First Trinity Capital Corporation v. Canal Indemnity Insurance Company et al

Filing 30

ORDER granting Defendants' 17 Motion for Summary Judgment. Signed by District Judge Halil S. Ozerden on 1/10/2014. (ENW)

IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF MISSISSIPPI
NORTHERN DIVISION
FIRST TRINITY CAPITAL
CORPORATION

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V.
CANAL INDEMNITY INSURANCE
COMPANY and SOUTHERN CROSS
UNDERWRITERS, INC.

PLAINTIFF/
COUNTER-DEFENDANT
Civil No. 3:12CV891-HSO-RHW

DEFENDANTS/
COUNTER-CLAIMANTS

MEMORANDUM OPINION AND ORDER GRANTING
DEFENDANTS’ MOTION FOR SUMMARY JUDGMENT
BEFORE THE COURT is the Motion for Summary Judgment [17] filed by
Defendants Canal Indemnity Insurance Company and Southern Cross
Underwriters, Inc., on October 18, 2013. This Motion is now fully briefed. After
due consideration of the record, the submissions on file, and relevant legal
authorities, the Court finds that Defendants’ Motion for Summary Judgment [17]
should be granted and that Plaintiff First Trinity Capital Corporation’s claims in
this civil action should be dismissed with prejudice.
I. FACTS AND PROCEDURAL HISTORY
A.

Factual Background
Plaintiff First Trinity Capital Corporation [“First Trinity” or “Plaintiff”]

engages in the business of financing insurance premiums. First Am. Compl. [7] at

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15. Premium financing
involves an advance by the finance company to the insurance company or
its agent of the premium due for the full term of the policy. This advance
is then repaid by the insured to the finance company in amortized
monthly installments which include an additional amount to cover
financing charges. The finance company is secured in making this
advance payment by obtaining the right to cancel the policy and to receive
the return premium due upon cancellation if timely repayments are not
made.
Baker & Co., Florida v. Preferred Risk Mut. Ins. Co., 569 F.2d 1347, 1348 (5th Cir.
1978).
At issue in this case are three insurance policies financed by First Trinity.
First Trinity financed insurance policy premiums on behalf of Harper Trucking
[“Harper”], Eddie Johnson [“Johnson”], and Anthony Greg Groves [“Groves”]
[collectively, the “Insureds”] which were purportedly obtained by the Insureds from
Defendant Canal Indemnity Insurance Company [“Canal”] through Central
Mississippi Insurance [“CMI”]. First Am. Compl. [7] at 16–21. According to First
Trinity, the Harper policy had effective dates of June 11, 2009, to June 11, 2010, the
Johnson policy was issued by Canal Insurance as Policy No. PIA04839201, and the
Groves policy was issued by Canal Insurance as Policy No. PIA04868901. Id. at 16,
18, 20.1
According to the First Amended Complaint [7], First Trinity agreed to tender
the annual premiums on each policy, less each Insured’s down payment. In

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First Trinity has not provided a policy number for the Harper policy or any effective
dates for the Johnson or Groves policies.

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exchange, each Insured executed a premium finance agreement2 in which they
promised to repay First Trinity the monies advanced plus interest and finance
charges, in amortized monthly installments. Id. Each Insured also assigned all
unearned premiums to First Trinity and granted First Trinity a power of attorney
to cancel the policies after notice and receive the unearned premiums on the policies
in the event of default under the premium finance agreement. First Am. Compl. [7]
at 16–21.3
First Trinity contends that it informed Canal and Canal’s general agent,
Defendant Southern Cross Underwriters, Inc. [“Southern Cross”] [collectively,
“Defendants”], that it had financed each Insured’s premium payments and that
each Insured’s rights in any unearned premiums had been assigned to First Trinity.
Id. at 17–21. When the Insureds defaulted on their repayment obligations, First
Trinity claims that it sent Notices of Cancellation for each policy to the respective
Insured, as well as to Defendants. Id. First Trinity alleges that although
Defendants were obligated under Mississippi law to repay to First Trinity all

2

A premium finance agreement is
an agreement by which an insured or prospective insured promises to pay to
a premium finance company the amount advanced or to be advanced to an
insurer or to an insurance agent or broker in payment of premiums of an
insurance contract together with interest or discount and a service charge . . .
.

Miss. Code § 81-21-1(c).
3

The only premium finance agreement supplied in the record is that of Harper. See
Harper Premium Finance Agreement [21-1] at 1–2. The parties have not provided the
premium finance agreements for either Johnson or Groves.

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unearned premiums as of the date of cancellation of each policy, they have refused
to do so. Id.
B.

Procedural History
First Trinity filed a Complaint [7] in the Circuit Court of Hinds County,

Mississippi, First Judicial District, on August 6, 2012, naming Canal and Southern
Cross as Defendants. Compl. [7] at 2. On September 4, 2012, First Trinity filed a
First Amended Complaint [7], which advances claims against Defendants for breach
of statutory law and negligence per se, breach of contract, negligence, fraud,
constructive trust, and actual and apparent authority. First Am. Compl. [7] at
22–27.4 First Trinity seeks the return of the unearned premiums it paid on behalf
of Harper, Johnson, and Groves, as well as punitive damages, costs, expenses,
interest, and attorneys’ fees.
Defendants removed the case on December 27, 2012, invoking this Court’s
diversity jurisdiction pursuant to 28 U.S.C. § 1332. Notice of Removal [1] at 1–2.
Southern Cross and Canal each filed Answers and Counterclaims [3], [5] against

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On March 26, 2013, First Trinity filed a Motion [12] in this Court for leave to amend its
Complaint and attached a proposed Second Amended Complaint [12-1]. The proposed
Second Amended Complaint sought to add a claim against Defendants for ratification and
estoppel. Proposed Second Am. Compl. [12-1] at 16–17. The Magistrate Judge granted
First Trinity’s Motion to Amend by text order entered on April 22, 2013. First Trinity never
filed the Second Amended Complaint into the record. For this reason, Southern Cross and
Canal focus on the claims asserted by First Trinity in the First Amended Complaint. Defs.’
Mem. in Supp. of Mot. for Summ. J. [18] at 1, 2 n.1. First Trinity does not address this
argument or its proposed ratification and estoppel claims in its Response. Based on the
foregoing, the Court finds that the First Amended Complaint is the operative pleading and
will proceed accordingly in resolving Defendants’ Motion for Summary Judgment.

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First Trinity. In their present Motion, Southern Cross and Canal seek dismissal of
all claims asserted against them in the First Amended Complaint. Mot. [17] at 2.
First Trinity claims that Defendants failed to return unearned premiums
after their receipt of notices of cancellation of the Insureds’ insurance policies, as
required by Mississippi law. First Am. Compl. [7] at 22–24. In the alternative,
First Trinity asserts that in the event the insurance policies were not actually
issued by Canal, Defendants perpetrated a fraud by and through their purported
agent, CMI. First Trinity charges that Defendants were negligent in their
supervision of CMI as their purported agent. Id. at 24–25. The parties indicate in
their summary judgment briefing that Jan Gunn [“Gunn”], the owner of CMI, made
misrepresentations and misappropriated certain premium finance funds rather
than turning them over to the insurers. As a result, First Trinity has filed a
number of other lawsuits in this Court against various insurance companies. See
Defs.’ Mem. in Supp. of Mot. for Summ. J. [18] at 5–6; Pl.’s Mem. in Supp. of Resp.
[24] at 2, 7, 19; see also, e.g., First Trinity Capital Corp. v. Catlin Specialty Ins., No.
3:13cv9-TSL-JMR (S.D. Miss.); First Trinity Capital Corp. v. Arch Ins. Co., No.
3:12cv310-HTW-LRA (S.D. Miss.); First Trinity Capital Corp. v. State National Ins.
Co., No. 1:12-cv-253-LG-JMR (S.D. Miss.); First Trinity Capital Corp. v. Gramercy
Ins. Co., No. 3:11-cv-795-CWR-FKB (S.D. Miss.). First Trinity asserts that it first
learned of Gunn’s fraud in August 2009. Pl.’s Mem. in Supp. of Resp. [24] at 5; Aff.
of Clarence Zahn [21-3] at 5–6.

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First Trinity alleges that CMI acted as Defendants’ agent because CMI
exhibited actual and apparent authority to do all acts on behalf of Defendants
incidental to the sale of the insurance policies and the collection of their premium
payments. First Trinity further asserts that Defendants have obtained and/or are
holding property which in equity and good conscience belong to First Trinity such
that the Court should impose a constructive trust on the funds. Id. at 26.
Defendants argue that CMI’s Gunn was not acting as their agent, but as
First Trinity’s agent, during the solicitation, negotiation, execution, and performing
of the premium finance agreements, such that any claims based upon an agency
theory fail as a matter of law. Defs.’ Mem. in Supp. of Mot. for Summ. J. [18] at
4–6. Even if the Court finds that Gunn was Defendants’ agent, Defendants posit
that dismissal is nevertheless required because Gunn served as a dual agent. Id. at
6–7. Defendants also argue that First Trinity cannot and has not presented any
evidence supporting its claims for negligence, imposition of a constructive trust, or
punitive damages. Id. at 7.5
II. DISCUSSION
A.

Summary Judgment Standard
Federal Rule of Civil Procedure 56(a) provides that summary judgment is

appropriate “if the movant shows that there is no genuine dispute as to any

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Defendants also assert in their Motion [17] that First Trinity is prohibited from
challenging the Motion with any witness or document because First Trinity failed to comply
with Federal Rule of Civil Procedure 37(c)(1). First Trinity disputes this charge. Because
summary judgment in Defendants’ favor is warranted even considering all evidence
presented, the Court need not resolve this discovery issue.

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material fact and the movant is entitled to judgment as a matter of law.” FED. R.
CIV. P. 56(a). If the movant meets this burden, “the nonmovant must go beyond the
pleadings and designate specific facts showing that there is a genuine issue for
trial.” Little v. Liquid Air Corp., 37 F.3d 1069, 1075 (5th Cir. 1994) (en banc). To
rebut a properly supported motion for summary judgment, the opposing party must
show, with “significant probative evidence,” that there exists a genuine issue of
material fact. Hamilton v. Segue Software, Inc., 232 F.3d 473, 477 (5th Cir. 2000).
In deciding whether summary judgment is appropriate, the Court views facts and
inferences in the light most favorable to the nonmoving party. RSR Corp. v. Int’l
Ins. Co., 612 F.3d 851, 858 (5th Cir. 2010). However, if the evidence is merely
colorable, or is not significantly probative, summary judgment is appropriate.
Cutting Underwater Techs. USA, Inc. v. ENI U.S. Operating Co., 671 F.3d 512, 516
(5th Cir. 2012)(citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249 (1986)).
B.

Analysis
The Court has jurisdiction over this matter pursuant to diversity of

citizenship under 28 U.S.C. § 1332. “Under the Erie doctrine, federal courts sitting
in diversity apply state substantive law and federal procedural law.” Gasperini v.
Ctr. for Humanities, Inc., 518 U.S. 415, 427 (1996); see also Erie R.R. Co. v.
Tompkins, 304 U.S. 64, 78 (1938). The Court applies Mississippi law in this case.
See, e.g., Truong v. Bank of America, N.A., 717 F.3d 377, 382 (5th Cir. 2013).

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1.

Plaintiff’s Claims for Breach of Statutory Law, Negligence Per Se, and
Breach of Contract

The thrust of these three claims is that Defendants failed to return unearned
premiums to First Trinity after First Trinity tendered them notices of cancellation
of the Insureds’ policies. First Am. Compl. [7] at 22–24. Defendants argue that
First Trinity cannot supply any evidence to create a genuine issue of material fact
as to whether it is entitled to a refund of any unearned premiums. Defs.’ Mem. in
Supp. of Mot. for Summ. J. [18] at 3–4. Defendants also contend that First Trinity
cannot produce valid premium finance agreements, notices of intent to cancel along
with proof of delivery, or notices of cancellation for the three Insureds’ policies. Id.
at 4 (citing Miss. Code §§ 81-21-13 & 81-21-19).
Plaintiff has not explained which statute forms the basis of its breach of
statutory law and negligence per se claims. It appears these claims are premised
upon Mississippi Code § 81-21-21, which provides in relevant part that
[w]henever a financed insurance contract is cancelled, the insurer shall
return to the premium finance company as soon as reasonably possible
whatever gross unearned premiums are due under the insurance
contract, and also shall furnish to the premium finance company a report
setting forth an itemization of the unearned premiums under the policy
that includes a detailed mathematical summary of the computation of the
return premium.
Miss. Code § 81-21-21(1). If a premium finance agreement contains a power of
attorney clause which enables the premium finance company to cancel an insurance
contract, the premium finance company must follow the procedure contained in
Mississippi Code § 81-21-19. Under this section,

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(2)

(3)

Not less than ten (10) days’ written notice shall be mailed to the
insured, at the last known address shown on the records of the
premium finance company, of the intent of the premium finance
company to cancel the insurance contract unless the default is
cured within such ten-day period.
After expiration of such ten-day period, the premium finance
company may thereafter cancel such insurance contract or
contracts by sending to the insurer a notice of cancellation. The
insurance contract shall be cancelled as if such notice of
cancellation had been submitted by the insured, but without
requiring the return of the insurance contract or contracts. The
premium finance company shall also mail a copy of the notice of
cancellation to the insured at the last known address shown on the
records of the premium finance company.

Miss. Code § 81-21-19(2)–(3).
With the exception of listing their purported policy numbers in the First
Amended Complaint, First Trinity has offered no information regarding Johnson’s
and Groves’ insurance policies. First Trinity has supplied no evidence that these
policies ever existed or, if they did, whether there were cancelled or whether any
unearned premiums were due under Mississippi Code § 81-21-21. In the absence of
an insurance contract, there can be no “unearned premiums” and thus no violation
of § 81-21-21. First Trinity Capital Corp. v. Catlin Specialty Ins., No. 3:13-cv-9TSL-JMR, 2013 WL 62300099, at *3 (S.D. Miss. Dec. 2, 2013) (citing Insurasource,
Inc. v. Phoenix Ins. Co., 912 F. Supp. 2d 433, 439–440 (S.D. Miss. 2012)). Because
First Trinity does not address either the Johnson or Groves policies in response to
summary judgment, it has not carried its summary judgment burden with respect
to these policies.
As for the Harper policy, Defendants maintain that Canal actually issued
this policy. Defs.’ Reply [26] at 1, 5–10. According to Defendants, First Trinity
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never cancelled the Harper policy, such that all premiums paid were actually
earned. Id. Defendants have submitted evidence that First Trinity never cancelled
the Harper policy and that the Harper policy expired at the end of its term on June
11, 2010. Aff. of Tammy Vaughn [26-1] at 1–2; Aff. of Joseph E. Horsman [26-2] at
1–2. Defendants also have presented competent evidence that First Trinity’s
Southern Insurance Services requested that vehicles insured under the Harper
policy be deleted on or around December 8, 2009, and February 4, 2010, and that a
vehicle be added for insurance coverage under the Harper policy on or around
February 25, 2010, Aff. of Joseph E. Horsman [26-2] at 2, all of which occurred after
the time First Trinity claims that it cancelled the Harper policy.
In its Response, First Trinity maintains that it cancelled the Harper policy in
accordance with the premium finance agreement and cites Exhibit “A” to its
Response in support of this assertion. While it appears that First Trinity may have
supplied the insured notice of impending cancellation pursuant to Mississippi Code
§ 81-21-19(2), the seven pages of documents contained in Exhibit “A” to First
Trinity’s Response do not establish that the Harper policy was actually cancelled in
accordance with Mississippi Code § 81-21-19(3), and a reasonable jury could not
reach such a conclusion based upon these documents alone. First Trinity has not
offered any other competent summary judgment evidence which would permit a
reasonable jury to make such a finding. First Trinity has not carried its summary
judgment burden on its breach of statutory law, negligence per se, and breach of
contract claims.
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2.

First Trinity’s Remaining Claims

First Trinity also advances claims for negligence, fraud, imposition of a
constructive trust, actual and apparent authority, and punitive damages. These
claims rest upon First Trinity’s theory that CMI was acting as Defendants’
authorized agent. See First Am. Compl. [7] at 24–28. In their Motion for Summary
Judgment, Defendants maintain that CMI was not acting as their agent, but even if
it were, CMI through Gunn was also acting as First Trinity’s agent. Defs.’ Mem. in
Supp. of Mot. for Summ. J. [18] at 4–7; Defs.’ Reply [26] at 4–5. Defendants argue
that the theory of dual agency would require dismissal of these claims “without
regard to the agency relationship or lack thereof between the Defendants and Gunn
. . . .” Defs.’ Mem. in Supp. of Mot. for Summ. J. [18] at 6 (citing Hodges v. Mayes,
242 S.E.2d 160 (Ga. 1978)).
First Trinity responds that CMI acted as Defendants’ agent and possessed at
least apparent authority to act on behalf of Southern Cross. Pl.’s Mem. in Supp. of
Resp. [24] at 12–19. First Trinity asserts that at a minimum there exists a genuine
issue of material fact as to whether CMI acted as Defendants’ agent in connection
with the relevant transactions. Id. at 19. First Trinity insists that Defendants
failed to supervise CMI because Southern Cross knew as early as October 2007 that
CMI was failing to forward premiums that CMI had received on at least one policy.
Id. at 19–20.
Both Insurasource, Inc. v. Cowles & Connell of NY, Inc., No. 2:11-cv-76-KSMTP, 2011 WL 4397487 (S.D. Miss. Sept. 21, 2011), aff’d, 467 F. App’x 337, 338 (5th
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Cir. 2012), and First Trinity Capital Corp. v. Catlin Specialty Ins., No. 3:13-cv-9TSL-JMR, 2013 WL 6230099 (S.D. Miss. Dec. 2, 2013), are instructive on the
question of CMI’s agency.
In Insurasource, Rocco was an insurance agency which contacted plaintiff
Insurasource to solicit its insurance premium financing services. Rocco then
entered into a broker’s agreement with defendant Cowles & Connell, a general
agent for a number of insurance companies for which Cowles & Connell was
authorized to bind and issue insurance policies and collect premiums. Insurasource,
2011 WL 4397487 at *1. After several Rocco accounts defaulted, Insurasource
contacted Cowles & Connell to inquire about the unearned premiums and was told
that Rocco had never remitted premiums for some of the policies. Id. As a result,
Insurasource had submitted a number of finance agreements to Cowles & Connell
for which Cowles & Connell had never bound policies. Id. Insurasource sued
Cowles & Connell for the alleged fraud perpetrated by Rocco and charged that
because Rocco was Cowles & Connell’s authorized agent, payments made to Rocco
constituted payments to Cowles & Connell. Id. at 2. The question presented was
whether Cowles & Connell was a party to the insurance premium financing
agreements because Rocco purportedly acted as its agent. Id. at 3.
The Insurasource Court cited the following Mississippi agency principles in
making its determination:
An agency relationship may be express or de facto. A de facto agency may
be proven by the presence of three elements at the time of contracting:
(1) “manifestation by the alleged principal, either by words or conduct,
that the alleged agent is employed as such by the principal,” (2) “the
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agent's acceptance of the arrangement,” and (3) “the parties understood
that the principal will control the undertaking.”
* * *
Whether an agency relationship exists is “to be determined by the
relations of the parties as they exist under their agreements or acts, with
the question being ultimately one of intention . . . . If relations exist
which will constitute an agency, it will be an agency whether the parties
understood the exact nature of the relation or not. Moreover, the manner
in which the parties designate the relationship is not controlling, and if
an act done by one person in behalf of another is in its essential nature
one of agency, the one is the agent of such other notwithstanding he is not
so called.
Id. at *3 (quoting Stripling v. Guardian Energy Exploration Co., 234 F.3d 863, 870
(5th Cir. 2000)).
Applying these principles, the Insurasource Court reasoned that
the financing agreements themselves provide no evidence that Rocco
acted on Defendant’s behalf. The only parties other than Plaintiff to sign
the financing agreements were Rocco and some of the primary insureds.
In some of the contracts, Rocco signed on behalf of the primary insured
as an “Authorized Signatory.” In others, the primary insured signed the
contract. In each of the contracts, Rocco signed as the “AGENT.” Each
contract lists the insurance company writing the policy and the general
agent through whom the policy was to be purchased. Defendant is listed
as the “general agent” on each contract. However, there is no indication
in the contracts themselves that either the insurance company or the
general agent were parties to the negotiation, execution, or performance
of the financing agreements.
Id. at *4.
The Court also found that the broker’s agreement between Rocco and Cowles
& Connell did not establish the existence of an agency relationship. Id. The
agreement was clear that Rocco was not authorized to accept premium payments on
behalf of Cowles & Connell, and while Rocco was authorized to submit applications
for insurance to Cowles & Connell, it was not authorized to bind coverage without
receiving Cowles & Connell’s prior authorization. Id. Nor was Rocco authorized to
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accept payment of premiums or deposit checks made payable directly to Cowles &
Connell. Id. Instead, Cowles & Connell sent Rocco a monthly billing of premiums,
and Rocco guaranteed Cowles & Connell payment of all premiums for policies it
placed. Id. The Court concluded that there was no evidence that Cowles & Connell
represented to Insurasource that Rocco was acting as its agent with regard to the
premium financing agreements, and that the e-mails among the three parties
indicated that neither Insurasource nor Cowles & Connell knew or controlled what
Rocco was doing. Id.
Catlin Specialty involved facts similar to those present in this case. At issue
was a premium finance agreement allegedly entered into between First Trinity and
B&W Auto Sales to finance B&W’s premium for a garage policy obtained from
Catlin Specialty Insurance through Catlin’s general agent, Crump. Catlin
Specialty, 2013 WL 6230099 at *1. After B&W defaulted on its repayment
obligations and Catlin and Crump did not return the unearned premiums, First
Trinity filed a complaint in this Court asserting the same causes of action as those
raised here. Id. at *2. After First Trinity voluntarily dismissed Catlin, Crump filed
a motion for summary judgment. In considering the question of agency, the Catlin
Specialty Court held that “there is no proof that Crump had any involvement in the
solicitation, negotiation, execution, or performance of the financing agreement, or
that it ‘was in control of [CMI/Gunn] throughout the undertaking.’” Id. at *6
(quoting Insurasource, 2011 WL 4397487 at *5). The Court concluded that “First
Trinity has failed to create a genuine issue of material fact as to its allegation that
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CMI/Gunn was Crump’s agent.” Id. The Catlin Specialty Court also found no
evidence to support the theory that CMI or Gunn possessed apparent authority to
act on behalf of Crump, explaining that “the mere fact that CMI/Gunn had
previously placed policies through Crump provides no indication as to the exact
nature or extent of CMI/Gunn’s authority.” Id.
In this case, First Trinity has not offered sufficient competent evidence that
either Defendant had any involvement in the solicitation, negotiation, execution, or
performance of the financing agreement, or that either Defendant was in control of
CMI or Gunn throughout the undertaking. First Trinity has failed to create a
genuine issue of material fact as to its allegation that either CMI or Gunn acted as
the agent of either Defendant, or that CMI and Gunn had apparent authority to
bind either Defendant. See id. In sum, Plaintiff has not shown the existence of a
triable fact question as to its allegation that CMI or Gunn acted as an agent of
either Defendant or exhibited apparent authority to act on either Defendant’s
behalf. Summary judgment in Defendants’ favor on Plaintiff’s remaining claims is
therefore warranted.
III. CONCLUSION
For the foregoing reasons, Defendants’ Motion for Summary Judgment [17]
will be granted, and Plaintiff’s claims against Defendants will be dismissed with
prejudice. To the extent the Court has not addressed any of the parties’ arguments,
it has considered them and determined that they would not alter the result.

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IT IS, THEREFORE, ORDERED AND ADJUDGED that, the Motion for
Summary Judgment [17] filed by Defendants Canal Indemnity Insurance Company
and Southern Cross Underwriters, Inc., on October 18, 2013, is GRANTED, and
Plaintiff First Trinity Capital Corporation’s claims in this civil action are
DISMISSED WITH PREJUDICE. Defendant Southern Cross Underwriters,
Inc.’s and Defendant Canal Indemnity Insurance Company’s Counterclaims [3], [5],
remain pending.
SO ORDERED AND ADJUDGED this 10th day of January, 2014.

s/ Halil Suleyman Ozerden
HALIL SULEYMAN OZERDEN
UNITED STATES DISTRICT JUDGE

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