#25904-a-LSW

2012 S.D. 50

                      IN THE SUPREME COURT
                              OF THE
                     STATE OF SOUTH DAKOTA

                              ****

DONALD HASS, AS PERSONAL
REPRESENTATIVE OF THE
ESTATE OF HARVEY SEVERSON,
DECEASED,                               Plaintiff and Appellant,

     v.

PAUL WENTZLAFF,                         Defendant,

     and

NORTH AMERICAN COMPANY FOR
LIFE AND HEALTH INSURANCE,

     and

ALLIANZ LIFE INSURANCE
COMPANY OF NORTH AMERICA,               Defendants and Appellees.

                              ****

                APPEAL FROM THE CIRCUIT COURT OF
                   THE SECOND JUDICIAL CIRCUIT
                MINNEHAHA COUNTY, SOUTH DAKOTA

                              ****

               THE HONORABLE WILLIAM J. SRSTKA, JR.
                             Judge

                              ****




                                        ARGUED ON APRIL 18, 2012

                                        OPINION FILED 06/20/12
JONATHAN K. VAN PATTEN
Vermillion, South Dakota

and

BRUCE M. FORD
Watertown, South Dakota                 Attorneys for plaintiff
                                        and appellant.

ERIC C. SCHULTE
TIMOTHY M. GEBHART of
Davenport, Evans, Hurwitz
 & Smith, LLP
Sioux Falls, South Dakota               Attorneys for defendant and
                                        appellee North American
                                        Company for Life & Health
                                        Insurance.

JASON R. SUTTON
PAUL W. TSCHETTER of
Boyce, Greenfield, Pashby & Welk, LLP
Sioux Falls, South Dakota               Attorneys for defendant and
                                        appellee Allianz Life Insurance
                                        Company of North America.
#25904

WILBUR, Justice

[¶1.]        Paul Wentzlaff, an insurance agent, stole thousands of dollars from

Harvey Severson, an elderly man who asked Wentzlaff to help manage his financial

affairs. Donald Hass, as personal representative for Severson’s estate, sued

Wentzlaff and two insurance companies who appointed Wentzlaff as an agent,

North American Company for Life and Health Insurance (North American) and

Allianz Life Insurance of North America (Allianz). Hass and North American each

moved for summary judgment and Allianz joined North American’s motion. After a

hearing, the circuit court denied Hass’s motion and granted the insurance

companies’ motion. Hass appeals, arguing that the insurance companies are

vicariously liable for Wentzlaff’s acts. We affirm.

                 FACTS AND PROCEDURAL BACKGROUND

[¶2.]        Wentzlaff began working as an insurance agent in 1988. From 1988

through 1995, Wentzlaff was an agent for Aid Association for Lutherans, working in

Colorado and Minnesota. Aid Association for Lutherans terminated Wentzlaff in

late 1995 because of his sales practices, in part for not properly explaining a whole

life policy. Wentzlaff then moved to South Dakota and worked as an agent for

Kansas City Life and, in the late 1990s, for Lutheran Brotherhood. In 1997,

Wentzlaff entered into a consent order with the South Dakota Division of Insurance

under which he paid a $250 fine. Wentzlaff was penalized for promoting and

advertising a seminar on then-recent federal legislation in a way that sought to

influence the purchase of insurance through “fright and scare tactics.”




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[¶3.]        In April 2001, Wentzlaff applied with North American. The

application required that Wentzlaff disclose whether a complaint had ever been

filed against him by a state insurance department, National Association for

Securities Dealers (NASD), or another regulatory agency. Wentzlaff included a

letter with his application, notifying North American of the 1997 consent order and

attaching a copy of the order itself. In May 2001, North American received a

supplement to the disclosure, explaining that the 1997 consent order involved an

“advertising violation” and revealing that Wentzlaff was appointed as an agent by

several other insurance companies. In August 2001, Lutheran Brotherhood

reported that Wentzlaff failed to disclose or obtain approval for outside business

and submitted non-genuine signatures on forms. Because of this report, the NASD

suspended Wentzlaff from working with any NASD dealer for two years. Wentzlaff

was also required to pay a $5,000 fine if he sought future employment as a

securities broker for an NASD dealer. The report and subsequent consent order

were based on Wentzlaff engaging in outside business activities without notifying

Lutheran Brotherhood and for failing to disclose that he was both the existing agent

and insuring agent on several insurance replacement forms.

[¶4.]        Wentzlaff eventually started an independent insurance business. As

an independent agent, Wentzlaff could write for any insurance company that

appointed him as an agent. Wentzlaff applied to multiple insurance companies.

Wentzlaff was ultimately appointed by at least ten insurance companies, including

North American and Allianz. Wentzlaff never considered one insurance company to




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be his primary company. In 2004, he formed Resource Development, Incorporated

(RDI).

[¶5.]        Joyce Farr met Wentzlaff sometime in 1999 when he spoke at her

Lutheran church while he was working for Lutheran Brotherhood. Farr later

became a client of Wentzlaff’s, and Farr was pleased with his work. Around 2000,

Farr introduced Wentzlaff to Harvey Severson, her brother and a retired farmer

who had recently moved into an assisted living facility. Approximately six months

after meeting Severson, Wentzlaff began assisting Severson with paying monthly

bills and other financial affairs. Wentzlaff provided similar bookkeeping services to

Farr. Wentzlaff would write checks and Severson would sign them. Wentzlaff

charged Severson $200 per month, and later, $250 per month, for his bookkeeping

services. Wentzlaff did not inform North American or Allianz that he was

performing these services. Wentzlaff considered himself to be acting on behalf of

RDI when providing the bookkeeping services.

[¶6.]        When Severson and Wentzlaff first met, Severson had investments in

mutual funds and annuities. Severson eventually authorized Wentzlaff to convert

almost all of these investments into annuities with North American and Allianz.

During this time, Wentzlaff indicated that he was with the Fellowship of Christian

Estate Planners, Inc. Beginning in 2005, Wentzlaff began submitting requests to

North American and Allianz to withdraw funds from Severson’s annuities. The

requests were signed by Severson. Wentzlaff told Severson that the money was

needed to pay bills or that Wentzlaff would reinvest the funds. Wentzlaff asked

that North American and Allianz directly deposit the funds into Severson’s bank


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#25904

account, and the companies complied. Allianz and North American deposited funds

into Severson’s account; Wentzlaff then wrote checks from Severson’s account

payable to RDI, had Severson sign them, and deposited the money into RDI’s bank

account. With each withdrawal, Allianz and North American mailed a letter to

Severson advising him of the withdrawal, any surrender charges, and potential tax

consequences.

[¶7.]        Wentzlaff provided similar services to Orlin Berge. When Berge’s

attorney became suspicious of Wentzlaff’s practices, Wentzlaff prepared and

Severson signed a letter requesting the surrender value of the entire Allianz policy.

Again, Allianz notified Severson of the request by letter and thereafter wired the

funds into Severson’s account. Severson then signed checks payable to RDI, and

Wentzlaff used the Allianz policy funds to pay back money stolen in a similar

manner from Berge.

[¶8.]        Although some of the money was used to pay Severson’s bills,

Wentzlaff stole most of it, using the money for personal and business expenses and

to cover his thefts from Berge’s investments. In April 2007, a Minnehaha County

grand jury indicted Wentzlaff on two counts of insurance fraud and eight counts of

grand theft by embezzlement. Two days later, the South Dakota Department of

Insurance issued an emergency order suspending Wentzlaff’s license and mailed a

copy to the insurance companies. Wentzlaff pleaded guilty to one count of grand

theft of property received in trust and one count of committing a fraudulent

insurance act. He was sentenced to twenty years in the state penitentiary and

ordered to pay $472,000 in restitution.


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[¶9.]        Severson died in February 2008. North American paid Severson’s

estate $334,834.29 in death benefits in March 2008. Donald Hass, as personal

representative of Severson’s estate, sued Wentzlaff, North American, and Allianz.

The complaint against the insurers alleged securities fraud, conversion, fraud and

deceit, breach of fiduciary duty, and negligence, seeking to impose vicarious liability

under the theory of respondeat superior.

[¶10.]       Hass moved for partial summary judgment on liability. North

American moved for summary judgment and Allianz joined North American’s

motion and all submissions in support of the motion. After a hearing, the circuit

court granted the insurance companies’ summary judgment motion. Hass appeals.

                             STANDARD OF REVIEW

[¶11.]        This Court reviews entry of summary judgment de novo. Adrian v.

Vonk, 2011 S.D. 84, ¶ 8, 807 N.W.2d 119, 122.

             In reviewing a grant or denial of summary judgment under
             SDCL 15-6-56(c), we must determine whether the moving party
             demonstrated the absence of any genuine issue of material fact
             and showed entitlement to judgment on the merits as a matter
             of law. The evidence must be viewed most favorably to the
             nonmoving party and reasonable doubts should be resolved
             against the moving party. The nonmoving party, however, must
             present specific facts showing that a genuine, material issue for
             trial exists. Our task on appeal is to determine only whether a
             genuine issue of material fact exists and whether the law was
             correctly applied. If there exists any basis which supports the
             ruling of the trial court, affirmance of a summary judgment is
             proper.

Saathoff v. Kuhlman, 2009 S.D. 17, ¶ 11, 763 N.W.2d 800, 804. We have also noted

that,

             while we often distinguish between the moving and non-moving
             party in referring to the parties’ summary judgment burdens,

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#25904

             the more precise inquiry looks to who will carry the burden of
             proof on the claim or defense at trial. Entry of summary
             judgment is mandated against a party who fails to make a
             showing sufficient to establish the existence of an element
             essential to that party’s case, and on which that party will bear
             the burden of proof at trial.

W. Consol. Coop. v. Pew, 2011 S.D. 9, ¶ 21, 795 N.W.2d 390, 396.

[¶12.]       “Statutory interpretation is a question of law, reviewed de novo.” State

ex rel. Dep’t of Transp. v. Clark, 2011 S.D. 20, ¶ 5, 798 N.W.2d 160, 162.

“The purpose of statutory construction is to discover the true intention of the law,

which is to be ascertained primarily from the language expressed in the statute.”

Id. Legislative intent is also “determined from the statute as a whole, as well as

enactments relating to the same subject.” Id. ¶ 10.

                           ANALYSIS AND DECISION

[¶13.]       1.     Did Hass preserve the argument that there are genuine
                    issues of material fact?

[¶14.]       Summary judgment “shall be rendered . . . if the pleadings,

depositions, answers to interrogatories, and admissions on file, together with the

affidavits, if any, show that there is no genuine issue as to any material fact, and

the moving party is entitled to judgment as a matter of law.” SDCL 15-6-56(c). A

party moving for summary judgment must submit a statement of material facts.

SDCL 15-6-56(c)(1). A party opposing a summary judgment motion must include a

“separate, short, and concise statement of the material facts as to which the

opposing party contends a genuine issue exists to be tried.” SDCL 15-6-56(c)(2);

Discover Bank v. Stanley, 2008 S.D. 111, ¶ 23, 757 N.W.2d 756, 763. “The opposing

party must respond to each numbered paragraph in the moving party’s statement


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with a separately numbered response and appropriate citations to the record.”

SDCL 15-6-56(c)(2) (emphasis added); see Discover Bank, 2008 S.D. 111, ¶ 26, 757

N.W.2d at 764 (stating that the moving party’s failure to file a statement of

undisputed material facts “denied [the non-moving party] the opportunity to submit

his mandatory statement controverting those undisputed facts”). “All material facts

set forth in the statement that the moving party is required to serve shall be

admitted unless controverted by the statement required to be served by the

opposing party.” SDCL 15-6-56(c)(3).

[¶15.]         After a party files a summary judgment motion, “an adverse party may

not rest upon the mere allegations or denials of his pleading, but his response, by

affidavits or as otherwise provided in § 15-6-56, must set forth specific facts showing

that there is a genuine issue for trial.” SDCL 15-6-56(e). “If he does not so respond,

summary judgment, if appropriate, shall be entered against him.” Id. See also

Dakota Indus., Inc. v. Cabela’s.Com, Inc., 2009 S.D. 39, ¶ 14, 766 N.W.2d 510, 514

(finding that under SDCL 15-6-56(e), once the moving party meets its initial burden

of proof, the burden shifts to the non-moving party to identify facts disputing the

moving party’s allegations).

[¶16.]         In this case, Hass moved for partial summary judgment on liability

and filed a statement of undisputed material facts. Allianz responded to Hass’s

statement of undisputed material facts. 1 North American cross-moved for summary




1.       North American did not separately respond to Hass’s statement of
         undisputed facts.

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#25904

judgment and filed a statement of undisputed material facts. Allianz joined this

motion and all submissions in support of the motion.

[¶17.]       Hass did not respond to the insurance companies’ statement of

undisputed material facts. At the summary judgment hearing, Hass’s counsel said,

“I think the Court correctly noted that there have been statements of undisputed

material facts, which certainly as to North American are not disputed, nor we

towards North American’s statement of material facts.” The circuit court, in its

letter decision, stated that Hass “conceded at the hearing that there are no genuine

issues of material fact.”

[¶18.]       General arguments at the summary judgment hearing do not satisfy

the requirement that Hass specifically respond to the insurance companies’

statement of material facts. By failing to respond, all facts asserted by the

insurance companies are deemed admitted. Furthermore, because Hass conceded

that there are no genuine issues of material fact, SDCL 15-6-56(e) mandated that

summary judgment be entered against Hass due to his failure to specifically

respond to North American’s motion and statement of facts, so long as the

insurance companies were entitled to judgment as a matter of law. Therefore, Hass

did not preserve his argument that genuine issues of fact precluded summary

judgment in this case. Thus, we analyze whether North American and Allianz were

entitled to judgment as a matter of law under the undisputed facts set forth in the

parties’ respective statements.

[¶19.]       2.     Was Wentzlaff acting within his scope of employment
                    with Allianz and North American when he stole money
                    from Severson?


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#25904

[¶20.]         The doctrine of respondeat superior “hold[s] an employer or principal

liable for the employee’s or agent’s wrongful acts committed within the scope of the

employment or agency.” Black’s Law Dictionary 1426 (9th ed. 2009). “[T]he

question of whether the act of a servant was within the scope of employment must,

in most cases, be a question of fact for the jury.” Kirlin v. Halverson, 2008 S.D. 107,

¶ 16, 758 N.W.2d 436, 444 (citations omitted).

[¶21.]         We apply a two-part test when analyzing vicarious liability claims. See

id. ¶¶ 24-25. 2 “[T]he fact finder must first determine whether the [act] was wholly

motivated by the agent’s personal interests or whether the act had a dual purpose,

that is, to serve the master and to further personal interests.” Id. ¶ 24. “When a

servant acts with an intention to serve solely his own interests, this act is not within

the scope of employment and his master may not be held liable for it.” Id. “If the

act was for a dual purpose, the fact finder must then consider the case presented

and the factors relevant to the act’s foreseeability in order to determine whether a

nexus of foreseeability existed between the agent’s employment and the activity

which caused the injury.” Id. ¶ 25. “If such a nexus exists, the fact finder must,

finally, consider whether the conduct is so unusual or startling that it would be

unfair to include the loss caused by the injury among the costs of the employer’s




2.       We were considering an agent’s intentional use of force in Kirlin, but we find
         the standard equally applicable to other acts by an agent.


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business.” Id. (citing Leafgreen v. Am. Family Mut. Ins. Co., 393 N.W.2d 275, 280-

81 (S.D. 1986)). 3

[¶22.]               A.     Was Wentzlaff wholly motivated by his personal
                            interests or did the thefts have a dual purpose?

[¶23.]         We must first determine whether Wentzlaff’s acts had a dual purpose.

A principal may be liable for an agent’s acts where the agent’s “purpose, however

misguided, is wholly or in part to further the [principal’s] business[.]” Id. ¶ 22

(quoting Prosser and Keeton on the Law of Torts, § 70, 505-06 (5th ed. 1984)). “But

if [the agent] acts from purely personal motives . . . he is considered in the ordinary

case to have departed from his employment and the master is not liable.” Id.

               An essential focus of inquiry remains: Were the [agent’s] acts in
               furtherance of his employment? If the answer is yes, then
               employer liability may exist even if his [agent’s] conduct was
               expressly forbidden by the [principal] . . . When a[n agent] acts


3.       Restatement (Second) of Agency has played a prevalent role in our vicarious
         liability jurisprudence as we often look to it for guidance. See generally
         Kirlin, 2008 S.D. 107, 758 N.W.2d 436; see also Deuchar v. Foland Ranch,
         Inc., 410 N.W.2d 177 (S.D. 1987); Leafgreen, 393 N.W.2d 275. Restatement
         (Third) of Agency, adopted in 2005 and published in 2006, now supersedes
         Restatement (Second) of Agency, which was published in 1958. Justice
         Meierhenry noted this fact in her special concurrence in Kirlin. 2008 S.D.
         107, ¶¶ 65-66, 758 N.W.2d at 456. Unlike Restatement (Second) of Agency,
         Restatement (Third) of Agency does not rely upon foreseeability in
         determining whether an employee’s acts are within the scope of employment.
         Restatement (Third) of Agency § 7.07 cmt. b. Section 7.07 is “phrased in
         more general terms” than its counterparts in Restatement (Second) of Agency
         and focuses on an employee’s intent and motivations rather than on the
         foreseeability of the acts. Id. Although both North American and Allianz cite
         to Restatement (Third) of Agency at some point, no one in this case has urged
         us to adopt it. Furthermore, we find that the two-part test established by
         this Court in Kirlin embodies both the employee intent element from
         Restatement (Third) of Agency § 7.07 and the foreseeability element from
         Restatement (Second) of Agency §§ 228 and 229 and our vicarious liability
         precedent.


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#25904

             with an intention to serve solely his own interests, this act is not
             within the scope of employment, and [the principal] may not be
             held liable for it.

Id. (quoting Deuchar, 410 N.W.2d at 181).

[¶24.]       In this case, Hass seeks to hold the insurance companies liable for

Wentzlaff’s acts of theft. Wentzlaff stole Severson’s money by writing checks from

Severson’s account to RDI. Wentzlaff had access to Severson’s personal assets and

accounts due to his bookkeeping position. These undisputed facts may establish

that Wentzlaff was not serving North American or Allianz when he committed the

thefts. If this is the case, then our inquiry into vicarious liability would end as

Wentzlaff’s actions would be outside the scope of his agency relationship with the

insurance companies and the companies would not be liable for Wentzlaff’s acts.

[¶25.]       However, the undisputed material facts also demonstrate that

although Wentzlaff initially only withdrew the maximum amounts allowed before a

penalty or surrender charge applied, Wentzlaff eventually began withdrawing

amounts that resulted in surrender charges and interest adjustments. In fact,

North American received over $36,000 in penalty fees or surrender charges due to

the withdrawals on Severson’s annuities which could be considered a benefit for the

company. Therefore, if one measures the “act of theft” from the time Wentzlaff

called the insurance company to start the withdrawal process so he could eventually

steal the money, then it becomes more likely that Wentzlaff’s purpose, at least in

part, was to further the insurance companies’ business.

[¶26.]              B.     Was there a sufficient nexus of foreseeability
                           between Wentzlaff’s agency relationship and the
                           thefts?


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[¶27.]        We must next determine whether Wentzlaff’s acts were foreseeable to

decide whether North American and Allianz were entitled to summary judgment as

a matter of law under the undisputed facts set forth in the parties’ respective

statements.

              [A] principal is liable for tortious harm caused by an agent
              where a nexus sufficient to make the harm foreseeable exists
              between the agent’s employment and the activity which actually
              caused the injury; foreseeable is used in the sense that the
              employee’s conduct must not be so unusual or startling that it
              would be unfair to include the loss caused by the injury among
              the costs of the employer’s business.

Leafgreen, 393 N.W.2d at 280-81. “‘Foreseeability’ as used in the respondeat

superior context [differs] from ‘foreseeability’ as used for proximate causation

analysis in tort law.” Kirlin, 2008 S.D. 107, ¶ 14, 758 N.W.2d at 444.

“In respondeat superior, foreseeability includes a range of conduct which is ‘fairly

regarded as typical of or broadly incidental to the enterprise undertaken by the

employer.’” Id.

[¶28.]        Although this Court considered certain factors in Leafgreen v.

American Family Mutual Insurance Co., Restatement (Second) of Agency § 229(2)

contains more helpful criteria in analyzing foreseeability as it relates to vicarious

liability. Restatement (Second) of Agency § 229(2) lists ten factors relevant to the

scope of employment inquiry:

              (a) whether or not the act is one commonly done by such
                  servants;
              (b) the time, place and purpose of the act;
              (c) the previous relations between the master and the servant;
              (d) the extent to which the business of the master is apportioned
                  between different servants;



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               (e) whether or not the act is outside the enterprise of the master
                   or, if within the enterprise, has not been entrusted to any
                   servant;
               (f) whether or not the master has reason to expect that such an
                   act will be done;
               (g) the similarity in quality of the act done to the act authorized;
               (h) whether or not the instrumentality by which the harm is
                   done has been furnished by the master to the servant;
               (i) the extent of departure from the normal method of
                   accomplishing an authorized result; and
               (j) whether or not the act is seriously criminal.

[¶29.]         Applying those factors to this case, Wentzlaff’s acts were “seriously

criminal.” In addition, neither North American nor Allianz had “reason to expect”

that Wentzlaff would steal money from Severson because the undisputed material

facts establish that Wentzlaff did not tell the insurance companies that he was

providing bookkeeping services to Severson. Also, the insurance companies notified

Severson by letter before effectuating the withdrawals and thereafter followed

Wentzlaff’s instructions to deposit the funds directly into Severson’s bank account.

The undisputed facts also establish that Wentzlaff’s bookkeeping services were

completely separate from his work as an insurance agent and that Wentzlaff

considered himself to be working on behalf of RDI when providing the bookkeeping

services to Severson. 4 Furthermore, the insurance companies in this case did not

furnish “the instrumentality by which the harm [was] done” because Wentzlaff



4.       North American’s statement of material fact number twenty-one provides:

               The monthly services Wentzlaff was providing Severson had
               nothing to do with his work as an independent insurance agent.
               [record citation] He never told North American or Allianz that
               he was performing these services or charging for them and
               considered himself to be acting on behalf of and for RDI. [record
               citation].

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completed the thefts by writing checks to RDI from Severson’s personal account as

Severson’s bookkeeper, a position that was separate from his agency relationship

with North American and Allianz. Given the undisputed facts in this case, we

conclude that Wentzlaff’s acts were unforeseeable.

[¶30.]        We agree with the circuit court’s conclusion that the facts in this case

are analogous to the facts in Leafgreen, 393 N.W.2d 275 on the foreseeability issue.

In Leafgreen, an independent insurance agent became aware of a clients’ lockbox

containing jewelry and other valuables when visiting the home. Id. at 276. The

agent and clients were also personal friends. Id. The agent learned through this

friendship that the clients would be out of town and conspired with two felons to

burglarize the clients’ home. Id. The clients sued the insurance company, seeking

to hold it liable for the criminal acts of the agent. Id. at 276-77. The insurance

company moved for summary judgment, arguing that the agent was not acting

within the scope of his employment when he conspired to burglarize the clients’

home. Id. at 277. The circuit court granted the insurance company’s motion,

finding that the agent’s acts were not reasonably foreseeable by the insurance

company and thus, it would be unfair to impute the agent’s acts to the company. Id.

This Court agreed that the agent’s criminal acts were unforeseeable and affirmed.

Id. at 281.

[¶31.]        Like the insurance agent in Leafgreen, who was a friend of the clients,

Wentzlaff was not merely an insurance agent but also provided bookkeeping

services to Severson. Also like the agent in Leafgreen, who gained the necessary

access and information through the personal friendship, Wentzlaff utilized his


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bookkeeping position to carry out his plan and steal money from Severson.

Therefore, we find that Wentzlaff’s criminal acts were unforeseeable.

[¶32.]         An illustration following Restatement (Third) of Agency § 7.08 5 also

guides our analysis:

               A sells an annuity issued by P Insurance Company to T. Later,
               A suggests that T surrender this annuity and authorize A to
               invest the proceeds on T’s behalf in an annuity to be issued by S
               Insurance Company, a competitor of P Insurance Company. T
               agrees and surrenders the annuity to P Insurance Company,
               directing P Insurance Company to make the check for the
               proceeds payable to A. P Insurance Company does so. A
               appropriates the funds to A’s own use. P Insurance Company is
               not subject to liability to T. P Insurance Company made no
               manifestation to T on the basis of which T could reasonably
               believe P Insurance Company authorized A, as its agent, to
               reinvest T’s money with a competitor of P Insurance Company.
               A is subject to liability to T. A converted T’s money. Also, T, by
               authorizing A at A’s request to take control of T’s money and to
               invest it on T’s behalf, created an agency relationship with A. A
               breached A’s duties to T as stated in §§ 8.01, 8.05(1), 8.09(1), and
               8.12.

This illustration parallels the facts of this case, but there is one notable difference –

in the illustration, the insurance company surrendered the client’s money directly to

the insurance agent and the agent misappropriated the money. Here, the

undisputed material facts reveal that North American and Allianz not only

contacted Severson before completing the withdrawal requests submitted by

Wentzlaff, but the companies also directly deposited the funds into Severson’s

personal account. Severson then gave Wentzlaff access to the funds by signing


5.       Restatement (Third) of Agency § 7.08 provides: “A principal is subject to
         vicarious liability for a tort committed by an agent in dealing or
         communicating with a third party on or purportedly on behalf of the principal
         when actions taken by the agent with apparent authority constitute the tort
         or enable the agent to conceal its commission.”

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checks written to RDI. Thus, it was Severson, not the insurance companies, who

gave Wentzlaff direct access to the money.

[¶33.]         This illustration supports the conclusion that North American and

Allianz are not liable to Severson for Wentzlaff’s acts. Neither North American nor

Allianz made a manifestation to Severson that Severson could reasonably believe to

mean that the companies authorized Wentzlaff to reinvest Severson’s money or

convert the money after it was transferred to Severson’s personal account. 6

[¶34.]         Hass has not demonstrated that there is a sufficient nexus of

foreseeability between the agency relationship and Wentzlaff’s theft of Severson’s

money and thus, the insurance companies are entitled to judgment as a matter of

law. We affirm the circuit court’s grant of summary judgment in favor of North

American and Allianz on the scope of employment issue.

[¶35.]         3.    Did Wentzlaff’s agency relationship with Allianz and
                     North American enable Wentzlaff to carry out his theft,
                     invoking liability under Restatement (Second) of Agency
                     § 219(2)(d)?

[¶36.]         Restatement (Second) of Agency § 219(2) provides four exceptions to

the general rule that a principal is liable for the torts of an agent only if the agent

was acting within the scope of his or her employment. One exception provides that



6.       Although not raised by the parties, it also appears that Severson, by
         authorizing Wentzlaff to take control of Severson’s money and to invest it on
         his behalf, may have in fact created an independent agency relationship with
         Wentzlaff. Therefore, in addition to Wentzlaff’s acts being unforeseeable,
         Wentzlaff was acting as Severson’s agent, not an agent for North American or
         Allianz, when stealing money from Severson. However, even if Wentzlaff
         were acting as Severson’s agent because of the bookkeeping relationship, the
         outcome of this case is the same and North American and Allianz are not
         liable for Wentzlaff’s acts.

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a principal may be liable for the torts of an agent acting outside of the scope of his

or her employment if “the [agent] . . . was aided in accomplishing the tort by the

existence of the agency relation.” Restatement (Second) of Agency § 219(2)(d)

(1958). “In those cases, liability attaches because the tortfeasor’s employment

enabled or endowed him with a unique advantage to perpetrate the tortious acts.”

Iverson v. NPC Int’l, Inc., 2011 S.D. 40, ¶ 9, 801 N.W.2d at 279. The comment to

Section 219(2)(d) explains that “the [agent] may be able to cause harm because of

his position as agent, as where a telegraph operator sends false messages

purporting to come from third persons[.]” (citing Restatement (Second) of Agency, §

261 (1958)).

[¶37.]         In this case, Hass argues that Wentzlaff’s agency relationship with

North American and Allianz enabled him to steal Severson’s money, thus invoking

liability under § 219(2)(d). The insurance companies respond with three arguments:

(1) that Hass failed to argue § 219(2)(d) to the circuit court; (2) that this Court has

not yet adopted the Restatement (Second) of Agency § 219(2)(d) “aided by agency”

theory of liability; 7 and (3) even if this Court adopts or has adopted the theory, it

was Wentzlaff’s position as Severson’s bookkeeper, not his agency relationship with

North American and Allianz, that enabled and aided Wentzlaff.



7.       We acknowledged Restatement (Second) of Agency § 219(2)(d) in Iverson v.
         NPC International, Inc., 2011 S.D. 40, ¶ 9, 801 N.W.2d at 279. This Court
         concluded that under the facts in Iverson, “the agency relationship was
         immaterial to [the agent’s] tort” and affirmed the lower court’s grant of
         summary judgment to the principal. Id. ¶ 11. Thus, this Court applied the
         “aided by agency” theory but found that under this theory, the principal was
         not liable for the agent’s acts. See id.


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[¶38.]       At the summary judgment hearing, Hass’s counsel specifically referred

to Restatement (Second) of Agency § 261 but not § 219. The circuit court did not

cite or rely upon § 219 but did cite and discuss § 261. On appeal, Hass addresses

both § 219 and § 261 under the same issue. However, there are significant

differences between the sections. While § 261 addresses whether an agent is

“enabled” by the agency relationship, § 261 applies only if the agent was acting with

apparent authority and thus, within the scope of employment. In contrast,

§ 219(2)(d) embodies the theory that, if the agent is acting outside the scope of

employment, the principal may nevertheless be liable if the agency relationship

enabled the agent.

[¶39.]       In this case, Hass’s assertion that Wentzlaff was enabled by his agency

relationship with the insurance companies went to his scope of employment

argument. Hass never once argued below that Wentzlaff was acting outside the

scope of employment, thus invoking liability under § 219(2)(d). Therefore, even

though the circuit court concluded that “Wentzlaff’s agency relationship with North

American and Allianz did not enable him to commit or conceal the thefts[,]” this

conclusion was a part of the court’s decision on the scope of employment issue

rather than a conclusion relating to § 219(2)(d). Indeed, the circuit court did not

address § 219(2)(d) because Hass never raised this issue to the court.

[¶40.]       The record demonstrates that Hass never argued that Wentzlaff was

outside his scope of employment to the circuit court, invoking § 219(2)(d).

Therefore, Hass failed to preserve this argument and we decline to address it for the

first time on appeal. See Alvine Family Ltd. P’ship v. Hagemann, 2010 S.D. 28, ¶


                                          -18-
#25904

21, 780 N.W.2d 507, 514 (“We have consistently held that this Court may not review

theories argued for the first time on appeal.”).

[¶41.]       4.     Does SDCL 58-30-176 impose a higher standard of
                    liability on insurance companies?

[¶42.]       SDCL 58-30-176 provides:

             To appoint an insurance producer or business entity as its
             agent, the appointing insurer shall file, in a format approved by
             the director, a notice of appointment within fifteen days from
             the date the agency contract is executed or the first insurance
             application is submitted. An insurer may also elect to appoint
             an insurance producer to all or some insurers within the
             insurer’s holding company system or group by the filing of a
             single appointment request. The insurer is responsible for the
             acts of its representatives and insurance producers, including
             those acts where the insurance producer has solicited, sold, or
             negotiated insurance on behalf of that insurer prior to the date
             of appointment.

(Emphasis added.)

[¶43.]       Hass argues that SDCL 58-30-176 supplements agency common law

and imposes a strict-liability-like standard on insurance companies for the acts of

their agents. To support this argument, Hass focuses on the above emphasized

language in SDCL 58-30-176 as well as this Court’s decision in State v. Wingler,

2007 S.D. 59, 734 N.W.2d 795. In Wingler, an insurance agent convinced clients to

cash in annuities and purchase new annuities from the agent, promising the clients

better returns on their investments. Id. ¶ 2. The agent had the clients write checks

to a fictitious company and then the agent deposited the money into his personal

accounts. Id. The clients’ funds were not used to purchase new annuities but

instead, the agent misappropriated the money for his personal use. Id. The agent

was indicted on six counts of committing a fraudulent insurance act and seven


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#25904

counts of grand theft of property received in trust. Id. ¶ 3. The agent pleaded

guilty to five counts of grand theft of property received in trust. Id. The circuit

court granted restitution to some of the clients and to the insurance company, and

the agent appealed to this Court. Id. ¶ 4.

[¶44.]         This Court affirmed the trial court’s award of restitution. Id. ¶ 22. In

doing so, this Court stated:

               The trial court’s conclusions . . . are supported by the record and
               applicable authorities. SDCL 58-30-176 provides in pertinent
               part that, “[t]he insurer is responsible for the acts of its
               representatives and insurance producers[.]” This Court has
               further held under the law of agency that, “[g]enerally, a
               principal may be held liable for the fraud and deceit of his agent
               acting within the scope of his actual or apparent authority, even
               though the principal was unaware of or received no benefit from
               his agent’s conduct.” McKinney v. Pioneer Life Ins. Co., 465
               N.W.2d 192, 194 (S.D. 1991). Thus, [the insurance company]
               was made liable by statute and as an implied condition of its
               principal/agent relationship or contract with [the agent] to
               indemnify others suffering pecuniary damages as a result of [the
               agent’s] fraud and deceit committed within the scope of his
               actual or apparent authority. [The agent] does not dispute this
               and concedes in his brief that [the insurance company]
               reimbursed the victims pursuant to the statutory obligation
               created by SDCL 58-30-176 and principles of agency.

Id. ¶ 20.

[¶45.]         North American and Allianz assert, and the circuit court concluded,

that this Court’s decision in North Star Mutual Insurance Co. v. Rasmussen, 2007

S.D. 55, 734 N.W.2d 352 8 is more applicable. In North Star, an insurance agent

negligently failed to procure proper coverage for a client. Id. ¶ 6. After the

insurance company denied the client coverage, the company filed a declaratory



8.       This Court decided North Star one week prior to deciding Wingler.

                                           -20-
#25904

judgment action, “seeking a ruling that [the insurance company] had no duty to

defend or indemnify [the client] under the policy.” Id. ¶¶ 1, 11. Both parties filed

summary judgment motions. Id. ¶ 11. The circuit court granted the insurance

company’s motion, holding that the agent was the client’s agent rather than the

insurance company’s agent and therefore, the agent’s negligence could not be

imputed to the insurance company. Id. ¶¶ 11-12. On appeal, the client, as an

alternative argument, asserted that SDCL 58-30-176 (effective July 1, 2001)

retroactively applied, thus making the insurance company liable for the agent’s

acts. Id. ¶ 37. This Court affirmed the lower court, finding that SDCL 58-30-176

did not apply retroactively. Id. ¶¶ 36-38. This Court noted:

             Even assuming these statutes do control and assuming [the
             agent] would be considered an agent of [the insurer] under
             SDCL 25-30-142 [sic], “[s]tatutes regulating licensing and
             defining agents, brokers and solicitors, are not intended to
             change or to exclude the general laws of agency.” Boyter v.
             Blazer Const. Co., 505 So. 2d 854, 860 (La. App. 1987) (citing
             Tiner v. Aetna Life Ins. Co., 291 So. 2d 774, 777 (La. 1974)); see
             also Vina v. Jefferson Ins. Co. of New York, 761 P.2d 581, 585
             (Utah App. 1988) (“insurance code’s purpose is ‘primarily for the
             purpose of regulating insurance companies, agents, brokers,
             solicitors and adjusters’ and does not supplant ordinary legal
             principles of agency”) (quoting Farrington v. Granite State Fire
             Ins. Co., 120 Utah 109, 232 P.2d 754, 756 (1951)); Lee R. Russ &
             Thomas F. Segalla, Couch on Insurance § 45:2 (3d ed. 1996);
             Damon’s Missouri, Inc. v. Davis, 63 Ohio St. 3d 605, 590 N.E.2d
             254, 258 (1992).

Id. ¶ 39 (emphasis added).

[¶46.]       This Court’s review of SDCL 58-30-176 in both Wingler and North Star

is dicta. This Court was less concerned with principles of agency law in Wingler, a

criminal restitution case, than it was in North Star and thus, North Star is more

applicable in this case. We acknowledge that based upon our decision in Wingler,

                                         -21-
#25904

SDCL 58-30-176 applies in this case, but we affirm our statement in North Star

that statutes regulating the insurance agency, including SDCL 58-30-176, do not

change or exclude agency common law. Indeed, in Wingler, the statute and general

laws of agency together created an obligation for the insurance company. Wingler,

2007 S.D. 59, ¶ 20, 734 N.W.2d at 800. Moreover, Hass asks this Court to parse one

sentence from SDCL 58-30-176, but after reading the statute as a whole and in light

of other statutes regulating insurance, we find that the Legislature did not intend

to impose strict liability upon insurance companies for any acts by an insurance

agent. Therefore, we conclude that SDCL 58-30-176 does not impose strict liability

upon insurance companies for the acts of their agents.

[¶47.]       Considering SDCL 58-30-176 along with agency common law, we find

that the facts in this case are distinguishable from the facts in Wingler. Here,

unlike the agent in Wingler, Wentzlaff actually purchased the annuities that he told

Severson he would purchase. Also unlike the agent in Wingler, Wentzlaff had direct

access to Severson’s bank accounts because Wentzlaff served as Severson’s

bookkeeper and financial advisor. Therefore, we conclude that North American and

Allianz are not liable for Wentzlaff’s acts under SDCL 58-30-176 and general

principles of agency common law, and we affirm the circuit court’s grant of

summary judgment to North American and Allianz on this issue.

                                  CONCLUSION

[¶48.]       Based upon the undisputed material facts, Wentzlaff was not acting

within the scope of his employment when he stole money from Severson, and thus,

as a matter of law, North American and Allianz are not vicariously liable for


                                         -22-
#25904

Wentzlaff’s acts. Furthermore, Hass failed to preserve his argument that the

insurance companies are liable under Restatement (Second) Agency § 219(2)(d)

because Hass did not present this argument to the circuit court. Finally, SDCL 58-

30-176 does not impose strict liability upon insurance companies for the acts of their

agents. We affirm the circuit court’s grant of summary judgment in favor of North

American and Allianz.

[¶49.]          Affirmed.

[¶50.]          GILBERTSON, Chief Justice, and KONENKAMP and ZINTER,

Justices, and BASTIAN, Circuit Court Judge, concur.

[¶51.]          BASTIAN, Circuit Court Judge, sitting for SEVERSON, Justice

disqualified.




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