Drew v. Pac. Life Ins. Co.
| Decision Date | 02 September 2021 |
| Docket Number | No. 20190695,20190695 |
| Citation | 496 P.3d 201 |
| Parties | Lamar DREW and Larene Drew, Respondents, v. PACIFIC LIFE INSURANCE COMPANY, Petitioner. |
| Court | Utah Supreme Court |
Attorneys:1 Scott M. Petersen, David N. Kelley, Tanner J. Bean, Salt Lake City, for petitioner
Steven G. Loosle, Salt Lake City, for respondents
INTRODUCTION
¶1 LaMar and LaRene Drew (Drews) claim they lost a significant portion of their life savings after they followed bad financial advice peddled by employees of R. Scott National, Inc. (RSN). The Drews claim, among other things, that RSN used intentional and negligent misrepresentations to induce them to purchase an insurance policy from Pacific Life Insurance Company (Pacific Life or Pacific) that they did not need and could not afford. The Drews also claim they followed RSN's advice to take out a reverse mortgage on their home to pay the insurance policy premiums. The question before us is whether and to what extent Pacific Life can be held liable for RSN's alleged misdeeds.
¶2 The district court denied summary judgment to the Drews and granted summary judgment to Pacific Life, reasoning that nothing RSN did was within the actual or apparent authority Pacific Life granted RSN.
¶3 The court of appeals reversed and granted partial summary judgment to the Drews. Drew v. Pac. Life Ins. Co. , 2019 UT App 125, ¶ 1, 447 P.3d 1257. The court of appeals held that RSN was Pacific Life's agent and that RSN's actions fell within the scope of authority Pacific Life had granted RSN. Id. ¶ 26. Pacific Life petitioned for certiorari.
¶4 We agree with the court of appeals that the Drews were entitled to partial summary judgment but disagree with the court of appeals’ analysis. We conclude that the court of appeals erred when it ruled that Utah Code section 31A-1-301(88)(b) (2010) made RSN an "agent" of Pacific Life. We further conclude that the court of appeals misstepped when it injected respondeat superior principles into Utah Code section 31A-23a-405(2), which presumes an insurer is bound by the acts of its "appointed licensee" within the scope of the licensee's "actual (express or implied) or apparent authority." This causes us to reverse the court of appeals’ decision to reverse the district court's grant of summary judgment to Pacific Life on the issue of whether RSN acted with actual authority from Pacific Life. We also vacate the court of appeals’ decision to grant partial summary judgment to the Drews. Instead, we rule on an alternative ground the Drews assert and remand to the district court to enter partial summary judgment to the Drews on the question of whether RSN acted with apparent authority from Pacific Life.
¶5 RSN is a business formed to provide various products and financial services, with a focus on marketing insurance products to senior citizens. Multiple insurance companies contracted with and appointed RSN to act as an insurance producer for them—that is, to solicit and procure applications for their products and services. One such company was Pacific Life.
¶6 Pacific Life provides life insurance and annuity products. It contracts with other businesses and individuals to help it solicit and procure applications from potential customers in Utah. And, pursuant to Utah law, it reports to the Utah Insurance Department when it "appoint[s]" such a business or individual "as an insurance producer, limited line producer, or managing general agent to act on the insurer's behalf ...." See UTAH CODE § 31A-23a-115(1).
¶7 Pacific Life appointed RSN as an "insurance producer" on December 20, 2008. On January 5, 2009, Pacific Life and RSN entered into a "Producer's Contract" (Contract) that authorized RSN to "solicit and procure applications for [Pacific Life's] insurance and annuity products ..., to deliver policies and to perform other duties relating to the sale of such products as may be required by [Pacific Life]." This seemingly broad grant of authority was tempered by the Contract's general limitation on RSN's authority: "[RSN] has no authority except as is expressly granted in this contract."
¶8 Further, even though the Contract stated that RSN is an "independent contractor," not an "employee," and is "free to exercise independent judgment as to the time, place, and means of performing all acts under this contract," the Contract allowed Pacific to intrude on RSN's autonomy in several ways. The Contract gave Pacific Life the "right to audit" RSN. It also required RSN to comply with various rules, including "all applicable Insurance laws and regulations." And RSN needed to abide by Pacific Life's "underwriting and issue requirements" as well as its "rules, procedures and practices regarding the sale of the products and delivery and servicing of the policies." The Contract similarly barred RSN from engaging in "any act prohibited under this contract, by [Pacific Life] rule, procedure or practice, or by law."
¶9 The Contract further narrowed RSN's authority with a number of specific limitations. For example, the Contract limited RSN to soliciting and submitting applications only for products that are "authorized" and that "meet the customer's insurance needs and financial objectives." The Contract also required RSN to inform Pacific Life "of all material facts ... relating to the insureds or proposed insureds prior to issuance and delivery of policies." And it prohibited RSN from "deliver[ing] any policy if [RSN] ... knows, or should know, that ... facts are not as represented in the application."
¶10 In addition, the Contract restricted the statements and materials RSN could utilize when interacting with prospective customers. It barred RSN from binding Pacific Life "by any promise or agreement," including "any promises respecting any policy, except when specifically authorized in writing to do so by an authorized officer of [Pacific Life]." It also precluded RSN from "issu[ing], circulat[ing] or us[ing] in any manner any sales, advertising or marketing material without [Pacific Life's] prior written consent."
¶11 Moreover, RSN could not "incur any debt, expense, or liability" in Pacific's name or account. Nor could RSN "[m]ake, modify, or discharge any insurance contract on behalf of [Pacific]." But the Contract required RSN to provide applicants "with the proper temporary insurance agreement" and "[p]romptly effect delivery of policies to policyowners."
¶12 The Contract also contemplated the possibility that RSN might entangle Pacific in legal troubles. It required RSN to "immediately notify" Pacific Life "of any customer complaint, or of the service of any paper or process regarding any legal or administrative action, investigation, or proceeding against [Pacific Life] or [RSN] that involves ... [Pacific Life's] products."
¶13 The Drews are retirees who saw an RSN advertisement. Starting in November 2008, the Drews sought financial advice from one of RSN's employees. During their relationship with RSN, the Drews made numerous financial investments and transactions, only some of which are relevant to the case before us.
¶14 Two of the transactions the Drews undertook with RSN's advice and assistance were to purchase life insurance from PHL Variable Insurance Company (PHL) and Pacific Life. The Drews purchased the PHL policy in December 2008. The Drews submitted an application to Pacific Life in April 2009 and purchased the Pacific policy in July 2009.2
¶15 The Drews purchased the PHL and Pacific Life policies based on their belief in RSN's representations that, after two years of paying the policies’ annual premiums, they could resell the policies on the secondary market for a large profit. The Drews also followed RSN's advice to fund the premiums by taking out a reverse mortgage on their home.3
¶16 The Drews testified in a deposition that they never spoke directly with Pacific Life. Rather, the Drews relied on RSN to inform them about Pacific's products and supply them with Pacific's application forms. The application forms and a temporary insurance agreement that RSN presented to the Drews had been supplied by Pacific to RSN.
¶17 Pacific asserts that "Mr. Drew signed the application without reading any of its contents because [RSN] represented that [it] would fill out the rest." The Drews admit that they signed the insurance forms with many details blank. But they claim they did so after RSN assured them that RSN would fill in the details for them later. Mr. Drew also testified that "we didn't read most of the things" RSN provided.
¶18 However, the Drews assert that they "believed that RSN was the agent of Pacific because RSN had the forms and other information necessary to sell Pacific's products." Mr. Drew testified that he "felt" that RSN "represented Pacific Life and had the authority to do whatever it curtailed to sign" the forms, both because RSN "told us that [they] represented each" insurance company, and because RSN "gave me all the information." Mr. Drew also testified that his basis for believing that RSN was "representing" Pacific was "the same" as for his belief that RSN also represented another company, Phoenix, because RSN had given him "information and the forms and so forth that we went through." Mr. Drew further testified that he believed RSN represented multiple insurance companies and "represented the company that he was talking about insuring with me."
¶19 Similarly, when Mrs. Drew was asked if RSN ever told her that RSN "worked for Pacific Life," she responded, "Well, [RSN] was selling your product and so it was on your papers." Mrs. Drew reiterated she believed RSN was an "agent" of Pacific Life and other companies because RSN "had papers from" Pacific Life and other companies.
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