Source: https://law.justia.com/cases/federal/appellate-courts/F2/412/635/290473/
Timestamp: 2020-08-09 02:34:00
Document Index: 377946430

Matched Legal Cases: ['§ 1209', '§ 1208', '§ 1208', '§ 1207', '§ 1208', '§ 1208', '§ 1209', '§ 1209']

Gerald S. Cope, Trustee, et al., Appellants, v. Aetna Finance Company of Maine, Appellee.in the Matter of Robert R. Richards et al., Debtors, 412 F.2d 635 (1st Cir. 1969) :: Justia
Justia › US Law › Case Law › Federal Courts › Courts of Appeals › First Circuit › 1969 › Gerald S. Cope, Trustee, et al., Appellants, v. Aetna Finance Company of Maine, Appellee.in the Matt...
Gerald S. Cope, Trustee, et al., Appellants, v. Aetna Finance Company of Maine, Appellee.in the Matter of Robert R. Richards et al., Debtors, 412 F.2d 635 (1st Cir. 1969)
US Court of Appeals for the First Circuit - 412 F.2d 635 (1st Cir. 1969) Heard January 9, 1969
As Amended on Denial of Rehearing June 24, 1969
This is an appeal from the district court's order allowing the claim of appellee, Aetna Finance Company of Maine, in proceedings under Chapter XIII of the Bankruptcy Act. In re Richards, 291 F. Supp. 537 (D. Me. 1968).
The facts are clearly set forth in an earlier order by the district court, In re Richards, 272 F. Supp. 480 (D. Me. 1967), and are summarized as briefly as possible hereafter. On December 7, 1963, the debtors, Robert R. and Gail L. Richards, filed petitions for wage earner plans under Chapter XIII of the Bankruptcy Act. In the schedules attached to their petitions, the debtors listed a debt to appellee in the amount of $957.22, secured by a chattel mortgage on household goods, with the notation that the debt was disputed as being in violation of the Maine Small Loan Law.1
Upon remand, with the district court sitting in place of the referee, evidence was presented to determine whether Aetna had charged the debtors an amount in excess of the premium charged it by the insurer.6 The district court found that Aetna had not in fact charged the debtors more than the amount charged Aetna by the insurer. It also concluded that even had Aetna charged the debtors more than it had been charged, there would have been no violation of the Maine Small Loan Law because of the exemption granted by § 1209 of the Maine Credit Insurance Law.7 The district court then allowed Aetna's claim in full. 291 F. Supp. 537 (D. Me. 1968).
In the ordinary situation, where an insurer establishes a premium rate conforming to the requirements of § 1208 (1), and where the creditor merely passes on the premium so charged to the borrower in accordance with § 1208(4) — even though the premium may include some amount for "cost and compensation to the creditor" under the authority of § 1207(2),12 there is no problem of violation of the Small Loan Law. There might even be no problem for the creditor if the insurer imposed on it a higher than authorized premium charge. The district court may well be correct in saying that such an infraction of the Credit Insurance Law is solely within the sanctioning power of the Insurance Commissioner and that § 1208(1) does not "attribute to the creditor accountability for the sins of the insurer." 272 F. Supp. at 487. We agree that the statutory scheme of the Credit Insurance Law clearly distinguishes between the obligation of the insurer and that of the creditor. The underlying assumption is that separate entities, making separate and independent decisions, shall be separately responsible for decisions within their sphere of responsibility.
The case before us, however, is not the ordinary situation contemplated by the statute. In this case the court observed "that this record reveals abuses on the part of the lenders and insurers involved which cry out for immediate and effective regulatory action." 291 F. Supp. at 541. Footnoting this observation was the finding: "There can be little doubt on this record that Aetna of St. Louis, American Universal and Old Republic acted jointly to fix premium rates to be charged Aetna debtors which would provide a substantial profit to American Universal as reinsurer." 291 F. Supp. at 541, n. 10.
The district court held that even if there had been a violation of § 1208(4), there would be no violation of the Small Loan Law since § 1209 of the Credit Insurance Law "removes from the ambit of Section 3082 of the Small Loan Law not only the credit insurance premium, but also any profit received by a lender from a credit insurance transaction." 291 F. Supp. at 541. This proposition we now examine.
A word remains to be said about the action of the Maine Legislature in adopting the language of the second sentence of § 1209 in preference to language suggested by the Model Credit Insurance Act. The district court in its first opinion, In re Richards, 272 F. Supp. 480 at 485 n. 11 (D. Me. 1967), said:
In its second opinion, 291 F. Supp. at 541, it added:
"It is not seriously disputed that the credit life insurance premium of $35.24 and the credit health and accident insurance premium of $115.92 charged these debtors were substantially in excess of the maximum premiums authorized to be charged for such insurance under the then applicable provisions of the Maine Credit Insurance Law." 291 F. Supp. at 539.
Payment of unpaid principal on prior loan $856.99 Recording fee 10.00 Insurance premium 151.16 Cash to borrowers 165.58 _________ Total $1,174.73
Our review of representative authorities for the proposition that, if appeal from an interlocutory order is available, it is mandatory, reveals that in each case the district court had entered an order determinative of a step in the proceedings See, e. g., In re Irving-Austin Bldg. Corp., 96 F.2d 905 (7th Cir. 1938) (order of classification in reorganization proceedings); In re Kest, 78 F.2d 705 (2d Cir. 1935) (order of allowance of claim); Marcy v. Miller, 95 F.2d 611 (10th Cir. 1938) (order dismissing composition petition as to two creditors); Peterson v. Baker, 168 F.2d 684 (8th Cir. 1948) (order removing certain assets from proceedings); Namoff v. Hyland Electrical Supply Co., 275 F.2d 14 (7th Cir. 1960) (denial of jury trial).
See Buffum v. Maryland Cas. Co., 77 F.2d 761 (9th Cir. 1935). In Buffum, supra, the district court reversed the referee's rejection of a claim and remanded the case to the referee to determine the amount of the claim. The Ninth Circuit held that the district court order was not reviewable.
As the district court observed, "The circumstances of this case thus provide a graphic illustration of the economic phenomenon of `reverse competition', a long deplored feature of credit insurance transactions in many states." 291 F. Supp. at 541, n. 10. That is, instead of incentive on the part of sellers of insurance to minimize prices, the captive status of the small loan customer and the prevalence of insurance companies affiliated with lenders provide an incentive to maximize the gain from credit insurance, the premium not being a cost to the lender but an opportunity for profit for the lender's affiliate