No. 14715 

IN THE SUPREME COURT OF THE STATE OF MONTANA 

1979 

BUDGET INSURANCE AND FINANCE, 

Plaintiff and Appellant, 

VS. 

CHARLES 0. LEIGHTY and ARLENE LEIGHTY, 

husband and wife, 

Defendants and Respondents. 

Appeal from: District Court of the Eleventh Judicial District, 

Honorable James M. Salansky, Judge presiding. 

Counsel of Record: 

For Appellant: 

Hash, Jellison, O'Brien and Bartlett, Kalispell, Montana 

James Bartlett argued, Kalispell, Montana 

For Respondents: 

Astle and Astle, Kalispell, Montana 

Dave Astle argued, Kalispell, Montana 

Submitted: December 14, 1979 
Mr. Justice John C. Sheehy delivered the Opinion of the Court. 

Budget Insurance and Finance appeals from a judgment 

against it in the Eleventh Judicial District, Flathead 

County, entered after a nonjury trial, determining that 

Charles 0. eighty is not obligated under the terms of a 

retail installment contract and promissory note to Budget. 

On April 2, 1973, Leighty (Leighty means Charles 0. 

Leighty unless otherwise stated) entered into a retail installment contract with Western Motors, Inc. of Kalispell, Montana, 

to cover the repairs on a 1959 autocar diesel. Under the 

retail installment contract, he agreed to pay $1,496.64 over 

a period of 24 months to Western Motors, Inc. The contract 

was assigned to Budget Insurance and Finance (Budget) by 

Western Motors, Inc., and Budget at all times thereafter was 

the owner of any payee's rights under the contract. 

On July 6, 1973, Leighty also executed a promissory note 

to Budget, by which he agreed to pay $3,431.01 over 37 equal 

monthly installments. 

In each transaction, Leighty purchased credit life and 

disability insurance. The insurance was written by Budget, 

as an agent for North Central Life Insurance Company (North 

Central). Budget, named as a beneficiary on the insurance 

policies, did not require a physical examination of eighty 

although its personnel were fully cognizant of his preexisting 

arthritis. 

Subsequent to the execution of these instruments, and 

after the issuance of insurance policies, Leighty's 

neck began to hurt one day while sitting at a table and 

following that, he became disabled. He submitted a claim for 

disability coverage under the insurance policies to the 

manager of Budget who in turn filed the claims with ~orth 
Central. The insurance company denied coverage on the 

basis of Leighty's preexisting arthritic condition and 

refunded the premiums paid by Leighty. 

The manager of Budget took issue with the insurance 

company's denial and drafted a letter to North Central requesting 

reconsideration of the claim. North Central again denied coverage. 

Meanwhile, the payments due on the retail installments 

and on the note became delinquent and Budget filed suit against 

the Leightys thereon on November 21, 1975. At the time 

of trial, the unpaid amount was $4,852.66. 

Arlene Leighty, the wife of Charles 0. Leighty was named 

as a defendant in the suits because she cosigned the promissory 

note. The District Court, sitting without a jury, entered 

findings of fact and conclusions of law against Budget and 

in favor of Leighty. It found that Leighty had become 

totally disabled, that Budget had acted as an agent for the 

credit life insurance company, that Budget had received a 

commission of approximately 50% of the premium charged by 

the insurance company, that Budget was the beneficiary under 

the policies of insurance and that the manager of Budget had 

testified that the defendant was deserving of benefits under 

the policy. The District Court held, in its conclusions of 

law, that Leighty was not obligated under the terms of the 

retail installment contracts and promissory note and that 

the defendant was properly covered by disability insurance 

issued by the "plaintiff insurance company". It appears 

from that conclusion that the District Court considered that 

Budget and the issuing credit insurance company as one and 

the same. 

Judgment in favor of the Leightys and against Budget 

was entered in the District Court. Budget appeals. We find 

we must reverse. 

-3- 
Budget frames these issues for review: 

1. Is a finance and insurance agency company, which 

sells disability insurance as an agent for an insurance 

company precluded from recovering money lent to a customer 

on the ground that the insurance company denies coverage to 

the customer and the agent is a beneficiary? 

2. 316. the District Court have jurisdiction to find or 

did it err in finding that Leighty was disabled and was 

properly covered by disability insurance without the insurance 

company being a party to the action? 

We have been presented with problems growing out of 

credit life and disability insurance policies in different 

aspects in the last several months. In First Sec. Bank of 

Bozeman v. Goddard (1979), Mont. , 593 P.2d 1040, 

36 St.Rep. 854, we determined that a credit disability 

insurance policy became effective on the date the obligation 

was incurred by the insured-debtor. In Cameron v. First 

National Bank of Bozeman, et al. (No. 11751, Decided Karch 7, 

1980), we found that a credit disability insurer and its 

agents had the duty to give promptly to the insured, a notice 

of denial of coverage and to return any premium collected 

under section 33-21-206(3), MCA. In Cameron, we held in 

effect that the insurance company was responsible for the 

acts of its agent in failing promptly to notify the insured 

that he was ineligible for disability insurance, and in 

failing to return promptly his premium. 

None of those issues appear here. Instead the District 

Court equated the agent, Budget Insurance and Finance with 

the insurance company itself, and forbade the collection of 

the debt owing the agent by Leighty. 

-4- 
The insurance policy or policies issued by North Central 

are not of record here, but Leighty testified that he had 

received an insurance policy, though he was unclear as to 

when he had received it. 

The occasions when an agent becomes responsible to 

third persons as a principal are set out in section 28-10- 

702, MCA. That section states: 

"One who assumes to act as an agent is 

responsible to third persons as a principal 

for his acts in the course of his agency in 

any of the following cases and in no other: 

"(1) when, with his consent, credit is given 

to him personally in a transaction; 

"(2) when he enters into a written contract in 

the name of his principal without believing in 

good faith that he has authority to do so; or 

" (3) when his acts are wrongful in their nature." 

At all times, Budget's position as an agent of the 

insurance company was known to and acted upon by Leighty. 

The effect of the court's decision is to hold Budget liable 

as a principal, and to wipe out the debt owed to Budget by 

Leighty because Budget was such a principal. This runs 

against the general rule that an agent is not personally 

liable on a contract entered into by him on behalf of a 

principal if it appears that the agent disclosed the identity 

of his principal and made the engagement for him. See dicta 

in Farr v. Stein (1918), 54 Mont. 529, 172 P. 135. We find 

nothing in the Montana statutes relating to insurance agents 

(section 33-17-101, et seq., MCA) to take insurance agents 

out of this general rule. 

We hold therefore that Budget is not precluded from 

recovering the indebtedness due to it on the note and retail 

installment contract even though it is the agent of the 

insurance company which denied the disability claim and 

further even though Budget disputes the correctness of the 
insurance company's denial. 

We turn now to the second issue, whether the District 

Court had jurisdiction to determine disability insurance 

coverage without the insurance company having been joined in 

the action. 

The record is bare as to any reason for Leighty not 

joining the insurance company. It was suggested on oral 

argument that perhaps the joinder was not sustainable because 

of the statute of limitations. However that may be, a binding 

determination of insurance coverage under a policy issued in 

this case by North Central cannot be made against North Central 

unless that company were made a party to the action. Since 

we have demonstrated Budget is not itself responsible as a 

principal in this case to Leighty, the issue whether he was 

properly denied coverage by North Central was not before the 

District Court because a proper party for that determination 

was not present in the action. 

We hold therefore, that the judgment of the District 

Court in favor of Leighty must be reversed, and the cause 

remanded to the District Court for further proceedings in 

connection with the claimed indebtedness on the retail 

installment contract and the note, and the issues framed by 

the pleadings, consonant with - this opinion. 

We Concur: 

Chief Justice 

n 

............................. Justices 

-6-