Wal-Mart Stores, Inc. v. Crist
| Decision Date | 18 November 1988 |
| Docket Number | No. 87-2212,WAL-MART,87-2212 |
| Citation | 855 F.2d 1326 |
| Parties | STORES, INC., Appellant, v. Lewis R. CRIST, Appellee.STORES, INC., Appellant, v. ALEXANDER & ALEXANDER, Appellee. |
| Court | U.S. Court of Appeals — Eighth Circuit |
David A. Ranheim, Minneapolis, Minn., for appellant.
William H. Sutton, Little Rock, Ark. and Philip J. Walsh, New York City, for appellee.
Before WOLLMAN and BEAM, Circuit Judges, and RE, * Chief Judge.
Wal-Mart Stores, Inc. (Wal-Mart) appeals from a decision of the district court ordering it to pay $19,946,038.20 in premiums and interest to the receiver of an insolvent insurance carrier, Transit Casualty Company (Transit), which carrier issued policies of workers' compensation insurance covering Wal-Mart employees in the states in which Wal-Mart conducted business. Wal-Mart contends that the district court drew erroneous legal conclusions from certain undisputed facts presented over seven days of trial. We agree and reverse.
The facts of this case are lengthy and complex. The district court issued an opinion which sets forth the numerous transactions giving rise to this litigation, see Wal-Mart Stores, Inc. v. Crist, 664 F.Supp. 1242 (W.D.Ark. 1987), and we will not attempt to restate each of the district court's findings here. We will, however, discuss those facts essential to an understanding of the issues presented on appeal and to our resolution of those issues.
Wal-Mart owns and operates a very successful chain of retail stores, with facilities in eighteen states at the times relevant to this appeal. In each of these states, as required by law, Wal-Mart provided workers' compensation insurance for its employees. Beginning in 1980, Wal-Mart became self-insured for its workers' compensation obligations and for its general liability risks in all states in which it conducted business except Texas and a few southern states in which it maintained only a limited number of employees. Wal-Mart remained self-insured through late 1982, at which time John Sooter, Wal-Mart's Director of Risk Management, sought proposals for renewal or replacement of the workers' compensation policy covering Wal-Mart's Texas employees. Offers were solicited through Wal-Mart's insurance consultant, Alexander & Alexander (A & A). One of the quotes which A & A presented to Wal-Mart was from Transit through its agent Carlos Miro.
Carlos Miro owned and operated Miro & Associates, an underwriting agency in Dallas, Texas. In May of 1982, Miro entered into a "Managing Agency Agreement" with Donald F. Muldoon & Co., Inc. (Muldoon), a Transit general agent who possessed authority to appoint sub-agents. This agreement authorized Miro to issue and place insurance coverage on Transit's behalf. Miro was provided with blank Transit policy forms for this purpose, and quickly became Transit's most productive agent.
The quote which Miro provided for Wal-Mart's Texas workers' compensation coverage, utilizing Transit policy forms, was quite favorable. Upon receipt of the Texas proposal, Wal-Mart asked Miro to provide a quote for workers' compensation coverage for all Wal-Mart employees to replace the self-insurance arrangement utilized by Wal-Mart in the other states. Miro gladly accepted Wal-Mart's invitation, obtained and reviewed Wal-Mart's payroll data and loss history for several prior years, and arranged a meeting in Dallas to present his proposal.
Miro offered to provide workers' compensation insurance coverage for all Wal-Mart employees for a flat and guaranteed premium of $3,500.000.00. The premium was to be unaffected by any factor other than an increase or decrease in Wal-Mart's estimated annual payroll, a change in which would increase or decrease the premium proportionately. The district court found, though Miro did consider Wal-Mart's loss history in reaching the $3.5 million figure, that Miro quoted the premium as a guaranteed flat rate, not to be adjusted or influenced by the amount of claims paid. 1 This arrangement was very attractive to Wal-Mart, according to Sooter, not only because of the competitive price, but because Wal-Mart could budget in advance for a fixed maximum premium expense. Wal-Mart accepted Miro's bid, and received a cover note and binder from Miro which set forth the terms of the agreement. 2
Somewhere between thirty and sixty days after the coverage took effect, Miro sent A & A the Transit policy which purportedly embodied the agreement. A & A reviewed the policy, considered it satisfactory, and sent it to Wal-Mart who also reviewed its terms. The policy contained a provision for computation of premium in accordance with standard manual rates promulgated by the National Council of Compensation Insurers, which rates were on file with the appropriate state regulatory bodies. The various rates were multiplied by estimated payroll for each job classification to reach an aggregate premium. The policy was structured so that the premium obtained after multiplication of rates times payroll, less discounts, was exactly $3,500,000.00, as agreed upon. However, to reach this result, Wal-Mart's estimated payroll, reported by Transit to be $547,000,000.00, was reduced on the face of the policy to approximately $250,000,000.00. If the actual payroll estimate had been used, the total premium due would have been well in excess of the agreed upon figure. Wal-Mart and A & A were both aware that the estimated payroll had been depressed, but took no action and accepted the policies. In fact, A & A advised Wal-Mart that this was a common practice in the insurance industry and that it should be of no concern. Additionally, certain endorsements were attached to the policy which, if enforced, would have operated to raise the premium if losses proved greater than expected. Wal-Mart and A & A were also aware of these provisions, but apparently assumed they would not be enforced, since to do so would violate the premium portion of the agreement. A similar policy was issued for the following year, for the same $3.5 million maximum premium. Payroll figures utilized in the renewal policy were also substantially depressed.
Near the end of the second policy year, problems began to surface. Claims on the Wal-Mart policies turned out to be well beyond any of the parties expectations, and far in excess of premiums collected on the policies. Transit asserts that amounts paid to date on the two policies approximate $21,000,000.00. It is not surprising, therefore, that Transit soon learned that Miro's captive reinsurers, with whom the entire risk on the Wal-Mart policies had been reinsured, had stopped paying claims. 3 Shortly thereafter, Miro's agency with Transit was terminated, and Transit demanded additional premium payments from Wal-Mart in accordance with the rates set forth in the issued policies and Wal-Mart's actual payroll.
Upon receipt of Transit's demand for additional premium, Wal-Mart filed this suit for a declaratory judgment seeking enforcement of the agreement entered into with Miro. Transit answered, alleging that the agreement which Wal-Mart seeks to enforce is contrary to law and unenforceable. Transit also counterclaimed for nearly $20,000,000.00 in additional premiums it claims Wal-Mart owes pursuant to the terms of the two policies. Wal-Mart denied liability on the counterclaim, and filed a third-party claim against A & A, seeking recovery of any amounts which Wal-Mart is required to pay to Transit. After making thorough and detailed factual findings, the district court concluded (1) that Miro exceeded his authority, both actual and apparent, in entering into the agreement with Wal-Mart; (2) that the premium provisions of the agreement are illegal and unenforceable under state insurance law; and (3) that Wal-Mart is bound by the terms which were actually embodied in the Transit policies, though those terms differ substantially from the actual agreement which had been reached. The court ordered Wal-Mart to pay additional premiums to Transit, in accordance with the manual rates set forth in the policies and with Wal-Mart's actual payroll figures. Wal-Mart appeals each of these determinations.
The district court first concluded that Miro's actual authority was limited by the terms of the agency agreement in force between Miro and Muldoon (acting in behalf of Transit), which agreement prohibited Miro from entering into agreements utilizing premium rates not on file with appropriate state regulatory authorities. 4 The agreement authorized Miro to issue policies "subject to and in accordance with the insurance laws and regulations of each State, and in accordance with rates, filings, forms, policy limits, underwriting guidelines governing acceptance * * * as directed, filed, and promulgated by [Transit] * * *." Wal-Mart argues that this language amounts merely to "instructions" to act lawfully, and that Miro was actually authorized to issue whatever policies he deemed prudent.
We agree with the district court that the language of the agency agreement operated to define the scope of Miro's actual authority. See Restatement (Second) of Agency Sec. 33 (1958). The limitations set forth in the agreement imposed substantive boundaries upon Miro's authorized activities. Assuming, as the district court did, that Miro acted unlawfully in entering into the $3.5 million agreement, the district court correctly concluded under the facts presented that Miro acted outside of the bounds of the actual authority granted to him by Transit pursuant to the agency agreement.
With regard to the issue of Miro's apparent authority, however, we disagree with the conclusion reached by the district court. Under Arkansas law, which the parties agree applies to this issue, apparent authority is such authority as "a principal proclaims or permits, such authority...
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