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district court judgment, claiming the lower court erred in the distribution of the
interpleader funds between Ohio and New York entities. The court found that,
under both Ohio and New York law, the insureds should be entitled to a return
on all unearned premiums. The court reasoned that Ohio Revised Code §
3903.33 applied to proceedings brought by Ohio’s superintendent of insurance
and also to liquidation proceedings in a reciprocal state in which Ohio claimants
file claims with Ohio’s ancillary receiver. The insolvent insurer is entitled to that
portion of the premium which is “earned” and the other claimant is entitled to a
refund, from the interpleader fund, of the unearned portion.
Eighth Circuit
Tenth Circuit
Indiana
Gallinger v. Vaaler Insurance Inc., et al., 62 F.3d 250, (8 th Cir. 1995). Great
Global Assurance Company acted as a fronting insurer for North Star
Hospital Mutual Assurance Ltd., a Bermuda‐based captive which provided
liability insurance for a group of hospitals. Defendant acted as an agent to
market the North Star program to member hospitals of the North Dakota
Hospital Association. Defendant had no written agency agreement with
Great Global and no binding authority although Vaaler was empowered to
countersign policies as a North Dakota registered agent. Great Global was
subsequently found insolvent and order liquidated in Minnesota. At the time
of the insolvency, Defendant held earned and unearned premium in its trust
account. The earned premium was transferred to the Receiver and the
unearned premiums were sent to the respective hospitals whose policies
had been cancelled by the Receiver. The Receiver sued seeking the return of
the unearned premium and the U.S. District Court granted summary
judgment to Defendant. The Receiver appealed and the Eighth Circuit
remanded in order that a determination of Defendant’s agency be made. At
trial, a jury determined that Defendant was acting as a broker for the insured
hospitals, not as an agent for Great Global and the case was dismissed. The
Receiver appealed and the appellate court affirmed the factual finding.
Inland Empire Ins. Co. v. Blair, 246 F.2d 505 (10th Cir. 1957). When prior to the
insurer's insolvency, an agent had effected the mass cancellation of policies
issued by such insurer, and because insureds ratified this action by accepting
the new policies of insurance placed with a solvent insurer, it could not be said
that the mass cancellation was the result of insolvency of the insurer. Thus,
the court held that under these circumstances, cancellation would be
considered a cancellation on part of the insured, and premium refund would
be computed on short‐rate cancellation schedule rather than pro‐rata refund
of unearned premium.
Bushnell v. Kraft, 133 Ind. App. 474, 183 N.E.2d 340 (1962). In rejecting the
receiver's action to recover from the agents of an insolvent insurer for the
agent's unearned commissions on policies cancelled when the insurer was
placed into liquidation, the court held that the insureds were entitled to
unearned premiums and, therefore, the agents could properly apply their
unearned commission for the insured's replacement insurance. The court
noted that insolvency of an insurance company which results in the
cancellation of policies is a material breach of contract to its policyholders. As
a result, it is not in a position to recover premiums due for future coverage, nor
is it in a position to recover commissions in the hands of agents, and
policyholders are entitled to an unearned premium claim and the insolvent
insurer is devoid of any right to secure the commissions retained by its agents.
The agency agreement in issue also provided that the company made no direct
refunds to policyholders of the "gross" return premium but instead remitted
net to its agents who then added their unearned commission to the return
premium.
Clark v. Manufacturers' Mutual Fire Ins. Co., 130 Ind. 332, 30 N.E. 212 (1892).
Where all policies of an insolvent mutual fire insurance company were