Case Title: Cincinnati Ins. Co. v. City of Talladega

Citation: 342 So. 2d 331

Docket Number: 

State: alabama

Court: Alabama Supreme Court

Date: 1977-01-07T00:00:00Z

Document:
342 So. 2d 331 (1977)
The CINCINNATI INSURANCE COMPANY, a corporation
v.
The CITY OF TALLADEGA, Alabama, a Municipal Corporation, and Hare Construction Company, a corporation.
CER-7.

Supreme Court of Alabama.
January 7, 1977.
Rehearing Denied March 4, 1977.
*332 James E. Clark, Birmingham, for Cincinnati Insurance Co., a Corporation.
William G. Somerville, Jr., Birmingham, and Phillip T. Shanks, Decatur, for the City of Talladega and Hare Construction Co.
BLOODWORTH, Justice.
Plaintiff, Cincinnati Insurance Company, began this litigation by filing suit in the United States District Court for the Northern District of Alabama seeking to have surety bonds issued in its name declared invalid and unenforceable. Judgment was entered against plaintiff, and plaintiff appealed to the United States Court of Appeals for the Fifth Circuit.
The Court of Appeals encountered uncertainty in the Alabama law applicable to the case and certified to this Court certain questions of law pursuant to Article 6, § 140(b)(3), Constitution of Alabama of 1901, as amended in 1973, viz.:
We answer these questions thusly:
The following is the statement of the case given by the Court of Appeals:
1. "Are the surety bonds void because of failure to comply with the statute of frauds, Tit. 20, § 3, Code of Ala.?"
The pertinent part of Tit. 20, § 3, provides:
[Emphasis supplied.]
The statute of frauds has been held applicable to contractors' bonds. American Casualty Co. of Reading, Pa., v. Devine, 275 Ala. 628, 157 So. 2d 661 (1963). Here, the problem is whether the requirement of the statute of frauds that such agreements be ". . . subscribed by the party to be charged therewith, or some other person by him thereunto lawfully authorized in writing. . ." has been complied with. [Emphasis supplied.]
Our answer to the first question is "no"  the bonds are not void for failure to comply with the statute of frauds. The license application, which is described in the Court of Appeals' statement of the case, is a writing subscribed by CIC, the party to be charged, evidencing Lucas' authority to write fidelity and surety insurance on its behalf.
We reach no conclusion regarding the sufficiency of the agency agreement to satisfy the statute of frauds. That question is mooted by our conclusion concerning the license application. Although we note that the agency agreement seems to be limited by its opening clause to authorizing Lucas to write "property and casualty insurance," a later clause appears to grant broader authority. Whether the latter clause should be construed as being subject to the limitations of the opening clause, we need not decide.
The facts in this case are somewhat similar to those in Paris v. Johnson, 155 Ala. 403, 46 So. 642 (1908). In Pan's, an agent had been authorized in letters from the lessor to lease certain business property in the City of Birmingham subject to the requirement that security for the rents be given by the lessee. The agent executed a lease for a term of four years, but did not take security for the rents at the time the lease was executed. In a suit for breach of the lease, the lessor defended his actions on the ground that the agent had exceeded the written authority given him and the lease was thus void under the statute of frauds. This Court held that the written authority to lease the property satisfied the statute of frauds and noted that the agent's failure to *335 abide by the written limitation on his authority did not involve the statute of frauds.
We would reach the same conclusion in this case. Lucas' alleged violation of the alleged limitation on his authority does not involve the statute of frauds. He had written authorization to issue surety bonds on CIC by the express terms of the license application.
Under the statute of frauds, whether the obligee on the bonds had knowledge of the writing which authorized the agent to bind the obligor is immaterial. See White v. Breen, 106 Ala. 159, 172, 19 So. 59 (1894); Jenkins v. Harrison, 66 Ala. 345, 359 (1880). The statute of frauds requires only that the authorization be in writing.
Furthermore, it is not required by the statute of frauds that the written authorization specify that a particular act is authorized. Regarding the form of an agent's written authorization to enter into contracts falling within the statute of frauds, this Court has said,
White v. Breen, 106 Ala. at 169, 19 So.  at 61.
The power of the agent in White was derived from a series of letters between the principal and the agent, no from a formally executed document. The license application in the instant case satisfies the requirements concerning execution and form.
2. "If the surety bonds are not void [for failure to comply with the statute of frauds], are they enforceable against CIC?"
We consider this to be the pivotal question in this case: Did Lucas' have actual or apparent authority to issue the bonds and thereby to obligate CIC?
Our answer is "yes"that Lucas as a licensed agent had actual authority to issue the bonds and to obligate CIC. Lucas was licensed as an agent of CIC pursuant to Tit. 28, §§ 85(20)-85(38), Code of Alabama of 1940 (Recomplied 1958).[1]
An examination of Tit. 28, §§ 85(20)-85(38) indicates to us that it was the intention of the legislature to provide that the issuance of a license to act as an agent for an insurance company is to be predicated upon the actual authority granted the agent by the company and consequently that the agent actually possess the authority indicated on the license.
Section 85(21) distinguishes between insurance agents, solicitors, brokers, managing agents, and service representatives. An insurance agent is defined to be
In subsection (b), an insurance solicitor is distinguished from an insurance agent by the former's lack of ". . . authority to accept risks, countersign and issue policies of insurance. . . ."
Section 85(24)(d) provides:
Issuance of a license is by the terms of this subsection predicated upon the authority which the agent will be granted by the insurer.
In § 85(22)(e1), the legislature spoke to the problem of an insurance agent whose agency with a particular company has been terminated but who continues to service customers who had purchased policies with that company through his agency. That section provides that such an agent may continue, under certain circumstances, to countersign all certificates or endorsements necessary to continue the coverage of those policies. However, it is required that he obtain a "limited license" which clearly shows its limited nature. Before a limited license can be obtained, such agents must
Thus, because "insurance agent" is defined in terms of the authority possessed, because issuance of a license is predicated upon the insurer's grant of authority, because the legislature provided for a limited license in the one case in which it permitted the agent to have limited authority only, and because it is required that the license be surrendered when the authority is terminated, we must conclude that the legislature intended that the issuance of a license indicate that the agent has unlimited actual authority from the insurer to represent it in the forms of insurance business for which the agent is licensed. Thus, an agent licensed pursuant to this statute is a general agent as to those types of insurance which he is authorized to issue.
Our interpretation of Tit. 28, §§ 85(20)-85(38), is supported by the interpretation given by the Supreme Court of Texas to a similar provision in the Texas' insurance code. Shaller v. Commercial Standard Insurance Co., 158 Tex. 143, 309 S.W.2d 59 (1958). Cf. New York Fire Insurance Co. v. Reed, 138 S.W.2d 138 (Tex.Civ.App.1940).
In Blakely v. American Employers' Insurance Co., 424 F.2d 728, 732 (5th Cir. 1970), Judge Morgan quoted the pertinent provision of the Texas insurance code:
Regarding the application of this statute to the facts in Shaller, supra, the Supreme Court of Texas stated:
309 S.W.2d  at 63. See also South Falls Corp. v. Kalkstein, 349 F.2d 378 (5th Cir. 1965), in which the same reasoning was applied with regard to the agent of a bonding company.
In enacting this and similar-legislation (providing for the licensing of insurance agents), the legislature has recognized that the responsibility for an insurance agent's transgression of those limitations placed upon him by his principal (but not known to others) should be borne by the principal, which, after all, has certified to the Superintendent of Insurance that the agent has been investigated and found to be of good moral character and business standing and is thus responsible for the agent's appointment to a position of trust. Clearly, the legislature did not intend that the burden fall upon members of the public who have no effective means of ascertaining the existence of unknown limitations on the authority of dishonest agents.
CIC argues that a holding that it is liable on the bonds would have a devastating effect on the bonding business in Alabama. A similar contention was rejected by this Court in British General Insurance Co.,Ltd. v. Simpson Sales Co., Inc., 265 Ala. 683, 93 So. 2d 763 (1957), in which this Court stated:
The policy behind this statute and our interpretation of it is consistent with what this Court has previously held regarding the effect of a licensing statute. In Sun Insurance Office of London v. Mitchell, 186 Ala. 420, 65 So. 143 (1914), this Court held that a certificate of the secretary of state showing that Myers was a duly appointed agent of Sun Insurance prima facie established the general agency of Myers for Sun Insurance. This Court went on to say that, although the company could limit the agent's general authority and the limitation would be binding between principal and agent and upon all third persons with notice of the limitation, it would not be binding upon third persons who dealt with the agent without notice of it. In the present case, there is no evidence whatsoever that Talladega had notice of the limitation which CIC attempted to place upon Lucas' authority.
CIC argues that Sun has no application to this case because the question there concerned the authority of an agent to issue fire insurance, not surety bonds. A similar argument was made in Parsons v. Federal Realty Corp., 105 Fla. 105, 143 So. 912, 88 A.L.R. 275 (1931). There, the Florida Supreme Court held that the maxim that "sureties are favored in the law" has no application to sureties for hire. Further, the court found that there was no sound reason for not treating a surety company the same as *338 an insurance company with regard to the authority of agents. We agree.
Moreover, Parsons cited Sun for a proposition identical with our holding in the case at bar:
Finally, we think it relevant to note, in passing, that CIC's actual liability under each bond is, in all probability, less than $150,000, the amount of Lucas' admitted authority. On the labor and materials bond, CIC's liability, including attorneys' fees, was found to be $93,892.53. On the performance bond, its liability, excluding attorneys' fees, was found to be $128,238.97. The attorneys' fees awarded were $40,000.00 and caused the liability to exceed $150,000. That award of attorneys' fees may, however, be reduced as a result of our answer to the third question. Here, CIC is attempting to avoid liability even for the amount of bonds which it admits Lucas had written authorization to write.
3. "If the bonds are valid and enforceable is Talladega entitled to an award of attorney fees with respect to either or both bonds?"
CIC concedes that Tit. 50, § 16, Code of Alabama of 1940 (Recompiled 1958), mandates awarding attorneys' fees to claimants under a labor and materials bond. Consequently, the only question presented is whether Talladega, as the obligee on a performance bond executed pursuant to Tit. 50, § 16, is likewise entitled to an award of attorneys' fees incurred in enforcing the bond.
The general rule is that, in the absence of statute, contract, or recognized equitable grounds, there is no right to recover attorneys' fees from an opposing party, either as costs or as damages. Hartford Accident & Indemnity Co. v. Cosby, 277 Ala. 596, 173 So. 2d 585 (1965); Mason v. City of Albertville, 276 Ala. 68, 158 So. 2d 924 (1963); Inland Mutual Insurance Co. v. Hightower, 274 Ala. 52, 145 So. 2d 422 (1962).
Talladega argues that the provisions in Tit. 50, § 16, regarding attorneys' fees are ambiguous and may be interpreted to require awarding of attorneys' fees to the obligee on a performance bond. Our reading of Tit. 50, § 16, does not disclose an ambiguity. From the following portion of § 16, it seems clear to us that the provision for attorneys' fees applies only to labor and materials bonds:
The remainder of the paragraph quoted above sets forth the procedural requirements for bringing suit on a labor and materials bond. The provision for attorneys' fees is preceded by and succeeded by language which pertains solely to labor and materials bonds. There is nothing to indicate that the legislature intended that the provision should pertain to anything but labor and materials bonds.
Talladega further contends that the following paragraph of the labor and materials bond entitles it to recover attorneys' fees incurred in enforcing both bonds:
The indemnification provision of this paragraph applies only to the type of suits which are the subject of the paragraph, namely, suits by claimants on the labor and materials bond. It does not obligate CIC to indemnify Talladega for the costs it may incur in a suit against CIC to enforce either bond. The provision does, however, obligate CIC to indemnify Talladega for its costs in defending suits brought against it by claimants on the labor and materials bond.
Finally, Talladega contends that CIC's breach of its promise in the performance bond to remedy the contractor's default promptly necessitated Talladega's employment of counsel to enforce the bond and thus entitles Talladega to recover attorneys' fees as damages resulting from this breach of the bond contract. This argument is not based on any of the well-recognized grounds for recovery of attorneys' fees stated above. Carried to its logical conclusion, this argument would justify recovery of attorneys' fees whenever one party to a contract breached it, necessitating the other party's bringing suit. This is not the law of Alabama.
Our answer to the Court of Appeals' third question is, therefore, that Talladega is not entitled to recover for attorneys' fees incurred in enforcing the performance bond against CIC, but is entitled to recover all costs and expenses, including attorneys' fees incurred in defending suits brought against it by claimants under the labor and materials bond.
MADDOX, FAULKNER, JONES, ALMON, EMBRY and BEATTY, JJ., concur.
[**]  A jury found, on special verdicts under Rule 49(a) of the Federal Rules of Civil Procedure, that Lucas signed the performance bond and the payment bond.
[1]  These sections, although applicable in the case at bar, were repealed by Acts 1971, No. 407, p. 1067, § 813, effective January 1, 1972, and were replaced by Tit. 28A, §§ 113-154, the provisions of which with regard to the subject at hand are fundamentally the same.