Williams v. Lafayette Ins. Co., 86-35-LS-D.

• Decision Date: 30 June 1986
• Docket Number: No. 86-35-LS-D.,86-35-LS-D.
• Parties: Murray L. WILLIAMS, Plaintiff, v. LAFAYETTE INSURANCE COMPANY, et al., Defendants.
• Court: U.S. District Court — Northern District of Mississippi

640 F. Supp. 686

Murray L. WILLIAMS, Plaintiff, v. LAFAYETTE INSURANCE COMPANY, et al., Defendants.

No. 86-35-LS-D.

United States District Court, N.D. Mississippi, W.D.

June 30, 1986.

Omar D. Craig, Oxford, Miss., for plaintiff.

Richard T. Lawrence, Watkins & Eager, Jackson, Miss., for Lafayette Ins. Co.

Michael S. Allred, David A. Barfield, Satterfield & Allred, Jackson, Miss., for Doris Massie.

James Upshaw, Marc Biggers, Upshaw and Lander, Greenwood, Miss., for Sanders and Tatum.

MEMORANDUM OPINION

SENTER, Chief Judge.

Plaintiff Murray L. Williams initiated this action in the Chancery Court of the Second Judicial District of Yalobusha County against the defendants alleging that they had breached the terms of his homeowners insurance policy by refusing to pay off upon receipt of his proof of loss. The case was removed to this court on March 14, 1986, by the Lafayette Insurance Company (Lafayette), a diverse defendant, pursuant to 28 U.S.C. § 1441. This cause is presently before the court on plaintiff's motion to remand and defendants' motions to dismiss.¹

A. FACTUAL BACKGROUND.

The instant dispute arose when a tornado struck the Town of Water Valley on April 21, 1984, and damaged plaintiff's home. Plaintiff, who had previously taken out homeowners' insurance from the Lafayette Insurance company on his residence, notified the independent insurance agent from whom he had purchased the policy, Doris Massie, of the damage incurred by the tornado. Defendant Massie then notified Lafayette, which in turn employed the Sanders and Tatum Corporation (S & T) to adjust the claim. Plaintiff alleges that defendant S & T hired contractors to make repairs without first notifying him or obtaining his consent. Subsequently, plaintiff asserts that although defendant Lafayette tendered a check to him in the amount of $7,180.11 to cover the cost of repairs and incidental expenses, he refused to accept this payment on the grounds that it was not sufficient to cover the total amount of expenses he had incurred or expected to incur.

Plaintiff filed the instant suit in state court alleging that defendant Lafayette had constructively or actually denied his claim for payment under the homeowners policy in question. Plaintiff alleged that defendant S & T had engaged contractors to make repairs on his home without his authorization² and, once the repairs were made, refused to pay the contractors and, instead, encouraged them to present their claims to the plaintiff. Finally, plaintiff asserted that defendant Massie had "negligently elected to place plaintiff's homeowners' coverage with Lafayette Insurance Company ..." even though she knew or should have known that Lafayette would delay payment or refuse to pay in its entirety the claim lodged by the plaintiff.

Plaintiff is a resident of Mississippi, as are defendants S & T and Massie for purposes of determining diversity jurisdiction. Defendant Lafayette is a corporation established under the laws of Louisiana with its principal place of business in that state. Unless it can be shown that the complaint fails to state a claim against the non-diverse defendants and the plaintiff has fraudulently joined them in an attempt to defeat diversity jurisdiction, this case must be remanded to the Chancery Court of the Second Judicial District at Yalobusha County due to an absence of federal jurisdiction.

B. THE LAW OF AGENCY IN AN INSURANCE CONTEXT.

As a general rule, when an insured and an insurer enter into a contract for insurance coverage, a breach of the terms of the policy will entitle the former to sue only the latter, despite the fact that other individuals or entities may have become involved in the process of adjusting the claim of the insured. This rule is supported by general principles of agency which dictate that a principal will be responsible for actions undertaken by an agent within the scope of his or her authority.

The Supreme Court of Mississippi has traditionally applied the general laws of agency to relationships arising out of the issuance and adjustment of insurance contracts. McPherson v. McLendon, 221 So.2d 75, 78 (Miss.1969). As that court has previously stated,

The powers possessed by agents of insurance companies, like those of any other corporation or of an individual principal, are to be interpreted in accordance with the general law of agencies. No other or different rule is to be applied to a contract of insurance than is applied to other contracts. The agent of an insurance company possesses such powers only as have been conferred verbally or by the instrument of authorization, or such as third persons had a right to assume that he possesses under the circumstances of each particular case.

Germania Life Insurance Co. v. Bouldin, 100 Miss. 660, 56 So. 609, 613 (1911).

In accordance with general principles of agency law, the insurer is bound by the authorized acts of its agent. Conversely, the insurer is not bound by the unauthorized acts of its agent, and the question then becomes whether the agent was acting within the scope of his authority when he performed the contested acts. See generally, Couch on Insurance 2d, (Rev.ed.) § 26:1, et seq.

There are two types of authority upon which an agent may rely to take action which will have a binding effect upon the principal. The first type is actual authority, which may be either express or implied in nature. The second type is apparent authority. Id. A general statement of the rule governing apparent authority was given by the Mississippi Supreme Court in McPherson, supra, wherein it was noted that

The power of an agent to bind his principal is not limited to the authority actually conferred upon the agent, but the principal is bound if the conduct of the principal is such that persons of reasonable prudence, ordinarily familiar with business practices, dealing with the agent might rightfully believe the agent to have the power he assumes to have. The agent's authority as to those with whom he deals is what it reasonably appears to be. So far as third persons are concerned, the apparent powers of an agent are his real powers. This rule is based upon the doctrine of estoppel. A principal, having clothed his agent with the semblence of authority, will not be permitted, after others have been led to act in reliance of the appearances thus produced, to deny, to the prejudice of such others, what he had theretofore tacitly affirmed as to the agent's powers. There are three essential elements of apparent authority: (1) Acts or conduct of the principal, (2) reliance thereon by a third person, and (3) a change of position by the third person to his detriment. All must occur to create such authority.

McPherson, supra, at 78, (quoting Steen v. Andrews, 223 Miss. 694, 697, 78 So.2d 881, 883 (1955)) (citations omitted).³

In applying this to the execution and performance of contracts, courts have uniformly held that a breach of the terms of the contract will enable the victim to bring suit against the principal, but not the agent, as the former is the one responsible for performance under the contract. This assumes, as has usually been the case, that the agent who signed the contract clearly identified the principal for which he as acting and the capacity in which he was signing the contract. See, e.g., Cone Mills Corp. v. Hurdle, 369 F.Supp. 426, 438 (N.D.Miss.1974) (contract to sell cotton; agent who executes contract and discloses the name of his principal is not liable for acts taken by principal or by him on behalf of principal); Chipman v. Loller, 304 F.Supp. 440, 444-46 (N.D.Miss.1969) (contract to lease farm land; same); Mid-Continent Telephone Corp. v. Home Telephone Co., 319 F.Supp. 1176, 1199 (N.D. Miss.1970) (contract for corporate merger; same); and Webb v. Culberson, Heller and Norton, Inc., 357 F.Supp. 923, 924-25 (N.D.Miss.1973) (contract of unspecified nature; same).

This rule has been applied by the Mississippi Supreme Court to breaches of insurance contracts where the insured has attempted to sue both the insurance company and its agent, which is usually an adjusting company or an independent insurance agent, or both. Griffin v. Ware, 457 So.2d 936, 939-41 (Miss.1984). See also, Progressive Casualty Insurance Co. v. Keys, 317 So.2d 396 (Miss.1975). Specifically, the court in Griffin held that

Adjusters employed by an insurer, who were not parties to the agreement for insurance, are not subject to an implied duty of good faith and fair dealing to the insured.

Griffin, supra, at 940. Cf. Progressive Casualty, supra, at 398. Thus, adjusters and, by implication, insurance agents, who are not parties to the insurance contract, may not be sued for acts which allegedly are taken pursuant to a breach of the same. This is the law of Mississippi which this court, sitting as here in a diversity context, is bound to apply to resolve the dispute at hand. Erie Railroad Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938); Jackson v. Johns-Manville Sales Corp., 781 F.2d 394, 396 (5th Cir.1986).

Recently, the United States District Court for the Southern District of Mississippi faced a similar situation in which an insured sought to hold an independent insurance agent and an adjuster liable to actions taken which resulted in a denial of his claim for payment under an insurance policy. That court, after discussing the rulings of the Mississippi Supreme Court in Griffin, supra, and Progressive Casualty, supra, held that neither agents nor adjusters were liable for their actions in adjusting and processing the claim of an insurer. Columbus v. Reliance Insurance Co., 626 F.Supp. 1147, 1149 (S.D.Miss.1986). This is an accurate assessment of the law of agency as it applies to insurance contracts in Mississippi. See, e.g., Ashley v. Capitol American Life Ins. Co., No. J86-0176(L) (S.D.Miss. May 28, 1986) (unpublished) Available on WESTLAW, DCTU database (medical and hospitalization policy); ...