Metropolitan Property and Casualty Insurance Company v. Agency One Insurance, Inc et al

Filing 39

MEMORANDUM OPINION and ORDER: Denying 29 Motion for Partial Summary Judgment. Signed by Magistrate Judge Leonard T Strand on 03/25/14. (kfs)

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF IOWA
WESTERN DIVISION
METROPOLITAN PROPERTY AND
CASUALTY INSURANCE COMPANY,
Plaintiff,

No. C12-4050-LTS

vs.
AGENCY ONE INSURANCE, INC. and
PAMELA A. SIROKY,

MEMORANDUM OPINION AND
ORDER ON PLAINTIFF’S MOTION
FOR PARTIAL SUMMARY
JUDGMENT

Defendants.
____________________
TABLE OF CONTENTS
I. 

INTRODUCTION........................................................................... 2 

II. 

PROCEDURAL HISTORY ............................................................... 2 

III. 

RELEVANT FACTS ....................................................................... 3 

IV. 

ANALYSIS ................................................................................... 6 
A. 
Summary Judgment Standards ................................................... 6 
B. 
Discussion ............................................................................ 8 
1. 
Negligence ................................................................... 8 
2. 
Negligent Supervision ................................................... 12 
3. 
Breach of Fiduciary Duty and Breach of Contract ................ 14 

V. 

CONCLUSION ............................................................................ 15 

I.

INTRODUCTION

This case is before me on plaintiff’s motion (Doc. No. 29) for partial summary
judgment. Defendants have filed a resistance (Doc. No. 35). Plaintiff did not file a
reply.1 I conducted a hearing on March 19, 2014. Plaintiff was represented by attorney
John Gray and defendants were represented by attorney Douglas Phillips. The motion is
fully submitted.
II.

PROCEDURAL HISTORY

Plaintiff Metropolitan Property and Casualty Insurance Company (Met P&C)
commenced this diversity action on May 17, 2012. It alleges that it appointed defendants
Pamela Siroky (Siroky) and Agency One Insurance, Inc. (Agency One) to accept
applications for insurance and to bind Met P&C to insurance contracts in accordance with
Met P&C’s underwriting guidelines. On or about December 7, 2010, Agency One
applied for coverage with Met P&C on behalf of Patricia Potter for a property described
as a one-story, 1500 square foot, single-family residential dwelling built in 1958. This
description complied with Met P&C’s underwriting guidelines and Met P&C issued a
policy to Potter. Potter’s property was later destroyed by fire. When she submitted her
claim, Met P&C learned for the first time that the property was actually a two-story,
4320 square foot commercial, six-unit, fully-occupied apartment building constructed in
1925. This is a commercial risk that Met P&C does not cover.
Met P&C alleges the Potter property was erroneously insured and Met P&C was
erroneously bound due to Agency One’s misrepresentation of the property. It asserts
claims for breach of contract, negligence, negligent supervision, breach of fiduciary duty

Although a reply brief is optional, the moving party is required to respond to the nonmoving
party’s statement of facts. See Local Rule 56(d). Failure to do so means all of the nonmoving
party’s facts are deemed admitted. Id. At the hearing, plaintiff requested the opportunity to
respond to defendants’ statement of additional facts. Defendants did not object and plaintiff filed
its response on March 21, 2014. Doc. No. 38.
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and vicarious liability. Agency One and Siroky filed an answer (Doc. No. 8) on June
28, 2012, in which they deny liability and raise various affirmative defenses. Doc. No.
8 at 3.
On August 29, 2013, with the parties’ consent, United States District Judge Mark
W. Bennett transferred the case to me. See Doc. No. 20. Trial is scheduled to begin
May 27, 2014.
III.

RELEVANT FACTS

Except as otherwise noted, the following facts are undisputed for purposes of Met
P&C’s motion for partial summary judgment:
The Parties. Met P&C is a personal lines insurance company incorporated in,
and with its principal place of business in, Rhode Island. Agency One is a Nebraska
insurance agency corporation which, at all relevant times, did business in Sioux City,
Iowa. Siroky is a Nebraska resident. She is the owner and President of Agency One and
an agent of Agency One.
The Agreement Between Agency One and Met P&C. On March 3, 2008, Met
P&C and Agency One entered into an Independent Agency Agreement. Under this
agreement, Agency One could accept applications for insurance and bind Met P&C to
insurance policies. The agreement required Agency One to only bind Met P&C to
policies that met its underwriting guidelines. Met P&C paid commissions to Agency One
for the policies it secured.
The Agreement Between Agency One and Douglas Inlay. Douglas Inlay (Inlay)
worked as an insurance agent in Sioux City. Siroky was introduced to Inlay in spring
2010 through a group of professionals. After their introduction, they continued to meet
to discuss establishing a professional relationship. Siroky spoke with Kelly Hanson, a
Regional Sales Manager of Met P&C, about doing business with Inlay and Hanson
thought it was a good idea based on the type of business Inlay had previously done and a
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review of his five-year production history and loss ratio. Hanson interviewed Inlay at
his Sioux City office and thought he was a “reputable individual.”
Before Inlay signed his Independent Agent Agreement with Agency One, Hanson
gave Inlay permission to use the access code of another Agency One employee to start
entering policies into Met P&C’s online system. Inlay produced several policies with
Met P&C and Hanson described his production as “truly amazing.” Indeed, Hanson won
a trip to Las Vegas because of all the new business Inlay was generating.
On May 1, 2010, Agency One and Inlay entered into an Independent Agent
Agreement. This agreement allowed Inlay to bind insurance carriers (such as Met P&C)
to policies through Agency One. Agency One and Inlay would then split the commissions
Inlay generated. Inlay’s office was in Sioux City and Agency One’s was in David City,
Nebraska. Inlay employed Candice Hunter and Joe Sauce at his Sioux City office.
In August 2010, Met P&C conducted a background check of Inlay and notified
Siroky of a “questionable item.” Siroky forwarded the information to Inlay, who stated
he would handle it directly with Met P&C. Inlay provided an explanation to Met P&C
and it did not request further information.
Inlay’s Employment with Agency One. Met P&C issued Inlay his own access
code in October 2010. However, he continued to use other Agency One employees’
codes to bind Met P&C policies and his own code was later deactivated.
Around November 1, 2010, Siroky learned from Inlay that his insurance license
had either been suspended or revoked. Inlay explained he was the victim of misconduct
by other agents in his prior position and had hired an attorney to appeal. Siroky and
Inlay met with Siroky’s attorney to discuss what Inlay could do as a producer without a
license. They were advised that Inlay could become an employee of Agency One and
continue to service existing customers and policies, but could not sell, solicit or otherwise
participate in any part of the sale of an insurance policy, including submitting an
application.
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On December 1, 2010, Agency One hired Inlay as an employee and paid him a
base salary to oversee the Sioux City office. According to his employment agreement,
he was not allowed to participate in any part of the sales process of an insurance policy.
Siroky informed Hanson of the new arrangement. Met P&C policies continued to be
placed through the Sioux City office. Siroky presumed this was done through Sauce,
who held an insurance license in December 2010, and later Hunter who also ultimately
obtained a license. Inlay was responsible for paying Sauce and Hunter the commissions
for these policies from the checks he received from Agency One.
Around March 2011, Inlay and Sauce were involved in a physical altercation at
the Sioux City office. Shortly thereafter, Sauce quit and Inlay stopped coming into the
office on a regular basis. In May 2011, Inlay could no longer pay Hunter, who was
essentially running the office, and Agency One began paying her salary. Siroky visited
the Sioux City office a couple times between December 2010 and May 2011, but began
visiting more often after May to train Hunter.
Inlay was officially terminated in August 2011. After his termination, Siroky
learned that Inlay had continued to sell policies while his license was revoked or
suspended.
The Fall Out. After Inlay was terminated, Siroky reviewed Inlay’s files and
learned that he had misrepresented information on several policies. One of the problem
policies she did not discover was submitted by Inlay on or about December 7, 2010, on
behalf of Patricia Potter and Sam Dedios. In that application, Inlay described the property
to be insured as a one-story, 1500 square foot single family, residential dwelling built in
1958. This description was consistent with Met P&C’s underwriting guidelines and Met
P&C was bound to the policy. The policy was renewed on December 10, 2011, and
Agency One did not review it for accuracy at that time.
A fire destroyed the Potter property on or about January 12, 2012, and Potter
submitted a claim to Met P&C shortly thereafter. Only then did Met P&C learn that the
property was not as Inlay had described, but instead was a two-story, 4320 square foot,
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six-unit apartment building constructed in 1925. If the property had been accurately
described, Met P&C would not have issued a policy because it does provide coverage for
commercial risks. Nonetheless, Met P&C paid the claim.
On February 9, 2012, Inlay was charged with Commission of a Specified Unlawful
Activity, Acting as an Insurance Producer Without a License, Fraudulent Submission to
an Insurer and Forgery in Iowa District Court for Woodbury County. He plead guilty to
one count of Acting as an Insurance Producer Without a License (a Class D felony) and
one count of Commission of a Specified Unlawful Activity (a Class B felony). He was
sentenced to five years in prison for the first count and twenty-five years for the second
count. The twenty-five year sentence was suspended and he was placed on probation
following a short period of incarceration.
IV.
A.

ANALYSIS

Summary Judgment Standards
Any party may move for summary judgment regarding all or any part of the claims

asserted in a case. Fed. R. Civ. P. 56(a). Summary judgment is appropriate when “the
pleadings, depositions, answers to interrogatories, and admissions on file, together with
affidavits, if any, show that there is no genuine issue of material fact and that the moving
party is entitled to a judgment as a matter of law.” Celotex Corp. v. Catrett, 477 U.S.
317, 322 (1986).
A material fact is one that “‘might affect the outcome of the suit under the
governing law.’” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). Thus,
“the substantive law will identify which facts are material.” Id. Facts that are “critical”
under the substantive law are material, while facts that are “irrelevant or unnecessary”
are not. Id.
An issue of material fact is genuine if it has a real basis in the record, Hartnagel
v. Norman, 953 F.2d 394, 395 (8th Cir. 1992) (citing Matsushita Elec. Indus. Co. v.
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Zenith Radio Corp., 475 U.S. 574, 586-87 (1986)), or when “‘a reasonable jury could
return a verdict for the nonmoving party’ on the question,” Woods v. DaimlerChrysler
Corp., 409 F.3d 984, 990 (8th Cir. 2005) (quoting Anderson, 477 U.S. at 248). Evidence
that only provides “some metaphysical doubt as to the material facts,” Matsushita, 475
U.S. at 586, or evidence that is “merely colorable” or “not significantly probative,”
Anderson, 477 U.S. at 249-50, does not make an issue of material fact genuine.
As such, a genuine issue of material fact requires “sufficient evidence supporting
the claimed factual dispute” so as to “require a jury or judge to resolve the parties'
differing versions of the truth at trial.” Anderson, 477 U.S. at 248-49. The party moving
for entry of summary judgment bears “the initial responsibility of informing the court of
the basis for its motion and identifying those portions of the record which show a lack of
a genuine issue.” Hartnagel, 953 F.2d at 395 (citing Celotex, 477 U.S. at 323). Once
the moving party has met this burden, the nonmoving party must go beyond the pleadings
and by depositions, affidavits, or otherwise, designate specific facts showing that there
is a genuine issue for trial. Mosley v. City of Northwoods, 415 F.3d 910 (8th Cir. 2005).
The nonmovant must show an alleged issue of fact is genuine and material as it relates to
the substantive law. If a party fails to make a sufficient showing of an essential element
of a claim or defense with respect to which that party has the burden of proof, then the
opposing party is entitled to judgment as a matter of law. Celotex, 477 U.S. at 322.
In determining if a genuine issue of material fact is present, I must view the
evidence in the light most favorable to the nonmoving party. Matsushita, 475 U.S. at
587-88. Further, I must give the nonmoving party the benefit of all reasonable inferences
that can be drawn from the facts. Id. However, “because we view the facts in the light
most favorable to the nonmoving party, we do not weigh the evidence or attempt to
determine the credibility of the witnesses.” Kammueller v. Loomis, Fargo & Co., 383
F.3d 779, 784 (8th Cir. 2004). Instead, “the court's function is to determine whether a
dispute about a material fact is genuine.” Quick v. Donaldson Co., Inc., 90 F.3d 1372,
1376-77 (8th Cir. 1996).
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B.

Discussion
Met P&C seeks entry of partial summary judgment on the issue of liability, against

Agency One only, on each of its claims. In its resistance, Agency One argues that there
are genuine issues of material fact – particularly with regard to the doctrine of respondeat
superior – that preclude entry of summary judgment on any of Met P&C’s claims. I will
address those claims in the following order: (1) negligence, (2) negligent supervision2
and (3) breach of fiduciary duty and breach of contract.
1.

Negligence

To recover on a claim of negligence, Met P&C must prove the existence of a duty
of care, a breach of that duty, and that the breach was the cause of the injuries suffered.
Smith v. Koslow, 757 N.W.2d 677, 680 (Iowa 2008). The existence of a legal duty is a
question of law for the court. Van Fossen v. MidAmerican Energy Co., 777 N.W.2d
689, 693 (Iowa 2009). However, under Iowa law “[i]t is well-settled that ‘questions of
negligence or proximate cause are ordinarily for the jury,’ and ‘only in exceptional cases
should they be decided as a matter of law.’” Thompson v. Kaczinski, 774 N.W.2d 829,
832 (Iowa 2009) (quoting Clinkscales v. Nelson Sec., Inc., 697 N.W.2d 836, 841 (Iowa
2005)).
In order to hold Agency One liable for Inlay’s actions, Met P&C must show Inlay
was acting in the scope of his employment. This is known as the doctrine of respondeat
superior, which the Iowa Supreme Court has described as follows:

Met P&C has raises two separate theories of negligence in its complaint under one Count II. It
alleges defendants were negligent with respect to the investigation, application, binding and
issuing of a Met P&C policy for the Potter property. Doc. No. 2 at ¶29. It also alleges
defendants were negligent in their failure to adequately train, monitor and supervise their
employees and producers in the investigation, application, binding and issuing of a Met P&C
policy. Id. at ¶30. These theories will be discussed separately.
2

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The well established rule is that under the doctrine of
respondeat superior, an employer is liable for the negligence
of an employee committed while the employee is acting within
the scope of his or her employment. Thus, a claim of vicarious
liability under the doctrine of respondeat superior rests on two
elements: proof of an employer/employee relationship, and
proof that the injury occurred within the scope of that
employment.
We have said that for an act to be within the scope of
employment the conduct complained of must be of the same
general nature as that authorized or incidental to the conduct
authorized. Thus, an act is deemed to be within the scope of
one's employment where such act is necessary to accomplish
the purpose of the employment and is intended for such
purpose. The question, therefore, is whether the employee’s
conduct is so unlike that authorized that it is ‘substantially
different.’ Said another way, a deviation from the employer’s
business or interest to pursue the employee’s own business of
interest must be substantial in nature to relieve the employer
from liability.
Godar v. Edwards, 588 N.W.2d 701, 705-06 (Iowa 1999) (citations and internal
quotation marks omitted) (emphasis in original). The question of whether an act is within
the scope of employment is ordinarily a jury question, although, “depending on the
surrounding facts and circumstances, the question as to whether the act which departs
markedly from the employer’s business is still within the scope of employment may well
be for the court.” Weems v. Federated Mut. Ins. Co., 220 F. Supp. 2d 979, 992 (N.D.
Iowa 2002) (quoting Sandman v. Hagan, 154 N.W.2d 113, 117 (Iowa 1967)).
Both parties reference the factors found in the Restatement (Second) of Agency
for determining whether the conduct of an employee falls within the scope of
employment. These factors are:
(a)

whether or not the act is one commonly done by such
servants;

(b)

the time, place and purpose of the act;

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(c)

the previous relations between the master and the
servant;

(d)

the extent to which the business of the master is
apportioned between different servants;

(e)

whether or not the act is outside the enterprise of the
master or, if within the enterprise, has not been
entrusted to any servant;

(f)

whether or not the master has reason to expect that
such an act will be done;

(g)

the similarity in quality of the act done to the act
authorized;

(h)

whether or not the instrumentality by which the harm
is done has been furnished by the master to the servant;

(i)

the extent of departure from the normal method of
accomplishing an authorized result; and

(j)

whether or not the act is seriously criminal.

Restatement (Second) of Agency § 229(2) (1957).
The parties agree that when the Potter policy was issued, Inlay was no longer an
independent agent, but rather an employee of Agency One whose duties included, but
were not limited to the following:
A.

Coordinate and direct day-to-day administration and
operations of AGENCY ONE agents and staff at the
Agency Office.

B.

Respond to inquiries, request and directives.

C.

Administer the insurance application process.

D.

Administer and coordinate agent contract and the agent
contracting process with AGENCY ONE’s insurance
agents.

E.

Supervise the administration and servicing of insurance
contracts of AGENCY ONE.

F.

Perform such other duties as assigned.
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Defs. Appendix; Doc. No. 35-3 at 73. Agency One argues that Inlay’s act of placing the
misrepresented Potter policy was outside the scope of employment because he knew it
was against the law and was prohibited by his employment contract with Agency One.
Met P&C argues that Agency One essentially turned a blind eye to Inlay’s conduct by
continuing to allow Inlay to use the Met P&C access codes and failing to follow up on
who was generating business in the Sioux City office. It argues the relationship between
Agency One and Inlay effectively remained the same after Agency One learned Inlay’s
license had been revoked or suspended.
Viewing the facts in the light most favorable to Agency One as the nonmoving
party, I find that a reasonable jury could conclude that Inlay was not acting within the
scope of his employment when he placed the Potter policy. Inlay knew he was not
allowed to place policies while his license was revoked or suspended and that doing so,
while also misrepresenting those policies, was against the law. Because there is a genuine
issue for trial as to whether Inlay was acting within the scope of employment when he
placed the Potter policy, I will deny Met P&C’s motion for summary judgment on this
claim.
Moreover, Agency One contends that Met P&C cannot recover damages on a
negligence theory when it has only suffered economic loss. See Annett Holdings, Inc. v.
Kum & Go, L.C., 801 N.W.2d 499, 503 (Iowa 2011) (“As a general proposition, the
economic loss rule bars recovery in negligence when the plaintiff has suffered only
economic loss.”). In Annett Holdings, the Iowa Supreme Court explained that “[w]hen
two parties have a contractual relationship, the economic loss rule prevents one party
from bringing a negligence action against the other over the first party’s defeated
expectations—a subject matter the parties can be presumed to have allocated between
themselves in their contract.” Id.
While this argument may have merit, it is misplaced in the current procedural
context. This is Met P&C’s motion for summary judgment, not Agency One’s. Indeed,
neither defendant has filed a motion for summary judgment. Thus, while I have found
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that Met P&C is not entitled to entry of summary judgment in its favor on its negligence
claim, I will not address Agency One’s argument that the claim is barred as a matter of
law.
2.

Negligent Supervision

Met P&C also seeks to hold Agency One liable based on its own actions. It argues
Agency One failed to properly supervise Inlay to ensure he was not writing policies
without a valid license and failed to follow up on evidence that Inlay had misrepresented
several other policies with Met P&C.
To prevail on a claim of negligent supervision, the plaintiff must show:
(1)

the employer knew, or in the exercise of ordinary care
should have known, of its employee’s unfitness at the
time the employee engaged in wrongful or tortious
conduct;

(2)

through the negligent . . . supervision of the employee,
the employee’s incompetence, unfitness, or dangerous
characteristics proximately caused injuries to the
plaintiff; and

(3)

there is some employment or agency relationship
between the employee and the defendant employer.

Estate of Harris v. Papa John’s Pizza, 679 N.W.2d 673, 680 (Iowa 2004) (citing Stricker
v. Cessford Constr. Co., 179 F. Supp. 2d 987, 1019 (N.D. Iowa 2001)). This claim is
based on the Restatement (Second) of Agency § 213 which provides:
A person conducting an activity through servants or other
agents is subject to liability for harm resulting from his
conduct if he is negligent or reckless:
(a)

in giving improper or ambiguous orders of in failing to
make proper regulations; or

(b)

in the employment of improper persons or
instrumentalities in work involving risk of harm to
others:
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(c)

in the supervision of the activity; or

(d)

in permitting, or failing to prevent, negligent or other
tortious conduct by persons, whether or not his
servants or agents, upon premises or with
instrumentalities under his control.

Restatement (Second) of Agency § 213 (1957). The Iowa Supreme Court has explained
the difference between a claim of negligent supervision and a claim based on an
employee’s negligence as follows:
[Negligent supervision claims] are separate and distinct from
those based on respondeat superior liability, which imposes
strict liability on employers for the acts of their employees
committed within the scope of their employment. A cause of
action based on negligent hiring, supervision, or retention
allows an injured party to recover where the employee’s
conduct is outside the scope of employment, because the
employer’s own wrongful conduct has facilitated in some
manner the tortious acts or wrongful conduct of the employee.
Kiesau v. Bantz, 686 N.W.2d 164, 172 (Iowa 2004) (internal citations omitted).
Here, when viewing the facts in the light most favorable to Agency One, I cannot
conclude as a matter of law that Agency One was negligent in supervising Inlay. A
reasonable jury could find that Agency One did not know or have reason to know of
Inlay’s actions. Agency One points out there were two licensed agents in the Sioux City
office while Inlay’s license was suspended or revoked who could have been selling
policies.

Inlay also needed the Met P&C access codes to perform his authorized,

appropriate duties as an employee. Whether Agency One knew or should have known
of Inlay’s actions at the time he placed the misrepresented policy, and whether Agency
One’s allegedly-negligent supervision was the proximate cause of Met P&C’s harm, are
appropriate questions for a jury. See Thompson, 774 N.W.2d at 832. For these reasons,
I will deny Met P&C’s motion for summary judgment on its claim of negligent
supervision.

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3.

Breach of Fiduciary Duty and Breach of Contract

Finally, Met P&C argues Agency One breached its fiduciary duty to Met P&C by
withholding information material to the issuance of the Potter policy. It alleges that
Agency One continued to breach its fiduciary duty by failing to determine whether the
Potter property was appropriately described when it renewed the policy in December
2011. Met P&C contends this breach of fiduciary duty also operates as a breach of
contract between Agency One and Met P&C.
To prove breach of a fiduciary duty, Met P&C must show: (1) a fiduciary
relationship existed between the plaintiff and the defendant, (2) the defendant breached
that fiduciary duty and (3) the breach was a proximate cause of damage to the plaintiff.
Kurth v. Van Horn, 380 N.W.2d 693, 698 (Iowa 1986). “[A]n insurance agent owes a
duty to his principal to exercise reasonable skill, care and diligence in effecting the
insurance coverage requested. Furthermore, the agent is liable to his principal for any
loss or damage occasioned by his negligence.” Smith v. State Farm Mut. Auto. Ins. Co.,
248 N.W.2d 903, 905 (Iowa 1976).
Agency One argues that Inlay breached his fiduciary duty to Agency One by
submitting fraudulent applications and concealing his activities from Agency One, but his
actions cannot be used to establish breach of the fiduciary relationship between Agency
One and Met P&C unless respondeat superior applies. Alternatively, it argues a jury
would have to find that Met P&C knew or should have known about Inlay’s actions in
order to find that Agency One breached its fiduciary duty and contract with Met P&C.
I agree with Agency One that my findings on Met P&C’s claims of negligence and
negligent supervision preclude summary judgment on the breach of fiduciary duty and
breach of contract claims. Because I cannot find as a matter of law that Agency One is
vicariously liable for Inlay’s misconduct, or directly liable for negligently supervising
Inlay, I cannot find as a matter of law that Agency One breached its contract with, or
fiduciary duties to, Met P&C. Genuine issues of material fact remain for trial with regard
14

to those claims. As such, I will deny Met P&C’s motion for summary judgment on its
claims of breach of fiduciary duty and breach of contract.
V.

CONCLUSION

For the reasons set forth above, Met P&C’s motion (Doc. No. 29) for partial
summary judgment is denied in its entirety. This case will proceed to trial as scheduled
on all issues beginning May 27, 2014.
IT IS SO ORDERED.
DATED this 25th day of March, 2014.

________________________________
LEONARD T. STRAND
UNITED STATES MAGISTRATE JUDGE

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