Stallo v. Insurance Placement Facility of Pennsylvania

• Decision Date: 09 December 1986
• Citation: 518 A.2d 827,359 Pa.Super. 157
• Parties: Paul STALLO, Paula Stallo, for the Use of Paul Stallo, and Carl Neiper, for the Use of Paul Stallo, Appellees, v. INSURANCE PLACEMENT FACILITY OF PENNSYLVANIA, Appellant.
• Court: Pennsylvania Superior Court

Page 827

518 A.2d 827

359 Pa.Super. 157

Paul STALLO, Paula Stallo, for the Use of Paul Stallo, and Carl Neiper, for the Use of Paul Stallo, Appellees, v. INSURANCE PLACEMENT FACILITY OF PENNSYLVANIA, Appellant.

Superior Court of Pennsylvania.

Argued May 6, 1986.

Filed Dec. 9, 1986.

David E. Heisler, Scranton, for appellant.

John T. McLane, Jr., Scranton, for appellees.

Before CIRILLO, President Judge, and WIEAND and OLSZEWSKI, JJ.

WIEAND, Judge:

When the owner of a property in Lackawanna County purchased insurance under the Pennsylvania Fair Plan Act, ¹ he caused his daughter to be listed as the named insured. In an action by father and daughter to recover indemnity for a fire loss, the insurer defended on the grounds that it had no contract with the father and that it was not required to pay the proceeds to the daughter because she had no insurable interest in the building and contents which had been destroyed by the fire. The claimants contended, however, that the broker who had placed the coverage had known fully the circumstances and, because he had been the agent of the insurer, the insurer should be estopped to assert such defenses. The case was submitted to the jury to determine the agency of the broker. The jury was not otherwise asked to determine, nor did the trial court determine as a matter of law, the validity of the insurer's defenses. Following a verdict in favor of the claimants and a denial of the insurer's post-trial motions, the insurer appealed from the judgment entered on the verdict.

Paul Stallo was the owner of a pizza business. He conducted his business in a building which he leased from William and Marjorie Gilbert in Chinchilla, Lackawanna County. ² In January, 1963, Stallo entered a long term agreement to buy the premises from the Gilberts. In the written agreement, however, Stallo was not named as buyer; instead, he caused the name of his nephew, Carl Neiper, to be inserted as the buyer. To protect Stallo, his attorney took and held in escrow a signed deed in which the name of the grantee had been left blank. From January, 1963, to April, 1973, the sellers paid the taxes and the costs of keeping the building insured. They were reimbursed for these amounts by Stallo, who simply added the taxes and costs of insurance to the monthly payments of principal and interest required by the agreement. Early in 1973, the insurance on the building was cancelled. Stallo then requested the purchase of other insurance from the Ferrario Insurance Agency, which, in turn, applied for coverage with the Insurance Placement Facility of Pennsylvania, hereinafter sometimes referred to as the "Fair Plan." Named as insureds in the application were the Gilberts and Paula Stallo, the daughter of Paul Stallo. The "Fair Plan" agreed to provide coverage, and a policy was issued as requested. In the fall of 1973, Stallo also purchased from Fair Plan a policy of insurance to cover the contents of the building. Named as insured in this policy was Paula Stallo. On February 16, 1978, while the foregoing policies of insurance were in effect, the building and its contents were destroyed by fire. When Stallo submitted a claim to Fair Plan, ³ the claim was denied because he was not an insured and because his daughter, who was the named insured, did not have an insurable interest in the building or its contents.

In an action filed by Paul Stallo, Paula Stallo and Carl Neiper, the claimants contended that Fair Plan was estopped to deny liability to Paul Stallo because it knew that he was the real party in interest. The insurer had this knowledge, it was contended, because the relationship between Stallo and his daughter had been fully explained to Frank McManamon, an employee of the Ferrario Insurance Agency. The Ferrario Agency, it was contended, had been the agent of Fair Plan; and, therefore, McManamon's knowledge was to be imputed to the insurance company.

The Pennsylvania Fair Plan Act of July 31, 1968, P.L. 738, No. 233, 40 P.S. § 1600.101 et seq., was enacted to make insurance coverage available to protect property for which basic property insurance was not available through the normal insurance market. It was also intended to create a reinsurance arrangement whereby the responsibility for insuring such properties would be shared by all insurance companies doing business in the Commonwealth. See: Pennsylvania Fair Plan Act, supra, § 102, 40 P.S. § 1600.102. The plan was to be administered by an Industry Placement Facility according to the terms of the statute and also according to rules and regulations adopted by the Insurance Commissioner. If a property were insurable and the insured did not owe premiums on prior policies, the Placement Facility could require the issuance of a policy of basic property insurance by a member company. Pennsylvania Fair Plan Act, supra, § 203, 40 P.S. § 1600.203. One of the regulations adopted by the Commissioner established that no licensed broker would have authority to bind the Fair Plan.

In the instant case, the trial court refused to receive or consider this regulation and, of course, refused to instruct the jury regarding its meaning and effect. Instead, the court submitted to the jury for determination whether the broker was the agent of Stallo or the agent of Fair Plan with authority to bind the insurer by its knowledge that Paul Stallo was the insured even though the policy had been written in the name of his daughter. In doing so, the trial court instructed the jury as follows:

"... if the defendant, Fair Plan, authorized the Ferrario Agency to deliver the insurance policies to the plaintiffs and/or to Mr. and Mrs. Gilbert, and for the Ferrario Agency to collect the premiums, then the Ferrario Agency can be considered the agent of Fair Plan."

We agree with appellant that this was an erroneous instruction. The effect of the error was to tell the jury that if the broker had been permitted by Fair Plan to receive the premiums and deliver the policy it thereby became the agent of the Fair Plan. If the broker were the agent of Fair Plan under these instructions, the jury was then permitted to conclude that Fair Plan was estopped to question contractual liability to Stallo.

The trial court's instructions were inadequate even under general principles of agency. The correct rule appears at Sands v. Granite Mutual Insurance Co., 232 Pa.Super. 70, 78, 331 A.2d 711, 715-716 (1974), as follows:

"[W]here a broker holds himself out as general agent, solicits a policy, collects a premium a part of which he retains as his commission according to his custom, and a policy is issued upon information procured by him, he is an agent of the insurer by implication as to the insured who, in good faith, dealt with him as such." 3 Couch on Insurance 2d § 26:25 (1960).

See also: 18 P.L.E. Insurance § 34. Apparent authority results from conduct by a principal which causes a third person to believe that a person has authority to enter negotiations or make representations as his agent. See: Revere Press, Inc. v. Blumberg, 431 Pa. 370, 375, 246 A.2d 407, 410 (1968); Friedman v. Kasser, 332 Pa.Super. 475, 483, 481 A.2d 886, 890-891 (1984); Apex Financial Corp. v. Decker, 245 Pa.Super. 439, 443, 369 A.2d 483, 485 (1976); Essington Enamel Co. v. Granite State Fire Insurance Co., 45 Pa.Super. 550, 558 (1911); Gizzi v. Texaco, Inc., 437 F.2d 308, 309 (3rd Cir.), cert. denied, 404 U.S. 829, 92 S.Ct. 65, 30 L.Ed.2d 57 (1971); 18 P.L.E. Insurance § 34. See also: Restatement (Second) of Agency, § 8. If a third person changes his position in reasonable reliance on the principal's conduct, the principal is then estopped from denying the authority of the agent. See: Friedman v. Kasser, supra; Essington Enamel Co. v. Granite State Fire Insurance Co., supra; Gizzi v. Texaco, Inc., supra; 18 P.L.E. Insurance § 34. In the instant case, however, there was no evidence to show that the broker had been held out by Fair Plan to be its general agent. When a customer asks a broker to obtain insurance through the Pennsylvania Fair Plan, the customer has no reason to believe, in the absence of a representation to the contrary by Fair Plan, that the broker has become Fair Plan's agent.

The evidence in this case showed that Stallo had gone to the Ferrario Agency to purchase insurance. The broker, on Stallo's behalf, had submitted an application for property insurance to the Fair Plan Placement Facility, together with the necessary premium. The Placement Facility was thereupon required by statute to inspect the property and determine whether it was insurable and whether it was willing to write the insurance coverage. After it had agreed to do so, a policy was forwarded to the broker who had submitted the application. The broker then delivered the policy to the insured. Contrary to the trial court's jury instructions, these facts alone were insufficient to permit a finding that the Ferrario Agency was an agent of either the Placement Facility or the insurance company assuming the coverage.

Although the trial court told the jury about the insurer's defense, i.e., that it had not contracted with Paul Stallo and that Paula Stallo lacked an insurable interest in the property, the validity of these defenses was not submitted to the jury for determination. The term "insurable interest" was never defined for the jury. Moreover, the trial court did not determine as a matter of law or submit to the jury for determination whether a "straw party" insured or a named insured who was acting for an undisclosed principal could have an interest in the property sufficient to purchase insurance and recover the proceeds of the policy when the property was destroyed by fire. Rather, the inquiry of the jury was limited to a determination of whether the broker was the agent of the Fair Plan and, if so, whether Fair Plan was estopped to raise any defense. Unfortunately, the trial court's jury instructions regarding agency and...