No. 14715 IN THE SUPREME COURT OF THE STATE OF MONTANA 1979

BUDGET INSURANCEAND 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 JamesM. Salansky, Judgepresiding. Counsel of Record: ForAppellant: Hash, Jellison,O'Brien and Bartlett, Kalispell,Montana James Bartlett argued, Kalispell,Montana For Respondents: Astle and Astle, Kalispell,Montana DaveAstle argued, Kalispell, Montana

Submitted: December 14, 1979Mr. Justice John C. Sheehy delivered the Opinion of the Court. Budget Insuranceand 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. OnApril 2, 1973, Leighty (Leightymeans 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 24months 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 insurancewaswritten by Budget,
as an agent for North Central Life InsuranceCompany (North Central). Budget, named as a beneficiary on the insurance policies, did not require a physical examination of eighty although itspersonnel 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 ~orthCentral. The insurance company denied coverage on the basis of Leighty's preexisting arthritic condition and refunded the premiums paid by Leighty. Themanager 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, thepayments due on the retail installments and on the note became delinquentand Budget filed suit against the Leightys thereon on November 21, 1975. At the time of trial, the unpaid amountwas $4,852.66. Arlene Leighty, the wife of Charles 0. Leightywas named as a defendant in the suitsbecause she cosigned the promissory note. The District Court, sittingwithout a jury, entered findingsof fact and conclusions of law againstBudget 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 commissionof approximately 50%of the premium charged by the insurance company, that Budgetwas 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 conclusionsof law, that Leightywas not obligated under the terms of the retail installment contracts and promissory note and that the defendantwas 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
wemust reverse. -3-Budget frames these issues for review: 1. Is a finance and insuranceagency company, which sellsdisability insuranceas an agent for an insurance companyprecluded 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 Leightywas disabled and was properly covered by disability insurancewithout 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 severalmonths. In First Sec. Bank of Bozemanv. Goddard (1979), Mont. 

### , 593 P.2d 1040, 36 St.Rep. 854,we determined that a credit disability insurancepolicy 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 companywas 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 returnpromptly his premium. None of those issues appear here. Instead the District Court equated the agent, Budget Insuranceand Finance with the insurance company itself, and forbade the collection of the debt owing the agentby Leighty. -4-The insurance policy or policies issued by North Central are not of record here, but Leighty testified that he had received an insurancepolicy, though hewas 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 thathe has authority to do so; or 

### " (3) when his acts arewrongful in their nature." At all times, Budget's position as an agent of the insurance companywas known to and acted upon by Leighty. The effect of the court's decision is to hold Budget liable
as a principal, and towipe out the debt owed to Budget by Leightybecause Budgetwas such a principal. This runs against the general rule that an agent is not personally liable on a contractentered intoby 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 theMontana statutesrelating to insurance agents

(section 33-17-101, et seq., MCA) to take insurance agents out of this general rule. We hold therefore that Budget isnot precluded from recovering the indebtedness due to it on the note and retail installmentcontract even though it is the agent of the insurancecompanywhich denied the disability claim and further even though Budget disputes the correctness of theinsurance company'sdenial. We turn now to the second issue, whether the District Court had jurisdiction to determinedisability insurance coverage without the insurance company having been joined in the action. The record isbare as to any reason for Leighty not joining the insurance company. Itwas suggested on oral argument that perhaps the joinderwas not sustainable because of the statute of limitations. However thatmay be, a binding determinationof insurance coverageunder a policy issued in this case by North Central cannot be made againstNorth Central unless that company weremade a party to the action. Since
we have demonstrated Budget is not itself responsibleas a principal in this case to Leighty, the issue whether he was properly denied coverageby North Central was not before the District Court because a proper party for that determination was notpresent in the action. We hold therefore, that the judgmentof the District Court in favor of Leightymust 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-