Webber, Jr. v. State Farm Mutual Insurance

• Decision Date: 03 July 2001
• Docket Number: 99-01909
• Citation: 49 S.W.3d 265
• Parties: RANDALL D. WEBBER, Jr., et al. v. STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANYIN THE SUPREME COURT OF TENNESSEE AT KNOXVILLE Assigned on Briefs
• Court: Tennessee Supreme Court

RANDALL D. WEBBER, Jr., et al. v STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY

No. E1999-01909-SC-R11-CV

IN THE SUPREME COURT OF TENNESSEE AT KNOXVILLE

Assigned on Briefs May 31, 2001

Filed July 3, 2001

Appeal by Permission from the Court of Appeals, Eastern Section Circuit Court for Anderson County, Nos. 96LA0572, 97LA0112

Hon. James B. Scott, Judge

The sole issue in this appeal is whether the plaintiff ratified an insurance policy that provided uninsured motorist coverage in amounts less than the policy's coverage for bodily injury liability. The plaintiff argued in the trial court that he did not authorize the lesser limits of uninsured motorist coverage contained in the contract and that the court should construe the policy to provide for coverage equivalent to the liability provided for bodily injury. The trial court granted the defendant's motion for summary judgment, finding that the plaintiff had ratified, and was bound by, the coverage limits as expressed in the contract. On appeal, the Court of Appeals reversed, finding that an issue of fact existed as to whether the plaintiff intended to ratify the lower uninsured motorist coverage limits. We granted permission to appeal and hold that the trial court correctly granted summary judgment to the defendant. The judgment of the Court of Appeals is reversed.

Tenn. R. App. P. 11 Application for Permission to Appeal; Judgment of the Court of Appeals Reversed; Case Remanded to Circuit Court

William M. Barker, J., delivered the opinion of the court, in which E. Riley Anderson, C.J., and Frank F. Drowota, III, Adolpho A. Birch, Jr., and Janice M. Holder, JJ., joined.

James S. McDonald, Knoxville, Tennessee, for the appellant, State Farm Mutual Automobile Insurance Company.

Roger L. Ridenour, Clinton, Tennessee, for the appellees, Randall D. Webber, Sr., and Lisa S. Webber, individually, and as parents and natural guardians of, Randall D. Webber, Jr.

OPINION

FACTUAL BACKGROUND

On October 13, 1996, the plaintiff, Randall D. Webber, Sr.,was involved in an automobile accident with Nancy Seivers while driving on Highway 25 in Anderson County. Mr. Webber sustained serious injuries, and he later filed suit to recover damages arising out of this accident.¹ However, because Ms. Seivers was uninsured, the plaintiff sought payment from the defendant, State Farm Mutual Automobile Insurance Company, pursuant to his uninsured motorist ("UM") policy.

The contract for the plaintiff's automobile insurance policy with the defendant was originally executed on July 21, 1986. On that date, the plaintiff's mother-in-law, Ms. Brenda Southard, applied to have her daughter's then current automobile insurance policy reissued under her married name. At the same time, Ms. Southard requested coverage for the plaintiff's automobile, which was previously uninsured, in amounts identical to her daughter's policy. The liability limits for bodily injury under these policies were $50,000 per person and $100,000 per accident.

Importantly, however, Ms. Southard requested the statutory minimum amounts of UM coverage on both policies, a practice that she followed when insuring her own vehicles. Accordingly, instead of obtaining the standard UM coverage, which is equivalent to the policy's liability limits for bodily injury, she obtained lesser UM coverage in the amounts of $15,000 per person and $30,000 per accident for bodily injury. These policies have remained unaltered since 1986, except that by operation of law, the minimum statutory amounts of UM coverage have increased to $25,000 per person and $50,000 per accident. See Tenn. Code Ann. §§ 56-7-1201(a)(2); 55-12-107; 55-12-102.

After receiving the plaintiff's complaint seeking payment in the amount of $50,000 under his UM policy, the defendant filed an answer denying that it was contractually bound to pay the amount demanded. Rather, the defendant maintained that the plaintiff's recovery, if any, was limited to $25,000 per person and $50,000 per accident as set forth in his policy. The plaintiff then filed a separate complaint seeking a declaration of the applicable policy limits. In this complaint, the plaintiff asserted that Ms. Southard acted without his authority or permission in rejecting the standard UM coverage and that the court should construe the policy to provide for UM coverage equivalent to the bodily injury liability limits.

On July 3, 1997, the defendant moved for summary judgment alleging that no genuine issue of material fact existed as to (1) whether Ms. Southard acted as the plaintiff's agent in securing the July 1986 policy, and if not, (2) whether the plaintiff ratified the actions of Ms. Southard so as to be bound by her rejection of the standard UM coverage. As to the first issue, the defendant introduced the deposition testimony of Ms. Southard who testified that she would not have obtained insurance for her daughter and son-in-law "had they not asked [her] to do it." In response, however, the plaintiff introduced an affidavit from himself which stated that he never gave Ms. Southard permission to apply for automobile insurance in July 1986 or to act on his behalf in any of his legal affairs. The plaintiff also introduced his wife's deposition testimony that she never discussed with her mother the possibility of her mother "transacting insurance business" on her behalf.

As to the second issue, the defendant asserted that even if Ms. Southard did not formally act as the plaintiff's agent in applying for insurance, no issue of fact existed as to whether the plaintiff ratified the insurance contract through his semi-annual payment of premiums over a ten-year period. The plaintiff answered that even though he paid the premiums, he did not intend to ratify the lower limits of the UM coverage because he was unaware of the lower policy limits. Although both Mr. and Ms. Webber admitted receiving the semi-annual statements, they each denied actually having read any of them.

On May 19, 1999, the trial court granted the defendant's motion for summary judgment, holding that the plaintiff was bound by Ms. Southard's election of policy limits in the July 1986 policy.² On appeal, the plaintiff asserted that the issues of agency and ratification are questions of fact to be decided by a jury and that they are therefore inappropriate for disposition on summary judgment. The plaintiff also argued that a genuine issue of fact exists in this case as to whether he authorized Ms. Southard to act as his agent in procuring the July 1986 policy and as to whether he intended to ratify the actions of Ms. Southard in procuring this policy. The Court of Appeals agreed with the plaintiff and reversed the trial court, finding that genuine issues of fact existed as to both the agency and ratification issues.

The defendant then requested permission to appeal to this Court, which we granted on the sole issue of whether the plaintiff ratified Ms. Southard's election of lower limits for UM coverage. For the reasons given herein, we hold that the plaintiff ratified his insurance contract with the defendant as a matter of law and that the trial court correctly found the applicable UM policy limits to be those set forth in the policy. The judgment of the Court of Appeals is reversed, and this case is remanded to the Anderson County Circuit Court for further necessary proceedings.

STANDARD OF APPELLATE REVIEW

The standard for reviewing a grant of summary judgment is de novo without any presumption that the trial court's conclusions were correct. See Mooney v. Sneed, 30 S.W.3d 304, 306 (Tenn. 2000). Summary judgment is appropriate only when the moving party demonstrates that there are no genuine issues of material fact and that he or she is entitled to judgment as a matter of law. See Tenn. R. Civ. P. 56.04; Penley v. Honda Motor Co., 31 S.W.3d 181, 183 (Tenn. 2000); Byrd v. Hall, 847 S.W.2d 208, 210 (Tenn. 1993). In reviewing the record, "[c]ourts must view the evidence in the light most favorable to the nonmoving party and must also draw all reasonable inferences in the nonmoving party's favor." Staples v. CBL & Assocs., Inc., 15 S.W.3d 83, 89 (Tenn. 2000). "If both the facts and conclusions to be drawn therefrom permit a reasonable person to reach only one conclusion, then summary judgment is appropriate." Seavers v. Methodist Med. Ctr. of Oak Ridge, 9 S.W.3d 86, 91 (Tenn. 1999).

ANALYSIS

A fundamental principle of agency law is that "[a] principal is bound neither by contracts made by a person not his agent, nor by those of his agent beyond the scope of his actual and apparent authority, which he has not ratified and is not estopped to deny." See, e.g., Bells Banking Co. v. Jackson Ctr., Inc., 938 S.W.2d 421, 425 (Tenn. Ct. App. 1996). Although an unauthorized contract is generally voidable by the principal, a principal who ratifies that contract is bound by its terms as if he or she had executed it originally. See 12 Williston on Contracts § 35.22 (4th ed. 1999) (stating that ratification by a principal "relates back and supplies original authority to execute the contract"). Ratification of a contract occurs when one approves, adopts, or confirms a contract previously executed "by another[,] in his stead and for his benefit, but without his authority." James v. Klar & Winterman, 118 S.W.2d 625, 627 (Tex. Ct. App. 1938); see also Gay v. City of Somerville, 878 S.W.2d 124, 127 (Tenn. Ct. App. 1994) (defining "ratification" as "the express or implied adoption and confirmation by one person of an act or contract performed or entered into in his behalf by another who assumed to act as his agent without authority so to do"). Simply stated, "[r]atification is confirmation after conduct." Gay, 878 S.W.2d at 127.

Before ratification of an unauthorized transaction will be considered valid and binding, the principal must have "'full knowledge, at the time of the ratification, of all material facts and circumstances relative to the...