A spectacular example of being out of trust and itsconsequences
When an insured writes a check to his insurance agent orbroker, he expects the funds to be paid to the insurer.Professional agents and brokers keep these funds in a trust accountat a local bank. The amount of money held in trust can be huge,since insurers usually allow agents and brokers to hold the fundsfor up to 45 days before forwarding them. Some agents and brokerscannot overcome the temptation to "borrow" this money for personaluse, believing they can pay it back from current sales. When thetime comes to pay the insurers, the funds may not be available. Awidely followed case, United States of America v. Michael Segal andNear North Insurance Brokerage Inc., vividly illustrates that moneyheld in trust can be used for only one purpose--payment of premiumsfor which it was originally delivered. Failure to keep the trustmoney separate is a crime that will be seriously punished.

(United States v. Vincent, 416 F.3d593, 7th Cir. 2005).

(524 U.S. 321, 334[1998])

United States Of America v. Michael Segal and Near NorthInsurance Brokerage Inc., in the United States Court of Appeals forthe Seventh Circuit, Nos. 05-4601 & 05-4756, 2007.C07.0000707(Aug. 2, 2007).
Barry Zalma, Esq., CFE, is a California attorney. His practiceemphasizes the representation of insurers and others in thebusiness of insurance. He founded Zalma Insurance Consultants in2001 and serves as its senior consultant. He provides expertwitness testimony and consults with plaintiffs and defendantsconcerning insurance coverage, insurance claims handling and badfaith. He has qualified as an expert in state and federal courts inCalifornia, Mississippi, Texas and New Mexico, as well as in theGrand Caymans. He can be reached at[email protected]. Hisconsulting practice's Web site iswww.zic.bz.

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