Washington Nat. Ins. Co. v. Strickland

• Decision Date: 20 December 1985
• Citation: 491 So.2d 872
• Parties: WASHINGTON NATIONAL INSURANCE COMPANY v. Carol M. STRICKLAND. 84-483.
• Court: Alabama Supreme Court

Page 872

491 So.2d 872

WASHINGTON NATIONAL INSURANCE COMPANY v. Carol M. STRICKLAND.

84-483.

Supreme Court of Alabama.

Dec. 20, 1985.

Alan T. Rogers of Balch & Bingham, Birmingham, for appellant.

Eason Mitchell of Mitchell, Green, Pino & Medaris, Alabaster, for appellee.

HOUSTON, Justice.

This is an appeal from a judgment based on a jury verdict in favor of Carol Strickland against Bruce Palmer and Washington National Insurance Company. We affirm.

On January 15, 1981, Bruce Palmer met with Carol Strickland and members of her family to discuss medical insurance. Mrs. Strickland was five feet, two inches tall, and weighed 180 pounds. Palmer described plans for medical insurance with four different companies, including a plan with Washington National which Mrs. Strickland and her husband chose. She completed a Washington National application for insurance; Palmer tore from the application a detachable form called a "conditional receipt" and gave it to Mrs. Strickland. He took a check from Mrs. Strickland for $100. The receipt stated that the effective date of coverage was January 15, 1981.

Mrs. Strickland and members of her family testified that Palmer told them at the meeting that Strickland's insurance coverage would be effective as of that date, January 15, 1981, and that she would be covered if she had an accident going home from that meeting. As a result of these assurances, Mrs. Strickland cancelled an application for hospitalization insurance with another company. Palmer testified, to the contrary, that he told Strickland she would be covered as of that date only "if everything was in order." The application for insurance and a statement in the conditional receipt given to Mrs. Strickland provided that no agent was authorized to make or modify contracts, to waive any of the company's rights or requirements, or to bind the company by making or receiving representations.

Four days after the meeting with Palmer, Mrs. Strickland fell and hurt her ankle. At the time of the accident, Palmer had not yet submitted Mrs. Strickland's application for medical insurance to Washington National. Palmer testified that he submitted the application to John Martin, a general agent for Washington National, on January 22, 1981. Following subsequent underwriting review, Washington National declined to issue a policy of coverage for Mrs. Strickland on grounds that she was physically unfit.

Palmer testified that his authority with Washington National was limited to the solicitation of applications and the collection of initial premiums. Martin testified that Palmer could solicit applications, but had no authority to bind Washington National to coverage. He stated that Palmer was a broker for Mutual of New York, and was not an agent for Washington National. The record shows, however, that Bruce Palmer was a licensed agent for Washington National in the State of Alabama. The document evidencing this fact provided for identification of the status of an applicant as agent, broker, or solicitor. Mr. Palmer's application included the code number denoting "agent." This application, which purported to designate Palmer's status for 1980, 1981, and 1982, was dated November 16, 1981, ten months after Palmer's meeting with Mrs. Strickland and her family. Martin was the notary public who acknowledged Palmer's signature on that application.

Mrs. Strickland sued Washington National and Bruce Palmer for fraud and misrepresentation. The jury awarded Mrs. Strickland $22,500. The parties had stipulated that the amount of compensatory damages involved in the case was $1,369.14, so $21,130.86 of the verdict constituted punitive damages. Washington National moved for directed verdict at the close of plaintiff's evidence and at the close of all the evidence. In its post-trial motion for JNOV and/or new trial, Washington National argued that there was insufficient evidence to support Mrs. Strickland's allegations of fraud and to support an award of punitive damages. We hold that Washington National's pre-verdict and post-trial motions were properly denied.

The first issue before this Court is whether Washington National could properly be found liable for the misrepresentation by Palmer that Mrs. Strickland had insurance coverage as of January 15, 1981. This would depend upon whether Palmer was acting as a general or soliciting agent for Washington National or as an independent agent or broker. If Palmer were a general or soliciting agent, Washington National would be liable. If Palmer were an independent agent or broker, Washington National would not be liable. A discussion of the distinctions between brokers, agents, and soliciting agents will go far to allay any initial confusion.

A "general agent" is one who has authority to transact all of the business of the principal, of a particular kind, or in a particular case. Southern States Fire Insurance Co. v. Kronenberg, 199 Ala. 164, 170-71, 74 So. 63, 67, (1917). The powers of such an agent are coextensive with the business entrusted to his care, authorizing him to act for the principal in all matters coming within the usual and ordinary scope and character of such business. Id., 199 Ala. at 171, 74 So. at 67. A general agent has full power to bind the insurer to the agent's contract of insurance or to issue policies or to accept risks. McGhee v. Paramount Life Insurance Co., 385 So.2d 969 (Ala.1980). In fact, a general agent "stands in the shoes" of the principal for the purpose of transacting business entrusted to him. Since a general agent's powers are coextensive with the business entrusted to him, his fraudulent act is the fraudulent act of his insurer principal as well.

An insurance company also has the right to employ agents with limited authority. Robinson v. Aetna Insurance Co., 128 Ala. 477, 30 So. 665 (1901). A "special agent," as distinguished from a "general agent," is authorized to act for the principal only in a particular transaction, or in a particular way. Southern States Fire Insurance Co., supra, 199 Ala. at 171, 74 So. 67. In the insurance context, the most prevalent type of special agent is the "soliciting agent." A soliciting agent is different from a general agent in that he has no power to bind his insurer principal in contract. Watson v. Prudential Insurance Co., 399 So.2d 285 (Ala.1981). However, when a soliciting agent commits a fraud upon one who seeks insurance coverage, his insurer principal will be liable for that fraud, if the fraud was perpetrated by the agent within the scope of his employment. The liability of an insurer for the fraudulent acts of its soliciting agents is grounded in the doctrine of "respondeat superior," and not the doctrine of agency. National States Insurance Co. v. Jones, 393 So.2d 1361 (Ala.1980). Since a soliciting agent is regarded as the "servant" of the insurer "master," the insurer has the full right of control over the agent's actions. A general agent, however, stands in the shoes of the principal; his actions are regarded as those of the principal. The law deems the principal to have "participated" in the fraud of its general agent, and so subjects the principal to direct liability. Where a soliciting agent commits fraud the insurer's liability is vicarious, and the principal is liable in spite of the fact that he did not participate in the fraud, or even forbade it. National States Insurance Co. v. Jones, supra, at 1367.

An independent agent or broker is usually not an agent for the insurer at all; rather, he is the agent of the insured. See Code 1975, § 27-7-1. For example, this Court has held that when an independent agent or broker fails in his duty to obtain insurance coverage,...