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June 28, 1957


Appeal, No. 250, Jan. T., 1957, from judgment of Court of Common Pleas of Lehigh County, June T., 1955, No. 103, in case of Harry R. Van Schoiack v. United States Liability Insurance Company. Judgment affirmed.


Theodore R. Gardner, with him James L. Weirbach, for appellant.

James D. Christie and Harry A. Dower, with them Walter E. Knecht, Jr., Perkin, Twining & Dower and O'Keefe & Knecht, for appellee.

Before Jones, C.j., Bell, Chidsey, Musmanno, Arnold, Jones and Cohen, JJ.

Author: Chidsey

[ 390 Pa. Page 28]


This is an action in assumpsit brought by the plaintiff against the defendant insurance company seeking an accounting to determine the amount of commissions allegedly due under the agency agreement between them.

Plaintiff, the proprietor of the Emmaus Ford Company, in Emmaus, Pennsylvania, was approached during the early months of 1952 by representatives of the defendant company with a view toward having plaintiff write physical damage insurance for it as an agent of the company. The defendant insurance company sought to interest plaintiff in writing the insurance under a so-called "retrospective" plan of compensation. Under this arrangement the plaintiff would remit to

[ 390 Pa. Page 29]

    the defendant the full amount of the premiums he collected on policies written by him, from which the defendant company would deduct from the premiums as they became earned a stated percentage (in the case of the plan offered to plaintiff here it would be 15%) for its office fees, etc. Thereafter the defendant company would add the salvage and subrogation, and deduct the total losses and loss expenses due to these policies, and remit to the plaintiff the remainder as his compensation. If the remainder should be a minus figure in one accounting period, then the defendant company would carry that loss over to subsequent accountings. The net effect of this "retrospective" plan would be to make the agent's commissions depend on the safety record of the risks he writes. If the loss ratio of his accounts is very low, then his commission, in the instant case, would run close to 85% of earned premiums on the insurance he writes. If the loss experience is high, then his commission would suffer proportionately.

The plaintiff was new to the insurance writing business, and he preferred to be paid a straight commission, thus shifting the loss risk to the defendant insurance company. To this the defendant agreed, and on March 10, 1952 the parties entered into an agency agreement to this effect.

In his original complaint, filed May 5, 1955, plaintiff termed this arrangement an "oral agreement" under which plaintiff was to receive a 25% prepaid commission upon all the insurance he placed with the defendant company. In addition, he contended: "5. The plaintiff was, by virtue of the aforesaid agreement with the defendant, entitled to convert the business placed for the defendant to a retrospective basis with respect to compensation, upon written notice to the defendant, whereupon the plaintiff would be entitled to receive as

[ 390 Pa. Page 30]

    additional compensation the residue of premiums earned by the defendant upon expired or terminated risks less the actual loss experience of the defendant upon these risks and also less the additional sum of 15% of earned premiums to be retained by the defendant." and that on February 3, 1955, he informed the defendant company by written notice that he desired to convert his business theretofore placed to a "retrospective" basis.

His contention is that by so exercising the conversion feature on February 3, 1955 he became entitled retroactively to compensation on the "retrospective" plan basis on all of the insurance he had written for the defendant company, going back to the inception of their agency relationship on March 10, 1952.

In its original answer the defendant averred that the arrangement between the parties was based on a written contract executed on March 10, 1952, which did not contain a feature permitting conversion to a "retrospective" plan of compensation, but which provided only for the 25% prepaid commissions to the plaintiff.*fn1 As new matter it appended a printed "Agency Agreement" dated March 10, 1952, containing the signatures of the plaintiff and the then president of the defendant company, and an attached typewritten "Addendum #1", similarly dated and signed. In the margin next to paragraph (2) of this printed "Agency Agreement" form, wherein compensation to the agent is set forth according to a "retrospective" plan, there appears the following notation: "Para. #2 Waived See Addendum". In addition, the printed "Agency Agreement" contains provisions pertaining to the powers and duties of the agent and the company, provisions for

[ 390 Pa. Page 31]

    termination, accounting, expenses, etc., and a statement that "(7) This Agreement supersedes all previous agreements whether oral or written between the Company and Agent. ...".

The "Addendum #1" contains a single provision:

"Paragraph 2, is eliminated and the following is substituted: The Company agrees to pay the Agent as full compensation on business so placed with the Company a commission of 25% of the written premiums. This commission is ...

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