869 F.2d 565 (10th Cir. 1989), 87-1659, Farmers Ins. Co., Inc. v. Hubbard

Docket Nº:87-1659.
Citation:869 F.2d 565
Party Name:FARMERS INSURANCE COMPANY, INC., a foreign insurance company; Farmers Insurance Exchange, a foreign insurance company; Truck Insurance Exchange, a foreign insurance company; Fire Insurance, a foreign insurance company; Mid-Century Insurance Company, a foreign insurance company; Farmers New World Life Insurance Company, a foreign insurance company,
Case Date:March 10, 1989
Court:United States Courts of Appeals, Court of Appeals for the Tenth Circuit
 
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Page 565

869 F.2d 565 (10th Cir. 1989)

FARMERS INSURANCE COMPANY, INC., a foreign insurance

company; Farmers Insurance Exchange, a foreign insurance

company; Truck Insurance Exchange, a foreign insurance

company; Fire Insurance, a foreign insurance company;

Mid-Century Insurance Company, a foreign insurance company;

Farmers New World Life Insurance Company, a foreign

insurance company, Plaintiffs-Appellants,

v.

Homer H. HUBBARD, Defendant, Counterclaimant-Appellee.

No. 87-1659.

United States Court of Appeals, Tenth Circuit

March 10, 1989

Page 566

Frederic D. Cohen (David M. Axelrad of Horvitz & Levy, Encino, Cal.; Jones, Givens, Gotcher, Bogan & Hilborne, Tulsa, Okla., Robert E. Nagle of Farmers Group, Inc., Los Angeles, Cal., with him, on the briefs), for plaintiffs-appellants.

James S. Steph, Okmulgee, Okl., for defendant, counterclaimant-appellee.

Before ANDERSON, BARRETT and BRORBY, Circuit Judges.

BARRETT, Senior Circuit Judge.

This is an appeal by plaintiff-appellant, Farmers Insurance Company, Inc., et al. (Farmers), from the district court's denial of Farmers' motion for judgment notwithstanding the verdict or, alternatively, a new trial. Farmers brought this action for a declaratory judgment of the rights and duties of the parties relative to the agency contract termination of defendant-appellee, Homer Hubbard (Hubbard). For trial purposes, the parties agreed that the issue to be decided was whether Farmers exercised bad faith in terminating Hubbard; thus the burden was on Hubbard to prove bad faith.

At the conclusion of the trial, the jury rendered its unanimous verdict finding that Farmers had terminated Hubbard's agency contract in bad faith. The jury awarded Hubbard actual damages of $100,000.

Background

Hubbard became a full-time insurance agent for Farmers in March, 1976. Pursuant to that agency, Hubbard signed an Agent Appointment Agreement which set forth various grounds for termination, including a willful misrepresentation material to the agency. Gary Vest was Hubbard's district manager. As district manager, Vest's responsibilities included recruiting prospective agents, preparing them to take the insurance test, training them in the basics of selling insurance and servicing customers, and answering any questions the agents might have. A Farmers' district manager, like an agent, is an independent contractor. As a district manager, Vest received a percentage of all premiums generated by the agents in his district.

In addition to training given by their district manager, the agents received a manual, disseminated by Farmers, which stressed the necessity that all insurance applications be filled out truthfully and accurately. The manual instructed them, among other things, on the correct way to fill out an application for insurance. Specifically, Farmers determined that applicants who are not presently insured, or who have allowed prior policies to lapse, constitute a greater insurance risk. Consequently, Farmers' insurance applications contain a section in which an agent is to record the name of the applicant's present insurer and her policy number. If an applicant

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has no prior insurance or has allowed her prior insurance to lapse, her application is turned down by Farmers, but it will be accepted at a higher premium rate by Farmers high-risk company, Mid-Century Insurance. The significance of that process is that most applicants would rather seek insurance elsewhere than pay the higher Mid-Century premium.

Sometime in 1983, Farmers' underwriters discovered certain discrepancies regarding the applicants' prior insurance information on several applications submitted by Hubbard. The underwriters informed the regional sales manager, who in turn instructed Gary Vest and the division agency manager, Dave Reiten, to conduct an investigation. Vest and Reiten contacted the applicants on whose behalf the applications were submitted. All of the individuals stated that they did not have insurance with any other company at the time they applied through Hubbard for Farmers' coverage, and that they did not represent to Hubbard that they had such insurance. The applications which Hubbard submitted to Farmers on behalf of those applicants, however, indicated the existence of prior insurance and, in fact, provided a prior insurance policy number.

Vest and Reiten reported to the regional sales manager, Dale Hawk, that Hubbard had apparently intentionally misrepresented information on applications. Hawk then reviewed Hubbard's file, wherein he found several reports of instances of professional misconduct by Hubbard. All of the information gathered was then presented to Donald...

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