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Lloyds Credit Corp. v. McClain Heller Insurance Inc.

Decided: December 14, 1992.

LLOYDS CREDIT CORPORATION, PLAINTIFF,
v.
MCCLAIN HELLER INSURANCE, INC., AND TRANSAMERICA INSURANCE GROUP, DEFENDANTS



Kleiner, J.s.c.

Kleiner

This matter is before the court pursuant to cross-motions for summary judgment. Both movants seek the entry of an order declaring it to be the owner of insurance expirations formerly owned by defendant, McClain-Heller Insurance, Inc. [hereafter McClain].

The case presents a novel issue in New Jersey and requires this court to determine whether the description of collateral set forth within a financing statement held by the plaintiff, Lloyds Credit Corporation (hereafter Lloyds), is sufficient to render Lloyds a secured creditor.

The analysis of the issue posed must commence with the definition of insurance expirations set forth in 4 Couch on Insurance 2d § 26:428 at 407 (1960):

The term 'expirations' has been defined as embodying records of an insurance agency by which the agent has available a copy of the policy issued or records containing the date of the policy, name of the insured, date of expiration, amount of insurance, premiums, property covered, and terms of insurance, such information enabling the agency to contact the insured before expiration and furnishing it with information to secure another contract. Such information is of vital assistance to the agency in carrying on the insurance business and is recognized as a valuable asset in the nature of goodwill.

Expirations are general intangibles which are defined in N.J.S.A. 12A:9-106 as "any personal property (including things in action) other than goods, accounts, chattel paper, documents, instruments and money." The Uniform Commercial Code Comment to N.J.S.A. 12A:9-106 states:

The term 'general intangibles' brings under this Article miscellaneous types of contractual rights and other personal property which are used or may become customarily used as commercial security. Examples are goodwill, literary rights and rights to performance. Other examples are copyrights, trademarks and patents, except to the extent that they may be excluded by Section 9-104(a).

The Uniform Commercial Code, as adopted in New Jersey, provides that a security interest in general intangibles may only be perfected by filing. Actual possession of insurance policy expirations, defined as general intangibles above, is insufficient to create a perfected security interest. N.J.S.A. 12A:9-305.

The crux of the issue presented to the court arises from two separate business transactions involving McClain.

On November 1, 1985, defendant, Transamerica Insurance Company [hereafter Transamerica], entered into an agency agreement with McClain. The agreement provided that ownership of all the records and control of all expiration of insurance business placed with Transamerica shall become vested with Transamerica if McClain failed to make payments when due. This security agreement specifically provided:

If the Agent [McClain] has accounted for and has made payments of all amounts due the Company [Transamerica] and continues to do so, the Agent's records, including Company Billed and Continuous Policies, shall remain the property of the Agent and shall be left in his possession. Otherwise, the records and the use and control of all expirations of the business placed with the Company shall become vested in the Company for sale, use or disposal as it deems fit to reduce the amount of indebtedness.

McClain did not execute a separate financing statement naming Transamerica as a secured party. Thus, Transamerica became the holder of an unperfected security interest in the insurance expirations of McClain.

On December 28, 1987, McClain entered into a franchise agreement with plaintiff, Lloyds, which was engaged in a premium financing business. Lloyds agreed to advance money to McClain, to allow McClain to use Lloyds' trade name, and to assist ...


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