Alfa Mut. Ins. Co. v. Roush

Decision Date11 September 1998
Citation723 So.2d 1250
PartiesALFA MUTUAL INSURANCE COMPANY v. Richard Charles ROUSH et al.
CourtAlabama Supreme Court

Thomas M. Galloway, Jr., and Robert H. Smith of Collins, Galloway & Smith, Mobile, for appellant, on original submission.

Joseph M. Brown, Jr., Andrew T. Citrin, Kelli D. Taylor, and David G. Wirtes, Jr., of Cunningham, Bounds, Yance, Crowder & Brown, L.L.C., Mobile, for appellees, on original submission.

Thomas M. Galloway, Jr., and Robert H. Smith of Galloway, Smith, Wettermark & Everest, Mobile; and William P. Gray, Jr., of Gray & Jauregui, Montgomery, for appellant, on application for rehearing.

Joseph M. Brown, Jr., and David G. Wirtes, Jr., of Cunningham, Bounds, Yance, Crowder & Brown, L.L.C., Mobile, for appellees, on application for rehearing.

Michael L. Roberts of Cusimano, Keener, Roberts & Kimberley, P.C., Gadsden, for amicus cuiae Alabama Trial Lawyers Ass'n, on application for rehearing.

On Application for Rehearing

PER CURIAM.

The opinion of July 2, 1998, is withdrawn and the following is substituted therefor.

Alfa Mutual Insurance Company ("Alfa") appeals from a judgment entered upon a jury verdict in favor of the plaintiffs Richard Charles Roush, Randy Earl Townsend, and Sea Breeze Seafood, Inc., on claims alleging wrongful acts on the part of Alfa's agent Roland Patronas. We reverse and remand.

Roush, Townsend, and Sea Breeze sued Alfa and Patronas, alleging that Patronas, as Alfa's agent, had purported to sell them workers' compensation insurance from a "pool coverage" insurer; that Patronas converted their premium payment for his own use and misrepresented to them that he had procured the insurance for them; and that Alfa was vicariously responsible for Patronas's misconduct. The plaintiffs further alleged that Alfa had wantonly and recklessly failed to supervise Patronas and that Alfa had wantonly encouraged and required its agents to sell pool insurance coverage for its own benefit without providing any safeguards for the insureds.

The trial court denied Alfa's summary judgment motions, and the case went to trial on the issues of vicarious liability and wantonness. Alfa moved for a directed verdict at the close of the evidence and renewed the directed verdict motion at the close of all the evidence. The trial court denied these motions. 1 The jury returned a verdict in favor of the plaintiffs, awarding them $100,000 in compensatory damages and $1,000,000 in punitive damages. Alfa moved for a JNOV or, in the alternative, a new trial or a remittitur of the damages awards. The court denied that motion and entered a judgment on the verdict. Alfa appeals from the denial of its directed verdict and JNOV motions.

A directed verdict is proper if the nonmoving party has not presented substantial evidence regarding some element essential to the claim or if there is no disputed issue of fact upon which reasonable persons could differ. Teague v. Adams, 638 So.2d 836 (Ala.1994). The court applies this same standard to a motion for a JNOV. Williams v. Allstate Ins. Co., 591 So.2d 38 (Ala.1991). When reviewing the trial court's ruling on the motion, we must view the evidence most favorably toward the nonmovant to determine whether there was sufficient evidence to create an issue of fact for the jury. Bussey v. John Deere Co., 531 So.2d 860 (Ala. 1988). With these standards of review in mind, we note the following facts from the record:

In 1979, Alfa hired Roland Patronas as its agent, under an exclusive agency contract, which prohibited Patronas from writing any insurance other than Alfa policies and Alfa-approved pool insurance policies. The approved pool insurance was available through the National Council on Compensation Insurance, Inc. ("NCCI"); the Alabama Insurance Underwriters Association ("AIUA"); and the National Flood Insurance Program. Alfa did not write pool insurance coverage.

Alfa provided Patronas with an office and an Alfa business sign, as well as business equipment and office personnel. Alfa also provided Patronas with preprinted insurance application forms for both Alfa Insurance and pool insurance. Alfa and Patronas shared the expense of television, radio, and billboard advertisements for Alfa, including a billboard in the Grand Bay area that featured Patronas's picture. Some of these advertisements included the slogan "One call, one agent, one less hassle"; and Patronas explained in his testimony at trial that, throughout his career with Alfa, he had represented to the public that he was the "one-stop" shopping center for insurance purchasers. Patronas also explained that Alfa had encouraged him to write pool coverage for his clients if Alfa could not provide a policy they needed; and that by his doing so, Alfa could avoid losing customers that it could not directly insure. Alfa did not publicly distinguish itself from the insurers providing pool coverage and did not otherwise inform its customers that it would not be responsible for pool coverage written by its agents.

Before August 1993, Alfa's "field procedure manual" outlined a strict system for controlling, monitoring, and auditing how agents handled Alfa's money. Alfa agents were required to produce a field receipt for any Alfa money they received, and an Alfa secretary and/or customer service representative maintained a daily transaction sheet to record all of the money that was brought in for Alfa. There were fixed Alfa procedures for handling all receipts of Alfa's money in any form. Alfa established a bank account for Patronas and required him, or his secretary, to deposit all of Alfa's money into that account within 24 hours of receiving it. Alfa did not, however, have any safeguards for handling money received from the sale of pool coverage; it had no procedures for the daily accounting for such money, nor did it conduct any audits to monitor the sale of pool insurance coverage. Alfa agents were not required to keep any records regarding the sale of pool insurance policies to Alfa customers.

In 1992, Patronas received a telephone call from Richard Roush, a client who had recently established a new business, Sea Breeze Seafood, Inc. Roush told Patronas that a representative from the Alabama Department of Industrial Relations had informed him that the corporation was required to obtain workers' compensation insurance. Patronas met with Roush and Roush's business partner, Randy Townsend, on the premises of Sea Breeze and told them that he would "take care of" their workers' compensation insurance; however, Patronas did not inform Roush and Townsend of the fact that Alfa did not write workers' compensation insurance and that he could obtain coverage for them only through a pool insurance provider. Roush wrote a $2,824 check from Sea Breeze's account, made payable to Patronas, for the insurance premium. During the course of the meeting, Patronas also sold Roush and Townsend, on behalf of Sea Breeze, Alfa policies for general liability, products-liability, and automobile insurance.

Patronas subsequently wrote the Alfa liability and automobile insurance policies for Sea Breeze, collected premiums for these policies, and forwarded the money to Alfa, in accordance with Alfa's procedures for reporting sales. However, Patronas did not procure the workers' compensation coverage for Sea Breeze; instead, he cashed the Sea Breeze check, converted the funds for his personal use, and then misrepresented to Roush that he had procured the workers' compensation insurance.

Approximately two months later, a Sea Breeze employee suffered an on-the-job injury and sought workers' compensation benefits. Roush, under the mistaken belief that Patronas had procured workers' compensation coverage for Sea Breeze, completed an incident report form and returned it to Alfa's Grand Bay office. One month later, a second employee sought workers' compensation for a work-related injury; Roush followed the same procedure.

Roush and Townsend subsequently began receiving the medical bills for services rendered to Sea Breeze's two injured employees. Roush asked Patronas when Alfa would begin paying the medical bills. Patronas represented to Roush that the workers' compensation policy had not been issued yet, but that the bills would be taken care of eventually. Patronas suggested that Roush have Sea Breeze pay the bills and then wait until the end of the year, or until the claims were processed, to get a refund. Patronas also suggested that Sea Breeze could avoid an increase in its workers' compensation premium rates by paying the claims itself and not submitting any claims to Alfa.

Soon thereafter, a representative from the Department of Industrial Relations again contacted Roush to determine whether Sea Breeze had obtained workers' compensation coverage. Roush gave the representative Patronas's telephone number; when Patronas received a call from the Department of Industrial Relations representative to verify Sea Breeze's coverage, he told the representative that Sea Breeze did indeed have workers' compensation coverage and gave her a false policy number.

On July 29, 1993, Jerry Grace, Alfa's district manager in Mobile, received a letter from a woman named Janice Stewart. Ms. Stewart's letter stated that she had applied for certain pool insurance coverage through Patronas two years earlier, that Patronas had purported to obtain this coverage for her, and that he had cashed her $3,471 premium check. Ms. Stewart's letter further stated that she had never received a copy of the policy and that Patronas had refused to answer her inquiries about the coverage.

Grace forwarded Stewart's letter to Alfa's internal audit director, Connie Whitecotton, who received it on August 2, 1993. On that same day, Whitecotton assigned Tommy Fikes, a certified fraud examiner and senior auditor at Alfa, to investigate Patronas's business activities. Fikes began an audit of Patronas's Grand Bay office on August 4, and on that...

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