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Prime Rate Premium Finance Corp., Inc. v. Larson

United States District Court, E.D. Michigan, Southern Division

December 27, 2016

PRIME RATE PREMIUM FINANCE CORPORATION, Plaintiff,
v.
KEITH A. LARSON, KAREN E. LARSON, and BRANDON E. LARSON, Defendants.

          OPINION AND ORDER GRANTING IN PART DEFENDANT BRANDON LARSON'S MOTION FOR SUMMARY JUDGMENT AND DENYING Plaintiff's MOTION FOR LEAVE TO FILE A SECOND AMENDED COMPLAINT

          DAVID M. LAWSON United States District Judge

         The question presented by defendant Brandon Larson's motion for summary judgment now before the Court is whether the plaintiff has presented any evidence that Brandon committed or aided his parents, Karen and Keith Larson (owners and operators of Larson's Insurance Solutions, Inc.) in perpetrating the fraudulent scheme described in the amended complaint. The scheme consisted of presenting phony insurance premium finance applications to the plaintiff, not applying those loan proceeds to pay for the insurance policies, and pocketing the money instead. The plaintiff seeks to tie Brandon into the scheme on two theories. First, it argues that Keith Larson appointed Brandon as a “Designated Licensed Responsible Producer” of the Larson insurance agency, and therefore Brandon is responsible for the agency's conduct as a matter of law. Second, it points to certain premium finance agreements that Brandon signed, and to other activity that supposedly was intended to further the fraudulent scheme, as evidence of Brandon's actual participation. However, except in two instances, neither the law nor the evidence supports the Plaintiff's claims against Brandon Larson, and therefore the Court will grant in part his motion for summary judgment. The plaintiff also seeks leave to amend its complaint a second time to add allegations that Brandon supervised the fraudulent activity at the agency. But the amendment comes too late, and it would be futile, because the evidence does not support the conclusory allegations proposed by the amendment. The motion to amend, therefore, will be denied.

         I. A.

         Larson's Insurance Solutions, Inc., known by the acronym LISA, was formed by Keith Larson in 2005. Keith Larson was the president, secretary, treasurer, and director, but according to Brandon Larson, Karen Larson was really the person in charge of LISA. The Larsons formed the company to sell insurance products.

         Michigan insurance law requires any business acting as an insurance producer to designate at least one “individual licensed producer responsible for the business entity's compliance with this state's insurance laws, rules, and regulations.” Mich. Comp. Laws § 500.1205(2)(b). That designation usually is made on the application form, FIS-0202, which lists the “Designated/Responsible Licensed Producer, ” or DRLP. More than one person may be listed. Keith Larson submitted an FIS-0202 form on April 25, 2005, listing five individuals as DRLPs, including himself, Karen, and Brandon. Brandon Larson argues that the form lists him only as a “producer, ” which is a term broadly defined under Michigan law to include any person or entity that assists in procuring an insurance policy. Mich. Comp. Laws § 500.1451. But Keith Larson's FIS-0202 plainly listed Brandon as a DRLP. Michigan's Department of Insurance and Financial Services (DIFS) apparently took that information and incorporated it into its data base, which identifies Brandon Larson as one of LISA's DRLPs.

         Brandon asserts that he never agreed to serve as a DRLP for LISA, and Keith listed him as such without Brandon's permission. Keith signed an affidavit confirming that. The plaintiff has not produced any evidence to the contrary, although it argues that the Court should disregard Keith's affidavit because he suffers from dementia and was not competent to sign it in August 2016. Individuals can be added or removed from the state's records of official positions at an insurance agency by submitting form FIS-0200. The form has a spot for the signature of a person to be added as a DRLP, signifying acceptance of that responsibility. LISA filed several FIS-0200s over the years, but none of them mentioned Brandon or contained his signature.

         There is no dispute that Brandon is a licensed insurance producer in Michigan. He began pursuing his insurance license while he was in college and obtained it in September 2005. There also is no dispute that LISA employed Brandon. While employed there, he sold and serviced property and casualty insurance policies.

         Brandon describes LISA as Karen Larson's company, although it was managed by Joanna Dellin. LISA's organizational chart shows Karen at the top of the chart, immediately followed by Joanna Dellin (Agency Manager), who is followed by Greg Winay (Commercial Lines Director/Director of Operations). Keith Larson appears to be on the same level as Karen, but he was responsible only for life and health insurance; he had no subordinates at the time the chart was created. Brandon is shown to be subordinate to Greg Winay for commercial lines compliance, and otherwise subordinate to Karen Larson directly. The chart shows that Brandon had one subordinate: account manager Janice Reed. Brandon testified that he had an assistant during 2013 and 2014, first Martha Bledsoe and later Nancy Gandolfi.

         B.

         Plaintiff Prime Rate describes itself as a premium financing company. It loans money to applicants to pay insurance premiums when the insurance companies will not give favorable financing terms to those persons or entities who want to buy insurance. The loans are documented in the form a premium finance agreement (PFA). This case concerns fourteen PFAs that LISA submitted to Prime Rate purportedly to finance insurance premiums for LISA's customers.

         Under the terms of the PFAs, Prime Rate sent the full amount of the insurance premiums to LISA with the understanding that the funds would be forwarded to the insurance provider to pay the premiums in full for one year of coverage. LISA's client (the insured) would then make monthly installment payments to Prime Rate until the loan was paid.

         Prime Rate alleges that Karen and Keith Larson committed fraud when they submitted the fourteen PFAs entered into in 2013 and 2014. It alleges that some of the PFAs were forged, some clients did not need a PFA (because they paid their premiums in full), LISA received funds from Prime Rate but did not forward the payments on to the insurance companies, the insurance policies did not exist, and LISA obtained more than one PFA on the same insurance policy. As a result of the fraudulent scheme, Prime Rate did not receive payment of $321, 510.16.

         It appears undisputed that a fraud was perpetrated. But Karen and Keith Larson contend that they were not responsible for it, insisting that it was the work of one or more of their rogue employees. The plaintiff contends that Karen and Keith were the masterminds behind the scheme, and that Brandon had a hand in it as well.

         Findings from a Michigan DIFS investigation implicate Keith and Karen in the scheme.

         DIFS issued a report on May 14, 2015 that stated:

         Respondents Keith L. and Karen L. have provided justification for suspension and revocation of licensure by using fraudulent and dishonest practices and/or demonstrating untrustworthiness, incompetence and financial irresponsibility in the conduct of business by:

a. Accumulating significant debts with premium finance companies;
b. Causing policy coverages to lapse for nonpayment of customers' premium;
c. Concealing their misconduct from insureds, insurers, and premium finance companies by providing false information;
d. Failing to remit premium funds to insurers;
e. Failing to return premium funds to premium finance companies when the funds were not used for intended purposes;
f. Forging customers' signatures on premium finance applications;
g. Misappropriating customers' personal and business information to obtain premium finance loans;
h. Misappropriating premium funds for personal and business expenses;
i. Obligating customers to repay premium finance loans they did not authorize or ...

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