Gallant Insurance Co. v. Isaac

Attorney for Appellant

Thomas R. Harper
Kopa Landau & Pinkus
Indianapolis, IN

Attorneys for Appellees

Robert D. Epstein
Epstein & Frisch
Indianapolis, IN

Mark R. Smith
Smith Fisher Maas & Bishop
Indianapolis, IN

IN THE
INDIANA SUPREME COURT

GALLANT INSURANCE COMPANY,
Appellant (Plaintiff below),

v.

CHRISTINA ISAAC and LORETTA DAVIS,
Appellees (Defendants below).

)
) Supreme Court No.
) 49S02-0011-CV-718
)
) Court of Appeals No.
) 49A02-0001-CV-56
)
)
)
)

APPEAL FROM THE MARION SUPERIOR COURT
The Honorable Richard H. Huston, Judge
Cause No. 49D10-9708-CT-1141

ON PETITION TO TRANSFER

July 23, 2001

SULLIVAN, Justice.

Christina Isaac filed an auto insurance claim with Gallant Insurance
Company. Gallant contends that she had no coverage because the insurance
agency where she purchased the policy, Thompson-Harris Company, did not
have authority to bind it. The Court of Appeals held that Thompson-Harris
had “inherent authority” to bind Gallant. The doctrine of “inherent
authority” has no application in this case. However, Gallant’s dealings
with Isaac did establish coverage under the doctrine of “apparent
authority.”

Background

In this insurance coverage dispute, Gallant Insurance Company sought
a declaratory judgment that automobile insurance coverage was not in effect
in respect of a claim filed by Christina Isaac. Isaac and a second
plaintiff, Loretta Davis, sought summary judgment on the same issue.

Isaac had acquired insurance on a Pontiac Fiero through Gallant’s
independent agent, Thompson-Harris Company, in 1994. On the last day that
that coverage was in effect, Isaac traded the Fiero for a Pontiac Grand
Prix. As explained by the Court of Appeals in its opinion in this case:

To obtain the newly purchased car, the financing bank required Isaac
to obtain full coverage on it. That same day, Isaac contacted
Thompson-Harris to notify it that she was purchasing the new car, and
to discuss enhancing the existing insurance policy to meet bank
requirements. Isaac told a Thompson-Harris employee that she must
obtain ‘full insurance coverage’ as a condition to receiving a loan.
She also told the employee at Thompson-Harris that her current
coverage expires on December 3, 1994, the next day.

In response, the Thompson-Harris employee informed Isaac that
because their agency was about to close for the weekend, she would
immediately ‘bind’ coverage on the 1988 Grand Prix. They decided that
Isaac would come in to Thompson-Harris on Monday, December 5, 1994, to
complete the paperwork and pay the down payment on the premium. The
employee also informed Isaac that the new coverage on her Pontiac
Grand Prix would include the same coverage existing from her Pontiac
Fiero, along with additional coverage to comply with conditions set by
the bank.

The next day, on December 3, 1994, a different employee
completed the ‘Personal Policy Change Request.’ This form deleted
the 1987 Pontiac Fiero from Isaac’s Policy and replaced it with the
1988 Pontiac Grand Prix. It also added additional coverage to the
policy as well as additional loss payee/lienholder. The Personal
Policy Change Request listed the ‘Agency’ and ‘Producer’ as Thompson-
Harris, and stated that the ‘effective date of change’ was December 3,
1994. Towards the bottom of the form, the Thompson-Harris employee
typed ‘[s]he will be in at 9:00 a.m. Monday, 12/5/94, to [sic] down
[sic] on renewal. What is [sic] new rate? Thanks.’ (R. 380). This
form, which requested the listed changes, was faxed to Insurance
Brokers of Indiana, Inc., on December 3, 1994.

On December 4, 1994, while driving her Pontiac Grand Prix, Isaac
collided with another car in which Davis was a passenger. The next
day, as planned, Isaac went to Thompson-Harris and paid $133.00 down
payment on the new insurance policy. She also reported the accident.
Thompson-Harris completed an ‘Indiana Operator's Vehicle Crash
Report,’ which notified the State Police that Isaac had insurance
coverage at the time of the accident, on December, 4, 1994. Thompson-
Harris completed that form on behalf of Gallant. Later, on or about
December 22, 1994, Gallant renewed Isaac's insurance policy, with an
effective period of December 6, 1994 to June 6, 1995.

Gallant Ins. Co. v. Isaac, 732 N.E.2d 1262, 1265-66 (Ind. Ct. App. 2000)
(quotations in original). When Isaac submitted a claim to Gallant in
respect of the December 4 accident, Gallant took the position that no
coverage was in force on that date. As noted, the company sought a
declaratory judgment to that effect. Isaac and Davis (who had been a
passenger in the vehicle which collided with Isaac’s) each sought summary
judgment on that question, which the trial court granted.

The Court of Appeals affirmed. See Isaac, 732 N.E.2d 1270. In doing
so, it held that Thompson-Harris had “inherent authority” to bind Gallant,
relying on our decision in Menard, Inc. v. Dage-MTI, Inc., 726 N.E.2d 1206,
1211 (Ind. 2000), reh’g denied. While we agree with the result reached by
the trial court and Court of Appeals, we do so for reasons different than
those given by the Court of Appeals. We granted transfer to explain why
the concept of “apparent authority,” rather than the concept of “inherent
authority” discussed in Menard, is applicable in this case. Gallant Ins.
Co. v. Isaac, 741 N.E.2d 1259 (Ind. 2000) (table).

Discussion

I

Menard was a dispute over whether the president of a corporation who
signed an agreement to sell certain corporate-owned real estate had
authority to do so. We began our analysis of the question by recognizing
the two main classifications of authority: “actual authority” and
“apparent authority.” Menard, 726 N.E.2d at 1210. Actual authority, we
said, is created “by written or spoken words or other conduct of the
principal which, reasonably interpreted, causes the agent to believe that
the principal desires him so to act on the principal’s account.” Id.
(citing Scott v. Randle, 697 N.E.2d 60, 66 (Ind.Ct.App.1998), transfer
denied; Restatement (Second) of Agency §§ 7, 33 (1958)). And we said that
apparent authority refers to a third party’s reasonable belief that the
principal has authorized the acts of its agent; it arises from the
principal’s indirect or direct manifestations to a third party and not from
the representations or acts of the agent. Id. (citing Pepkowski v. Life of
Indiana Ins. Co., 535 N.E.2d 1164, 1166-67 (Ind. 1989); Drake v. Maid-Rite
Co., 681 N.E.2d 734, 737-38 (Ind.Ct.App.1997), reh’g denied.).

In Menard, we also discussed a third form of agency relationship –
“inherent authority” – which is grounded in neither the principal’s conduct
toward the agent nor the principal’s representation to a third party, but
rather in the very status of the agent. Id. at 1211-12. The concept of
inherent authority “originates from the customary authority of a person in
the particular type of agency relationship.” Id. at 1211 (citing Cange v.
Stotler & Co., 826 F.2d 581, 591 (7th Cir. 1987) (citing in turn
Restatement (Second) of Agency § 161 cmt. b (1958))).

Because the agent at issue in Menard was the president of the
company, we found the concept of inherent authority – rather than actual or
apparent authority – controlled our analysis. We said that the purchaser
“did not negotiate and ultimately contract with a lower-tiered employee or
a prototypical ‘general’ or ‘special’ agent, with respect to whom actual or
apparent authority might be at issue. [The purchaser] dealt with the
president of the corporation, whom [t]he law recognizes ... [as one of] the
officers [who] are the means, the hands and the head, by which corporations
normally act.” Id. at 1212 (internal quotations and citations omitted).

Thompson-Harris, the insurance agency with which Isaac dealt in this
case, was, in our view, the “prototypical ‘general’ or ‘special’ agent,
with respect to whom actual or apparent authority might be at issue.” Id.
It was not an agent with inherent authority, i.e., a person with a
particular status like president. Cf. id. (holding that the president of
the company had inherent authority); Fidelity Co. v. Carroll, 186 Ind. 633,
635-36, 117 N.E. 858, 859 (1917) (ruling that a corporation’s “executive or
administrative officers … may be termed its inherent agencies”); Community
Care Centers, Inc. v. Indiana Dep’t of Pub. Welfare, 468 N.E.2d 602, 604
(Ind. Ct. App. 1984) (holding that the corporate attorney did not have
inherent authority to bind corporation), transfer denied; Burger Man, Inc.
v. Jordan Paper Prod., Inc., 170 Ind.App. 295, 311-13, 352 N.E.2d 821, 831-
32 (1976) (“When the president and general manager does an act within the
domain of the general objects or business of the corporation, and within
the scope of the usual duties of the chief officer, it will be presumed
that he had the authority to do it, and whoever would assert the contrary
must prove it.”). The Court of Appeals erred in holding that Thompson-
Harris had inherent authority to bind Gallant.[1]

II

Although we find no basis for concluding that Thompson-Harris had
inherent authority to bind Gallant, we do conclude from our review of the
designated evidence that there was no genuine issue of material fact on the
issue of whether Thompson-Harris had apparent authority to bind Gallant and
therefore that the plaintiffs were entitled to summary judgment on the
coverage issue as a matter of law. See Ind. Trial Rule 56(C).

This court last dealt with the question of apparent authority in the
insurance context in Pepkowski v. Life of Indiana Ins. Co., 535 N.E.2d 1164
(Ind. 1989). In that case, the question was whether an employee of the
plaintiff’s employer who handled group health insurance for the employer
had apparent authority to bind the insurance company providing the group
coverage. In finding the employee not to have apparent authority, we
described apparent authority as follows:

Apparent authority is the authority that a third person
reasonably believes an agent to possess because of some manifestation
from his principal. Warner v. Riddell Nat’l Bank, 482 N.E.2d 772, 775
(Ind. Ct. App. 1985)[, transfer denied.] See also Grosam v. Laborers’
Int’l Union of N. Am., 489 N.E.2d 656, 658 (Ind. Ct. App. 1986)[,
transfer denied.] The necessary manifestation is one made by the
principal to a third party, who in turn is instilled with a reasonable
belief that another individual is an agent of the principal. Swanson
v. Wabash College, 504 N.E.2d 327, 332 (Ind. Ct. App. 1987); Storm v.
Marsischke, 159 Ind.App. 136, 304 N.E.2d 840, 842 (1973); Kody Eng’g
Co. Inc. v. Fox & Fox Ins. Agency Inc., 158 Ind.App. 498, 505-06, 303
N.E.2d 307, 311 (1973). It is essential that there be some form of
communication, direct or indirect, by the principal, which instills a
reasonable belief in the mind of the third party. Swanson, 504 N.E.2d
at 332; Storm, 304 N.E.2d at 843. Statements or manifestations made
by the agent are not sufficient to create an apparent agency
relationship. Swanson, 504 N.E.2d at 332; Storm, 304 N.E.2d at 843.

Pepkowski, 535 N.E.2d at 1166-67.

Applying these principles to the case at hand, it seems to us that
the key is determining whether Gallant made the “necessary manifestation”
to “instill a reasonable belief in the mind of” Isaac that Thompson-Harris
had authority to transfer the coverage from her Fiero to her Grand Prix and
renew the policy. There are several additional cases, some cited in
Pepkowski, that help us with this determination.

First, it is clear that the “manifestations” referred to in Pepkowski
need not be in the form of direct communications, “but rather the placing
of the agent in a position to perform acts or make representations which
appear reasonable to a third person is a sufficient manifestation to endow
the agent with apparent authority.” Herald Telephone v. Fatouros, 431
N.E.2d 171, 175 (Ind. Ct. App. 1982) (quoting Burger Man, Inc., 170
Ind.App. at 312, 352 N.E.2d at 832).

Storm v. Marsischke explained that “[s]uch a manifestation by the
principal may be found … where the principal clothes or allows a special
agent to act with the appearance of possessing more authority than is
actually conferred.” 159 Ind.App. 136, 138, 304 N.E.2d 840, 842-43 (1973)
(citing Farm Bureau Mutual Life Ins. Co. v. Coffin, 136 Ind.App. 12, 186
N.E.2d 180 (1962)). In the Coffin case, an insured had called his auto
insurer’s home office and said that he wanted to transfer his insurance
from a Chevrolet to a Buick and increase his coverage. He was connected
with one James R. Pierson who told him that he had the coverage he sought
as of that moment. As it turned out, Pierson was not an insurance agent
but the Typing Supervisor in the Auto Underwriters Department. The insured
subsequently presented a claim, which the insurer denied on the basis that
Pierson had no authority to bind the company. The Court of Appeals held
that the insurer had “clothed Pierson with apparent authority. [Insured]
called the [insurer’s] home office and stated that he wanted to transfer
his insurance. Employees of the [insurer] (principal) then connected
[insured] (third party) with Pierson (apparent general agent).” 136
Ind.App. at 19, 186 N.E.2d at 184.

In Old Line Auto. Insurors v. Kuehl, an insured had for some time
prior to the issuance of the auto insurance policy at issue in the case
dealt with the insurer through one Donald R. Crabb. He purchased a policy
on a Studebaker through Crabb. Crabb subsequently arranged the transfer of
the coverage of that policy from the Studebaker to a Dodge. When the
insurer sent the insured the policy, it did not tell the insured that it
would not be responsible for payments made to its agent Crabb. The insured
in fact paid his premiums to Crabb who, at some point in time, failed to
forward them to the insurer. When this occurred, the insurer did not
notify the insured that the policy was cancelled. The insured subsequently
presented a claim, which the insurer denied on the basis that the policy
had been cancelled. The Court of Appeals held that “[u]nder these
circumstances we believe [the insured] was justified in believing that
Crabb, as the agent of [the insurer], had the authority to collect the
premiums due on the policy in question here.” 127 Ind.App. 445, 455, 141
N.E.2d 858, 862 (1957).

In the case before us today, the undisputed facts show that when Isaac
first acquired the Gallant policy on her Fiero, a Thompson-Harris employee
filled out Gallant’s pre-printed insurance application form. After the pre-
printed application form and a pre-application checklist were signed by
Isaac and the employee, the employee told Isaac that her coverage with
Gallant would be “bound” as of June 2, 1994. The employee further told
Isaac that she would receive the actual insurance policy from Gallant in
the near future. Isaac did in fact receive Gallant Indiana Personal Auto
Policy No. IN 04151290 shortly thereafter. When one of Isaac’s premiums
was not received on time, Gallant issued a written “Notice of Cancellation”
indicating that the policy would be canceled if the premium was not
received by a particular date. When payment was received before that date,
Insurance Premium Company, which received Isaac’s premium payments on
behalf of Gallant, issued an “Agent Notification of Reinstatement” to
Thompson-Harris and a reinstatement notice to Isaac.

While Gallant argues that some of the designated evidence raises an
issue of fact concerning Thompson-Harris’s actual authority to bind
Gallant, the evidence appears to us without dispute that Thompson-Harris
had apparent authority to bind Gallant, e.g., Gallant’s dealings with Isaac
just recited contained the manifestations required under applicable case
law to cause Isaac reasonably to believe that Thompson-Harris had authority
to bind Gallant.

We have already recounted under Background, supra, Isaac’s contacts
with Thompson-Harris at the time of the purchase of the Grand Prix and the
accident. While Gallant again argues that there are some factual disputes
surrounding these events, the evidence appears to us uncontroverted that no
Thompson-Harris employee gave Isaac any indication that coverage on the
Grand Prix was not in force. Cf. Michigan Mut. Ins. Co. v. Sports, Inc.,
698 N.E.2d 834, 840 n.17 (Ind. Ct. App. 1998) (“If the third person knows,
or in the exercise of reasonable care should know, that the agent is
exceeding the agent's actual authority, the principal will not be bound”),
transfer denied.

Because we find that Thompson-Harris had apparent authority to bind
Gallant with respect to Isaac, we hold that it was appropriate for the
trial court to grant summary judgment to the plaintiffs on the question of
whether Isaac had coverage under the Gallant policy at the time of her
accident.

Conclusion

Having previously granted transfer, thereby vacating the opinion of
the Court of Appeals, see Ind. Appellate Rule 11(B)(3), we now affirm the
judgment of the trial court.

SHEPARD, C.J., and DICKSON, BOEHM, and RUCKER, JJ., concur.

-----------------------
[1] In Menard, after differentiating inherent authority from actual
and apparent authority, we went on to point out that the acts of an agent
with inherent authority only bind the principal where (1) the acts done are
those which usually accompany or are incidental to transactions which the
agent is authorized to conduct if, although they are forbidden by the
principal, (2) the other party reasonably believes that the agent is
authorized to do them, and (3) the other party has no notice that he is not
so authorized. See Menard, 726 N.E.2d at 1212. As such, these factors
test when the acts of a person with inherent authority will be enforced
against the agent’s principal. However, the Court of Appeals instead used
these factors to determine whether Thompson-Harris had inherent authority.
See Issac, 732 N.E.2d at 1267. This was not correct.