions contrary to the terms of the Agreement. Therefore, Vesta

prevails on this portion of its motion. 

E. Paying Explorer/ICW with Vesta funds

Vesta argues that IV breached the Agreement when it used

Vesta’s funds to pay Explorer/ICW. Vesta contends that by

transferring its funds to Explorer/ICW, IV violated the Agreement term

that prescribes IV “guarantee[s] payment of premiums[s] on Vesta

policies placed by IV on Vesta’s behalf.” (Pl.’s Mot at 19.) 

However, Vista has not shown that this provision of the Agreement was

breached. Therefore, Vesta does not prevail on this portion of its

motion. 

F. Selling policies contrary to Vesta’s instructions

The Agreement required IV issue insurance policies pursuant

to Vesta’s underwriting guidelines. (Id. at 174-176.) It is

undisputed that IV sold homeowner’s policies on property locations

explicitly excluded under Vesta’s underwriting guidelines. (Id.

177-181.) Therefore, Vesta prevails on this portion of its motion. 

V. Violation of California Insurance Code sections 1733 and 1734

Vesta argues Defendants violated sections 1733 and 1734 by

diverting Vesta’s premium payments for their own benefit. However,

Vesta has not shown that sections 1733 and 1734 apply to Colton and

Roesser. Further, Vesta’s argument that “[Defendants] violated

sections 1733 and 1734 by using Vesta’s premium[s] for their own

benefit . . .” is vague and fails to “inform[] the district court of

the basis for its motion.” Celotex Corp., 477 U.S. at 323. 

Therefore, this portion of Vesta’s motion is denied.

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CONCLUSION

For the stated reasons, Vesta’s motion is granted in part

and denied in part.

Dated: February 2, 2006

/s/ Garland E. Burrell, Jr.

GARLAND E. BURRELL, JR.

United States District Judge

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