Elmer Tallant Agency, Inc. v. Bailey Wood Products, Inc.

• Decision Date: 21 September 1979
• Citation: 374 So.2d 1312
• Parties: ELMER TALLANT AGENCY, INC. v. BAILEY WOOD PRODUCTS, INC., a corporation, et al. ZURICH AMERICAN INSURANCE COMPANY v. BAILEY WOOD PRODUCTS, INC., a corporation. 78-172, 78-172X.
• Court: Alabama Supreme Court

Page 1312

374 So.2d 1312

ELMER TALLANT AGENCY, INC. v. BAILEY WOOD PRODUCTS, INC., a corporation, et al.

ZURICH AMERICAN INSURANCE COMPANY v. BAILEY WOOD PRODUCTS, INC., a corporation.

78-172, 78-172X.

Supreme Court of Alabama.

Sept. 21, 1979.

John M. Milling, Jr. of Hill, Hill, Carter, Franco, Cole & Black, Montgomery, for appellant, Elmer Tallant Agency, Inc.

Ben H. Lightfoot, Luverne, for appellee and cross-appellee, Bailey Wood Products, Inc.

Richard A. Ball, Jr., Montgomery, for appellee-cross appellant, Zurich Ins. Co.

BLOODWORTH, Justice.

Plaintiff Bailey Wood Products, Inc., instituted this action for declaratory judgment against J. W. Coleman, Elmer Tallant Agency, Inc., and Zurich American Insurance Company seeking a determination as to whether plaintiff is liable to its employee, J. W. Coleman, under Workmen's Compensation and, in the event that the court finds liability, a declaration that Zurich American Insurance Company or Elmer Tallant Agency, Inc., or both should indemnify Bailey Products to the extent of its liability.

After a trial Ore tenus, the trial court found that defendants Tallant Agency and Zurich were both "liable for and obligated to afford Plaintiff Bailey Wood Products, Inc. Workmen's Compensation coverage or its equivalent so as to insure Plaintiff against liability under the Workmen's Compensation Act" with regard to an accident on June 21, 1977, which resulted in the injury of defendant J. W. Coleman and concerning which a suit was pending against Bailey Products in Conecuh County, Alabama. The court further found that defendant Tallant Agency exceeded its authority in making a contract of insurance on behalf of Zurich under the circumstances and that Zurich was "entitled to indemnity of and from all damages, expenses, and costs" proximately caused by Tallant Agency's unauthorized acts. It is from this judgment that Tallant Agency appeals and Zurich cross-appeals. We affirm on the cross-appeal, and affirm, in part, and reverse, in part, and remand the appeal.

Zurich Insurance and Tallant Agency entered into an agency contract on October 1, 1976, whereby the agency was empowered to "bind and execute contracts of insurance . . . only as specifically authorized in the Schedule of Binding Authority." The schedule states that certain risks may be bound by the agent only if prior approval has been granted by the company. Among these risks is "(a)ny risk that according to the agent's knowledge has been cancelled, declined, or renewal refused by another insurer within the past three years." In addition, the schedule also specifies that agent's general authority to bind the insurance company is limited in that prior approval is required to bind certain classes of businesses including workmen's compensation coverage for sawmill operations, which was one of plaintiff's business operations.

On March 2, 1977, The Home Insurance Company (which had previously handled coverage for Mr. Bailey's operations) refused to renew insurance on another business, Brantley Gin Company, and stated that it could not handle coverage for Bailey Wood Products. Tallant Agency then submitted the risk to Employers Insurance Company of Alabama, Inc. and on March 15, 1977, Employers declined the risk on both Brantley Gin and Bailey Wood Products. On March 18, 1977, Tallant Agency submitted the Brantley Gin account to Zurich. Zurich rejected the application for coverage because of the hazards associated with the varied operations. The risk for Brantley Gin was ultimately assigned to USF&G through the Assigned Risk Pool for "undesirable risks" but no premium was ever paid to USF&G. Thus the risk was never assumed by USF&G.

On June 14, 1977, Mr. Bailey called Kenneth Tallant, Vice President and Secretary of the Tallant Agency, and requested insurance coverage for Brantley Gin Company, Bailey Hardware Store, and Bailey Wood Products. Mr. Tallant told Mr. Bailey that coverage was bound, prepared an application- /binder, and forwarded it to Zurich. Tallant did not attempt to secure prior approval of the risk despite the fact that this was a sawmill risk and that coverage of Brantley Gin had recently been declined by more than one insurance company including Zurich.

On June 21, 1977, J. W. Coleman, employed by Bailey Wood Products as a truck driver, was injured in the line and scope of his employment while driving a truck belonging to Bailey Wood Products. On June 30, 1977, Tallant Agency was notified by telephone that Zurich refused to accept the risk submitted and rejected the claim.

We will first consider the appellee and cross-appellant Zurich's contention that the "only basis for holding against Zurich on the original complaint was Cincinnati Insurance Co. v. City of Talladega, (342 So.2d 331 (Ala.1977))" and that Cincinnati can be distinguished from the instant case because, in Cincinnati, certain bonds with the insurance company's name on them were delivered to the insured while in the instant case Tallant Agency did not divulge the name of Zurich to Mr. Bailey, who did not know with whom he would be insured. Zurich further contends that it was not effectively bound by Tallant Agency, that Mr. Bailey was not relying on Zurich but rather on the agency, that the agency negligently failed to secure insurance, and therefore should be the only party liable. We cannot agree.

In Cincinnati, this Court, quoting from British General Insurance Co., Ltd. v. Simpson Sales Co., Inc., 265 Ala. 683, 93 So.2d 763 (1957), stated:

" '. . . The company has the power to determine the conditions of the agency. It may protect itself as it sees fit by requiring surety bond. It may terminate its contract at the first sign of infidelity. It has within its power the determination of what persons shall represent it. In short, it has All the advantages of selection and must bear the burdens thereof if it has failed to choose one faithful to the agency agreement. On the other hand, we have the public, dealing with the agent of the company. In the public view, the agent is the company. . . .' (Emphasis supplied.)"

While the facts in Cincinnati do differ in some respects from those in the instant case, we do not find these differences to be significant, particularly in the light of better reasoned authority in this area.

Generally, an oral contract of insurance is valid if made by an agent acting within the actual or apparent scope of his authority. State Farm Automobile Insurance Company v. Newell, 270 Ala. 550, 120 So.2d 390 (1960). Tallant Agency, a licensed general agent of Zurich, had apparent authority to bind Zurich on an oral contract of insurance. Undisclosed, private limitations upon the authority of a general agent do not bind a third party who, being unaware of them, contracts with an agent within the customary scope of the agent's authority. Mayo v. American Fire and Casualty Company, 282 N.C. 346, 196 S.E.2d 828 (1972).

Similarly, in Crawford and Buckingham d.b.a. Buckingham-Wheeler Agency and Fidelity-Phenix Insurance Corporation v. DiMicco, et al., 216 So.2d 769 (Fla.App.1968), a strikingly similar case in which the plaintiff sought insurance coverage on a...