Shebester v. Triple Crown Insurers

Shebester v. Triple Crown Insurers
1992 OK 20
826 P.2d 603
63 OBJ 450
Case Number: 74087
Decided: 02/11/1992
Supreme Court of Oklahoma

RALPH W. SHEBESTER, D/B/A SHEBESTER STALLION STATION, PLAINTIFF-APPELLANT,
v.
TRIPLE CROWN INSURERS, A FLORIDA INSURANCE CORPORATION, DEFENDANT-APPELLEE, and QUALITY INSURANCE COMPANY, D/B/A QUALITY PROPERTY AND CASUALTY INSURANCE COMPANY, DEFENDANT.

Certified question from a United States Court.

¶0 In an action by the seller of goods against an insurer's agent for wrongful payment of policy proceeds, the seller appealed from the district court's summary judgment for the agent. The United States Court of Appeals for the Tenth Circuit certified a question of law upon which there is no controlling Oklahoma precedent.

CERTIFIED QUESTION ANSWERED.

Alan Agee and Brett Agee, Garvin, Agee, & Meisel, Pauls Valley, for plaintiff-appellant.

Murray E. Abowitz and Rita J. Dingus, Murray, Abowitz and Welch, Oklahoma City, for defendant-appellee.

OPALA, Chief Justice.

[826 P.2d 605]

¶1 The United States Court of Appeals for the Tenth Circuit certified the following question pursuant to the Uniform Certification of Questions of Law Act,

¶2 "Does a seller of property state a cause of action in tort against an agent of an insurance company where the seller alleges that:

¶3 1. The seller sold the property to a purchaser on credit terms under an agreement that required the purchaser to have in force an insurance policy on the property with the seller named as a beneficiary, to the extent of the unpaid balance of the purchase price;

¶4 2. The purchaser purchased insurance coverage, but failed to purchase the required coverage for the seller, thus the insurance policy did not include the seller as a beneficiary;

¶5 3. The property was destroyed and the insurance proceeds were paid to the purchaser;

¶6 4. Prior to payment of the proceeds to the beneficiary (the purchaser), the agent for the insurance company was informed by the seller that the sales agreement required that the seller be named as a beneficiary of the insurance policy and that the purchaser's debt to the seller had not been satisfied?"

¶7 The circuit court invites our attention to some authorities in other states and requests that we search for an appropriate Oklahoma-law norm

I.
ANATOMY OF FEDERAL LITIGATION

¶9 An installment contract for the purchase of a horse, which led to this litigation, provides that the buyer will purchase insurance for the seller's benefit to the extent of the outstanding debt. The buyer insured the horse, but it named itself as the policy's beneficiary. After the horse died but before payout of the proceeds to the buyer, the seller made demand on the insurer's agent for his share of the proceeds. The seller furnished the agent with copies of (1) his installment-purchase agreement with the buyer and (2) a letter from the buyer's managing partner, which directed the company to pay the seller the amount outstanding on the contract.5 Several months later the insurer's agent paid all of the proceeds directly to the buyer.

¶10 The seller sued the buyer, the insurer's agent, and the insurer6 in the United States District Court for the Western District of Oklahoma. The district court gave the seller a judgment against the buyer for $25,000.007 and summary judgment went in favor of the agent.8

II.
THE SELLER'S TORT THEORIES

A.

APPLICATION OF THE UNIFORM COMMERCIAL CODE

¶12 The seller claims he has a security interest in the collateral and that the insurer's agent converted the policy proceeds within the meaning of 12A O.S.Supp. 1984 _ 9-306 (2).10 The insurer's agent responds that the installment-purchase agreement did not even create a security interest. Article 9 of the U.C.C. governs in this state all security interests in personal property.11 A written security agreement describing the collateral and signed by the debtor is the sine qua non of a nonpossessory security interest in goods.12 In short, although the agreement before us is in writing and signed by the buyer, it lacks language showing an intent to secure the collateral.13 [826 P.2d 608] This fundamental flaw precludes the seller from invoking _ 9-306(2) to sue for conversion of the proceeds.

B.

THE AGENT'S EX DELICTO LIABILITY AT COMMON LAW

¶13 The seller, who admits that under extant Oklahoma jurisprudence these facts do not give rise to a common-law tort, theorizes his action should be maintainable as one for conversion, quasi-conversion, or a "yet unnamed" tort.

¶14 Conversion is an illegal taking of another's personalty inconsistent with his ownership rights.14 The general rule in Oklahoma is that only tangible personal property may be converted.15 An action for conversion would not lie. What the seller has here is the right to recover money, a chose in action, which under Oklahoma law is considered intangible personal property.16 The agent's wrongful payment to another neither extinguishes the seller's claim nor affects the superior claimant's title to the proceeds. We accordingly hold that the seller's claim for wrongful payout is not maintainable as common-law conversion.

¶15 The seller relies extensively on several sections of Couch on Insurance 2d to support his "yet unnamed" tort theory.17 We have considered this instructive text and the authority cited in its support but remain unpersuaded that a new tort should be fashioned to hold an insurer's agent liable ex delicto for failure to pay proceeds to the proper claimant.18

III.

THE SELLER'S CONTRACTUAL REMEDIES AGAINST THE INSURER'S AGENT

A.

THE AGENT'S STATUS VIS-A-VIS THE INSURER

¶16 The circuit court asks that we answer whether an insurer's agent would have individual liability for the wrongfully paid-out proceeds.

B.

THE SELLER AS THIRD-PARTY BENEFICIARY OF THE BUYER'S INSURANCE POLICY

¶18 The seller contends that even if he has no cause of action in tort, the agent is nonetheless liable to him for the undisclosed principal insurer's breach of contract. A contract made expressly for a third person's benefit is enforceable by that person.

C.

QUASI-CONTRACTUAL LIABILITY FOR WRONGFUL PAYOUT

¶19 The following principles of an insurer's liability for wrongful payout are generally accepted: (1) an insurer who chooses to pay one of two or more competing claimants does so at its own risk; and (2) payment to the named beneficiary with notice of another person's adverse claim renders an insurer liable to the legally entitled claimant for the amount wrongfully paid.

¶21 The liability of an insurer (and hence that of the insurer's agent acting for an undisclosed principal insurer) for wrongful payout of proceeds rests on an implied-in-law obligation to pay the rightful claimant. We accordingly hold that an agent for an undisclosed insurer is itself bound by a quasi-contractual duty, not only toward the beneficiary named in the policy, but also to those outsiders of whose claimed interest in the proceeds the agent has timely notice.

¶22 Oklahoma's interpleader statute provides that a party potentially exposed to double or multiple liability for wrongful payment may tender the claimed property into court for a decision on the priority of claims.

¶23 Whether the agent's status vis-a-vis the insurer was disclosed to the seller when the latter sought the payout is disputed. As pointed out earlier in this opinion and in the explanatory footnotes,

¶24 CERTIFIED QUESTION ANSWERED.

¶25 HODGES, V.C.J., and LAVENDER, DOOLIN, ALMA WILSON, KAUGER and SUMMERS, JJ., concur;

¶26 SIMMS and HARGRAVE, JJ., concur in part and dissent in part.

Footnotes:

"There is authority in other states for the proposition that an insurance company, with knowledge of a sales contract or mortgage clause that obligates the purchaser/mortgagor to procure insurance for the benefit of the seller/mortgagee, cannot pay the loss proceeds to the purchaser/mortgagor without incurring liability to the seller/mortgagee. See 5 Couch on Insurance, __ 29:68 and 29:89 (2d ed. 1984); 4 Appleman Insurance Law and Practice, _ 2268 (1969). See also Cromer v. Cromer, [293 S.C. 360], 360 S.E.2d 528, 530 (S.C. Ct. App. 1987) (`[A]n insurer who makes payment to another after notice and in derogation of such equitable lien does so at its peril.'); Wade v. Seeburg, 688 S.W.2d 638, 639 (Tex. Ct. App. 1985) (`Even though not listed as an insured in a fire insurance policy, a vendor-mortgagee may recover the proceeds of such a policy where the vendee-mortgagor has agreed to insure the property for the benefit of the vendor-mortgagee. The right to the proceeds may be enforced directly against the insurer.'); Employer's [Employers] Mut. Casualty Co. v. Standard Drug Co., 234 So. 2d 330, 333 (Miss. 1970) (citing Couch); Northwestern Fire & Marine Ins. Co. v. New York Life Ins. Co. [238 Ky. 229], 37 S.W.2d 67, 69 (Ky. Ct. App. 1931) (insurer liable to mortgagee for proceeds paid to mortgagor in light of mortgagee's equitable lien and insurer's knowledge of the lien after the policy was written but before payout). We are unaware of any authority that has extended such liability to an agent of an insurance company except for the case of Westchester Fire Insurance Co. v. English, 543 S.W.2d 407, 414 (Tex.Ct. [Civ.] App. 1976). There, the Texas Court of Appeals held that an insurance agent may be liable to a mortgagee under a negligence theory when, after notice of the mortgagee's interest in the property, the agent fails to include the mortgagee as a beneficiary on the mortgagor's insurance policy. It appears to this court that there is no controlling precedent of the certified question in the decisions of the Supreme Court of Oklahoma. . . ." [Emphasis supplied].

We do not address the question whether equitable mortgages in chattels survive Oklahoma's adoption of the U.C.C. This issue is not fairly comprised within the certified question. For a thorough discussion of both the view that Article 9 abolished equitable liens and an argument for their continued viability, see Hillman, McDonnell and Nickles, Common Law and Equity Under The Uniform Commercial Code _ 19.03. Professor Grant Gilmore of the University of Chicago Law School, one of the commentators for Article 9, suggests in a treatise written after the Code's adoption that "if the Code in some sense abolishes the equitable lien, it will have to be invented all over again." Professor Gilmore believes that beyond the area of institutionalized types of financing transactions "there stretches a no man's land, in which strange creatures do strange things." [Emphasis supplied]. 1 Security Interests in Personal Property _ 11.1, 336-337 (1965).

Oklahoma does not regard Article 9 as a sweeping repeal of all preexisting common-law rights. Adams v. City Nat. B. & T. Co. of Norman, Okl.,

". . . (1) `Proceeds' includes . . . [i]nsurance payable from any source by reason of loss or damage to the collateral . . . even though such insurance payments may be made by third party tortfeasors or their insurers, except to the extent that it is payable to a person other than a party to the security agreement. . . . (2) Except where this article otherwise provides, a security interest continues in collateral, notwithstanding sale, exchange or other disposition thereof, unless the disposition was authorized by the secured party in the security agreement or otherwise, and also continues in any identifiable proceeds including collections received by the debtor."

Seller cites the following cases in support of his U.C.C. conversion theory: First Nat. Bank of Bethany v. American General,

Article 9 replaced Oklahoma statutes on chattel mortgages (former

A security agreement is an "agreement which creates or provides for a security interest." 12A O.S.Supp. 1984 _ 9-105 (1).

The formal requisites of a security interest are set out at

"(1) . . . a security interest is not enforceable against the debtor or third parties with respect to the collateral and does not attach unless:

(a) the collateral is in the possession of the secured party pursuant to agreement; or the debtor has signed a security agreement which contains a description of the collateral, . . .

(b) value has been given; and

(c) the debtor has rights in the collateral.

(2) A security interest attaches when it becomes enforceable against the debtor with respect to the collateral. Attachment occurs as soon as all of the events specified in subsection (1) of this section have taken place unless explicit agreement postpones the time of attaching. * * *"

To determine whether a description of collateral is sufficient, see

"This agreement is hereby entered into this 8th day of March 1984, by and between Shebester Stallion Station, hereinafter referred to as seller, and the Calm Tom, Partnership, consisting of John A. Flint, J. Kelly Flint, George Marchbanks, and Pat Swan, hereinafter referred to as buyers.

It is agreed that seller desires to sell and buyers are willing to purchase the Quarter Horse Stallion, Calm Tom, who's [sic] sire is Showum Jet and his dam is Calm Kathy, [sic] The total agreed price is to be $75,000.00, with the following terms:

To be paid at time of signing ............... $25,000.00

To be paid on or before September 1, 1985 ..... $25,000.00

To be paid on or before September 1, 1986 ..... $25,000.00

With no interest assessed to the unpaid balance. [sic]

The seller guarantees Calm Tom, [sic] to be fertile for breeding purposes. The buyers agree to purchase and have in force, an insurance policy with adequate coverage, with Ralph Shebester named as beneficiary to the extent of his outstanding debt, before the horse is moved from Shebester Stallion Station."

The agreement was signed by the seller and by John A. Flint, partnership manager, on behalf of the partnership.

"A thing in action is a right to recover money or other personal property, by judicial proceedings."

See Moore v. Stanton, 77 Okl. 41,

Oklahoma law is in accord with that of other jurisdictions. See Restatement (Second) of Agency _ 343 (1957) which states in pertinent part:

"An agent who does an act otherwise a tort is not relieved from liability by the fact that he acted at the command of the principal or on account of the principal. . . ."

An agent's contractual liability is discussed in restatement's _ 320 and comment b which state:

". . . a person making or purporting to make a contract with another as agent for a disclosed principal does not become a party to the contract. * * * One bringing an action upon a contract has the burden of showing that the other is a party to it."

An insurance agent is a person expressly or impliedly authorized to represent an insurer in dealing with third persons. There can be different types of insurance agents, but one whom the company employs to write insurance by and in the name of the company, is sometimes called a policy-writing agent. Glens Falls Ins. Co. v. Johnson at 332.

The Claims Resolution Act,

"A contract, made expressly for the benefit of a third person, may be enforced by him at any time before the parties thereto rescind it."

"that when private property is `affected with a public interest it ceases to be juris privati' [of private right] only" and it becomes "clothed with a public interest when used in a manner to make it of public consequence, and affect the community at large;" and so using it, the owner, "grants to the public an interest in that use, and must submit to be controlled by the public for the common good." [Emphasis supplied].

This is the principle that explains an insurer's duty toward those with valid claims, which extends dehors its contractual duty to a named insured that is articulated within the four corners of the written insurance policy.

Oklahoma's extensive regulations of the insurance business are found at

"If, after entering into a written contract in which provision is made for the payment of any death benefit . . . the party to the contract with the power to designate the beneficiary of any death benefit dies after being divorced from the beneficiary named to receive such death benefit in the contract, all provisions in such contract in favor of the decedent's former spouse are thereby revoked. . . ."

See also, e.g., the statute providing that certain persons causing death are not to benefit by decedent's insurance at

"* * * no beneficiary of any policy of insurance . . . payable upon the death or disability of any person who in like manner takes, or causes or procures to be taken, the life upon which such policy . . . is issued . . . shall take the proceeds of such policy * * *".

In such cases the statute provides the notice that is required as a prerequisite for the imposition of liability on an insurer for paying the named beneficiary who is not entitled to the proceeds.

The duty of an insurer to pay the rightful claimant is very much like that described in cases where a trustee makes payment of trust funds to a person other than the beneficiary entitled to receive the money; he is liable to the beneficiary unless the proper court authorized the payment. This liability is enforced even though the wrongful payment results from a mistake of law and appears reasonable. See 3 Scott on Trusts _ 226, 1796-1802 (1967) and cases cited therein. See Security Bank of New York v. Callahan, 220 Mass. 84, 107 N.E. 385 (1915); see also, e.g., State National Bank v. Payne, 56 Ill. App. 147 (1894).

"A. Persons having claims against the plaintiff may be joined as defendants and required to interplead when their claims are such that the plaintiff is or may be exposed to double or multiple liability. . . . * * * * * *

C. * * * Where the party seeking relief by way of interpleader claims no interest in the subject of the action and the subject of the action has been deposited with the court . . . the court should discharge him from the action and from liability as to the claims of the other parties to the action with costs and, in the discretion of the court, a reasonable attorney fee. * * * "

SIMMS, Justice, concurring in part, dissenting in part:

¶1 I concur in the portion of the majority opinion answering the question certified by the federal court.

¶2 I dissent, however, from the majority's decision to address unasked questions of contractual liabilities and remedies.