Case Name: FRED P THOMAS CO v. WEIL, etc
Court: Ohio Court of Appeals
Jurisdiction: Ohio
Decision Date: 1936-01-27
Citations: 20 Ohio Law Abs. 683
Docket Number: No 14966
Parties: FRED P THOMAS CO v WEIL, etc
Judges: LIEGHLEY, PJ, concurs in the judgment. LEVINE, J, dissents from the entry of final judgment.
Reporter: The Ohio Law Abstract
Volume: 20
Pages: 683–687

Head Matter:
FRED P THOMAS CO v WEIL, etc
Ohio Appeals, 8th Dist, Cuyahoga Cc
No 14966.
Decided Jan 27, 1936
Stanley & Smoyer, Cleveland, for plaintiff in error.
Lowell & Zucker, Cleveland, for defendant in error.

Opinion:
OPINION
By TERRELL, J.
The rights of the agent and sub-agent are determined by the written contracts. Tho agent and sub-agent in the final analysis were both agents of the Insurance Company. The ultimate contracts they were dealing with, for which premiums were paid, were contracts between the Insurance Company and the policy holders. The pre miums for said policies paid by the policy holders were premiums due to the insurance company. The unearned premiums for policies cancelled either at the request of the policy holder or by the action of the Insurance Company, were funds due to the policy holders from the Insurance Company.
By the agreement of the Insurance Company with the agent and the agent with the sub-agent, the premiums from the policy holders were collected by the sub-agent as agent and not as principal. He held these premiums in a fiduciary capacity and was accountable therefor to the agent, who in turn was accountable to the Insurance Company. The unearned premiums to be returned to the policy holder by reason of the cancellation of the policies were handled by the agent and sub-agent as agents and not as principals. If these agents were derelict in their duty of returning the premiums to the policy holders, the Insurance Company would still be liable to said policy holders for said unearned premiums.
When an unearned premium was returned by the Insurance Company, the custom was to return it to the agent which in turn conveyed this unearned premium to the sub-agent. This arrangement grew out of the conveniences of the situation. The sub-agent was the Only one in personal contact with the policy holder, and it was more convenient for him to get in personal touch with the policy holder than it was for either the Insurance Company or the agent. It also helped toward the good will of the sub-agent's business to deal personally with his customers. But there is not one word in the contracts of agency wherein there is a legal right established by which the title to any unearned premiums passed to the sub-agent. The title to the unearned premium was in the policy holder. The agent and sub-agent were mere messengers of the Insurance Company to make delivery thereof to the policy holder.
When the Insurance Company went into the hands of a receiver, the unearned premiums on the business of the sub-agent amounted to approximately $5000. But no legal title thereto passed to the sub-agent. The sub-agent had no legal right or title to these unearned premiums, but if the Insurance Company, while solvent, saw fit to return the unearned premiums and used the method and means of returning them through the agent and sub-agent, this did not create a title in said funds either in the agent or sub-agent. If the sub-agent did receive from the Insurance Company through the agent any unearned premiums, they would not belong to the sub-agent, but should be by him turned over to the policy holders.
In the present case it is apparent that since the Insurance Company is in receivership and all the outstanding policies have been cancelled by the receiver, which is by operation of law, and the contracts of the agent and sub-agent with the Insurance Company are thereby concluded, there is no obligation on the part of the receiver to return through the agent and sub-agent to the policy holders any unearned premiums. In fact, the receiver has already notified the policy holders to file their individual claims against the estate of the Insurance Company for any'unearned premiums. The sub-agent was not within his legal rights to demand of the agent that all unearned premiums, since the date of the receivership upon business produced by him should be credited on his note or open account with the general agent.
I have been unable to understand upon what theory counsel for the sub-agent bases his claim. Nowhere in the wording of the agency contract can be found any clause or words from which it can be concluded that the return premiums on cancelled policies belong to the sub-agent. Nowhere in said agreement does it appear that the agent or insurance company were bound to return unearned premiums to the policy holder through the sub-agent. It cannot be implied from the thirty years of dealing between these parties. During all that time no credit for unearned premiums has been made by the agent to the sub-agent, unless the Insurance Company had allowed a like credit to the agent to be passed on to the policy holder. The agent did not promise to pay from its own funds' the unearned premiums on cancelled policies. The agent did not guarantee the solvency of the insurance company. The sub-agent, Well, was vice president of the agent company and helped to select said Insurance Company. The receiver is not required to return the unearned premiums to the agent or sub-agent. The insolvency and receivership terminated the agency contracts.
Counsel for the sub-agent states in his brief that "The agent is the seller and the sub-agent the purchaser," and contends that by reason thereon the unearned premiums should be returned to him because he had been charged with them. This contention is purely theoretical and argumentative and has no foundation in fact. Search will be made in vain in the agency agreement to find any language that would justify such an interpretation. The sub-agent specifically agreed to act in a representative capacity as an agent to procure applications and collect premiums in a fiduciary trust capacity. It would do violence to the English language and to common sense to conclude from said written contract of agency that the sub-agent was to be a purchaser and the agent a seller of said insurance policies.
The Supreme Court of Minnesota had before it a case in many respects quite similar to this case before us. It was the case of Hedwall Co. v Security Mortgage Co. of America, 194 N.W. Reporter, page 757. Hedwall was a general insurance agent. The Security Mortgage Company stood in the position of a sub-agent, an officer thereof having been licensed as a broker. The sub-agent received as its compensation 35% of the premiums and remitted 65% of the premiums to the agent. For a long period of time the custom grew up between the parties whereby when policy holder's demanded cancellation of the policies the sub-agent would pay to the policy holder the unearned premiums and charge that amount against the account of the agent in its proper proportion. There was no express agreement that this should be done, but it seemed to be a convenient course of dealing. The Insurance Company became insolvent. The sub-agent gathered together the outstanding policies written through it for cancellation and requested the agent to refund its proportionate part of the unearned premium. The agent refused to do this because the Insurance Company was insolvent and that by reason of the insolvency it was no longer agent for the Insurance Company. Eventually the agent sued the sub-agent upon the open account between them. The sub-agent claimed a set-off for the unearned premiums upon these policies after the insolvency of the Insurance Company. The court held:
'•"An agent is not liable to the insured for a refund of unearned premiums upon cancellation. His company is. 11 An agent, making refunds to its patrons from time to time, out of its own money, instead of sending them to the insurer, does not bind himself to make refunds ever afterwards. From such a course of dealing a contract to make refunds continuously, though the company becomes insolvent, cannot be inferred."
The court refused to allow the claims for setoff by the sub-agent.
We conc'udc that the trial court was in error in allowing this setoff to the sub-agent of the unearned premiums upon the policies outstanding at the time of the insolvency of the Insurance Company, and proceeding now to enter the judgment that the trial court should have entered, we make a finding and judgment for The Fred P. Thomas Company in the amount for which it has entered suit.
LIEGHLEY, PJ, concurs in the judgment. LEVINE, J, dissents from the entry of final judgment.