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Erin Hughes v. Farmers Insurance Exchange

(Farmers Insurance Exchange Agent Did Not Act on Behalf of Farmers In Connection With Placing Fair Plan Policy for Homeowner)

(December 2024) - In Hughes v. Farmers Insurance Exchange, -- Cal.App.5th --- (December 3, 2024), the California Second District Court of Appeal affirmed the trial court’s entry of summary judgment finding that a Farmers Insurance Exchange (“Farmers”) agent did not act on behalf of Farmers in placing a fire insurance policy with the California Fair Plan, such that Farmers was not liable for the agent’s alleged negligence in under-insuring the plaintiff’s home for fire loss.

Plaintiff Erin Hughes is the owner of real property in Malibu, California. In December 2020, Hughes procured fire insurance from the California Fair Plan and a homeowner’s policy from Farmers with the assistance of Maritza Hartnett. The Fair Plan is an insurer of last resort for homeowners who cannot secure insurance from insurers for certain types of risks, such as fire insurance in high exposure areas, like Malibu. Hartnett and Farmers had entered into an independent contractor agreement where she was authorized to sell insurance on Farmers' behalf. Hartnett also acted as a broker for placing insurance under Fair Plan policies. The Farmers policy purchased by Hughes included an endorsement which specifically restricts and eliminates coverage under the Farmers policy for any peril which is covered or available for coverage by additional purchase under a Fair Plan policy. The endorsement specifically excluded loss caused by fire.

In January 2021, Hughes’ home sustained significant fire damage with estimated reconstruction costs of $3 million. The Fair Plan policy she had purchased only afforded limits of $1.2 million. As such, Hughes was significantly underinsured for the loss. Hughes also tendered the loss to Farmers, which denied her claim. Thereafter, Hughes filed a lawsuit against Hartnett for professional negligence, negligent misrepresentation and breach of fiduciary duty. Hughes also alleged a cause of action against Farmers for negligence, claiming that it was vicariously liable for Hartnett’s conduct in failing to secure sufficient insurance for the fire damages sustained by her home.

Thereafter, Farmers filed a motion for summary judgment arguing that Hartnett was not acting on behalf of Farmers as an actual or ostensible agent of Farmers in placing insurance with Fair Plan. Rather, Hartnett was acting as a broker on behalf of Fair Plan. The trial court agreed with Farmers and entered summary judgment in favor of Farmers.

In affirming the trial court’s decision, the Court of Appeal noted as follows:

Farmers submitted a copy of Hartnett's “Agent Appointment Agreement” with “Farmers Insurance Exchange, Truck Insurance Exchange, Fire Insurance Exchange, Mid-Century Insurance Company, and Farmers New World Life Insurance Company, and their subsidiaries and affiliated insurers,” collectively “the Companies.”  Signed in May 2013, the agreement states Hartnett shall be “an independent contractor for all purposes” who is authorized to “sell, solicit, and service insurance for the Companies” and required to “submit to the Companies every request or application for insurance for the classes and lines underwritten by the Companies and eligible in accordance with their published Rules and Manuals.”  The agreement further provides that insurance business written by Hartnett “will be placed with the Companies” or, if not acceptable to the Companies, through Kraft Lake Insurance Agency, Inc.  If the insurance business cannot be placed with the Companies or through Kraft Lake, the agreement provides that Hartnett may place the business through insurers “outside the Companies.”  FAIR Plan is not a party to the agreement.

Farmers also provided evidence that Farmers and FAIR Plan are two different insurance carriers that do not collaborate or communicate about their separate underwriting processes.  Nagy declared that Farmers agents like Hartnett “do not represent Farmers Insurers when they procure insurance products from [FAIR Plan].”  Rather, Nagy explained, FAIR Plan “sells its policies through a network of insurance brokers who represent policyholders, but are authorized to do business with [FAIR Plan].” To that end, Nagy opined, “n procuring insurance from [FAIR Plan] (which is not a Farmers[] entity), Hartnett acted as an insurance broker representing Ms. Hughes.”

Hartnett likewise testified in her deposition that she was not acting on Farmers' behalf when she helped Hughes obtain the FAIR Plan policy.  Rather, she sold the FAIR Plan policy to Hughes in her capacity as a registered FAIR Plan broker, and Hughes's FAIR Plan policy was purchased directly through the FAIR Plan. Hartnett received separate commissions from FAIR Plan and Farmers for the respective policies.

Hughes's FAIR Plan policy lists Hartnett's name and contact information under the title “YOUR INSURANCE BROKER.” The FAIR Plan policy does not reference Farmers or Hughes's Farmers policy. Hartnett testified she never represented to Hughes that she was acting on Farmers' behalf in assisting with procuring the FAIR Plan policy, and she did not represent to Hughes that the FAIR Plan policy was offered through or issued by Farmers.  In discovery responses, Hughes admitted Farmers did not issue the FAIR Plan policy, and she admitted she had previously insured the property against loss caused by fire with a FAIR Plan policy.

The Court of Appeal rejected Hughes’ arguments that there was a question of fact relative to whether Hartnett was acting as an actual or ostensible agent of Farmers in placing the Fair Plan policy.  The Court of Appeal found that there was no question of fact that Hartnett was acting as an actual agent on behalf of Farmers in placing the Fair Plan policy.  The Court stated as follows:

“An agency is actual when the agent is really employed by the principal.” (Civ. Code, § 2299.)  “Actual authority is such as a principal intentionally confers upon the agent, or intentionally, or by want of ordinary care, allows the agent to believe himself to possess.” (Civ. Code, § 2316.) In other words, “[a]ctual agency arises when the principal's conduct causes the agent reasonably to believe that the principal consents to the agent's act on behalf of the principal.” (Rogers v. Roseville SH, LLC (2022) 75 Cal.App.5th 1065, 1074 [290 Cal. Rptr. 3d 760]; see van't Rood v. County of Santa Clara, supra, 113 Cal.App.4th at p. 571 [actual agency “typically arises by express agreement” and requires “‘“the manifestation of consent by one person to another that the other shall act on his behalf and subject to his control, and consent by the other so to act”’”]; accord, Enmark v. KC Community Care, LLC (2024) 105 Cal.App.5th 463, 472 [325 Cal.Rptr.3d 889] [“‘“‘The principal must in some manner indicate that the agent is to act for him, and the agent must act or agree to act on his behalf and subject to his control.’”’”].)

Hartnett's agent appointment agreement with Farmers established she had authority to sell insurance on behalf of Farmers and its affiliates (i.e., “the Companies”), a defined universe of insurance companies that did not include FAIR Plan, a separate and unrelated insurance carrier.  Hughes submitted no evidence to show Hartnett had authority to transact insurance business on Farmers' behalf beyond the scope of the agreement, such that she had the authority to bind Farmers as its actual agent when she assisted Hughes in obtaining the FAIR Plan policy. (See Loehr v. Great Republic Ins. Co. (1990) 226 Cal.App.3d 727, 734 [276 Cal. Rptr. 667] [an insurance agent “may perform acts outside his agency … for which [the principal] would have no responsibility or liability”]; Turner v. Citizens National. Bank (1962) 206 Cal.App.2d 193, 202 [23 Cal. Rptr. 698] [“An admission that a person is an agent does not adopt every act performed by him; the admission does not cover the extent of his authority.”].)

Hartnett's lack of actual authority to act on behalf of Farmers for purposes of the FAIR Plan policy is confirmed by the FAIR Plan policy itself. That policy describes Hartnett not as a Farmers' insurance agent but rather as Hughes's “insurance broker.”  Unlike an insurance agent, an insurance broker “‘does not act for the insurer, and the insurer is not liable for the broker's acts or omissions.’” (American Way Cellular, Inc. v. Travelers Property Casualty Co. of America (2013) 216 Cal.App.4th 1040, 1052 [157 Cal. Rptr. 3d 385]; accord, Marsh & McLennan of Cal., Inc. v. City of Los Angeles (1976) 62 Cal.App.3d 108, 117 [132 Cal. Rptr. 796] [“The most definitive characteristic of an insurance agent is his authority to bind his principal, the insurer; an insurance broker has no such authority.”].)

Contrary to Hughes's assertion, Hartnett's use of Farmers' replacement cost estimating software to generate information for the Farmers policy that Hartnett used in procuring Hughes's FAIR Plan policy does not aid Hughes's argument that Hartnett was acting within the scope of her agency agreement with Farmers when she helped Hughes procure the FAIR Plan policy.  No evidence suggests Hartnett acted on behalf of Farmers when she used its software for the dual purpose of generating information to obtain a FAIR Plan quote. Thus, the trial court correctly concluded as a matter of law that Hartnett was not acting as Farmers' actual agent with respect to the FAIR Plan policy.

The Court of Appeal also found that Hartnett did not act as an ostensible agent of Farmers. The Court of Appeal reasoned as follows:

An agency is ostensible when a principal intentionally or negligently causes a third person to believe another individual is acting as its agent, even though the individual is not really employed by the principal. (Civ. Code, § 2300; Valentine v. Plum Healthcare Group, LLC (2019) 37 Cal.App.5th 1076, 1086 [249 Cal. Rptr. 3d 905].) “[A] principal's liability for the acts of an ostensible agent rests on the notion that the principal should be estopped from creating the false impression of agency.” (Pereda, supra, 85 Cal.App.5th at p. 768.)  “A defendant may be held liable as a ‘principal’ for the acts of the defendant's ostensible agent (that is, the third party who is not actually his agent) only if (1) the plaintiff, when dealing with the agent, did so ‘with [a reasonable] belief in the agent's authority,’ (2) that ‘belief [was] generated by some act or neglect by the principal,’ and (3) the plaintiff was not negligent in relying on the agent's apparent authority.” (Ibid.; accord, Associated Creditors' Agency v. Davis (1975) 13 Cal.3d 374, 399 [118 Cal. Rptr. 772, 530 P.2d 1084]; Valentine, at p. 1087.)

Hughes's contention that Hartnett never informed her “she was acting as an independent broker and not an agent of Farmers” when Hartnett helped procure the FAIR Plan policy is not sufficient to raise a triable issue as to whether Hartnett was Farmers' ostensible agent with respect to the FAIR Plan policy.  Our inquiry necessarily focuses on conduct or omissions by Farmers that could have contributed to a reasonable belief by Hughes that Hartnett was acting as Farmers' agent in procuring the FAIR Plan policy, as opposed to the Farmers policy. (See Pereda, supra, 85 Cal.App.5th at p. 768 [“the appearance of agency ‘must be based on the acts or declarations of the principal and not solely upon the agent's conduct’”]; accord, Corrales v. California Gambling Control Com. (2023) 93 Cal.App.5th 286, 305 [310 Cal. Rptr. 3d 454] [“‘Ostensible agency cannot be established by the representations or conduct of the purported agent; the statements or acts of the principal must be such as to cause the belief the agency exists.’”]; Civ. Code, § 2322, subd. (b) [agent does not have authority to define scope of agency].)  For this same reason, Hartnett's use of Farmers' replacement cost estimating software to generate information used for the FAIR Plan policy is not evidence suggesting ostensible agency.

Hughes also relies on the fact that Farmers apparently allowed Hartnett to display its logo on a sign at her office and in her email communications with Hughes.  Generally, the use of a principal's trade name and logo by another does not alone demonstrate an ostensible agency relationship. . . . Here, Hartnett's mere use of Farmers' logo does not suggest an ostensible agency that would encompass Hartnett's procurement of the FAIR Plan policy. The very reason Hughes needed a FAIR Plan policy to cover the property for fire loss was because she was “‘unable to procure such insurance through normal channels from an admitted insurer’” such as Farmers. (St. Cyr v. California FAIR Plan Assn., supra, 223 Cal.App.4th at p. 793, quoting Ins. Code, § 10094.)  Thus, it was obvious Farmers would not be the principal standing behind Hartnett for the specific purpose of procuring a FAIR Plan policy for Hughes or anyone else.  Rather, in permitting Hartnett to display its logo, Farmers was at most advertising Hartnett's agency for the specific purpose of selling Farmers insurance products and not those offered by other insurance carriers. (See Rios v. Scottsdale Ins. Co. (2004) 119 Cal.App.4th 1020, 1027, 1029 [15 Cal. Rptr. 3d 18] [“[T]here was no ostensible agency, as there was no evidence that a principal intentionally, or by want of ordinary care, caused or allowed [the insured] to believe that [the insurance broker] possessed such authority to offer a policy other than that offered by the insurer.”].)

Likewise, Hartnett's use of the Farmers logo in her communications with Hughes about the FAIR Plan Companion Endorsement, and on the endorsement itself, does not assist Hughes.  The FAIR Plan Companion Endorsement was part of the Farmers policy and simply informed Hughes that the Farmers policy excluded coverage for fire loss regardless of whether she obtained a FAIR Plan policy to cover such loss.

Because Hughes failed to present evidence that raises a triable issue regarding whether Hartnett was either an actual or ostensible agent of Farmers for purposes of the FAIR Plan policy, the trial court properly granted summary judgment to Farmers

The Court of Appeal also found that the trial court exercised reasonable discretion in denying Hughes’ motion for leave to amend to her complaint to allege additional causes of action against Farmers the night before the hearing on Farmers' motion for summary judgment.

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