## Facts

- Ohio Farmers Insurance Company entered an agency agreement with Dakota Agency, Inc. authorizing Dakota’s agents to issue certain fidelity and surety bonds subject to an incorporated underwriting guide and limits of authority.
- The underwriting guide limited the types of bonds agents could issue, required prior approval for unlisted bonds, and stated the agency could be liable for losses arising from unauthorized obligations.
- Ohio Farmers issued powers of attorney to qualified Dakota agents, permitting them to execute bonds only within the guide’s limits.
- Randall L. Standaert, Dakota’s general manager and a licensed agent, held Ohio Farmers powers of attorney and executed bonds in Ohio Farmers’ name as attorney-in-fact.
- Standaert executed two $150,000 performance bonds guaranteeing S & G Packing Company’s obligations to the USDA.
- Performance bonds were not authorized by the underwriting guide, and Standaert did not seek Ohio Farmers’ prior approval; no premiums were collected for the bonds.
- After a fire destroyed USDA-owned honey, the USDA claimed on the bonds; Ohio Farmers paid $300,000 despite lacking prior knowledge of the bonds and asserting it would not have approved them.
- Ohio Farmers unsuccessfully sought recovery from S & G and from Standaert, then sued Dakota seeking indemnity/damages based on breach of the agency agreement and vicarious liability theories.
- The trial court granted summary judgment to Ohio Farmers, concluding Standaert acted as Dakota’s agent/employee and that Dakota was liable for the loss; Dakota appealed.

## Issues

1. Whether Dakota was liable to Ohio Farmers for losses caused by Standaert’s issuance of performance bonds that exceeded actual authority under the agency agreement and underwriting guide.
2. Whether summary judgment was proper on the grounds that Standaert acted as Dakota’s agent/employee in the course of Dakota’s business and that Dakota breached contractual limits by permitting unauthorized bonds.

## Decision

- The Supreme Court of North Dakota affirmed summary judgment for Ohio Farmers.
- Dakota was held liable for Ohio Farmers’ $300,000 payment on the unauthorized performance bonds.
- The court treated the agency agreement and incorporated underwriting guide as allocating responsibility to Dakota for losses resulting from unauthorized bond issuance by its agents.
- No genuine dispute of material fact existed regarding the contractual limits, the lack of approval, or Standaert’s status and conduct for purposes of Dakota’s responsibility.

## Legal Principles

- An agency agreement may allocate risk by restricting an agency’s authority to bind an insurer and by making the agency responsible for losses caused by unauthorized obligations.
- When an underwriting guide is incorporated into an agency contract, its limits and approval requirements are enforceable as contractual duties.
- An insurance agency may be responsible to the insurer for unauthorized acts of its employee-agent committed in the course of the agency’s business, even if the insurer did not know of the acts and no premium was collected.
- Summary judgment is appropriate when the material facts about the contractual limits, the agent’s unauthorized issuance, and the resulting loss are undisputed and establish liability as a matter of law.

## Conclusion

The court affirmed summary judgment imposing liability on the agency for the insurer’s bond loss because the incorporated underwriting limits barred performance bonds without prior approval and the agency bore contractual responsibility for losses caused by its agent’s unauthorized bond issuance in the course of the agency relationship.


Ohio Farmers Ins. Co. v. Dakota Agency, Inc., 551 N.W.2d 564 (N.D. 1996)