Allstate Ins. Co. v. Tarrant

363 S.W.3d 508

ALLSTATE INSURANCE COMPANY

v.Diana Lynn TARRANT et al.

No. E2009–02431–SC–R11–CV.

Supreme Court of Tennessee.

March 26, 2012.

David Lyle Franklin, Chattanooga, Tennessee, for the appellant, Allstate Insurance Company.

Charles S. Sexton, Sevierville, Tennessee, for the appellees, John Tarrant, Diana Lynn Tarrant, and Blue Ribbon Cleaning, Inc.

Billy J. Stokes, Jon M. Cope, and Hudson T. Ellis, Knoxville, Tennessee, for the appellee, Charles E. Leatherwood.

OPINION

SHARON G. LEE., J, delivered the opinion of the Court, in which JANICE M. HOLDER AND GARY R. WADE, JJ., joined. WILLIAM C. KOCH, JR., J., filed a dissenting opinion, in which CORNELIA A. CLARK, C.J., joined.

SHARON G. LEE., J.

After an automobile accident between the insured's van and a motorcycle, the insurer filed a declaratory judgment action to determine whether the van was covered under a commercial policy with a liability limit of $500,000 or a personal policy with liability limits of $100,000 per person and $300,000 per accident. The insurer alleged that before the accident the insured had instructed his insurance agent to transfer the van from the commercial policy to the personal policy. The insured denied this and alleged that he had instructed the agent to retain the van on the commercial policy. The trial court ruled that because the insurer had sent the insured a letter and premium bills showing the change in coverage and the insured had paid the bills without objection, he had ratified the transfer and the van was covered under the personal policy. The Court of Appeals reversed. We hold that the action of the insurance agent in transferring the van to the personal policy was not subject to ratification by the insured because the insurance agent was not acting in the insured's stead or for his benefit when it made the transfer. We further hold that the insurer is estopped from denying coverage under the commercial policy. We affirm the judgment of the Court of Appeals, although on different grounds.

I.

On June 17, 2005, Charles E. Leatherwood was allegedly injured when the motorcycle he was driving collided with a 2002 Chrysler Town & Country van (“the van”) driven by Diana Lynn Tarrant. At the time of the accident, the van was leased from Huntington Bank and registered to Blue Ribbon Cleaning, Inc. (“Blue Ribbon”), a cleaning business operated and solely owned by Mrs. Tarrant and her husband, John Tarrant. Mr. Leatherwood subsequently filed suit against the Tarrants, alleging that the accident was caused by Mrs. Tarrant's negligence and seeking compensation for personal injury and property damage.

After the negligence lawsuit was filed against the Tarrants, a dispute arose between the Tarrants and their vehicle insurer, Allstate Insurance Company (“Allstate”), as to the amount of liability insurance coverage that was available on the van. Allstate's position was that the van was covered under a personal policy with liability limits of $100,000 per person and $300,000 per accident; the Tarrants maintained that the van was covered under a commercial policy with liability limits of $500,000. In October 2008, Allstate filed a declaratory judgment action ¹ seeking a ruling that the van was covered under the personal policy and therefore subject to the lower liability coverage of $100,000/$300,000. The complaint alleged that in March 2005, before the accident, Mr. Tarrant requested that his Allstate agent, the Lonnie Jones Agency (“the Jones Agency”) in Knoxville, move the van from the commercial policy to the personal policy because he wanted to save money on premiums and that, accordingly, the Jones Agency moved the van and two other vehicles from the commercial policy to the personal policy. In their answer, the Tarrants and Blue Ribbon denied that Mr. Tarrant directed the Jones Agency to move the van to the personal policy, alleged that the transfer to the personal policy was the Jones Agency's mistake, and requested a declaratory judgment that at the time of the accident the van was covered under the commercial policy.

At the trial on the complaint for declaratory judgment, the trial court heard the testimony of Lonnie Jones, owner of the Jones Agency; Patricia Smith, an insurance producer employed by the Jones Agency; Kathleen Collard, an Allstate field support representative; and Mr. Tarrant.

Mr. Jones testified that the Tarrants have been clients of the Jones Agency since 1990. He stated that Mr. Tarrant usually called him each year before renewing his commercial policy in an attempt to lower his premium payments. “[H]e's very watchful of his money and he calls me yearly particularly on his commercial and he gives me this direction, now, Lonnie, if you can't beat this, I'm going to leave you.” Mr. Jones testified that a vehicle's usage determines whether it should be insured under a commercial policy or a personal policy. He admitted that the Jones Agency was aware that the van was leased in the name of Blue Ribbon and, therefore, it should have been on the commercial policy. However, he also stated that the van would have been moved from the commercial policy to the personal policy “just if [Mr. Tarrant] asked.... We take the directive of the insured to do that.” While Mr. Jones did not recall any conversation with Mr. Tarrant in Spring of 2005, when Mr. Tarrant allegedly requested that the van be moved to the personal policy, Mr. Jones testified that if Mr. Tarrant called him at that time, he would have referred Mr. Tarrant to Patricia Smith, one of the agents employed at the Jones Agency.

Ms. Smith is a licensed insurance agent or insurance producer ² and had been employed at the Jones Agency since March of 2004. She admitted that she did not recall her conversation with Mr. Tarrant or any of the changes that she made to the policies in March of 2005, and she retained no notes of her conversation with Mr. Tarrant. Her testimony was based on her usual practice—“I know how I do my job”—and on her review of policy billing histories and computer records she generated when she made the policy changes, none of which contain any information as to the discussion that transpired between herself and Mr. Tarrant or what his instructions to her were as to coverage. Based on computer printouts generated by the Jones Agency, she testified that when the van was originally leased in 2002, it was insured by itself under a commercial policy. Beginning in April of 2003, the van was insured under a discounted commercial fleet policy, along with a 1995 Lexus ES–300, a 2001 Econoline van, a 1998 Dodge Ram van, a 1984 Dodge Ram wagon, and subsequently, a 2003 DR–3500 Dodge truck. At the time of Mr. Tarrant's call, Allstate also insured a 1993 BMW 325 I and a 2000 Spinker camper under the personal policy. Ms. Smith stated that when she spoke with Mr. Tarrant, the commercial policy was due for renewal in early April of 2005 and that he was concerned with obtaining a lower premium. She stated that at Mr. Tarrant's request, she moved the van, the Lexus, and the Dodge truck from the commercial policy to the personal policy and moved the BMW to a separate personal policy in the name of Mr. Tarrant's son.

Ms. Smith testified that in her conversation with Mr. Tarrant about transferring the three vehicles to the personal policy, she “would have discussed that he was using [these vehicles] in a personal manner. That would have been one of the things that would have prompted me, usage.” Referencing an event history showing information that she entered into the Jones Agency's computer on March 23, 2005, Ms. Smith noted that the movement of the van and the other two vehicles to the personal policy was processed on that date, with an effective date of April 4, 2005. She admitted that at the time she made the coverage changes, the Jones Agency's records incorrectly showed Mr. Tarrant as the van's registered owner and did not show that the van was leased from Huntington Bank and was registered in the name of Blue Ribbon. In her prior deposition testimony, Ms. Smith stated that it would not have been appropriate to put the van on a personal policy if it was owned or leased by Blue Ribbon and that a company-owned vehicle should never be on a personal policy. At trial, when questioned about moving a vehicle registered to a commercial entity to a personal policy, Ms. Smith stated, “At that time I would figure that Mr. John Tarrant has an insurable interest in that vehicle and the fact that he's going to use it as a pleasure vehicle or personal vehicle, okay. And that he wanted me to do these things, that's what prompted me to do them.” Ms. Smith said that had she known that Blue Ribbon owned the van it would have been her practice to advise Mr. Tarrant to have it titled in his name, although she does not remember whether she did so in this instance. Ms. Smith testified that she would not have moved the van to the personal policy unless Mr. Tarrant had requested the transfer. Although she stated that he requested the transfer, she admitted that she had no personal recollection of such a conversation. Ms. Smith did not testify that she moved the van to the personal policy because of a misunderstanding or confusion over the meaning of the word “van.”

Ms. Collard, an Allstate field representative from Allstate's national support center in Roanoke, Virginia, testified that a letter from Allstate bearing the signature of Mr. Jones was mailed to Mr. Tarrant on March 25, 2005. This letter alluded to changes in insurance coverage but did not state the amount of coverage available on each vehicle. The letter stated in part as follows:

The accompanying Amended Policy Declarations includes these changes:

The addition of your 03 Dodge Trk Dr3500 2wd.

The addition of your 95 Lexus Es300.

A change in insurance coverage for your 02 Chrysler Town–Country.

A change in description for your 02 Chrysler Town–Country. The addition of the passive restraint...