Opinion ID: 1036249
Heading Depth: 2
Heading Rank: 4

Heading: Common Law: Inherent or Implied Agency Power

Text: Independent of the statute, Land Title had the authority to solicit insurance for CTIC and to bind CTIC by its unlawful solicitations. This court has recognized that a principal's grant of authority may come with implied authority to perform other acts that are necessary steps to achieving the principal's objective or that are customary 14 No. 87215-5 for agents performing the work. In Debentures, Inc. v. Zech, 192 Wash. 339, 348, 73 P.2d 1314 (1937), an agent was left in possession of a building and authorized to collect rents and manage, operate, and maintain the building. We held that this grant of authority also gave the agent implied authority as a necessary incident to the exercise of his powers, to order and to direct that reasonable expenditures be made for the purpose of redecoration. /d. We have also held that an agent who is empowered to sell is presumptively empowered to make a warranty as necessary to consummate the contract ...  so long as it is usual in the market to give a warranty ....  Johns v. Jaycox, 67 Wash. 403, 406, 121 P. 854 (1912). We have held that a real estate agent employed for the sole purpose of procuring a purchase for real property ...  nevertheless had the authority to exhibit the property and make representations about its area and boundary lines, because negotiation would be impossible otherwise. Yarnall v. Knickerbocker Co., 120 Wash. 205, 209-10, 205 P. 936 (1922); see also Walker v. Pac. Mobile Homes, Inc., 68 Wn.2d 347, 351, 413 P.2d 3 (1966) (Authority to perform particular services for a principal carries with it the implied authority to perform the usual and necessary acts essential to carry out the authorized services.); Hoglund v. Meeks, 139 Wn. App. 854, 866, 170 P.3d 37 (2007) (Nonetheless, actual authority to perform certain services on a principal's behalf results in implied authority to perform the usual and necessary acts associated with the authorized services.); Cameron v. Downs, 32 Wn. App. 875, 881, 650 P.2d 260 (1982) (To be within the scope of one's agency, conduct must be of the same general nature as that authorized, or incidental to the conduct authorized.). 15 No. 87215-5 The idea that an agent's authority expands to cover necessary or customary acts is not novel but is well supported by the Third Restatements of Agency (Second) and (Third). The Second Restatement defines [i]nherent agency power, which arises not from the principal's authorization to perform the acts at issue, nor from apparent authority or estoppel, but solely from the agency relation and exists for the protection of persons harmed by or dealing with a servant or other agent. RESTATEMENT (SECOND) OF AGENCY § 8A (1958). 8 The theory of inherent agency power recognizes that agents may be overzealous or careless in doing the work assigned by the principal and may harm third parties as a result. In that case, [it] would be unfair for an enterprise to have the benefit of the work of its agents without making it responsible to some extent for their excesses and failures to act carefully. /d. cmt. a. Therefore, the Second Restatement makes the principal liable on a transaction where a general agent does something similar to what he is authorized to do, but in violation of orders. /d. cmt. b. As the Second Restatement goes on to explain, [a] general agent for a disclosed or partially disclosed principal subjects his principal to liability for acts done on his account which usually accompany or are incidental to transactions which the agent is authorized to conduct if, although they are forbidden by the principal, the other party reasonably believes that the agent is authorized to do them and has no notice that he is not so authorized. 8 This section has been superseded by Restatement (Third) of Agency § 2.02 (2006), discussed infra. 16 No. 87215-5 RESTATEMENT (SECOND) OF AGENCY§ 161. 9 This rule is especially pertinent where an agent comprises an essential part[] of [the principal's] business enterprise. !d. at cmt. a. We applied this principle in Miller v. United Pacific Casualty Insurance Co., 187 Wash. 629, 636, 60 P.2d 714 (1936), where we held that if an insurer could do business only through an authorized agent, that agent acted as the insurer's alter ego and could bind the insurer through its acts. Likewise, the Third Restatement includes acts necessary or incidental to achieving the principal's objectives within the actual authority of an agent. RESTATEMENT (THIRD) OF AGENCY§ 2.02(1) (2006). The Third Restatement approach considers that an agent may reasonably assume that the principal wishes, as an incidental matter, that the agent take the steps necessary and that the agent proceed in the usual and ordinary way, if such has been established, unless the principal directs otherwise. /d. cmt. d at 9. Even if the principal purports to forbid certain acts on the part of an agent, the agent may reasonably believe itself to be authorized if the principal affirmatively approve[s] of the agent's unauthorized act or silently acquiesce[s] in it by failing to voice affirmative disapproval. !d. cmt. fat 100. Similarly, Mechem states that every delegation of authority whether 'general' or 'special,' carries with it, unless the contrary be expressed, implied authority to do all of those acts, naturally and ordinarily done in such cases, which are reasonably necessary and proper to be done in this case in order to carry into effect the main authority conferred. 1 FLOYD R. MECHEM, A TREATISE ON THE LAW OF AGENCY§ 715 9 See id. 17 No. 87215-5 (2d ed. 1914). Like the Third Restatement, Mechem points out that the principal presumably means for the agent to perform those acts reasonably necessary to carry out those acts the principal expressly authorizes and also for the agent to do business in the usual and ordinary way. !d. Therefore, even if the statute did not control, Land Title was implicitly authorized to solicit applications for insurance as a necessary act in executing its authority to issue and effectuate insurance for CTIC. CTIC carried out no direct operations in those counties where Land Title was employed to sell its insurance. If CTIC was not advertising in those areas, and Land Title could not advertise for title insurance, then no one would purchase CTIC insurance from Land Title. This cannot be the result that CTIC intended when it appointed Land Title as its agent. Just as we found a selling agent had the implied authority to exhibit the property in Yarnall, 120 Wash. at 209-10, we hold that Land Title, as an issuing agent, must have the authority to solicit applications for insurance. If it had no authority to attract consumers in the first instance, then its authority to issue and effectuate insurance contracts would be meaningless. Land Title is authorized to solicit for CTIC under both statute and common law. Following the Restatement (Second) of Agency § 161 test, we now turn to whether Land Title was a general agent and whether unlawful inducements were necessary or customary in executing the authority to solicit.
A general agent is 'an agent authorized to conduct a series of transactions involving a continuity of service.' Costco Wholesale Corp. v. World Wide Licensing Corp., 78 Wn. App. 637, 646, 898 P.2d 347 (1995) (quoting RESTATEMENT (SECOND) 18 No. 87215-5 OF AGENCY§ 3(1 )). A general agent is to be distinguished from a special agent, or 'an agent authorized to conduct a single transaction or a series of transactions not involving continuity of service.' /d. (quoting RESTATEMENT (SECOND) OF AGENCY § 3(2)). Some factors that aid in determining an agent's status include the number of acts performed, number of persons with whom the agent must deal, and the length of service. /d. (citing RESTATEMENT (SECOND) OF AGENCY§ 3 cmt. a). These factors weigh heavily toward Land Title being CTIC's general agent. Land Title and CTIC were involved in a long-standing relationship; the Agreement had been in force since 1992. Moreover, their relationship was exclusive. Land Title could only issue CTIC's title insurance; it is not licensed to issue insurance on its own. Land Title was appointed only by CTIC and no other insurer, and the Agreement further barred Land Title from issuing assurances by any insurer other than CTIC. On CTIC's end, the insurer conducted no operations in those counties where Land Title sold CTIC insurance policies. Finally, Land Title created business for CTIC every time it did business with anyone. Aside from title insurance, Land Title's only other offering was escrow services, which constituted only 28 percent of Land Title's revenue. Even Land Title's escrow services were sold only in conjunction with title insurance. Thus, every one of Land Title's customers ultimately walked away with a CTIC title insurance policy, whether they bought the insurance directly or were required to purchase it in conjunction with an escrow transaction. Land Title's agency relationship with CTIC was not a discrete, arm's length contract assignment but involved continuous service. Land Title did no business that 19 No. 87215-5 did not result in a sale for CTIC, and within Kitsap, Clallam, Jefferson, and Mason Counties, CTIC did no business other than through Land Title. As far as these four counties were concerned, Land Title was an integrated part of CTIC's operations. Land Title was a general agent of CTIC, and thus under the doctrine of implied authority, could bind CTIC through acts necessary to or customary with those transactions that CTIC authorized. B. Unlawful inducements were customary in Land Title's industry In keeping with the common law, we presume that when a principal gives its agent authority to perform a certain act, the principal also grants implied authority to carry out that act in the usual and customary way. See Johns, 67 Wash. at 406. Here, unlawful inducements were the norm in the title insurance industry, CTIC was aware of the pervasiveness of unlawful inducements in the industry, and CTIC took no affirmative steps to stop Land Title from engaging in unlawful inducements. CTIC should have foreseen Land Title's unlawful inducements, and CTIC is vicariously liable for those acts. In the Washington title insurance industry, vendors of title insurance frequently used unlawful inducements as part of their marketing. Indeed, OIC brought the present enforcement action precisely because unlawful inducements were widespread and pervasive [and] occur[ring] throughout this industry ....  AR at 473-E. CTIC does not challenge OIC's finding that [the title insurance] industry is rife with practices gone haywire. /d. In fact, CTIC itself was directly implicated in numerous transgressions of the anti-inducement laws. 20 No. 87215-5 CTIC appointed Land Title as an agent to solicit applications for its title insurance. Because Land Title sold a CTIC insurance policy with every transaction it engaged in, it solicited for CTIC's title insurance whenever it did any marketing. CTIC cannot have failed to realize that inducements to middlemen were typical in the industry, having engaged in unlawful inducements itself. Yet CTIC did not attempt to dissuade Land Title from engaging in the usual practice of unlawful inducements, outside of boilerplate language in the Agreement. There is no evidence that CTIC exercised its right to investigate Land Title's records or reminded Land Title of its obligation to obey the anti-inducement laws. CTIC cannot now evade liability by willfully blinding itself to Land Title's unlawful marketing practices. CTIC argues that it would be absurd to apply per se vicarious liability every time a statute used the label agent. As CTIC points out, the term agent appears thousands of times in Washington statutes; for example, RCW 23B.05.01 0 requires a corporation to register an agent for accepting service of process. But we do not suggest that all acts of a process agent should be binding on the corporation. There must be some nexus between the act at issue and the prescribed duties of the agent. As we have explained above, there is clearly such a nexus between soliciting applications for insurance and inducing middlemen to direct end-consumers to an insurer. As we held in NFRP, 'solicits' includes inviting, requesting, urging, or advising a person to subscribe to insurance, endeavoring to obtain such a subscription, or approaching a person for the purpose of receiving an application for insurance coverage. 120 Wn.2d at 110-11 (citing Paulson, 292 Or. at 62). This definition requires neither that the soliciting party approach the end-consumer, nor 21 No. 87215-5 that the insurance application be for the party's own insurance. It clearly encompasses a situation where a UTC approaches a middleman for the purpose of receiving an application (from that middleman's consumers) for insurance coverage (provided by the UTC's parent insurer).