Progressive Casualty Insurance v. Ehrhardt

BISHOP, Judge. This case stems from a motorcycle accident involving appellee, Robert E. Ehrhardt, and his passenger, Judith Penn. Ms. Penn filed a tort action against Ehrhardt for personal injuries sustained from the accident. In response to this action against its insured, appellant, Progressive Casualty Insurance Company (Progressive), filed the instant action for declaratory judgment.

In the declaratory judgment action, appellant requested that the court declare that Progressive had no duty to defend or indemnify Ehrhardt due to lack of insurance coverage. Ms. Penn’s insurance carrier, State Farm Mutual Automobile Insurance Company (State Farm), entered the litigation and aligned itself with Ehrhardt, contending that Progressive should pay for the injuries to its insured, Ms. Penn. In the event the court determined that Ehrhardt was uninsured at the time of the accident, Ms. Penn filed a cross-claim for damages against State Farm. Progressive and State Farm filed motions for summary judgment on the issue of Progressive’s duty to defend and indemnify Ehrhardt.

The court, however, denied summary judgment because there existed a dispute as to a material fact relating to whether Ms. Penn’s mother had notified Progressive’s Baltimore Claims Office of the accident on May 26, 1983. The case went to trial before Judge Robert ⁴³⁶ F. Fischer in the Circuit Court for Howard County. In a memorandum, Judge Fischer concluded that Ehrhardt was covered by Progressive at the time of the accident. Accordingly, the court ordered that Progressive must defend Ehrhardt against claims brought on behalf of Ms. Penn arising out of the accident and indemnify him according to the terms of his insurance policy.

Progressive appeals this outcome by raising three issues: I. The evidence was insufficient to support the trial court’s finding that Progressive had knowledge of the accident at the time it backdated the policy to May 19, 1983; II. The trial court’s conclusion that its agent had authority to backdate the policy was erroneous; and III. Progressive’s actions did not amount to a waiver of its right not to extend coverage for the period during which the loss occurred. FACTS Robert Ehrhardt was the named insured in a motorcycle liability insurance policy which he purchased from Progressive.

The policy covered the period from May 19, 1982 to May 19, 1983 and was renewable at Ehrhardt’s option. According to the terms of the policy, the tendering of an insurance premium for $70.40 on or before May 19, 1983 would renew the policy for another year. If Ehrhardt failed to tender payment by that expiration date, however, policy coverage would cease at 12:01 a.m. on May 19, 1983. If Ehrhardt tendered payment after the expiration date, the policy was still renewable but the effective date of the renewal would have been the postmark date of the premium.

Ehrhardt failed to pay his premium by the expiration date and, consequently, his policy lapsed automatically on May 19, 1983. Six days later, Ehrhardt was involved in a motorcycle accident in which he and Judith Penn suffered injuries. At the hospital that evening, Ehrhardt asked his father to pay his overdue premium. On the next morning, ⁴³⁷ Albert Ehrhardt carried out his son’s request and paid to Progressive’s soliciting agent, V.W. Brown, $70.40 for the renewal of the policy.

On two occasions, Progressive was put on notice of the accident. First, Ehrhardt notified Progressive on May 31, 1983. In his report, however, he fraudulently claimed May 26, 1983 as the date of the accident, instead of May 25, 1983. Second, testimony indicates that Judith Penn’s mother contacted Progressive by telephone on May 26, 1983.

According to her testimony, which was corroborated by her husband, Mrs. Penn informed Progressive’s Baltimore Claims Office that its insured had been in a motorcycle accident on May 25, 1983 in which her daughter suffered injuries. Although she was unable to supply Progressive with Ehrhardt’s policy number, she did report that her daughter sustained serious injuries and was in the shock-trauma treatment unit at Maryland University Hospital. During trial, Progressive vigorously disputed this fact by introducing evidence indicating that its employees had no record or recollection of Mrs. Penn’s telephone call. Upon receiving Ehrhardt’s renewal premium from his father on May 26, 1983, V.W. Brown Agency immediately forwarded it by mail to Progressive’s Richmond office.

Progressive initially processed it with an effective date of May 26, 1983, the date on which the envelope in which it was enclosed was postmarked. On June 2, 1983, Progressive’s lead underwriter reviewed Ehrhardt’s policy and backdated its renewal from May 26 to May 19, 1983. As a result, Robert Ehrhardt received in the mail from Progressive a renewal policy effective from May 19, 1983. In a nonjury trial, the court found that Mrs. Penn’s telephone call placed Progressive on notice of the May 25th accident prior to the issuance of the policy renewal.

Although Progressive would not ordinarily have been obligated to cover Ehrhardt’s accident, the court concluded that it waived its right to void the policy when, with notice of the accident, it issued Ehrhardt’s renewal effective on May 19, ⁴³⁸ 1983 and charged a premium based on that renewal date. Accordingly, the court declared that Progressive was obligated to defend and indemnify Ehrhardt in the underlying personal injury claim. The sole issue before this Court is whether Progressive waived its right not to cover Ehrhardt’s losses sustained during the defaulting period. Before plaintiffs may invoke waiver as the ground for recovery, three prerequisites must be established: knowledge, authority and intent.

Progressive must have had knowledge of all material facts; its agent must have acted with its authority; and the actions of its agent must have amounted to an intentional relinquishment of a known right. Progressive contends that appellees have failed to satisfy the requirements of these prerequisites. We will address these issues in order. I. Knowledge of Insured’s Loss Appellant challenges the trial court’s finding that Mrs. Penn had placed Progressive on notice that Ehrhardt had been involved in an accident on May 25,1983.

In support of this position, appellant points to the fact that none of its employees that normally receive claims had any recollection of Mrs. Penn’s call. This was corroborated by Progressive’s claims registry, which revealed that no claim was received from Mrs. Penn on that day. Moreover, appellant suggests Mrs. Penn’s testimony is inherently incredible since it is entirely inconsistent with the procedures by which Progressive trains its employees to handle claims. As a matter of routine, its claims office assistants ask the caller a battery of questions that are enumerated on the loss report form.

Mrs. Penn’s testimony indicates that she was not subject to such a cross-examination. In light of this evidence adduced at trial, appellant contends the court’s determination that it had notice was clearly erroneous. Md. Rule 1086. ⁴³⁹ Pursuant to Maryland Rule 1086, this Court must adopt a deferential posture when reviewing the trial court’s factual findings. “Due regard” must be given to the courts opportunity to judge the credibility of the witnesses; we may not set aside an evidentiary conclusion unless the trial court was clearly erroneous. Md. Rule 1086; Gosman v. Gosman, 19 Md.App. 66, 78 , 309 A.2d 34 (1973); Carling Brewing Company v. Henry Belzner, 15 Md.App. 406, 411-13 , 291 A.2d 175 (1972).

In the instant case, appellees presented substantial evidence from which the trial court could have concluded that Mrs. Penn notified Progressive of the May 25th accident on May 26,1983. Because of this substantial evidence, we affirm the trial court’s conclusion that Progressive had knowledge of Ehrhardt’s accident and the date of that accident when it backdated his insurance policy.

II

Agent’s Authority to Bind the Principal Authorized agents may subject the principal, in this case Progressive, to personal liability and create rights in its favor. This ability to bind the principal, however, is limited to the extent which the agent is authorized to act. Colonial Building & Loan Company v. Boden, 169 Md. 493 , 182 A. 665 (1936); Hardy v. Chesapeake Bank, 51 Md. 563 (1879); see generally 3 Am.Jur.2d Agency § 271 (1986) (discussing principal’s liability for agent’s unauthorized acts); W. SEAVEY HANDBOOK OF LAW OF AGENCY § 3 (1964) (discussing the relationship between the principal and agent). In the case sub judice, appellees contend that one of Progressive’s agents, its chief underwriter, waived its right not to cover Ehrhardt’s losses sustained during the defaulting period when the underwriter backdated the policy to May 19, 1983.

Applying the tenets of agency law discussed above, appellees’ contention hinges on whether Progressive authorized its agent to backdate the policy. ⁴⁴⁰ An agent’s authority to act must come from the principal. It is well established that the authority conferred upon the agent by the principal can take two forms: actual authority or apparent authority. According to American Jurisprudence: [a]ctual authority is that which is actually granted, and it may be express or implied. Apparent, or, as it is also called, ostensible authority, on the other hand, is that authority which, though not actually granted, the principal knowingly permits the agent to exercise or which himself holds out as possessing. 3 Am.Jur.2d Agency § 71, at 575 (1986) (footnotes omitted).

In addressing the issue of authority, the trial court concluded that Progressive’s lead underwriter had no actual authority to backdate Ehrhardt’s policy. The facts of the case support the court’s conclusion. Progressive authorized its underwriters to backdate policies only upon approval of the office supervisor after the insured has provided a written declaration of no loss. Moreover, Progressive limited this practice of backdating to situations where the renewal payment was received within five days of the policy expiration.

In the case at bar, there was no approval by the office supervisor, no written declaration of no loss, and Progressive received the renewal payment seven days after the expiration of Ehrhardt’s policy. While finding no actual authority, the court nevertheless concluded that Progressive’s agent had apparent authority to backdate the policy. In support of its conclusion, the court gave no explanation. After careful review of the record, we find the court’s conclusion somewhat problematical.

The Court of Appeals in Reserve Insurance Company v. Duckett, 240 Md. 591 , 214 A.2d 754 (1965) succinctly summarized the doctrine of apparent authority as follows: One who knowingly permits another to act for him as though authorized, inducing third persons to rely to their disadvantage on the seeming authority, is estopped from ⁴⁴¹ later asserting the lack of authority of his apparent agent. Duckett, 240 Md. at 600-01 , 214 A.2d 754 (citing Hobdey v. Wilkinson, 201 Md. 517 -26, 94 A.2d 625 (1953)). Accord Ramsburg v. Sykes, 221 Md. 438, 442-43 , 158 A.2d 106 (1960); White v. Friel, 210 Md. 274, 284 , 123 A.2d 303 (1956); Penowa Coal Sales Company v. Gibbs and Company, 199 Md. 114, 119 , 85 A.2d 464 (1952). See generally 3 Am.Jur.2d Agency § 80, at 587 (1986) (setting forth prerequisites for establishing apparent authority).

Under this doctrine, the crucial factor is reasonable reliance by a third party on the principal’s conduct. Specifically, the principal becomes responsible for the agent’s actions when the principal’s conduct, either affirmative acts or the failure to take corrective steps, has clothed an agent with apparent authority and thereby induces a third party to rely to his detriment. Analysis of Progressive’s relationship to the relevant third parties, presumably Ehrhardt and Judith Penn, does not reveal a clear-cut case of reasonable reliance. Since the decision by Progressive’s underwriter to backdate Ehrhardt’s policy occurred after the accident, neither party can claim reliance on that act when they rode the motorcycle.

Progressive, however, obstensibly