An insurance broker transacts insurance with, but not on behalf of an insurer while an agent transacts insurance with and on behalf of both the insurer and the insured. Disputes often arise over whether an the person transacting insurance for an insured is acting only for the insured or is involved in a dual agency and acting for both.
In Estate of Morse ex rel. Morse v. Titan Ins. Co., Not Reported in N.W.2d, 2014 WL 3971438 (Mich.App., 8/14/2014) a Michigan appellate court was asked to determine the capacity of Adrian Insurance Agency when it obtained automobile insurance for Charlotte Morse with Titan Insurance Co. The trial court determined Adrian was an agent of Titan and reformed a policy to place it in effect at the time Morse was injured rather than the date stated on the policy.
On Nov. 19, 2004, Morse went to Adrian to insure a 1996 Ford Taurus, a vehicle that she owned but was not insured, as it was an "extra" vehicle. Morse planned to drive this vehicle because her primary vehicle needed repairs. She obtained insurance for the Taurus under a Titan policy and paid the premium for six months of full coverage on the Taurus on Nov. 19, 2004. The Adrian agent, however, prepared the application for insurance with an effective policy date of Nov. 25, 2004. Titan, in turn, issued a policy to become effective on the date requested by Adrian.
Morse began driving the Taurus before the effective policy date and was rear-ended by another driver on Nov. 24, 2004. She suffered serious injuries in the accident, which left her a quadriplegic and eventually led to her death. Titan denied liability for any type of coverage or benefits arising from the accident because the policy did not become effective until Nov. 25, 2004. Morse sued Adrian, Auto Owners, Titan, and the driver of the vehicle that had rear-ended her. She claimed breach of contract as to Titan as well as an equitable claim seeking reformation of the insurance contract.
During the course of the litigation, Morse died and her estate was substituted as plaintiff. Also during the course of the litigation, plaintiff settled her claim with Adrian, and summary disposition was granted in favor of Auto Owners based upon the trial court's finding that because there was no insurance on the Taurus at the time of the accident, Morse was not entitled to PIP benefits from this insurer due to an exclusion in Auto Owner's policies and under relevant statutory provisions. The matter proceeded to trial against Titan only, with the sole and special question submitted to the jury being when the insurance policy issued by Titan went into effect.
The jury determined that the liability policy issued by Titan to Morse went into effect on Nov. 19, 2004. The trial court thereafter entered a judgment in favor of plaintiff and against Titan, reforming the insurance contract nunc pro tunc to make Nov. 19, 2004 the effective date for coverage by Titan. The parties agreed to waive trial by jury on the issue of damages and allow the court to enter a final judgment based upon plaintiff's offers of proof. Such a judgment was entered on April 2, 2012, in plaintiff's favor in the amount of $1,154,244.43.
The appellate court noted that an insurance policy is a contract between the insurer and the insured. Michigan courts possess the equitable power to reform a contract that does not express the true intent of the parties as a result of fraud, mistake, accident, or surprise. To reform a written instrument on the ground of mistake, the mistake must be mutual and common to both parties to the contract. Reformation will generally not be granted, however, for a mistake of law. Reformation is only appropriate if the evidence of the mistake and mutuality thereof is so clear as to establish the fact beyond trivial objections. The burden of proof is upon the party seeking reformation.
It is undisputed that the actual policy of insurance in this matter, or contract, was between Titan and Morse. It is also undisputed that the insurer, Titan, had no contact with Morse, the insured. Having had no contact with Ms. Morse, it would have no reason to intend that the policy become effective on any other date and there is thus no mutual mistake between the two parties named in the contract.
It is a longstanding legal principle that a duly authorized agent has the power to act and bind the principal to the same extent as if the principal acted. In effect, the agent stands in the shoes of the principal. Because an independent agent such as Adrian is generally an agent of the insured rather than the insurer, to establish that a mutual mistake was even a possibility in this matter, plaintiff must first establish that Adrian was not only the agent of plaintiff (the insured) but also of the insurer (Titan).
The written producer agreement between Titan and Adrian provides Adrian had no authority to execute any policies, endorsements or documents on behalf of Titan. Finally, there is a distinct difference between an agent who represents and acts on behalf of the interests of two parties at the same time (having two principals) and one who acts as the agent of one party and facilitates that party's transaction with another party. Being a conduit to a transaction does not translate into being a dual agent. An insurance intermediary who applies for or procures insurance coverage on behalf of a prospective insured is generally termed an insurance "broker" and characterized as the agent of the prospective insured in the insurance application.
There is no question that Adrian was an intermediary who applied for insurance coverage on behalf of plaintiff. In fact, there was no indication that Titan was involved in the insurance process other than quoting a price to Adrian, at Adrian's request. It was then up to plaintiff to determine if the price was acceptable.
The appellate court concluded that Adrian was the agent for plaintiff, not Titan in submitting the application for insurance. The judgment was reversed and Titan owed nothing. Adrian, the agent for the plaintiff, wisely settled to avoid trial on its alleged error to acquire insurance effective on the date the premium was paid.
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