Cynthia Mills & Don Nicholson, Individually D/B/A Independent Financial Group v. Marquette National Life Insurance Company

Citation: Not availableDocket: 10-94-00100-CV

Court: Court of Appeals of Texas; May 31, 1995; Texas; State Appellate Court

Original Court Document: View Document

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Cynthia Mills and Don Nicholson, doing business as Independent Financial Group (IFG), appealed a summary judgment in favor of Marquette National Life Insurance Company and Ron Cline regarding multiple legal claims. These claims included breach of contract, fraud, misappropriation of assets, and violations of Texas Insurance Code provisions. The appellate court reversed and remanded the summary judgment related to the breach of contract, attorney's fees, and out-of-pocket costs claims, while affirming all other aspects of the trial court's decision.

The factual background reveals that prior to August 1990, Cline recruited agents for International Security Life Insurance Company (ISL) and subsequently facilitated an agreement for IFG to sell ISL policies. In early 1991, Marquette began issuing similar insurance policies in cooperation with ISL. Cline negotiated an agreement (the Marquette Agreement) for IFG to sell Marquette policies. Additionally, IFG entered into an agreement with Desert Sun for financial support. However, Marquette later shifted to Philadelphia American Life Insurance Company (PALICO) as its administrator, leading to tensions between IFG, Marquette, and PALICO due to accusations of policy mismanagement and improper commission practices. The conflict escalated when Marquette debited approximately $45,000 from IFG's account, prompting IFG to file a lawsuit for around $360,000 in damages. In response, Marquette sought a declaratory judgment regarding its financial obligations to IFG. The trial court granted summary judgment for Marquette and Cline, which led to the appeal.

IFG argues that Marquette's summary judgment motion was defective for not specifying grounds for relief and for ineffectively incorporating arguments from co-defendant Cline. However, this argument is dismissed as both motions were adequate on their own, consistent with Tex. R. Civ. P. 166a(c). The legal standards for reviewing summary judgment require the movant to demonstrate the absence of any material fact issues and entitlement to judgment as a matter of law, with evidence viewed favorably for the non-movant. IFG contends that the trial court erred in granting summary judgment on fraud claims, asserting that the evidence did not conclusively disprove any elements of its cause of action. The document highlights that recent case law indicates a cause of action is contractual rather than tortious when damages result from a breach of contract, especially when seeking expected contract benefits. IFG's claims center on unpaid amounts under the Marquette Agreement, categorizing its complaint as contractual. Despite citing a Beaumont Court of Appeals case to argue that fraud claims could be distinct, the overall reasoning aligns with established precedents that categorize IFG's claims as contractual in nature.

The El Paso Court of Appeals rejected the precedent set in Matthews and clarified that no distinction was intended by the DeLanney or Reed courts. In assessing whether summary judgment on IFG's breach of contract claim was erroneous, the court examined IFG’s assertion that it was to be compensated by Marquette on an 'earned' basis rather than an 'advance' basis. Under an earned payment system, commissions are paid post-premium collection from the insured, while an advance system allows agents to receive commissions prior to premium payments, potentially leading to unearned commissions that must be returned.

IFG argued that oral agreements with Cline, acting for Marquette, stipulated an exclusive earned payment method. These agreements were not included in the written contracts but were claimed to be enforceable despite a merger clause, as they were collateral and did not contradict the written terms. Marquette contended that the merger clause invalidated any parol agreements and that the written terms were clear, thus limiting IFG’s owed commissions to $17,362.03. 

The relevant provisions from the Marquette Agreement stated that IFG would earn commissions based on specified rates, with conditions for returning unearned commissions and offsetting any debts against commissions due. Exhibit 1 outlined IFG’s commission structure, detailing percentages based on the collection of premiums and including a provision guaranteeing at least 50% of the commissionable premium after twelve months of a policy's duration.

A handwritten provision in exhibit one establishes that IFG's pay rate would increase from 45% to 50% for months 2-12, and the guaranteed twelve-month rate would rise from 50% to 55% if IFG sold $500,000 in policies. An additional handwritten addendum stated that IFG would receive 10% of renewal premiums if an insured paid for twelve months and IFG did not breach its agency contract during that time. The Desert Sun Agreement allows Desert Sun to make discretionary advances to IFG based on Marquette business production, with repayment structured around commission statements provided to IFG by Marquette. IFG must repay the lesser of total commissions earned or total amounts advanced. IFG assigned its rights to commissions to Desert Sun to cover these advances. Disputes arose regarding the calculation of IFG's pay, particularly after a commission statement indicated a significant drop in year-to-date earnings, which IFG attributed to Marquette's reclassification of payments from earned commissions to advances. IFG claimed a loss of approximately $306,000 due to this alleged breach. Despite IFG's assertion of being paid on an earned basis, evidence showed that IFG received advance payments for new applications, which included the first month's premium. These payments could be reclaimed by Marquette if an applicant was deemed ineligible or chose not to accept the policy within 30 days. If a policy was canceled within the first month, Marquette charged back the commissionable premium to IFG, a process that did not cause issues for either party when managed appropriately.

Charge-backs causing significant issues arose when an application was canceled after the first month, during which IFG had received 100% of the first month's commissionable premium and either 45% or 50% from subsequent months. IFG contended it should retain all commissionable premiums up to cancellation, while Marquette interpreted the agreement to mean IFG could not keep more than 50% of any insured's commissionable premium. The mathematical implications of the Marquette Agreement indicated that IFG would exceed the 50% threshold if policies were canceled between the second and eleventh months. On February 24, 1992, Marquette decided to recover amounts paid to IFG beyond the 50% limit. There is agreement that Marquette can recoup the first month's premium if an application is rejected or rescinded. The core issue is whether Marquette had the right to recover premiums for policies canceled in the second to eleventh months, necessitating a proper interpretation of the 50% provision to assess any breach of contract by Marquette. This argument was not presented to the trial court and thus cannot be considered on appeal, leading to a reversal and remand on this matter.

Regarding claims of misappropriation of assets, IFG argued that the trial court erred in granting summary judgment to Cline. However, evidence indicated that any funds taken were in accordance with agreements, limiting IFG's argument to breach of contract, validating the trial court's decision on these issues. On the awarding of attorney's fees and costs, the trial court's order requiring IFG to pay Marquette's fees for contract enforcement was reversed due to the remand for contract interpretation. Additionally, the court erred in awarding attorney's fees to Cline based on a declaratory judgment that Cline was not contractually liable, as IFG had not sued Cline for breach of contract but rather in tort. The use of declaratory judgment in this context was inappropriate, leading to the conclusion of error in the trial court's ruling.

IFG argues that the trial court incorrectly granted summary judgment to Marquette and Cline regarding IFG's insurance code claim. According to Section 16(a) of article 21.21 of the Insurance Code, an individual who suffers actual damages from unfair acts in the insurance business may file a claim, but this statute applies only within the context of an insured-insurer relationship. The Texas Supreme Court's decision in Allstate Ins. Co. v. Watson establishes that only insured parties can bring actions under article 21.21, emphasizing the special relationship that exists between insureds and insurers, which does not extend to third-party claimants. Consequently, since IFG is not an insured party, it lacks a cause of action under article 21.21 against Marquette and Cline. The court affirmed the summary judgment on the fraud and article 21.21 claims, as well as the misappropriation of assets claims against Cline, while reversing and remanding the summary judgment on IFG's breach of contract claim against Marquette along with the associated attorney's fees and costs.