Allianz is a financial services company that sells a range of products, including life, health, property, and casualty insurance. In 2005, Jerry Mais bought his first product from Allianz and became a long-term client. Joseph Fabian was a third-party insurance agent working for Allianz who had introduced Mais to the Allianz products. As a third-party Allianz agent, Fabian had the authority to sell Allianz products, accept checks on behalf of Allianz, and provide service for existing Allianz accounts. In 2006, Allianz learned that Fabian had failed to renew his insurance-selling license and subsequently terminated him without cause.
Fabian still had authority to provide service to existing accounts but was not allowed to sell new products under Allianz policy for agents terminated without cause. Allianz did not notify Mais or any other client that it had terminated Fabian.
In February 7, 2008, under Fabian’s suggestion, Mais opened a new Allianz annuity. To Mais, the process seemed the same as usual; he made the check to open the new annuity payable to Allianz. Allianz accepted the check even though Fabian was not authorized to open new Allianz accounts. In March 2008, Mais opened another account with Fabian at Allianz. This time, Mais was creating an educational trust for his children and grandchildren. Unfortunately for Mais, Fabian stole the check and deposited it into his own account instead of delivering it to Allianz. Fabian stole a second check from Mais in August 2008.
In the beginning of 2009, Allianz received two complaints about Fabian and launched an investigation of him. Pending investigation of Fabian suggested that he was potentially involved in fraudulent activity. However, no disciplinary action was taken against him. In 2010, Allianz investigated Fabian for a third time and discovered that he had modified and created documents on Allianz letterhead without authorization. This time, Allianz terminated Fabian for cause. Allianz also notified Mais that it had terminated Fabian and that Fabian was no longer authorized to provide ongoing service of Allianz products. However, Mais was not informed of Fabian’s fraud.
In 2012, after the FBI launched a criminal investigation, the FBI informed Mais that Fabian had stolen his 2008 checks. Mais then sued Allianz on the grounds that Allianz was vicariously liable for its agents’ actions.
JUDGE JONKER Mais’s first claim is that Allianz is vicariously liable for Fabian’s fraud. Applying applicable agency law, the Court agrees. “An agency relationship may arise when there is a manifestation by the principal that the agent may act on his account.” Meretta v. Peach, 195 Mich. App. 695, 697-98, 491 N.W.2d 278, 280 (1992).
An agent’s authority may be actual or apparent. “An agent acts with actual authority when, at the time of taking action that has legal consequences for the principal, the agent reasonably believes, in accordance with the principal’s manifestations to the agent, that the principal wishes the agent so to act.” Restatement (Third) of Agency: Actual Authority § 2.01 (2006). By contrast, “[a]pparent authority is the power held by an agent or other actor to affect a principal’s legal relations with third parties when a third party reasonably believes the actor has authority to act on behalf of the principal and that belief is traceable to the principal’s manifestations.” Restatement (Third) of Agency: Apparent Authority § 2.03 (2006). “As to the third person, apparent authority when present trumps restrictions that the principal has privately imposed on the agent. The relevant appearance is that the principal has conferred authority on an agent.” “In determining whether an agent possesses apparent authority to perform a particular act, the court must look to all surrounding facts and circumstances.” Meretta, 195 Mich. App. at 699, 491 N.W.2d at 280.
A principal may be vicariously liable for an agent’s tortious conduct based upon an apparent authority theory, if the principal cloaked its agent with apparent authority, i.e. held the agent out to third parties as possessing sufficient authority to commit the particular act in question, and there was reliance upon the apparent authority.” Jones v. Federated Fin. Reserve Corp., 144 F.3d 961, 965 (6th Cir. 1998). “Under an apparent authority theory, vicarious ‘[l]iability is based upon the fact that the agent’s position facilitates the consummation of the fraud, in that from the point of view of the third person the transaction seems regular on its face and the agent appears to be acting in the ordinary course of the business provided to him.’” Id. (quoting Am. Soc’y of Mech. Eng’rs, Inc. v.
Hydrolevel Corp., 456 U.S. 556, 566-67, 102 S. Ct. 1935, 72 L. Ed. 2d 330 (1982)). “Accordingly, liability may be imposed on a principal under an apparent authority theory irrespective of whether the agent acted for his own purposes, rather than those of his principal.” Id.
It is undisputed that in 2008 Fabian retained actual authority to accept checks on behalf of Allianz for existing accounts. Thus, if Mais had given Fabian the checks at issue in this case for an existing account, there would be no dispute that Fabian had actual authority to accept the checks. However, Mais testified, and the Court finds credible, that Mais intended to establish a new Allianz account in March 2008. And he intended to add his August 2008 check to that account. The dispute, then, is one of apparent authority. The question is whether an ordinarily prudent person would be justified in believing that Fabian had authority to accept funds to open a new Allianz policy. Applying the applicable law, the Court finds that an ordinarily prudent person would have been reasonable to believe Fabian had authority to accept Mais’s checks in 2008. Accordingly, Allianz may be held vicariously liable for Fabian’s actions.
In this case, there is no question that Allianz hired Fabian as its agent in 1998. As such, Fabian had actual authority to open Allianz accounts, accept checks for new or existing accounts, and service existing accounts. Fabian retained this actual authority until August 2007. When it terminated Fabian without cause in 2007, Allianz failed to communicate a change in Fabian’s authority to Fabian’s clients. An ordinarily prudent client would therefore have been reasonable to believe that Fabian continued to have authority to accept checks to open new accounts. The facts and circumstances surrounding the three-way relationship between Mais, Fabian, and Allianz support Fabian’s apparent authority to open new Allianz accounts and accept checks for those accounts.
Apparent authority can survive termination of actual authority when the change in actual authority is not communicated to a third party. From Mais’s perspective, Fabian had apparent authority to accept Mais’s checks in 2008.
Allianz argues that it cannot be liable for Fabian’s fraud—even if he was acting with apparent or actual authority—because the Michigan Supreme Court has declined to hold employers liable for the criminal actions and intentional torts of their employees. After careful review, the Court finds these cases legally and factually distinguishable from the case at hand.
CRITICAL THINKING:
The judge uses the term “apparent authority” in his ruling. Explain the meaning of this term and why it is significant in third-party liability cases. Allianz argued that because the Michigan Supreme Court ruled that employers cannot be held liable for their employees’ criminal conduct, it should not be held liable for Fabian. Do you think the Michigan Supreme Court ruling is relevant to this case?
ETHICAL DECISION MAKING:
Explain what you think the ethical obligations were for every party in this case: Allianz, Joseph Fabian, and Jerry Mais.