Farmers Ins. Co., Inc. v. Hubbard, No. 87-1659

• Court: United States Courts of Appeals. United States Court of Appeals (10th Circuit)
• Writing for the Court: Before ANDERSON, BARRETT and BRORBY; BARRETT
• Citation: 869 F.2d 565
• Parties: FARMERS INSURANCE COMPANY, INC., a foreign insurance company; Farmers Insurance Exchange, a foreign insurance company; Truck Insurance Exchange, a foreign insurance company; Fire Insurance, a foreign insurance company; Mid-Century Insurance Company, a foreign insurance company; Farmers New World Life Insurance Company, a foreign insurance company, Plaintiffs-Appellants, v. Homer H. HUBBARD, Defendant, Counterclaimant-Appellee.
• Docket Number: No. 87-1659
• Decision Date: 10 March 1989

Page 565

869 F.2d 565 FARMERS INSURANCE COMPANY, INC., a foreign insurance
company; Farmers Insurance Exchange, a foreign insurance
company; Truck Insurance Exchange, a foreign insurance
company; Fire Insurance, a foreign insurance company;
Mid-Century Insurance Company, a foreign insurance company;
Farmers New World Life Insurance Company, a foreign
insurance company, Plaintiffs-Appellants,
v.
Homer H. HUBBARD, Defendant, Counterclaimant-Appellee. No. 87-1659. United States Court of Appeals,
Tenth Circuit. March 10, 1989.

Page 566

Frederic D. Cohen (David M. Axelrad of Horvitz & Levy, Encino, Cal.; Jones, Givens, Gotcher, Bogan & Hilborne, Tulsa, Okla., Robert E. Nagle of Farmers Group, Inc., Los Angeles, Cal., with him, on the briefs), for plaintiffs-appellants.

James S. Steph, Okmulgee, Okl., for defendant, counterclaimant-appellee.

Before ANDERSON, BARRETT and BRORBY, Circuit Judges.

BARRETT, Senior Circuit Judge.

This is an appeal by plaintiff-appellant, Farmers Insurance Company, Inc., et al. (Farmers), from the district court's denial of Farmers' motion for judgment notwithstanding the verdict or, alternatively, a new trial. Farmers brought this action for a declaratory judgment of the rights and duties of the parties relative to the agency contract termination of defendant-appellee, Homer Hubbard (Hubbard). For trial purposes, the parties agreed that the issue to be decided was whether Farmers exercised bad faith in terminating Hubbard; thus the burden was on Hubbard to prove bad faith.

At the conclusion of the trial, the jury rendered its unanimous verdict finding that Farmers had terminated Hubbard's agency contract in bad faith. The jury awarded Hubbard actual damages of $100,000.

Background

Hubbard became a full-time insurance agent for Farmers in March, 1976. Pursuant to that agency, Hubbard signed an Agent Appointment Agreement which set forth various grounds for termination, including a willful misrepresentation material to the agency. Gary Vest was Hubbard's district manager. As district manager, Vest's responsibilities included recruiting prospective agents, preparing them to take the insurance test, training them in the basics of selling insurance and servicing customers, and answering any questions the agents might have. A Farmers' district manager, like an agent, is an independent contractor. As a district manager, Vest received a percentage of all premiums generated by the agents in his district.

In addition to training given by their district manager, the agents received a manual, disseminated by Farmers, which stressed the necessity that all insurance applications be filled out truthfully and accurately. The manual instructed them, among other things, on the correct way to fill out an application for insurance. Specifically, Farmers determined that applicants who are not presently insured, or who have allowed prior policies to lapse, constitute a greater insurance risk. Consequently, Farmers' insurance applications contain a section in which an agent is to record the name of the applicant's present insurer and her policy number. If an applicant

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has no prior insurance or has allowed her prior insurance to lapse, her application is turned down by Farmers, but it will be accepted at a higher premium rate by Farmers high-risk company, Mid-Century Insurance. The significance of that process is that most applicants would rather seek insurance elsewhere than pay the higher Mid-Century premium.

Sometime in 1983, Farmers' underwriters discovered certain discrepancies regarding the applicants' prior insurance information on several applications submitted by Hubbard. The underwriters informed the regional sales manager, who in turn instructed Gary Vest and the division agency manager, Dave Reiten, to conduct an investigation. Vest and Reiten contacted the applicants on whose behalf the applications were submitted. All of the individuals stated that they did not have insurance with any other company at the time they applied through Hubbard for Farmers' coverage, and that they did not represent to Hubbard that they had such insurance. The applications which Hubbard submitted to Farmers on behalf of those applicants, however, indicated the existence of prior insurance and, in fact, provided a prior insurance policy number.

Vest and Reiten reported to the regional sales manager, Dale Hawk, that Hubbard had apparently intentionally misrepresented information on applications. Hawk then reviewed Hubbard's file, wherein he found several reports of instances of professional misconduct by Hubbard. All of the information gathered was then presented to Donald DeWolfe, Farmers' regional manager. He and Hawk then determined that Hubbard must be terminated. Thereafter, Vest and Reiten met with Hubbard and informed him they had evidence of misrepresentations by him, and gave him the opportunity to resign. Hubbard refused to resign but offered no explanation for his conduct. A formal notice of termination was sent to Hubbard and, thereafter, Farmers sent Hubbard's attorney a letter indicating the basis of termination.

Hubbard's Appointment Agreement provided for, in the event of termination, a termination review board hearing as a means for possible reversal of the decision to terminate. The contract provided that the review board was to be made up of three members: one of Farmers' choice, one of the agent's choice, and a neutral member agreeable to both parties. Hubbard formally requested a termination review board hearing. The board consisted of Dale Hawk, representing Farmers, another agent chosen by Hubbard, and a banker selected by the other two members. The board was presented with the applications submitted by Hubbard, the signed statements of the applicants relating that they did not tell Hubbard they had prior insurance, and Hubbard's own testimony. After considering all the information, the board voted two to one to uphold the termination.

Hubbard's Appointment Agreement provided for compensation to the agent if he was terminated for any reason other than embezzlement. The amount represented compensation for the agent's past services and was labeled "contract value." Calculation of "contract value" was according to a formula found in the Appointment Agreement which considered the commissions paid to the agent prior to termination, the number of policies in the agent's portfolio, and her years of service. The "contract value" was to be paid in three installments. Farmers calculated the "contract value" of Hubbard's agency and sent him a check for his first installment. Hubbard refused the check and notified Farmers that all correspondence thereafter was to be through his attorney. Farmers then filed this action for declaratory judgment, seeking a determination of the rights and duties of the parties relative to Hubbard's termination, and an order requiring Hubbard to deliver to Farmers all Farmers' manuals, lists and records in his possession.

Disposition

Farmers argues, for the first time on appeal, that the trial court judgment should be reversed because the acts of its agent, Gary Vest, cannot be imputed to Farmers under these particular circumstances. Specifically, Farmers contends that, even if

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Vest told Hubbard to misrepresent information when filling out applications, that has no bearing on whether Farmers acted in bad faith when it...