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 - ab initio 

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 - ab initio. 

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. 
The trial court erred in allowing McHenry and Lovely 

Agency to unilaterally waive the jury by withdrawing their 

demand for jury trial only a few days before the trial. 

The right to a jury trial is secured by Art. 11, 5 26 

of the Montana Constitution: 

"The right to a trial by jury is secured to 

all and shall remain inviolate. But upon 

default of appearance or by consent of the 

parties expressed in such manner as the law 

nay provide, all cases may be tried without 

a jury. . ." 

Rule 38(d), M.R.Civ.P. provides that ". . . A demand 

for trial by jury made as herein provided may not be withdrawn 

without the consent of the parties." (Emphasis added.) 

Safeco did not consent to the withdrawal nor did Safeco 

waive its right to a trial by a jury. The great weight of 

authority gives Rule 38(d), M.R.Civ.P. a literal interpretation 

and prohibits unilateral withdrawal of the demand for a jury 

trial without the consent of both parties. See: Forster v. 

Superior Court (Colo. 1971), 488 P.2d 202; Hill v. Vetter 

(Alaska 1974), 525 P.2d 529. We hold accordingly that where 

one party has made a proper demand for a jury trial, the 

other party may rely on it. If at a later date the demanding 

party desires to waive the demand, the opposing party has 

the right to determine whether to consent to a trial before 

the judge or to insist upon a jury trial. 

Nor do we find any basis for the trial court to deny 

Safeco a jury on the grounds that this is an action in 

equity and thus there is no absolute right to a jury trial. 

Safeco's action states a claim for negligence, misrepresentation 

and breach of duty. Such claims are legal rather than 

equitable. As such, factual determinations would have been 

properly before a jury. 
In this case, the Lovely Agency and McHenry cannot use 

this ruling as a basis for a new trial before a jury. They 

initially demanded a jury trial, but later withdrew their 

demand unilaterally without the consent of Safeco. A demand 

for trial by jury may not be withdrawn without the consent 

of the parties. Rule 38(d), M.R.Civ.P. Here the case was 

tried without a jury at the insistence of Lovely Agency and 

McHenry. They had their day in court and are estopped from 

securing another following an adverse decision on appeal. 

PAR1 DELICTO 

Paul Doran owned one of the vehicles covered by the 

policy, but his name did not appear as a potential insured 

on the application submitted to Safeco. When Safeco processed 

the application, a Safeco employee inserted Paul Doran's 

name into the application and Paul Doran's name appeared as 

an insured on the policy. Much was made by the trial court 

of the fact that Paul Doran's name was inserted into the 

application by a Safeco employee. Trial court ruled that 

act placed Safeco -- in pari delicto with McHenry and Lovely 

Agency. We find this to be error and rule as a matter of 

law that Safeco was not -- in pari delicto with McHenry and 

Lovely Agency. 

At the time Donald Sorum was killed, Paul Doran was 

working on the Doran property. The accident would have been 

covered by the farm liability insurance regardless of whether 

Paul Doran's name appeared on the policy as an insured. The 

obligations of the parties were in no way affected by the 

inclusion of Paul Doran's name on the application and later 

on the policy of insurance. McHenry and Lovely Agency 

failed to establish a causal connection between the appearance of Paul Iloran's name on the policy as an insured 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 - ab initio. 

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 circumstances show an intent of Safeco to ratify. The act of 

filing an action to have a policy declared void ab - initio 

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 - is - a result of -- the agent's 

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.