Bobby R. Reed v. National Foundation Life Insurance Company and Mark Bradshaw ( 2001 )

IN THE COURT OF APPEALS OF TENNESSEE
EASTERN SECTION AT KNOXVILLE
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BOBBY R. REED, )
) KNOX CIRCUIT
Plaintiff/Appellee )
) No. 03A01-9603-CV-00081
v. )
)
NATIONAL FOUNDATION LIFE )
INSURANCE COMPANY and )
MARK BRADSHAW, )
) REVERSED
Defendants/Appellants )
R. Franklin Norton; R. David Benner, Knoxville, For the Appellant National
Foundation Life Insurance Company.
David T. Black, Maryville, For the Appellant Mark Bradshaw
Eugene Dixon, Maryville, For the Appellee
OPINION
INMAN, Senior Judge
This is a Rule 9 appeal from a judgment denying the defendants’ motions for
summary judgment. The issue is whether an insurance agent has the apparent
authority to waive the conditions for issuance of a policy and the limitations on his
authority as contained in the application for the policy. We hold that the agent has
no such authority and therefore grant the motions for summary judgment.
Our review is de novo upon the record of the trial court, with no presumption
of the correctness of the trial court’s findings. Roberts v. Roberts 845 S.W.2d 225(Tenn. Ct. App. 1992).
On January 7, 1994, the plaintiff was solicited by Mark Bradshaw to purchase
a policy of health insurance from National Foundation Life Insurance Company
(NFLIC). He testified that he was “informed by Mark Bradshaw that my health
insurance coverage would become effective upon the signing of certain insurance
forms and the payment of the first monthly premium.” He further testified that “I did
not read the insurance forms because I was assured by Mark Bradshaw that I had
full coverage.”
On the same day, the plaintiff signed (1) an Application for Health Insurance,
(2) an Applicant’s Statement, and (3) a Telephone Contact Authorization and
Agreement.
The Applicant’s Statement contains this provision:
I understand that the agent cannot change, alter or amend any NFL
information requirement. I also understand that the agent cannot
change, alter or amend the policy. I further understand that the
agent has no authority to make any representations about the
conditions under which NFL will issue a policy or make a policy
effective.
The Application for the policy contains this provision:
I understand that the insurance applied for shall be subject to the
provisions and conditions of the policy, and that the policy shall not
be effective until the policy has been actually issued, with first
premium paid and delivered to the insured while the health of all
persons named in this application remains as stated herein. . . I
further understand that losses due to Pre-existing Conditions,
diseases or bodily injuries occurring prior to the Effective Date of the
Policy are not covered. . . unless otherwise provided.
The Telephone Contact Authorization and Agreement informed the plaintiff
that he would be contacted by telephone and that the application process might take
as long as two weeks.
The plaintiff admits that he did not read any of the three documents he
signed concurrently with his conversation with Bradshaw.
NFLIC received the Application on January 12, 1994. On January 19, 1994
NFLIC called the telephone number of the plaintiff and was informed that he had
suffered a heart attack on January 15, 1994. NFLIC thereupon notified the plaintiff
that it was postponing consideration of his application because his health condition
had changed since the application was submitted. No policy was issued.
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The complaint was filed January 11, 1995. The plaintiff alleged that
Bradshaw was an agent of NFLIC, which, through its agent, promised to issue to the
plaintiff a policy of health insurance to become effective immediately upon the
execution of certain insurance forms. Plaintiff further alleged that Bradshaw advised
him to cancel his existing coverage.1
The defendant NFLIC admitted that Bradshaw was an independent agent
authorized to solicit business on its behalf but denied his authority to control the
issuance of a policy or the effective date of a policy. It averred that the application
was merely an offer by the plaintiff to purchase a policy of health insurance, which
offer was subject to acceptance or rejection, and that Bradshaw had no actual or
apparent authority to bind NFLIC, which the plaintiff acknowledged in writing.
Both NFLIC and Bradshaw moved for summary judgment. The motion of
NFLIC averred that it issued no policy and that the referenced documents reveal as
a matter of law that Bradshaw’s statements, if made, are not binding on it because
the application provides that coverage was not effective until the policy was issued.
Bradshaw’s motion essentially averred that since the application signed by the
plaintiff clearly provides that the policy will not become effective until delivery, there
is no genuine issue of material fact.
I
The trial judge was of the opinion that Bill Brown Const. Co. v. Glen Falls Ins.
Co., 818 S.W.2d 1 (Tenn. 1991) precedentially controls the disposition of the case
at bar. In Brown, the plaintiff was a specialized highway hauler of interstate
shipments. Brown negotiated with the defendant’s agent for a “full coverage policy”
on cargos, which were usually oversized and required special transport permits.
The agent told Brown that he had full coverage. About two years later, a large piece
of machinery being transported was destroyed when it struck an underpass on
1
This was not accomplished for reasons not relevant to the disposition of this
case.
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Interstate 40. Coverage was denied because the truck (as distinguished from its
cargo) did not collide with the bridge. The pertinent insurance provision provided
coverage for losses to goods caused by “collision of the conveyance with any other
vehicle or object.” The principal issue was whether the agent, who was the statutory
agent of the defendant pursuant to TENN. CODE ANN . § 56-6-147, had the apparent
authority to waive the limitation on cargo coverage. The Supreme Court held that
any contractual provision . . . may be waived by an officer or agent who has actual
or apparent authority to do so. The thrust of Brown provides:
We reaffirm the long-standing rule in Tennessee that any
contractual provision of a policy of insurance, whether part of an
insuring, exclusory or forfeiture clause, may be waived by the acts,
representations or knowledge of the insurer’s agent . . . “
We think it evident that the plaintiff cannot be permitted to stultify himself in
the manner sought.
In Arnold v. Locomotive Engineer’s Mutual Life and Accident Ins. Assn., 204
S.W.2d 191 (Tenn. Ct. App. 1946), the insured signed an application which provided
that “I understand that the insurance herein requested shall not take effect until and
unless this application is approved at the Home Office.” The plaintiff contended that
the agent who took the application made an oral contract binding on the company,
that coverage was immediately afforded and that the company was estopped to
deny coverage because it had negotiated the check tendered for the first premium.
The Court held that the applicant was bound by the language in the application
requiring approval of the Home Office, reasoning that the insured was charged with
knowledge of the limitations upon the authority of the agent as stated in the
application, and that
“one who deals with an agent knowing that he is clothed with
circumscribed authority and that his act transcends his powers,
cannot hold his principal . . .”
In Brown, the agent had apparent authority to widen coverage, as contrasted
to the case at bar, wherein it is not disputed that the plaintiff acknowledged, in
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writing, that agent Bradshaw “cannot change, alter, or amend any NFLIC
requirement” and that “I further understand that the agent has no authority to make
any representations about the conditions under which NFLIC will issue a policy or
make a policy effective.” Neither is it disputed that the plaintiff signed an application
which stated that “I understand that the . . . policy shall not be effective until the
policy has been actually delivered . . . “ It seems to us that the case at bar is
obviously distinguishable from Brown, not only with respect to the facts but with
respect to the underlying legal issue of whether the agent was clothed with apparent
authority to determine the effective date of coverage.
Brown did not purport to overrule Arnold, which clearly is expositive of
Tennessee law that an application for coverage which provides that coverage is not
effective until the application is approved. It is merely an offer by the applicant to
enter into an insurance contract, and until there is an acceptance there is no
contract. While the plaintiff alleges that he did not read the documents, it is settled
law in Tennessee that he is nonetheless charged with knowledge of their contents.
Solomon v. First American National Bank, 774 S.W.2d 935 (Tenn. Ct. App. 1985).
We hold that the motion of NFLIC is well taken and should be granted.
II
Although not clearly stated, plaintiff’s theory of recovery against agent
Bradshaw is apparently based on the principle that an agent purporting to make an
unauthorized contract on behalf of his principal may be liable to a third party on the
ground that he warrants his authority to enter into the contract:
It is well settled that one who purports as agent to enter into a
contract, upon which the principal is not bound because of the fact
that the agent has contracted without authority or in excess of his
authority, is personally liable for the damage thus occasioned by the
other contracting party.
3 Am.Jur.2d Agency § 303.
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However, as is here determinative, it is essential to any such third party’s
right of action that the third party purporting to hold the agent liable must have acted
without knowledge, or imputed knowledge, of the agent’s lack of authority:
To give a party a right of action against a professed agent, he must
have been ignorant of the lack of authority and have acted upon the
faith of the express or implied representations that the professed
agent had the authority assumed. Similarly, the agent is not subject
to liability to the third party if he sufficiently manifests that he does
not warrant his authority and makes no tortious misrepresentation.
Ibid.
The Restatement (Second) of Agency, § 329, provides:
A person who purports to make a contract, conveyance or
representation on behalf of another who has full capacity but whom
he has no power to bind, thereby becomes subject to liability to the
other party thereto upon an implied warranty of authority, unless he
has manifested that he does not make such warranty or the other
party knows that the agent is not so authorized.
An agent is not liable to the third party if he sufficiently manifests that he does
not warrant his authority:
A person who purports to make a contract, conveyance or
representation on behalf of a principal whom he has no power to
bind thereby is not subject to liability to the other party thereto if he
sufficiently manifests that he does not warrant his authority and
makes no tortious misrepresentation.
If the agent gives notice to the third person that the existence of the
authority is not warranted, he is not liable, although the other does
not learn of, or forgets this. Thus, if the agent, in accordance with
the prior course of business between them, sends a notification of
such lack of warranty, or if a statement of the same purport is
conspicuously placed upon the memorandum of the contract, the fact
that the third person does not read the notification is immaterial.
The documents signed by the plaintiff acknowledging the lack of authority of
agent Bradshaw are a complete refutation of his purported cause of action against
the agent.
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He cannot assert a claim against the agent while acknowledging that he was
aware that the agent had no authority in the premises. The motion of the agent for
summary judgment is therefore well-taken.
The judgment is reversed and the case is dismissed at the costs of the
appellee.
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William H. Inman, Senior Judge
CONCUR:
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Herschel P. Franks, Judge
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Charles D. Susano, Jr., Judge
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