Booker v. United American Ins. Co.

• Decision Date: 02 May 1997
• Citation: 700 So.2d 1333
• Parties: Norse BOOKER and Lydia Booker v. UNITED AMERICAN INSURANCE COMPANY. 1951230.
• Court: Alabama Supreme Court

Page 1333

700 So.2d 1333

Norse BOOKER and Lydia Booker v. UNITED AMERICAN INSURANCE COMPANY.

1951230.

Supreme Court of Alabama.

May 2, 1997.

Rehearing Denied July 25, 1997.

Donna Ward Black and Richard F. Pate of Richard F. Pate & Associates, P.C., Mobile, for appellants.

Philip H. Butler of Robison & Belser, P.C., Montgomery, for appellee.

SEE, Justice.

This case arises out of Norse and Lydia Booker's purchase of a hospitalization insurance policy issued by United American Insurance Company ("United American"). The Bookers allege that they purchased the policy only after James Butcher made various misrepresentations to them. Butcher was not an authorized insurance agent of United American, but had been hired by Richard Stone, an agent of that company, despite United American's express directions to the contrary. The Bookers brought this action against United American; Torchmark Corporation, its corporate parent; and Richard Stone, but they did not sue Butcher. With respect to United American, the Bookers alleged fraudulent misrepresentation and suppression, and negligent or wanton supervision. The trial court entered a summary judgment for United American on each claim and made that summary judgment final pursuant to Rule 54(b), Ala. R. Civ. P. ¹ The Bookers appealed from that judgment for United American. We affirm.

Once a party moving for summary judgment presents evidence that, if uncontested, would entitle it to a judgment, a nonmoving party, if it is to defeat the summary judgment motion, must present "substantial evidence" in support of its claim. McGinnis v. Continental Ins. Co., 628 So.2d 470, 471 (Ala.1993). In determining whether the nonmovant presented substantial evidence, this Court views the evidence in the light most favorable to the nonmovant or nonmovants, in this case the Bookers. Id. So viewed, the evidence shows that before 1991 Stone was an independent insurance agent who sold policies for several insurance companies. In 1986, Stone contracted with United American to sell its insurance policies. In 1989, because Stone had focused his energies on the construction business, he stopped selling insurance himself and retained Butcher as the "district manager/field manager" for his insurance business. Butcher was to hire and train agents and to solicit insurance business. Stone retained Butcher even though United American had not authorized Butcher to sell its products, but had in fact fired him in 1989 and had placed him on its "No Rehire List." Butcher operated out of Stone's home office and was paid a finder's fee for each policy he sold.

On May 15, 1991, Butcher met with the Bookers, who were seeking to purchase a major medical insurance policy after letting their prior major medical coverage lapse. Butcher represented himself as Stone. He indicated that United American had the ideal policy, one that would cover 80% of their medical expenses, and he told them that at no point would their out-of-pocket expenses amount to over $1,500. Actually, the policy was a hospitalization policy, not a major medical policy. In fact, United American did not offer a major medical policy for sale to anyone. Butcher filled out the policy application. Relying on Butcher's representations, the Bookers signed the application, wrote a check for the first three months' premiums, and handed both to Butcher.

After Butcher delivered the completed application to Stone, Stone telephoned the Bookers to see if they indeed wanted the health insurance. Mrs. Booker replied, "Yes, we need the health insurance." Stone signed the application as if he had taken it from the Bookers and mailed it to United American. When United American received the policy at its Dallas, Texas, headquarters, it was unaware that Butcher actually had sold the policy, because Stone had signed the application. Unaware of Butcher's involvement, United American processed the application and mailed the policy.

When the Bookers received the hospitalization policy, they attempted, without success, to contact someone at Stone's office to have the policy explained. The Bookers never contacted United American in Dallas.

In April 1993, Mr. Booker was hospitalized for heart problems that resulted in approximately $49,000 in medical bills. The United American hospitalization policy covered approximately $14,000 of the expenses. The Bookers realized they had not purchased a major medical insurance policy, and four months later they filed this lawsuit.

I. FRAUDULENT MISREPRESENTATION AND SUPPRESSION

On appeal, the Bookers first contend that they presented substantial evidence creating a genuine issue of material fact and that the summary judgment was therefore improper as to their fraudulent misrepresentation and fraudulent suppression claims. Specifically, they assert that United American is liable for fraudulent misrepresentation and suppression because of: (a) Butcher's actions; and (b) Stone's actions.

A. Butcher's Actions

The Bookers contend that United American is liable for Butcher's misrepresentations and suppression because, they argue, Stone, United American's agent, effectively appointed Butcher as a subagent of United American. We disagree.

The law regarding the responsibility of a principal for persons allegedly appointed as subagents is well settled.

"When one employs an agent who has either express or implied authority to employ a subagent, the subagent will also be the agent of the principal....

"....

"... [However, t]he act of a subagent will not bind the original principal where the appointment of such subagent was not by authority, express or implied, or was not subsequently ratified by the principal...."

3 C.J.S. Agency § 265 (1973). See 3 Am.Jur.2d Agency §§ 157, 162, 163 (1986). That is, a principal will be bound by the acts of a purported subagent only if: (1) the agent had express authority to appoint the subagent; (2) the agent had implied authority to appoint the subagent; or (3) the principal ratified the appointment. ² See Consolidated Underwriters Ins. Co. v. Landers, 285 Ala. 677, 681, 235 So.2d 818, 822 (1970); Eagle Motor Lines v. Hood, 256 Ala. 395, 398, 55 So.2d 126, 129 (1951); Butler v. Standard Life Ins. Co. of the South, 232 Ala. 238, 167 So. 307, 309-10 (1936); Schloss Bros. & Co. v. Gibson Dry Goods Co., 6 Ala.App. 155, 60 So. 436, 437 (1912). ³

The Bookers argue first that Stone was a general agent of United American with express authority to appoint subagents, including Butcher. The contract between United American and Stone, however, clearly contradicts this proposition. It specifically provides that Stone could only recommend subagents to United American for it to appoint and that United American would not appoint any recommended subagents until they were authorized to sell by United American and were licensed by the state insurance authorities. ⁴ United American did not appoint Butcher or authorize him with the Alabama insurance authorities. In fact, it is undisputed that United American was unaware of Stone's relationship with Butcher. Thus, Stone did not have express authority to appoint Butcher as United American's subagent. ⁵

Neither did Stone have the implied authority to appoint Butcher as United American's subagent. Of course, there can be no implied authority for Stone to appoint Butcher, given the contract's express reservation of all appointment power to United American. See Restatement (Second) of Agency § 34(e) cmt. h (1958) (stating that a formal writing authorizing an agent to act for a principal will be strictly construed in determining the scope of the agent's authority). ⁶ In addition, it is elementary that an agent cannot endow a subagent with more authority than the agent himself possesses. See Insurance Co. of North America v. Thornton, 130 Ala. 222, 233-34, 30 So. 614, 617 (1901) (holding that an insurance agent could not appoint a subagent to act in a manner contrary to the contract restrictions applicable to the agent). Clearly, Stone could not endow Butcher with the authority to sell for United American, without authority from United American and a license from the state insurance authorities, ⁷ when Stone himself was restricted to selling only with such authority and with a license in force.

That Stone had no implied authority to appoint Butcher as United American's subagent is further confirmed by the circumstances surrounding Butcher's alleged appointment. Implied authority for an agent to appoint a subagent may arise from "the nature of the agency, the work to be done, and the particular circumstances.... [W]here a delegation of power is not necessary, proper, or usual, there is no implied power in the agent to delegate his power to a subagent...." 3 C.J.S. Agency § 261. See 3 Am.Jur.2d Agency § 157. It was not "necessary, proper, or usual" for Stone to appoint Butcher as a subagent for United American, given that United American had revoked Butcher's authority to sell its products, fired him, and placed him on its "No Rehire List." Thus, Stone did not have implied authority to appoint Butcher as United American's subagent.

The Bookers next contend that the actions they say Butcher took as United American's subagent were ratified by Stone. This contention misses the point of ratification. It is the principal's ratification, not the agent's, that is controlling. See 3 C.J.S. Agency § 265 (stating that the subagent's actions bind the principal only if the principal ratifies those actions). For example, in American Pioneer Life Insurance Co. v. Sandlin, 470 So.2d 657, 664-65 (Ala.1985), this Court refused to overturn a judgment based on a jury verdict imposing liability for a third-party agent's action when the insurance company had knowingly received the application from the third party, had approved the application, had returned it to the third party for completion, had referred to the third party as the agent in correspondence with the insured, and had...