For reversal and remandment -- Chief Justice Weintraub and Justices Jacobs, Francis, Proctor, Hall, Schettino and Haneman. Opposed -- None. The opinion of the court was delivered by Hall, J.
Plaintiff, the owner of a financing business and the assignee of the insureds in certain insurance policies issued by defendant Sul-America ("SATMA" or "the insurer") through its general agent, defendant South America Managers, Inc. ("SAMI" or "the agent"), and a broker, one Wallace ("the broker"), brought suit to recover from either or both defendants unearned premiums on the policies resulting from their cancellation. The action was instituted in the Chancery Division. Plaintiff, not knowing the precise amounts of such premiums, demanded disclosure and an accounting as well as a judgment for payment. The trial court concluded that neither defendant was liable to plaintiff, except as to the sum of $1,520.56, which the agent owed the broker and which the court directed be paid to plaintiff. The Appellate Division affirmed in an unreported opinion and we granted certification on plaintiff's petition. 53 N.J. 223 (1969).
The essential facts are not in dispute. The insurer, SATMA, is a Brazilian corporation engaged in the general insurance underwriting business and duly licensed to do business in New Jersey. The agent, SAMI, a New Jersey corporation with its principal place of business in Newark, is a duly licensed insurance agent and surplus line broker
in New Jersey. At the times involved it was the insurer's exclusive manager and general agent in the United States, with full power, pursuant to an agency agreement, to bind all forms of surplus lines insurance on behalf of SATMA and to cancel all insurance so bound. The agent acknowledged in the agreement that all premiums it collected are trust funds belonging to the insurer and that its duties and obligations with respect thereto shall be those of a trustee under the laws of the State of New Jersey. The insurer agreed to allow the agent a total commission of 30% calculated on all premiums -- less return premiums -- it paid to the insurer, plus federal tax of 4% on all direct writings.
The agent was also authorized to enter into exclusive "correspondents' agreements" with brokers throughout the country for the placing of business through the agent for acceptance by the insurer. It had such an agreement with Wallace, a duly licensed broker in Atlanta, Georgia. Under the agreement the agent agreed to pay the broker a commission of 20% (out of the 30% the agent received from the insurer) on such business, plus 4% allowance for federal tax stamps, and the broker agreed in turn to ratably refund to the agent commissions attributable to cancelled policies or reduced premiums. The practice was for the insurance policy to be sent by the agent to the broker for delivery to the latter's customer, the insured, and for the broker to collect the premium and remit the same to the agent. (This correspondents' agreement, in effect, so provided and directed.) Apparently it was also customary for the broker to act as the conduit for any return premiums or other credits due an insured from the insurer. Such payments were transmitted to him by the agent (who in turn had received them from the insurer), and turned over to the insured.
All financial transactions between the insurer and the agent for premiums or other charges on the one hand and return premiums or other credits on the other, with due allowance for commissions, were handled by a monthly
bordereau -- a statement of account listing all transactions. If the balance indicated thereon was in the insurer's favor, the agent would send it a check for the appropriate amount, and vice versa if monies were due the agent. The same procedure was employed as between the broker and the agent. This method of remittance is known as the "account current system" and is said to be the prevalent system in the trade.
This case is concerned with 27 insurance policies issued by the insurer, SATMA, through the agent, SAMI, and the broker, Wallace, and cancelled during 1962 and 1963.*fn1 The policies were high risk motor vehicle damage policies (ordinarily written only by surplus line carriers) issued to insureds in the broker's business area. All of them contained the usual provision permitting cancellation by the insured or the insurer at any time, in which event, it was further provided the insured was entitled to the return, from the insurer, of the unearned premium.
Apparently the insureds either could not or did not desire to pay the full amount of the premium on these policies. The broker therefore made arrangements in each case with plaintiff, whose factoring business was located in Fort Dodge, Iowa, to finance the portion of the premium unpaid by the insured. This was accomplished in each case by the entering into of a "Premium Financing Contract" between the insured and the broker, on forms furnished by plaintiff, which set forth the details of the insurance policy, and provided for installment payments of the balance, plus financing charges. The contract was accompanied by a "premium note" executed by the insured, both of which were forwarded to plaintiff following their assignment to him by the broker. The premium note provided that the broker would notify plaintiff if the policy was cancelled and "pay to [plaintiff]
an amount equal to the full unearned premium (including commissions thereon) or ...