Senn v. Northwest Underwriters, Inc.

875 P.2d 637 (1994)

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Nature of the Case

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Facts

Consumers Indemnity Company (Consumers), through its exclusive agent and administrator, D, offered reimbursement insurance to car dealers for the cost of repairs to automobiles covered under extended warranty contracts. All of Consumers' and Underwriters' stock was held by Cimoch, Inc., which in turn was owned by Norman (D) and Mary Ann Cimoch (D). Norman (D) Cimoch was president and chairman of the board of both Consumers and Underwriters. Mary Ann Cimoch (D) was the secretary and director of all of the affiliated companies. Norman (D) and Mary Ann Cimoch (D) were also licensed agents for both Consumers and Underwriters. Consumers' Insured Service Contract (ISC) offered insurance protection to the policyholders in the event they were required to repair a covered automobile. For each car warranty issued to a car purchaser under the ISC program, the dealer remitted a specified to D to cover insurance against the dealer's risk of loss. More than 90 percent of the ISC policy business was written to automobile dealers who submitted payments based on the total number of contracts and type of cars for which the dealers had offered contractual warranty protection. As the insurance agent, D collected all payments from the dealers on behalf of Consumers. Under the terms of a managing agency contract between Consumers and D, D was to receive a commission of 2 percent of each premium and, as Consumers' administrator, $60 per claim paid and administrated by D. On October 31, 1988, Consumers was placed into receivership because it was insolvent by more than $5 million. An investigation found that Norman (D)had begun placing money from premium payments into a program called the Northwest Dealer Reserve Program (Reserve Program). Beginning in June 1987, D, pursuant to its recently implemented Reserve Program, began forwarding only $20 of each dealer payment for new car coverage to Consumers and retaining the balance. Under the Reserve Program, millions of dollars of payments collected under Consumers' ISC policies were retained by D. Consumers owed its policyholders an additional $8.1 million based on other payments that should have been booked to Consumers. An investigation found that Norman (D)had begun placing money from premium payments into a program called the Northwest Dealer Reserve Program (Reserve Program). Beginning in June 1987, D, pursuant to its recently implemented Reserve Program, began forwarding only $20 of each dealer payment for new car coverage to Consumers and retaining the balance. Under the Reserve Program, millions of dollars of payments collected under Consumers' ISC policies were retained by D. Consumers owed its policyholders an additional $8.1 million based on other payments that should have been booked to Consumers. The receivership eventually recaptured approximately $1.8 million. P, as receiver for Consumers, sued F, Cimoch, Inc., and Norman (D) and Mary Ann Cimoch (D) alleging breach of fiduciary duty, conversion, breach of contract, and violation of the Consumer Protection Act. P moved for summary judgment, seeking judgment for $12.3 million against all Ds jointly and severally. The trial court granted partial summary judgment. Mary Ann Cimoch (D) appealed.