Financial Indem. Co. v. Murphy

• Decision Date: 20 December 1963
• Citation: 35 Cal.Rptr. 913,223 Cal.App.2d 621
• Parties: FINANCIAL INDEMNITY COMPANY, a California corporation, Plaintiff, Cross-Defendant, Appellant and Respondent, v. Vernice MURPHY, aka Mrs. Vernice Murphy, aka Bernice Murphy, Wanda Murphy, a minor, Patricia Gail Murphy, R. E. Rowe, Defendants, Cross-Complainants, Appellants and Respondents, Byron E. Byrd, Defendant and Respondent, Farmers Insurance Exchange, a California corporation, Thomas Nugent, Cross-Defendants and Respondents. Civ. 20641.
• Court: California Court of Appeals Court of Appeals

Page 913

35 Cal.Rptr. 913

223 Cal.App.2d 621

FINANCIAL INDEMNITY COMPANY, a California corporation, Plaintiff, Cross-Defendant, Appellant and Respondent, v. Vernice MURPHY, aka Mrs. Vernice Murphy, aka Bernice Murphy, Wanda Murphy, a minor, Patricia Gail Murphy, R. E. Rowe, Defendants, Cross-Complainants, Appellants and Respondents, Byron E. Byrd, Defendant and Respondent, Farmers Insurance Exchange, a California corporation, Thomas Nugent, Cross-Defendants and Respondents.

Civ. 20641.

District Court of Appeal, First District, Division 3, California.

Dec. 20, 1963.

Rehearing Denied Jan. 6, 1964.

As Amended on Denial of Rehearing Jan. 15, 1964.

Bolton, Groff & Dunne, John S. Bolton, and Abe Mutchnik, Los Angeles, for Financial Indemnity Co.

Nagle & Vale, San Mateo, for cross-appellants and respondents Murphy.

Sandford, Barry Staiger & Seaver, San Francisco, for R. E. Rowe.

Ropers, Majeski & Phelps, Redwood City, for Byron E. Byrd.

Schofield & Cunningham, William F. Levins, Oakland, for Farmers Insurance Exchange; Richard G. Logan, Oakland, of counsel.

A. John Merlo, Chico, for Thomas Nugent.

DEVINE, Justice.

The principal question is, which of two insurance companies is liable for damages resulting from a collision of vehicles; and there is a subordinate question of the damages covered. Each of the insurance companies which are parties to the case believes that the party claiming to have been insured, Vernice Murphy, was probably insured, but by the other carrier.

Facts

In May 1959, Mrs. Murphy, a resident of Paradise, Butte County signed an application for a public liability and property damage policy, which contained a $2,000 medical payments indemnity for the insured's family, with Nugent, the local agent of Farmers Insurance Exchange. She testified she knew that Nugent was agent for Farmers and that Farmers was a good company. The agent, Nugent, told her she was covered when the signed, and Farmers admits that she was. The company decided, however, to cancel the insurance on the grounds that the car was exposed to minor drivers, the applicant was divorced (this was inaccurate), had recently come from another state, was but lately employed, did not own her home, and the car was old--the last ground being undoubted, for the car was a 1939 Plymouth. Nugent, to save embarrassment, told Mrs. Murphy only that the cancellation was because the car was so old. Written notice of cancellation, without specification or reason, was received by Mrs. Murphy. Cancellation was to be effective June 10, 1959.

On the day following cancellation, June 11, 1959, Mrs. Murphy bought a 1957 Chevrolet, and she testified that she telephoned Nugent saying she wished the same insurance as she had had on the Plymouth, and collision insurance, too. Nugent left the telephone briefly. He explained the matter to the Farmers district manager, Phillips, in whose office he was at the time. Phillips who was also an agent for Financial Indemnity Company, told Nugent to bind coverage, that if Farmers wouldn't accept, Financial would. Nugent, who was the only agent known to Mrs. Murphy, was licensed solely to Farmers. Nugent told Mrs. Murphy that she was covered. Four days later, Mrs. Murphy sent her daughter to Nugent's office with the premium, which was calculated from Farmers' rate schedule, in cash, and Nugent gave her a receipt on a Farmers form. At no time prior to the accident did Mrs. Murphy know of (1) Financial Indemnity Company, (2) Phillips, (3) any difficulty in placing the coverage, (4) any declination of the risk on the Chevrolet by Farmers, (5) any transaction by Nugent with any company other than Farmers.

Following the telephone call of Mrs. Murphy, Nugent had filled out a trial application to Farmers. Farmers rejected this by note to Nugent, but did not send any notice to Mrs. Murphy. There was evidence that Farmers had directed its agents not to cover anyone whose application previously had been denied. Sometime later, and before the accident, Mrs. Murphy met Nugent. The testimony is in conflict, but the court found that he told her she was covered, and said nothing about difficulty in getting coverage.

Shortly after the accident, Mrs. Murphy telephoned a Farmers' representative. Soon, Nugent wrote to Mrs. Murphy saying that he had been unable to notify her that her application (by which, he testified, he meant an application to Financial of which she knew nothing) had been returned for lack of information, and enclosing his own check (he had remitted to Financial, which had returned the check to him) for the amount of the premium. It was not cashed.

After Nugent received and notice from Farmers declining coverage on the Chevrolet, he sent an application, not signed by Mrs. Murphy, to Financial Indemnity; it was not on the correct form and another was substituted for it at Financial Indemnity's office, and it bears Mrs. Murphy's name on the signature line but, admittedly, this was not signed by her. It is not clear who signed it, but probably someone in Financial Indemnity's office did. Financial sent a questionnaire to Nugent, in which it is stated that Financial Indemnity will 'hold the coverage bound until 8-1-59 pending receipt of your reply,' but returned the premium to Nugent at once. Notice of declination by Financial Indemnity was not sent to Mrs. Murphy (this is the court's finding; the evidence is somewhat conflicting).

On August 10, 1959, the Chevrolet, while driven by Mrs. Murphy's minor daughter, collided with a vehicle of R. E. Rowe. His claim apparently is regarded a good one (his vehicle was struck in the rear) but has not been adjudicated nor paid, and he asks the court to declare one or both carriers responsible for any liability that may be adjudged against Mrs. Murphy.

Liability of Farmers

The court impliedly held that Farmers was liable on the risk until Financial assumed it, finding that Nugent had actual and apparent authority. On appeal, Farmers agrees that if it ever were liable, liability was terminated, as the court decided; but argues that it never was liable, because Nugent lacked authority. There is substantial evidence that he had actual authority. Nugent had authority generally to bind for sixty days. There was a directive to agents that they did not have authority to cover an insured whose risk had been cancelled, and Nugent knew of this. When the call came from Mrs. Murphy, however, Nugent was in Farmers' district office in Chico, and Phillips, head of the district office, was present and participated, as stated above. It was competent for the court to decide that under these circumstances the directive did not apply.

Ostensible authority can be sustained easily. Nugent had actually bound the company to the Plymouth risk; he had told Mrs. Murphy of no reason for cancellation except the age of that vehicle; he took the premium and gave a Farmers receipt; the company had not communicated directly with Mrs. Murphy to renounce insurability of other vehicles which she might purchase.

Cases are cited by respondent Farmers (Ingalls v. Commercial Insurance Co. of Newark, N. J. (1962) 18 Wis.2d 233, 118 N.W.2d 178; Williams v. Republic Insurance Company (1955) 286 App.Div. 876, 141 N.Y.S.2d 870; Hastalis v. Firemen's Insurance Co. of Newark, N. J. (1936) 117 W.Va. 211, 185 S.E. 419; Colonial Assurance Co. v. National Fire Insurance Co. (1903) 110 Ill.App. 471) for the proposition claimed by it that an assured who has knowledge that coverage has been declined may not rely on ostensible authority of the agent to bind what the company has refused. These cases, however, merely hold that an agent's authority to revive a cancelled policy cannot be assumed, particularly where, as in the first two, the agent has told the assured to ignore the company's cancellation notice. In the instant case, there was a new vehicle. The only fault reported to the assured with her prior insurance was the age of the vehicle.

The powers of the agent are, prima facie, coextensive with the business entrusted to his care, and will not be narrowed by limitations not communicated to the person with whom he deals. (1 Cooley, Briefs on Insurance [2d ed.] p. 463; Frasch v. London & Lancashire Fire Ins. Co., 213 Cal. 219, 223, 2 P.2d 147; Guipre v. Kurt Hitke & Co., 109 Cal.App.2d 7, 15, 240 P.2d 312.) The court's finding of the agent's authority is well justified.

It is fair to regard the findings and conclusions of law as demonstrating the trial court's deciding that Farmers' coverage was terminated by substitution of coverage by Financial, although there is no explicit finding or conclusion to this effect.

The general rule is that an agent for a company may not, without the knowledge and consent of the insured, cancel one policy at the request of a carrier and substitute another. (Quong Tue Sing v. Anglo-Nevada Assurance Corp., 86 Cal. 566, 25 P. 58; 29 Am.Jur., § 413, p. 760.) The agent to procure insurance is not an agent for cancellation, and notice of cancellation to him is not notice to the insured. (Emery v. Pacific Employers Ins. Co., 8 Cal.2d 663, 672, 67 P.2d 1046; Lauman v. Concordia Fire Ins. Co., 50 Cal.App. 609, 618, 195 P. 951.) Thus, unless an exception presently to be discussed applies, Farmers, having been bound to coverage by the apparent authority of Nugent, could not escape liability simply by notifying him, nor by his unauthorized substitution of another carrier.

The exception, or second rule, is this: where an assured has applied for insurance to an agent having authority to write policies for many companies, has left to the agent the selection of the companies, with instructions to maintain the insurance in an amount stated, and the agent has undertaken so to act, the agent, upon notice from his companies to cancel, has power to waive for the assured the period of cancellation, to cancel the policies at once, and immediately to write new policies in other companies for the...