* Insurance agents, by contract with insurers they represent, must place all premium collected on behalf of the insurer and place the funds in a separate trust account. Depending on the terms of the contract the agent then deducts the agreed commission and remits the remainder to the insurer. Failure to remit the premium, less the commission, is a theft or conversion of funds to which the agent had no entitlement.
In Zurich American Insurance Company v. Sealink Insurance Service Corp. And Yan Sara Zhang, And Phann Gelinda Keo, Et Al., No. 17-55776, United States Court of Appeals for the Ninth Circuit (October 15, 2018) Defendants Yan Sara Zhang and Sealink Insurance Service Corporation appealed from the district court's denial of their motion to set aside the entry of default and default judgment against them.
In evaluating such a motion, an appellate court must consider three factors:
whether the party seeking to set aside the default engaged in culpable conduct that led to the default;
whether it had no meritorious defense; or
whether reopening the default judgment would prejudice the other party.
A finding that any one of these factors is true is sufficient reason for the district court to refuse to set aside the default.
The Ninth Circuit did not reach the issue of defendants' culpable conduct because defendants' lack of a meritorious defense was sufficient to justify the district court's refusal to set aside the default and default judgment. Defendants have no meritorious defense to Zurich American Insurance Company's breach of contract claim.
The defendants point to the lack of a written agreement and argue that the contract at issue does not exist. However, they do not dispute that Sealink sold insurance policies issued by Zurich in exchange for Sealink's remittance of premiums, and there is ample evidence of an agreement governing that arrangement. Defendants offer no facts to dispute the existence of an agreement, and general objections to the existence of a contract are insufficient to satisfy the meritorious defense requirement.
Defendants also lack a meritorious defense to Zurich's breach of fiduciary duty claim.
Defendants do not dispute that Sealink failed to maintain the premiums it owed Zurich in a segregated trust account as required by California Insurance Code sections 1733 and 1734. Defendants' argument that those provisions do not provide Zurich with a cause of action is mistaken. The Ninth Circuit concluded...