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FOR PUBLICATION
ATTORNEYS FOR APPELLANT: MICHAEL G. LATIFF BUTZEL LONG Detroit, Michigan ATTORNEYS FOR APPELLEE: KAREN T. MOSES SHANNON K. REED Fort Wayne, Indiana

FILED
Mar 26 2010, 8:18 am
of the supreme court, court of appeals and tax court

CLERK

IN THE COURT OF APPEALS OF INDIANA

MAXITROL COMPANY, Appellant-Defendant, vs. LUPKE RICE INSURANCE AGENCY, INC., d/b/a/ LUPKE RICE ASSOCIATES, Appellee-Plaintiff.

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No. 02A03-0905-CV-216

APPEAL FROM THE ALLEN SUPERIOR COURT The Honorable Daniel G. Heath, Judge Cause No. 02D01-0605-CC-660

MARCH 26, 2010 OPINION - FOR PUBLICATION SHARPNACK, Senior Judge

Maxitrol Company (Maxitrol) appeals the trial court's judgment in favor of Lupke Rice Insurance Company, Inc. (Lupke Rice) following a bench trial. We reverse. The following issues are dispositive: 1. Whether the trial court erred in concluding that Maxitrol was bound by Lupke Rice's acts even though Lupke Rice violated Maxitrol's private instructions not to pay RSA the adjusted premiums. Whether the trial court erred in concluding that Maxitrol ratified Lupke Rice's adjusted premium payments to RSA.

2.

Maxitrol is a Michigan corporation that manufactures gas pressure regulators. Lupke Rice is an Indiana insurance agency, and Stanley Rice (Rice) is one of its agents. Rice procured Maxitrol's workers' compensation insurance from EBI Companies until early 2002 when EBI was sold to Royal Sun Alliance (RSA). Thereafter, Maxitrol's workers' compensation insurance was procured from RSA. Lupke Rice and Maxitrol agreed to an agency billing relationship. Lupke Rice paid the premiums and in turn invoiced and recovered payment from Maxitrol. For the workers' compensation insurance, Maxitrol paid an estimated premium at the start of each twelve-month policy period. The estimated premium was based in part on the job classifications and payroll amounts for Maxitrol's employees. As is the industry

standard, the full policy premium was not determined until the end of each policy period when Maxitrol's full exposure was capable of determination. Accordingly, at the

expiration of each policy period, the insurer audited Maxitrol and either credited Maxitrol with an overpayment or billed for an adjustment. 2

In 2000, EBI audited Maxitrol at the expiration of the June 30, 1999, to June 30, 2000, policy period. EBI determined that Maxitrol had improperly classified some of its employees and owed an additional premium of $11,062. Lupke Rice paid the premium and then told Maxitrol about the audit report. Chris Kelly, Maxitrol's Vice President of Finance, immediately contacted Rice to challenge the adjustment to the premium. Rice told Kelly not to pay the adjustment and that he (Rice) would "take care of it." Tr. at 67. Per Rice's instructions, Maxitrol paid the regular premium, but not the adjustment. Maxitrol was not aware that Lupke Rice had paid the premium adjustment. At the end of the 2002 policy period, RSA audited Maxitrol and determined that Maxitrol owed RSA an additional $8,761. Lupke Rice paid RSA the adjusted amount due and advised Kelly of the adjustment. Kelly told Rice he was still upset with the auditor's classifications. Rice again told Kelly not to worry about the adjusted premiums and that he (Rice) would "take care of it." Tr. at 243. During the 2003 audit, RSA determined that Maxitrol owed an adjusted premium of $24,078. Lupke Rice paid the additional $24,078 that was due on the policy, and told Maxitrol about the adjustment. Maxitrol again objected to the auditor's classifications. During the 2004 audit, RSA determined that Maxitrol owed an adjusted premium of $17,720. Lupke Rice paid the adjustment, and Kelly objected to the auditor's classifications. During this time, Lupke Rice sent Kelly invoices and statements. The invoices were a request for payment. The statements, on the other hand, were a report of credits and balances over a series of years. Maxitrol never received an invoice for the audit 3

adjustments. The adjustment amounts did, however, appear on the statements. Kelly contacted Rice several times to inquire as to why the adjusted amounts were still on the statements. Rice told Kelly the statements were an internal accounting document and "not to worry about it. He would take care of it." Tr. at 313. Kelly was not aware that Lupke Rice had paid the adjusted premiums. Tr. at 252. Maxitrol terminated its workers' compensation insurance with Lupke Rice in February 2004. In May 2005, Rice contacted Kelly and for the first time told him that Lupke Rice had paid the adjusted premiums and that Maxitrol needed to pay Lupke Rice because Rice would "be in a lot of trouble if he didn't get this resolved." Tr. at 252. Trial Court Finding #52. Kelly responded in writing to Rice on June 6, 2005. That letter provides in relevant part as follows: "[W]hile your office may have paid these increases, you did so without our knowledge, consent and/or agreement to repay you for them. In our discussions we had stated that we needed to have our concerns addressed regarding the audits." Defendant's Exhibit G. When Maxitrol and Lupke Rice failed to reach a resolution, in May 2006, Lupke Rice filed a complaint seeking recovery of insurance premiums it had paid on behalf of Maxitrol. In addition to the $61,621 due in workers' compensation premium

adjustments, Lupke Rice sought an additional $2,246.59 for other unspecified premiums, for a total recovery of $63,867.59. Both parties filed summary judgment motions, which the trial court denied in August 2008.

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Following a January 2009 bench trial, the trial court entered findings of fact and conclusions of law in a judgment in favor of Lupke Rice. Specifically, the court found in relevant part that Maxitrol was bound by Lupke Rice's acts, even though Lupke Rice violated Maxitrol's private instructions, and that Maxitrol ratified Lupke Rice's payment of the adjusted premiums to RSA. In the judgment, the court ordered Maxitrol to pay Lupke Rice $61,621.00, post-judgment interest and costs. The court denied Lupke Rice's request for prejudgment interest. Maxitrol appeals. Standard of Review At Lupke Rice's request, the trial court entered findings of fact and conclusions of law pursuant to Indiana Trial Rule 52. The standard of review is therefore two-tiered. Infinity Products, Inc. v. Quandt, 810 N.E.2d 1028, 1031 (Ind. 2004). We first determine whether the evidence supports the trial court's findings, and we next determine whether the findings support the judgment. Id. Findings of fact are clearly erroneous when the record lacks any reasonable inference from the evidence to support them. Id. The trial court's judgment is clearly erroneous if it is unsupported by the findings and the conclusions which rely upon those findings. Id. In determining whether the findings or judgment are clearly erroneous, we consider only the evidence favorable to the judgment and all reasonable inferences to be drawn therefrom. Id. Maxitrol's Instructions Not to Pay the Adjusted Premiums Maxitrol argues that the trial court "erred in its application of agency law." Appellant's Br. at 9. Specifically, Maxitrol contends that it is not liable for the adjusted 5

premiums because agent Lupke Rice disregarded principal Maxitrol's instructions not to pay the adjusted premiums. The Indiana Supreme Court has explained that a "principal is bound by the acts of a general agent if the agent acted within the usual and ordinary scope of the business in which it was employed, even if the agent may have violated the private instructions the principal may have given it." Koval v. Simon Telelect, Inc., 693 N.E.2d 1299, 1304 (Ind. 1998). This rule is intended to hold a principal liable to a third party. See Apple Glen Crossing, LLC v. Trademark Retail, Inc., 784 N.E.2d 484, 488 (Ind. 2003). The reason for this rule is that if one of two innocent parties

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