General American Life Ins. Co. v. AmSouth Bank

• Decision Date: 04 December 1996
• Docket Number: No. 94-6648,94-6723.,94-6648
• Citation: 100 F.3d 893
• Parties: GENERAL AMERICAN LIFE INSURANCE COMPANY, Plaintiff-Appellant-Cross-Appellee, v. AmSOUTH BANK, Defendant-Appellee-Cross-Appellant. GENERAL AMERICAN LIFE INSURANCE COMPANY, Plaintiff-Appellee, v. AmSOUTH BANK, Defendant-Appellant, Edward Clayton Land, Defendant.
• Court: U.S. Court of Appeals — Eleventh Circuit

100 F.3d 893

GENERAL AMERICAN LIFE INSURANCE COMPANY, Plaintiff-Appellant-Cross-Appellee, v. AmSOUTH BANK, Defendant-Appellee-Cross-Appellant.

GENERAL AMERICAN LIFE INSURANCE COMPANY, Plaintiff-Appellee, v. AmSOUTH BANK, Defendant-Appellant, Edward Clayton Land, Defendant.

Nos. 94-6648, 94-6723.

United States Court of Appeals, Eleventh Circuit.

December 4, 1996.

COPYRIGHT MATERIAL OMITTED

Thomas Troy Zieman, Jr., Zieman, Speegle, Oldweiler & Jackson, Anthony M. Hoffman, Mobile, AL, for General American Life Insurance Company.

Edward A. Dean, Ambrecht, Jackson, DeMouy, Crowe, Holmes & Reeves, Broox G. Holmes, Mobile, AL, for AmSouth Bank.

Before CARNES, Circuit Judge, and FAY and GIBSON^*, Senior Circuit Judges.

JOHN R. GIBSON, Senior Circuit Judge:

General American Life Insurance Company appeals from a jury verdict finding that it was estopped from asserting its claim that AmSouth Bank improperly paid checks payable to General American. General American's agent indorsed the checks without authority and deposited them in his account at AmSouth. General American argues that as a matter of law, AmSouth did not establish the elements of estoppel. AmSouth cross-appeals from a summary judgment order holding it liable for checks payable to General American that the agent restrictively indorsed and deposited in his account. General American also argues that the district court erred in amending the summary judgment order to reduce General American's damages. We affirm the summary judgment insofar as it holds AmSouth liable to General American, but reverse its determination of General American's damages. We reverse the judgment on the jury's verdict in favor of AmSouth. Finally, we remand for a new trial to determine General American's damages.

In 1982 General American, by written contract, appointed Land & Associates, Inc. a general agent for the purpose of procuring applications for its life and health insurance and annuities, which Land & Associates was licensed to sell. Edward C. Land was the owner and proprietor of Land & Associates.

Land opened a checking account at the Springdale branch of AmSouth in Mobile, Alabama under the corporate name of Land & Associates. Though this account was a business account, Land opened the account and the signature card for the account bore his personal social security number. Land used the account to pay his agency's expenses, but he also paid personal expenses out of it, such as his child's tuition, his membership in a Mardi Gras society, his power and light bills, and his Visa card bills. When Land opened the account, he provided to AmSouth business cards and stationery from General American showing that Land & Associates was a general agent of General American. Land had no authority to indorse checks and knew this, and also knew that according to the laws of insurance, he could not commingle his money with his clients' money.

Land sold General American insurance and pension investment services to customers. According to General American's procedures, customers were supposed to write checks payable to General American. General American required Land to send these checks directly to it, and did not authorize Land to indorse these checks under any circumstances.

Land, however, would occasionally indorse and deposit customer checks when they were not for the exact amount owed to General American, and then write a Land & Associates check to General American for the correct amount. Land would make up the difference, although only when the customer's check and his check were for a small amount, typically under $600. General American cashed and processed these Land & Associates checks without objection.

Land also sent Land & Associates checks to General American for customer accounts when customers would inadvertently write checks payable to Land & Associates rather than General American. These Land & Associates checks were also always for small amounts, and General American cashed and processed them without objection. It was impossible for General American to know from processing the Land & Associates checks why Land had written these checks payable to a customer's account.

In March 1987, Land began to misappropriate money. Land purchased a rubber stamp in Mobile which printed "GALIC Qualified Plans Acct: 0551-0900 For Deposit Only." With his rubber stamp, Land indorsed eleven customer checks payable to General American totalling $101,854.39 and deposited them into his Land & Associates account at AmSouth.

Land lost his first rubber stamp after indorsing eleven checks. Land purchased another rubber stamp which printed "General American Life Insurance Co. Qualified Plans Acct 0551-0900." Land used this stamp to indorse twenty-six more customer checks payable to General American totalling $554,462.69 and deposited these checks into his Land & Associates account at AmSouth.

To conceal his misappropriations from General American and his customers, Land changed the addresses for his General American customers to a post office box that he controlled. Land would intercept the statements General American sent to the customers, which showed that less than all of their money was reaching General American. He would then falsify new statements and send those to the customers.

Land paid back some of the money to his customers before he was caught. Without raising suspicion Land purchased from AmSouth teller's checks drawn on AmSouth's account at Chemical Bank of New York City. In the space marked for the remitter or purchaser of the checks Land put the initials of a customer from whom he had stolen money. Land made the checks payable to General American and sent them to General American as if they had come from a customer.

Finally, Land's business practices raised suspicions, and in October 1990, just as his agency was about to be investigated, Land confessed to General American that he was taking money.

The employees of AmSouth's Springdale branch never inquired about Land's authority to indorse checks payable to General American and deposit them into his Land & Associates account. AmSouth's employees never asked Land for corporate resolutions from General American authorizing him to indorse and deposit General American checks into his Land & Associates account. Nor did they ask General American if Land had the authority to indorse its checks. They never inquired about Land's authority because they knew Land & Associates to be General American's general agent, and because Land had been a frequent and trusted customer at the Springdale branch from 1983 to 1990.

General American sued AmSouth for conversion of the thirty-seven checks Land indorsed with his rubber stamps. The district court granted summary judgment in favor of General American on the eleven checks that Land restrictively indorsed "For Deposit Only" with his first rubber stamp. The district court ruled that AmSouth was liable for the checks as a matter of law because the checks were indorsed in the name of General American and "For Deposit Only," and AmSouth did not deposit the checks into a General American account. Based on these eleven checks the district court entered judgment in favor of General American for $114,733.79. After General American and AmSouth filed their notices of appeal, the district court reduced the judgment for General American to $73,825.24.

With respect to the other twenty-six checks payable to General American and deposited into the Land & Associates account, the district court directed a verdict for General American, but submitted to the jury the issue of whether General American was estopped from denying the validity of the indorsements on these checks. The jury returned a verdict for AmSouth. General American appeals from the jury's verdict and the district court's reduction of the judgment in its favor on the eleven checks, while AmSouth appeals from the district court's grant of summary judgment in favor of General American on the eleven checks.

I.

General American argues that the jury's verdict in favor of AmSouth on the twentysix checks must be reversed because Land did not have the authority to indorse checks payable to General American and because AmSouth did not present sufficient evidence to support its estoppel defense.

Alabama law governs this diversity case. Our review of the district court's determination and application of Alabama law is de novo, without deference to the district court. Salve Regina College v. Russell, 499 U.S. 225, 111 S.Ct. 1217, 113 L.Ed.2d 190 (1991).

Under Alabama law, a depositary bank is liable to the payee of a check for conversion when the bank allows a party who has indorsed the check without authority to deposit the check into his account. Al Sarena Mines, Inc. v. SouthTrust Bank, 548 So.2d 1356, 1358 (Ala.1989). The depositary bank may avoid liability for the check if it has a valid defense against the payee. Id. Consequently, AmSouth can avoid liability to General American for the checks Land indorsed and deposited in his account at AmSouth if: (1) Land's indorsements were authorized; or (2) AmSouth has a valid defense against General American.

A.

AmSouth argues that under Alabama law a general insurance agent has full power to bind the insurer and stands in the shoes of the insurer for all purposes, and, therefore, Land had the authority to indorse General American checks. AmSouth cites Washington National Insurance Co. v. Strickland, 491 So.2d 872 (Ala.1985), and cases following Washington National to support its argument.

We reject AmSouth's interpretation of the law of Alabama. General American's appointment of Land & Associates as its general agent did not automatically give Land the apparent authority to indorse checks payable to General American and deposit them in the Land & Associates account. While it is true that a general agent who lacks the actual authority to bind his principal may have the apparent authority to do so,...