Opinion
Nos. 32047 and 32048
Decided December 16, 1950.
Agency — Knowledge of agent imputed to principal — Common-law rule supplanted by another by contract — Contract valid and enforceable, when — Automobile casualty insurance — Policy provisions, substituting different rule for common-law, valid.
1. At common law, ordinarily the knowledge of an agent, received while he is acting within the scope of his authority and in reference to a matter over which his authority extends, is imputed to such agent's principal.
2. A principal and a third party have the authority to enter into a contract supplanting with a different rule the common-law rule as to the knowledge of such principal's agent being imputed to the principal, and such contract is valid and enforceable in the absence of circumstances creating an estoppel or making the enforcement of such contract inequitable.
APPEALS from the Court of Appeals for Erie county.
As the present cases involve substantially the same facts and the same principles of law apply equally to each of them, they are decided together.
Robert A. Fay, administrator, appellee in case No. 32047, and Abelyn Lara, appellee in No. 32048, were plaintiffs, respectively, in actions instituted by means of supplemental petitions against The Republic Mutual Insurance Company, appellant in each case. Hereinafter we shall designate Fay and Lara as plaintiffs and the insurance company as defendant.
Howard B. Swicker, a defendant in each case, will hereinafter be designated Swicker.
Each of the plaintiffs instituted an action against Swicker to recover damages resulting from an automobile accident and each recovered a verdict and judgment against Swicker. Neither of such judgments having been satisfied for more than 30 days after their rendition, plaintiffs filed supplemental petitions against defendant as the casualty insurer of Swicker, under Section 9510-4, General Code.
Defendant in its answers admitted the recovery of the judgments against Swicker, but alleged facts and claimed that, as the result of those facts, Swicker had no effective insurance coverage with defendant.
The facts from the undisputed evidence and found by the trier thereof to be true, and which we, therefore, assume are true, are as follows:
One Zuercher was a soliciting agent for defendant, with authority to take applications for various types of insurance and forward them to the home office.
On March 5, 1946, Swicker came into Zuercher's office and signed an application for casualty insurance on his Dodge automobile, which was the one involved in the accident which was the basis of plaintiffs' actions.
In the written application which was signed by Swicker there was contained the following provision:
"It is further agreed that the writing of this or any other application by the company's agent does not bind the company on any insurance risk and that the company's liability begins only after such application has been received and approved by the home office of the company at Columbus, Ohio. I hereby warrant the statements and declarations contained in the foregoing application to be true and I agree that the same may be relied upon by the company in issuing any automobile policy to me without an additional application, whether such policy is a renewal of the policy hereby applied for or not and I agree to notify the company of any changes or circumstances which would affect the issuance of any future policy."
Item six of the application reads in part as follows:
"No automobile insurance covering the insured or other drivers of the automobile has been declined or cancelled * * * except as follows: * * *"
Following such statement are the words, "no exceptions," in Zuercher's handwriting.
Item 10 of the application reads:
"The insured or other drivers of the automobile has not had an automobile accident or loss during the past two years except * * *."
Following that statement there is written in Zuercher's handwriting, "One small claim last year."
Both of the foregoing written statements are false for, as a matter of fact, Swicker had had as to his automobile a fire loss in February 1945, during the same month a collision loss, in August 1945 a property damage loss, in November 1945 collision and medical payment losses, and later in 1945 another collision loss. At the time of the foregoing losses Swicker was insured with respect to his automobile by the Farm Bureau Mutual Insurance Company of Columbus and that company had cancelled its policy as of March 9, 1946, and had notified Swicker of such cancellation by letter dated February 28, 1946.
Zuercher sent the application, which had been signed by Swicker and which contained among other things the foregoing statements, to defendant's home office in Columbus, and it is undisputed that no letter of any kind or character accompanied the application.
The trial court found, and there was ample evidence to support such finding, that Swicker had informed Zuercher of the fact that Swicker had had several accidents and had had his automobile insurance cancelled. Nevertheless, Zuercher wrote the answers aforementioned in items six and ten of the application and Swicker signed such application and warranted the truth of such answers. He claimed he did not know what answers had been written in. However, he was 28 years old, a high school graduate, and, from aught that appears in the record, of average intelligence.
Defendant issued a policy of insurance on Swicker's automobile solely on the information contained in the application. The policy contained in addition to the same statements and declarations set forth in the application the following clauses:
"By acceptance of this policy the named insured agrees that the statements in the foregoing declarations are his statements and representations, which he warrants to be true, that this policy is issued in reliance upon the truth of such representations, and that this policy embodies all agreements existing between himself and the company or any of its agents relating to this insurance."
"Misrepresentation and fraud. This entire policy shall be void if insured has concealed or misrepresented any material fact or circumstance concerning this insurance or the subject thereof; or in case of any fraud, attempted fraud, or false swearing by the insured regarding any matter relating to this insurance or the subject thereof, whether before or after a loss.
"Waiver or change. No notice to an agent, or knowledge possessed by an agent or by any other person shall be held to effect a waiver or change in any part of this policy, nor estop the company from asserting any right under the terms of this policy, nor shall the terms of this policy be waived or changed, except by endorsement issued to form a part hereof, signed by the president or secretary of the company."
Swicker testified that Zuercher had told him that he would leave it up to the company whether it would issue the policy. Swicker also testified that he had offered several times to pay Zuercher the premium on the policy, but that Zuercher had told him to pay the premium when he received the policy.
The policy was issued and sent to Zuercher but was never delivered to Swicker.
On March 11, 1946, the home office of defendant learned of the cancellation of the Farm Bureau policy from a service organization. On the same day defendant received a notice of the accident of March 9, 1946, which was the basis of plaintiffs' law suits.
On March 26 defendant wrote a letter to Swicker in which it informed him that defendant had learned that the Farm Bureau Mutual Insurance Company had issued an automobile liability policy to Swicker in December 1944; had cancelled it effective March 9, 1946; had notified Swicker of such cancellation by letter dated February 28, 1946; and had cancelled the policy because of six accidents and losses in which Swicker's automobile was involved and which had occurred from February to November 1945. The letter also told Swicker that had he made disclosure of such cancellation and accidents as requested in the application for insurance with defendant, defendant would not have issued its policy to Swicker, and for such reasons defendant elected to treat such policy as void from the beginning and disclaimed any liability thereunder.
Upon the foregoing facts, the Court of Common Pleas, hearing the cases on the supplemental petitions, the answers and the evidence, and treating the cases as though replies had been filed, found for the plaintiffs against defendant and rendered judgments upon such findings, which judgments were affirmed by the Court of Appeals.
These cases are before this court as the result of the allowance of motions to certify.
Messrs, Catri Catri, for appellees.
Messrs. Slabaugh, Guinther Pflueger and Messrs. Flynn, Py Kruse, for appellant.
The theory upon which the courts below found for plaintiffs is that Zuercher, under Section 9586, General Code, was solely the agent of defendant, and since Zuercher had full knowledge of the falsity of the statements in the application which Swicker signed and warranted to be true, the knowledge of Zuercher became the knowledge of defendant, and as it issued its policy of insurance with that knowledge it cannot take advantage of any agreement or stipulation with reference to the warranty of the truth of the false answers in the application by Swicker.
Section 9586, General Code, reads as follows:
"A person who solicits insurance and procures the application therefor, shall be held to be the agent of the party, company or association, thereafter issuing a policy upon such application or a renewal thereof, anything in the application or policy to the contrary notwithstanding."
It is a query whether this section is applicable to any contracts of insurance except those concerning buildings and structures. The section stems from an act "to regulate contracts of insurance of buildings and structures," enacted March 5, 1879 (76 Ohio Laws, 26, Section 2). It was coupled with present Section 9583, General Code, which requires agents in this class of insurance to examine the buildings or structures insured and to fix their insurable value.
Section 9586, General Code, was amended in 1904 (97 Ohio Laws, 160), but still carried the designation that it concerned insurance on buildings and structures. The section was codified in the Revised Statutes of 1880 under the heading, "insurance companies other than life," and it was not until the revision of the Code in 1910 that the section received its present number and was placed under the general provisions in respect to insurance upon property and against certain contingencies.
In the case of John Hancock Mutual Life Ins. Co. v. Luzio, 123 Ohio St. 616, 625, 176 N.E. 446, Judge Jones said:
"* * * Section 9586, General Code, provides that an agent who solicits fire insurance shall be held to be the agent of the company."
However, whether Section 9586 applies to solicitors of insurance other than on buildings and structures is not important in the present cases, since the undisputed evidence demonstrates that Zuercher was the agent of defendant in all of the transactions leading up to the issuance by defendant of the policy to Swicker.
At common law a principal is chargeable with and is bound by the knowledge of his agent, received while the agent is acting within the scope of his authority and in reference to a matter over which his authority extends.
There are two different theories upon which the knowledge of facts possessed by an agent is imputed to the principal. One theory is that it is presumed that the knowledge of the agent was communicated to the principal. The other theory, which is the Ohio doctrine, is that there is a legal identity of the principal with the agent, the agent being the alter ego of the principal. First National Bank of New Bremen v. Burns, 88 Ohio St. 434, 440, 441, 103 N.E. 93, 49 L.R.A. (N.S.), 764.
Ordinarily, the knowledge which Zuercher had of the falsity of the statements which Swicker warranted as true in the application for insurance would be imputed to defendant. However, we know of no sound reason why two parties cannot enter into a valid contract substituting a different rule for the common-law doctrine of imputed knowledge and agreeing that it should not be binding as between them, and there is nothing in the language of Section 9586, General Code, which prohibits or restricts a right to make such a contract.
In the present cases, although ordinarily defendant would be bound by knowledge which its agent obtained within the scope of his authority, it did issue its policy to Swicker without actual knowledge and relied upon two motivating material answers in Swicker's application, to the effect that he had never had an insurance policy cancelled and that he had had no accidents during the two previous years except a minor one. As soon as defendant learned the falsity of the foregoing statements, and while the policy was still in the hands of its agent and had not been delivered to Swicker and no premium had been accepted therefor, it notified Swicker of the cancellation of the policy because of his false warranties.
The policy contained the provision:
"No notice to an agent, or knowledge possessed by an agent or by any other person shall be held to effect a waiver or change in any part of this policy, nor estop the company from asserting any right under the terms of this policy, nor shall the terms of this policy be waived or changed, except by endorsement issued to form a part hereof, signed by the president or secretary of the company."
That language constituted a contract between the insurer and the insured supplanting with a different rule the common-law rule as to the imputation of the knowledge of an agent to his principal, and we are unable to see any reason, either in public policy or otherwise, why two parties may not make such an agreement.
The Court of Appeals held the view that the limitation upon the power of the agent in the foregoing policy provision can only be effectively invoked as to situations or circumstances arising after the issuance of the policy, and that to permit the limitation to operate with respect to situations existing at the time of the preparation of the application and preceding the issuance of the policy would be to free the defendant from the rule that the knowledge of the agent is imputed to the principal. The court relied strongly upon the cases of Foster v. Scottish Union National Ins. Co. of Edinburgh, 101 Ohio St. 180, 127 N.E. 865; and Hartford Fire Ins. Co. v. Glass, 117 Ohio St. 145, 158 N.E. 93.
In the Foster case, Foster had a policy of fire insurance which stipulated that it should be void, unless otherwise provided by agreement, if the subject of insurance was a building on ground not owned by the insured in fee simple. The policy had been procured by a loan company, which was a mortgagee of the insured property, through an agent of the insurance company who was also an employee of the loan company. That agent knew the building insured was on leased ground, but Foster had never seen the policy, it being retained by the loan company as the insurance was payable to the loan company as its interest might appear.
Premiums had been paid on the policy for 28 years and when the insurance company resisted payment for a fire loss this court held that the knowledge of the agent of the fire insurance company as to the title by which the property was held, with respect to which property the agent acting within the scope of his authority procured the issuance of a policy of fire insurance, was imputed to the principal, and that, as to such matters so known to such agent, the insurance company was deemed to have knowledge, notwithstanding a clause in the policy which provided that no officer, agent, or other representative of the insurance company should have power to waive any provision or condition of the policy.
The court did distinguish that case from Ohio Farmers' Ins. Co. v. Titus, 82 Ohio St. 161, 92 N.E. 82, where an apparently contrary view was taken, by stating that in the Titus case the knowledge of the agent came to him after the insurance policy had been issued and a premium paid thereon, whereas in the Foster case the agent had the knowledge at the inception of the policy.
In the Foster case, Judge Merrell relied strongly upon the doctrine of estoppel and said:
"On this theory, the company, in the present case, having accepted the payment of premiums for 28 years, with knowledge imputed to it of facts as to the title of the insured, entitling it to avoid the obligations of the policy, will be deemed to have elected the position of responsibility thereunder."
It seems to us that such view is sound and that it would have been infamous to absolve the insurance company from liability in the Foster case. The Glass case follows the Foster case.
In the present cases we have a different situation. The agent still had possession of the policy and no premium had been accepted thereon. In the Foster and Glass cases the policies contained the provision that no officer, agent, or other representative of the company should have the power to waive any provision or condition of the policy. The policy in the instant cases contained a contractual provision that no knowledge possessed by an agent or by any other person shall be held to effect a waiver or change in any part of the policy.
Although it is true that there are many instances where, under the theory of estoppel or from other circumstances such as acquiescence by a principal in the waiver of conditions in a policy by an agent, it would be inequitable for a principal to be absolved from liability because the acts of the agent were not authorized in writing, in the instant cases it would be unjust not to give effect to the contract between defendant and Swicker.
The policy was issued in reliance upon the false statements in the application which Swicker by his signature warranted to be true. There can be no doubt that they were material statements upon which the defendant relied. Although Swicker said he did not know what the answers were, he did sign the application with the printed questions in it to which the answers were given and with the printed provisions as to the agreement to supplant the common-law rule as to the effect of the agent's knowledge, and Swicker thus put it in the power of the agent to deceive and practice a fraud upon defendant.
The situation in the present cases is entirel different from one concerning knowledge of impairment of title of the insured property, which knowledge an agent might innocently think would make no difference in the insurability of the property.
As to the plaintiffs in the present cases, their rights against defendant can rise no higher than the rights of Swicker against defendant. Unless Swicker would be entitled to recover against defendant, if he had paid the judgments which plaintiffs had recovered against him, plaintiffs could not recover against defendant under Section 9510-4, General Code. Stacey v. Fidelity Casualty Co. of New York, 114 Ohio St. 633, 151 N.E. 718; Luntz et al., Exrs., v. Stern, 135 Ohio St. 225, 20 N.E.2d 241.
The judgments of the Court of Appeals and of the Court of Common Pleas are reversed and final judgments are entered for defendant appellant.
Judgments reversed.
MATTHIAS, HART and TAFT, JJ., concur.
WEYGANDT, C.J., ZIMMERMAN and FAUGHT, JJ., dissent.
I concur in the syllabus, judgment and opinion of the majority.
By the terms of the written application signed by the insured Swicker, he expressly warranted certain facts stated therein to be true and agreed that the insurance company might rely upon those facts as warranted in issuing any automobile policy. Such an agreement would necessarily amount to an agreement that any knowledge of the insurance company's agent with respect to the facts so warranted should not be imputed to the insurance company. Under paragraph two of the syllabus and for the reasons given in the majority opinion in support of that paragraph of the syllabus, such an agreement is valid and enforceable.
The nonwaiver provision of the policy, sent by the insurance company to its agent but never delivered by the agent to Swicker, represented an agreement to the same effect.
In each of the Foster and Glass cases, cited in the majority opinion, there was no agreement between the insured and the insurer, as in the instant cases, that the Ohio common-law rule set forth in paragraph one of the syllabus in the instant cases should be supplanted with a different rule. See the Foster case, at page 191.
While the policies involved in those cases did prohibit waivers by any agent of the company, no such waivers were involved. In each of those cases, the knowledge of the agent, under the common-law rule set forth in paragraph one of the syllabus in these cases, was the knowledge of the principal. It follows that the action taken by the principal with that knowledge represented, in effect, a waiver by the insurer, not merely a waiver by the agent.
The Lind case, cited in the dissenting opinion, dealt only with problems with respect to waiver after occurrence of a loss.
Of course, the General Assembly has the power to change the rule of law set forth in paragraph two of the syllabus of these cases. Cf. Section 9583, General Code. However, until the General Assembly does that, this court should not disregard the general right of parties to enter into contracts of the kind described in paragraph two of the syllabus.
As stated by Warden, J., in Baker v. Jordan, 3 Ohio St. 438:
"Among the purely artificial rules of evidence, none much more commends itself to regard than that which forbids the parties to a solemn contract, reduced to the certainty of a writing, to alter, vary, limit, enlarge, or contradict what they have thus made certain, by the recollections of witnesses, attempting to show what the parties said before or at the time of signing the contract."
In other words, where parties have expressed their agreements in writing, the law has established the parol evidence rule to avoid the uncertainties which result from controversies arising because one party testifies that he did say something and the other party testifies that he did not. The same reasons for establishing that rule should encourage enforcement of contracts of the kind described in paragraph two of the syllabus which will likewise avoid uncertainties resulting from similar controversies.
My position with respect to the instant controversy is largely in accord with the theory expressed in the first paragraph of the majority opinion.
Section 9586, General Code, is a general provision and is broadly worded. By its plain terms any person who solicits any type of insurance and procures the application therefor is the agent of the company thereafter issuing the policy upon such application, anything in the application or policy to the contrary notwithstanding.
This enactment is in the furtherance of sound public policy. It is the usual and almost universal practice of those wishing to purchase insurance to contact an agent appointed by an insurance company, and they transact all their business with such agent. Rarely do these persons have any direct dealings with the company itself. Ordinarily, as in the instant case, the agent fills out the application for an insurance policy on a printed form pursuant to information furnished by the applicant, and in reliance on the agent the applicant seldom does more than sign his name thereto. Thereafter, upon issuance of the policy, the agent delivers the same. When a loss occurs the insured contacts the agent and pursues the course pointed out by him in proving such loss. To the insured the agent is for all practical purposes the company.
Why then should not the company which appoints the agent and holds him out as its representative be bound by what he does? If an agent acts dishonestly or fraudulently in the procurement of the policy, his principal should bear the consequences rather than the insured who trusted him. See Lind v. State Automobile Mutual Ins. Assn., 128 Ohio St. 1, 11, 190 N.E. 138, 142.
Under Section 9586, General Code, and in line with the above observations, "if an application for insurance is drawn by an agent of the insurer, who fills in false answers to the interrogations contained therein which are truthfully answered by the insured, without fraud, collusion, or actual knowledge of the insured, or the existence of circumstances from which constructive knowledge of such falsity might be imputed to him, the insurer cannot rely upon the falsity of such answers in seeking to avoid liability under the policy issued upon the application. The view generally taken is that the agent in making out the application acts for the insurer, and that the insurer is therefore estopped to assert the mistake or, as has been said in some cases, the mistake is deemed to be waived by the insurer." 29 American Jurisprudence, 643, Section 846. See, also, 45 Corpus Juris Secundum, 733, Insurance, Section 728.
As I view the matter the majority opinion is contrary to the weight of authority and in conflict with prior pronouncements of this court. It promulgates a harsh rule which more often than not will produce unjust and unconscionable results. Under the facts developed in these cases the judgments of the two lower courts are correct; they are supported by reason, by sound public policy and by the authorities.
WEYGANDT, C.J., and FAUGHT, J., concur in the foregoing dissenting opinion.