Alleged Good Faith Obligations Concerning Credit Insurance–Vantage Credit Union v. Chisholm

So here we have a circumstance that requires some thought to put in order.  The brief reports summary judgment was granted for the lender. That seems difficult to support. Briefs are at Vantage Credit Union v. Chisholm, 2014 WL 1872072 (Mo. Ct. App., E.D.); and 2014 WL 1458186 (Mo. Ct. App., E.D.)

A lender, Vantage, offers debtors disability insurance. A debtor, Chisholm, makes the payments for the insurance, and then allegedly has a covered disability. The lender’s employee, one Berry, allegedly promises to assist in making a claim. The lender subsequently disclaims any obligation, as recited in the debtor’s brief.

More after the break …

Existence of Agency Relationship

As recited in debtor’s brief:

Ms. Berry was informed by Chisholm that the matter had been improperly placed into collection as Chisholm had obtained disability credit protection from Vantage.  Ms. Berry responded that the matter was simply a computer error, that the matter would be resolved, and that Chisholm should ignore the collection notices as those were automatically generated by a computer in error.

Vantage routinely charged and collected payments for credit life/disability coverage. Vantage lost Chisholm’s credit life insurance policy.  Vantage never responded to Chisholm or his attorney, John Rooney’s inquiry to inform them that their position was in error. Vantage agreed to collect.2360 per $100 of credit extended for credit disability insurance coverage extended (R. at 91, para 12), but charged Chisholm.2670 per $100 of credit extended. Vantage had promised to forebear from reporting Chisholm’s contested debt to credit reporting agencies, but breached its promise.  Chisholm was told by both Vantage and Life Investors that Vantage had to process his claim for disability coverage, but Vantage never did. At no time was Chisholm advised that his credit disability payments were being forwarded to another entity. (R. at 91, para 20).

Debtor claims the lender acted as an insurer or, in the alternative, as an agent of the insurer:

Even if one presumes that Vantage was acting as a broker, and not an insurer, it owed legal duties to Chisholm. Because Vantage did not disclose the insurer, it acted as a dual agent on behalf of the insurer and Chisholm. When Chisholm paid his premiums, Vantage bound coverage. As the agent for the insurer or as broker, Vantage had the obligation to process the claim. Its failure to do so was a breach of its obligations imposed by law on brokers.

The lender’s brief does not include the words “agent” or “agency”, a Westlaw search reports, so we cannot enhance our analysis by lender’s perspective.

We are not reviewing all the documentation, so we cannot parse it in detail. But some general observations can be made. One supposes typically a lender would not want to act as an agent on behalf of a third-party insurer, in order to avoid liability as well as avoid possible regulatory problems. However, let us assume that the documents might be fairly be construed as creating a context in which the lender purports to be able to commit to the issuance of insurance to a debtor—that is, the debtor has the option to get the insurance if it wishes by filling-in the documentation provided by the lender. “[H]aving the power to contract is a sufficient condition for a finding of agency.”  Vanwyk Textile Systems, B.V., v. Zimmer Machinery America, Inc., 994 F. Supp. 350 (W.D.N.C. 1997). So, if the parties understood a contract including insurance was formed by the interaction between the lender and the the borrower, it would be difficult to describe the lender as not having some agency authority—or purporting to have agency authority.

Even lesser levels of participation can give rise to agency.  An interesting illustration where a fact-finder determined agency existed is provided by Putnam v. DeRosa, 963 F.2d 480 (1st Cir. 1992). The case involves whether a salesman employed by the owner of units in multi-unit housing property was also the agent of the lender. The court affirms a jury finding of agency:  “A jury could readily infer from these facts that [the salesman] was [the lender’s] agent….  After all, one could reasonably expect that a salesman seeking a mortgage application would have authority to describe the lender’s appraisal of the property.”

Of course, if the lender purports to have agency authority for another but it does not, then the pseudo-agent breaches a warranty of authority.  See Restatement (Second) of Agency § 329.

The debtor’s brief indicates the loan documentation does not identify the putative principal/insurer by name. If the contract were construed as referencing a third-party who would act as the insurer, we of course call that circumstance one in which an agent is acting for a partially disclosed principal. And, of course, the normal treatment of that is one in which the agent is personally liable on the contract. See Restatement (Second) of Agency § 321.

Scope of Agency

Of course, one can be an agent for some purposes but not others. One would expect the scope of the agency would be a factual question that could not be disposed-of on summary judgment, as the trial court did (in favor of the lender).

Estoppel

Now even if one were not to categorize the lender as an agent of the insurer, or one purporting to be the agent of the insurer, it would seem there is an issue of an estoppel.  It is understood that, “In Missouri, promissory estoppel is not a favorite of the law, and each element must clearly appear and be proven by the party seeking its enforcement.” Clevenger v. Oliver Ins. Agency, Inc., 237 S.W.3d 588, 590 (Mo. Banc 2007).

I am not currently inclined to delve into whether the particular facts of this circumstance might be categorized as potentially giving rise to an equitable estoppel or promissory estoppel, and whether the classification does or should make a difference. Even if the pertinent estoppel is not a favorite of the law in Missouri, it would seem there is at least a triable issue as to whether the borrower could reasonably rely on a promise of the lender to assist with the insurance claim or alleged statements concerning the status.