Opinion ID: 2626085
Heading Depth: 1
Heading Rank: 15

Heading: Reformation of the Business Auto Policy

Text: [¶ 37] The district court denied McMurry Construction's claim seeking reformation of the business auto policy after a bench trial. As stated in appeal number S-08-0163 above, we review the district court's factual findings after a bench trial under a clearly erroneous standard and its legal conclusions de novo. Aviat Aircraft, ¶ 16, 213 P.3d at 964; Addison, ¶ 8, 161 P.3d at 1091; Mullinnix LLC, ¶ 12, 126 P.3d at 916. [¶ 38] We begin with the district court's factual finding that Leo Ashba, of BW Insurance, informed McMurry Construction that Richard Nelson was covered under the business auto policy. On appeal, Ohio Casualty does not dispute this finding. The question before us, therefore, is whether Ashba, and thus BW Insurance, was acting as an agent for Ohio Casualty when he made that statement, effectively binding it to provide coverage for Nelson. We agree with the district court that Ashba was not. [¶ 39] When it comes to the law of agency, there are typically two forms of agency relationship  actual and apparent. As between an insurance company and an agent, the limit of the agent's authority to bind the insurance company is governed by the agent's actual authority. As between the insurance company and third persons, the limit of an agent's authority to bind the principal is governed by his apparent authority. Actual authority may be express or implied. An agent has express actual authority to bind the principal when the principal, orally or in writing, specifically grants the agent the power to bind the principal. Implied actual authority is established by the course of dealings between the parties and the circumstances surrounding the case. Apparent authority is created when the principal holds the agent out as possessing the authority to bind the principal or when the principal allows the agent to claim such authority. To bind the principal under a theory of apparent authority, a third party must establish personal knowledge of, and reliance on, the apparent authority of the agent. In Herbert Const. Co. v. Continental Ins. Co., 931 F.2d 989, 993-94 (2nd Cir.1991), the Second Circuit Court of Appeals articulated that test: To recover on this theory [apparent authority] the third party must establish two facts: (1) the principal was responsible for the appearance of authority in the agent to conduct the transaction in question, Ford [ v. Unity Hospital ], 32 N.Y.2d [464,] at 473, 346 N.Y.S.2d 238] at 244, 299 N.E.2d [659] at 664 [(1973)] (citation omitted), and (2) the third party reasonably relied on the representations of the agent, Hallock, [ v. State, ] 64 N.Y.2d [224,] at 231, 485 N.Y.S.2d 510,] at 513, 474 N.E.2d [1178,] at 1181 [(1984)]. This statement essentially modernizes our holding in Ulen [ v. Knecttle, 50 Wyo. 94, 103-04, 58 P.2d 446, 449 (1936)]. Apparent authority in agency cases will be determined according to this two-prong test. Cargill, 891 P.2d at 62-63 (some citations omitted). An agent possessing either actual or apparent authority may bind the principal. Ulen v. Knecttle, 50 Wyo. 94, 103-04, 58 P.2d 446, 449 (1936). Whether an agency relationship exists and the scope of the agent's authority are questions of fact. Id. See also Velasquez v. Chamberlain, 2009 WY 80, ¶ 19, 209 P.3d 888, 893 (Wyo.2009); Carroll v. Bergen, 2002 WY 166, ¶ 11, 57 P.3d 1209, 1214 (Wyo.2002). [¶ 40] McMurry Construction grounds it entire appellate argument in favor of finding that BW Insurance was acting as Ohio Casualty's agent on Cordero Mining Co. v. United States Fid. & Guar. Ins. Co., 2003 WY 48, 67 P.3d 616 (Wyo.2003). In Cordero, Cordero Mining Company was to be listed as an additional named insured in a policy procured by a subcontractor doing business at one of its mines. As it turned out, Cordero Mining Company was not so listed. The evidence supported a finding that both the subcontractor and its insurance agent, The Barlow Agency, an independent agency, knew that Cordero Mining Company was to be listed as an additional named insured. The question, then, was whether the insurance company, USF & G, should be bound by the insurance agent's knowledge. In Cordero, we presented the following analysis: The authority of an insurance agent to make a contract of insurance binding upon the insurer is determined by the law of agency. 8 Eric Mills Holmes, Holmes' Appleman on Insurance 2d, Law of Insurance Agents § 52.1 at 391 (1998). The underlying agency principle is that the insurer will be bound by the acts of its agent undertaken within the scope of that agency. Id. at 392. The courts lean toward a broad rather than a strict construction of an insurance agent's powers, an agent's written authority is to be broadly and fairly construed, and a narrow meaning is not to be given to it unless the language employed clearly indicates that such was the intention of the parties. Id. at 394. An insurance agent so far as the insurer is concerned, is a person with actual (including express or implied) authority to represent the insurer in dealing with third parties in matters relating to insurance. Id. at 395. In preparing and executing a policy, an insurance agent acts as the agent of the insurer. Id. at 397. Even where the person's functions consist merely of soliciting insurance, receiving applications, forwarding them, receiving in return the policy and delivering it, and collecting the premium, that person is an agent in the ordinary sense of that term. Id. On the basis of similar principles, this court held in Wyatt v. State Farm Fire and Casualty Company, 78 Wyo. 228, 322 P.2d 137 (1958), that the knowledge of an agent is imputed to the insurer even when such knowledge is not in fact communicated to the insurer. In Wyatt, the insurer denied coverage after the insured's garage was destroyed by fire, claiming the policy covered the garage only if used for domestic purposes and the insured was using it for commercial purposes. The court concluded the policy did not clearly exclude coverage for commercial purposes and imputed to the insurer the agent's knowledge at the time the policy was negotiated that the garage was being used commercially. Although Wyatt involved a claim for estoppel against the insurer, we find the general principle enunciated there applicable to the claim presented here. The USF & G agency agreement executed with Barlow provided in relevant part: 1. [USF & G] hereby grants authority to [Barlow] in the designated territory, to solicit and submit applications for insurance . . .; to issue and deliver policies,. . . certificates, endorsements and binders which [USF & G] may, from time to time, authorize to be issued and delivered; to collect and receipt for premiums thereon; to cancel such policies. . . at the discretion of [Barlow] where cancellation is legally possible; and to retain out of premiums collected and paid over to [USF & G] commissions at the rates set forth in the Commission Schedules. Giving this provision a broad, fair construction, we conclude Barlow's knowledge that Cordero was to be named as an intended additional insured on L & T's policy may be imputed to USF & G. Cordero, ¶¶ 22-24, 67 P.3d at 624-25. McMurry Construction, alleging that BW Insurance's agency agreement with Ohio Casualty is substantially identical to that between USF & G and The Barlow Agency in Cordero, summarily concludes the outcome must be the same. We disagree. [¶ 41] In essence, McMurry Construction is putting forward an argument that BW Insurance had actual authority to bind Ohio Casualty. [1] The problem is that McMurry Construction's argument is presented in a factual vacuum. Even assuming the general provisions of the agency agreement between BW Insurance and Ohio Casualty are similar to the general provisions quoted in the agency agreement between The Barlow Agency and USF & G in Cordero, this is only part of the story. [¶ 42] Although BW Insurance and Ohio Casualty had a general agency agreement, the agreement was limited. Both the representative of Ohio Casualty and Ashba testified at trial that the decision on which drivers to insure belonged solely to Ohio Casualty. Further, Ohio Casualty made it very clear in the terms of the business auto policy that BW Insurance had no authority to alter the terms of the policy. There is a common policy provision stating: This policy contains all the agreements between you and us concerning the insurance afforded. The first Named Insured shown in the Declarations is authorized to make changes in the terms of this policy with our consent. This policy's terms can be amended or waived only by endorsement issued by us and made a part of this policy. The exclusion-of-named-person endorsement contained the following provision: This endorsement is in effect and shall apply to all renewals of this policy. This endorsement can be canceled or deleted by written request of the Named Insured, with approval of the Company. Ohio Casualty could not have made it more clear that BW Insurance did not have the authority to change policy provisions, expressly including the exclusion of Nelson from coverage. A condition in a policy prescribing that the insurer shall not be bound unless the execution of the agent's power shall be evidenced by written endorsement on the policy, is of the essence of the agent's authority, and a consent or act of the agent not so endorsed has been deemed void. 8 Eric Mills Holmes, Holmes' Appleman on Insurance § 50.3 (2d ed.1998). Under the facts of this case, BW Insurance did not have actual authority from Ohio Casualty to remove the exclusion-of-named-person endorsement.