Automated Systems v. National Indem. Co.

• Decision Date: 11 August 1978
• Docket Number: No. 47559.,47559.
• Citation: 269 NW 2d 749
• Parties: AUTOMATED SYSTEMS, INC., Respondent, v. NATIONAL INDEMNITY COMPANY, et al., Appellants, David Aronson and John G. B. Allen, individually and d.b.a. Insurance Service Associates, Inc., Respondents.
• Court: Minnesota Supreme Court

269 N.W.2d 749 (1978)

AUTOMATED SYSTEMS, INC., Respondent, v. NATIONAL INDEMNITY COMPANY, et al., Appellants David Aronson and John G. B. Allen, individually and d.b.a. Insurance Service Associates, Inc., Respondents.

No. 47559.

Supreme Court of Minnesota.

August 11, 1978.

Schermer, Schwappach, Borkon & Ramstead and Steven C. Eggimann, Minneapolis, for appellants.

Robert W. Gislason and James T. Martin, Edina, for Automated Systems.

Jerome D. Truhn, Minneapolis, for Aronson et al.

Heard before ROGOSHESKE, PETERSON, and WAHL, JJ.

WAHL, Justice.

Action by plaintiff, Automated Systems, Inc., the assignee of the insured, to recover an unearned insurance premium allegedly due upon cancellation of an automobile fleet policy by defendant, National Indemnity Company.

On November 8, 1976, after a jury trial, the Hennepin County District Court entered findings of fact, conclusions of law, and order for judgment in favor of plaintiff, Automated Systems.¹ Defendant's alternative motion for judgment notwithstanding the verdict or new trial were denied by order of January 12, 1977, and judgment entered January 28, 1977. We affirm.

Defendant, National Indemnity Co. ("insurer"), is a foreign corporation licensed to sell insurance in the state of Minnesota. Policies are sold through Northern States Agency,² the exclusive managing general agency in the state ("managing general agency"), which in turn relies upon subagents and brokers, such as Insurance Service Associates, Inc. ("broker"), who actually contact the public. Automated Systems, Inc. ("finance company") is an independent company whose business included financing annual insurance premiums for individuals and corporations.

Rick Brown ("insured") contacted John Allen of Insurance Service Associates in the fall of 1971 to obtain insurance for Brown's rental automobile fleet. Due to the risk involved, the broker could arrange coverage only with National Indemnity. Allen then contacted the finance company to secure financing of the $4,336 insurance premium for Brown. The company agreed to finance the premium, Brown signed the financing agreement, and the finance company remitted the insurance premium to the broker.

At the time for renewal of the policy in October 1972, general premium increases and a larger rental automobile fleet required a $7,160 policy premium. Although all parties were generally willing to continue the existing financing arrangement, the financing company was concerned about the broker's delay in returning an unearned premium of about $5,000 in another account.

The broker's financial condition was "shaky" at this time, and the broker wanted to expedite the premium to secure the 10 percent commission. After negotiation between Richard Potter, president of the finance company, and John Allen, they agreed to offset the accounts. The finance company tendered a "net check" for $1,772.09.

The broker failed to remit any part of the premium to the insurer before becoming insolvent, and the policy was cancelled for nonpayment of premium, effective January 1, 1973. The finance company, assignee of the insured under the terms of the financing agreement, claims credit for the full $7,160 premium amount. The insurer admits liability only for the $1,772.09 actually tendered by the finance company, less the $1,694 earned premium for October-December 1972. The issue thus raised for our consideration is whether, in light of the course of dealing and commercial practices of the parties, a jury could find that the offset of existing accounts between the broker and the finance company constituted the collection of an insurance premium, for which the insurer would be held responsible under Minn.St. 72A.03.

The insurer contends that the cancellation of a prior obligation between the broker and the finance company was not a collection or securing of a premium. Minn. St. 72A.03,³ which makes an insurer liable for the actions of its representative, is inapplicable, it argues, citing Allen v. Metropolitan Life Ins. Co., 179 Minn. 545, 229 N.W. 879 (1930).

In Allen v. Metropolitan Life, supra, a life insurance agent agreed to accept as the initial premium payment the promise of the father of the insured to pay the first installment on a washing machine, which he sold to the agent. Notwithstanding the jury's verdict for plaintiff beneficiaries, the trial court ordered judgment for defendant insurer, finding that no contract of insurance had been effected. We affirmed the order, holding that an insurance agent has no implied authority to agree to apply an insurance premium in reduction or cancellation of his own indebtedness:

"By statute, G.S. 1923 (1 Mason, 1927), § 3757, each agent negotiating insurance must be held `the company\'s agent for the purpose of collecting or securing the premiums therefor.\' But that implies no authority in the agent to accept payment in anything but money, unless he is authorized by the company to do so, as sometimes is the case with premium notes. He is not authorized to accept washing machines or other merchandise nor to agree that the premium or any part of it shall be applied on his own debt. No express authority of that kind is claimed. There can be no other, for `it is an elementary principle, applicable alike to all kinds of agency, that whatever an agent does can be done only in the way usual in the line of business in which he is acting. * * *\'" (Emphasis added.) 179 Minn. 547, 229 N.W. 880.

It is clear from the circumstances of the case and the language of the opinion that our rejection of the "implied authority" argument was based upon the demonstrated commercial practices of the time; no reasonable jury could conclude that the manner of payment was actually or apparently authorized by the insurer. Commercial practices and the range of reasonable expectations are not permanently fixed, however, but can change with time or circumstances.

Other jurisdictions have recognized this fact. In Hutcheson & Co. v. Providence-Washington Ins. Co., 341 S.W.2d 142 (Mo. App.1960), while following precedent⁴ to hold that a credit applied to the insurance agent's personal account at the plaintiff furniture store did not constitute a payment of the fire insurance premium, the court recognized that a contrary result would be possible in a proper case, adding:

"* * * And it should be noted that there was not shown any agreement, course of conduct and accounting or arrangement whereby the principal, took the agent for the debt; nor was it shown that the agent was charged upon the books of the insurer as personally owing the premium or `nets\' to the company." 341 S.W.2d 145.

Just such commercial practices were demonstrated in the instant case. The managers of the managing general agency and the broker testified in detail regarding the "net accounts" billing between the insurer and the managing general agency and between the managing general agency and the brokers, whereby monthly statements required only payment of a net balance of total premiums due less commissions and returned unearned premium. Client premium checks were made payable to the broker, premiums were not segregated from the broker's general business funds, and the managing general agency looked only to the broker for satisfaction of the monthly accounts.

With these established practices as background, the issue of the acceptability of the "net check" premium payment becomes a factual question regarding the broker's apparent authority.⁵

The scope of an insurance representative's apparent authority to act on behalf of his company is an issue of fact to be determined by the evidence. Morrison v. Swenson, 274 Minn. 127, 136, 142 N.W.2d 640, 646 (1966). Several factors may be considered:

"* * * Such circumstances may be arrived at by the following inquiries: (1) Was the broker at the time of effecting the insurance actually or ostensibly connected with the insurer and employed by it, or was he acting independently of any employment by the company? (2) From whom did the broker\'s express or implied authority to do the act in question originally proceed? (3) Was the act one which the broker was expressly authorized to do, or was it a usual and necessary means to accomplish the execution of the authority conferred? (4) Was the act done independently of the original employment, and if so, for whom, or at whose instance? (5) Which party could the broker hold directly responsible for his remuneration at the time the act in question was done? (6) Was there any limitation on the broker\'s ostensible authority, of which the person dealing with him was, or ought to have been, cognizant? (7) Was there any ratification by the ostensible principal of the claimed authorized act?" Ibid.

See, Pesina v. Juarez, 288 Minn. 379, 181 N.W.2d 109 (1970); Bellanca Aircraft Corp. v. Fireman's Fund Ins. Co., 353 F.Supp. 929 (D. Minn. 1973).

Travelers, Gude, and Fredman, cited by appellant in challenging the broker's apparent authority, were distinguished in Morrison v. Swenson, supra:

"Appellant relies mainly on three cases,

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