Empire Fire & Marine Insurance v. Fremont Indemnity Co.

Citations: 750 P.2d 1178; 1988 Ore. App. LEXIS 323; 90 Or. App. 56Docket: A8410-05860; CA A39879

Court: Court of Appeals of Oregon; March 9, 1988; Oregon; State Appellate Court

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Empire Fire Marine Insurance Company (plaintiff) appealed a judgment favoring Fremont Indemnity Company (defendant) regarding a dispute over insurance premiums that JKS, Inc. (defendant) allegedly wrongfully paid to Fremont. JKS, a licensed general insurance agent, had brokerage agreements with both Empire Fire and Fremont, allowing it to accept insurance proposals, issue policies, and collect premiums. JKS was responsible for remitting premiums to Fremont within 45 days, deducting its commissions before doing so. 

JKS maintained a trust account for premium payments and an operating account for expenses. It began transferring excessive funds from the trust to cover operational costs, leading to financial difficulties. Fremont became aware of these issues in late 1981 and allowed JKS to delay premium payments until June 1982, when it terminated their brokerage contract. Fremont sought payment from JKS, recovering nearly all but $217,000 of the owed premiums. 

Despite knowing JKS had financial problems, Fremont was unaware of the specifics regarding JKS's payments to other underwriters, including Empire Fire. By late 1982, JKS owed Empire Fire approximately $500,000 in overdue premiums, prompting Empire Fire to lend JKS $450,000 by deferring premium collection.

A promissory note secured by a stock pledge and a security interest in JKS's assets was issued to plaintiff, who later deferred collection of an additional $350,000 by accepting a second note due to JKS's declining financial condition. In April 1983, JKS defaulted on both notes. Instead of foreclosure, plaintiff secured the right to approve disbursements from JKS's trust account and co-sign checks. Between April 25 and 27, 1983, plaintiff authorized a payment to itself of $472,479.44. Plaintiff initiated legal action against defendant for additional premiums allegedly owed by JKS, claiming quasi-contract and interference with business relations. The court granted summary judgment to defendant, which plaintiff contests, arguing that quasi-contract theory allows recovery for premiums JKS allegedly paid to defendant, violating its fiduciary duty to plaintiff. Plaintiff asserts that defendant unjustly benefited from this arrangement and should return the funds. However, the court found no evidence that defendant received funds held for plaintiff or acted to interfere with JKS's fiduciary duties. The trust account funds were commingled, and there was no proof that the premiums paid to defendant came from plaintiff’s policies. Moreover, defendant's actions in seeking payment were deemed legitimate, as there was no evidence of wrongful intent or knowledge of JKS's breach. Thus, the trial court's summary judgment on the quasi-contract claim was upheld.

Plaintiff's claims of interference with business and contractual relations are unsubstantiated. The assertion that the defendant induced JKS to misallocate funds—causing JKS to breach its agreements with underwriters, including the plaintiff—lacks supporting evidence. The tort of wrongful interference requires action taken with an improper motive or means. The summary judgment record shows no evidence that the defendant intended to cause any breaches or acted with improper motives. Even if the defendant was aware of JKS's financial inability to pay all underwriters, this does not imply improper conduct on the defendant's part. The defendant was merely attempting to collect premiums owed, which it was entitled to do. Incidental impacts on JKS’s obligations to other underwriters are not actionable under the law. The trial court's decision to grant summary judgment in favor of the defendant is upheld. Additionally, testimony from the defendant’s former president suggests that the decision to cancel the agency agreement with JKS was based on JKS’s high loss ratio and indications of insolvency, rather than any wrongful intent. The testimony indicates uncertainty regarding the specifics of JKS's financial accounts, emphasizing reliance on financial statements rather than direct knowledge of account conditions.

Defendant allegedly pressured JKS to pay insurance premiums owed to other insurers, specifically the plaintiff. Kaplan, the plaintiff's vice-president, provided deposition testimony indicating that, contrary to the claim, there was no evidence that defendant coerced JKS into misappropriating funds meant for other insurers. In June 1982, defendant threatened JKS president Jones, implying that failure to pay would lead to involvement from the Oregon insurance department, jeopardizing Jones's business and license. As a result, Jones redirected funds intended for the plaintiff to satisfy the defendant's demands, claiming he had been subjected to significant pressure and threats. The trust account in question contained no earmarked funds. Additionally, the court combined this case informally with Industrial Underwriters v. JKS, Inc. due to similar facts and overlapping parties. Ultimately, the interference claims were deemed insufficient regardless of whether JKS had a fiduciary duty to the plaintiff.