Holbrook v. Institutional Insurance Company of America

• Decision Date: 05 January 1967
• Docket Number: No. 15237.,15237.
• Citation: 369 F.2d 236
• Parties: Garland A. HOLBROOK and Truck Acceptance Corporation, Plaintiffs-Appellees, v. INSTITUTIONAL INSURANCE COMPANY OF AMERICA, Defendant-Appellant.
• Court: U.S. Court of Appeals — Seventh Circuit

369 F.2d 236 (1966)

Garland A. HOLBROOK and Truck Acceptance Corporation, Plaintiffs-Appellees, v. INSTITUTIONAL INSURANCE COMPANY OF AMERICA, Defendant-Appellant.

No. 15237.

United States Court of Appeals Seventh Circuit.

November 15, 1966.

Rehearing Denied January 5, 1967.

Norman J. Barry, Norris J. Bishton, Jr., Chicago, Ill., Rothschild, Hart, Stevens & Barry, Chicago, Ill., of counsel, for appellant.

Edward V. Scoby, Ward P. Fisher, Kralovec, Sweeney, Marquard & Scoby, Chicago, Ill., for appellees.

Before SCHNACKENBERG, SWYGERT, and CUMMINGS, Circuit Judges.

SWYGERT, Circuit Judge.

This diversity action was brought by Garland A. Holbrook, a citizen of New Mexico, and the Truck Acceptance Corporation, a Washington corporation, against the Institutional Insurance Company of America, an Illinois corporation, to recover under the terms of a policy of insurance issued by Institutional. Holbrook, the insured, and Truck Acceptance, a loss payee on the policy, sought to recover for the destruction of a diesel tractor and trailer resulting from a collision on the Indiana Toll Road near Hammond, Indiana on March 4, 1961. Institutional appeals from a judgment of $22,150 in favor of Holbrook and Truck Acceptance entered upon a verdict by the district court sitting without a jury. The principal question is whether insurance coverage on the tractor and trailer was in existence when the loss occurred.

On December 27, 1960, Holbrook, an independent long-haul trucker, visited the office of the White Insurance Agency in Hammond, Indiana and spoke to Wilbur White about obtaining insurance on a 1959 Kenworth diesel tractor owned by Holbrook and financed by Truck Acceptance. White had placed similar insurance on Holbrook's equipment with other insurance companies on two or three occasions through Philip Caplis of Caplis, Inc. in Chicago, a specialist in long-haul insurance. White phoned Caplis' office and talked to James McGrath, who stated that coverage would be placed with Institutional. Holbrook arranged with White to pay the insurance premiums in monthly installments. White estimated the total yearly premium at $800 and the monthly installments at $100. Holbrook paid White the first month's installment at that time.

Institutional thereafter issued its policy of collision insurance on the tractor at the request of Caplis, Inc. The policy was stated to be effective for the period of one year beginning December 27, 1960, at a premium charge of $800.50 to Holbrook. Institutional delivered the policy to Caplis, Inc. which in turn forwarded it to White; the latter did not deliver the policy to Holbrook, but instead retained it in his possession.

As between Institutional and Caplis, Inc., premiums on policies obtained by Caplis, Inc. were charged on an "account current" basis, a system of debits and credits reflecting all policy transactions during each month and settled by payment at periodic intervals. A similar system was employed between Caplis, Inc. and White.

Holbrook's second installment on the premium was due January 27, 1961, but he paid only half of it to White on that date. On February 7, 1961, White called Caplis, Inc. and requested that the policy be cancelled for nonpayment of premiums. The office girl who accepted the call took the following message:

Policy Canc. for non-pay. Garland Holbrook Inst. Co. * * * Mr. White has Policy.

Caplis sent a note to Institutional on the following day, attaching the telephone message and instructing Institutional to cancel the policy pro rata as of February 7 for "nonpay." On February 16 Institutional mailed a notice of cancellation, effective February 17, to Holbrook. The notice was returned, marked "unclaimed."¹

Holbrook, who knew nothing about the cancellation by Institutional but had been threatened with cancellation by White, paid the remainder of the January 27 premium installment on February 20. White thereupon called Caplis' office and spoke to Anna Pace, an employee of a firm which shared office space with Caplis and who also frequently rendered services for Caplis. White requested that Holbrook's policy be reinstated. Whether the evidence was sufficient to show that Pace relayed this request to Institutional and received positive assurance is in dispute.

A few days later, on February 24, Holbrook phoned White and requested him to obtain additional collision coverage for a 1955 Brown trailer. White assured him that he would attempt to place the trailer coverage with Institutional and estimated the monthly premium on the trailer at $61. On the same day Holbrook forwarded this amount plus his February 27 installment on the premium for the tractor coverage to White. White again talked to Pace in Caplis' office and requested that the trailer coverage be added to Holbrook's policy with Institutional. Whether Pace, relayed this request to Institutional is again in dispute.

The tractor and trailer were damaged beyond repair in a collision on March 4.

On March 10 Institutional prepared two endorsements on the Holbrook policy, one purporting to reinstate the tractor coverage "effective * * * March 10" at a premium charge of $686.83, the other adding the trailer coverage "effective * * * March 10" at a premium charge of $414.80. In addition, Institutional mailed a letter to Holbrook which stated, "This is to notify you that your automobile physical damage policy * * * has been reinstated as of this date with no lapse in coverage."

Institutional was notified of the loss on the tractor and trailer a few days later. After conducting an investigation, Institutional cancelled the policy a second time by sending Holbrook ten days' notice of cancellation on April 14.² The trailer coverage was cancelled on April 12 by means of an endorsement similar to those prepared on March 10.

The tractor coverage

The district court concluded that the tractor coverage on Holbrook's policy was in effect at the time of the loss for several reasons. The court held that Institutional failed to prove an effective cancellation on February 17, 1961 because White had no authority to request cancellation on Holbrook's behalf. It also held that Institutional agreed to reinstate the tractor coverage prior to the loss, that Caplis, Inc. had apparent authority to bind Institutional to a reinstatement, that the policy was reinstated without any lapse in coverage by the letter of March 10, and that Institutional waived its right to deny coverage by acceptance of premiums between December 27, 1960 and April 24, 1961 through its accounting arrangement with Caplis, Inc. We think that recovery by Holbrook and Truck Acceptance for the loss of the tractor should be affirmed because of Institutional's knowledge that White was not acting as Holbrook's agent in requesting cancellation of the policy and will confine our discussion to that point.

Whether an insured may be bound by the acts of a broker engaged to procure insurance for him depends upon the application of general principles of the law of agency to the facts in each case. The broker's authority stems principally from the agreement entered with the insured and what is to be implied from it. Thus it is generally said that when a broker is engaged to obtain insurance for another, even though he might be given discretion to select the company with whom insurance is to be placed, he exhausts his authority once the insurance is obtained. Smith v. Firemen's Ins. Co., 104 F.2d 546 (7th Cir. 1939). Stated differently, the mere employment of an agent to secure insurance gives the agent neither actual nor apparent authority to cancel it. On the other hand, where there is a general entrusting of insurance affairs by a person to a broker, as for example where a broker is employed to keep property insured for his client, the broker's authority, by agreement or implication, may well extend to the modification or cancellation of policies. 16 Appleman, Insurance Law and Practice, § 8724 (1944). But in order to bind the insured, not only must the broker's authority be established, but it must also be shown that the broker is purporting to exercise it, that is, that he is acting as the agent of the insured.

Institutional relies solely upon a cancellation of the policy by, or on behalf of, Holbrook.³ It contends that White, as Holbrook's agent in procuring the policy, had implied authority to cancel it on Holbrook's behalf by virtue of the fact that White was permitted to retain the policy in his possession. In support of its position Institutional refers to a statement in Fowler Cycle Works v. Western Ins. Co., 111 Ill.App. 631, 634 (1904), that "generally speaking, possession of a policy by an insurance broker confers upon him implied authority to procure its cancellation."⁴ But even if we assume that White's possession of the policy gave him implied authority to procure its cancellation, it is of no avail to Institutional if Institutional either had knowledge that White had no such actual authority⁵ or knew that he was not acting as Holbrook's agent in attempting to cancel it. It is evident from the facts that Institutional may not rely upon White's request as a cancellation by Holbrook for the latter reason. The request itself, as transmitted to Institutional by Caplis, Inc. was a request for cancellation by reason of Holbrook's nonpayment of premiums. As such, the request informed Institutional that it was not being made by a broker as an agent in the service of his principal, but...