Southwestern Indemnity Co. v. Cimarron Insurance Co. ( 1960 )

WILSON, Justice

(dissenting on rehearing).

I think the judgment of the trial court was correct. The majority imposes liability on Cimarron on (1) an agency theory and (2) “acceptance of benefits of the fraud.” I am unable to find a basis for either theory under the record. Rymer was certainly not acting as Cimarron’s agent in placing the policies with Southwestern. The holding by the majority that “when Cimarron credited Rymer’s account with return premiums, it in effect constituted Rymer its agent to handle the matter for it,” if it becomes law, will make it impossible in the industry for an insurer to credit a former agent’s account without hazarding liability.

What did Cimarron do? It cancelled Rymer’s authority to write policies. Of this action no complaint is made. It can-celled policies written by Rymer. This, the policies authorized. It credited Ry-mer’s agency account with unearned premiums. These were obligations to its policyholders; not to Southwestern. The policyholders might well have a cause of action against Rymer or against Cimarron, but they are not parties to this action.

What duty did Cimarron owe to Southwestern? Did it owe a duty to notify every other insurer in the nation that it had cancelled Rymer’s agency and policies and had credited his agent’s balance? Emphasis is placed on Cimarron’s knowledge of Rymer’s insolvency, and that it “expected Rymer would re-write the can-celled policies” in other companies. I take it to be common knowledge that when an insurer cancels, the agent usually seeks to place the business elsewhere. In this he acts as agent of the insured and the new insurer and not of the previous insurer. If this was ever regarded as a ground of liability by plaintiff, it was as a part of an alleged conspiracy (a count which was abandoned); and an allegation that Rymer could not probably pay the premiums on replaced policies. There is no suggestion in the pleading, aside from the abandoned conspiracy count, that Cimarron knew that Rymer would conceal his financial condition. Can it be seriously suggested that Cimarron was under a duty to disseminate information as to what it thought was Rymer’s financial condition? I am unable to find any element of agency relationship in the case. The issue was not submitted to the jury. Appellee objected to its omission. It was waived. Rule 279.

As to the theory of accepting benefits of Rymer’s fraud, the rule is invoked that partaking of benefits makes participants liable. The sine qua non of this rule is not acceptance of benefits, but participation. Cimarron did not participate in Rymer’s alleged fraud. Rymer’s “insolvency” or Cimarron’s knowledge of it was not fraud. If Rymer concealed his insolvency from Southwestern, Cimarron did not participate in the concealment, for it had no duty to speak. If Rymer concealed the fact that the policies re-written were previously cancelled, Cimarron did not participate. The “fruits of the fraud” rule imposes no obligation on a stranger to the fraud for acts of another done purely in his own interest. Reeves v. McCracken, 103 Tex. 416, 128 S.W. 895, 896; American Nat. Bank v. Cruger, 91 Tex. 446, 44 S.W. 278; Ross v. Seip, 154 S.W.2d 958, writ ref. w. o. m.; Business Men’s Oil Co. v. Priddy, Tex.Civ.App., 248 S.W. 408, writ dis. Cimarron did not participate, consent, condone or ratify. It did nothing. Its relationship with Rymer had ended. No element of fraud on the part of Cimar-ron is present. Any “benefit” it received preceded any act of Rymer.

The opinion states that by crediting his account Cimarron in effect paid over the policyholder’s money to Rymer. Even if this suit was by the policyholders (which it is not) the liability of neither Cimarron nor Rymer would be extinguished thereby. The credit transaction was solely inter sese, and affected their liability to third persons not one whit.

The opinion states Cimarron knew its loss would be shifted, and therefore knew of the fraud. I am unable to follow this syllogism. If it is based on the initial common knowledge that cancelled policies will probably be replaced, then such a rule would be disastrous to cancelling insurers. If it is based on Cimarron’s duty to refund unearned premiums, this is not fraud as to appellant, nor is it evidence of knowledge any loss would be shifted.

On original submission I reluctantly concurred in the result on a “subrogation theory.” As appellee’s motion for rehearing points out, this theory was not pleaded. It has not ever been suggested as a basis for sustaining recovery in appellant’s brief. I do not believe we are justified in initiating the theory at a time when appel-lee has no opportunity to meet it, nor notice he is called upon to combat it. Appel-lee has not regarded it as persuasive enough to suggest it. Before subrogation by implication of equity could be enforced in this case, appellee would be entitled to be apprised that the status of its obligation to former policyholders was in issue. This record does not present essential elements of subrogation as to appellee. The majority, I think, has imposed the equitable right to subrogation which appellee may well have had against Rymer, upon Cimar-ron, where it does not rest.

Rymer received the premiums. Most of these he did not remit to Cimarron. Rymer was primarily obligated to repay unearned premiums. The obligation of Cimarron was secondary. Rymer’s conduct placed Southwestern in its unfortunate predicament. Cimarron did nothing but what it had a right to do in crediting Rymer’s balance. I see no basis for its liability and would affirm.

Memorandum Opinion

McDONALD, Chief Justice.

The original opinion in this cause is withdrawn and a new opinion handed down this date, substituted therefor.

Action on appellee’s Motion for Rehearing will be held in abatement for 15 days, during which period appellee may file such further motions as it desires.