Standard Funding Corp. v. Lewitt

• Decision Date: 20 March 1997
• Citation: 678 N.E.2d 874,656 N.Y.S.2d 188,89 N.Y.2d 546
• Parties: , 678 N.E.2d 874 STANDARD FUNDING CORP., Respondent, v. Jeffrey LEWITT et al., Defendants, and Public Service Mutual Insurance Company, Appellant.
• Court: New York Court of Appeals Court of Appeals

Page 188

656 N.Y.S.2d 188

89 N.Y.2d 546, 678 N.E.2d 874

STANDARD FUNDING CORP., Respondent, v. Jeffrey LEWITT et al., Defendants and Public Service Mutual Insurance Company, Appellant.

Court of Appeals of New York.

March 20, 1997.

Landman Corsi Ballaine & Ford, P.C., New York City (William G. Ballaine and Melanie K. Suhrada, of counsel), for appellant.

Stuart R. Jablonski, Glen Cove, and Joel B. Meirowitz, for respondent.

OPINION OF THE COURT

LEVINE, Judge.

Plaintiff Standard Funding Corporation, an insurance premium financing company, entered into a series of financing agreements with Lewitt Agency, Inc. to finance the premiums on insurance polices of defendant Public Service Mutual Insurance Company. Standard Funding had provided Lewitt with its financing agreement forms which Lewitt and the prospective insureds were to complete and sign. Before entering into the first financing agreement with Lewitt, Standard Funding contacted Public Service Mutual whose personnel confirmed that Lewitt was an agent in good standing with the company, licensed to sell all lines of business.

Pursuant to the financing agreements, Standard Funding would finance the bulk of an insured's initial insurance policy premium in exchange for a security interest in all unearned premiums. The insured would agree to repay Standard Funding on an installment schedule; if the insured defaulted, the financing agreement gave Standard Funding the authority to cancel the insurance policy and assert a right to all unearned premiums due under the policy.

At issue on this appeal are four such agreements that Standard Funding and Lewitt entered into in October and December 1989 to finance premiums ranging from $15,500 to $153,500 for policies purportedly issued by Public Service Mutual. On October 20, 1989, Lewitt tendered two executed financing agreements to Standard Funding. Each form, which was signed by Lewitt and the insured, indicated that Public Service Mutual had issued policies to the insureds and that the insureds had paid approximately 25% of the premiums to the insurance company. Standard Funding accepted the financing agreements, and in accordance with their terms, issued two checks to Lewitt totaling $23,325. Standard Funding then sent Public Service Mutual "Notice of Financing" forms containing copies of the checks issued to Lewitt. In mid-December, Lewitt completed two additional financing agreements for the financing of Public Service Mutual premiums and received two checks from Standard Funding in the total amount of $204,000. Again, Standard Funding sent notice of financing forms with copies of the checks to Public Service Mutual. Public Service Mutual did not respond to any of the notices.

After Standard Funding failed to receive payments from the alleged insureds, it contacted Public Service Mutual who investigated the matter and discovered that these four financing agreements covered fictitious policies and false insureds. No policies were ever issued in connection with these agreements and Public Service Mutual received no premiums for them. Public Service Mutual thereafter terminated Lewitt's agency contract.

Standard Funding commenced this damages action against Lewitt and Public Service Mutual. The claim against Public Service Mutual was premised on the theory that the insurer was liable for the fraudulent acts of Lewitt acting as its agent. After Lewitt filed for bankruptcy, the claim against Public Service Mutual proceeded to trial. Following a nonjury trial, Supreme Court entered judgment in favor of Standard Funding in the amount of $227,325 plus interest. The Appellate Division affirmed, holding that although the financing agreements between Lewitt and Standard Funding were outside the scope of Lewitt's actual authority, Standard Funding had reasonably relied upon Lewitt's authority to issue Public Service Mutual policies and collect premiums in tendering its checks to Lewitt, and thus, Public Service Mutual was liable under the doctrine of apparent authority. Because we conclude that Lewitt had neither actual nor apparent authority to enter into the financing agreements on behalf of Public Service Mutual, we now reverse.

There is no basis to conclude that the agency contract between Lewitt and Public Service Mutual endowed Lewitt with actual authority to procure on behalf of Public Service Mutual the financing of premiums for proposed insureds. The agency agreement granted Lewitt authority to "solicit and accept proposals for insurance covering such risks as the Company may authorize to be insured in the [agent's] territory * * * subject [to] all the terms, covenants and conditions of this agreement." Under the terms of its agency agreement, Lewitt was also endowed with "full power and authority to receive, collect and receipt for premiums on insurance tendered by the Agent to and accepted by the Company." Thus, Lewitt was expressly authorized only to issue insurance policies and to receive and collect premiums; nothing in the agency agreement authorized Lewitt to negotiate or enter into premium financing agreements on behalf of Public Service Mutual.

We reject plaintiff's contention that premium financing is an activity incidental to or reasonably necessary for the performance of those express powers. In the case of First Trust & Deposit Co. v Middlesex Mut. Fire Ins. Co. (284 N.Y. 747, 31 N.E.2d 510, affg 259 App.Div. 80, 18 N.Y.S.2d 936), on facts strikingly similar to those presented here, we held that an insurance agent's frauds perpetrated in the context of premium financing were not within the scope of the agent's actual authority (see also, National Premium Budget Plan Corp. v. National Fire Ins. Co. of Hartford, 106 N.J.Super. 238, 241-242 [App.Div.], 254 A.2d 819, 820, cert denied 54 N.J. 515, 257 A.2d 113; Cupac, Inc. v. Mid-West Ins. Agency, 626 F.Supp. 559, 562-563; contra, New England Acceptance Corp. v. American Mfrs. Mut. Ins. Co., 4 Mass.App. 172, 344 N.E.2d 208, 212-213, affd 373 Mass. 594, 368 N.E.2d...