Coppage v. Resolute Insur. Co.

Singley, J., delivered the opinion of the Court. The insolvency of National Motors Insurance Company (National Motors) precipitated a spate of litigation, of which this case is but a small part. 1 Here, John H. Cop-page, National Motors’ receiver, by an action instituted in the Circuit Court of Baltimore City, sought to have declared void an agreement which National Motors had entered into with Resolute Insurance Company, and to recover $17,917 which remained on deposit with Resolute by virtue of the terms of the agreement. From an order dismissing the bill of complaint, Coppage has appealed. We propose to affirm the order of the lower court.

A companion case, involving Coppage’s exceptions to a claim for $175,267.29 filed by Resolute in the National Motors receivership, was consolidated with the instant case for purposes of trial, and terminated with the entry of an order which established National Motors’ liability, but deferred, pending examination of claims and further ²⁶³ hearing, the entry of an order fixing the amount of Resolute’s claim. As a preliminary matter, Resolute moved to dismiss Coppage’s appeal, arguing that it was premature, relying on Maryland Rule 605 a.: “a. When Entered — As to Part or All. “Where more than one claim for relief is presented in an action, whether as an original claim, counterclaim, cross-claim or third-party claim the court may direct the entry of a final judgment upon one or more but less than all of the claims only upon an express determination that there is no just reason for delay and upon an express direction for the entry of judgment. In the absence of such determination and direction, any order or other form of decision, however designated, which adjudicates less than all the claims shall not terminate the action as to any of the claims, and the order or other form of decision is subject to revision at any time before the entry of judgment adjudicating all the claims.” and on Schafer v. Bernstein, 256 Md. 218 , 260 A. 2d 57 (1969) and Silverman v. National Life Ins.

Co., 255 Md. 148 , 257 A. 2d 156 (1969). We regard this reliance as misplaced. Here, two entirely separate and distinct cases were consolidated for purposes of trial as a matter of convenience as permitted by Rule 503. The rule applicable to such consolidated actions is Rule 606: “In a consolidated action, in a trial before the court, the court may render such joint or separate judgments, and in a jury trial, may require the rendition of such joint or separate verdicts as justice may require.” which contemplates the rendition of separate judgments, without a limitation of the sort imposed by Rule 605 a., ²⁶⁴ which is applicable in instances where final judgments -are entered on less than all the claims in a single action.

As a consequence, we shall deny the motion to dismiss and proceed to a consideration of the merits of the appeal. National Motors qualified to do business in Maryland in May 1963, specializing in writing high risk automobile liability insurance for customers who could not obtain such insurance at standard rates. Faced with the problem that it was licensed to do business only in Maryland and Delaware, and desiring to expand its market, it cast about for some way of resolving this dilemma. National Motors found in Resolute an easy solution to its problem.

Resolute, a small but well established company, incorporated in Rhode Island, had its headquarters in Hartford, Connecticut. 2 Resolute was qualified to do business in the District of Columbia and every state except New York. It is essentially a specialty carrier, two-thirds of its premium income being derived from physical damage insurance written on financed motor vehicles and mobile homes, although a small amount of bodily injury insurance was written in Massachusetts. In May of 1963, Stanley Orlove, the president of National Motors, as well as of Eastern States Insurance Agency, Inc. (Eastern) and Basin & Basin Insurance Agency, Inc. (Basin), which respectively wrote and sold policies for National Motors, approached Resolute with a proposition, which Resolute found attractive because it saw an opportunity to gain experience in a new field, where profits were thought to be high, at what was believed to be minimal risk. The idea was essentially this.

Basin would set up a sales office in New Jersey and sell policies of high risk insurance in that state. The policies would be on Resolute’s forms, since Resolute was licensed to do business ²⁶⁵ in New Jersey, while National Motors was not. Resolute would authorize Eastern to issue policies in Resolute’s name and to collect premiums, adjust losses and issue drafts, drawn on Resolute, in payment. All agency expenses were to be paid by Eastern.

For the performance of Eastern’s duties, Resolute would pay Eastern a commission of 20% of net premiums written, subject to adjustment for cancellations. National Motors agreed with Resolute, on the other hand, that National Motors would reinsure Resolute to the extent of 100% of the risks assumed by Resolute on policies written in New Jersey. Additionally, Resolute was to receive 5% of premiums earned on the New Jersey policies, and any balance would be remitted to National Motors. National Motors guaranteed that this arrangement would generate in the first year $500,000 in earned premiums, on which Resolute would receive 5%, and deposited with Resolute a guaranty fund of $25,000, which would be reduced as Resolute collected its commission.

The understanding was formalized by an agency agreement between Resolute and Eastern and Basin dated 14 May 1963, and by a reinsurance agreement between Resolute and National Motors executed by National Motors on 24 May. In the less than 10 months’ period between 1 June 1963, when the reinsurance agreement became effective and early March, 1964, when the National Motors insolvency proceedings commenced, Resolute received $187,-904.58 in premiums which ultimately would have been ceded to National Motors, after deduction of the commissions, because National Motors had accepted the risks under the policies. As it turned out, the $500,000 minimum guaranty was never met, and the $17,917 which is the subject of this suit represents the balance of the $25,000 guaranty fund which remained in Resolute’s hands. Under the agency agreement which Resolute had with Eastern, commissions on net premiums were remitted prospectively (i.e., at the time policies were sold) rather ²⁶⁶ than retrospectively (when premiums were earned).

These commissions were paid in the amount of $37,580-.88. In early January 1964, Resolute paid to National Motors $7,082, being apparently 5% of premiums earned to 31 December 1963, which amount was deducted from the $25,000 guaranty fund. If losses of $314,060.82 incurred by Resolute are added to commissions paid Eastern, premium taxes of $4,447.61 paid by Resolute, and the payment to National Motors, the total amount paid out by Resolute was $363,171.87. Crediting against this the $187,904.58 in premiums retained by Resolute, losses and expenses exceeded premiums collected by $175,267.29 —the amount of the claim filed by Resolute in the National Motors receivership, which was the subject of Coppage’s exceptions.

The principal thrust of the argument made by Coppage, as receiver for National Motors, is that the arrangement made by National Motors with Resolute was not a treaty of reinsurance at all, but merely a device permitting Resolute to “front” for National Motors. He argues that there are four reasons why the agreement should be rescinded: (i) The solicitation and acceptance of a contract of reinsurance by a Maryland insurance company in a state where it is not licensed to do business violates Code (1957) Art. 48A, § 84 and therefore is illegal; (ii) The contract was entered into in violation of the laws of Connecticut; (iii) The alleged reinsurance agreement should have been submitted to the State Insurance Commissioner for approval, and in the absence of said approval is illegal; and, (iv) The courts of Maryland will not enforce an illegal contract and where'the parties to a suit for rescission are not in pari delicto as to the illegal act, the court will grant rescission. ²⁶⁷ (i) The solicitation and acceptance of a contract of reinsurance by a Maryland insurance company in a state where it is not licensed to do business violates Code (1957) Art. 48A, § 84 and therefore is illegal. Judge Barrick, who heard the case below, found as a fact that Resolute was “fronting” for National Motors and Eastern but concluded that this did not, of itself, make the agreement illegal, and