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Sheeran v. Sitren

Decided: March 23, 1979.

JAMES J. SHEERAN, COMMISSIONER OF INSURANCE OF THE STATE OF NEW JERSEY, ANCILLARY RECEIVER OF GATEWAY INSURANCE COMPANY IN LIQUIDATION, PLAINTIFF,
v.
SAMUEL SITREN, INDIVIDUALLY AND T/A MANALAPAN AGENCY, INC., AND MANALAPAN AGENCY, INC., DEFENDANTS



Weiss, J.d.c. (temporarily assigned).

Weiss

Plaintiff James J. Sheeran, Commissioner of Insurance, State of New Jersey (Sheeran), brings this action as ancillary receiver of the Gateway Insurance Company of Philadelphia Pennsylvania (Gateway), pursuant to N.J.S.A. 17:30-1 et seq. The insurance company was placed in ancillary receivership in New Jersey on August 25, 1974. By court order dated January 9, 1978, Manalapan Agency, Inc., (Manalapan) was substituted for Sitren, t/a Manalapan Agency, Inc., which was an agent and broker for the liquidated insurance company.

This opinion follows two hearings in this matter. The first, on a motion for partial summary judgment, was decided on June 20, 1978 on briefs supplemented by oral argument. The second was a summary trial on stipulated facts, briefs and oral argument heard on January 26, 1979.

I

Sheeran, as ancillary receiver, alleges that $19,609.58 is due and owing to Gateway from finance companies pursuant to financing agreements with Gateway insureds for earned premiums on policies placed by Manalapan.

The issues considered in the first hearing are: (1) whether defendant was relieved of any liability to remit premiums because the insurance policy was financed by an independent financing company, and (2) what effect does a stipulation of settlement between Manalapan and one of the finance companies have on Sheeran's attempt to recover these monies?

Sheeran contends that Manalapan was under a duty to remit these earned premiums to Gateway under N.J.S.A. 17:22-6.2a and challenges Manalapan's contention that this statute is inapplicable where an insurance policy is financed by an insurance premium finance company as permitted by our state statutes. See N.J.S.A. 17:16D-1 et seq.

Under N.J.S.A. 17:22-6.2a:

Any insurer which delivers in this State to any insurance broker a contract of insurance * * * pursuant to the application or request of such broker, acting for an insured other than himself, shall be deemed to have authorized such broker to receive on its behalf payment of any premium which is due on such contract at the time of its issuance or delivery or payment of any installment of such premium or any additional premium which becomes due or payable thereafter on such contract, provided such payment is received by such broker within 90 days after the due date of such premium or installment thereof or after the date of delivery of statement by the insurer of such additional premium.

The underlying purpose of the statute is to protect the insurance-buying public from any misappropriations, conversion or other misconduct an insured may suffer at the hands of a broker who is used by the insurer as a conduit to collect and remit premiums. Kubeck v. Concord Ins. Co. , 103 N.J. Super. 525 (Ch. Div. 1968), aff'd 107 N.J. Super. 510 (App. Div. 1969).

However, once a broker delivers a policy of insurance, he incurs a concomitant responsibility to collect and remit premiums to the insurer, Kubeck v. Concord Ins. Co., supra , 103 N.J. Super. 525 at 533; Spilka v. South American Managers, Inc. , 54 N.J. 452 (1969); 43 Am. Jur. 2d, Insurance ,

§ 150 at 205. The duty to remit earned premiums creates a principal-agent relationship between the insurer and the broker. In Spilka, supra , plaintiff, the owner of a financing business notified various insurers, through its general agent, that the premiums were financed for specified policies. Further, plaintiff notified the insurers that the right to any unearned premium had been assigned to plaintiff, and upon any cancellation of those policies, plaintiff, as assignee, was entitled to recover unearned premiums from the insurer.

Justice Hall, speaking for the court, stated that the broker "was the agent of the insurer for the receipt of premiums, even though he was also the agent of the insured in procuring the insurance, and thus, payment to him legally amounted to payment to the insurer." Id. at 463. The court further noted that N.J.S.A. 17:22-6.2a is based on the equitable practicalities of the insurer-insured relationship:

Plaintiff cites a number of other cases which substantially agree with the holding in Spilka. See Commercial Ins. Co. of Newark v. Apgar , 111 N.J. Super. 108 (Law Div. 1970); Seabrook Farms, Inc. v. Commercial Ins. Co. , 104 N.J. Super. 419 (Ch. Div. 1969); Mt. Vernon Fire Ins. Co. v. Gillian , 95 N.J. Super. 279 (App. Div. 1967). This court recognizes that the case law in New Jersey follows the general rule that the broker owes a duty both to the insured and the insurer; the broker, on placing the policy with the insurer as agent for the insured, then becomes the agent of the insurer to deliver the policy to the insured and to collect and remit premiums. 43 Am. Jur. 2d, Insurance , § 150 at 205.

Defendant Manalapan argues that N.J.S.A. 17:22-6.2a is not applicable here because the premium finance company paid the premiums in question and therefore obviated the need to protect the insured from "misappropriation, ...


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