Case Name: MAXMAN v. FARMERS INSURANCE EXCHANGE
Court: Michigan Court of Appeals
Jurisdiction: Michigan
Decision Date: 1978-08-08
Citations: 85 Mich. App. 115
Docket Number: Docket No. 77-2794
Parties: MAXMAN v FARMERS INSURANCE EXCHANGE
Judges: Before: T. M. Burns, P. J., and N. J. Kaufman and Bashara, JJ.
Reporter: Michigan appeals reports; cases decided in the Michigan Court of Appeals.
Volume: 85
Pages: 115–130

Head Matter:
MAXMAN v FARMERS INSURANCE EXCHANGE
Docket No. 77-2794.
Submitted April 12, 1978, at Detroit.
Decided August 8,1978.
Leave to appeal applied for.
Ida Maxman was injured in an automobile accident when the car she was driving was struck in the rear by a car driven by James Lihov, an insured of defendant Farmers Insurance Exchange. Lihov died six days after the accident from unrelated causes. Neither plaintiffs Ida Maxman and her husband Sidney Maxman nor defendant Farmers Insurance Exchange knew of Lihov’s death. Unsuccessful settlement negotiations were continued until Lihov’s estate had been closed and presentation of claims barred by the Probate Code. Suit was commenced against Lihov after notification of his death and within the statute of limitations for auto-negligence actions. An order was entered in Wayne Circuit Court, Thomas J. Brennan, J., quashing service and striking the complaint on the ground that the claims were barred by the Probate Code. Order affirmed on appeal, Maxman v Goldsmith, 55 Mich App 656; 223 NW2d 113 (1974). A complaint was then filed naming Farmers as defendant. Plaintiffs alleged that Farmers misrepresented its authority to settle plaintiffs original claim against Lihov after Lihov’s death and after his estate had been closed and the time for reopening it had passed. The suit was based solely on a misrepresentation of Farmers authority to settle a claim where no authority existed. Summary judgment for defendant in Oakland Circuit Court, Steven N. Andrews, J. Plaintiffs appeal. Held:
An insurer acts as an insured’s agent in negotiating possible settlements where third parties are injured by the insured, and as an agent, is liable to third parties for misrepresenting its authority to act on behalf of the insured where no such authority exists in fact. A representation which is false in fact and actually deceives another and is relied on by him to his damage is actionable, regardless of whether the person making the representations acted in good faith in making them, where the loss of the party deceived inures to the benefit of the other.
References for Points in Headnotes
[1, 7] 73 Am Jur 2d, Summary Judgment §§ 26, 27.
[2, 8] 3 Am Jur 2d, Agency § 1.
[3, 9] 44 Am Jur 2d, Insurance § 1523 et seq.
Duty of liability insurer to settle or compromise. 40 ALR2d 168.
[4, 6] 3 Am Jur 2d, Agency §§ 300, 340.
[5] 37 Am Jur 2d, Fraud and Deceit §§ 17, 18, 228.
[6] 37 Am Jur 2d, Fraud and Deceit §§ 20, 144-146, 149.
[7] 73 Am Jur 2d Summary Judgment §§ 15,16, 18, 32, 35.
[10] 43 Am Jur 2d, Insurance §§ 194,195.
[11] 44 Am Jur 2d, Insurance §§ 1530,1531,1533.
Reversed and remanded.
Bashara, J., dissented. He would hold that the relationship between an insured and insurer is one of contract, not agency. The authority conferred upon an insurer under a contract to settle claims against its insured is for the benefit of the insurer as an element of the consideration given for its indemnification of the insured. Farmers would not be liable under contract principles and any remedy plaintiffs were entitled to was readily available by the exercise of reasonable diligence in prosecuting their claim against defendant’s insured or his estate.
Opinion op the Court
1. Judgment — Summary Judgment — Issue of Fact.
Summary judgment grounded on no genuine issue of fact is improper, whether or not evidentiary facts are disputed, if the factfinder can go either way on a material fact.
2. Principal and Agent — Definition of Agency.
Agency in its broadest sense includes every relation in which one person acts for or represents another by his authority.
3. Insurance — Principal and Agent — Third Parties — Settlements.
An insurer acts as an insured’s agent in negotiating possible settlements with third parties injured by the insured.
4. Principal and Agent — Misrepresentation of Authority.
An agent is liable to third parties for misrepresenting his authority to act on behalf of a principal where no such authority exists in fact.
5. Principal and Agent — False Representations — Deceit—Damages — Unjust Enrichment.
A representation which is false in fact and actually deceives another and is relied on by him to his damage is actionable, regardless of whether the person making the representations acted in good faith in making them, where the loss of the party deceived inures to the benefit of the other.
6. Principal and Agent — Misrepresentation of Authority — Mere Silence.
Mere silence may constitute misrepresentation of an agent’s authority to act on behalf of his principal.
Dissent by Bashara, J.
7. Judgment — Summary Judgment — Issue of Fact — Evidence— Court Rules.
A motion for summary judgment based on allegations that except as to the amount of damages there is no genuine issue as to any material fact extends the scope of the trial court’s review beyond that of the pleadings to discern whether evidence has been, or will be, presented raising a genuine issue of material fact; the parties must present affidavits, depositions, or documentary evidence from which the court will make its determination, resolving all doubts to the benefft of the nonmoving party (GCR 1963, 117.2[3j).
8. Principal and Agent — Relationship—Scope of Authority — Duties of Agent — Fidelity to Principal.
Agency is an expansive legal concept, including within its general scope all those relationships in which one party by the authority of another acts for or represents the latter; there are duties imposed upon the agent in his conduct of the principal’s affairs and fidelity to his principal is the essential basis of an agency.
9. Insurance — Settlement of Claims — Authority to Settle — Contracts — Consideration—Indemnification.
The authority conferred upon an insurer under a contract to settle claims against its insured is for the benefft of the insurer as an element of the consideration given for its indemnification of the insured.
10. Insurance — Insurer—Insured Relationship — Contract— Agency.
The relationship between an insured and insurer is one of contract, not agency; to hold otherwise would impose rights and obligations upon the contracting parties in derogation of the provisions of their voluntary contract
11. Insurance — Legal Relationship — Fraud and Bad Faith — Protection of Insured.
It is unnecessary to facilitate adequate protection for an insured and others dealing with an insurer from the insurer’s wrongful deeds because prohibition against fraud or bad faith is imposed by law upon every legal relationship and is a part of every lawful grant of power and it is not necessary to contract for it; the power to control settlements having been granted to an insurer for the purpose of its own protection under an insurance policy, the insurer is bound to use the power in good faith for that purpose.
Hopping & Boyer (by Donald M. Churilla), for plaintiffs.
Harvey, Kruse & Westen, P. C. (by James N. Martin and George W. Steel), for defendant.
Before: T. M. Burns, P. J., and N. J. Kaufman and Bashara, JJ.

Opinion:
T. M. Burns, P. J.
The question in this case is whether plaintiff, Ida Maxman, injured when the car she was driving was struck in the rear, may maintain an action against the insurer of the other driver based on misrepresentation of authority. To see how this question arises, it is necessary to set out a detailed statement of facts.
James Lihov, Farmers Insurance Exchange's insured, and plaintiff were involved in an automobile accident on February 10, 1969. The Lihov car struck plaintiffs vehicle from the rear. There has never been any question of Lihov's responsibility for the accident, the only question was the amount of plaintiffs loss.
Plaintiff retained counsel the day after the accident and the attorneys immediately notified Mr. Lihov and the present defendant. From that point on, plaintiffs attorney dealt only with representatives of Farmers. Settlement negotiations were begun immediately and continued until shortly before suit was filed against Mr. Lihov.
Mr. Lihov died six days after the accident from causes unrelated to the accident. Neither plaintiff nor defendant knew of this fact until after Lihov's estate had been closed and the period for reopening it for presentation of a claim under the Probate Code had passed. Although the suit against Mr. Lihov was begun within the three-year statute of limitations, it was found to be time barred by the trial court under the Probate Code. This Court affirmed, Maxman v Goldsmith, 55 Mich App 656; 223 NW2d 113 (1974), and plaintiff abandoned the Supreme Court appeal to start this suit, 394 Mich 758 (1975).
In the present case, plaintiff filed a two-count complaint naming Farmers as the defendant. The trial court again granted summary judgment, although the basis of the motion is not readily apparent, counsel and court both having failed to specify the subrule which was being relied upon, GCR 1963, 117.2(1) or (3).
Only the first count is being pursued in this appeal. Plaintiff has alleged that Farmers misrepresented its authority to settle plaintiff's original claim against Lihov, after Lihov's death and after his estate had been closed and the time for reopening it had passed. It is this representation of authority, where none existed, which plaintiff claims has caused her injury. She is not alleging that defendant is directly liable for the automobile accident, although this will be the measure of damages in the misrepresentation action, nor is she claiming, at this point, that the defendant concealed Lihov's death. The suit is based solely on a misrepresentation of Farmers authority to settle a claim where no authority existed.
The trial court granted summary judgment to Farmers after receiving briefs and hearing arguments. The basis of the motion is not readily apparent. Judge Bashara has written to affirm the summary judgment on the basis of GCR 1963, 117.2(3), no issue of material fact. We cannot agree.
Certain evidentiary facts are not disputed. Farmers acted for Lihov only under his policy of insurance, not as a volunteer. Neither Farmers nor plaintiff knew of Lihov's death until no suit against him or his estate could be maintained. No representative of Farmers ever expressly stated that Lihov was still alive after his death. However, it also appears to be undisputed that the settlement negotiations continued past the point that the company could be held liable on its contract of insurance with Lihov or his estate.
But these evidentiary facts are not the material facts spoken of in the court rule. See, Simerka v Pridemore, 380 Mich 250, 275; 156 NW2d 509 (1968) (opinion of Souris, J.). One authority has stated the proposition thus:
"Whether or not the evidentiary facts are disputed, if the factfinder can go either way on a material fact, summary judgment grounded on no genuine issue of fact is improper."
Bashara, The Elusive Summary Judgment Rule: Sifting Through the Maze, 1976 Det Col of Law Rev 397, 419.
Even given the undisputed evidentiary facts, if plaintiff has stated a cause of action there are material issues of fact in dispute: Was there a representation of authority? Did this deceive plaintiffs? Was the misrepresentation the proximate cause of plaintiffs loss? These questions are not answered by merely concluding that Farmers' adjuster never expressly stated that Mr. Lihov was still alive.
The crux of this case is whether plaintiff has pled facts upon which the court will recognize a right to recover. In other words, by pleading that Farmers represented it had authority to settle plaintiffs claim against Mr. Lihov or his estate, where in fact no such authority existed, has plaintiff stated a cause of action for misrepresentation? The answer lies in an examination of the relationship between Lihov, Farmers and plaintiff and the substantive law of the tort of misrepresentation.
Agency in its broadest sense includes every relation in which one person acts for or represents another by his authority. Saums v Parfet, 270 Mich 165, 171; 258 NW 235 (1935), Stephenson v Golden, 279 Mich 710, 734-735; 276 NW 849 (1937). In dealing with plaintiffs, Farmers was acting on behalf of Mr. Lihov, not as a volunteer but because of a contract of insurance. Farmers was contractually given power, but not the duty, to make any compromise within the policy limits and authority to conduct negotiations toward that end.
The relationship admittedly does not fit neatly into the definition of agency with all its ramifica tions. The insurance company also furthers its own interest by settling claims as quickly and inexpensively as possible. But, the overriding concern in the relationship is for the insured — not the company — as witnessed by those cases imposing liability on the insurer for failing to make a good faith effort to settle the claim within the policy limits. City of Wakefield v Globe Indemnity Co, 246 Mich 645; 225 NW 643 (1929), Citizens Mutual Ins v Nationwide Ins, 29 Mich App 91; 185 NW2d 99 (1970). See also, 40 ALR2d 168. We conclude, therefore, that as to third parties injured by the insured, the insurer acts as the insured's agent in negotiating possible settlements.
An agent is liable to third parties for misrepresenting his authority to act on behalf of a principal where no such authority exists in fact. 2 Restatement Agency 2d, § 330, pp 86-87.
There is no requirement that misrepresentation of authority be treated any differently than any other tortious misrepresentation. In Michigan, any representation which is false in fact and actually deceives the other and is relied on by him to his damage is actionable, regardless of whether the person making the representations acted in good faith in making them, where the loss of the party deceived inures to the benefit of the other. Phillips v General Adjustment Bureau, 12 Mich App 16; 162 NW2d 301 (1968). The misrepresentation may consist of mere silence. Michigan National Bank v Marston, 29 Mich App 99; 185 NW2d 47 (1970). The rules stated in these two cases apply to the situation raised in plaintiffs complaint.
Under the rules stated in Phillips, plaintiff has stated a cause of action sufficient to avoid summary judgment. The loss that plaintiff did not recover against Lihov inured to the benefit of Farmers. Plaintiff has pled facts to fulfill the other requirements. Whether a jury will conclude that the misrepresentations alleged were the cause of plaintiff's failure to recover in the first suit is not a question we should be called upon to answer at the present time.
The trial court erred in granting summary judgment.
Reversed and remanded for further proceedings not inconsistent with this opinion. Costs to appellant.
N. J. Kaufman, J., concurred.
There are actually two plaintiffs in this case, Mr. and Mrs. Maxman. Mrs. Maxman was injured in the automobile accident. Her husband has presented a derivative claim.
In arguing the motion before the trial court defense counsel stated that "under either theory plaintiffs have simply failed to state a cause of action". Later when questioned by the trial court defense counsel stated, "There is no statement of law which would support plaintiffs position of false representations".
In granting defendant's motion, the court stated it was relying on the arguments made by defense counsel. The only conclusion that we can draw after examining the record is that the court was granting summary judgment under GCR 1963, 117.2(1), failure to state a cause of action.
We have examined the cases plaintiff cites for the proposition that the relationship was one of agency and also examined the authority cited by defendant criticizing that conclusion. On balance, we believe that the courts have resorted to calling this relationship agency almost by default. There is no other term in the law which can accurately describe the relationship. Because there is a void in this area, courts have resorted to calling the relationship agency and have applied agency rules.