Ohio Farmers Insurance Co. v. Dakota Agency, Inc.

In 1989, Ohio Farmers Insurance Company (plaintiff) granted Dakota Agency, Inc. (defendant) an agency agreement, which allowed qualified Dakota agents to issue certain Ohio bonds to Dakota customers. In accordance with the agreement, Ohio issued powers of attorney to Dakota agents, giving them authority to solicit applications, bind coverage, and endorse certain fidelity and surety bonds. Each authorized agent also had to sign an underwriting guide and letter of authority with Ohio. The underwriting guide limited agents’ authority to issue only those types of bonds that were specified in the guide. The guide required agents to seek prior approval from Ohio before issuing unlisted bonds. The guide expressed agent limitations in all caps and warned that violators could be held liable for loss or injury suffered by Ohio stemming from any unauthorized obligations. Randall L. Standaert was Dakota’s general manager and a licensed insurance agent who was authorized by Ohio through his and Dakota’s agency agreements to issue Ohio bonds. In 1990, Standaert issued two separate $150,000 performance bonds to guarantee contractual obligations that a honey-packaging company had with the United States Department of Agriculture (USDA). Performance bonds were not listed in the underwriting guide, but Standaert did not seek preapproval before issuing them. After both bonds were executed, a fire destroyed more than one million pounds of USDA honey, preventing the packaging company from fulfilling the guaranteed obligations. Subsequently, the USDA filed claims with Ohio for full satisfaction of the performance bonds. Ohio obliged, although it noted that it would not have preapproved the bonds. Ohio unsuccessfully sought to recover its $300,000 loss from the honey-packaging company and Standaert. Eventually, Ohio sued Dakota in a state trial court, advancing contract, tort, and respondeat superior theories. The trial court granted summary judgment in favor of Ohio. Regarding Ohio’s contract claim, the court concluded, as a matter of law, that Standaert was acting as Dakota’s agent; Dakota’s issuance of the unauthorized bonds constituted a breach of the agency agreement; and Dakota was liable for Ohio’s resultant damages. Dakota appealed.