APPEAL from the Circuit Court of Lake County; the Hon. L. ERIC
CAREY, Judge, presiding.
MR. JUSTICE SEIDENFELD DELIVERED THE OPINION OF THE COURT:
This is an appeal from a summary judgment rendered against Security Insurance Company of Hartford on its third-party complaint for indemnity from its general agent.
In the principal action, Security filed a declaratory judgment suit to determine whether it was obligated to provide insurance coverage to Julius Mato and David Toth for bodily injury and medical expense arising from an accident on June 20, 1965. The trial court entered a summary judgment in favor of the insurance company on the basis that no policy of insurance existed between it and Mato. In Security Ins. Co. of Hartford v. Mato (1969), 108 Ill. App.2d 203, we reversed and remanded for further proceedings. In accordance with our decision, the trial court entered a summary judgment in favor of Toth and Mato and denied the motion of Security for a summary judgment. Security then filed a third-party action against Dann Brothers, Inc., its general agent. Dann Brothers answered and set forth affirmative defenses; both parties filed motions for summary judgment and responsive pleadings; and the trial court entered judgment denying third-party plaintiff's motion for summary judgment and granting the motion of the third-party defendant.
The third-party complaint alleges that in July of 1963, Mato purchased an insurance policy from Dann Brothers, general agents for the New Amsterdam Casualty Company (to whose rights third-party plaintiff has succeeded), to cover an automobile which he owned. The policy period was July 17, 1963, to January 17, 1964, and subsequent renewals extended Mato's coverage to January 17, 1965. The complaint alleges that on December 17, 1964, plaintiff sent Mato a notice of premium due reciting that failure to pay the premium by January 17, 1965, would terminate the policy; that on January 17, 1965, the policy lapsed for failure to pay the premium; and that on February 1, 1965, the company sent a lapse notice to Mato advising him that his policy had been terminated. It is alleged that copies of these notices were sent to Dann Brothers; that thereafter, in May of 1965, telephone conversations took place between Mato and Dann Brothers and an endorsement was sent by Dann Brothers to Mato; and that the conversations and endorsement created a binding contract to insure Mato. The complaint continues that on June 20, 1965, Mato was involved in an accident in which he and David Toth, a passenger in his car, were injured; that proceedings resulted in this court's finding that a contract with the insurer had been created by Mato's conversations with Dann Brothers; and that if plaintiff is liable to Mato it is only by the relationship of principal and agent and through the active negligence, unauthorized actions and breach of fiduciary duty and instructions of Dann Brothers. Specifically, the complaint alleges that defendant, in violation of known instructions and underwriting policies of New Amsterdam Casualty Company, negligently and without authority made an oral contract to insure Mato without obtaining an executed application; without determining that he had a valid driver's license; without obtaining a check or other payment for the policy; without determining the current underwriting data on Mato; and without submitting application for a new insurance policy and paying the premium due on the policy to the company. It also charges defendant with preparing and sending to Mato a purported endorsement indicating a change of insured vehicle on a lapsed policy of insurance.
In its answer, defendant states that it has no knowledge of whether Mato's policy lapsed or the insurance company sent the alleged notices to Mato. Defendant denied that copies of said notices were ever sent to it; that it had telephone conversations with Mato or sent Mato an endorsement which created a binding contract of insurance between plaintiff and Mato; and that it acted negligently or without authority.
Defendant filed an affirmative defense stating that the insurance company ratified all actions performed by its agent and that the company's liability was the result of its own negligent acts and omissions; namely, failing to notify defendant of the alleged lapse of Mato's policy after plaintiff had received notice of the endorsement and before the accident occurred; failing to notify Mato of a lapse until 16 months after plaintiff had notice of the endorsement; repeatedly representing to Mato after his accident that he had insurance; undertaking the investigation of the accident; undertaking the defense of the suit brought by Toth against Mato; and failing to assert an alleged defense to Mato's claims for almost 15 months after the accident.
In reply, the insurance company admitted that it investigated the accident and undertook Mato's defense, but denied all other allegations of defendant's affirmative defense.
On appeal, plaintiff contends that the court erred in denying its motion for summary judgment and granting that of defendant because the pleadings establish that its liability was caused only by defendant's unauthorized acts and failure to follow instructions, and that any negligence on its own part was passive as compared to defendant's active negligence. Defendant argues that the pleadings show plaintiff's liability to have been caused by its own active negligence; that contributory negligence bars recovery; and that the insurance company's actions estop it from denying liability and constitute a ratification of the acts of its agent.
• 1 Whether either party is entitled to a summary judgment under the pleadings and supportive documents depends upon whether a genuine issue of material fact exists that would prevent the moving party from being entitled to a judgment as a matter of law. (Ill. Rev. Stat. 1971, ch. 110, par. 57(3).) See Powell v. R.J. Anderson, Inc. (1970), 124 Ill. App.2d 1, 5; Bd. of Education v. Green Valley Builders, Inc. (1973), 10 Ill. App.3d 235, 237.
The initial question raised by the pleadings is whether Mato's policy lapsed on January 17, 1965. Plaintiff alleges that it had lapsed but defendant states that it is without knowledge and demands proof of the fact. This issue was not decided in the previous appeal. If the policy had not lapsed plaintiff's liability would be based on the policy and not on any actions of defendant. Thus, a material question of fact preventing the entry of summary judgment for plaintiff is present, and the trial court's denial of plaintiff's motion is proper regardless of whether any other questions of fact exist.
However, even if the policy had lapsed, defendant would be entitled to a summary judgment if the record establishes as a matter of law that plaintiff ratified or is estopped to challenge defendant's alleged unauthorized acts, or that plaintiff was actively negligent while defendant was only passively negligent.
• 2-4 Defendant argues that the insurance company ratified the actions of its agent. The legal principles involved are clear. Where an agent has acted outside the scope of his authority, a principal may ratify the act and render it obligatory on himself. The ratification may be either express or implied from the surrounding circumstances, and can be inferred from long acquiescence after notice; but it must arise from the acts or conduct of the principal. A principal may not be held to have ratified an unauthorized act unless he acts with full knowledge of all material facts. (Wing v. Lederer (1966), 77 Ill. App.2d 413, 418; Karetzkis v. Cosmopolitan Nat. Bank (1962), 37 Ill. App.2d 484, 490.) As between the principal and its agent, the conduct will be liberally interpreted in favor of ratification. Holmes v. Morris (1930), 341 Ill. 351, 358; Kantoff v. Sedlack Motor Sales, Inc. (1955), 8 Ill. App.2d 8, 12.
• 5 We cannot conclude that ratification was proved as a defense as a matter of law. Plaintiff was apprised of the fact that it might have a policy defense based on the claim that Mato's policy had previously lapsed and that therefore defendant's purposed endorsement was unauthorized. However, plaintiff's representation to Mato that he was covered by insurance, its undertaking of his defense, and its failure until some 16 months after the accident to take an adverse position, while relevant to the issue of ratification, can also be accounted for on the theory that plaintiff felt legally bound by defendant's action and therefore considered that a defense on the policy would be useless. The delay does not prove, as a matter of law, the plaintiff's intention to ratify the alleged unauthorized acts of its agent. Wing v. Lederer (1966), 77 Ill. App.2d 413, 418. See also Manufacturers Cas. Ins. Co. v. Martin-Libreton Ins. A. (5th Cir. 1957), 242 F.2d 951, cert. den. 355 U.S. 870, 2 L.Ed.2d 76, 78 S.Ct. 121.
Moreover, even if plaintiff's actions were said to constitute ratification as a matter of law, the defense would apply only to those acts of which Security had knowledge. The pleadings and our previous decision show only that plaintiff had knowledge that the policy lapsed and that defendant in violation of instructions issued an endorsement on the policy. However, the third-party complaint charges defendant with violation of several other instructions, such as defendant's failure to determine that Mato had a valid driver's license, failure to determine the current underwriting data on Mato, and failure to ...