224 F.3d 641 (7th Cir. 2000)
Reliance Insurance Company, Plaintiff-Appellant,v.Shriver, Inc., Defendant-Appellee.
No. 99-1886
In the  United States Court of Appeals  For the Seventh Circuit
Argued January 19, 2000
Decided August 14, 2000

Appeal from the United States District Court for the Northern District of Illinois, Eastern Division.  No. 98 C 5211--Rubin Castillo, Judge.
Before Bauer, Cudahy and Evans, Circuit Judges.
Cudahy, Circuit Judge.


1
Reliance Insurance  Company sued Shriver, Inc., alleging that Shriver  owed it premiums on various insurance policies  issued in 1997. These policies were issued by  Reliance but were completely reinsured and  administered by a member of the Home State  Insurance Group, Quaker City.1 Shriver had  acted as Home State's agent during the issuance  of the policies to two trucking companies in  Illinois and was to collect the premiums from the  insureds. The district court denied a motion for  summary judgment filed by Reliance. Shriver then  filed its own motion for summary judgment,  arguing that it had rightfully set off the  premiums on the Reliance policies against premium  refunds (from canceled policies) owed to it by  Home State. The district court granted Shriver's  motion. Reliance now appeals.


2
This case arises in connection with insurance  policies issued to Robinson Bus Service, Inc.,  and to White Transportation through Shriver. In  September of 1996, Shriver, acting pursuant to  its agency agreement with the Home State  Insurance Group and as insurance broker to  Robinson and White, collected the full premiums  for these one-year policies. These premiums were  then forwarded by Shriver to Home State pursuant  to their agency agreement. Both Robinson and  White conducted their businesses in Illinois, but  Home State was not licensed to issue insurance  policies directly in Illinois. Home State,  therefore, had to use what is known as a  "fronting arrangement" to insure these Illinois  risks. In a fronting arrangement--a well-  established and perfectly legal scheme--policies  are issued by a state-licensed insurance company  and then immediately reinsured to 100 percent of  their face value by the out-of-state, unlicensed  insurer.2 In a typical fronting arrangement,  the fronting insurer issues policies on its own  paper and in its own name, and the out-of-state  unlicensed insurer takes over the administration  of all claims as part of the reinsurance  agreement. The original policies issued to  Robinson and White in September of 1996 (the 1996  policies) were fronted by Security Insurance  Company of Hartford (Hartford), an Illinois-  licensed insurance company, and reinsured by Home  State. As was typical of this kind of  arrangement, Hartford, as a fronting fee, earned  a small percentage of the premiums in exchange  for issuing the policy documents, while the bulk  of the premiums ended up with Home State for  underwriting 100 percent of the risk.


3
Robinson's and White's 1996 policies were one-  year policies and were intended to remain in  effect through September of 1997. Between  September of 1996 and the Spring of 1997,  however, Home State had very favorable claims  experience with respect to the 1996 policies.  Robinson and White were good customers, and  because Home State feared a competitor would  offer the trucking companies a lower rate at the  end of the policy period, Home State took steps  to retain their business. First, Home State  canceled the 1996 policies mid-term. Second, Home  State issued both Robinson and White replacement  policies (the 1997 replacement policies) at lower  rates.3 These new policies also had to be  fronted, and the 1997 replacement policies were  issued by Reliance, under a typical fronting  arrangement with Home State. There was no  relationship between Reliance and Hartford (which  had fronted the 1996 policies), and as before,  Shriver served Robinson and White by acting as an  agent and broker for Home State.


4
Robinson and White were issued the 1997  replacement policies with one-year coverage on  Reliance's own paper, and Home State reinsured  100 percent of the risk on these policies. Home  State and Reliance established this fronting  arrangement for the 1997 replacement policies in  a contract known as a "facultative reinsurance  agreement" between Reliance and Quaker City.  Under the reinsurance agreement, Reliance  designated Quaker City as its agent for  collecting premiums and ceded administration of  the 1997 replacement policies to Quaker City. The  Quaker City-Reliance agreement did not address  Home State's relationship with Shriver--nor did  it establish a relationship between Reliance and  Shriver. Under the Home State-Shriver agency  agreement, Shriver was to collect premiums from  Robinson and White for the 1997 replacement  policies and pay them to Home State. Then, under  its agreement with Reliance, Home State was to  deposit the premiums in a bank account over which  Reliance had sole control. Once the money was  deposited, Reliance would keep its small fronting  commission for writing the policies and would  transfer the bulk of the collected money--as Home  State's reinsurance premium--to a premium trust  account. Home State could access this account  only for specific purposes related to the  administration of the policies.4


5
The new 1997 replacement policies were issued,  but there remained some administrative clean-up  with respect to the canceled 1996 policies.  Robinson and White had paid premiums to Shriver  for the full term on the 1996 policies, but  because those policies had been canceled early,  the trucking companies had functionally overpaid  Shriver for four months worth of premiums--  totaling approximately $259,000.5 (The amount  of this overpayment is known in the insurance  industry as "unearned premiums." They are called  "unearned" because they are premium payments for  days of coverage in the future, and if the policy  is canceled, the unearned premiums are returned  to the insureds.) Shriver had already paid the  full premiums from the 1996 policies over to Home  State. So Shriver had also overpaid Home State,  again by $259,000. Shriver received the invoice  from Home State for the premiums on the 1997  replacement policies, and on July 21, 1997,  Shriver set off the amount that it had overpaid  on the canceled 1996 policies against the amount  it owed to Home State on the 1997 replacement  policies. Shriver also credited this amount to  Robinson and White, and on August 11, 1997,  Shriver received the current balance due for the  1997 replacement policies from Robinson and  White. These payments reflected the $259,000  credit from Shriver.


6
But, by June of 1997, it started to become  clear that Home State was in serious financial  trouble. Quaker City was being monitored by the  Pennsylvania Department of Insurance, and other  companies of the Home State Insurance Group were  being monitored by the insurance regulators in  other states. Concerned that Home State6 might  not be able to fulfill its reinsurance  obligations on the 1997 replacement policies  (thus leaving Reliance liable with nowhere to  collect reinsurance money), Reliance met with the  Pennsylvania Department of Insurance on August 8,  1997, seeking permission to replace Quaker City  (and thereby remove Home State) as the  administrator of the Reliance-fronted policies.  The Department agreed, and on August 12, 1997,  Reliance informed Shriver that it was taking over  policy administration and that all "current and  future premium payments" should be sent directly  to Reliance. Prior to this communication, Shriver  had never dealt directly with Reliance, but after  receiving the letter, Shriver remitted all  subsequent premiums it collected from Robinson  and White directly to Reliance--including the  payment it had received from the insureds on  August 11. However, because it believed that it  had already set off the unearned premiums on the  1996 policies (which it had earlier overpaid)  against what it owed Home State on the 1997  replacement policies, Shriver's payments to  Reliance were decreased to reflect the $259,000  set-off. Reliance was not pleased.


7
Throughout the term of the 1997 replacement  policies, Reliance maintained coverage but argued  with Shriver over the $259,000. Reliance  maintained that Shriver owed that money to  Reliance, but Shriver did not agree. Shriver  continued to remit all additional premiums it  collected after August 12, 1997, to Reliance  precisely as Reliance wanted. In an attempt to  force Shriver to pay the disputed money, Reliance  sent Shriver a "Broker Agreement" on December 18,  1997. This agreement purported to create a  retroactive agency relationship between Reliance  and Shriver, thereby obligating Shriver to pay  the set-off amount to Reliance. Shriver did not  execute the proposed agreement.


8
Following the end of the 1997 replacement  policy period, Reliance brought this lawsuit  against Shriver in an attempt to recover the  money Shriver claims to have set off against Home  State. On March 11, 1999, the district court  granted summary judgment in favor of Shriver on  the ground that Shriver was entitled to the set-  off under Illinois law. Reliance appeals.


9
We review the district court's decision to  grant summary judgment in favor of Shriver de  novo. See Hostetler v. Quality Dining, Inc., 218 F.3d 798, 806-07 (7th Cir.2000). Summary judgment is appropriate if,  construing the record in the light most favorable  to Reliance, "there is no genuine issue as to any  material fact" and Shriver "is entitled to a  judgment as a matter of law." Fed. R. Civ. P. 56(c).  See also Hostetler, 218 F.3d at 806-07.  Reliance makes two arguments on appeal. First, it  claims that, under Illinois insurance law,  Shriver had a statutory duty to remit to Reliance  all premiums collected on policies issued by  Reliance. Second, Reliance argues that Shriver  was not entitled to set off the 1996 policy  overpayments against the 1997 replacement policy  premiums. We address each in turn.

I.  Duty to Remit Premiums

10
Reliance begins its argument with the  proposition that, as an insurer, it is entitled  to the payment of premiums in consideration for  providing insurance coverage under the policies  it issues. This is a sound proposition as a  general matter, and it is undisputed that Shriver  dutifully paid collected premiums to Reliance  after August 12, 1997, when Reliance notified  Shriver that it was taking over administration of  the 1997 replacement policies. Although Shriver's  duty to pay premiums after August 12, 1997, (and  its compliance with that duty) is undisputed, the  parties hotly dispute whether Shriver owed a  similar duty to Reliance before that date.  Shriver claims that it had no duty to pay  anything to Reliance prior to August 12, 1997.  Its duty before this date, argues Shriver, was to  Home State and Home State only. Therefore,  Shriver concludes that it validly set off the  $259,000 against its debt to Home State prior to  August 12, 1997. Reliance, however, counters by  arguing that Shriver was not entitled to set off  because Shriver was compelled by statute to pay  all collected premiums--even those collected  before August 12, 1997--directly to Reliance.


11
Reliance finds the source of this alleged duty  in the Illinois Insurance Code at 215 Ill. Comp.  Stat. 5/508.1, which states in pertinent part


12
Any money which an insurance producer . . .  receives for . . . policies of insurance shall be  held in a fiduciary capacity, and shall not be  misappropriated, converted or improperly  withheld. Any insurance company which delivers to  any insurance producer in this State a policy or  contract for insurance pursuant to the  application or request of an insurance producer,  authorizes such producer to collect or receive on  its behalf payment of any premium which is due on  such policy or contract for insurance . . . .


13
215 Ill. Comp. Stat. 5/508.1. Reliance argues, at  least in one part of its brief, that Shriver's  set-off of the $259,000 of unearned premiums from  the 1996 policies against the 1997 replacement  policy premiums constituted misappropriation,  conversion or improper withholding under sec.  5/508.1. But Reliance's argument overlooks the  contractual arrangement that governed the  issuance of policies and the collection of  premiums. Recall that under the agreements in  effect prior to August 12, 1997, premiums flowed  from the insureds to Shriver, then to Home State,  then to Reliance (and then back to Home State,  minus Reliance's fronting commission). Reliance  is trying to use sec. 5/508.1 to overlook this  arrangement and create a duty flowing directly  from Shriver to Reliance. But case law  interpreting sec. 5/508.1 indicates that an  insurer and agent can vary the premium-collection  procedure by contract. See Scott v. Assurance Co.  of America, 625 N.E.2d 439, 442 (Ill. App. Ct.  1993) (explaining that sec. 5/508.1 was not meant  to "prohibit[ ] an insurer from determining the  billing procedure to be used" because "the effect  would be drastic and no indication of such an  interpretation has been called to our  attention").7 The premium-collection procedures  here were arranged by contract, Reliance entered  into that contractual scheme, and it presents no  reason why it should not be held to its  agreement. The contracts here provided that Home  State, not Shriver, was Reliance's agent for the  collection of insurance premiums. Under the  contracts, Shriver was to pay Home State and Home  State was, in turn, to pay Reliance. Had Reliance  wanted a direct relationship with Shriver, it  could have created one.8 But, although Reliance  may not be happy about it now, there was no  direct relationship between Reliance and Shriver  prior to the letter of August 12, 1997--nor does  sec. 5/508.1 create such a duty independent of  the contractual arrangements among the parties  here. Cf. Scott, 625 N.E.2d at 442.


14
Later in its brief, however, Reliance apparently  acknowledges that the contractual obligations  defined the duties among Reliance, Home State and  Shriver prior to August 12, 1997


15
[Home State]'s only entitlement to those premiums  stems from Reliance's appointment of [Home State]  as its agent for collecting them. Thus, as long  as [Home State] was authorized to act as  Reliance's agent for collection of premiums,  Shriver's duty to remit the premiums from the  Robinson and White policies would have been  satisfied by remitting those premiums to [Home  State]; and Reliance would not be entitled to now  recover any premiums on the Robinson and White  policies that Shriver had paid to [Home State]  prior to August 12, 1997 (when Reliance revoked  [Home State]'s authority to collect those  premiums on its behalf).


16
Appellant's Br. at 11 (emphasis added). Home  State was Reliance's agent for collection of  premiums until August 12, when Reliance revoked  Home State's authority. If Shriver's set-off was  valid (a point we shall address momentarily), it  took place during the period when Reliance  concedes that Shriver had authority to pay  premiums to Home State. Reliance tries to avoid  the overwhelming import of this concession by  arguing that "[h]owever, Shriver did not pay any  of the premium for the Robinson and White  policies to [Home State] either before, or for  that matter, after, August 12, 1997." Id. By so  arguing, Reliance is saying that setting off the  debt Home State owed to it against the debt it  owed to Home State, Shriver did not "pay" its  debt to Home State--ever. But to argue that set-  off is not a form of "payment" is clearly  incorrect. Set-off is a means of (or substitute  for) payment of mutual debts owed, see 215 Ill.  Comp. Stat. 5/206 ("such credits and debts shall be  set off or counterclaimed and the balance only  shall be allowed or paid"), so by setting off its  debt to Home State (if the set-off was proper),  Shriver clearly "paid" that portion of its debt  to Home State.


17
In sum, Reliance does not establish that  Shriver had any sort of fiduciary obligation  directly to Reliance prior to August 12, 1997.  Home State certainly owed a duty to Reliance, but  Shriver's obligation during that period was to  Home State. Shriver's obligation to Reliance  arose only after Reliance's letter of August 12--  after the set-off occurred. Reliance cannot use  sec. 5/508.1 to overlook the contractually  defined relationships and effectively bypass Home  State and make Shriver its agent. Neither sec.  5/508.1, nor any other law of which we are aware,  enforces a transitive property of agency, i.e. no  law makes Shriver Reliance's agent just because  Shriver was Home State's agent and Home State was  Reliance's agent. Accordingly, Shriver's argument  here fails.

II.  Set-Off

18
Reliance also argues that the set-off itself  was not appropriate because Shriver and Home  State did not share the proper kind of  relationship. The parties seem to agree that the  specific set-off at issue here--that between  Shriver and Home State--is governed by the  Illinois Insurance Code,9 the relevant section  of which opens by stating:


19
In all cases of mutual debts or mutual credits  between [an insolvent insurer] and another  person, such credits and debts shall be set off  or counterclaimed and the balance only shall be  allowed or paid . . . .


20
215 Ill. Comp. Stat. 5/206. Although set-off in  favor of an insurance broker against an insurance  company is generally permitted by the first  sentence of the statute, sec. 5/206 places a  further, specific restriction on set-offs like  the one at issue in this case


21
No set-off shall be allowed in favor of an  insurance agent or broker against his account  with the company, for the unearned portion of the  premium on any canceled policy, unless that  policy was canceled prior to the entry of the  Order of Liquidation or Rehabilitation, and  unless the unearned portion of the premium on  that canceled policy was refunded or credited to  the assured or his representative prior to the  entry of the Order of Liquidation or  Rehabilitation.


22
Id. Reading these two quoted passages together--  based on the general permissibility of set-off in  the first sentence and the negative implication  of the restrictive language in the subsequent  statement--it becomes evident that under Illinois  insurance law, set-off of unearned premiums on  canceled policies, i.e. overpayments, are allowed  against an insurance company in favor of its  agent when three requirements are met


23
(1) there are "mutual debts,"


24
(2) the "policy was canceled prior to" the  insurance company's liquidation, and


25
(3) the "unearned portion of the premium on that  canceled policy was refunded or credited to the  assured . . . prior to" liquidation.


26
See 215 Ill. Comp. Stat. 5/206. If these conditions  are met, set-off is permissible.


27
The second and third requirements are easily  met. The companies comprising Home State  Insurance Group were liquidated in October of  1997. (Quaker City was liquidated by the state of  Pennsylvania on October 1, 1997.) But the 1996  Robinson and White policies were canceled  effective on or before May 1, 1997. Further, the  refund to Robinson and White was credited at the  time they paid the balance due on the 1997  replacement policies (August 11, 1997). Thus, the  1996 policies were "canceled prior to" and the  "unearned portion of the premium[s] [were]  refunded or credited prior to" Home State's  liquidation, as required by sec. 5/206.  Reliance's argument that set-off was improper  thus hinges on requirement (1)--whether the debts  between Home State and Shriver were "mutual"  within the meaning of the statute.


28
Section 5/206 was modeled on the federal  Bankruptcy Act of 1898 and has been in effect  since 1937, so analogies to bankruptcy have  appropriately influenced the interpretation of  this section. In Stamp v. Insurance Company of  North America, this court used just such an  analogy to explain that, for the purposes of sec.  5/206, "mutual" means "contemporaneous and in the  same capacity." 908 F.2d 1375, 1379 (7th Cir.  1990). The critical aspect of the meaning of  "mutual" is thus temporal because "a pre-  bankruptcy debt may not be offset against a debt  arising after the filing." Id. at 1380. Here,  both debts arose well prior to Home State's  liquidation. The pre-liquidation/post-liquidation  distinction--based on the analogy to pre-  filing/post-filing debts in bankruptcy, see id.--  is the key element of mutuality under sec. 5/206.  This distinction is further reflected in the  requirement that the policy must be canceled  prior to liquidation (thus resembling a pre-  filing debt in bankruptcy). Further, even if we  were to enforce a stricter standard of  contemporaneity, the debts here would pass. Both  debts--the $259,000 refund owed to Shriver by  Home State and the premiums on the 1997  replacement policies owed by Shriver to Home  State-- arose out of the same transaction: the  cancellation of the 1996 policies and the  immediate issuance of the 1997 replacement  policies. Thus, the debts basically arose  simultaneously.


29
But Reliance argues that the debts did not  arise in the same capacity, and that, therefore,  mutuality cannot exist. Reliance cites Lincoln  Towers Insurance Agency v. Boozell for the  proposition that "[w]here the liability of the  party claiming the right to setoff arises from a  fiduciary duty . . . the requisite mutuality of  debts or credits does not exist." 684 N.E.2d 900,  905 (Ill. App. Ct. 1997). But this argument  stumbles because Lincoln Towers is far from  analogous to the present case. Lincoln Towers  disallowed agents' set-off of premiums received  and deposited into a trust account against earned  commissions owed to the agents by the insurance  company. Although the opinion is not entirely  clear on this point, it seems that the plaintiffs  in Lincoln Towers were trying to set off  commissions earned after the liquidation order  against premiums it had collected and deposited  prior to the liquidation order. See 684 N.E.2d at  902 ("Approximately five months after the entry  of the agreed order of liquidation, the producers  filed the instant declaratory judgment action,  seeking a declaration of their right to set off  earned commissions against previously collected  premiums due [to the insurance company]."). Thus,  the Lincoln Towers decision turns on the temporal  factors we have already discussed. See 684 N.E.2d  at 904 (noting that the liquidator challenged the  set-off because "the language of [sec. 5/206]  precludes a set off of the earned premiums which  had not been credited prior to the date of the  liquidation because, after the declaration of  insolvency, there is no mutuality between the  parties"). Set-off was properly disallowed in  Lincoln Towers because an agent cannot set off a  pre-liquidation debt it owed the insurer against  a post-liquidation debt the insurer owed to it.


30
Lincoln Towers does contain general language  suggesting that set-off may not have been  appropriate here because one party had a  fiduciary relationship to the other, but we are  more persuaded by the specific language of sec.  5/206 that apparently permits Shriver's set-off.  Section 5/206 specifically addresses the  situation presented here-- the set-off of  unearned premiums on policies canceled prior to  liquidation of the insurer. If we were to  conclude that Lincoln Towers controls this case,  as Reliance urges us, we would be interpreting  the Illinois Insurance Code in a fashion that  renders its relevant provision ineffective.  Lincoln Towers, as read by Reliance, mandates  that any time an agent collects a premium, it  does so in a fiduciary capacity that  automatically eliminates "mutuality." But if  Reliance is correct, then the relevant clause of  sec. 5/206 that implies an agent's entitlement to  set-off would be useless. Section 5/206 clearly  contemplates an agent's ability to set off  unearned premiums on a canceled policy against  the insurance company, so it necessarily implies  that a mere pre-liquidation agency (or fiduciary)  relationship between an insurance agent and an  insurance company does not disable the agent from  setting off reciprocal pre-liquidation debts. We  should not adopt an interpretation of a statute  that renders a statutory section useless, see,  e.g., Chicago Truck Drivers, Helpers and  Warehouse Union (Independent) Pension Fund v.  Century Motor Freight, Inc., 125 F.3d 526, 533  (7th Cir. 1997); Welsh v. Boy Scouts of America,  993 F.2d 1267, 1272 (7th Cir. 1993), and decline  Reliance's invitation to find a lack of mutuality  between Home State and Shriver. Therefore, we  find that all the prerequisites for set-off under  sec. 5/206 are met, and the set-off against Home  State was proper.


31
Besides its defeat by the relevant statutory  provisions, Reliance's claim to the $259,000 that  was set off has no basis in equity. Robinson and  White had already paid for coverage running  through September of 1997, and Shriver had  already paid that sum over to Home State. If we  were to allow Reliance's $259,000 claim against  Shriver, we would be forcing double payment for  insurance coverage during the summer of 1997--the  period when the 1997 replacement policies were  substituted for the canceled 1996 policies.  Reliance may have had a claim against Home State  for its fronting fee during this overlap, but  neither Reliance nor anyone else furnished  coverage that justifies forcing a redundant  premium payment either from the insureds or from  Shriver.


32
For the foregoing reasons, we reject Reliance's  arguments and Affirm the judgment of the district  court.



Notes:


1
 The Home State Insurance Group was comprised of  Home State Insurance Company, Quaker City  Insurance, Pinnacle Insurance Company and  Westbrook Insurance Company. Shriver's agency  agreement was with each of these entities, and we  shall refer to them collectively as "Home State."


2
 This contractual relationship makes sure that all  losses on the policies will be paid by the  reinsurer.


3
 Robinson's new policies went into effect on May  1, 1997. White's new policies went into effect on  March 12 and 17, 1997.


4
 Under the agreement, Home State (acting through  Quaker City) had the specific authority to  withdraw funds from the premium trust account in  order to (1) make payments to Reliance, (2) make  payment of return premiums and commissions on  canceled Reliance policies, (3) pay agents'  commissions, (4) reimburse itself for reinsurance  losses, (5) transfer to another account for  claims services and (6) to make other withdrawals  "related to" paid Reliance policies with the  written consent of Reliance. See J.A. at 127.


5
 In its complaint, Reliance stated that the  premiums owed to it by Shriver amounted to  $259,169.15.


6
 The reinsurance agreement was between Reliance  and Quaker City, and Quaker City's obligation to  reinsure had been guaranteed by the Home State  Insurance Group.


7
 Illinois courts have noted that the purpose of  sec. 5/508.1 is "to protect a consumer who pays  the agent from any further liability for the  premium if the independent producer fails to  remit to the insurer." Scott v. Assurance Co. of  America, 625 N.E.2d 439, 442 (Ill. App. Ct.  1993). See also Zak v. Fidelity-Phenix Ins. Co.,  208 N.E.2d 29, 35 (Ill. App. Ct. 1965).


8
 In fact, it tried to do so by asking Shriver to  enter into the retroactive agency agreement  mentioned earlier.


9
 Quaker City was liquidated under the laws of  Pennsylvania, and other members of the Home State  Insurance Group were liquidated under the laws of  other states, e.g. New Jersey. The contracts and  actions central to this action, however, took  place in Illinois, and as this court has noted,  any statute in existence at the time the parties  enter into a contract can be deemed to be part of  that contract (in the absence of contrary terms).  See Selcke v. New England Ins. Co., 995 F.2d 688,  689 (7th Cir. 1993). See also Lincoln Towers Ins.  Agency v. Boozell, 684 N.E.2d 900, 903-04 (Ill.  App. Ct. 1997). Therefore, we believe that we may  follow the parties' lead and apply Illinois  insurance law to this issue.


