Safeco Insurance v. Lovely Agency

No. 81-361
IN THE SUPREPI COURT OF THE STATE OF MONTANA
1982

SAFECO INSURANCE COMPANY,
Plaintiff and Appellant,
VS.

LOVELY AGENCY and DONALD E. McHENRY,
Defendants and Respondents.

Appeal from: District Court of the Eighteenth Judicial District,
In and for the County of Gallatin
Honorable W. W. Lessley, Judge presiding.
Counsel of Record:
For Appellant:
Landoe, Brown, Planalp, Kommers and Lineberger, Bozeman,
Montana
Gene I. Brown argued, Bozeman, Montana
For Respondent:
Coil, Stokes & Tollefsen, Bozeman, Montana
E. Berg argued, Bozeman, Montana
Morrow, Sedivy, Olson, Scully and Eck, Bozeman, Montana

Submitted: March 31, 1982
Decided: September 30, 1982
Filed: %EP 3 0 1382
Mr. Chief Justice Frank I. Haswell delivered the Opinion of
the Court.

In a damage action by an insurer against its agents for
wrongfully issuing an insurance policy, the District Court
of Gallatin County entered judgment for the agents. The
insurer appeals. We reverse, holding the insurer is entitled
to judgment as a matter of law on the issue of liability and

remanding for trial on the issue of damages.
Safeco initially brought an action against insureds,
Leonard Doran, Paul Doran, Lovely Agency and McHenry to have
a policy of farm liability insurance cancelled - initio
ab
because of misrepresentations in Doran's application for

insurance. Safeco later learned that the misrepresentations
were made by McHenry, as an employee of Lovely Agency.
Safeco paid a $300,000 wrongful death claim against
Dorans and dismissed Dorans from the action. Safeco filed
an amended complaint against McHenry and Lovely Agency
alleging negligence, breach of duty, misrepresentations and

seeking damages.
After the unfavorable judgment at trial, Safeco raises
three issues on appeal:
1. Did the trial court err in denying Safeco's demand

for a jury trial?
2. Did the trial court err in finding Safeco to be -
in
pari delicto with Lovely Agency and IlcHenry, and therefore
not entitled to recovery?
3. Did the trial court err in holding that Safeco had

ratified the unauthorized acts of Lovely Agency and XcHenry?
Safeco is a corporation qualified to do business in
Montana; Lovely Agency is an independent insurance agency in
Livingston, Montana, authorized to solicit applications for
a number of insurance companies, including Safeco. McHenry
was employed by Lovely Agency to sell insurance. Leonard
Doran and his son, Paul Doran are ranchers in the area.
Dorans wanted to buy a comprehensive farn insurance policy.
Sometime in 1979, Dorans contacted an insurance company and

requested coverage. The company refused to insure Dorans
because of their poor driving records and referred them to
FlcHenry .
McHenry met with Dorans to discuss their insurance

needs. As a result, Leonard Doran agreed to purchase a farm
insurance policy through Lovely Agency. Leonard Doran
testified at trial that he had signed an application for
insurance through Safeco, although that application was not
produced at trial nor was an explanation given for its
disappearance.
The applications submitted to Safeco and the ones which
were later produced at trial were not signed by Dorans.
McHenry admitted to twice forging the signature of Leonard
Doran to applications. The forged applications contained

several misrepresentations of the Dorans' driving records,
as well as misrepresentations of Dorans' insurance history.

Specifically, the forged applications showed three speeding
violations for Leonard Doran, when there were actually four
and only one speeding violation for Paul Doran when there

were actually four. The forged applications failed to
mention the facts that Paul Doran's driver's license had
been suspended in 1977 for 6 months or that Paul Doran had
been cited for driving while intoxicated only a few days
before the signature date on one of the forged applications.
The forged applications also failed to mention that Dorans
had not had vehicle insurance for approximately the past 15
years.
-3-
 Safeco reviewed the applications as submitted and
determined that Leonard and Paul Doran were to be included
as the named insureds on a policy. Leonard Doran delivered
a check in payment of the premium for $1,600 to McHenry.
Safeco issued a policy effective June 19, 1979 through June
19, 1980.
On August 22, 1979, Paul Doran was involved in an
accident while driving a road grader on the Doran's property.
As a result, Donald Sorum was killed. Sorum's estate brought
a wrongful death action against Leonard goran. A subsequent

investigation by Safeco uncovered the misrepresentations on
the insurance applications. Safeco, believing that the
Dorans were primarily responsible for the misrepresentations,
initiated an action against Dorans, Lovely Agency and PlcHenry
to have the insurance policy declared void - initio.
ab
Safeco later discovered that Leonard Doran's signature

on the application had been forged by McHenry, and that
McHenry was primarily responsible for the misrepresentation.
Safeco settled the wrongful death claim against Dorans by

paying the Sorum estate the maximum policy amount of $300,000.
Safeco then filed an amended complaint dismissing Dorans and
seeking damages from Lovely Agency and McHenry as defendants.
JURY TRIAL
When McHenry and Lovely Agency answered the amended
complaint, they demanded a jury trial. The jury trial was
set for February 24, 1981. On February 20, PlcHenry and
Lovely Agency withdrew their demand for a jury trial and
insisted that the case not be tried by a jury because it was
an equity action. Safeco objected and refused to consent to
a waiver of the jury. The trial court ordered that the
case would be tried by the judge without a jury.
 T h e t r i a l c o u r t e r r e d i n a l l o w i n g McHenry and Lovely

Agency t o u n i l a t e r a l l y w a i v e t h e j u r y by w i t h d r a w i n g t h e i r

demand f o r j u r y t r i a l o n l y a few d a y s b e f o r e t h e t r i a l .

The r i g h t t o a j u r y t r i a l i s s e c u r e d by A r t . 11, 5 2 6

o f t h e Montana C o n s t i t u t i o n :

"The r i g h t t o a t r i a l by j u r y i s s e c u r e d t o
a l l and s h a l l remain i n v i o l a t e . But upon
d e f a u l t o f a p p e a r a n c e o r by c o n s e n t o f t h e
p a r t i e s e x p r e s s e d i n s u c h manner a s t h e law
n a y p r o v i d e , a l l c a s e s may b e t r i e d w i t h o u t
a jury. . ."
Rule 3 8 ( d ) , M.R.Civ.P. provides t h a t ". . . A demand

f o r t r i a l by j u r y made a s h e r e i n p r o v i d e d may n o t b e withdrawn

without t h e consent of t h e p a r t i e s . " (Emphasis a d d e d . )

Safeco d i d n o t consent t o t h e withdrawal nor d i d Safeco

w a i v e i t s r i g h t t o a t r i a l by a j u r y . The g r e a t w e i g h t o f

a u t h o r i t y g i v e s Rule 3 8 ( d ) , M.R.Civ.P. a l i t e r a l interpretation

and p r o h i b i t s u n i l a t e r a l w i t h d r a w a l o f t h e demand f o r a j u r y

t r i a l without t h e consent of both p a r t i e s . See: F o r s t e r v.

S u p e r i o r C o u r t (Colo. 1 9 7 1 ) , 488 P.2d 202; H i l l v . V e t t e r

( A l a s k a 1 9 7 4 ) , 525 P.2d 529. W e h o l d a c c o r d i n g l y t h a t where

one p a r t y h a s made a p r o p e r demand f o r a j u r y t r i a l , t h e

o t h e r p a r t y may r e l y on i t . I f a t a l a t e r d a t e t h e demanding

p a r t y d e s i r e s t o waive t h e demand, t h e o p p o s i n g p a r t y h a s

t h e r i g h t t o determine whether t o consent t o a t r i a l b e f o r e

t h e judge o r t o i n s i s t upon a j u r y t r i a l .

Nor do w e f i n d any b a s i s f o r t h e t r i a l c o u r t t o deny

S a f e c o a j u r y on t h e g r o u n d s t h a t t h i s i s a n a c t i o n i n

e q u i t y and t h u s t h e r e i s no a b s o l u t e r i g h t t o a j u r y t r i a l .

Safeco's action s t a t e s a claim f o r negligence, misrepresentation

and b r e a c h o f d u t y . Such c l a i m s a r e l e g a l r a t h e r t h a n

e q u i t a b l e . A s s u c h , f a c t u a l d e t e r m i n a t i o n s would h a v e been

properly before a jury.
 I n t h i s c a s e , t h e Lovely Agency and McHenry c a n n o t u s e

t h i s r u l i n g a s a b a s i s f o r a new t r i a l b e f o r e a j u r y . They

i n i t i a l l y demanded a j u r y t r i a l , b u t l a t e r withdrew t h e i r

demand u n i l a t e r a l l y w i t h o u t t h e c o n s e n t o f S a f e c o . A demand

f o r t r i a l by j u r y may n o t b e withdrawn w i t h o u t t h e c o n s e n t

of t h e p a r t i e s . Rule 3 8 ( d ) , M.R.Civ.P. H e r e t h e c a s e was

t r i e d w i t h o u t a j u r y a t t h e i n s i s t e n c e of Lovely Agency and

McHenry. They had t h e i r day i n c o u r t and are e s t o p p e d from

s e c u r i n g a n o t h e r f o l l o w i n g a n a d v e r s e d e c i s i o n on a p p e a l .

PAR1 DELICTO

P a u l Doran owned one of t h e v e h i c l e s c o v e r e d by t h e

p o l i c y , b u t h i s name d i d n o t a p p e a r a s a p o t e n t i a l i n s u r e d

on t h e a p p l i c a t i o n s u b m i t t e d t o S a f e c o . When S a f e c o p r o c e s s e d

t h e a p p l i c a t i o n , a S a f e c o employee i n s e r t e d P a u l D o r a n ' s

name i n t o t h e a p p l i c a t i o n and P a u l D o r a n ' s name a p p e a r e d a s

a n i n s u r e d on t h e p o l i c y . Much was made by t h e t r i a l c o u r t

o f t h e f a c t t h a t P a u l D o r a n ' s name was i n s e r t e d i n t o t h e

a p p l i c a t i o n by a S a f e c o employee. Trial court ruled t h a t

a c t p l a c e d S a f e c o - - r i d e l i c t o w i t h McHenry and Lovely
in pa

Agency. W e f i n d t h i s t o b e e r r o r and r u l e a s a m a t t e r o f

law t h a t S a f e c o was n o t - - r i d e l i c t o w i t h McHenry and
i n pa

Lovely Agency.

A t t h e t i m e Donald Sorum was k i l l e d , P a u l Doran was

working on t h e Doran p r o p e r t y . The a c c i d e n t would have been

c o v e r e d by t h e farm l i a b i l i t y i n s u r a n c e r e g a r d l e s s o f w h e t h e r

P a u l D o r a n ' s name a p p e a r e d on t h e p o l i c y a s a n i n s u r e d . The

o b l i g a t i o n s of t h e p a r t i e s w e r e i n no way a f f e c t e d by t h e

i n c l u s i o n o f P a u l D o r a n ' s name on t h e a p p l i c a t i o n and l a t e r

on t h e p o l i c y o f i n s u r a n c e . McHenry and Lovely Agency

f a i l e d t o e s t a b l i s h a c a u s a l c o n n e c t i o n between t h e a p p e a r -

a n c e o f P a u l I l o r a n ' s name on t h e p o l i c y a s an i n s u r e d and
the loss. Such a causal connection must necessarily exist
to support a finding that Safeco was - -
in pari delicto with
McHenry and Lovely Agency.

RATIFICATION
The facts of this case do not support the trial court's
conclusion that Safeco ratified the unauthorized acts of
McHenry and Lovely Agency.
"[Xlatification exists upon the concurrence of
three elements:

" (1) acceptance by the principal of the
benefits of the agent's act,
" (2) with full knowledge of the facts and,
"(3) circumstances or an affirmative election
indicating an intention to adopt the unauthorized
arrangement.

"A requisite to the existence of ratification
is good faith on the part of the person who
asserts that the principal ratified the alleged
agent's unauthorized act." 2A C.J.S. Agency
S 71.
McHenry and Lovely Agency base their argument for
ratification on the fact that Safeco accepted a premium
payment and renewed Doran's insurance policy. Whatever
Safeco's reason for accepting the premium and renewing the
policy we note that prior to either event Safeco had already

filed an action in the trial court to have the policy declared
void - initio.
ab
Acceptance of the benefits of the agents' acts, in this

case the premium payment,is evidence of only one element of
the proof of ratification. McHenry and Lovely Agency did
not prove the other two elements essential to a ratification;
that Safeco ratified with full knowledge and that circum-
stances show an intent of Safeco to ratify. The act of
filing an action to have a policy declared void - initio
ab

can hardly be construed as an intent to ratify that policy.
 "If the principal is obliged to affirm in
order to protect himself from loss, - -
or if
the affirmance - - result of - agent's
is a - the
fraud or other similar conduct, the agent is
not relieved from his initial liability by the
affirmance .. . [TI he principal does not, by
receiving the proceeds of a breach of the agent's
duty, necessarily lose his claim against the
agent for damage caused by the breach of duty."
(Emphasis added.) Restatement (Second) of Agency
§ 416, comment c (1958).

The judgment of the District Court is reversed. The
cause is remanded to the District Court with directions to
enter judgment for Safeco on the issue of liability and
grant Safeco a new trial on the issue of damages.

We Concur:

Mr. Justice Daniel J. Shea did not participate.