                   IN THE COURT OF APPEALS OF TENNESSEE
                           EASTERN SECTION AT KNOXVILLE
              -----------------------------------------------------------------------------



BOBBY R. REED,                                    )
                                                  )        KNOX CIRCUIT
       Plaintiff/Appellee                         )
                                                  )        No. 03A01-9603-CV-00081
v.                                                )
                                                  )
NATIONAL FOUNDATION LIFE                          )
INSURANCE COMPANY and                             )
MARK BRADSHAW,                                    )
                                                  )        REVERSED
       Defendants/Appellants                      )




R. Franklin Norton; R. David Benner, Knoxville, For the Appellant National
Foundation Life Insurance Company.

David T. Black, Maryville, For the Appellant Mark Bradshaw

Eugene Dixon, Maryville, For the Appellee



                                           OPINION


                                                           INMAN, Senior Judge



       This is a Rule 9 appeal from a judgment denying the defendants’ motions for

summary judgment. The issue is whether an insurance agent has the apparent

authority to waive the conditions for issuance of a policy and the limitations on his

authority as contained in the application for the policy. We hold that the agent has

no such authority and therefore grant the motions for summary judgment.

       Our review is de novo upon the record of the trial court, with no presumption

of the correctness of the trial court’s findings. Roberts v. Roberts 845 S.W.2d 225

(Tenn. Ct. App. 1992).

       On January 7, 1994, the plaintiff was solicited by Mark Bradshaw to purchase

a policy of health insurance from National Foundation Life Insurance Company

(NFLIC). He testified that he was “informed by Mark Bradshaw that my health
insurance coverage would become effective upon the signing of certain insurance

forms and the payment of the first monthly premium.” He further testified that “I did

not read the insurance forms because I was assured by Mark Bradshaw that I had

full coverage.”

       On the same day, the plaintiff signed (1) an Application for Health Insurance,

(2) an Applicant’s Statement, and (3) a Telephone Contact Authorization and

Agreement.

       The Applicant’s Statement contains this provision:

       I understand that the agent cannot change, alter or amend any NFL
       information requirement. I also understand that the agent cannot
       change, alter or amend the policy. I further understand that the
       agent has no authority to make any representations about the
       conditions under which NFL will issue a policy or make a policy
       effective.

       The Application for the policy contains this provision:

       I understand that the insurance applied for shall be subject to the
       provisions and conditions of the policy, and that the policy shall not
       be effective until the policy has been actually issued, with first
       premium paid and delivered to the insured while the health of all
       persons named in this application remains as stated herein. . . I
       further understand that losses due to Pre-existing Conditions,
       diseases or bodily injuries occurring prior to the Effective Date of the
       Policy are not covered. . . unless otherwise provided.

       The Telephone Contact Authorization and Agreement informed the plaintiff

that he would be contacted by telephone and that the application process might take

as long as two weeks.

       The plaintiff admits that he did not read any of the three documents he

signed concurrently with his conversation with Bradshaw.

       NFLIC received the Application on January 12, 1994. On January 19, 1994

NFLIC called the telephone number of the plaintiff and was informed that he had

suffered a heart attack on January 15, 1994. NFLIC thereupon notified the plaintiff

that it was postponing consideration of his application because his health condition

had changed since the application was submitted. No policy was issued.




                                          -2-
        The complaint was filed January 11, 1995. The plaintiff alleged that

Bradshaw was an agent of NFLIC, which, through its agent, promised to issue to the

plaintiff a policy of health insurance to become effective immediately upon the

execution of certain insurance forms. Plaintiff further alleged that Bradshaw advised

him to cancel his existing coverage.1

        The defendant NFLIC admitted that Bradshaw was an independent agent

authorized to solicit business on its behalf but denied his authority to control the

issuance of a policy or the effective date of a policy. It averred that the application

was merely an offer by the plaintiff to purchase a policy of health insurance, which

offer was subject to acceptance or rejection, and that Bradshaw had no actual or

apparent authority to bind NFLIC, which the plaintiff acknowledged in writing.

        Both NFLIC and Bradshaw moved for summary judgment. The motion of

NFLIC averred that it issued no policy and that the referenced documents reveal as

a matter of law that Bradshaw’s statements, if made, are not binding on it because

the application provides that coverage was not effective until the policy was issued.

Bradshaw’s motion essentially averred that since the application signed by the

plaintiff clearly provides that the policy will not become effective until delivery, there

is no genuine issue of material fact.

                                               I

        The trial judge was of the opinion that Bill Brown Const. Co. v. Glen Falls Ins.

Co., 818 S.W.2d 1 (Tenn. 1991) precedentially controls the disposition of the case

at bar. In Brown, the plaintiff was a specialized highway hauler of interstate

shipments. Brown negotiated with the defendant’s agent for a “full coverage policy”

on cargos, which were usually oversized and required special transport permits.

The agent told Brown that he had full coverage. About two years later, a large piece

of machinery being transported was destroyed when it struck an underpass on



        1
            This was not accomplished for reasons not relevant to the disposition of this
case.

                                             -3-
Interstate 40. Coverage was denied because the truck (as distinguished from its

cargo) did not collide with the bridge. The pertinent insurance provision provided

coverage for losses to goods caused by “collision of the conveyance with any other

vehicle or object.” The principal issue was whether the agent, who was the statutory

agent of the defendant pursuant to TENN. CODE ANN . § 56-6-147, had the apparent

authority to waive the limitation on cargo coverage. The Supreme Court held that

any contractual provision . . . may be waived by an officer or agent who has actual

or apparent authority to do so. The thrust of Brown provides:

       We reaffirm the long-standing rule in Tennessee that any
       contractual provision of a policy of insurance, whether part of an
       insuring, exclusory or forfeiture clause, may be waived by the acts,
       representations or knowledge of the insurer’s agent . . . “


       We think it evident that the plaintiff cannot be permitted to stultify himself in

the manner sought.

       In Arnold v. Locomotive Engineer’s Mutual Life and Accident Ins. Assn., 204

S.W.2d 191 (Tenn. Ct. App. 1946), the insured signed an application which provided

that “I understand that the insurance herein requested shall not take effect until and

unless this application is approved at the Home Office.” The plaintiff contended that

the agent who took the application made an oral contract binding on the company,

that coverage was immediately afforded and that the company was estopped to

deny coverage because it had negotiated the check tendered for the first premium.

The Court held that the applicant was bound by the language in the application

requiring approval of the Home Office, reasoning that the insured was charged with

knowledge of the limitations upon the authority of the agent as stated in the

application, and that

       “one who deals with an agent knowing that he is clothed with
       circumscribed authority and that his act transcends his powers,
       cannot hold his principal . . .”

       In Brown, the agent had apparent authority to widen coverage, as contrasted

to the case at bar, wherein it is not disputed that the plaintiff acknowledged, in


                                           -4-
writing, that agent Bradshaw “cannot change, alter, or amend any NFLIC

requirement” and that “I further understand that the agent has no authority to make

any representations about the conditions under which NFLIC will issue a policy or

make a policy effective.” Neither is it disputed that the plaintiff signed an application

which stated that “I understand that the . . . policy shall not be effective until the

policy has been actually delivered . . . “ It seems to us that the case at bar is

obviously distinguishable from Brown, not only with respect to the facts but with

respect to the underlying legal issue of whether the agent was clothed with apparent

authority to determine the effective date of coverage.

       Brown did not purport to overrule Arnold, which clearly is expositive of

Tennessee law that an application for coverage which provides that coverage is not

effective until the application is approved. It is merely an offer by the applicant to

enter into an insurance contract, and until there is an acceptance there is no

contract. While the plaintiff alleges that he did not read the documents, it is settled

law in Tennessee that he is nonetheless charged with knowledge of their contents.

Solomon v. First American National Bank, 774 S.W.2d 935 (Tenn. Ct. App. 1985).

       We hold that the motion of NFLIC is well taken and should be granted.

                                            II

       Although not clearly stated, plaintiff’s theory of recovery against agent

Bradshaw is apparently based on the principle that an agent purporting to make an

unauthorized contract on behalf of his principal may be liable to a third party on the

ground that he warrants his authority to enter into the contract:




       It is well settled that one who purports as agent to enter into a
       contract, upon which the principal is not bound because of the fact
       that the agent has contracted without authority or in excess of his
       authority, is personally liable for the damage thus occasioned by the
       other contracting party.
                                             3 Am.Jur.2d Agency § 303.




                                            -5-
       However, as is here determinative, it is essential to any such third party’s

right of action that the third party purporting to hold the agent liable must have acted

without knowledge, or imputed knowledge, of the agent’s lack of authority:



       To give a party a right of action against a professed agent, he must
       have been ignorant of the lack of authority and have acted upon the
       faith of the express or implied representations that the professed
       agent had the authority assumed. Similarly, the agent is not subject
       to liability to the third party if he sufficiently manifests that he does
       not warrant his authority and makes no tortious misrepresentation.
                                                       Ibid.


       The Restatement (Second) of Agency, § 329, provides:

      A person who purports to make a contract, conveyance or
      representation on behalf of another who has full capacity but whom
      he has no power to bind, thereby becomes subject to liability to the
      other party thereto upon an implied warranty of authority, unless he
      has manifested that he does not make such warranty or the other
      party knows that the agent is not so authorized.


       An agent is not liable to the third party if he sufficiently manifests that he does

not warrant his authority:

      A person who purports to make a contract, conveyance or
      representation on behalf of a principal whom he has no power to
      bind thereby is not subject to liability to the other party thereto if he
      sufficiently manifests that he does not warrant his authority and
      makes no tortious misrepresentation.

      If the agent gives notice to the third person that the existence of the
      authority is not warranted, he is not liable, although the other does
      not learn of, or forgets this. Thus, if the agent, in accordance with
      the prior course of business between them, sends a notification of
      such lack of warranty, or if a statement of the same purport is
      conspicuously placed upon the memorandum of the contract, the fact
      that the third person does not read the notification is immaterial.


       The documents signed by the plaintiff acknowledging the lack of authority of

agent Bradshaw are a complete refutation of his purported cause of action against

the agent.




                                            -6-
      He cannot assert a claim against the agent while acknowledging that he was

aware that the agent had no authority in the premises. The motion of the agent for

summary judgment is therefore well-taken.

      The judgment is reversed and the case is dismissed at the costs of the

appellee.

                                              _____________________________
                                              William H. Inman, Senior Judge

CONCUR:



_________________________________
Herschel P. Franks, Judge



_________________________________
Charles D. Susano, Jr., Judge




                                        -7-
