                                                                                                                           Opinions of the United
1997 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit


11-25-1997

In Re: Professional Ins Mgmt
Precedential or Non-Precedential:

Docket
96-5447,96-5516




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Recommended Citation
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Filed November 25, 1997

UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT

Nos. 96-5447 and 96-5516

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)

Argued June 5, 1997

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

(Filed November 25, 1997)



_________________________________________________________________
*The Honorable James McGirr Kelly, United States District Judge for
the Eastern District of Pennsylvania, sitting by designation.



       SAMUEL MANDEL, ESQUIRE
        (ARGUED)
       136 West Route 38
       Moorestown, New Jersey 08057-3223

       MICHAEL A. ZINDLER, ESQUIRE
       Markowitz & Zindler
       3131 Princeton Pike
       Lawrenceville, New Jersey 08648

       Attorneys for Appellant/Cross-
       Appellee, Professional Insurance
       Management

       CHARLES X. GORMALLY,
        ESQUIRE (ARGUED)
       CARL J. SORANNO, ESQUIRE
       Brach Eichler Rosenberg Silver
       Bernstein Hammer Gladstone
       101 Eisenhower Parkway
       Roseland, New Jersey 07068

       Attorneys for Appellees/Cross-
       Appellants, 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

OPINION OF THE COURT

SCIRICA, Circuit Judge.

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,1 an insurance carrier may apply its entire
_________________________________________________________________

1. N.J. Stat. Ann. S 17:29C-7.1(c) (West 1994) provides: "For every two
newly insured automobiles which an insurer voluntarily writes in each

                                2



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
_________________________________________________________________

territory during each calendar year period, the insurer shall be permitted
to refuse to renew one additional policy of automobile insurance in that
territory in excess of the 2% limitation established in subsection b. of
this section, subject to a fair and nondiscriminatory formula developed
by rule or regulation of the commissioner . . . ."

                                3



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.2 Ohio Casualty
maintained that it was permitted to do so under N.J. Stat.
Ann. 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.3
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-
_________________________________________________________________

2. PIM attributes a number of different motives to Ohio Casualty. At
various points in its brief, PIM asserts that Ohio Casualty targeted its
policies because the agency agreement had been terminated, because
Ohio Casualty believed PIM had a high loss ratio, because PIM declined
to limit the number of Ohio Casualty policies it wrote, and because Ohio
Casualty desired to withdraw from the business of writing personal
automobile insurance policies in New Jersey.

3. Neither PIM nor Ohio Casualty provided us with information regarding
the percentage of business or the value of commissions PIM lost as a
result of Ohio Casualty's practices. Therefore, we cannot ascertain the
extent of economic damage PIM suffered because of Ohio's conduct.

                                4



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.
S 158(a)(3) (1988). We have jurisdiction under 28 U.S.C.
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." State Farm Mut. Ins. Co. v. State , 590 A.2d 191,

                                5



195 (N.J. 1991). Because this appeal involves an
interpretation of New Jersey's most recent legislative
attempt to solve this problem, we will begin by briefly
reviewing the recent history of New Jersey automobile
insurance law.

In 1983, New Jersey instituted a state-sponsored
automobile insurance fund, the Joint Underwriting
Association, to provide high risk drivers with "coverage at
rates equivalent to those charged in the voluntary market."
Id. at 195. The Joint Underwriting Association selected
insurance carriers to collect premiums, arrange coverage,
and administer JUA insurance policies. In addition to
normal premium income, the JUA received funding from
Department of Motor Vehicles surcharges for moving
violations and drunken driving convictions, as well as flat
charges and residual market-equalization charges imposed
on voluntary-market insureds. Thus, under the JUA, the
general population of motorists partially subsidized the
insurance costs of high-risk drivers. Id. at 196.

The Joint Underwriting Association was a failure. It lost
money because collected premiums and additional funding
were not sufficient to meet the amount of claims against
JUA policies. In addition, the insurance industry began to
refuse to insure anyone except the safest risks. Many safe
drivers were forced to obtain JUA insurance. As a result, by
1988, over 50% of New Jersey's drivers, including many
who had never had an accident or serious traffic violation,
had to be insured through the JUA. Id.
In 1988, the legislature attempted to modify the JUA
insurance system by "depopulating" the state pool to
include only the highest risk drivers. Matter of Aetna Cas.
and Sur. Co., 591 A.2d 631, 635 (N.J. Super. 1991), certif.
denied, 599 A.2d 162 (N.J. 1991), cert. denied, 502 U.S.
1121 (1992). As a result, by 1992, the JUA covered only
20% of New Jersey's automobile insureds. Despite this
change, the JUA still operated at a deficit. See Governor's
Reconsideration and Recommendation Statement, N.J. Stat.
Ann. S 17:28-1.4 (West 1994) ("The ever-increasing costs of
our out-of-balance insurance system, coupled with the
artificially low rates maintained for even the bad drivers in
the JUA, has caused a deficit of approximately $2.5 billion

                                6



in the JUA and cash flow problems which have reached a
critical point.").

In 1992, the New Jersey legislature adopted the Fair
Automobile Insurance Reform Act ("FAIRA"), which replaced
the JUA with mandatory private-sector insurance. See Fair
Automobile Insurance Reform Act of 1990, N.J. Stat. Ann.
S 17:33B-1 et seq. (West 1994). Under FAIRA, insurance
companies conducting business in New Jersey are required
to insure New Jersey drivers who had previously been
insured through the JUA. As FAIRA's "take all comers" rule
stipulates: "No insurer shall refuse to insure, refuse to
renew, or limit coverage available for automobile insurance
to an eligible person who meets its underwriting rules as
filed with and approved by the commissioner in accordance
with the provisions of section 7 of P.L.1988, c. 156
(C.17:29A-46)." N.J. Stat. Ann. S 17:33B-15 (West 1994).

FAIRA also requires insurance companies to renew their
automobile insurance policies. N.J. Stat. Ann. S 39:6A-3
(West 1994) ("No licensed insurance carrier shall refuse to
renew the required coverage stipulated by this act of an
eligible person as defined in section 25 of P.L.1990, c.8 (C.
17:33B-13) except in accordance with the provisions of . . .
17:29C-7.1 or with the consent of the Commissioner of
Insurance."). The New Jersey legislature provided several
important exceptions to this mandatory renewal obligation.
One exception, the "two-for-one rule," is the subject of this
appeal. The "two-for-one rule" provides that an insurer may
decline to renew one personal automobile policy for every
two new policies it writes in a specific geographic area. N.J.
Stat. Ann. S 17:29C-7.1(c) (West 1994). The rule also
stipulates that an insurer's non-renewal policy must
comply with the "fair and nondiscriminatory formula"
developed by the Commissioner of Insurance. Id.
Ohio Casualty employed the "two-for-one" non-renewal
exception to terminate 65 of the 69 personal automobile
insurance policies sold by PIM and scheduled to expire
between June 17 and June 30, 1996. PIM contends this
treatment violates the requirement that the rule be
employed in a "fair and nondiscriminatory" fashion.

As the district court noted, the Commissioner of
Insurance has promulgated a discrimination formula under

                                7



N.J. Stat. Ann. S 17:29C-7.1(c). N.J. Admin. Code S 11:3-
8.5(c) (1995) provides: "Nothing in [the "two-for-one rule"]
shall be construed to authorize insurers to act in
contravention of any applicable State or Federal law
prohibiting discrimination on impermissible bases." PIM
has not alleged that Ohio Casualty's conduct violates
federal or state anti-discrimination laws. Nor are we aware
of any facts suggesting that Ohio Casualty has done so.

B.

PIM contends that under N.J. Stat. Ann. S 17:22-6.14a(l)
(West 1994) the New Jersey legislature intended to provide
terminated agents with protection from targeted non-
renewal. N.J. Stat. Ann. S 17:22-6.14a(l) provides, in part:

       [N]o insurance company which has terminated its
       contractual relationship with an agent . . . shall, upon
       the expiration of any automobile insurance policy . . .
       which is required to be renewed pursuant to . . .
       C.39:6A-3, refuse to renew . . . or refuse to service a
       policyholder . . . upon the written request of the agent
       . . . . The company shall pay a terminated agent who
       continues to service policies pursuant to the provisions
       of this subsection a commission in an amount not less
       than that provided for under the agency contract in
       effect at the time the notice of termination was issued.
       . . .

But the plain language of the entire statutory section
undermines PIM's argument. The statute explicitly permits
non-renewal under the "two-for-one rule." N.J. Stat. Ann.
S 17:22-6.14a provides:

       However, nothing in this section shall be deemed to
       prevent nonrenewal of an automobile insurance policy
       pursuant to the provisions of section 26 of P.L. 1988,
       c.119 (C.17:29C7.1).").4
_________________________________________________________________
4. The New Jersey Appellate Court reached a similar conclusion when it
considered the targeting of agents under N.J.S.A. 17:29C-7.1(b)--the
"2%" rule--which is another exception to New Jersey's requirement of
mandatory renewal. This section provides:

                                8



There is nothing in the language of this section that
insulates former agents from the "two-for-one" rule.

Nor does PIM cite anything in the legislative history to
support its interpretation. PIM argues that the"legislative
and judicial history of insurance law demonstrates a strong
public interest in protecting" insurance agents. But PIM
points to nothing specific in the legislative history to
support its position and instead cites "obvious public
policy," other statutory provisions that protect insurance
agents, and pending legislation that would amend the"two-
for-one" rule. But as Ohio Casualty points out, the New
Jersey Legislature gave insurers the "two-for-one" credits
"[i]n order to encourage depopulation of the JUA and
expansion of the voluntary market." Senate Committee
Statement to Senate, S. 202-2637 (N.J. 1988). See also
Reconsideration and Recommendation Statement of Governor
_________________________________________________________________

       For each calendar year period, an insurer may issue notices of
       intention not to renew an automobile insurance policy in the
       voluntary market in an amount not to exceed 2% of the total
       number of voluntary market automobile insurance policies of the
       insurer...which are in force at the end of the previous calendar
year
       in each of the insurer's rating territories in use in this State.
Id.

In Mary R. Barry & Inland Agency, Inc. v. Selective Ins. Group, Inc.,
Appellate Division No. A-3544-94T2 (May 14, 1996), the insurance
company had applied the "2%" rule to eliminate 209 out of 465 personal
automobile policies written by a terminated agent. The terminated agent
complained that an insurance company should not be able to target a
terminated agent under the "2%" rule. Citing N.J.S.A. 17:22-6.14(a)
("[N]othing in this section shall be deemed to prevent non-renewal of an
automobile insurance policy pursuant to the provisions of section 26 of
P.L. 1988, c.119 (C.17:29C7.1)"), the court found that the insurance
company's decision to target the agent's policies for non-renewal did not
violate New Jersey law.

Barry may be distinguished, however, because unlike the 2-for-1 rule,
the New Jersey legislature has not made the "2%" rule subject to the
"fair and nondiscriminatory formula." Nonetheless, the court's opinion is
instructive because in interpreting this exception to the requirement of
mandatory renewal, the court gave effect to the plain meaning of the
statute.

                                9



Kean, N.J. Stat. Ann. S 17:28-1.4 (stating that he agreed to
"two-for-one" rule "[i]n the spirit of compromise").

Regardless of the purported intent of the legislature, and
it appears to support Ohio Casualty's position, we are not
free to ignore the plain and unambiguous language of the
statute. Friedrich v. United States Computer Services, 974
F.2d 409, 419 (3d Cir. 1992) ("Although a statute should be
interpreted in a fashion that does not defeat the
congressional purpose . . . a court may not rewrite an
unambiguous law.") (citations omitted). Until such time as
the New Jersey Legislature decides to alter implementation
of the "two-for-one" rule, we must interpret the statuory
scheme as written. See In re Barshak, 106 F.3d 501, 506
(3d Cir. 1997).

C.

As in many states, New Jersey has established a complex
regulatory scheme for the administration of personal
automobile insurance. PIM contends the district court erred
because "the formula contemplated by the Legislature is
clearly something other than the nondiscrimination
regulation as promulgated by the Commissioner."
(Appellant Brief at 48). But PIM cites no authority for this
claim. Instead, it relies upon the 1967 edition of the
Random House Dictionary of the English Language, which,
according to PIM, defines "formula" as "a set of words, as
for stating something or declaring something definitely or
authoritatively, for indicating procedure to be followed, or
for prescribed use on some ceremonial occasion." (Appellant
Brief at 49). PIM asserts that the Commissioner's anti-
discrimination regulation, N.J. Admin. Code S 11:3-8.5(c),
"does not fit this definition at all," because "[i]t does not set
up any type of procedure for non-renewal and is therefore
not a reasonable interpretation of the statutory requirement
for a formula." Id. PIM suggests that because the
Commissioner has not provided an adequate formula, the
courts should do so.

But the New Jersey legislature specifically directed the
Commissioner of Insurance to promulgate a fairness
formula. N.J. Stat. Ann. S 17:29C-7.1(c) ("[The `two-for-one'

                                10
rule is] subject to a fair and nondiscriminatory formula
developed by rule or regulation of the commissioner."). The
Commissioner promulgated N.J. Admin. Code S 11:3-8.5(c),
which prohibits insurers from acting "in contravention of
any applicable State or Federal law prohibiting
discrimination." Apparently, the Commissioner has declined
to forbid the use of the "two-for-one" rule against a
terminated agent's book of business. As the district court
stated, "[i]t is not for this court to decide that the
Commissioner did not go far enough" when it declined to
provide protections against discrimination in addition to
those currently available under state and federal law.

Those who are charged with the adoption and
administration of New Jersey's automobile insurance laws
are aware of the problems highlighted by this litigation, yet
they have not decided to change the current scheme. Since
passage of the "two-for-one" rule, the New Jersey legislature
has considered and rejected proposed changes to New
Jersey's insurance laws that would provide insurance
agents with the protections PIM seeks here.5 That
legislation has been introduced seeking to eliminate the
precise conduct objected to by PIM is an indication that
these "protections" are not currently available under New
Jersey law. See Mary R. Barry & Inland Agency, Inc. v.
Selective Ins. Group, Inc., Appellate Division No. A-3544-
94T2, slip op. at 9 (May 14, 1996) ("Since the proposed bill
was intended to curtail this practice, it is reasonable to
conclude that the practice does not contravene the current
statutory scheme."). Nor has New Jersey's Commissioner of
_________________________________________________________________

5. In 1993, the Legislature considered changes that would eliminate the
"two-for-one" rule and the "2%" rule. S. Res. 2064, 207th Leg. (N.J.
1993) (reintroduced as S. Res. 158 on January 8, 1994). That bill was
never reported from the Senate Committee. A similar bill--S. Res. 557,
210th Leg. (N.J. 1996)--was introduced on January 20, 1996. On June
20, 1996, the Senate Committee substituted a version of the Bill that did
not completely eliminate the "two-for-one" and "2%" rules but instead
provided that an insurance company could not nonrenew more than
10% of a particular agent's book of business in a given year. On
November 25, 1996, however, the Senate substituted a different version
of the bill. This version, which is currently pending before the Senate,
would eliminate the "two-for-one" rule and the "2%" rule altogether.

                                11



Insurance promulgated a more stringent fairness formula.
Revision or elimination of the "two-for-one" rule has been
under consideration in the legislature and in the
Department of Insurance. In the face of unambiguous
statutory language, efforts to change the law should be
directed there.

For these reasons, we agree with the district court that
Ohio Casualty's use of its non-renewal credits on policies
sold by PIM did not violate New Jersey insurance law.

IV.

For personal automobile insurance policies, Ohio
Casualty collected premiums from PIM's customers and
then sent PIM its sales commissions. During the course of
the 1990's, PIM fell into debt, owing Ohio Casualty
$252,642.40. Under the agency agreement, Ohio Casualty
was entitled to retain PIM's commissions to offset PIM's
debts. After PIM filed for bankruptcy, Ohio Casualty
retained and used PIM's post-bankruptcy policy renewal
commissions to offset PIM's debts. Ohio Casualty claims it
has a right to retain these commissions because it has a
perfected security interest in them. PIM maintains that
Ohio Casualty has not perfected its interest because the
post-bankruptcy renewal commissions are contract rights
and therefore must be perfected by filing.6

The bankruptcy court held that Ohio Casualty did not
have a perfected interest in the commissions because it did
not have a perfected interest in PIM's book of business.7
The bankruptcy court held:

       As a general matter, Ohio's collateral, in the agency
       agreement between the two parties, is the expirations,
_________________________________________________________________

6. At oral argument, the parties agreed that for purposes of this cross-
appeal we should assume that the 1980 agency agreement constitutes a
security agreement. Furthermore, we only address the retention of
commissions collected after PIM filed for bankruptcy.

7. An agent's book of business refers to the body of information
developed and collected by the agent including a policyholder's name,
address, policy type, date of expiration, policy number and other
information pertinent to a customer's insurance needs.

                                12



       also known as the debtor's book of business.
       Expirations have been determined to be best
       categorized for UCC purposes as "general intangibles,"
       which may be perfected only by filing, not by
       possession. In re Roy A. Dart Ins. Agency, Inc., 5 B.R.
       207, 14-16 (Bank D. Mass. 1980). Possession of the
       commissions due to the agent does not act to perfect
       Ohio's security interest in debtor's expirations. Debtor's
       opportunity to collect commissions following the
       turnover of its Ohio book of business is not disturbed
       on this basis.

In re Professional Ins. Management, No. 94-13602, slip op.
at 31 (Bankr. D.N.J. Apr. 19, 1996). The district court
affirmed the bankruptcy court's ruling on this issue,
adopting the bankruptcy court's reasoning without
additional analysis. In re Professional Ins. Management, No.
96-2499, slip op. at 30 (D.N.J. July 8, 1996).8

Although we agree with the bankruptcy court's
conclusion, our reasons to affirm the judgment are
different. Under paragraph three of the agency agreement,
Ohio Casualty's collateral interests in PIM's book of
business and in PIM's commissions are separate and
independent.9 The right to withhold commissions functions
_________________________________________________________________

8. In analyzing whether PIM's interest is perfected, we look to New Jersey
law. Although a federal statute, 11 U.S.C. S 552(b)(1) (1988), protects a
creditor's pre-petition perfected security interest, the determination of
whether PIM's security interest is perfected is a matter of state law.
Pearson v. Salina Coffee House, Inc., 831 F.2d 1531, 1533 (10th Cir.
1987), (citing In re Chaseley's Foods, Inc., 726 F.2d 303, 307 (7th Cir.
1983); Havee v. Belk, 775 F.2d 1209, 1218-19 (4th Cir. 1985); In re
Diamond 196 B.R. 635 (S.D. Fla. 1996)); see also Butner v. United States,
440 U.S. 48, 55 (1979) (noting that state law governing perfection of
security interests applies "unless some federal interest requires a
different result").

9. The agency agreement provides, in part: "3. The Agent's records and
use and control of expirations shall remain the Agent's absolute property
and be left in his undisputed possession; provided, however, in the event
of termination of this agreement, if the Agent has not properly accounted
for and paid all premiums for which he is liable, the Agent's records as
respects business placed with the Company shall become the property of
the Company and the Company shall have sole right to use and control

                                13



as additional security over and above the right to assign,
sell, or transfer PIM's book of business. For that reason, the
perfection status of Ohio Casualty's interest in PIM's book
of business does not determine its rights to PIM's post-
bankruptcy commissions. Instead, each source of collateral
must be analyzed separately. Although the district court
and bankruptcy court failed to conduct this analysis, we
will affirm, because Ohio Casualty does not have a
perfected security interest in the retained commissions.

When a debtor enters bankruptcy, an unperfected
creditor's interest in collateral is subordinated to the rights
of the bankruptcy trustee. N.J. Stat. Ann. S 12A:9-301
(West 1994); 11 U.S.C. S 544(b) (1988). For that reason, in
order to hold a secured position vis-a-vis the bankruptcy
trustee, Ohio Casualty had to perfect its security interest in
PIM's commissions before PIM filed for bankruptcy. We do
not believe it did so.

As we have noted, Ohio Casualty maintained a security
interest in PIM's cash commissions independent from any
interests it possessed in PIM's book of business. Ohio
Casualty contends that it has a perfected interest in the
post-bankruptcy commissions under 11 U.S.C. S 552(b)(1),
which provides:

       if the debtor and an entity entered into a security
       agreement before the commencement of the case and if
       the security interest created by such security
       agreement extends to property of the debtor acquired
       before the commencement of the case and to proceeds,
       product, offspring, or profits of such property, then
       such security interest extends to such proceeds,
_________________________________________________________________

such expirations to the extent of the Agent's total indebtedness to the
Company, unless the Agent provides other security acceptable to the
Company . . . The Company, in the exercise of the right reserved to it
above, may, at its option, retain all commissions which are payable or
which may become payable under contracts of insurance represented by
such expirations, or renewals, thereof, and apply same against the
amount of the Agent's indebtedness to the Company, or may sell, assign,
transfer or otherwise dispose of such expirations to any other agent or
broker . . . ."

                                14



       product, offspring, or profits acquired by the estate
       after the commencement of the case to the extent
       provided by such security agreement and by applicable
       nonbankruptcy law, except to any extent that the
       court, after notice and a hearing and based on the
       equities of the case, orders otherwise.

As the Supreme Court has noted: "Section 552(b) sets forth
an exception, allowing postpetition `proceeds, product,
offspring, rents, or profits' of the collateral to be covered
only if the security agreement expressly provides for an
interest in such property, and the interest has been
perfected under `applicable nonbankruptcy law.' " United
Sav. Ass'n of Texas v. Timbers of Inwood Forest Associates,
Ltd., 484 U.S. 365, 374 (1987) (citations omitted); see also
2 Thomas M. Quinn, Quinn's Uniform Commercial Code
Commentary and Law Digest P 9-306 (2d ed. 1991) ("The
security interest in proceeds is a continuously perfected
security interest if the interest in the original collateral was
perfected . . . .") (quoting U.C.C. S 9-306). To prevail under
S 552(b)(1), Ohio Casualty must establish that (a) the
commissions in question are the proceeds of a PIM pre-
bankruptcy asset and that (b) it had a perfected security
interest in that collateral prior to bankruptcy.

Ohio Casualty contends that PIM's right to commissions
for post-petition renewal of policies PIM sold prior to
bankruptcy was a pre-petition asset, that Paragraph 3 of
the Ohio Casualty-PIM agency agreement gave it a security
interest in that asset, and that the commissions eventually
generated after bankruptcy as policies were renewed were
the proceeds of that asset. Even if this reasoning is correct
-- a question on which we take no position -- Ohio
Casualty's claim cannot prevail because it failed to perfect
its interest in the claimed asset before PIM filed for
bankruptcy.

We believe there are two ways to characterize Ohio
Casualty's collateral. Ohio Casualty's security interest is
either in the commissions themselves or in the right to
acquire future commissions. Under either analysis, we find
that Ohio Casualty did not have a perfected security
interest prior to the initiation of the bankruptcy proceeding.

                                15



If Ohio Casualty's interest is in the cash commissions
themselves, its security interest is perfected by possession,
rather than by filing a financing statement with the
Secretary of State. N.J. Stat. Ann. S 12A:9-304 (West 1994).
But perfection of cash collateral dates from the moment the
secured creditor takes possession of the funds. N.J. Stat.
Ann. S 12A:9-305 (West 1994). Here, Ohio Casualty
admittedly took possession of the post-petition
commissions after PIM filed for bankruptcy. Therefore, its
security interest was not perfected prior to the bankruptcy
filing date and its interest is subordinate to that of the
bankruptcy trustee. 2 Thomas M. Quinn, Quinn's Uniform
Commercial Code Commentary and Law Digest P 9-306[A][5]
(2d ed. 1991) ("The secured creditor's claim to the proceeds,
if `unperfected,' is vulnerable in bankruptcy.").

Alternatively, if Ohio Casualty's security interest is in the
right to future renewal commissions, its right to PIM's
renewal commissions is contractual, flowing from the
agency agreement. Under New Jersey law, contract rights
are typically considered "general intangibles." See N.J. Stat.
Ann. S 12A:9-106, comm. (West 1994) ("The term `general
intangible' brings under this Article miscellaneous types of
contractual rights and other personal property which are
used or may become customarily used as commercial
security."). General intangibles, unlike cash, are perfected
by filing a financing statement with New Jersey's Office of
the Secretary of State. N.J. Stat. Ann. S 12A:9-302 (West
1994); N.J. Stat. Ann. S 12A:9-401 (West 1994). But Ohio
Casualty failed to file a security interest. Because its
contractual interest in PIM's future commissions was not
perfected before bankruptcy, Ohio Casualty can not claim
protection under 11 U.S.C. S 552(b)(1) with respect to any
proceeds of that asset. See United Sav. Ass'n, 484 U.S. at
374.10
_________________________________________________________________

10. At oral argument, Ohio Casualty contended that its interest was
perfected because renewal is mandatory. This contention is meritless. As
noted, renewal is not mandatory in New Jersey; insurance companies
can decline to renew policies under the "two-for-one" and "2%" rules.
Ohio Casualty's argument that its interest in the future commissions
should be treated as a present possessory interest in money to be paid
at a future date, and not a contractual right, is unconvincing.

                                16



The perfection rules were adopted by the drafters of
Article Nine of the Uniform Commercial Code to provide
potential creditors with adequate notice that certain assets
of the debtor had already been pledged as collateral for
previously acquired debt. They give creditors the means to
identify the security status of the debtor's collateral prior to
the provision of capital. 2 Thomas M. Quinn, Quinn's
Uniform Commercial Code Commentary and Law Digest,
119-101[A][4][E] (2d ed. 1991) ("The parties to whom
`perfection' does speak are the trustee in bankruptcy,
creditors of the debtor who attach the collateral, later
lenders who advance money against the same collateral,
possible buyers of the collateral, and anyone else for that
matter who deals with the collateral in some way . .. . It
does so by requiring the creditor to publish his interest in
the collateral in such way as to alert these concerned
outsiders of that interest.").

Here, Ohio Casualty took no steps, like filing afinancing
statement, to put potential PIM creditors on notice of its
interests in PIM's future commissions. Were we to adopt
Ohio Casualty's position, it would undercut the purpose of
the perfection rules. That Ohio Casualty had a right to
offset PIM's commissions against PIM's debts under its
agency agreement is insufficient, by itself, to create a
perfected security interest. Future creditors could not rely
on that agreement to provide notice of Ohio Casualty's
claims since the future creditors were not privy to, nor had
notice of, the contract.

Ohio Casualty was required to file a financing statement
to perfect any security interest it possessed in pre-petition
contractual rights to post-petition PIM commissions. It
failed to do so. Therefore, we will affirm the district court's
judgment that Ohio Casualty maintains an unperfected
security interest in the commissions.

V.

For the foregoing reasons we will affirm the judgment of
the district court.

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A True Copy:
Teste:

       Clerk of the United States Court of Appeals
       for the Third Circuit

                                18
