Stuart v. National Indem. Co.

• Decision Date: 18 March 1982
• Parties: , 7 O.B.R. 76 STUART, Appellee, v. NATIONAL INDEMNITY CO., Appellee; Wilson & Co., et al., Appellants.
• Court: Ohio Court of Appeals

Page 63

7 Ohio App.3d 63

454 N.E.2d 158, 7 O.B.R. 76

STUART, Appellee, v. NATIONAL INDEMNITY CO., Appellee Wilson & Co., et al., Appellants.

Court of Appeals of Ohio, Eighth District, Cuyahoga County.

March 18, 1982.

Syllabus by the Court

1. When an insurance sales agency advises a customer that coverage is bound, with knowledge that the intended insurance company has not yet agreed to accept that coverage, the sales agency acts as an insurer until the coverage is accepted by the insurance company.

2. An insurance sales agency that incurs liability to its customer by representing 3. Damages in an action against an insurance sales agency for breach of a duty to provide insurance are limited to the amount the insurer would have owed under the terms of the supposed insurance contract, unless the agency acted fraudulently and with actual malice.

that coverage is bound when it had no authority from the insurance company to do so does not thereby obtain a right to indemnification for that liability from the insurance company.

Dennis Seaman, Cleveland, for plaintiff-appellee.

Steve J. Handlovics, Cleveland, for defendant-appellee.

Morris I. Goldsmith, Cleveland, for defendants-appellants.

MARKUS, Presiding Judge.

Defendants-appellants are a Cleveland insurance sales agency and its president who misrepresented to the agency's customer that insurance coverage had been effected. They appeal from that customer's judgment for an uninsured loss, arguing that they should not be liable for the customer's loss, that the intended insurers should also be liable, that they should be indemnified by the intended insurers, that damages were improperly determined, and tht they should recover a premium refund from one of the insurers.

While we agree that the customer's damages were incorrectly adjudicated, we find no merit in the other errors claimed by defendants-appellants. Therefore, we modify the amount of damages and affirm the judgment of the trial court.

Uncontradicted evidence in the nonjury trial of this case showed that the customer's wife telephoned the defendant sales agency to inquire about purchasing insurance for customer's truck and later made an appointment to complete arrangements. Between the call and the scheduled appointment, the sales agency's president contacted an Akron-based general agent of the intended insurers for quotations of applicable premium charges. That general agent confirmed its oral quotations with a written memo, which was received by the defendant sales agency before the customer's appointment, and which expressly stated, "We must have app[lication]s back in our office before we can bind."

As scheduled, customer and his wife went to the defendant sales agency and met with the defendant-president on Saturday, July 1. Customer signed insurance application and premium financing forms for liability, collision, and comprehensive (fire and theft) coverages; and he gave defendants a check for the premium down payment requested by defendants. The collision and comprehensive application form showed a policy period from July 1, 1978, to July 1, 1979. The defendant-president then gave the customer two copies of a printed insurance binder form signed by defendant-president as "Authorized Representative."

On that binder form, the defendant sales agency had typewritten data in appropriate blanks which designated its own name and address as "Agency"; customer's name and address as the "Insured"; National Indemnity Company as the insuring "Company"; the model and serial number of customer's truck; specified limits of insurance coverage for liability, collision, comprehensive, and uninsured motorist protection; and the binder's effective dates as noon on July 1, 1978, to 12:01 a.m. on July 30, 1978.

The printed language on the binder form was headed "INSURANCE BINDER," followed by this statement:

"THIS BINDER IS A TEMPORARY INSURANCE CONTRACT, SUBJECT

TO THE CONDITIONS SHOWN ON THE REVERSE SIDE OF THIS FORM."

The printed "CONDITIONS" on the back of the binder form said:

"This Company binds the kind(s) of insurance stipulated on the reverse side. This insurance is subject to the terms, conditions and limitations of the policy(ies) in current use by the Company.

"This binder may be cancelled by the Insured by surrender of this binder or by written notice to the company stating when cancellations will be effective. This binder may be cancelled by the Company by notice to the Insured in accordance with the policy conditions. This binder is cancelled when replaced by a policy. If this binder is not replaced by a policy, the Company is entitled to charge a premium for the binder according to the Rules and Rates in use by the Company."

Despite the unequivocal terms of the binder form, no insurer was bound by its issuance because the defendant sales agency and its president had no authority to bind coverage for these insurers. The intended insurers, their general agent, and the defendant-president himself, all confirm these defendants' lack of authority. Defendants had never bound coverage for these intended insurers. Indeed, the insurer listed on the written binder (National Indemnity Company) does not sell insurance for collision and comprehensive coverage. Instead, the defendant-president forwarded the completed application to the Akron general agent who did have authority to bind coverage for National Indemnity Company on liability insurance and for Lloyd's of London on the collision and comprehensive insurance.

Defendant-president testified that the binder form was prepared and delivered by mistake, since he had intended to give the customer a "certificate of insurance" which would satisfy his employer's requirement that its owner-drivers carry liability insurance. However, he orally assured the customer and the customer's wife that the truck was fully insured before they left his office on July 1.

On July 3, the plaintiff-customer operated his truck in the firm belief that it was fully insured pursuant to the written binder and the oral representations by defendants. Indeed, he needed a written certification of insurance coverage to obtain the trucking business from the carrier whose material he hauled. At the end of that working day, his truck caught fire and sustained substantial damage. The customer's wife notified the defendant sales agency on July 5 of the fire loss. That loss would have been covered under the "comprehensive" insurance supposedly bound by defendants effective July 1.

However, the insurance applications forwarded by defendants were not received by the Akron general agent for the intended insurers until Wednesday, July 5. The four-day delay in transmittal may have resulted from a tardy mail delivery, but the general agent's offices were closed from Friday, June 30, through Tuesday, July 4, for an extended holiday weekend. On July 5, the general agent accepted the applications and bound coverage effective that date. ¹ The general agent promptly mailed a certificate of insurance to the customer, showing all the requested coverage from 12:01 a.m. on July 5, 1978, to 12:01 a.m. on July 5, 1979.

The general agent also sent a form to the defendant sales agency confirming that the requested coverages were bound effective July 5, and advising that the formal policies could not be issued until prescribed affidavits were supplied. That form was mailed by the general agent on July 5 and received by the defendant sales On August 3, 1978, a property damage appraiser employed by the general agent examined the vehicle. He estimated repair costs at $6,489.64, which exceeded his valuation of the truck if repaired at $4,000. Since the cost of repair was greater than the value of the vehicle, he considered the fire damage caused a total loss. At the time of his damage appraisal he understood the fire had occurred on July 5 when the policy applied.

agency on July 7. When these various matters were accomplished by the general agent on July 5, neither the general agent nor the insurance companies had any knowledge of the fire on July 3. Ultimately, Lloyd's issued a policy for fire, theft, comprehensive, and collision coverages, effective July 5, 1978.

Subsequently, the insurers denied coverage and liability for the fire loss. The customer then brought this action against the supposed insurers, their general agent, the defendant sales agency, and the defendant-president of that agency. Defendant sales agency and its president cross-claimed against Lloyd's and its Akron general agent for indemnity against the customer's claim, and against National Indemnity for return of a $205 partial premium payment.

In its judgment entry with concurrent findings of fact and conclusions of law, the trial court granted judgment for the plaintiff-customer for $12,108.50 against the defendant sales agency and its president, dismissed those defendants' cross-claims against the insurance companies and their general agent, and disposed of certain other claims which are not involved in this appeal. The sole appeal before this court is by the defendant sales agency and its president. ²

I

The defendant sales agency and its president contend they should not be liable for their customer's loss, in their second, sixth, seventh, and tenth assignments of error. ³ In effect, they claim the plaintiff-customer failed to show they breached any duty, because they justifiably believed the general agent would receive the applications and provide coverage on July 3, which was the date of the fire loss.

An insurance agency that undertakes to acquire coverage for a customer and fails to do so by fault or neglect is liable to the customer for any resulting damage. Conley v. Postle (Ohio App.1961), 178 N.E.2d 527, 88 Ohio Law Abs. 148; Ward v. Moore (1930), 9 Ohio Law Abs. 439; Annotation, 64 A.L.R.3d 398, at 410. Further, such an agency has a duty to exercise reasonable care in advising its customer about the...