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In re Professional Ins. Management

November 25, 1997

IN RE PROFESSIONAL INSURANCE MANAGEMENT, DEBTOR

THE OHIO CASUALTY GROUP OF INSURANCE COMPANIES; THE OHIO CASUALTY INSURANCE COMPANY; WEST AMERICAN INSURANCE COMPANY; AMERICAN FIRE & CASUALTY COMPANY; THE OHIO LIFE INSURANCE COMPANY; OHIO SECURITY INSURANCE COMPANY; OCASCO BUDGET, APPELLANTS AT NO. 96-5516

v.

PROFESSIONAL INSURANCE MANAGEMENT, APPELLANT AT NO. 96-5447



On Appeal from the United States District Court for the District of New Jersey

(D.C. Civil Action No. 96-cv-02499)

Before: BECKER and SCIRICA, Circuit Judges and KELLY, District Judge *fn1

SCIRICA, Circuit Judge.

Argued June 5, 1997

Filed November 25, 1997

OPINION OF THE COURT

In this appeal we must decide two questions affecting New Jersey automobile insurance policies: first, whether under the state's "two-for-one" insurance policy non-renewal rule, *fn2 an insurance carrier may apply its entire quota of "two-for-one" credits to decline to renew the personal automobile insurance policies sold by one of its former agents; second, whether the insurance carrier here has a perfected security interest in its former agent's post-bankruptcy policy renewal commissions.

The district court held the insurance carrier could gradually terminate the agent's personal automobile policies under the "two-for-one rule" without violating New Jersey law. The district court also held the insurance carrier did not have a perfected security interest in its former agent's post-bankruptcy renewal commissions. In re Professional Ins. Management, No. 96-2499 (D.N.J. July 8, 1996). We will affirm.

I.

Professional Insurance Management ("PIM") is a New Jersey-licensed insurance broker and agent. In 1980, PIM became an agent for The Ohio Casualty Group of Insurance Companies ("Ohio Casualty"). Under the Ohio Casualty-PIM agency contract, PIM was authorized to market Ohio Casualty's personal and commercial insurance policies. PIM located customers, ascertained their insurance needs, and sold them appropriate Ohio Casualty policies. For personal automobile insurance policies, Ohio Casualty collected premiums directly from policyholders and sent PIM its sales commissions. For other types of insurance, PIM collected the premiums and forwarded them to Ohio Casualty, minus its earned sales commissions. Under the agency contract, Ohio Casualty could withhold PIM's commissions on personal automobile insurance policies to satisfy PIM's debt. Also, Ohio Casualty could terminate the contract on ninety days' notice.

In the early 1990s, PIM experienced serious business difficulties and, as a result, owed Ohio Casualty $252,642 in unpaid premiums. In March 1994, Ohio Casualty terminated its relationship with PIM. Later that year, PIM filed for bankruptcy. This appeal arises out of PIM's bankruptcy proceedings.

The first issue on appeal is whether Ohio Casualty could decline to renew the policies of PIM's personal automobile insurance customers. After PIM declared bankruptcy, Ohio Casualty declined to renew 65 of the 69 automobile insurance policies sold by PIM and scheduled to expire between June 17 and June 30, 1996. PIM claimed that Ohio Casualty impermissibly targeted these policies for non-renewal following the termination of the agency agreement between Ohio Casualy and PIM. *fn3 Ohio Casualty maintained that it was permitted to do so under N.J. Stat. Ann. Section(s) 17:29C-7.1(c) (West 1994), New Jersey's"two-for-one rule," which allows an insurer to decline to renew one personal automobile insurance policy for every two new policies it writes. This action, if followed, would substantially reduce PIM's income by eliminating its renewal commissions. *fn4

PIM sought an injunction from the bankruptcy court to require Ohio Casualty to rescind its non-renewal notices and to renew PIM policies that came due. PIM contended that Ohio Casualty's actions would "destroy" its personal automobile insurance business since all of its policyholders were up for renewal in the six months commencing October 1, 1996. PIM argued that Ohio Casualty's conduct was unfair and discriminatory, and violated New Jersey insurance law. The bankruptcy court agreed and granted the injunction. In re Professional Ins. Management, No. 94-13602 (Bankr. D.N.J. Apr. 19, 1996). On appeal, the United States District Court for the District of New Jersey reversed, holding that Ohio Casualty's decision to target PIM policies for non-renewal did not violate New Jersey law. In re Professional Ins. Management, No. 96-2499 (D.N.J. July 8, 1996).

The second issue on appeal is whether Ohio Casualty has a perfected security interest in PIM's post-bankruptcy renewal commissions. Ohio Casualty claims it does. The bankruptcy court held that PIM, not Ohio Casualty, retained the right to receive PIM renewal commissions because Ohio Casualty did not perfect its security interest in PIM's book of business. The district court affirmed the bankruptcy court's order, adopting the bankruptcy court's reasoning. Id. This appeal and cross-appeal followed.

II.

The district court had jurisdiction under 28 U.S.C. Section(s) 158(a)(3) (1988). We have jurisdiction under 28 U.S.C. Section(s) 158(d) (1988). In our review of bankruptcy court judgments, we, like the district court, apply the clearly erroneous standard to factual issues and exercise plenary review over legal issues. In re Fegeley, 118 F.3d 979, 982 (3d Cir. 1997). Our review of the district court's interpretation and application of state law is plenary. Infocomp, Inc. v. Electra Products, Inc., 109 F.3d 902, 905 (3d Cir. 1997); Salve Regina College v. Russell, 499 U.S. 225, 231 (1991). In interpreting state law, we must predict how the highest court of that state would decide the relevant legal issues. Koppers Co. v. Aetna Cas. & Sur. Co., 98 F.3d 1440, 1445 (3d Cir. 1996).

III.

A.

"For years, New Jersey's system of automobile insurance regulation, like those of many other states, has faced an intractable problem of providing coverage for high-risk drivers." ...


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