Gardner v. State Farm Mut. Auto. Ins. Co.

Citation842 So.2d 1
PartiesPaul E. GARDNER and Celia H. Gardner v. STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY et al.
Decision Date18 January 2002
CourtAlabama Court of Civil Appeals

842 So.2d 1

Paul E. GARDNER and Celia H. Gardner
v.
STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY et al

2000279.

Court of Civil Appeals of Alabama.

January 18, 2002.


842 So.2d 2
Frank M. Wilson, Montgomery; and Lynn W. Jinks III and Christina D. Crow of Jinks, Daniel, Crow & Seaborn, L.L.C., Union Springs, for appellants

Michael B. Beers and Winston W. Edwards of Beers, Anderson, Jackson, Hughes & Patty, P.C., Montgomery, for appellee State Farm Mutual Automobile Insurance Company.

Stephen E. Whitehead and Michael J. Clemmer of Lloyd Gray & Whitehead, P.C., Birmingham; and Michael E. Jones of Jones & Sport, Luverne, for appellee Al Snellgrove.

PER CURIAM.

On August 27, 1999, the plaintiffs, Paul E. Gardner and Celia H. Gardner, sued State Farm Mutual Automobile Insurance Company ("State Farm") and Al Snellgrove in the Crenshaw County Circuit Court, alleging breach of contract, conversion, unjust enrichment, and negligent and/or wanton supervision. The Gardners' claims arose after two State Farm employees absconded with some of their premium payments, along with payments of other State Farm customers.

Following discovery, State Farm and Snellgrove moved for a summary judgment. At the hearing on the summary-judgment motion, the Gardners voluntarily dismissed their unjust-enrichment claim. After the hearing, the trial court entered a partial summary judgment for the defendants on the claims alleging conversion, negligent supervision, and wanton supervision and for Snellgrove on the breach-of-contract claim, leaving the breach-of-contract claim pending against State Farm only. Pursuant to Rule 54(b), Ala. R. Civ. P., the trial court directed the entry of a final judgment on the partial summary judgment.1 The Gardners appealed from the summary judgment as to their conversion, negligent-supervision, and wanton-supervision claims. The Gardners' appeal was transferred to this court, pursuant to § 12-2-7(6), Ala.Code 1975.

Because this appeal is from a summary judgment, our review is de novo. See EBSCO Indus., Inc. v. Royal Ins. Co. of America, 775 So.2d 128 (Ala.2000). In reviewing a summary judgment, an appellate court uses the same standard of review

842 So.2d 3
that a trial court uses "in determining whether the evidence before the court made out a genuine issue of material fact." Bussey v. John Deere Co., 531 So.2d 860, 862 (Ala.1988). Once the movant makes a prima facie showing that no genuine issue of material fact exists and that he or she is entitled to a judgment as a matter of law, the burden shifts to the nonmovant to present substantial evidence creating a genuine issue of material fact. Bass v. SouthTrust Bank of Baldwin County, 538 So.2d 794 (Ala.1989). "[S]ubstantial evidence is evidence of such weight and quality that fair-minded persons in the exercise of impartial judgment can reasonably infer the existence of the fact sought to be proved." West v. Founders Life Assur. Co. of Florida, 547 So.2d 870, 871 (Ala. 1989). In reviewing a summary judgment, an appellate court must view the evidence in a light most favorable to the nonmoving party and entertain such reasonable inferences as the trier of fact would have been free to draw. Renfro v. Georgia Power Co., 604 So.2d 408 (Ala.1992)

Facts

Viewing the evidence in a light most favorable to the Gardners, as the applicable standard of review requires, the record indicates the following material facts. State Farm and its allied companies have a number of local offices across Alabama. Each local office is supervised by an "independent contract agent." The independent contract agent is paid commissions on policies sold from his or her local office, is responsible for staffing the office, and pays all office expenses from those commissions. Local office employees may become licensed insurance agents through the sponsorship of State Farm; after becoming licensed, staff employees are authorized to sell State Farm policies. Local office employees are also authorized to quote premiums, to receive premium payments, and to issue binders for coverage under the aegis of the independent contract agent's state insurance license.

Each State Farm local office has, among other accounts, a premium-fund account into which each insurance premium paid to employees at a State Farm local office is to be deposited. At the time a State Farm insured makes a premium payment, a staff employee accepts the payment, applies it to the insured's policy, and gives the insured a receipt. The payment is then typically entered into State Farm's computer system.

The record also indicates that each State Farm independent contract agent assigned to a local office has a register in which he or she is to record all deposits in order to reconcile the office accounts. Each day, the agent generates a summary of the day's deposits, and is responsible for reconciling monthly bank statements with the entries of premium payments in the State Farm computer system. Typically, a premium-fund-account reconciliation should be completed as soon as possible after the State Farm independent contract agent receives the office's monthly bank statements.

In addition to supervising local-office personnel, the independent contract agent in each State Farm local office is given authority, in regard to certain "smaller" insurance claims, to write claim checks up to $5,000 on a State Farm account to facilitate the prompt payment of smaller claims. State Farm refers to such authority as "agent-draft authority," and recommends that its independent contract agents use agent-draft authority as often as possible because doing so is convenient for policyholders and helps cement policyholders' relationships with the agent. Only the independent contract agent in a local office may sign checks pursuant to agent-draft

842 So.2d 4
authority—staff employees are not to sign such checks

Each State Farm local office has a book of perforated blank checks for the purpose of making agent-draft-authority payments. These checks are issued in sequence, and State Farm has procedures to be followed for checks that are voided or spoiled. After an agent has prepared an agent-draft-authority check, it is given to the insured, and a copy is sent to the State Farm regional office. The bank account from which agent-draft-authority checks are drawn is owned by State Farm; thus, checks drawn on a local office's agent-draft-authority are not returned to the issuing local office, but are returned by the bank to a State Farm regional office, which thereafter prepares a monthly check report for the local office listing the pertinent payees, amounts, policy numbers, and insurance coverages. However, State Farm apparently has no procedure in place to ensure that the signature on the draft is actually that of the independent contract agent.

When, for some reason, there is temporarily not an independent contract agent in one of its local offices, State Farm designates that office as an "emergency services program" or "ESP." When a local office is designated as an ESP, the staff employees remain in place, continuing to quote premiums, to take applications, to accept premium payments, and to bind coverage; additionally, the staff employees become salaried employees of State Farm. When an office is designated as an ESP, the sole responsibility for financial management of that office is transferred to the State Farm agency field office to which that local office has been assigned. Because an ESP, by definition, has no independent contract agent in residence, personnel in an ESP do not have agent-draft authority to issue small claim checks. As one might surmise, ESP status is generally expected to last only for short periods.

Each State Farm local office (including ESPs) is assigned to an "agency field office." The field office is headed by an "agency field executive" and is assigned at least one "agency field consultant." When a local office is being managed by an independent contract agent, State Farm field employees visit the office at least once a month to reconcile the premium-fund account. Field employees also respond to questions or problems the independent contract agent may have, and they assist in training staff employees for the local office.

During the period pertinent to the Gardners' claims, State Farm's local office in Luverne, Alabama, was supervised by the Dothan agency field office. Tim Bryan was the field employee assigned to the Luverne local office; he was the only field employee in southeastern Alabama, supervising approximately 34 local State Farm offices in that region. Rich Potter was the agency field executive in charge of the Dothan-area State Farm agency field office beginning in November 1997.2

Periodically, State Farm agency field offices perform a "business management assistance review" of local offices. When a review is held, it must include an on-site review of an independent contract agent's premium-fund account records and that agent's procedure for agent-draft authority. During the review, the field employee is to review three randomly selected client files. The field employee is also to specifically review claims paid to household members

842 So.2d 5
of agents or staff members. Although State Farm has published a manual for use in training its employees on how to conduct a business management assistance review, Bryan testified that he was not trained using that manual.

In 1994, Elizabeth McKinnon, who was the independent contract agent at State Farm's local office in Luverne, hired Sharon Davis as a staff employee. Davis later became a licensed agent for State Farm, serving in that capacity until May 1999. In October 1995, McKinnon left the Luverne local office, causing that office to be converted to an ESP. Consistent with the change, Davis became directly employed by State Farm, although she continued to function as a staff employee with the same duties and responsibilities she previously...

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