Hass v. Wentzlaff , 2012 S.D. LEXIS 80 ( 2012 )

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2012 S.D. 50IN THE SUPREME COURT
OF THE
STATE OF SOUTH DAKOTA
****
DONALD HASS, AS PERSONAL
REPRESENTATIVE OF THE
ESTATE OF HARVEY SEVERSON,
DECEASED, Plaintiff and Appellant,
v.
PAUL WENTZLAFF, Defendant,
and
NORTH AMERICAN COMPANY FOR
LIFE AND HEALTH INSURANCE,
and
ALLIANZ LIFE INSURANCE
COMPANY OF NORTH AMERICA, Defendants and Appellees.
****
APPEAL FROM THE CIRCUIT COURT OF
THE SECOND JUDICIAL CIRCUIT
MINNEHAHA COUNTY, SOUTH DAKOTA
****
THE HONORABLE WILLIAM J. SRSTKA, JR.
Judge
****
ARGUED ON APRIL 18, 2012
OPINION FILED 06/20/12
JONATHAN K. VAN PATTEN
Vermillion, South Dakota
and
BRUCE M. FORD
Watertown, South Dakota Attorneys for plaintiff
and appellant.
ERIC C. SCHULTE
TIMOTHY M. GEBHART of
Davenport, Evans, Hurwitz
& Smith, LLP
Sioux Falls, South Dakota Attorneys for defendant and
appellee North American
Company for Life & Health
Insurance.
JASON R. SUTTON
PAUL W. TSCHETTER of
Boyce, Greenfield, Pashby & Welk, LLP
Sioux Falls, South Dakota Attorneys for defendant and
appellee Allianz Life Insurance
Company of North America.
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WILBUR, Justice
[¶1.] Paul Wentzlaff, an insurance agent, stole thousands of dollars from
Harvey Severson, an elderly man who asked Wentzlaff to help manage his financial
affairs. Donald Hass, as personal representative for Severson’s estate, sued
Wentzlaff and two insurance companies who appointed Wentzlaff as an agent,
North American Company for Life and Health Insurance (North American) and
Allianz Life Insurance of North America (Allianz). Hass and North American each
moved for summary judgment and Allianz joined North American’s motion. After a
hearing, the circuit court denied Hass’s motion and granted the insurance
companies’ motion. Hass appeals, arguing that the insurance companies are
vicariously liable for Wentzlaff’s acts. We affirm.
FACTS AND PROCEDURAL BACKGROUND
[¶2.] Wentzlaff began working as an insurance agent in 1988. From 1988
through 1995, Wentzlaff was an agent for Aid Association for Lutherans, working in
Colorado and Minnesota. Aid Association for Lutherans terminated Wentzlaff in
late 1995 because of his sales practices, in part for not properly explaining a whole
life policy. Wentzlaff then moved to South Dakota and worked as an agent for
Kansas City Life and, in the late 1990s, for Lutheran Brotherhood. In 1997,
Wentzlaff entered into a consent order with the South Dakota Division of Insurance
under which he paid a $250 fine. Wentzlaff was penalized for promoting and
advertising a seminar on then-recent federal legislation in a way that sought to
influence the purchase of insurance through “fright and scare tactics.”
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[¶3.] In April 2001, Wentzlaff applied with North American. The
application required that Wentzlaff disclose whether a complaint had ever been
filed against him by a state insurance department, National Association for
Securities Dealers (NASD), or another regulatory agency. Wentzlaff included a
letter with his application, notifying North American of the 1997 consent order and
attaching a copy of the order itself. In May 2001, North American received a
supplement to the disclosure, explaining that the 1997 consent order involved an
“advertising violation” and revealing that Wentzlaff was appointed as an agent by
several other insurance companies. In August 2001, Lutheran Brotherhood
reported that Wentzlaff failed to disclose or obtain approval for outside business
and submitted non-genuine signatures on forms. Because of this report, the NASD
suspended Wentzlaff from working with any NASD dealer for two years. Wentzlaff
was also required to pay a $5,000 fine if he sought future employment as a
securities broker for an NASD dealer. The report and subsequent consent order
were based on Wentzlaff engaging in outside business activities without notifying
Lutheran Brotherhood and for failing to disclose that he was both the existing agent
and insuring agent on several insurance replacement forms.
[¶4.] Wentzlaff eventually started an independent insurance business. As
an independent agent, Wentzlaff could write for any insurance company that
appointed him as an agent. Wentzlaff applied to multiple insurance companies.
Wentzlaff was ultimately appointed by at least ten insurance companies, including
North American and Allianz. Wentzlaff never considered one insurance company to
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be his primary company. In 2004, he formed Resource Development, Incorporated
(RDI).
[¶5.] Joyce Farr met Wentzlaff sometime in 1999 when he spoke at her
Lutheran church while he was working for Lutheran Brotherhood. Farr later
became a client of Wentzlaff’s, and Farr was pleased with his work. Around 2000,
Farr introduced Wentzlaff to Harvey Severson, her brother and a retired farmer
who had recently moved into an assisted living facility. Approximately six months
after meeting Severson, Wentzlaff began assisting Severson with paying monthly
bills and other financial affairs. Wentzlaff provided similar bookkeeping services to
Farr. Wentzlaff would write checks and Severson would sign them. Wentzlaff
charged Severson $200 per month, and later, $250 per month, for his bookkeeping
services. Wentzlaff did not inform North American or Allianz that he was
performing these services. Wentzlaff considered himself to be acting on behalf of
RDI when providing the bookkeeping services.
[¶6.] When Severson and Wentzlaff first met, Severson had investments in
mutual funds and annuities. Severson eventually authorized Wentzlaff to convert
almost all of these investments into annuities with North American and Allianz.
During this time, Wentzlaff indicated that he was with the Fellowship of Christian
Estate Planners, Inc. Beginning in 2005, Wentzlaff began submitting requests to
North American and Allianz to withdraw funds from Severson’s annuities. The
requests were signed by Severson. Wentzlaff told Severson that the money was
needed to pay bills or that Wentzlaff would reinvest the funds. Wentzlaff asked
that North American and Allianz directly deposit the funds into Severson’s bank
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account, and the companies complied. Allianz and North American deposited funds
into Severson’s account; Wentzlaff then wrote checks from Severson’s account
payable to RDI, had Severson sign them, and deposited the money into RDI’s bank
account. With each withdrawal, Allianz and North American mailed a letter to
Severson advising him of the withdrawal, any surrender charges, and potential tax
consequences.
[¶7.] Wentzlaff provided similar services to Orlin Berge. When Berge’s
attorney became suspicious of Wentzlaff’s practices, Wentzlaff prepared and
Severson signed a letter requesting the surrender value of the entire Allianz policy.
Again, Allianz notified Severson of the request by letter and thereafter wired the
funds into Severson’s account. Severson then signed checks payable to RDI, and
Wentzlaff used the Allianz policy funds to pay back money stolen in a similar
manner from Berge.
[¶8.] Although some of the money was used to pay Severson’s bills,
Wentzlaff stole most of it, using the money for personal and business expenses and
to cover his thefts from Berge’s investments. In April 2007, a Minnehaha County
grand jury indicted Wentzlaff on two counts of insurance fraud and eight counts of
grand theft by embezzlement. Two days later, the South Dakota Department of
Insurance issued an emergency order suspending Wentzlaff’s license and mailed a
copy to the insurance companies. Wentzlaff pleaded guilty to one count of grand
theft of property received in trust and one count of committing a fraudulent
insurance act. He was sentenced to twenty years in the state penitentiary and
ordered to pay $472,000 in restitution.
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[¶9.] Severson died in February 2008. North American paid Severson’s
estate $334,834.29 in death benefits in March 2008. Donald Hass, as personal
representative of Severson’s estate, sued Wentzlaff, North American, and Allianz.
The complaint against the insurers alleged securities fraud, conversion, fraud and
deceit, breach of fiduciary duty, and negligence, seeking to impose vicarious liability
under the theory of respondeat superior.
[¶10.] Hass moved for partial summary judgment on liability. North
American moved for summary judgment and Allianz joined North American’s
motion and all submissions in support of the motion. After a hearing, the circuit
court granted the insurance companies’ summary judgment motion. Hass appeals.
STANDARD OF REVIEW
[¶11.] This Court reviews entry of summary judgment de novo. Adrian v.
Vonk, 2011 S.D. 84, ¶ 8, 807 N.W.2d 119, 122.
In reviewing a grant or denial of summary judgment under
SDCL 15-6-56(c), we must determine whether the moving party
demonstrated the absence of any genuine issue of material fact
and showed entitlement to judgment on the merits as a matter
of law. The evidence must be viewed most favorably to the
nonmoving party and reasonable doubts should be resolved
against the moving party. The nonmoving party, however, must
present specific facts showing that a genuine, material issue for
trial exists. Our task on appeal is to determine only whether a
genuine issue of material fact exists and whether the law was
correctly applied. If there exists any basis which supports the
ruling of the trial court, affirmance of a summary judgment is
proper.
Saathoff v. Kuhlman, 2009 S.D. 17, ¶ 11, 763 N.W.2d 800, 804. We have also noted
that,
while we often distinguish between the moving and non-moving
party in referring to the parties’ summary judgment burdens,
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the more precise inquiry looks to who will carry the burden of
proof on the claim or defense at trial. Entry of summary
judgment is mandated against a party who fails to make a
showing sufficient to establish the existence of an element
essential to that party’s case, and on which that party will bear
the burden of proof at trial.
W. Consol. Coop. v. Pew, 2011 S.D. 9, ¶ 21, 795 N.W.2d 390, 396.
[¶12.] “Statutory interpretation is a question of law, reviewed de novo.” State
ex rel. Dep’t of Transp. v. Clark, 2011 S.D. 20, ¶ 5, 798 N.W.2d 160, 162.
“The purpose of statutory construction is to discover the true intention of the law,
which is to be ascertained primarily from the language expressed in the statute.”
Id. Legislative intent is also “determined from the statute as a whole, as well as
enactments relating to the same subject.” Id. ¶ 10.
ANALYSIS AND DECISION
[¶13.] 1. Did Hass preserve the argument that there are genuine
issues of material fact?
[¶14.] Summary judgment “shall be rendered . . . if the pleadings,
depositions, answers to interrogatories, and admissions on file, together with the
affidavits, if any, show that there is no genuine issue as to any material fact, and
the moving party is entitled to judgment as a matter of law.” SDCL 15-6-56(c). A
party moving for summary judgment must submit a statement of material facts.
SDCL 15-6-56(c)(1). A party opposing a summary judgment motion must include a
“separate, short, and concise statement of the material facts as to which the
opposing party contends a genuine issue exists to be tried.” SDCL 15-6-56(c)(2);
Discover Bank v. Stanley, 2008 S.D. 111, ¶ 23, 757 N.W.2d 756, 763. “The opposing
party must respond to each numbered paragraph in the moving party’s statement
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with a separately numbered response and appropriate citations to the record.”
SDCL 15-6-56(c)(2) (emphasis added); see Discover Bank, 2008 S.D. 111, ¶ 26, 757
N.W.2d at 764 (stating that the moving party’s failure to file a statement of
undisputed material facts “denied [the non-moving party] the opportunity to submit
his mandatory statement controverting those undisputed facts”). “All material facts
set forth in the statement that the moving party is required to serve shall be
admitted unless controverted by the statement required to be served by the
opposing party.” SDCL 15-6-56(c)(3).
[¶15.] After a party files a summary judgment motion, “an adverse party may
not rest upon the mere allegations or denials of his pleading, but his response, by
affidavits or as otherwise provided in § 15-6-56, must set forth specific facts showing
that there is a genuine issue for trial.” SDCL 15-6-56(e). “If he does not so respond,
summary judgment, if appropriate, shall be entered against him.” Id. See also
Dakota Indus., Inc. v. Cabela’s.Com, Inc., 2009 S.D. 39, ¶ 14, 766 N.W.2d 510, 514
(finding that under SDCL 15-6-56(e), once the moving party meets its initial burden
of proof, the burden shifts to the non-moving party to identify facts disputing the
moving party’s allegations).
[¶16.] In this case, Hass moved for partial summary judgment on liability
and filed a statement of undisputed material facts. Allianz responded to Hass’s
statement of undisputed material facts. 1 North American cross-moved for summary
1. North American did not separately respond to Hass’s statement of
undisputed facts.
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judgment and filed a statement of undisputed material facts. Allianz joined this
motion and all submissions in support of the motion.
[¶17.] Hass did not respond to the insurance companies’ statement of
undisputed material facts. At the summary judgment hearing, Hass’s counsel said,
“I think the Court correctly noted that there have been statements of undisputed
material facts, which certainly as to North American are not disputed, nor we
towards North American’s statement of material facts.” The circuit court, in its
letter decision, stated that Hass “conceded at the hearing that there are no genuine
issues of material fact.”
[¶18.] General arguments at the summary judgment hearing do not satisfy
the requirement that Hass specifically respond to the insurance companies’
statement of material facts. By failing to respond, all facts asserted by the
insurance companies are deemed admitted. Furthermore, because Hass conceded
that there are no genuine issues of material fact, SDCL 15-6-56(e) mandated that
summary judgment be entered against Hass due to his failure to specifically
respond to North American’s motion and statement of facts, so long as the
insurance companies were entitled to judgment as a matter of law. Therefore, Hass
did not preserve his argument that genuine issues of fact precluded summary
judgment in this case. Thus, we analyze whether North American and Allianz were
entitled to judgment as a matter of law under the undisputed facts set forth in the
parties’ respective statements.
[¶19.] 2. Was Wentzlaff acting within his scope of employment
with Allianz and North American when he stole money
from Severson?
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[¶20.] The doctrine of respondeat superior “hold[s] an employer or principal
liable for the employee’s or agent’s wrongful acts committed within the scope of the
employment or agency.” Black’s Law Dictionary 1426 (9th ed. 2009). “[T]he
question of whether the act of a servant was within the scope of employment must,
in most cases, be a question of fact for the jury.” Kirlin v. Halverson, 2008 S.D. 107,
¶ 16, 758 N.W.2d 436, 444 (citations omitted).
[¶21.] We apply a two-part test when analyzing vicarious liability claims. See
id. ¶¶ 24-25. 2 “[T]he fact finder must first determine whether the [act] was wholly
motivated by the agent’s personal interests or whether the act had a dual purpose,
that is, to serve the master and to further personal interests.” Id. ¶ 24. “When a
servant acts with an intention to serve solely his own interests, this act is not within
the scope of employment and his master may not be held liable for it.” Id. “If the
act was for a dual purpose, the fact finder must then consider the case presented
and the factors relevant to the act’s foreseeability in order to determine whether a
nexus of foreseeability existed between the agent’s employment and the activity
which caused the injury.” Id. ¶ 25. “If such a nexus exists, the fact finder must,
finally, consider whether the conduct is so unusual or startling that it would be
unfair to include the loss caused by the injury among the costs of the employer’s
2. We were considering an agent’s intentional use of force in Kirlin, but we find
the standard equally applicable to other acts by an agent.
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business.” Id. (citing Leafgreen v. Am. Family Mut. Ins. Co., 393 N.W.2d 275, 280-
81 (S.D. 1986)). 3
[¶22.] A. Was Wentzlaff wholly motivated by his personal
interests or did the thefts have a dual purpose?
[¶23.] We must first determine whether Wentzlaff’s acts had a dual purpose.
A principal may be liable for an agent’s acts where the agent’s “purpose, however
misguided, is wholly or in part to further the [principal’s] business[.]” Id. ¶ 22
(quoting Prosser and Keeton on the Law of Torts, § 70, 505-06 (5th ed. 1984)). “But
if [the agent] acts from purely personal motives . . . he is considered in the ordinary
case to have departed from his employment and the master is not liable.” Id.
An essential focus of inquiry remains: Were the [agent’s] acts in
furtherance of his employment? If the answer is yes, then
employer liability may exist even if his [agent’s] conduct was
expressly forbidden by the [principal] . . . When a[n agent] acts
3. Restatement (Second) of Agency has played a prevalent role in our vicarious
liability jurisprudence as we often look to it for guidance. See generally
Kirlin, 2008 S.D. 107, 758 N.W.2d 436; see also Deuchar v. Foland Ranch,
Inc., 410 N.W.2d 177 (S.D. 1987); Leafgreen, 393 N.W.2d 275. Restatement
(Third) of Agency, adopted in 2005 and published in 2006, now supersedes
Restatement (Second) of Agency, which was published in 1958. Justice
Meierhenry noted this fact in her special concurrence in Kirlin. 2008 S.D.
107, ¶¶ 65-66, 758 N.W.2d at 456. Unlike Restatement (Second) of Agency,
Restatement (Third) of Agency does not rely upon foreseeability in
determining whether an employee’s acts are within the scope of employment.
Restatement (Third) of Agency § 7.07 cmt. b. Section 7.07 is “phrased in
more general terms” than its counterparts in Restatement (Second) of Agency
and focuses on an employee’s intent and motivations rather than on the
foreseeability of the acts. Id. Although both North American and Allianz cite
to Restatement (Third) of Agency at some point, no one in this case has urged
us to adopt it. Furthermore, we find that the two-part test established by
this Court in Kirlin embodies both the employee intent element from
Restatement (Third) of Agency § 7.07 and the foreseeability element from
Restatement (Second) of Agency §§ 228 and 229 and our vicarious liability
precedent.
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with an intention to serve solely his own interests, this act is not
within the scope of employment, and [the principal] may not be
held liable for it.
Id. (quoting Deuchar, 410 N.W.2d at 181).
[¶24.] In this case, Hass seeks to hold the insurance companies liable for
Wentzlaff’s acts of theft. Wentzlaff stole Severson’s money by writing checks from
Severson’s account to RDI. Wentzlaff had access to Severson’s personal assets and
accounts due to his bookkeeping position. These undisputed facts may establish
that Wentzlaff was not serving North American or Allianz when he committed the
thefts. If this is the case, then our inquiry into vicarious liability would end as
Wentzlaff’s actions would be outside the scope of his agency relationship with the
insurance companies and the companies would not be liable for Wentzlaff’s acts.
[¶25.] However, the undisputed material facts also demonstrate that
although Wentzlaff initially only withdrew the maximum amounts allowed before a
penalty or surrender charge applied, Wentzlaff eventually began withdrawing
amounts that resulted in surrender charges and interest adjustments. In fact,
North American received over $36,000 in penalty fees or surrender charges due to
the withdrawals on Severson’s annuities which could be considered a benefit for the
company. Therefore, if one measures the “act of theft” from the time Wentzlaff
called the insurance company to start the withdrawal process so he could eventually
steal the money, then it becomes more likely that Wentzlaff’s purpose, at least in
part, was to further the insurance companies’ business.
[¶26.] B. Was there a sufficient nexus of foreseeability
between Wentzlaff’s agency relationship and the
thefts?
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[¶27.] We must next determine whether Wentzlaff’s acts were foreseeable to
decide whether North American and Allianz were entitled to summary judgment as
a matter of law under the undisputed facts set forth in the parties’ respective
statements.
[A] principal is liable for tortious harm caused by an agent
where a nexus sufficient to make the harm foreseeable exists
between the agent’s employment and the activity which actually
caused the injury; foreseeable is used in the sense that the
employee’s conduct must not be so unusual or startling that it
would be unfair to include the loss caused by the injury among
the costs of the employer’s business.
Leafgreen, 393 N.W.2d at 280-81. “‘Foreseeability’ as used in the respondeat
superior context [differs] from ‘foreseeability’ as used for proximate causation
analysis in tort law.” Kirlin, 2008 S.D. 107, ¶ 14, 758 N.W.2d at 444.
“In respondeat superior, foreseeability includes a range of conduct which is ‘fairly
regarded as typical of or broadly incidental to the enterprise undertaken by the
employer.’” Id.[¶28.] Although this Court considered certain factors in Leafgreen v.
American Family Mutual Insurance Co., Restatement (Second) of Agency § 229(2)
contains more helpful criteria in analyzing foreseeability as it relates to vicarious
liability. Restatement (Second) of Agency § 229(2) lists ten factors relevant to the
scope of employment inquiry:
(a) whether or not the act is one commonly done by such
servants;
(b) the time, place and purpose of the act;
(c) the previous relations between the master and the servant;
(d) the extent to which the business of the master is apportioned
between different servants;
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(e) whether or not the act is outside the enterprise of the master
or, if within the enterprise, has not been entrusted to any
servant;
(f) whether or not the master has reason to expect that such an
act will be done;
(g) the similarity in quality of the act done to the act authorized;
(h) whether or not the instrumentality by which the harm is
done has been furnished by the master to the servant;
(i) the extent of departure from the normal method of
accomplishing an authorized result; and
(j) whether or not the act is seriously criminal.
[¶29.] Applying those factors to this case, Wentzlaff’s acts were “seriously
criminal.” In addition, neither North American nor Allianz had “reason to expect”
that Wentzlaff would steal money from Severson because the undisputed material
facts establish that Wentzlaff did not tell the insurance companies that he was
providing bookkeeping services to Severson. Also, the insurance companies notified
Severson by letter before effectuating the withdrawals and thereafter followed
Wentzlaff’s instructions to deposit the funds directly into Severson’s bank account.
The undisputed facts also establish that Wentzlaff’s bookkeeping services were
completely separate from his work as an insurance agent and that Wentzlaff
considered himself to be working on behalf of RDI when providing the bookkeeping
services to Severson. 4 Furthermore, the insurance companies in this case did not
furnish “the instrumentality by which the harm [was] done” because Wentzlaff
4. North American’s statement of material fact number twenty-one provides:
The monthly services Wentzlaff was providing Severson had
nothing to do with his work as an independent insurance agent.
[record citation] He never told North American or Allianz that
he was performing these services or charging for them and
considered himself to be acting on behalf of and for RDI. [record
citation].
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completed the thefts by writing checks to RDI from Severson’s personal account as
Severson’s bookkeeper, a position that was separate from his agency relationship
with North American and Allianz. Given the undisputed facts in this case, we
conclude that Wentzlaff’s acts were unforeseeable.
[¶30.] We agree with the circuit court’s conclusion that the facts in this case
are analogous to the facts in Leafgreen, 393 N.W.2d 275 on the foreseeability issue.
In Leafgreen, an independent insurance agent became aware of a clients’ lockbox
containing jewelry and other valuables when visiting the home. Id. at 276. The
agent and clients were also personal friends. Id. The agent learned through this
friendship that the clients would be out of town and conspired with two felons to
burglarize the clients’ home. Id. The clients sued the insurance company, seeking
to hold it liable for the criminal acts of the agent. Id. at 276-77. The insurance
company moved for summary judgment, arguing that the agent was not acting
within the scope of his employment when he conspired to burglarize the clients’
home. Id. at 277. The circuit court granted the insurance company’s motion,
finding that the agent’s acts were not reasonably foreseeable by the insurance
company and thus, it would be unfair to impute the agent’s acts to the company. Id.This Court agreed that the agent’s criminal acts were unforeseeable and affirmed.
Id. at 281.
[¶31.] Like the insurance agent in Leafgreen, who was a friend of the clients,
Wentzlaff was not merely an insurance agent but also provided bookkeeping
services to Severson. Also like the agent in Leafgreen, who gained the necessary
access and information through the personal friendship, Wentzlaff utilized his
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bookkeeping position to carry out his plan and steal money from Severson.
Therefore, we find that Wentzlaff’s criminal acts were unforeseeable.
[¶32.] An illustration following Restatement (Third) of Agency § 7.08 5 also
guides our analysis:
A sells an annuity issued by P Insurance Company to T. Later,
A suggests that T surrender this annuity and authorize A to
invest the proceeds on T’s behalf in an annuity to be issued by S
Insurance Company, a competitor of P Insurance Company. T
agrees and surrenders the annuity to P Insurance Company,
directing P Insurance Company to make the check for the
proceeds payable to A. P Insurance Company does so. A
appropriates the funds to A’s own use. P Insurance Company is
not subject to liability to T. P Insurance Company made no
manifestation to T on the basis of which T could reasonably
believe P Insurance Company authorized A, as its agent, to
reinvest T’s money with a competitor of P Insurance Company.
A is subject to liability to T. A converted T’s money. Also, T, by
authorizing A at A’s request to take control of T’s money and to
invest it on T’s behalf, created an agency relationship with A. A
breached A’s duties to T as stated in §§ 8.01, 8.05(1), 8.09(1), and
8.12.
This illustration parallels the facts of this case, but there is one notable difference –
in the illustration, the insurance company surrendered the client’s money directly to
the insurance agent and the agent misappropriated the money. Here, the
undisputed material facts reveal that North American and Allianz not only
contacted Severson before completing the withdrawal requests submitted by
Wentzlaff, but the companies also directly deposited the funds into Severson’s
personal account. Severson then gave Wentzlaff access to the funds by signing
5. Restatement (Third) of Agency § 7.08 provides: “A principal is subject to
vicarious liability for a tort committed by an agent in dealing or
communicating with a third party on or purportedly on behalf of the principal
when actions taken by the agent with apparent authority constitute the tort
or enable the agent to conceal its commission.”
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checks written to RDI. Thus, it was Severson, not the insurance companies, who
gave Wentzlaff direct access to the money.
[¶33.] This illustration supports the conclusion that North American and
Allianz are not liable to Severson for Wentzlaff’s acts. Neither North American nor
Allianz made a manifestation to Severson that Severson could reasonably believe to
mean that the companies authorized Wentzlaff to reinvest Severson’s money or
convert the money after it was transferred to Severson’s personal account. 6
[¶34.] Hass has not demonstrated that there is a sufficient nexus of
foreseeability between the agency relationship and Wentzlaff’s theft of Severson’s
money and thus, the insurance companies are entitled to judgment as a matter of
law. We affirm the circuit court’s grant of summary judgment in favor of North
American and Allianz on the scope of employment issue.
[¶35.] 3. Did Wentzlaff’s agency relationship with Allianz and
North American enable Wentzlaff to carry out his theft,
invoking liability under Restatement (Second) of Agency
§ 219(2)(d)?
[¶36.] Restatement (Second) of Agency § 219(2) provides four exceptions to
the general rule that a principal is liable for the torts of an agent only if the agent
was acting within the scope of his or her employment. One exception provides that
6. Although not raised by the parties, it also appears that Severson, by
authorizing Wentzlaff to take control of Severson’s money and to invest it on
his behalf, may have in fact created an independent agency relationship with
Wentzlaff. Therefore, in addition to Wentzlaff’s acts being unforeseeable,
Wentzlaff was acting as Severson’s agent, not an agent for North American or
Allianz, when stealing money from Severson. However, even if Wentzlaff
were acting as Severson’s agent because of the bookkeeping relationship, the
outcome of this case is the same and North American and Allianz are not
liable for Wentzlaff’s acts.
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a principal may be liable for the torts of an agent acting outside of the scope of his
or her employment if “the [agent] . . . was aided in accomplishing the tort by the
existence of the agency relation.” Restatement (Second) of Agency § 219(2)(d)
(1958). “In those cases, liability attaches because the tortfeasor’s employment
enabled or endowed him with a unique advantage to perpetrate the tortious acts.”
Iverson v. NPC Int’l, Inc., 2011 S.D. 40, ¶ 9, 801 N.W.2d at 279. The comment to
Section 219(2)(d) explains that “the [agent] may be able to cause harm because of
his position as agent, as where a telegraph operator sends false messages
purporting to come from third persons[.]” (citing Restatement (Second) of Agency, §
261 (1958)).
[¶37.] In this case, Hass argues that Wentzlaff’s agency relationship with
North American and Allianz enabled him to steal Severson’s money, thus invoking
liability under § 219(2)(d). The insurance companies respond with three arguments:
(1) that Hass failed to argue § 219(2)(d) to the circuit court; (2) that this Court has
not yet adopted the Restatement (Second) of Agency § 219(2)(d) “aided by agency”
theory of liability; 7 and (3) even if this Court adopts or has adopted the theory, it
was Wentzlaff’s position as Severson’s bookkeeper, not his agency relationship with
North American and Allianz, that enabled and aided Wentzlaff.
7. We acknowledged Restatement (Second) of Agency § 219(2)(d) in Iverson v.
NPC International, Inc., 2011 S.D. 40, ¶ 9, 801 N.W.2d at 279. This Court
concluded that under the facts in Iverson, “the agency relationship was
immaterial to [the agent’s] tort” and affirmed the lower court’s grant of
summary judgment to the principal. Id. ¶ 11. Thus, this Court applied the
“aided by agency” theory but found that under this theory, the principal was
not liable for the agent’s acts. See id.
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[¶38.] At the summary judgment hearing, Hass’s counsel specifically referred
to Restatement (Second) of Agency § 261 but not § 219. The circuit court did not
cite or rely upon § 219 but did cite and discuss § 261. On appeal, Hass addresses
both § 219 and § 261 under the same issue. However, there are significant
differences between the sections. While § 261 addresses whether an agent is
“enabled” by the agency relationship, § 261 applies only if the agent was acting with
apparent authority and thus, within the scope of employment. In contrast,
§ 219(2)(d) embodies the theory that, if the agent is acting outside the scope of
employment, the principal may nevertheless be liable if the agency relationship
enabled the agent.
[¶39.] In this case, Hass’s assertion that Wentzlaff was enabled by his agency
relationship with the insurance companies went to his scope of employment
argument. Hass never once argued below that Wentzlaff was acting outside the
scope of employment, thus invoking liability under § 219(2)(d). Therefore, even
though the circuit court concluded that “Wentzlaff’s agency relationship with North
American and Allianz did not enable him to commit or conceal the thefts[,]” this
conclusion was a part of the court’s decision on the scope of employment issue
rather than a conclusion relating to § 219(2)(d). Indeed, the circuit court did not
address § 219(2)(d) because Hass never raised this issue to the court.
[¶40.] The record demonstrates that Hass never argued that Wentzlaff was
outside his scope of employment to the circuit court, invoking § 219(2)(d).
Therefore, Hass failed to preserve this argument and we decline to address it for the
first time on appeal. See Alvine Family Ltd. P’ship v. Hagemann, 2010 S.D. 28, ¶
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21, 780 N.W.2d 507, 514 (“We have consistently held that this Court may not review
theories argued for the first time on appeal.”).
[¶41.] 4. Does SDCL 58-30-176 impose a higher standard of
liability on insurance companies?
[¶42.] SDCL 58-30-176 provides:
To appoint an insurance producer or business entity as its
agent, the appointing insurer shall file, in a format approved by
the director, a notice of appointment within fifteen days from
the date the agency contract is executed or the first insurance
application is submitted. An insurer may also elect to appoint
an insurance producer to all or some insurers within the
insurer’s holding company system or group by the filing of a
single appointment request. The insurer is responsible for the
acts of its representatives and insurance producers, including
those acts where the insurance producer has solicited, sold, or
negotiated insurance on behalf of that insurer prior to the date
of appointment.
(Emphasis added.)
[¶43.] Hass argues that SDCL 58-30-176 supplements agency common law
and imposes a strict-liability-like standard on insurance companies for the acts of
their agents. To support this argument, Hass focuses on the above emphasized
language in SDCL 58-30-176 as well as this Court’s decision in State v. Wingler,
2007 S.D. 59, 734 N.W.2d 795. In Wingler, an insurance agent convinced clients to
cash in annuities and purchase new annuities from the agent, promising the clients
better returns on their investments. Id. ¶ 2. The agent had the clients write checks
to a fictitious company and then the agent deposited the money into his personal
accounts. Id. The clients’ funds were not used to purchase new annuities but
instead, the agent misappropriated the money for his personal use. Id. The agent
was indicted on six counts of committing a fraudulent insurance act and seven
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counts of grand theft of property received in trust. Id. ¶ 3. The agent pleaded
guilty to five counts of grand theft of property received in trust. Id. The circuit
court granted restitution to some of the clients and to the insurance company, and
the agent appealed to this Court. Id. ¶ 4.
[¶44.] This Court affirmed the trial court’s award of restitution. Id. ¶ 22. In
doing so, this Court stated:
The trial court’s conclusions . . . are supported by the record and
applicable authorities. SDCL 58-30-176 provides in pertinent
part that, “[t]he insurer is responsible for the acts of its
representatives and insurance producers[.]” This Court has
further held under the law of agency that, “[g]enerally, a
principal may be held liable for the fraud and deceit of his agent
acting within the scope of his actual or apparent authority, even
though the principal was unaware of or received no benefit from
his agent’s conduct.” McKinney v. Pioneer Life Ins. Co., 465
N.W.2d 192, 194 (S.D. 1991). Thus, [the insurance company]
was made liable by statute and as an implied condition of its
principal/agent relationship or contract with [the agent] to
indemnify others suffering pecuniary damages as a result of [the
agent’s] fraud and deceit committed within the scope of his
actual or apparent authority. [The agent] does not dispute this
and concedes in his brief that [the insurance company]
reimbursed the victims pursuant to the statutory obligation
created by SDCL 58-30-176 and principles of agency.
Id. ¶ 20.
[¶45.] North American and Allianz assert, and the circuit court concluded,
that this Court’s decision in North Star Mutual Insurance Co. v. Rasmussen, 2007
S.D. 55, 734 N.W.2d 352 8 is more applicable. In North Star, an insurance agent
negligently failed to procure proper coverage for a client. Id. ¶ 6. After the
insurance company denied the client coverage, the company filed a declaratory
8. This Court decided North Star one week prior to deciding Wingler.
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judgment action, “seeking a ruling that [the insurance company] had no duty to
defend or indemnify [the client] under the policy.” Id. ¶¶ 1, 11. Both parties filed
summary judgment motions. Id. ¶ 11. The circuit court granted the insurance
company’s motion, holding that the agent was the client’s agent rather than the
insurance company’s agent and therefore, the agent’s negligence could not be
imputed to the insurance company. Id. ¶¶ 11-12. On appeal, the client, as an
alternative argument, asserted that SDCL 58-30-176 (effective July 1, 2001)
retroactively applied, thus making the insurance company liable for the agent’s
acts. Id. ¶ 37. This Court affirmed the lower court, finding that SDCL 58-30-176
did not apply retroactively. Id. ¶¶ 36-38. This Court noted:
Even assuming these statutes do control and assuming [the
agent] would be considered an agent of [the insurer] under
SDCL 25-30-142 [sic], “[s]tatutes regulating licensing and
defining agents, brokers and solicitors, are not intended to
change or to exclude the general laws of agency.” Boyter v.
Blazer Const. Co., 505 So. 2d 854, 860 (La. App. 1987) (citing
Tiner v. Aetna Life Ins. Co., 291 So. 2d 774, 777 (La. 1974)); see
also Vina v. Jefferson Ins. Co. of New York, 761 P.2d 581, 585
(Utah App. 1988) (“insurance code’s purpose is ‘primarily for the
purpose of regulating insurance companies, agents, brokers,
solicitors and adjusters’ and does not supplant ordinary legal
principles of agency”) (quoting Farrington v. Granite State Fire
Ins. Co., 120 Utah 109, 232 P.2d 754, 756 (1951)); Lee R. Russ &
Thomas F. Segalla, Couch on Insurance § 45:2 (3d ed. 1996);
Damon’s Missouri, Inc. v. Davis, 63 Ohio St. 3d 605, 590 N.E.2d
254, 258 (1992).
Id. ¶ 39 (emphasis added).
[¶46.] This Court’s review of SDCL 58-30-176 in both Wingler and North Star
is dicta. This Court was less concerned with principles of agency law in Wingler, a
criminal restitution case, than it was in North Star and thus, North Star is more
applicable in this case. We acknowledge that based upon our decision in Wingler,
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SDCL 58-30-176 applies in this case, but we affirm our statement in North Star
that statutes regulating the insurance agency, including SDCL 58-30-176, do not
change or exclude agency common law. Indeed, in Wingler, the statute and general
laws of agency together created an obligation for the insurance company. Wingler,
2007 S.D. 59, ¶ 20, 734 N.W.2d at 800. Moreover, Hass asks this Court to parse one
sentence from SDCL 58-30-176, but after reading the statute as a whole and in light
of other statutes regulating insurance, we find that the Legislature did not intend
to impose strict liability upon insurance companies for any acts by an insurance
agent. Therefore, we conclude that SDCL 58-30-176 does not impose strict liability
upon insurance companies for the acts of their agents.
[¶47.] Considering SDCL 58-30-176 along with agency common law, we find
that the facts in this case are distinguishable from the facts in Wingler. Here,
unlike the agent in Wingler, Wentzlaff actually purchased the annuities that he told
Severson he would purchase. Also unlike the agent in Wingler, Wentzlaff had direct
access to Severson’s bank accounts because Wentzlaff served as Severson’s
bookkeeper and financial advisor. Therefore, we conclude that North American and
Allianz are not liable for Wentzlaff’s acts under SDCL 58-30-176 and general
principles of agency common law, and we affirm the circuit court’s grant of
summary judgment to North American and Allianz on this issue.
CONCLUSION
[¶48.] Based upon the undisputed material facts, Wentzlaff was not acting
within the scope of his employment when he stole money from Severson, and thus,
as a matter of law, North American and Allianz are not vicariously liable for
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Wentzlaff’s acts. Furthermore, Hass failed to preserve his argument that the
insurance companies are liable under Restatement (Second) Agency § 219(2)(d)
because Hass did not present this argument to the circuit court. Finally, SDCL 58-
30-176 does not impose strict liability upon insurance companies for the acts of their
agents. We affirm the circuit court’s grant of summary judgment in favor of North
American and Allianz.
[¶49.] Affirmed.
[¶50.] GILBERTSON, Chief Justice, and KONENKAMP and ZINTER,
Justices, and BASTIAN, Circuit Court Judge, concur.
[¶51.] BASTIAN, Circuit Court Judge, sitting for SEVERSON, Justice
disqualified.
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