### No. 81-361 IN THE SUPREPICOURT OF THE STATE OF MONTANA 1982

SAFECO INSURANCECOMPANY, Plaintiff and Appellant,
VS. 

### LOVELY AGENCY and DONALD E. McHENRY, Defendantsand 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:

# %EP30

## 1382Mr. 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 againstMcHenry and LovelyAgency 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 fora number of insurance companies, including Safeco. McHenry was employed by LovelyAgency to sell insurance. Leonard Doran and his son, Paul Doran are ranchers in the area. Dorans wanted to buy a comprehensive farn insurancepolicy. 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 insurancepolicy through Lovely Agency. Leonard Doran testified at trial that he had signed an application for insurance through Safeco, although that applicationwas 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 Doranwhen 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 6months 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 Sorumwas killed. Sorum's estate brought a wrongful death action against Leonard goran. A subsequent investigationby Safeco uncovered the misrepresentations on the insuranceapplications. 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 complaintdismissing 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 trialwas 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 itwas
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 judgewithout a jury.The trial court erred in allowing McHenry and Lovely Agency tounilaterallywaive the jury by withdrawing their demand forjury trialonly a few days before the trial. The right toa jury trialis secured by Art. 11, 5 26 of theMontana Constitution: "The right toa trialby jury is secured to alland shall remain inviolate. But upon default of appearance orby consent of the parties expressed insuch manner as the law nay provide, allcases may be triedwithout a jury. 

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

# ".

. . A demand for trialby jury made asherein provided may not be withdrawn without the consent of the parties." (Emphasis added.) Safeco did not consent tothewithdrawal nor did Safeco waive its right toa trialby a jury. The greatweight of authority gives Rule 38(d),M.R.Civ.P. a literalinterpretation and prohibits unilateral withdrawal of the demand for a jury trialwithout the consent of both parties. See: Forster v. Superior Court (Colo. 1971), 488 P.2d 202; Hillv. Vetter (Alaska 1974), 525 P.2d 529. Wehold accordingly thatwhere
one party has made a proper demand for a jury trial, the other party may rely on it. If ata later date the demanding party desires towaive the demand, the opposing party has the right todetermine whether toconsent toa trialbefore thejudge ortoinsistupon a jury trial. Nor do we find any basis for the trialcourt todeny Safeco a jury on the grounds that this is an action in equity and thus there isno absolute right to a jury trial. Safeco's action states a claim fornegligence, misrepresentation and breach of duty. Such claims are legal rather than equitable. As such, factual determinationswould have been properly before a jury.In this case, the Lovely Agency and McHenry cannot use this ruling asa basis for a new trialbefore a jury. They initiallydemanded a jury trial, but laterwithdrew their demand unilaterallywithout the consent of Safeco. A demand for trialby jury may notbe withdrawn without the consent of theparties. Rule 38(d),M.R.Civ.P. Herethe casewas triedwithout a jury atthe insistenceof Lovely Agency and McHenry. They had their day incourt 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 toSafeco. 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 thepolicy. Much was made by the trialcourt of the fact thatPaul Doran's name was inserted intothe applicationby a Safeco employee. Trial court ruled that actplaced Safeco -- inpari delictowith McHenry and Lovely Agency. We find thistobe error and rule asa matter of law that Safecowas not -- inpari delictowith McHenry and Lovely Agency. Atthe timeDonald Sorum was killed, Paul Doran was working on the Doran property. The accidentwould have been covered by the farm liability insurance regardless of whether Paul Doran's name appeared on the policy asan insured. The obligations of the partieswere inno way affectedby the inclusionof Paul Doran's name on the application and later
on the policy of insurance. McHenry and LovelyAgency failed toestablish a causal connection between the appearance of Paul Iloran's name on the policy as an insured andthe loss. Such a causal connection must necessarily exist to support a finding that Safecowas 

### -- in pari delicto with McHenry and LovelyAgency. RATIFICATION The facts of this case do not support the trial court's conclusion that Safeco ratified the unauthorized acts of McHenry and LovelyAgency. "[Xlatificationexists 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.

"Arequisite 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,isevidence 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 fromhis 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."

(Emphasisadded.) Restatement (Second)of Agency § 

### 416, comment c (1958). The judgment of the District Court is reversed. The
cause is remanded to the District Courtwith 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.