Court Opinion

ID: 2715102
Source: CourtListenerOpinion
Date Created: 2014-08-06 17:15:34.575904+00
Date Added: 2024-06-11T12:53:06.774110
License: Public Domain

FILED
                                                                                           COURT OF APPEALS
                                                                                              DIVISION II

                                                                                          2O 1 ri JUL 22    1' 1   21

                                                                                            Ti;

                                                                                          BY

       IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON

                                          DIVISION II

MIKE KREIDLER, INSURANCE                                                No. 44745 -2 -II
COMMISSIONER, as Receiver for Cascade
National Insurance Company,

                                 Respondent,

        v.

CASCADE NATIONAL INSURANCE                                      PART PUBLISHED OPINION
COMPANY,

                                 Defendant,

STATEWIDE GENERAL INSURANCE
AGENCY, INC., and MARCEL MATAR,

                                 Appellants.

        JOHANSON, C. J. —     Statewide General Insurance       Agency,     Inc. ( Statewide) and its chief

executive officer ( CEO),   Marcel Matar, appeal from the entry of summary judgment in favor of

Insurance    Commissioner Mike Kreidler ( Commissioner)              as receiver for Cascade National

Insurance    Company ( Cascade).    In the published portion of this opinion we address Statewide

and Matar' s argument that the amount due to the Commissioner was overstated because the

Commissioner failed to credit Statewide for certain set -offs and relied on a contractual formula

that   was   imposed   without    Statewide'   s   knowledge,   as   well   as   their   argument    that   the
No. 44745 -2 -II

Commissioner'         s expert witness            lacked foundation.'        Because Statewide and Matar' s claims are

without merit, we affirm the trial court' s grant of summary judgment.

                                                                 FACTS

                                                     I. CASCADE AND STATEWIDE

         Cascade       was         a    Washington        insurance       company.   In   1999,   Cascade    designated a

California insurance company, Statewide, to act as its general agent for the purpose of issuing

Cascade     auto   insurance           policies   in California.      The arrangement was established in three fully

integrated " General          Agency         Agreement[ s]"       executed in February 1999, January 2004, and May
                          2
2004, respectively.

         Under Cascade and Statewide' s agreement, Statewide would collect premiums on the

Cascade insurance policies it sold, deduct a provisional commission for itself, and then deposit

the balance     into    a premium            trust    account.     Statewide would report its estimates of premiums

collected,     fees   earned,          and   commissions         due to Cascade.     Then, every year Cascade would

determine the actual commissions due to Statewide based on the ratio of premiums earned to

losses   and   loss    adjustments (          loss   ratio).   The difference between the preliminary commissions

and the actual commissions would be paid within 45 days of demand and any deficits or

surpluses would not be carried over to the next year.

         From the beginning of their business relationship, Statewide held all premiums in a

fiduciary      capacity       on       behalf   of    Cascade.      Clerk' s Papers ( CP)   at    79, 395 ( "[ I]t shall be

1 In the unpublished portion of this opinion we address and reject the argument that Matar should
not be held personally liable because his personal guarantee of payment lacked consideration or
was obtained by fraud.
2
    The substance of these written instruments is largely the same and we discuss the differences
only where they are relevant.

                                                                      2
No. 44745 -2 -II

conclusively presumed that [ Statewide] is a fiduciary of [Cascade] with respect to trust funds. ");

CP    at   475 ( " All   premiums are         the property     of [ Cascade]       and shall     be held   by [   Statewide], in a

separate account, and          in   a   fiduciary      capacity    as    trustee for [ Cascade]. ").       Furthermore, certain

employees of Statewide were required to personally guarantee payment under the agreement.3
Statewide'     s   CEO Matar        signed a personal guarantee               in 1999     and again    in May 2004.         Finally,

Statewide expressly waived any " counterclaim, cross -claim, or set -off' in any action by Cascade

to recover trust funds. CP at 79, 395.

            Cascade and Statewide had a turbulent relationship, marked ( in Statewide' s view) by

alleged malfeasance.           In 2003, Cascade              and   Statewide had      a   dispute     over $   230, 000 in unpaid

commissions         that Cascade        alleged       Statewide    owed.      Cascade threatened to prohibit Statewide

from selling Cascade insurance if Statewide failed to repay the $ 230, 000.                                       Accordingly, in

December 2003, Cascade and Statewide entered into a settlement agreement that stipulated that

Statewide       owed     Cascade $ 230, 000 in unpaid earned premiums through 2003, and provided for

Statewide to pay the $ 230, 000                  on     an   installment basis       out    of   commissions        earned.      The

settlement         agreement       also      disclaimed      any "       further financial claims regarding premium

accounting         against   Statewide General Insurance                 Agency,   Inc. for the       period of    Feb 1,   1999 to

December 31, 2003."             CP      at   514 (   capitalization omitted).        Indeed, the record shows that at the

same       time the settlement          agreement was         signed,     Cascade forgave $ 339, 659. 35 of Statewide' s

debt.

3
    See CP    at   396, 533 ( "[   Statewide] shall cause any of its employees or other representatives who
are signatories on, or who otherwise control, [           Statewide' s] account( s) containing trust funds to
execute      and    deliver to [ Cascade]            a guarantee of payment of            the trust   funds. "); CP    at   488 ( " If
    Statewide] is     a corporation or a         limited
                                        liability company, the shareholder( s) or member( s), as
the case may be, signing below agree to guarantee the payment of all sums due [ Cascade] under
this Agreement and any successors hereto. ").

                                                                     3
No. 44745 -2 -II

           In January 2004, Cascade withdrew $272, 763. 20 from the premium trust account, but it

did not credit the money against Statewide' s promissory note. Rather, Cascade continued to take

installment       payments            on   the   note    by    reducing its      commission        payments    to   Statewide.   In

November 2004, Cascade                     withdrew $ 205,       893. 38 from a different premium trust account, but it

did not credit the money against Statewide' s account balance.

           Statewide further alleges that Cascade altered the loss ratio mechanics of their agreement

without     Statewide'       s   knowledge.         In February 2004, Cascade sent Statewide replacement pages

for their then -
               existing                written agreement         that    purported      to   correct errors.   In reality, the new

language decreased the loss ratio bonus and increased the loss ratio penalty on Statewide' s

commissions.            Not realizing that the replacement pages would change the nature of the

agreement, Matar signed off on the change. The parties reexecuted the amended contract in May

2004.

           Between January 2004 and March 2005, Statewide complied in full with its contract with

Cascade.        Statewide reported $ 3. 9 million in premiums, and after deducting its commission, paid

Cascade $ 3. 2      million           through the   premium        trust     account.    In April 2005, one month before the

Commissioner took receivership                      of   Cascade, Statewide'         s   stance changed.       Between April and

December 2005, Statewide                      reported $      1. 3 million in gross premiums, but it only paid Cascade

 90, 000.       Statewide admits that it withheld more commissions than was otherwise owed, but it

asserts    that   it did    so   in   order   to " balance the ledgers."         Br. of Appellant at 17.

                                                    II. CASCADE RECEIVERSHIP

           In     May       2005,       the Commissioner took receivership of Cascade and commenced

rehabilitation proceedings.                   Under the receivership order, the Commissioner took possession of

all   of   Cascade'     s   assets,        contracts,    and    rights   of action.          The order also required anyone in

                                                                         4
No. 44745 -2 -II

possession of assets belonging to Cascade to deliver and surrender those assets to the

Commissioner. The order further conditioned any offsets of assets, records, funds, or deposits of

                     to Cascade         the express                        the Commissioner.       In addition, the order
or   belonging                     on                    approval of

enjoined any actions or claims against Cascade outside of the statutory receivership process.

Finally, the order authorized the Commissioner to pursue all claims against third parties on

Cascade' s behalf.

         Later that year, the Commissioner filed an order of liquidation, which the superior court

approved       in November 2005.             Statewide timely filed with the Commissioner six proofs of claim

based    on    Cascade'     s alleged   breach    of   the   May   2004    agreement.     The Commissioner denied all

six claims. The superior court approved the denial and Statewide did not appeal.

                                                III. PROCEDURAL HISTORY

         In 2007, the Commissioner filed a claim against Statewide                                 and Matar to recover

 941, 879 in     improperly      withheld premiums.          4 The Commissioner moved for summary judgment
in 2012.

         The Commissioner               presented      expert     accountant    Barbara   Huang' s testimony.          Huang

declared that         she   arrived     at   the $ 941, 879       figure   by   subtracting $ 131, 533. 13        of permitted

deductions from the $ 1, 073, 411. 68 that Statewide had collected from policyholders between

April    and    December 2005, according to its                    own     production   reports.    Statewide and Matar

presented      their   own expert,       Jennifer Sims'      s,   testimony.     Sims   admitted   that   she "   did not have

access    to    complete      financial data."         CP    at   446.     Nevertheless, Sims testified that Huang' s

analysis       was    unreliable   because ( 1)        she had not taken into consideration Cascade' s 2004

4 The Commissioner also requested $ 27, 037.25 in past due payments under the 2003 settlement
agreement, but he later dismissed this claim.

                                                                   5
No. 44745 -2 -II

withdrawal of $205,          893. 38 from the trust          account, (   2) Statewide did not actually owe Cascade

the $ 230, 000 it     promised        to repay in the 2003           settlement agreement, (          3)   Cascade' s receivable

analysis improperly allocated a negative commission to Statewide, and ( 4) that the new loss ratio

provision was flawed. Sims declared that Statewide may at the most owe Cascade $ 44, 580. 55.

          The superior court granted summary judgment to the Commissioner on the basis that the

amounts allegedly owed to Statewide could not be set off under either Statewide' s contract or

receivership law. Statewide and Matar timely appealed.

                                                            ANALYSIS

          Statewide     and    Matar do       not assert     that the Commissioner'          s   claim     for $ 941, 879 was the

result   of mathematical            error.    Rather, Statewide          and   Matar   assert    four      reasons   the $   941, 879

figure is   unreliable: (      1)     the settlement agreement from December 2003, by which Statewide

agreed    to pay $ 230, 000,         was unenforceable; (           2) Cascade   withdrew $ 272, 763. 20             from the trust

account without        crediting Statewide'          s   balance; ( 3) Cascade withdrew $205, 893. 38 from the trust

account without crediting Statewide' s balance; and ( 4) Cascade changed the loss ratio formula.in

May      2004   without consideration.              In Statewide and Matar' s view, if we apply the proper loss

ratio and we offset the aforementioned amounts against the premiums that Statewide withheld

from Cascade, "[ t] he balance of the mutual debts and credits between Statewide and Cascade is

no more     than $ 44, 580. 55."        Br.   of   Appellant   at   25 ( citing CP   at   444 -55).    Furthermore, Statewide

and Matar argue that the Commissioner' s calculations are unreliable because his expert, Huang,

lacked personal knowledge of the accounting prior to 2004.

          The Commissioner argues that the credits and debts described above are irrelevant

because they could not be set off against the amount Statewide withheld between April and

December        of   2005.    The Commissioner further argues that the change to the contractual loss

                                                                     6
No. 44745 -2 -II

ratio is irrelevant because Statewide and Matar do not show how the new language affected the

amount     due,    and      Huang' s testimony       was      supported       by   Statewide'   s   own    reporting.      The

Commissioner is          correct—   Statewide was the fiduciary of Cascade with respect to all premium

receipts, under     both     statute and     the terms   of   the agency agreement.          Statewide could not set off

alleged   debts    and credits against        the funds it held       as a   fiduciary.    As such, Statewide could not

deduct the $ 230, 000, the $ 272, 763. 20,          or   the $ 205, 893.     38 from the amount it owed to Cascade,

and knowledge of prior debts and credits was not required to qualify Huang as an expert.

Finally, Statewide and Matar failed to plead the loss ratio as a material issue.

                                I. BACKGROUND: RECEIVERSHIPS AND SET -OFFS

          Before applying the specific controlling legal principles to the facts of this case, we

provide    a    brief background        on    insurance   regulation.         When an insurance company becomes
                                                                 5
insolvent      or certain   statutory   conditions are met,          the Commissioner may take receivership of the

company. RCW 48. 99. 020( 1).                The comprehensive statutory framework described in chs. 48. 31

and 48. 99 RCW controls insurance receiverships. The receiver is empowered to take control and

possession of all assets and rights of action of an insurance company and to bring claims on

behalf    of   the company.      RCW 48. 31. 040, . 060, . 131( 2).           The receiver may choose to rehabilitate

the company        or   to liquidate it. RCW 48. 31. 040, . 050.              Should the receiver opt to liquidate the

                                                                     the insurance company                                 RCW
company,       no action     may be     commenced against                                           or   the   receiver.

48. 31. 131.     Any potential    creditor must     timely     present a " proof[]        of claim" to the receiver. RCW

48. 31. 310.     The receiver determines whether the claim is valid, subject to confirmation by the

superior court.         RCW 48. 31. 145.        Those claims that are valid are then paid out according to a

5 See RCW 48. 31. 030.

                                                                7
No. 44745 -2 -II

            defined priority
statutorily -                              scheme.          RCW 48. 31. 280.          The priority classes described in the

statute are strictly applied and may not be circumvented " through the use of equitable remedies."

RCW 48. 31. 280.

            Even if a creditor does not have priority to recover from the insolvent company, it may be

able   to   set off   its debts to the company                against   debts to the    creditor.     RCW 48. 31. 290( 1) allows

    mutual   debts    or mutual credits"            to be "   set off' such that the payor will only be responsible for
                                                                                                                         law6

the balance.         The "   mutual     debts      or mutual credits"       test   derives from federal     bankruptcy          and .

is   used    in many    states'      insurance        codes.    See,    e. g.,   FLA. STAT. § 631. 281( 1);    N.Y. INS. LAW §

7427; CAL. INS. CODE § 1031.

                                                      II. STANDARD OF REVIEW

            Summary judgment is proper where there is no genuine issue as to any material fact and

the moving party             is   entitled   to judgment       as a. matter of       law.   City of Sequim v. Malkasian, 157
Wash. 2d 251, 261, 138 P.3d 943 ( 2006).                         If reasonable minds can differ on facts controlling the

outcome of the litigation, then there is a genuine issue of material fact and summary judgment is

improper. Ranger Ins. Co. v. Pierce County, 164 Wash. 2d 545, 552, 192 P.3d 886 ( 2008).

            We review a motion for summary judgment de novo and construe all facts and reasonable

inferences in the light most favorable to the nonmoving party. Dowler v. Clover Park Sch. Dist.

No. 400, 172 Wash. 2d 471, 485, 258 P.3d 676 ( 2011);                              see also Folsom v. Burger King, 135 Wash. 2d
658, 663, 958 P.2d 301 ( 1998).                      But if the issue at bar requires the weighing of " competing,

apparently      competent evidence,"                 then summary judgment is improper and we will reverse and

6
     Bankruptcy       Act    of    1898,     ch.   541, §   68( a), 30 Stat. 544, 565 ( " In all cases of mutual debts or
mutual credits between the estate of a bankrupt and a creditor the account shall be stated and one
debt    shall   be   set off against         the   other, and    the   balance only     shall   be   allowed or paid. "), repealed

by Bankruptcy Reform Act of 1978, Pub. L. 95 -598, 92 Stat. 2683.

                                                                        8
No. 44745 -2 -II

remand     for    a   trial to      resolve   the factual issues.            Larson v. Nelson, 118 Wash. App. 797, 810, 77
P.3d 671 ( 2003).

                                                    III. OFFSETS AND MUTUALITY

           Statewide and Matar argue that the                            Commissioner' s claim is overstated because

Statewide       was entitled         to   set off several asserted       debts   owed     by     Cascade to Statewide: $ 230, 000

that Cascade charged to Statewide' s account pursuant to an unenforceable agreement, as well as

 272, 763. 20         and $       205, 893. 38 that Cascade withdrew from the trust account without crediting

Statewide. The Commissioner argues that these amounts could not be set off against the amount

that Statewide improperly withheld between April and December of 2005, as a matter of law.

We agree with the Commissioner and affirm the superior court.

           RCW 48. 31. 290( 1) allows only " mutual debts or mutual credits" to be set off against an

insurer in receivership.                  Where no Washington authority defines this phrase in the insurance

insolvency context, we look to the common law of other states with similar provisions, as well as

federal    bankruptcy law, for                guidance,.          St. John Med. Ctr. v. State ex rel. Dep' t of Social &

Health Servs.,            110 Wash. App. 51, 60, 38 P.3d 383 ( citing State v. Compton, 13 Wash. App. 863,

865, 538 P.2d 861 ( 1975); Garamendi                        v.   Exec. Life Ins. Co.,     17 Cal. App. 4th 504, 515, 21 Cal.

Rptr. 2d 578 ( 1993)), review denied, 146 Wash. 2d 1023 ( 2002).

           In   bankruptcy           law, debts     are " mutual"      only if they     are "`   between the same parties and in

the   same      right. '      Allied Sheet Metal Fabricators, Inc.                 v.   Peoples Nat' l Bank of Wash., 10 Wn.

App.   530, 537, 518 P.2d 734 ( quoting 10 AM. JUR. 2D BANKS § 666 ( 1963)), review denied, 83
Wash. 2d 1013,               cert.    denied, 419 U.S. 967 ( 1974).              This means that no offset is allowed if the

bankrupt and the claimant stand in different capacities to one another, such as when the debt

  arises   from       a   fiduciary duty       or   in the   nature of a      trust."   In re Drexel Burnham Lambert Grp.,

                                                                         9
No. 44745 -2 -II

Inc., 113 B.R. 830, 847 ( Banks. S. D.N.Y. 1990);                        see also Dakin v. Bayly, 290 U.S. 143, 146, 54
S. Ct. 113, 78 L. Ed. 229 ( 1933);                 Fore Improvement Corp. v. Selig, 278 F.2d 143, 145 ( 2d Cir.

1960); In      re    Westchester Structures, Inc., 181 B.R. 730, 739 ( Bankr. S. D.N.Y. 1995); In re

Mastroeni, 57 B.R. 191, 193 ( Bankr. S. D.N.Y. 1986).                              This is because " when a trustee accepts

his beneficiary'         s promise       he takes the   risk of     his    insolvency,"    and the trustee cannot secure this

risk against       the   assets entrusted       to him. Topas        v.   John MacGregor Grant, Inc., 18 F.2d 724, 726

 2d Cir. 1927),           cert.    denied, 274 U.S. 754.            A trustee who did so would run afoul of " the

fundamental principle that a fiduciary may never deal for his own profit with the subject -matter

of   his trust." Morris           v.   Windsor Trust Co., 213 N.Y. 27, 32, 106 N.E. 753 ( 1914) (               citing Britton

v. Ferrin, 171 N.Y. 235, 63 N.E. 954 ( 1902)).

            The same principles apply to insurance law. In most cases, an insurance agent will not be

allowed to set off amounts owing to its parent insurer against premiums that it holds for the

insurer in     a    fiduciary      capacity.     See,   e. g.,   Garrison     v.   Edward Brown & Sons, 25 Cal. 2d 473,

476 -77, 154 P.2d 377 ( 1944); Harnett                      v.   Nat' l Motorcycle Plan, Inc., 59 A.D.2d 870, 399
N.Y.S.2d 242 ( 1977); In                re   New York Title &       Mortg. Co. ( Series Q -1),       260 A.D. 729, 730, 23

N.Y. S. 2d 303 ( 1940).                The courts distinguish between creditor -
                                                                               debtor relationships on one hand

and           beneficiary
      trustee -                        relationships on    the    other.    See    Hershey v. Kennedy & Ely Ins., Inc., 294

F.   Supp.    554, 557 -58 ( S. D. Fla. 1967), aff'd, 405 F.2d 888 ( 5th Cir. 1968);                    Bohlinger v. Ward &

Co., 34 N.J. Super. 583, 588, 113 A.2d 38 ( 1955); United Ben. Fire Ins. Co. v. Earl, 186 Neb.
175, 178, 181 N.W.2d 841 ( 1970).

            This distinction is important because when an insurance agent holds premiums on behalf

of   its   parent   insurer, it holds those        premiums " not ...              as an offset to a debt owing but rather as a

trust fund for the benefit of its insurer or, as here, the successor in interest, the liquidator."

                                                                     10
No. 44745 -2 -II

Bohlinger     v.   Zanger, 306 N.Y. 228, 234, 117 N.E.2d 338 ( 1954).                           That is, the insurance agent is

not a creditor of the insurer, but a curator of money that already belongs to the insurer by virtue

of   the   fiduciary        relationship. "     Where a premium due to an insurance company is paid by a

policy holder to an authorized agent of the company, the payment is deemed in the law to have

been    made   to the company             whether      the   agent remits       it to the company         or not."    Bohlinger, 34
N.J. Super. at 591.

           At all times in Cascade and Statewide' s relationship, Statewide held all premiums it

collected    in    a   fiduciary       capacity for the benefit          of   Cascade.     The parties agreed from the very

inception of the agency agreement that Statewide would hold all premiums in a fiduciary

capacity for Cascade'             s    benefit.    CP at 79, 395 ( "[            I] t shall be conclusively presumed that

 Statewide] is          a   fiduciary   of [ Cascade]    with respect         to trust funds. "); CP       at   475 ( " All premiums

are   the property          of [ Cascade]     and shall      be held     by [   Statewide], in a separate account, and in a

fiduciary capacity as trustee for [ Cascade]. ").

           But even if these contractual provisions did not apply, Statewide was presumed a

fiduciary by           statute.   RCW 48. 17. 480( 3)           states that any insurance agent who receives funds

 which belong to or should be paid to another person as a result of or in connection with an

insurance transaction is deemed to have                      received     the   funds in   a   fiduciary    capacity."   California,

the    state where          Statewide     operated,    has   an equivalent provision.             See CAL. INS. CODE §         1733

     All funds     received       by    any   person   acting   as   a   licensee   under      this   chapter ...    as premium or

return premium on or under any policy of insurance or undertaking of bail, are received and held

by that person in his or her fiduciary capacity. ").

                                                                     11
No. 44745 -2 -II

          As Cascade' s fiduciary, Statewide was obligated to manage all premium receipts for the

benefit   of   Cascade.       Outside of deducting the commission provided for by its agency agreement,

Statewide was not at liberty to dispose of the premiums for its own benefit, not even to make up

for amounts that Cascade had allegedly taken from it (or failed to credit) in the past. The statute

provides only one way for a party to recover amounts owed to it by an insolvent insurer: through

the   proof of claims          process.     RCW 48. 31. 280, . 310( 1).                Allowing Statewide to set off the

amounts        Cascade allegedly          owed     it   would "    sanction a preference at the expense of other

policyholders and creditors,"             circumventing the statutory scheme for distribution of receivership

assets.   Bohlinger      v.   Ward & Co., 20 N.J. 331, 336, 120 A.2d 1 ( 1956).

          As    a matter of       law,   neither   the $   230, 000 that Cascade allegedly bullied Statewide into

paying nor the $ 272, 763. 20 and $ 205, 893. 38 that Cascade allegedly withdrew and then failed to

credit may be offset against the premiums that Statewide improperly withheld. These claims did

not raise a genuine issue of material fact.

                                                   IV. EXPERT FOUNDATION

          We     now    turn to   Huang     and    the propriety       of   relying   on   her financial   analysis.    Statewide

and Matar argue that the Commissioner' s expert, Huang, lacked the foundation to testify about

the amount Statewide owed because she lacked personal knowledge regarding Statewide' s

balances       prior   to 2004    or   regarding the       control and operation of premium                trust   accounts.   The

Commissioner argues that Huang did not need to know about Statewide' s dealings with Cascade

prior to 2004 to determine how much Statewide owed as a result of its improper withholding

7 Statewide argues that some of the premium receipts were not trust funds because they were
held in    a    separate      account.     This    argument       is   not    well    taken.   The premiums were paid to
Cascade'    s agent as payment            for Cascade      policies.        By statute, they had to be held in a fiduciary
capacity for Cascade.
                                                                   12
No. 44745 -2 -II

between April       and    December 2005.             We agree with the Commissioner and affirm the superior

court. As described above, Statewide had no right to withhold premiums in order to make up for

amounts Cascade had taken from it in the past. Therefore, the dealings between the parties prior

to 2004 were not relevant.

         The trial court has wide discretion in ruling on the admissibility of expert testimony.

State v. Fagundes, 26 Wash. App. 477, 483, 614 P.2d 198, 625 P.2d 179, review denied, 94 Wash. 2d
1014 ( 1980).       ER 702     permits      testimony by        a qualified expert where "        scientific, technical, or

other specialized knowledge will assist the trier of fact to understand the evidence or to

determine a fact in issue."

           In order to determine the amount Statewide. improperly withheld between April and

December 2005, only two             pieces of     information      were required:     the amount of money Statewide

collected during that time and the amount of money Statewide was entitled to hold back as

commission.         Huang had        both     pieces     of   information:      she calculated the amount of money

Statewide collected from Statewide' s own monthly production reports, and she calculated the

proper    amount      of   deductions from " the General Agency Agreement and the past course of

conduct    by     Statewide."       CP   at    427.      Huang' s testimony was not mere speculation, but was

properly based on facts " made known to the expert" prior to the hearing. ER 703.

          Similarly, Statewide and Matar' s argument that Huang did not know about the control

and operation of premium             trust accounts        is unavailing.      Statewide and Matar cite to the record

where    Huang      testifies that 'she       was " not    in   charge   of premium   accounting" and did not know

about    the "   control of   the   premium      trust   account when     it   was under   the   control of   Cascade."   CP

at   667. As Matar himself declares, the trust account was under the exclusive control of Cascade

until   only 2004.     Huang' s lack of knowledge about the operation of the premium trust account

                                                                  13
No. 44745 -2 -II

then   goes   to the time      prior   to 2004.     Huang' s lack of knowledge about the parties' dealings

before 2004 is not relevant to the amount Statewide owed for April through December 2005.

The trial court did not abuse its discretion by admitting and relying on Huang' s testimony.

                                                     V. LOSS RATIO

         Statewide and Matar next argue that Cascade changed the loss ratio in .its agency

agreement without Statewide' s knowledge, and that applying the original loss ratio described in

the January 2004 contract would have shown that Statewide owed the Commissioner less money

than the Commissioner claimed. The trial court disagreed, holding that to the extent the new loss

ratio affected the amounts owing for 2004, it was not relevant to the amount of Statewide' s

improper      withholdings     between April       and   December 2005.          The trial court' s decision is justified

by the aforementioned law barring offsets by a fiduciary. Under the plain terms of Statewide and

Cascade' s agreement, any adjustments based on the loss ratio were payable on demand and

would not      carry   over   between   years.    Statewide did not demand a loss ratio adjustment for 2004

and, in any event, could not unilaterally claim such an adjustment under either the contract or

offset law. That is, the legal principle that a fiduciary cannot offset against amounts held in trust

precludes the 2004 loss ratio adjustments from being a material fact on the issue of whether

Statewide' s April ,hrough December 2005 withholdings were justified.
                   t

         To the extent the new loss ratio affected the amounts owing for 2005, the alteration to the

loss   ratio provision could       have been      material     to the   case.   But Statewide failed to demand a loss

ratio adjustment       for 2005,    as required     by   the   agreement.       As a fiduciary of Cascade, Statewide

was not entitled to use self - elp remedies to recoup amounts it believed it was owed under the
                             h

contract. Furthermore, as the trial court points out, Statewide' s failure to make a timely demand

for its 2005 adjustment indicates that either the new loss ratio did not make a difference or

                                                                14
No. 44745 -2 -II

Statewide was not diligent in reviewing the Commissioner' s demand. To date, Statewide has not

offered any pleadings as to how the disputed loss ratio provision would actually affect the April

through December 2005        net premiums.          That is, even if the validity of the new loss ratio was an

issue of fact, Statewide and Matar failed to show how it was material. We affirm.

          A majority of the panel having determined that only the foregoing portion of this opinion

will be printed in the Washington Appellate Reports and that the remainder shall be filed for public

record in accordance with RCW 2. 06. 040, it is so ordered.

                                                VI. PERSONAL LIABILITY

          Statewide and Matar argue that Matar is not liable for the Commissioner' s claim because

his   personal guarantee was obtained without consideration or,                in the   alternative,    by   fraud. The

Commissioner argues that Statewide and Matar waived these arguments by failing to raise them

during    the summary judgment proceeding.               The Commissioner is         correct — Matar unreasonably

failed to bring the issue to the trial court' s attention.

          Under RAP 2. 5( a),      appellate courts will generally not consider issues raised for the first

time on appeal.    See    also    State   v.   McDonald, 138 Wash. 2d 680, 691, 981 P.2d 443 ( 1999); Hoflin

v.    Ocean Shores, 121 Wash. 2d 113, 130 -31, 847 P.2d 428 ( 1993); State v. Scott, 110 Wash. 2d 682,

685, 757 P.2d 492 ( 1988).            As the Commissioner points out, Matar did not raise the issue of

personal liability in his pleadings on summary judgment nor at oral argument.

          Statewide and Matar do not dispute this, but instead argue that parts of the record pointed

to the possibility   of   fraud   or   lack    of consideration.   Statewide   and   Matar   argue     that "[   t]he Trial

 Court Judge is obligated to review all of the evidence and consider all of the issues raised by the

 evidence —   courts have even been known to make decisions based on the court' s independent

 legal analysis even when the basis for the court' s ruling was not a basis argued for by any of the

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No. 44745 -2 -II

parties    involved."        Reply   Br.    of   Appellant       at   10.    But courts are not generally required to raise

issues    sua sponte.     See,   e. g.,   State   v.   Watkins, 71 Wn.          App.   164, 172 -73, 857 P.2d 300 ( 1993) (    no

duty to hold a competency hearing where parties do not challenge competency of witnesses at

trial).   Matar provides no authority for his novel theory that RAP 2. 5( a) does not apply so long as

an     issue   could   have been     raised on         the   evidence presented.          Such a rule would undermine RAP

2. 5   and shift     the burden     of    developing         legal    arguments   from the parties to the        court.   We reject

Matar' s argument.

           Statewide and Matar also contend that Matar' s arguments concerning personal liability

should not be barred because the Commissioner failed to establish facts upon which relief can be

granted.       The   requirement     to "'   establish       facts    upon which relief can     be   granted '    is a lenient one,

akin    to the language "` failure to            state a claim. "'          Roberson v. Perez, 156 Wash. 2d 33, 40, 123 P.3d
844 ( 2005) ( citing 1 WASHINGTON COURT RULES ANNOTATED RAP 2. 5                                       cmt. (    a) at 640 ( 2d ed.

2004)).        The Commissioner introduced Matar' s personal guarantee of payment of the trust

funds— certainly,        a   fact   upon     which      relief   could be      granted.    Statewide and Matar cannot show

that the Commissioner failed to state a claim. We affirm.

We concur:

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