Davis v. Mutual Life Insurance

CORNELIA G. KENNEDY, Circuit Judge,

with whom Judge RALPH B. GUY joins, concurring in part and dissenting in part.

We concur in all of Judge Engel’s opinion except for parts 11(A)(2)(b) and 11(D), the portions upholding the verdict against TWA.

Fletcher was a general agent of TWA to sell life insurance. As such, he was an independent contractor. He was “free to exercise independent judgments as to the time and manner in which he [would] perform the services.” General Agent’s Contract. He was to solicit and produce applications for life insurance and annuities. The contract expressly provided that he could not alter or waive any terms of the policies he sold or make representations not strictly in accordance with policies. He was not “[t]o incur any expense or obligation of any kind or nature in the name of or on behalf of the Company, without first obtaining the express written authority of the Company in each case, ...” or “[t]o do or perform any act or thing other than is expressly granted herein.” Each policy of insurance was sold on the basis of an application for insurance sent to TWA and accepted by it. The policy clearly said that the contract with TWA was contained in the policy and the application, and that they were the entire contract and could only be modified in writing signed by an officer of the company. Thus, the insureds were on notice that Fletcher’s authority was limited.

There is no evidence that TWA ever authorized any of its agents to become involved in income tax preparation.

The marketing director agreement merely gave Fletcher an override on sales by agents he brought along with him to TWA. It did not purport to make him an employee of TWA but maintained the independent contractor relationship. Both Fletcher and the agents, from whom he received an override, also wrote insurance for other insurance companies during the time they wrote for TWA.

Judge Engel acknowledges that the evidence against TWA is slight. He infers, however, that the jury could infer that TWA knew of Fletcher and his sub-agents’ fraudulent tax scheme. Fletcher denied ever telling TWA of his scheme. Judge Engel states that the testimony of Fletcher, quoted on page 12 of his opinion, is sufficient for the jury to find that Fletcher was impeached when he said that he did not inform TWA of his scheme. I disagree. The fact that Fletcher, in a conversation, told a TWA executive that a tax lecture was being held and he might like to attend gave no notice to TWA of the tax scheme here. The executive did not attend and the subject was not discussed again. Judge Engel also would find knowledge from the large increases in sales. The increases might have been sufficient to cause TWA to inquire how these insurance agents did so well. But there is no evidence that it did inquire and direct evidence that it did not. If we were dealing with a negligence standard, I could agree that further inquiry might be required. But the standard here is what TWA knew, not what it should have investigated. The evidence was insufficient to permit the jury to find ratification under the court’s instruction.

The jury instruction on ratification stated:

The insurance companies may be bound by the acts of their agents, Donald Fletcher, Evelyn Johnson and others, even if such acts exceeded their actual or apparent authority, if the insurance companies ratified such actions. A principal may ratify the actions of his agent by receiving and retaining the benefits of the transaction, or by mere silence where his silence tends to mislead, when done with full knowledge of all material facts.

*389 The ratification by the principal of an unauthorized action may be shown by the conduct of the principal done with full knowledge of all material facts.

There was no basis for the jury to find that TWA had ratified Fletcher’s tax fraud with full knowledge of all material facts.

Because we find the evidence insufficient with respect to TWA, we set aside the verdict and dismiss the action against TWA.