Opinion ID: 1960188
Heading Depth: 3
Heading Rank: 3

Heading: issuing certificates under group insurance coverage.

Text: .... (g) Appointment. Appointment means an agreement between an agent and insurer under which the agent, for compensation, may solicit, procure, negotiate, or make policies issued by the insurer.[ [17] ] Appellee meets all of the criteria to be an appointed agent outlined above. Additionally, he does not meet any of the criteria set up in subsection 1-101(c)(2) that would exempt him from status as an agent of INA. Specifically, section 1-101 clarifies that, under Maryland's Insurance Code, an appointed agent generally has all the responsibilities and duties typically bestowed upon any agent. That imposes upon him the duty to inform his principal of any improprieties of which he has knowledge and forbids his active participation in any such improper actions. The trial court erred in attempting to limit this relationship. The trial court's reasoning also fails to acknowledge Mr. Miller's obligations under standard Maryland insurance regulations. It is clear under the Code of Maryland Regulations (COMAR), that keeping funds in trust is one of the duties of insurance agents. The Code of Maryland Regulations (COMAR) 31.03.03.01 provides: A. Every insurance agent and broker acting as such in this State who does not have the express written consent of his or its principals to mingle premium monies with his or its personal funds shall hold the premium monies separate from other funds in accordance with this regulation. B. Agents and brokers who do not make prompt remittance to principals and assureds of the funds shall deposit them in one or more appropriately identified accounts in a bank or banks authorized to do business in this State or subject to jurisdiction of this State, from which withdrawals may not be made except as hereinafter specified (any such account is hereinafter referred to as a premium account). .... E. Withdrawals. (1) Withdrawals from a premium account may not be made other than for the following purposes: (a) Payment of premiums to principals. (b) Transfer to an operating account of bank interest, if the principals have consented to it in writing. (c) Transfer to an operating account of commissions either actual or average. If average commissions are used, the agent or broker shall maintain on file in his office at all times a letter from each principal stating the percentage of the average commission. (d) Withdrawal of voluntary deposits. (e) Payment of return deposits to assureds. (f) Payment of return premiums to assureds in the ordinary course of business when a written agreement with the principal authorizing this practice exists. (2) However, a withdrawal may not be made if the balance remaining in the premium account thereafter is less than aggregate net premiums, return premiums, and deposits received but not remitted. These provisions, and the terms of the 1995 agreement between CIGNA and Hickman, demonstrate that Mr. Miller's duties, as an appointed agent of INA, with knowledge of what was occurring, include the duty to make or insure the remittance of payments to INA and to keep premium funds in trust. His responsibilities were not merely limited to the selling of insurance. The trial court relied on our analysis in Kann v. Kann, 344 Md. 689, 713, 690 A.2d 509, 521 (1997), where we said: [W]e hold that there is no universal or omnibus tort for the redress of breach of fiduciary duty by any and all fiduciaries. This does not mean that there is no claim or cause of action available for breach of fiduciary duty. Our holding means that identifying a breach of fiduciary duty will be the beginning of the analysis, and not its conclusion. Counsel are required to identify the particular fiduciary relationship involved, identify how it was breached, consider the remedies available, and select those remedies appropriate to the client's problem. Contrary to the trial court's ruling, we hold that appellant: (1) identified the particular principal-agent fiduciary relationship created in the case at bar; (2) identified that it was breached by appellee participating in the double financing scheme, not forwarding premiums, and not informing INA that premiums were out-of-trust; (3) considered the remedies available; and (4) selected those remedies appropriate to the client's problem. We have recently had the opportunity to expound on the duties that an agent owes, generally, to any principal in Green v. H & R Block, Inc., 355 Md. 488, 517-19, 735 A.2d 1039, 1055-56 (1999): The duties an agent owes to his or her principal are well established. An agent has a duty to his principal to act solely for the benefit of the principal in all matters connected with his agency. RESTATEMENT (SECOND) OF AGENCY § 387 (1958). We have recognized the `universal principle in the law of agency, that the powers of the agent are to be exercised for the benefit of the principal only, and not of the agent or of third parties. A power to do all acts that the principal could do, or all acts of a certain description, for and in the name of the principal, is limited to the doing of them for the use and benefit of the principal only, as much as if it were so expressed.' (Emphasis in original). King v. Bankerd, 303 Md. 98, 108-09, 492 A.2d 608, 613 (1985)(quoting Adams' Express Co. v. Trego, 35 Md. 47, 67 (1872)). Moreover, an agent is under a strict duty to avoid any conflict between his or her self-interest and that of the principal: `It is an elementary principle that the fundamental duties of an agent are loyalty to the interest of his principal and the need to avoid any conflict between that interest and his own self-interest.' C-E-I-R, Inc. v. Computer Dynamics Corp., 229 Md. 357, 366, 183 A.2d 374, 379 (1962) (quoting Maryland Credit v. Hagerty, 216 Md. 83, 90, 139 A.2d 230, 233 (1958)). As Professor Mechem has observed: It is the duty of the agent to conduct himself with the utmost loyalty and fidelity to the interests of his principal, and not to place himself or voluntarily permit himself to be placed in a position where his own interests or those of any other person whom he has undertaken to represent may conflict with the interests of his principal. PHILIP MECHEM, MECHEM OUTLINES AGENCY § 500, at 345 (4th ed.1952).... One of the primary obligations of an agent to his or her principal is to disclose any information the principal may reasonably want to know. See Impala Platinum v. Impala Sales, 283 Md. 296, 324, 389 A.2d 887, 903 (1978)(quoting Herring v. Offutt, 266 Md. 593, 597, 295 A.2d 876, 879 (1972)) (recognizing duty of fiduciary to make full disclosure of all known information that is significant and material to the affairs of the fiduciary relationship); C-E-I-R, Inc., 229 Md. at 367, 183 A.2d at 379-80 ([T]he rule is well established that an agent is under a duty to disclose to his [principal] any information concerning the agency which the [principal] would be likely to want to know.). The obligation to disclose is strongest when a principal has a conflicting interest in a transaction connected with the agency. See RESTATEMENT (SECOND) OF AGENCY § 389 (1958) (Unless otherwise agreed, an agent is subject to a duty not to deal with his principal as an adverse party in a transaction connected with his agency without the principal's knowledge.) (emphasis added). An agent's failure to disclose information material to the agency thus constitutes a breach of the principal-agent relationship. Where an agent breaches a duty to the principal and profits from the breach, the principal may maintain an action to recover those profits for her or himself. Nagel v. Todd, 185 Md. 512, 517, 45 A.2d 326, 328 (1946) (An agent cannot make a secret profit out of any transaction with his principal.); RESTATEMENT (SECOND) OF AGENCY § 388 (1958) ([A]n agent who makes a profit in connection with transactions conducted by him on behalf of the principal is under a duty to give such profit to the principal.).... [Alterations in original.] In the case sub judice, appellee stipulated that he was an agent of INA from 1995 until May 1997. The evidence is clear that he had knowledge of what was occurring and participated in part of the scheme. As an agent, he had a fiduciary duty to INA, which he breached. See id. at 504, 735 A.2d at 1048 (`An agent is a fiduciary with respect to matters within the scope of his agency.') quoting RESTATEMENT (SECOND) OF AGENCY § 13 (1958). RESTATEMENT (SECOND) OF AGENCY § 13 further provides: Among the agent's fiduciary duties to the principal is the duty to account for profits arising out of the employment, the duty not to act as, or on account of, an adverse party without the principal's consent, the duty to not compete with the principal on his own account or for another in matters relating to the subject matter of the agency, and the duty to deal fairly with the principal in all transactions between them. The federal courts and courts of our sister states are generally in accord. See generally Frey v. Fraser Yachts, 29 F.3d 1153, 1159 (7th Cir.1994) (`The chief object of the principle [of agency] is not to compel restitution where actual fraud has been committed, or unjust advantage gained, but it is to prevent the agent from putting himself in a position in which to be honest must be a strain on him, and to elevate him to a position where he cannot be tempted to betray his principal.' (quoting Quest v. Barge, 41 So.2d 158, 164 (1949))); Chemical Bank v. Security Pac. Nat'l Bank, 20 F.3d 375, 377 (9th Cir.1994) (The very meaning of being an agent is assuming fiduciary duties to one's principal.); Burdett v. Miller, 957 F.2d 1375, 1381 (7th Cir.1992) (A fiduciary duty is the duty of an agent to treat his principal with the utmost candor, rectitude, care, loyalty, and good faithin fact to treat the principal as well as the agent would treat himself.); Pohl v. National Benefits Consultants, Inc., 956 F.2d 126, 128-29 (7th Cir.1992) (A fiduciary is an agent who is required to treat his principal with utmost loyalty and caretreat him, indeed, as if the principal were himself.); Canney v. City of Chelsea, 925 F.Supp. 58, 64 (D.Mass.1996) (stating that one of the three essential characteristics of an agency relationship as the existence of a fiduciary relationship toward the principal with respect to matters within the scope of the agency); Village on Canon v. Bankers Trust Co., 920 F.Supp. 520, 532 (S.D.N.Y. 1996) (It is true that an exclusive agency gives rise to a fiduciary duty between principal and agent....); Select Creations Inc. v. Paliafito America, Inc., 911 F.Supp. 1130, 1153 (E.D.Wis.1995) (The fiduciary duty owed by an agent to a principal includes the duty of undivided loyalty.); Thomas v. Hodge, 897 F.Supp. 980, 982 (W.D.Ky.1995) (An agency is a fiduciary relationship....); In re HH (US), Inc., 175 B.R. 188, 194 (Bkrtcy.W.D.Pa. 1994) (Because the [agency] relationship is fiduciary in nature, the agent has a duty of loyalty to act for the benefit of the principal.); Western Medical Consultants, Inc. v. Johnson, 835 F.Supp. 554, 558 (D.Or.1993) (An agent owes her principal a fiduciary duty of loyalty ....), aff'd by, 80 F.3d 1331 (9th Cir.1996); KMart Corp. v. First Hartford Realty Corp., 810 F.Supp. 1316, 1329 (D.Conn. 1993) (Agency is a `fiduciary relationship....'); Apollo Technologies Corp. v. Centrosphere Industrial Corp., 805 F.Supp. 1157, 1195 (D.N.J.1992) (An agency is a fiduciary relationship....); McLendon v. Georgia Kaolin Co., 782 F.Supp. 1548, 1563 (M.D.Ga.1992) (The relationship between principal and agent is confidential and fiduciary and under this relationship, an agent owes his principal a full duty of disclosure.) (internal citations omitted); Gardner v. Cumis Ins. Soc'y, Inc., 582 So.2d 1094, 1096 (Ala.1991) (The principal-agent relationship is fiduciary by nature and imposes a duty of loyalty, good faith, and fair dealing on the part of the agent.); Dent v. Wright, 322 Ark. 256, 261, 909 S.W.2d 302, 304 (1995) ([I]t has long been recognized that a fiduciary relationship exists between principal and agent in respect to matters within the scope of the agency.); Michelson v. Hamada, 29 Cal.App.4th 1566, 1579, 36 Cal.Rptr.2d 343, 348 (1994) (An agent is a fiduciary.); Capital Bank v. MVB, Inc., 644 So.2d 515, 518 (Fla.App. 3 Dist.1994) (identifying the agent-principal relationship as one of several recognized fiduciary duties), review denied, 654 So.2d 918 (1995); State Sec. Ins. Co. v. Frank B. Hall & Co., 258 Ill.App.3d 588, 595, 196 Ill.Dec. 775, 780-81, 630 N.E.2d 940, 945-46 (1 Dist.1994) (An agency is `a consensual, fiduciary relationship....'); River's Bend Red-E-Mix, Inc. v. Parade Park Homes, Inc., 919 S.W.2d 1, 4 (Mo.App. W.D.1996) (stating that one of the three elements of agency is a fiduciary relationship with respect to matters within the scope of the agency); Maurillo v. Park Slope U-Haul, 194 A.D.2d 142, 146, 606 N.Y.S.2d 243, 246 (1993) ([Agency] is a fiduciary relationship....); Thompson v. Central Ohio Cellular, Inc., 93 Ohio App.3d 530, 540, 639 N.E.2d 462, 468 (A person who occupies a fiduciary relationship to another acts as an agent to that person and owes the utmost loyalty and honesty to the principal.), appeal denied, 70 Ohio St.3d 1415, 637 N.E.2d 12 (1994); Maryland Ins. Co. v. Head Indust. Coatings & Services, Inc., 906 S.W.2d 218, 233 (Tex.App.Texarkana 1995) (Inherent in any agency relationship is the fiduciary duty owed by an agent to his principal.), reversed on other grounds, 938 S.W.2d 27 (Tex. 1996). As an agent and a fiduciary, Mr. Miller had the duty to act with the utmost loyalty and fidelity towards his principal, INA, and was required by this fiduciary relationship to give the fullest measure of service in all matters pertaining to the agency. Instead of acting with loyalty and fidelity towards INA, Mr. Miller breached his fiduciary duty in numerous ways. First, he knew that premiums were not being remitted to INA, but failed to inform INA, and did not cause the remittance of premium payments to the insurer. Second, he participated in a double financing scheme where the Hickman Agency withheld premiums from INA based on the representation to INA that the premiums were to be paid in installments, when the Agency was already in possession of the entire premium amount either from insureds or from premium financing companies on behalf of insureds. He signed company checks to INA for installments due when in fact he had obtained the entire premiums from premium financing companies (or from insureds) and kept this plan concealed from INAactions, which clearly demonstrate his awareness and participation in this scheme. Third, when INAC requested premium funds back from the Hickman Agency, and there was no money to pay the premiums because the money was out-of-trust, Mr. Miller directed the premium financing of another account (Gunther's Leasing worker's compensation policy) expressly for the purpose of repaying the premium due INAC on an unrelated policy. Fourth, consistently throughout this relationship, Mr. Miller, who had knowledge of what was occurring, failed to disclose his, and Hickman's, conflicting actions to INA. As we have said, [i]t is an elementary principle that fundamental duties of an agent are loyalty to the interest of his principal and the need to avoid any conflict between that interest and his own self-interest. C-E-I-R, Inc. v. Computer Dynamics Corp., 229 Md. 357, 366, 183 A.2d 374, 379 (1962) (quoting Maryland Credit v. Hagerty, 216 Md. 83, 90, 139 A.2d 230, 233 (1958)). Mr. Miller placed himself in a position where INA's interests and his interests conflicted. As we discussed, supra, one of the primary obligations of an agent to a principal is to disclose any information the principal may reasonably want to know. It is safe to say that Mr. Miller's actions were not made with INA's best interests in mind and that INA would reasonably want to have known of his actions while he was acting as its agent. We therefore hold that the trial court erred when it ruled that appellee was not an agent of INA for the purpose of collecting and forwarding premiums, and as a result did not breach any fiduciary duties by failing to do so. To the contrary, Miller had knowledge of what was happening and actively participated in a significant portion of the improper actions. In failing to share his knowledge with INA, and by participating in the scheme, he breached his fiduciary duty to appellant.