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WILLIAM ARCHIE TEW v. DIXIELAND FINANCE

MAY 25, 1988

WILLIAM ARCHIE TEW
v.
DIXIELAND FINANCE, INC., A MISSISSIPPI CORPORATION



BEFORE HAWKINS, P.J., PRATHER AND ANDERSON, JJ.

PRATHER, JUSTICE, FOR THE COURT:

Among other questions, this appeal addresses whether a small loan company, unlicensed to sell insurance, may receive a commission on the sale of credit life and disability insurance without violation of the Mississippi statutes.

Dixieland Finance, Inc., a small loan company, filed

 suit against a borrower, William Archie Tew, who had defaulted on a promissory note. The borrower counterclaimed alleging that the loan company had overcharged the borrower on premium payments made on credit life and credit disability insurance. From a verdict in favor of the loan company, the borrower appeals and raises the following issues:

 (1) May a small loan company solicit and sell credit life and credit disability insurance? and

 (2) May a small loan company, not licensed to sell insurance, receive commissions on the sale of credit life and credit disability insurance?

 I.

 FACTS

 Dixieland Finance, Inc. (Dixieland), a Mississippi corporation, is a small loan business licensed by the Mississippi Department of Banking and Consumer Finance and is located in Collins, Mississippi. William Archie Tew (Tew) was a customer of Dixieland and had negotiated a series of loans with Dixieland beginning in 1978.

 The series of loans negotiated by Tew was the result of Mr. Tew's inability to completely repay the amounts he owed. For instance, whenever Tew fell behind on his payments, Dixieland allowed Tew to negotiate a new loan and use the proceeds of the new loan to repay the former loan. Through this renewal process, Tew fell deeper and deeper into debt.

 With each new loan transaction, Tew procured, through Dixieland, credit life and credit disability insurance. The purpose of this insurance was to pay off Tew's financial obligation to Dixieland if Tew died or became disabled.

 During the course of its business relationship with Tew, Dixieland utilized a procedure by which it collected the credit life and credit disability insurance premiums, *fn1 retained fifty percent of the gross premiums as commissions, and forwarded the remaining fifty percent to the Central Life Insurance Company of Jackson, Mississippi. *fn2

 The final promissory note payable to Dixieland by Tew was executed March 23, 1984 and was for a principal amount of $1,626.36. The note provided for an initial payment of $119.11 followed by twenty monthly payments of $105.00. The annual percentage rate on the note was 35.32% and the total

 of all payments, including the finance charges, was $2,219.11.

 Tew made only two payments of $105.00 each on the March 23, 1984 note before defaulting. Instead of renewing the loan as it had done before, Dixieland turned the account over to its attorney for collection. A complaint was filed January 9, 1985 in the Circuit Court of Covington County demanding a total of $2,446.19. *fn3 Also, an additional ten percent per annum interest rate began to accrue from the date the debt was accelerated. By the date of the trial, Tew owed $2,536.69. *fn4

 Tew counterclaimed alleging that Dixieland's method of retaining commissions from the sale of credit life and credit disability insurance was violative of the Mississippi Small Loan Regulatory Law codified at Miss. Code Ann. 75-67-101 through -135 (1972 & Supp. 1987). As a result of Dixieland's alleged statutory violations, Tew claimed that he was entitled to have voided all the financial agreements, contracts, and promissory notes he had executed with Dixieland, and that he was entitled to the return of all monies, including principal, interest, and other charges paid by him to Dixieland. *fn5 This suit was tried July 8, 1985 and ended with a decision in favor of Dixieland for $2,536.69. From that decision, Tew perfects this appeal.

 The resolution of the issues of this appeal require attention to three Mississippi statutory enactments: (1) the Small Loan Regulatory Law, Miss. Code Ann. 75-67-101 et seq., (2) the Regulation of Agents for Life, Health, or Accident Insurers, Miss. Code Ann. 83-17-101, et seq., and (3) Credit Life and Credit Disability Insurance, Miss. Code Ann. 83-53-1 et seq.

 II.

 WAS IT ILLEGAL FOR DIXIELAND TO RETAIN COMMISSIONS FROM CREDIT LIFE AND CREDIT DISABILITY INSURANCE WRITTEN BY ITS

 EMPLOYEES?

 A.

 THE CONTROLLING STATUTES

 At no time during its business dealings with Tew was Dixieland a licensed insurance agent. However, at all times relevant to this case, Dixieland employed insurance agents licensed to write credit life and credit disability coverage. It was the understanding of the president and

 employees of Dixieland that credit life and credit disability insurance could be written so long as an employee of Dixieland was a licensed insurance agent.

 Also, Mr. John T. Miller, an examiner with the Mississippi Department of Banking and Consumer Finance, testified that the writing of credit life and credit disability insurance by finance companies and the receiving of commissions therefrom by the finance companies is a common practice in Mississippi. Furthermore, Mr. Miller testified the practice of small loan companies accepting commissions from the sale of credit insurance was accepted by the Department of Banking and Consumer Finance.

 As mentioned, it was the practice of Dixieland to retain as its commission 50% of the insurance premiums. All, or a large portion, of the retained commission went to Dixieland, not to the licensed insurance agents employed by Dixieland. Tew contends Dixieland's commission procedure was illegal.

 The statutory scheme regulating agents for life, health or accident insurers is Miss. Code Ann. 83-17-101 through -135 (1972 & Supp. 1987). Miss. Code Ann. 83-17-101 (Supp. 1987) defines the term" agent "as including" all individuals, partnerships, and any corporation . . . who act in any manner, directly or indirectly, as such in the solicitation of, negotiation for, or procurement or making of a contract of life, health or accident insurance . . . . "

 Furthermore, Miss. Code Ann. 83-17-105 (Supp. 1987) prohibits acting as an insurance agent without a license and also prohibits the payment or acceptance of insurance commissions to and by those not licensed as insurance agents. Section 83-17-105 reads:

 No person shall act as an agent within this state until he shall have procured a license as required by the laws of this state, and until he shall hold a certificate of authority from at least one (1) company authorized to ...


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