Court Opinion

ID: 9604516
Source: CourtListenerOpinion
Date Created: 2023-08-22 02:23:02.353466+00
Date Added: 2024-06-11T09:11:37.965843
License: Public Domain

STUMBO, Justice.
The issue presented in this case is whether Appellants could be held vicariously liable for the alleged misrepresentations and negligence of their agent. The trial court granted summary judgment in favor of Appellants. The Court of Appeals reversed, finding this was a question for the jury to determine. We affirm.
D & B Roofing, Inc., is owned and operated by Appellee/Cross-Appellant, Stephan Roethke, and his wife Karen. Stephan is the president and Karen is the secretary/treasurer. In January 1992, Karen, on behalf of D & B, purchased individual health insurance coverage for one of D & B’s employees through Joe Maresca. In April 1992, Karen, on behalf of D & B, purchased two more individual health insurance policies through Maresca. Physician’s Mutual was the insurer on these three policies and Maresca, at the time, was an agent for Physician’s Mutual. These three policies covered work-related injuries and illnesses, which was important to the Roethkes because both of them had previously rejected coverage under the Kentucky Worker’s Compensation Act.
In July 1992, Karen and Maresca began discussing the possibility of obtaining group coverage for D & B’s employees. Maresca told Karen that D & B could get better benefits, more coverage, and lower premiums with a group health policy. Karen testified that it was Maresca’s urgings that better coverage could be obtained more cheaply that led her to consider switching to group health coverage. On August 17, 1992, Maresca completed an “Application and Subscription Agreement” for group health coverage with Appellant, Pan-American Life Insurance Company (“PALIC”).1 Karen signed the application and was present when Maresca filled it out.
The PALIC group policy did not automatically cover work-related injuries and illnesses, while the individual policies with Physician’s Mutual did. Rather, this coverage was optional under the PALIC policy. Section V, entitled “Benefits Desired,” of the application that Maresca filled out and Karen signed, included the following paragraph:
Occupational Coverage: Available if Worker’s Compensation coverage not required by state law.
_We elect 24-hour Occupational Coverage and agree to pay additional premiums required for the following individuals:
Rates based on Industry Code_
*130The blank following this optional coverage was marked “None.”
Karen testified that during her meeting with Maresca in regard to the application, she was not notified that coverage for work-related injuries was optional and obtainable only by purchasing a rider. She also testified that the list of quotes for group coverage did not have any separate notation for occupational or work-related coverage. She stated that the prior, Physician’s Mutual policy did not require a rider, and that she believed the new policy “gave me exactly what the other policy did because he (Maresca) told me this is gonna be better.” Karen also testified that “I did not know what occupational coverage was.” Because the existing policies provided coverage for work-related injuries and illnesses and she believed that “he was just trying to sell me another gimmick,” Karen admits that she interrupted Mares-ca when he asked her if she wanted occupational coverage.
The agreement that Maresca had with National Insurances Services, Inc., specifically provided as follows:
If this application is approved and I receive a license to represent any insurance company on whose behalf ... (NIS) markets or administers business ... I understand that I will act as an independent contractor, not an employee or agent of NIS or any insurance company NIS represents .... As acknowledgment of my responsibility to each person to be insured through any coverage marketed or administered by NIS, I agree to fully explain to such persons all benefits, limitations and exclusions that pertain to any coverage I solicit. This explanation will occur prior to or concurrently with the solicitation and completion of any required individual enrollment material.
Also of importance in the decision of this case is language found in the application signed by Karen and completed by Mares-ca:
[T]he licensed broker who solicited this Application and Subscription Agreement ... was acting as an Independent Contractor and not as a Broker of PALIC or NIS. Furthermore, the person who solicited this Agreement or upon whose explanation of coverages and benefits we relied is in fact our Broker for purposes of this Agreement. We understand as an Independent Contractor and as our Broker that person has no right to bind this coverage, or to alter terms or conditions of any Policies or any Enrollment Card or to waive any requirements of PALIC or NIS, or to adjust any claims for benefits under this insurance for which we are applying.
On December 28, 1992, Stephan was rendered a quadriplegic when he fell through a roof during an onsite inspection at a D & B Roofing Company job. PALIC denied Stephan medical benefits because his injuries were work-related.
Stephan filed suit against PALIC, NIS, and Maresca. In the suit, he alleged: 1) that PALIC and NIS are in breach of contract for denying payment of medical expenses incurred due to the fall; 2) that PALIC and NIS were negligent in their training and selection of Maresca as their agent; 3) that Maresca “made misrepresentations” and “fraudulently concealed facts” from D & B which induced D & B to obtain group health coverage from PALIC; 4) that PALIC and NIS are vicariously liable for Maresca’s negligent acts; and 5) that PALIC and NIS have violated the Consumer Protection Act and the Unfair Claims Settlement Practices Act. The Cabinet for Human Resources intervened to recoup expenses it had incurred on behalf of Stephan.
The trial court granted summary judgment to PALIC and NIS, finding that even if Maresca misrepresented the terms of the new policy, he had no authority to bind PALIC or NIS or impose liability upon *131those entities for any risk not covered by the terms of the policy, based upon his limited liability. The Court of Appeals reversed, holding that because the circuit court correctly held that Maresca’s authority was that of an agent, liability for his acts could be imputed to PALIC if the jury found sufficient evidence that the agent made affirmative misrepresentations about the coverage. The Court of Appeals further held, however, that there was no cause of action against the two companies for failure to properly train Maresca, or for negligence in selecting Maresca as an agent. Though argued here, Roethke did not get a ruling from the Court of Appeals on the issues of whether the trial court erred in dismissing the claims under the Consumer Protection and Unfair Claims Settlement Acts, and thus those issues will not be addressed here.
The basic question to be answered here is whether Maresca acted as agent for PALIC in the transaction with Karen, and, if he was PALIC’s agent, whether he acted within the authority granted to him by his principal. If he did both, then the question becomes whether there is sufficient evidence to present the jury with the question of whether he misrepresented the coverage he offered and thus misled the Roethkes to their detriment.
An agent is defined under Kentucky law as follows:
An “agent” is an individual, firm, ... [or] corporation ... appointed by an insurer to solicit applications for insurance or annuity contracts or to negotiate insurance or annuity contracts on its behalf, and if authorized to do so by the insurer, to effectuate and countersign insurance contracts.
KRS 304.9-020. The liability of a company for the acts of its agent is set forth in KRS 304.9-035, which provides as follows:
Any insurance company shall be liable for the acts of its agents when the agents are acting in their capacity as representatives of the insurance company and are acting within the scope of their authority.
The previously-quoted agency agreement NIS had with Maresca, as well as the aforementioned statement in the application for insurance executed by Karen, are relied upon by PALIC to avoid the effect of the above statutes, which have never been authoritatively construed by this Court.
Kentucky statutory and case law have historically provided that anyone who solicited and received applications for insurance on behalf of an insurance company was an agent of the company “anything in the policy or application to the contrary notwithstanding.” Ky. St. § 633. See Mutual Ben. Health & Accident Ass’n v. Smith, Ky., 257 Ky. 288, 77 S.W.2d 957, 959 (1934); Kentucky Macaroni Co. v. London & Provincial Marine & General Ins. Co., 83 F.2d 126, 128 (6th Cir.1936). Many jurisdictions have likewise enacted laws making an insurance intermediary the agent of an insurance company for whom it solicits business. The need for such statutes is expressed in L. Russ and T. Segalla, Couch on Insurance, § 47:29 (3rd ed.1995):
The general purpose of the statutes is to prevent an insurer from denying responsibility for the representations and actions of an agent from whom applications are voluntarily accepted and to protect an applicant who relies on such representations or actions.
In Motorists Mut. Ins. Co. v. Richmond, Ky.App., 676 S.W.2d 478 (1984), the Court of Appeals expressed similar sentiments regarding the need to protect consumers from insurers who, in drafting contracts of adhesion, attempt to exculpate themselves from liability for the mistakes of those who market their product. Therein, the court stated:
Few persons understand insurance who have not made it a special study. The agent who comes to get the insurance is the only person they deal with or know in the transaction. The rule *132that he represents the company and not the insured in taking the application is just and is generally recognized.
Id. at 481.
The trial court determined that Maresca was an agent for PALIC in soliciting D & B’s application for the group health insurance contract. The plain language of KRS 304.9-020 and the concern expressed in our case law for the need to protect insureds from overreaching supports this finding. See Wright’s Adm’r v. Northwestern Mut. Life Ins. Co., Ky., 91 Ky. 208, 15 S.W. 242 (1891). PALIC’s attempts to avoid the principal-agent relationship by providing otherwise in its agreement with Maresca and in the application for insurance are of no avail as the statute overrides any conflicting provisions. We agree with Roethke and the trial court that, for the purpose of the transaction at issue, Maresca was the agent of PALIC.
KRS 304.9-035 and settled principles of agency law provide that an insurer, as principal, is liable for the acts of its agents acting within the scope of their authority. Motorists Mutual, 676 S.W.2d at 481. See also Couch on Insurance, supra, § 26A:265 at 506 (2d rev. ed.1984). While we agree with the trial court’s observation that the agency statutes do not determine the scope of an agent’s authority, we believe the trial court erred in concluding Maresca was not acting within the scope of his authority when he allegedly misrepresented the coverage of the group policy to Karen. It is abundantly clear to us that Maresca was acting within the scope of his authority when he allegedly induced Karen to change her health insurance coverage from Physician’s Mutual to PALIC, by misrepresenting the extent of coverage contained in the latter’s policy. The NIS contract appointing Maresca to transact business gave him actual authority to “fully explain” to all potential customers the “benefits, limitations and exclusions” pertaining to coverage in the plans marketed. Indeed without such authority, it would be difficult to sell the product.
It is not necessary for Roethke to show that PALIC instructed Maresca to misrepresent the coverage in order to establish that Maresca was acting within the scope of his authority.
[T]he proper question is not whether the principal authorized the specific wrongful act; if that were the case, principals would seldom be liable for their agents’ misconduct. Rather, the proper inquiry is whether the agent was acting within the scope of the agency relationship!;.]
Celtic Life Ins. Co. v. Coats, 885 S.W.2d 96, 99 (Texas 1994).
In Celtic Life the soliciting agent represented to the owner of a business that Celtic Life Insurance Company could provide group health insurance with better coverage for psychiatric illnesses than his current policy. When payment for a psychiatric hospitalization was needed, the insured discovered there was a $10,000 limit, an amount far less than the one million dollar figure represented by the agent. The same arguments presented here by PALIC were made in Celtic, that is, that the agent’s misrepresentations could not impose liability on the insurer for risks not covered by the written contract because the insured knew that the agent did not have the authority to bind the company. Id. The Texas court held the insured was able to recover because the conduct of the insurer’s agent was the cause of the damage, since the inferior coverage would not have been purchased absent the agent’s misrepresentation.
As noted by the Court of Appeals below, this holding does not make the insurer absolutely liable for the agent, relieving the agent of responsibility. It is only liable when the agent acts within the scope of his authority, the insured reasonably relies upon that act, and the reliance constitutes the cause of the insured’s damage. Grigsby v. Mountain Valley Ins. *133Agency, Inc., Ky., 795 S.W.2d 372 (1990). Additionally, Maresea remains liable for his own tortious conduct, and there is nothing in the record that would prevent PALIC from seeking indemnity from its agent. Carr v. Barnett, Ky.App., 580 S.W.2d 237, 240 (1979).
This is a case in which affirmative misrepresentations about coverage are alleged, not simply the failure to advise a potential insured about optional coverages. See Mullins v. Commonwealth Life Ins. Co., Ky., 839 S.W.2d 245 (1992). PALIC assumed the risk that its appointed agent might misrepresent the coverages it offered — the provision of written material that pointed out the policy’s exclusion of work-related events does not discharge the agent’s duty. As noted in Grigsby, supra:
In other words, the insured’s failure to read and comprehend the policy has no legal effect: it may not serve as a sword for the insured nor as a shield for the agency. This is true whether the underlying claim is for contract reformation or recovery based upon negligence of the agency.
Grigsby, 795 S.W.2d at 374. Maresea was not only authorized but agreed “to fully explain to [Karen] all benefits, limitations and exclusions that pertain to [the] coverage [he] solicited].” According to Karen, he attempted to accomplish this by representing to her that the new group coverage was “gonna be better” than the existing individual coverage that provided coverage for work-related injuries and illnesses. Whether Maresea was prevented by Karen from fully explaining the coverage of the group policy is a factual issue for the jury to resolve in determining if he misrepresented the coverage to her. Maresca’s alleged affirmative statement created a material issue of fact to be resolved by the jury and summary judgment was, therefore, inappropriate.
Finally, like the Court of Appeals, we can find no authority which requires an insurer to train its soliciting agents. Although it would greatly benefit insurers to train their agents well so as to avoid the type of claim presented here, no such legal duty to train exists. Furthermore, we agree that NIS cannot be held liable for the negligent selection of Mares-ca, because Maresea was duly licensed by the state. Any liability owed to Roethke by PALIC would be imposed vicariously.
We affirm the opinion of the Court of Appeals and remand this matter for proceedings consistent with this opinion.
LAMBERT, C.J.; and KELLER and WINTERSHEIMER, JJ., concur.
COOPER, J., dissents by separate opinion, in which GRAVES and JOHNSTONE, JJ., join.
JOHNSTONE, J., dissents by separate opinion, in which COOPER and GRAVES, JJ., join.

. Appellant, National Insurance Services, Inc. ("NIS”), is a wholly'Owned subsidiary of PAL-IC and the administrator of the insurance policy.