404 F.

2d 752

DON KEMPER COMPANY, Inc.

v.
BENEFICIAL STANDARD LIFE INSURANCE COMPANY,
Appellant.
No. 17050.

United States Court of Appeals Third Circuit.

Argued May 9, 1968.
Decided October 25, 1968.
Amended by Supplemental Opinion and Rehearing Denied January 13, 1969.

Owen B. Rhoads, Dechert, Price & Rhoads, Philadelphia, Pa. (Richard J.

Braemer, Philadelphia, Pa., Ralph B. Umsted, Philadelphia, Pa., Edward J.
Falls, Los Angeles, Cal., on the brief), for appellant.
Valera Grapp, Dayton, Ohio, and Tom P. Monteverde, Schnader,
Harrison, Segal & Lewis, Philadelphia, Pa. (Lawrence T. Hoyle, Jr.,
Philadelphia, Pa., Schnader, Harrison, Segal & Lewis, Philadelphia, Pa.,
on the brief), for appellee.
OPINION OF THE COURT
Before McLAUGHLIN, FREEDMAN, and VAN DUSEN, Circuit
Judges.
GERALD McLAUGHLIN, Circuit Judge.

Appellee sued appellant for certain alleged advertising work, labor and
services, claiming appellant was directly or impliedly responsible therefor. The
case was tried to a jury, resulting in a judgment in favor of the plaintiff for
$32,451.49 plus interest. On October 25, 1967 the Court without opinion
denied defendant's motions for judgment n.o.v. and in the alternative for a new
trial. This appeal followed.

Setting out the basic facts as briefly as possible, the evidence shows that around
the beginning of 1963 Mrs. Margaret Hughes, the owner of a New York

advertising agency, suggested to Arthur Gillman, a member of Gillman

Associates, a New York insurance agency, the idea of promoting health and
accident insurance policies for people who abstain from drinking alcoholic
beverages. In accord with this, Gillman and Joel Price of his firm sought out the
Beneficial Insurance Group in New York. The latter embraced a number of
insurance companies, including defendant-appellant. Price and Gillman after
going over preliminary questions with Group representatives went to
Philadelphia and talked with Beneficial Standard people regarding such
contemplated abstainers policy. The parties agreed that Price and Gillman
would have exclusive right to handle the policy to be issued by appellant or one
of the Group companies if Price and Gillman would provide certain advertising
and promotion for the policy. Mrs. Margaret Hughes, then connected with
Thomas and Whitney Associates an advertising agency, offered her services to
Price and Gillman to furnish an advertising campaign including the funds to
support it. On March 22, 1963 Gillman wrote Alfred Golden, a vice president
of appellant, setting out his understanding of the responsibilities to be
undertaken by National Abstainers Agency, and the Beneficial Insurance
Group. The former was to be a wholly owned corporation to be established by
Gillman Associates and which was to merchandise the Abstainer program.
During the first year its advertising promotion budget was to be approximately
$250,000. with the provision that "Increased amounts will be subsequently
invested if initial first year efforts are successful." Mrs. Hughes was to direct
the advertising program. Gillman provided that "The Beneficial Insurance
Group and its member companies will give full support to the program from a
technical, underwriting and sales standpoint." The Agency was given the
"exclusive privilege of merchandising the `Abstainer Policy' throughout the
United States subject to the following conditions: * * *." The Agency was to be
given 75% of the Commission on Quarterly Premium payment mode policies,
70% Commission on Semi-Annual modes and 60% on annual modes.
Appellant by Mr. Golden and its manager of Special Risks Division agreed
that: "The conditions set forth above are acceptable to the Beneficial Standard
Life Insurance Company of Los Angeles."
3

On March 20, 1963, Abstainers, Inc. and Mrs. Hughes entered into an
agreement (modified by a subsidiary agreement between said parties of April
19, 1963) whereby Mrs. Hughes was to handle the advertising campaign, that
Abstainers, Inc. "* * * shall be obligated to pay monies to Hughes only, for
advertising and promotion matter expended by her or contracted by her. * * *
The Corporation shall pay to Hughes 50% of all commissions it actually
receives in cash from the sale of their Abstainers policy, to pay for her
advertising expenditures. Payments to Hughes are to be made in accordance
with this clause only, * * *." Abstainers, Inc. gave Mrs. Hughes an exclusive

contract to act as its advertising agent for advertising placed by it. As stated by
Price of Abstainers, Inc. in his trial testimony and not denied, Mrs. Hughes said
"I have the financing. I can get the program off the ground." Mrs. Hughes,
working with Abstainers, Inc., planned the advertising, including the brochures
for which she was paid by Abstainers, Inc. She placed advertisements in
various specialized magazines in which Abstainers, Inc. was the advertiser of
the Beneficial Insurance Group's abstainer policies.
4

In August of 1963 the plaintiff advertising agency was endeavoring to buy a

small New York advertising agency. Mrs. Hughes talked with plaintiff's
president regarding this and showed him her agreement with Abstainers, Inc.
Plaintiff employed her, made her a vice president of the corporation and
accepted responsibility for the advertising she had placed for Abstainers, Inc.
From then on all matters in connection with the advertising of the policies were
sent to Abstainers, Inc. The first time plaintiff had anything to do with
defendant was in December 1963 when the former's executive vice president
talked by telephone to one of defendant's officers and told of plaintiff having
trouble being paid by Abstainers, Inc. After that Price wrote plaintiff stating
that Abstainers, Inc. would not pay plaintiff because it was only required to pay
Mrs. Hughes under her contract with Abstainers, Inc. Plaintiff then discharged
Mrs. Hughes and started the present action.

Plaintiff-appellee advances three theories of why it maintains that defendant is

responsible for its charges. The first of these alleges that Abstainers, Inc. was
operated as a Division of defendant by Price as its manager. Therefore claims
plaintiff, Price was a general agent of defendant and entitled to subject
defendant to liability for advertising expense Price incurred with plaintiff.

Plaintiff's next proposition is that Abstainers, Inc. and Mrs. Hughes were
defendant's agents; that defendant by conduct led plaintiff to believe that
Abstainers, Inc. and Mrs. Hughes had authority to incur advertising expense for
it. In support of this plaintiff urges that defendant required Abstainers, Inc. to
order $250,000. of advertising for defendant's policy. It repeats its charge that
defendant operated Abstainers, Inc. as one of its divisions with Price in charge
and that it made such representation to the public. Lastly it states defendant
approved the advertising ordered by Abstainers, Inc. and Mrs. Hughes in a form
which indicated that defendant was to pay for same.

Appellee's third theory is as stated in appellee's brief, "that plaintiff incurred the
expense for which it is seeking payment at the instance of Margaret Hughes * *
*." Plaintiff then goes on to contend that it did so on its belief that Mrs. Hughes
had authority from the Beneficial Life Insurance Company through Abstainers,

Inc. to incur that advertising expense on its behalf. Plaintiff concludes therefore
that even if Mrs. Hughes was guilty of fraud in misstating that authority, it was
defendant's fault and responsibility.
8

Appellant argues very strongly that there was no proper trial evidence produced
by plaintiff to make a jury question out of plaintiff's claim whatever its alleged
base. Therefore appellant urges that it should be granted judgment n.o.v.
Appellant's second point is that it is entitled to a new trial because (1)
inadmissible, prejudicial evidence, irrelevant to plaintiff's claim was allowed at
the trial and (2) the jury was without proper guidance on the fundamental
agency question involved.

We take up the new trial problem first because we consider that there was
clearly and unfortunately, substantial prejudicial evidence against the defendant
erroneously introduced on behalf of the plaintiff.

10

The entire employment contract between Mrs. Hughes and Kemper was
allowed in evidence over defense objection. Inter alia that contained the
language:

11

"2. It is represented by Second Party (Hughes) and is a condition precedent of

this contract that Second Party is the exclusive advertising agent for the
National Abstainers Agency, Inc., the Abstainers Division of Beneficial
Insurance Group * * *."

12

Kemper asserts the agreement was offered "to show the contractual relationship
between Hughes and plaintiff (Kemper)." It went to the jury without limitation
or explanation. Mrs. Hughes was never brought into court by plaintiff. Her
representation above quoted was in a contract between Kemper and herself.
Defendant never saw that paper, never had any knowledge that it included the
above language, had nothing to do with it. However, if the jury believed it and
interpreted the quoted clause as meaning Mrs. Hughes was defendant's
exclusive advertising agent for its Abstainers policy, there was enough to have
resulted in the verdict in favor of the plaintiff. This was serious error. The trial
judge himself in his charge calling Mrs. Hughes "the real culprit here" said
"She certainly made representations to Kemper when she well knew she was
not the agent of the defendant company. There is no question about that; she
wasn't and she knew it. She had the contract." The above contract language as
is seen does not give any intimation that Mrs. Hughes, knowing she was not
defendant's advertising agent with regard to its Abstainers policy, made false
representations to Kemper to that effect.

13

There are additionally thirty-seven exhibits of plaintiff which were in evidence

over defendant's objection. Thirteen of these are definitely internal papers of
plaintiff's business. They are self serving and inadmissible. Despite some
statements in appellee's brief, there was no limitation to damage proof in
connection with the admission of any of these into evidence. Appellee
upholding the rightness of having these exhibits go to the jury states that the
use of circumstantial evidence to prove agency is allowable and also that their
admission constitutes harmless error. There is no problem here relating to valid
circumstantial evidence as proof of agency. That is settled law. The particular
exhibits however are as above noted, and whether authentic or not, confessedly
plaintiff's own product which in no way lawfully support plaintiff's attempt to
fasten responsibility for plaintiff's services on the defendant. We cannot agree
that they constitute harmless error. There was a conscious effort to use them to
project the defendant into the plaintiff's operation of its advertising of the
defendant's policy. Their cumulative effect could have been prejudicial to the
defense. Some of them also are of dates after Mrs. Hughes had been hired by
Kemper.

14

Of the thirty-seven items above mentioned, twenty-eight are dated after Mrs.
Hughes joined Kemper on September 16, 1963. Defendant contends that these
are, on their faces, inadmissible because plaintiff's cause of action depends
completely upon its proposition that at the time it employed Mrs. Hughes she
was either the bonafide advertising agent of the Beneficial Insurance Company
or by the acts and conduct of Beneficial she possessed such apparent authority.
Alleged subsequent agency authority, real or apparent is of no help to plaintiff
here. If the combination of Mrs. Hughes and/or her client, Abstainers Agency,
did not so qualify when Mrs. Hughes entered into her contract with Kemper,
evidence of something occurring on a later date to show that type of authority is
irrelevant to the Kemper claim. Associated Indemnity Corporation v. King
County School Dist. No. 181, 182 Wash. 414, 47 P.2d 10 (Wash. Supreme Ct.
1935); Mack Realty Co. v. Beckley Hardware & Supply Co., 107 W.Va. 290,
148 S.E. 122 (W. Va.Sup.Ct. of Appeals 1929); Dierks & Sons Lumber Co. v.
Morris, 404 S.W. 2d 229 (Mo.App., Kansas City Ct.App. 1966). Plaintiff
argues that the later documents are part of a continuous course of conduct by
Beneficial. With the exception of P 19 we find no substance to that theory in
connection with said exhibits.

15

Exhibit P 19 is a letter on the letterhead of "Beneficial Insurance Group" dated

May 4, 1964 acknowledging receipt of an application and check for insurance
signed "Joel M. Price Executive Managing Director National Abstainer's
Program". This would fit in with the exhibits dated after the hiring of Mrs.
Hughes except for the fact that there is also in evidence Exhibit 13, an undated

form letter on the same letterhead also signed by "Joel M. Price Executive
General Manager Abstainers Division." That letter reads in part "Enclosed you
will find the application form and information you requested. Thank you for
your interest it pleases us very much." The balance of the letter tells of
various policy advantages. E. J. Falls who was general manager of Beneficial
Standard Life Insurance Company's Eastern Home Office in 1963 was a
plaintiff's witness. He agreed that he knew that letters of this kind were going
out from March 1963 through December 1963 signed "Joel M. Price, Executive
General Manager, Abstainers Division." He described the letter as "This is
quite obviously a solicitation of National Abstainers Agency of someone on
their mailing list whose address they procured in some way. * * * We did not
even open mail of this kind, * * *." Price was a witness called by plaintiff. He
was shown Exhibit 19, the letter of May 4, 1964 and asked if the signature was
his, he answered, "That is a facsimile of my signature that I authorized." He
said the letter was actually signed by his secretary. He was not asked whether
he had ever been employed by Beneficial or anything else with reference to
employment with said company. There was no other testimony whatever on
behalf of plaintiff as to Price being employed by Beneficial. Appellant urges
that the use of the "Executive General Manager Abstainers Division" was
palpably part of the Hughes, Price effort to assist them in soliciting the sale of
insurance policies. In our view, Exhibit 13, the undated form letter which Mr.
Falls said went out from March 1963 through December 1963 was relevant and
admissible. Fairly construed it can be said to reasonably include some time in
March 1963 prior to the 20th thereof. Exhibit 19, the May 4, 1964 letter, though
after March 20, 1963, has sufficient relationship to the form letter to make it
relevant and admissible.
16

The first of plaintiff's trial theories charges actual general agent authority in
Price to incur the advertising expense involved on behalf of defendant. There
was definitely no evidence of actual authorization in Price by reason of which
he could function as appellee's agent to incur the advertising responsibility on
behalf of defendant.

17

Generally speaking a sales agent has no authority as such to subject his

principal to liability for advertising costs. Eastern Advertising Co. v. Standard
Nut Co., 264 Mass. 238, 162 N.E. 339 (Mass. 1928); United States Bedding
Co. v. Andre, 105 Ark. 111, 150 S.W. 413, 41 L.R.A.,N.S., 1019 (Ark. 1912).
This rule applies even more stringently to an insurance agent. As Couch on
Insurance 2d Ed. 26:339-340 puts it "An agent has authority to make
incidental contracts or to do acts incidental to the performance of his duties as
an agent. For example, the general agent of a foreign insurance company has
implied authority to indorse checks made payable to the company for deposit or

for transfer from one bank to another. * * * The agent of the insurer has no
authority to bind the principal by contracts other than those related to insurance
except to the extent set forth in the preceding section (above set out)."
18

Plaintiff's second proposition is that defendant's conduct led plaintiff to believe

that Mrs. Hughes and National Abstainers Agency Inc. had authority to incur
advertising expense on defendant's behalf. The legitimately admissible
evidence in this regard as we see it is negligible except for Exhibits P 13 and P
19 which, as above mentioned, we hold relevant and admissible. We do not
pass upon the weight of that evidence but we hold that defendant is not entitled
to the entry of judgment n.o.v. on this record. Plaintiff's third contention is that
if Mrs. Hughes was guilty of fraud in her alleged representations to plaintiff,
she had apparent authority to incur the advertising expense in this matter for
defendant through National Abstainers, Inc. This is in much the same situation
as plaintiff's second point.

19

In the light of the substantial error in the admission of evidence, we are

satisfied that this judgment should be reversed and defendant granted a new
trial on the merits. Because of the disorderly trial presentation there was some
understandable confusion with respect to the charge. At the new trial the
pertinent agency principles and the full relationship of defendant to Abstainers,
Inc. and Mrs. Hughes need to be clearly and carefully given the jury.

20

The judgment of the District Court will be reversed and the cause remanded to
said Court for a new trial on the merits.

SUPPLEMENTAL OPINION.
21

PER CURIAM.

22

The only elements in this appeal which we considered needed rechecking by

both sides were the thirty-three exhibits of plaintiff which were marked in
evidence over defense objection. Both appellant and appellee still state that
these are all dated after the Hughes hiring.

23

From our own examination in depth of these exhibits we find that in No. 17
there are twelve items, two of which are dated prior to the Hughes
employment. Those two will therefore not be excluded from evidence because
they are after the Hughes hiring. We do not pass upon their admissibility
otherwise. The balance of the items are all after Hughes.

24

No. 41 consists of four items, two of which are dated prior to the Hughes
employment. The latter two will not be excluded from evidence by the reason
of being dated after the Hughes employment. We do not pass upon their
admissibility otherwise. The other two items are undated and need further
proof.

25

No. 42 is a single undated sheet. In the present state of the proofs this is not to
be excluded from evidence as occurring after the Hughes hiring. We do not
pass upon its admissibility otherwise.

26

No. 43 consists of seventeen sheets. Seven of these list names and have no date
identification. These will not be excluded from evidence under the present
proofs on the ground that they are of dates after the Hughes engagement. We
do not pass upon their admissibility otherwise. The ten remaining items in this
exhibit are copies of applications. Three of those are dated prior to Hughes.
They will not be excluded under the present proofs as dated after Hughes. The
other seven applications are all dated after Hughes. They will be excluded from
evidence because of that fact.

27

No. 44 consists of three rejected applications, two of these are dated prior to
Hughes. They are therefore not excluded as being of a later date. We do not
pass upon their admissibility otherwise. The third item is dated after Hughes
and will be excluded from evidence.

28

In line with the above, the language "thirty-three" in the first and second lines
of the second full paragraph, page 756 of the said opinion is stricken and the
language "twenty-eight" is inserted in place thereof. Other than the above
changes made necessary by the inadvertence of counsel there are no changes in
our original opinion filed October 25, 1968.