The Honorable Richard S. Arnold stepped down as Chief Judge of the United 1 States C ourt of Appeals for the Eighth Circuit at the close of business on April 17 , 1998. He has been succeeded by the Honorable Pasco M. Bowman II. The H onorable Stephen N. Limbaugh, United States District Judge for th e 2 Eastern District of Missouri, sitting by designation.



## United States Court of Appeals

FOR THE EIGHTH CIRCUIT

___________ No. 97-3394

___________ Generali/US Branch, *

Appellee, *

v. * District Court for the Joanna Bierman; Brian Bierman; * Randall J. Hunt; Paula Hunt, *

Appellants. * *

* Appeal from the United States

* Eastern District of Arkansas.

*

___________ Submitted: February 10, 1998 Filed: August 14, 1998

___________ Befor e RICHARD S. ARNOLD, Chief Judge, HANSEN, Circuit Judge, an d 1 LIMBAUGH, District Judge.

2

___________ HANSEN, Circuit Judge.-2-

OnNovember 4, 1994, Joanna and Brian Bierman purchased an auto insurance policy from Generali/US Branch ( Generali). The policy provided liability insurance for bodily injury and property damage caused by eith er of the Biermans while driving either of the Biermans' two automobiles. O n January 17, 1995, Joanna Bierman was involved in a car acci dent in which Randall and Paula Hunt were critically injured. When th e Hunts s ued Joanna Bierman for their injuries, Generali denied coverage and refused to defend the acti on. The Hunts obtained a $545,194.12 default judgment against Joanna Bierman on December 5, 1995. The Biermans sued Generali in the Circuit Court of Pulaski County, Arkansas , a lleging bad faith and breach of contract. Generali removed the state action to federal di strict court and brought a separate action naming the Biermans and Hunts a s defendants and seeking a declaration that the Biermans were not insured by Generali at the time of the accid ent. The Biermans and Hunts appeal from the district court's grant of summary judgment for Generali and from the denial of their own summary judgment motion in this diversity action. We reverse and remand.
I. "We review the district court 's grant of summary judgment de novo, applying the same standards as did the district court." United of Omaha v. Business Me n's Assur. Co. of America , 104 F.3d 1034, 1036-37 ( 8th Cir. 1997). We reverse unless "the evidence, viewed in the light most favorable to the nonmoving party, shows there is no genuin e issue of material fact and the moving party is entitled to judgment as a matter of law." Id. at 1037.
We must decide whether or not the policy which the Biermans purchased fro m Generali on November 4, 1994, was in eff ect when Joanna Bierman's accident occurred on Ja nuary 17, 1995. The terms of the Biermans' liability policy (PDAR 16336) ar e listed in a form captioned "Original Policy Declarations." (Appellants' App. at 230).-3-

The declarations provide that the policy premium was $446.00, and that the Biermans were additionally required to pay a $15.00 policy fee. The amount of "Other Fees" is listed as $0.00, and the "Total Charges" a re listed as $461.00 ($446.00 +$15.00). ( Id. ). The policy began on November 4, 1994, and had a term of 181 days, terminating a t 12:01 a.m. on May 4, 1995. The Biermans opted to pay the cost of the policy in insta llments rather than in one lump sum. A ccordingly, they paid $200.00 down. On December 14, 1994, General i sent the Biermans an invoice telling them that they owed an additional payment o f $87.60 on the policy, including a previously undisclosed $5.00 installment fee. O n Janu ary 3, 1995, Generali sent the Biermans a second notice requesting remittance o f $87.60 and advising the

Biermans that their coverage would terminate at 12:01 a.m. on January 16, 1995, if such payment had not been received. By the time Mrs. Bierman's check arrived after t

he payment deadline established by Generali, Generali had already terminated the insurance contract on January 16, 1995. Alt hough Generali terminated the contract, the Biermans obtained pro rat a coverage for the percenta ge of the policy period corresponding to the percentage of the premium which they paid in their down payment, because Arkansas law provides: [W]he re a part payment is made and accepted on a premium whic h amounts to more than the premium then earned, and a loss occurs before the whol e of the premium paid has been earned, there is a waiver of an y forfeitur e on account of a failure to pay the whole premium. This is a n application of the simple principle that it would be in equitable to permit the insurer to receive and retain the insured's money without giving him credit for it, and if credit is given it must be applied to extend the insurance fo r such proportionate time as the money received and held would pay.-4-

Equ ity Fire & Cas. Co. v. Needham , 912 S.W.2d 926, 929 (Ark. 1996) (quotin g National Union Fire Ins. Co. v. Want , 28 S.W.2d 63, 66 (Ark. 1930)). Crucial to the present case is a determination of what portion of the Biermans ' down payment actually applied to the policy premium. The $15.00 policy fee, full y di sclosed on the declarations page, was subtracted from the $200.00 down payment , leaving $185.00. Because no addition al fees had been disclosed or assessed at the time the Biermans made their down payment, the Biermans claim that all of the remainin g $185.00 was allocated toward the premium, providing just over 75 days of coverage
. (Appellant's Br. at 5.) Because the accident occurred on day 75, they contend that their down payment provided sufficient funds for coverage on that date. Id. Gen erali contends that $5.00 of the $185.00 was properly used to cover a subsequently assessed, previouslyundisclosed "installment fee." Under this theory, the Biermans had only paid $180.00 against the premium at the time of the accident

. Because $180.00 only buys approximately 73 days of coverage, Generali argues that no coverage existed on the day of the accident.
II. Our review of the record convinces us that Generali did not and could no t retroacti vely deduct a $5.00 installment fee from the Biermans' down payment. Th e initial invoice sent to the Biermans makes clear that the $5.00 installment fee was not, in fact, deducted from the down payment, but rather asse ssed against the Biermans, who were asked to remit $5.00 to cover the fee along with their first installment payment

. The invoice provided as follows:-5-

Past Due: 6.60 - Current Due: 89.20 Installment Fee: 5.00 Pay Balance Due: 87.60 ( Id. at 235). The invoice indicates tha

t the "Current Due" amount is $89.20, which represents a 1/5 installment payment toward the total $446.00 pre mium. Yet, Generali directed the Bier mans to pay a balance due of only $87.60. This figure of $87.60 is explained a s follows: The "Past Due" entry represents a prepayment which could only have resulted fromt he Biermans' down payment. The exact amount of this prepayment, $6.60 , logicall yresults when the $185.00 down payment is credited as two of the five 1/ 5 installme nt

payments ($89.20 + $89.20 = $178.40). Subtracting the sum of tw o installme nt

payments from the $185.00 down payment ($185.00 - $178.40) leave s exactly $6.60 left over (the "Past Due" credit). Accordingly, it is clear that this $6.60 represents a portion of the previously paid down payment. When that $6.60 credit i s deduct ed from the "Current Due" amount of $89.20, we see that the actual amount o f premiumwhic h was due was $82.60. The Biermans were asked to remit $82.60 i n pr emium in addition to $5.00 to cover the installment fee, resulting in a total bill o f $8 7.60. Because Generali requested that the Biermans remit $5.00 to cover th e installmen t

fee, it is clear that Generali did not actually deduct $5.00 from the dow n payment to cover this fee.
More over, Generali would have been powerless to deduct this fee from th e Biermans' initial $185.00 premium payment, even if it had in fact attempted to do so

. As discussed above , Arkansas law provides that unearned premium payments must be applied to extend the insurance cov erage. See Needham , 912 S.W.2d at 929 ("it would be inequ itable to permit the insurer to receive and retain the insured's money withou t giving h im credit for it, and if credit is given it must be applied to extend the insurance-6-

for such proportionate time as the money received and held would pay"). Because the entire $185.00 initial premium payment, including the $6.60 designated by Generali as a past due credit, had

been "made and accepted on a premium" and thereby allocated to premiumby operation of Arkansas law, id. , Generali was powerless to deduct th e subsequently assessed $5.00 installment fee from the $185.00 premium partial payment. Finally, it does not appear that Generali had authority under the contract to charge any insta llment fees. The declarations provided that there were no fees other than th e $15.00 policy fee (Appellant's App. at 230 ("Other Fe es" set at "$0.00")), and there is no evidence th at the Biermans were ever informed that any additional fees would b e assessed, much less deducted from their premium down payment. It would be grossly unfair to allow an insurer to evade its obligations by unilaterally deducting undisclosed and unauthorized

fees from a policyholder's initial premium payment. The fact that this ma ybe Generali's underwriting policy does not give Generali the power to impose i t unilaterally and without notice and agreement. In sh ort, despite Generali's unilateral attempt to retroactively assess a previously undisclosed and unagreed-upon installment fee, the undisputed facts in the recor d demonstra te that this fee was unauthorized, undisclosed, and assessed long after th e premium down payment was made. We hold that Generali did not and could no t retroactively reduce the Biermans' initial $185.00 premium contribution to cover thi s undisclosedand unauthorized fee. As noted above, the $185.00 down paymen t represented approximately 41.5% of the total premium and compensated Generali fo r 75.1 of the 181 days of the policy's term. Therefore, the Biermans benefited from liability coverage from Generali for 75. 1 days, beginning on November 4, 1994, and terminating on the mor ning of January 18, 1995—the day after the accident. The invoice whic h stated that the Biermans' coverage would terminate at 12:01 a.m. on January 16, 1995, if paymen t was not made by the deadline established by Generali was simply in error , because the Biermans had already paid for coverage extending into-7-

the morning of January 18, and Generali did not have the po wer to terminate its coverage un tilsuch time. We therefore hold, based on the undisputed facts in the record, tha t coverage existed for the Biermans on the day of the accident, January 17, 1995, unde r policy PDAR-16336.
III. Accordingly, we rever se the judgment of the district court and remand for further proceedings consistent with this opinion. A true copy. Attest: CLERK, U.S. COURT OF APPEALS, EIGHTH CIRCUIT.