Southern Farm Bureau Casualty Insurance Co. v. Allen

• Decision Date: 18 December 1967
• Docket Number: No. 23824.,23824.
• Citation: 388 F.2d 126
• Parties: SOUTHERN FARM BUREAU CASUALTY INSURANCE COMPANY, Appellant, v. Mrs. Cecil Harvey (Betty) ALLEN, A Feme Sole, et al., Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

388 F.2d 126 (1967)

SOUTHERN FARM BUREAU CASUALTY INSURANCE COMPANY, Appellant, v. Mrs. Cecil Harvey (Betty) ALLEN, A Feme Sole, et al., Appellees.

No. 23824.

United States Court of Appeals Fifth Circuit.

December 18, 1967.

COPYRIGHT MATERIAL OMITTED

Max C. Addison, Lubbock, Tex., for appellant.

Robert L. Templeton, Amarillo, Tex., E. H. Boedeker, Charles E. Benson, Lubbock, Tex., for appellees.

Before RIVES, WISDOM and GOLDBERG, Circuit Judges.

WISDOM, Circuit Judge:

Southern Farm Bureau Casualty Insurance Company (Southern Farm) brings this diversity suit for a declaratory judgment that an automobile liability insurance policy it had issued to George Jezisek covering a 1960 model Chevrolet was void and that Southern Farm was relieved of all liability in connection with that policy.

In October 1963 Joe Jezisek, a minor having a record of one previous accident and two "moving" violations, traded his 1957 Pontiac for a 1960 Chevrolet. The insurance on the Pontiac, issued by Southern Farm in his father's name, had expired. The bank holding the mortgage on the Chevrolet required that the automobile be insured. Joe applied to Southern. Farm for coverage through a secretary at the Jack Wattenbarger Agency in Lamb County, Texas, an agency that had handled some insurance matters for Joe's brother George E. Jezisek, who lived in Milam County. The Lamb County office forwarded the application to the Southern Farm home office in Waco. After an investigation of the applicant, Southern Farm rejected Joe's application for insurance and returned his premium.

Both Joe and George Jezisek testified that on November 8, 1963, they spoke to Mr. Wattenbarger who suggested (or approved their suggestion) that they put title to the car in George's name for insurance purposes. This they did that same day. Wattenbarger, however, denied that the conversation ever took place.

Later in the day, the brothers returned to the agency office and applied for insurance in George's name through one of the secretaries in the office. A registration receipt, shown to the secretary at the time she took the application, revealed that title was transferred on that day "for insurance purposes". The application showed that the car would be kept in Spade, Texas, although George lived in Milam County, several hundred miles away. The Jeziseks did not divulge that Joe would be driving the car.

The secretary forwarded the policy to Milam, where George resided. The Milam County agent, who was not aware of the transfer of title, signed the policy and sent it to the Waco office. Since George Jezisek was already an approved insured, the main office, without further investigation, issued the liability policy to George Jezisek as owner of the Chevrolet. George received the policy and delivered it to Joe, who made all premium payments. Three months later Joe Jezisek, while driving his Chevrolet, was in an accident that resulted in fatal injuries to Cecil H. Allen.

Upon investigating the ownership of the automobile involved in the accident and finding that Joe Jezisek was its exclusive owner and driver, Southern Farm notified all interested parties that the policy was void ab initio and tendered to George Jezisek the amount of the paid premiums.

The trial court rendered judgment against Southern Farm in favor of the Jeziseks and the deceased's widow and children on the finding that Jack Wattenbarger, Southern Farm's agent, was aware of "the expedients which ensued in quest of the insurance needed by Joe C. Jezisek." The court held that this knowledge was imputed to Southern Farm. Southern Farm therefore was estopped from voiding the liability policy, and the declaratory judgment was denied. We reverse.

I.

The first issue on appeal concerns the district court's finding of fact: "The plaintiff's agent, Wattenbarger, was in close touch by taking part and being aware of the expedients which ensued in quest of the proper insurance needed by Joe C. Jezisek to make his required compliance with law."

Southern Farm points out that Wattenbarger would receive no commission on the policy issued to George. Also, Wattenbarger testified that he did not meet with the Jeziseks on the day the application for insurance in George's name was sent in; in fact, he emphatically denied that he ever met George Jezisek until after the accident in February 1964. By the same token, both Jeziseks were positive about having discussed the transfer of title with Agent Wattenbarger before making application later that day. Thus, despite Wattenbarger's own testimony, there is evidence in the record that would support the court's finding of fact. Accordingly, we consider that this finding is not clearly erroneous.

It is undisputed that Wattenbarger did not actually transmit to Southern Farm any suggestion of the misrepresentation involved in the application, of which he was held to have had actual knowledge. Southern Farm, therefore, had no direct notice of them. The primary issue, then, is whether the knowledge of Wattenbarger is imputed to Southern Farm to estop it from voiding the policy on the basis of the misrepresentations in the application. The district court answered this issue in the affirmative; we do not.

II.

We turn now to Texas law to ascertain the principles governing imputation of knowledge of an insurance agent to his principal, the insurance company. For if the agent's knowledge of the falseness of a statement of a material fact in the application of insurance¹ is not imputable to the company, then under well-established authority the company may avoid liability under the policy.²

The general rule in insurance cases and other cases, of course, is that "notice to the agent is notice to the principal." Wagner v. Westchester Fire Ins. Co., 1899, 92 Tex. 549, 50 S.W. 569, 572; Missouri, K. & T. Ry. Co. v. Belcher, 1895, 88 Tex. 549, 32 S.W. 518, 519; Lee v. Mutual Protective Ass'n, Tex.Civ. App.1932, 47 S.W.2d 402, 406, writ dism'd, Tex.Com.App., 65 S.W.2d 271. Two conditions are necessary for the application of this rule, however: (1) The agent must be acting within the scope of his authority and in reference to a matter over which his authority extends, e. g., United Federal Life Ins. Co. v. Cloud, Tex.Civ.App.1963, 370 S.W.2d 147, no writ; Washington Nat. Ins. Co. v. Brock, Tex.Civ.App.1933, 60 S.W.2d 861, writ ref'd; American Nat. Ins. Co. v. Park, Tex.Civ.App.1932, 55 S.W.2d 1088, writ ref'd; and (2) the insured (or applicant) must not be involved with the agent, even informally, in perpetrating a fraud against the insurer, e. g., Wichita Falls Protective Ass'n v. Lewis, Tex.Civ.App.1932, 52 S.W.2d 134, no writ; Judd v. Lubbock Mutual Aid Ass'n, Tex.Civ.App.1925, 269 S.W. 284, no writ; The Homesteaders v. Stapp, Tex.Civ.App.1918, 205 S.W. 743, writ ref'd. The Texas cases are clear that if these conditions do not exist, then the insurance company is not estopped from avoiding its policy.

A. If Wattenbarger had no authority to bind Southern Farm by his activity as its agent in the issuance of the policy here in issue, then any knowledge he may have obtained concerning material misrepresentations in the application could not be imputed to the company.³ The actual scope of Wattenbarger's authority is not clear in the record. The Insurance Underwriting Supervisor of Southern Farm testified:

In general, he has the authority to secure applications to bind this company upon the agent\'s signature and the applicant\'s signature and upon — in most cases — the receipt of premium.⁴

Wattenbarger testified that he was the "general agent" for Southern Farm in Lamb County and had the authority to "write, take the application, collect the premium and send in the application and money". It is true that Wattenbarger did not actually accept the application — that was done by his secretary who was not an agent of the insurer. See American Nat. Ins. Co. v. Bailey, Tex.Civ.App. 1927, 3 S.W.2d 539, 542, no writ. Furthermore, Wattenbarger did not sign the application — the agent in Milam County, to whom the application was forwarded by Wattenbarger's secretary, did this. Even so, Wattenbarger's knowledge of the paper title transfer was obtained in the course of his agency for the insurer, and on the question of authority alone we find that he had sufficient authority for that knowledge to be imputed to Southern Farm:

The rule is well settled in this state that where, as the facts show in this case, an insurance agent with authority to solicit business, to make and forward the application for insurance, to collect and transmit premium, and to deliver the policy of insurance, notice to him of any matter affecting the risk involved, and required to be placed in the application, is notice to the insurer; and the insurer will not be permitted to deny liability on the policy on account of the neglect, failure, or fraud of the agent in not informing the insurer of such matters. Washington Nat. Ins. Co. v. Brock, Tex.Civ. App.1933, 60 S.W.2d 861, 862, and cases cited therein.

B. "The authorities are uniform to the effect that a principal is not affected by notice to an agent who is acting adversely to the interests of his principal, and either for his own benefit or for the benefit of a third party." First Texas Joint Stock Land Bank v. Chapman, Tex.Civ.App.1932, 48 S.W.2d 651, 654 writ dism'd, and cases cited therein. This rule has been consistently followed in Texas since 1891,⁵ where it was fully expounded by the Supreme Court in Centennial Mutual Life Ass'n v. Parham, 1891, 80 Tex. 518, 16 S.W. 316, 319:

Plaintiff had alleged collusion between Weatherby and the assured and her husband to obtain the policy on false representations * * *. It is ordinarily true that a principal is affected with notice of such facts as come to the knowledge of his agent in the course of his business. When an agent, however, ceases to act for his principal in good faith and through collusion with another,

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