Opinion ID: 1731991
Heading Depth: 2
Heading Rank: 1

Heading: Indemnity between a Principal and an Agent.

Text: ¶ 7. We must first determine whether General American had a duty to indemnify McCraw. [1] Indemnification is not automatic, but can only be found after certain factors are met. ¶ 8. We previously addressed principal-agent indemnification in Mutual Life Insurance Co. of New York v. Wesson, where we detailed the requirements for a finding of indemnification where an agent is sued and there is no explicit contract for indemnification. 517 So.2d 521, 535 (Miss.1987). At the time, we held that [u]nless otherwise agreed, a principal is subject to a duty to exonerate an agent who is not barred by the illegality of his conduct to indemnify him for . . . expenses of defending actions by third persons brought because of the agent's authorized conduct, such actions being unfounded but not brought in bad faith. Id. (quoting Restat. 2d of Agency, § 439). Under that version of the Restatement, the conduct of the agent must have been authorized and the defense against the suit must have been successful. ¶ 9. In the time since Wesson was decided, the authors of the Restatement have clarified the requirements to satisfy indemnification. The Restatement Third sets out that: A principal has a duty to indemnify an agent (1) in accordance with the terms of any contract between them; and (2) unless otherwise agreed, (a) when the agent makes a payment (I) within the scope of the agent's actual authority, or (ii) that is beneficial to the principal, unless the agent acts officiously in making the payment; or (b) when the agent suffers a loss that fairly should be borne by the principal in light of their relationship. Restatement (Third) of Agency, § 8.14 (2006). This modern approach is more streamlined in its application than the previous test we adopted in Wesson, and provides better guidance to trial courts and practitioners in determining when indemnity is warranted. Accordingly, we adopt the Restatement Third approach to determining whether there is a duty to indemnify between a principal and an agent and abandon the previous test set out in Wesson.
¶ 10. Under the Restatement Third, there are four ways an agent may obtain indemnity from a principal. The applicable section to the evidence in this case is part 2(b). Whether McCraw suffered a loss which should fairly be borne by General American is a question for a jury to resolve. We note for clarification that [a] principal does not have a duty to indemnify an agent against losses caused by unauthorized action taken by the agent that did not benefit the principal or losses caused solely by wrongful acts committed by the agent. Restatement (Third) of Agency, § 8.14 cmt. d (2006). Whether an agent was acting under the scope of authority is a question for the jury. Pittman v. Home Indem. Co., 411 So.2d 87, 90 (Miss.1982). ¶ 11. Accordingly, we reverse and remand for a jury to determine whether McCraw suffered a loss which, in light of the relationship between McCraw and General American, should fairly be borne by the company. B) What damages are warranted in a claim for indemnification? ¶ 12. At trial, McCraw was awarded $150,000 in actual damages and one million dollars in punitive damages for General American's refusal to indemnify him at trial. General American asked the trial court for a judgment notwithstanding the verdict regarding the punitive damages award. The trial court agreed with the motion and eliminated the punitive award. On appeal, General American argues that one may not recover more than the expenses and fees associated with obtaining indemnity, and that damages for emotional distress are improper. McCraw seeks reinstatement of the punitive damages award previously vacated by the trial court. I) Punitive Damages. ¶ 13. McCraw's argument for punitive damages centers on an analogy to bad-faith refusal to defend. However, as noted supra, indemnification is not like the duty to defend, which may attach immediately upon suit. It is also not governed by what is contained in a complaint. The right to indemnification for litigation expenses should not depend on the pleading choices of a third party, who through an excess of caution or optimism, may allege far more than he can prove at trial. INA Ins. Co., 150 Ariz. at 254, 722 P.2d 975. ¶ 14. Rather, it is generally accepted that principal-agent indemnity is a form of reimbursement, generally for legal fees. [A] basic principle of indemnity is that [t]he right exists when there is a legal obligation on the indemnitee to pay or a sum is paid by him for which the indemnitor should make reimbursement. Id. at 253, 722 P.2d 975; see also Zontelli & Sons, Inc. v. Nashwauk, 373 N.W.2d 744, 755 (Minn.1985) (indemnity usually requires that one party reimburse another entirely for its liability); Allen v. Standard Oil Co., 2 Ohio St.3d 122, 126, 443 N.E.2d 497 (Ohio 1982) (when an indemnitor wrongfully refuses to defend an action against an indemnitee, the indemnitor is liable for the costs, including attorney fees and expenses, incurred by the indemnitee in defending the initial action and in vindicating its right to indemnity in a third-party action brought against the indemnitor). ¶ 15. The traditional rule of strict indemnity requires the indemnitor to reimburse only actual loss and not to discharge the liability of the indemnitee . . . and thus one who agrees to indemnify against loss should not be required to pay more than what is actually lost. Hernandez v. Great American Ins. Co., 464 S.W.2d 91, 93-94 (Tex.1971). Indemnification is for reimbursement of the costs related to defending the action and pursuing indemnification. Accordingly, punitive damages for refusing to immediately indemnify an agent are not recoverable. The trial court was therefore correct in granting General American's motion for JNOV on the issues of punitive damages, as punitive damages cannot be claimed in an action for indemnification. ii) Damages for Emotional Distress. ¶ 16. A portion of the damages assessed against General American were for McCraw's alleged emotional distress. As established supra, indemnity is a vehicle for the reimbursement of an agent by a principal. Emotional distress damages are not a component of reimbursement and therefore cannot be awarded in an action for indemnification. iii) Attorney's Fees and Expenses. ¶ 17. The comment to the Restatement Third notes that [t]he agent's right [to indemnity] is limited to recovery of expenses and losses in amounts that are reasonable. Such expenses and losses include attorney fees and expenses . . . incurred by the indemnitee in defending the initial action and in vindicating its right to indemnity in a third-party action brought against the indemnitor. Allen, 2 Ohio St.3d at 126, 443 N.E.2d 497. McCraw asserted that he incurred $44,156.95 in attorneys' fees and expenses pursuing his defense. Previously, McCraw's attorneys' fees and expenses were bundled with the other damages. We remand for a jury trial to determine what expenses were actually incurred by McCraw; that amount is the value of his indemnity by General American if the jury concludes indemnification is warranted.