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where the solvency of the company, not cancellation, was the issue. To permit
otherwise would give a preference to such policyholders. The liquidator was
entitled to the full amount of collected premiums.
Sheeran v. Sitren, 168 N.J. Super. 402, 403 A.2d 53 (Ch. 1979). The court held
that an agent‐broker of an insurance company in liquidation is required to
remit all earned premiums which in the ordinary course of business would have
been remitted to the company. Allowing the agent‐broker to keep the earned
premiums would be to the disadvantage of others. An agent‐broker, who was
neither a debtor nor a creditor of the liquidated insurer, but was rather an
agent of both the insured and insurer and a mere conduit for premium
payment and refunds, was not entitled to set off premiums which were
unearned against premiums earned by the insurer but not yet paid by the
agent‐broker, where the unearned premiums ultimately belonged to the
insured.
New York
Bohlinger v. Zanger, 306 N.Y. 228, 117 N.E.2d 338 (1953). Unearned premiums
do not constitute an asset for the liquidator of an insurer. Therefore, the
insurance broker is not required to turn over the full premium to the liquidator,
but instead would only be required to turn over only as much as represents the
pro rata premium earned before liquidation. The earned portion of premiums
is held by the broker as a trust fund for the benefit of the insurer or its
successor in interest, here, the liquidator, and not as an offset.
Holz v. M.L. Nathanson & Co., 5 Misc.2d 266, 159 N.Y.S.2d 785 (1957), affirmed,
4 A.D.2d 858, 167 N.Y.S.2d 412. The court held that even though a liquidation
order terminated all the policies of an insolvent insurer, an insurance agency
was not thereby released from its obligation to return a pro rate share of
commissions retained on cancelled policies. The liquidator was entitled to
claim those commissions.
Rohrbaugh v. U.S. Mgmt. Inc., No. 05‐CV‐3486, 2007 U.S. Dist. LEXIS 47978
(E.D.N.Y. June 2, 2007). In the liquidator’s action to recover premiums from
former insureds of two insolvent insurers, the liquidator was not bound by a
forum selection clause contained in a shareholder agreement, which specified
that disputes would be governed by Bermuda law. The clause was not
contained in policies issued by the insolvent insurers. Also, the clause applied
only to the shareholder agreement, and the insurers did not agree to be bound
by the clause. Therefore the liquidator was not required to litigate in Bermuda.
Serio v. Black, Davis & Shue Agency, Inc., No. 05 CIV. 15 (MHD), 2005 WL 3642217
(S.D.N.Y. Dec. 30, 2005), stay denied, No. 05 CIV. 15 (MHD), 2006 WL 156395
(S.D.N.Y. Jan. 12, 2006). The court granted the rehabilitator’s motion for
preliminary injunction and ordered the defendant agency to deposit security in
the rehabilitator’s action against the agency to recover premiums owed to the
insolvent insurer; the security requested represented the entire balance of
premiums received by the agency on behalf of the insolvent insurer.
Van Schaick v. Lincoln Dye Works, Inc., 146 Misc. 342, 263 N.Y.S. 114 (1933).
When the liquidator brought an action to recover premiums, the defendant
counterclaimed that the insurer was obligated under its policies to defend
actions pled prior to order of the liquidation and to pay the resulting claims.
The court held the counterclaims could not be maintained where the order of
liquidation enjoined any actions against the insurer or the liquidator. In
liquidation proceedings the amounts due for premiums are absolute debts and
could not be offset against any loss or individual claim due from the insurer in
liquidation.