Damon’s Missouri, Inc. v. Davis et al., 63 Ohio St.3d 605 (1992)
Plaintiff is a restaurant chain who utilized Davis, an insurance broker and the president of Affiliated Risk, for all insurance matters. Prior to opening a new restaurant, Plaintiff gave Davis the lease for the building that the restaurant was to be located, and told him to secure the insurance required, without giving any further specific direction. Davis misinterpreted the lease and did not get any coverage on the building itself. Davis secured a much lesser policy for fire insurance from Fireman’s Fund. Ultimately, the restaurant and building caught on fire and was burned down and insurance claims were denied, due to the lack of coverage.
Plaintiff brought suit against Davis, Affiliated Risk, and Fireman’s Fund. The three agreed to jointly pay Plaintiff’s claim and proceed with the suit between the three of them for who was ultimately liable. The court appointed a special referee who rendered a decision for Fireman’s Fund, holding that an agency relationship had not ripened between Affiliated Risk and the insurer. Thus, liability for the loss caused by Davis, could not be imputed to Fireman’s Fund. The appellate court held that under R.C. 3929.27 created an agency relationship as a matter of law.
Whether an insurer will be held vicariously liable for the errors in judgment of its independent insurance agents (or insurance brokers).
When an insurance broker is investigating the insurance requirements of his or her customer, the potential insured, such broker is not an agent for a particular insurer. However, an insurance broker becomes an agent for a particular insurer when: (1) the broker notifies its customer that he or she intends to place the customer’s insurance coverage with a particular insurer; or (2) the broker accepts an application for insurance on behalf of the customer.
First, the Court looked to the express agreement between Affiliated Risk and Fireman’s Fund. The agreement directly refers to Affiliated Risk as an agent and allows acceptance of insurance proposals from Fireman’s Fund. An agent acting within the scope of his actual authority, expressly or impliedly, can bind the principal. Saunders v. Allstate Ins. Co., 168 Ohio St. 55 (1958). The Court determined that the power conferred onto Affiliated Risk was not to be a sole agent of Fireman’s Fund, but to enable Affiliated Risk to act as an insurance broker. To say that this agreement made Affiliated Risk a sole agent, ignores the fact that insurance brokers have agreements like this with many insurance companies. Thus, it is impossible to say that Davis was working in the scope of his authority to hold Fireman’s Fund vicariously liable, when he had not even attempted to get proposals from insurance companies.
Second, R.C. 3929.27, does not make Davis an agent of Fireman’s Fund. The statute says, “A person who solicits insurance and procures the application therefor shall be considered as the agent of the party, company, or association thereafter issuing a policy upon such application or a renewal thereof, despite any contrary provisions in the application or policy.” Id. However, the Court determines that since Davis never “solicited” insurance when making the error in question, he could not have been acting in the scope of his agency with Fireman’s Fund. A consultation with a customer is not considered a solicitation. The Court relies on the fact that at the point of the error, Davis was authorized to represent several companies and obtain proposals from any of them.
The Court goes on to differentiate between the definitions of insurance agent and an insurance broker under R.C. 3905.01(A)(1) and R.C. 3905.47(A). The definition of an agent under 3905.01(A) requires solicitation on behalf of an insurance company. In contrast, 3905.47(A) defines an independent insurance agent (broker) as, “. . . an insurance agent who is neither employed nor controlled solely by an insurer . . ..” The Court thus determines that it is apparent that the difference between the two boil down to the exclusivity of control.
Davis was investigating the insurance requirements of his customer. Davis had not yet intended to place the customer’s insurance coverage with a particular insurer or had accepted an application for insurance on behalf of the customer when the error was made. Since Davis was acting in the capacity of an insurance broker and not within the scope of an insurance agent for Fireman’s Fund, Affiliated Risk will be held liable for Davis’ error.
Dennis P. Sawan
Licensed in Ohio and Georgia
Christopher A. Sawan
Licensed in Ohio and Michigan