GeoVera Specialty Insurance Company v. Graham Rogers Inc et al

Filing 211

ORDER granting 201 Motion for Summary Judgment; finding as moot 208 Motion to Clarify. The deft, Graham Rogers, Inc., is directed to file a status report within 10 days from the entry date of this order stating the status of its crossclaims against East Central Arkansas Insurance, Inc. and Jerry Reaves. Signed by Judge Susan Webber Wright on 9/6/12. (kpr)

IN THE UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF ARKANSAS
WESTERN DIVISION
GeoVera SPECIALTY INSURANCE
COMPANY

Plaintiff
VS.

GRAHAM ROGERS, ET AL.

Defendants

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NO: 4:08CV00163 SWW

ORDER
Plaintiff GeoVera Specialty Insurance Company (“GeoVera”) commenced this action
pursuant to the Court’s diversity jurisdiction against Graham Rogers, Inc. (“Graham”), East
Central Arkansas Insurance, Inc. (“ECA”), and Jerry Reeves (“Reeves”). Along with its
answer, Graham filed cross-claims against Reeves and ECA, seeking contribution.1 Additionally,
Graham filed a third-party complaint against GeoVera Specialty Insurance Services, Inc.
(“GeoVera Services”) for contribution and indemnity. Remaining for resolution are Graham’s
cross-claims against Reeves and ECA and third party claim against GeoVera Services. The case
is before the Court on GeoVera Services’ motion for summary judgment (docket entries #201,
#202, #203), Graham’s response in opposition (docket entries #204, #205, #206), and GeoVera
Services’ reply (docket entry #207). Also before the Court is Graham’s motion for clarification

1

Regarding its cross-claims against ECA and Reeves, Graham claims a right to indemnity
under an implied contract theory. See docket entry #156, at 5.

of the scheduling order and for leave to conduct discovery (docket entry #208), GeoVera
Services’ response in opposition (docket entry #209 ), and Graham’s reply (docket entry #210).
After careful consideration, and for reasons that follow, GeoVera Services’ motion for summary
judgment is granted, and Graham’s motion for clarification and discovery is denied as moot.
Graham is directed to file a status report regarding the status of its cross-claims against ECA and
Reeves.
I. Background
GeoVera, formerly known as USF&G Specialty Insurance Company, and Graham, a
wholesale insurance broker, entered a Surplus Lines Broker Agreement (“Surplus Lines
Agreement” or “Agreement”), effective June 1, 2003. It is the law of this case that the Surplus
Lines Agreement “unequivocally place[d] a duty on Graham to apply GeoVera's underwriting
guidelines to all applications for insurance submitted under the terms of the Agreement.”
GeoVera Specialty Ins. Co. v. Graham Rogers, Inc. 636 F.3d 445, 449 (8th Cir. 2011). The
Agreement “require[d] that Graham apply GeoVera's underwriting guidelines to all applications
for insurance submitted under the terms of the Agreement, including those applications
submitted by Graham's network of retailers, and deliver policies only when the risk falls within
the acceptable underwriting criteria.” Id.
The Surplus Lines Agreement also obligated Graham to appoint retail agents to market
GeoVera insurance policies. See docket entry #57, Ex. A. Pursuant to the Agreement, Graham
and its retail agents had access to GeoVera’s Residential Homeowner Quoting and Homeowner
Insurance Processing System (“the System”) “for purposes of sending quote requests, receiving
quotes, and printing and delivering quotes, applications, and binders.” Id. The Agreement stated

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that Graham “and/or” retail agents would complete an electronic policy application and that the
System would then provide a quote response to Graham and the retail agent and that Graham
would receive daily pre-formatted reports from the System. Id.
The same day the that GeoVera and Graham entered the Agreement, Graham entered a
Service Agreement (“Service Agreement”) with GeoVera Services, formerly known as F&G
Specialty Insurance Services, Inc. See docket entry #57, Ex. F. GeoVera Services is the service
center for GeoVera, and both entities are subsidiaries of Geovera Holdings, Inc. See docket
entry #167, ¶ 4 and docket entry #176, ¶ 4.
In 2003, Graham entered into a retail producer agreement with Reeves. In 2004, Reeves
submitted a homeowners’ insurance application for Gary and Sherry Balentine. Reeves
submitted the Balentines’ policy through the System, and GeoVera accepted the application and
issued the policy. However, in early 2006, GeoVera cancelled the Balentines’ policy for failure
to make a premium payment. Reeves contacted GeoVera Services on behalf of the Balentines,
and requested that the policy be reinstated. See Reeves Dep. at 13-14. In deposition, Reeves
testified that in response to his request, a person named “Thea” from GeoVera Services called
his office and informed him that GeoVera would “rewrite” the policy. According to Reeves,
“Thea”
instructed him to rewrite the Balentines’ application “as it was.”2

2

Pertinent portions of Reeves’s deposition transcript reads as follows:

Q:

A:

[by counsel for Graham] Okay. So in the latter part of January 2006 a person
named Thea in a phone call to your office says . . . that USF&G is not going to
renew this policy.
They won’t - - they wanted - - no, not that they wouldn’t renew it. They would
rewrite it.
3

In February 2006, Reeves copied the Balentines’ original insurance application and
submitted it to GeoVera via the System. Reeves acknowledges that he did not communicate
with the Balentines to confirm the accuracy of information contained on the application, nor did
he obtain the Balentines’ signatures on the application before or soon after he submitted it to
GeoVera. See Reeves Dep. at 18-19.
In September 2006, fire destroyed the Balentines’ home, and they filed an insurance
claim under their GeoVera homeowners’ policy. During GeoVera’s claim investigation, it
discovered that the Balentines would not have qualified for coverage under the company’s
underwriting guidelines if the application had contained accurate information. GeoVera’s
written underwriting guidelines, which were in place during the relevant time period, provided
that insurance applications would be completed on-line and printed in the agent’s office for the
applicants’ signatures. See docket entry #59, Exhibit Filed Under Seal.

It is undisputed that

the Balentines did not sign the application. GeoVera’s guidelines also provided that “the risk
must fit” criteria including that the home to be insured be located on no more than five acres and

Q:
A:
Q:
A:
Q:
A:

What does that mean?
They wouldn’t accept that - - the check that they had.
Okay.
Because it was six days late.
All right. So what had to happen? What were they saying?
I was told to simply rewrite it as it was. And that’s - - that’s the wording that I
got. Go ahead and rewrite it as it was.

Reeves Dep. at 15-16.
Q:
A:

[by counsel for Graham] So in this particular situation, the Balentine case, I
understood that you were told to rewrite the application as it was.
Yes, sir.

Reeves Dep. at 37.
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that there had been no foreclosures, repossessions, or bankruptcies within the past five years.
See id. It is undisputed that the Balentines’ 2006 application declared that the subject residence
was located on less than five acres, but it was actually located on six acres. The application also
stated that the Balentines had not filed for bankruptcy within the past five years, but they had
filed a bankruptcy petition in 2005.
After determining that the application’s deficiencies could not be attributed to the
Balentines, GeoVera paid them $785,708.34 for damages covered under the policy. Then, on
February 22, 2008, GeoVera commenced this action, asserting, among other things, claims for
negligence and breach of contract against Graham. In support of its contract claim, GeoVera
charged that Graham “breached its contractual obligations, duties and responsibilities under the .
. . Agreement . . . directly and through its agents’ negligent conduct in failing to reasonably and
adequately apply the written underwriting and rating guidelines prepared by [GeoVera].”
Docket entry #65, ¶ 29.
By order entered August 7, 2009, the Court entered summary judgment in Graham’s
favor, finding that Graham had no role or duty with respect to submitting the Balentines’
application. On appeal, the Eighth Circuit affirmed the grant of summary judgment on
GeoVera’s negligence claim but reversed on the breach of contract claim, finding “that the
Agreement places a duty on Graham to apply GeoVera's underwriting guidelines to all
applications for insurance submitted under the terms of the Agreement, including those
submitted by retailers appointed by Graham. GeoVera Specialty Ins. Co. v. Graham Rogers, Inc.
636 F.3d 445, 449 (8th Cir. 2011). The Court of Appeals concluded that “while retailers may
help or assist Graham in applying the underwriting guidelines, Graham retained the ultimate duty

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to apply GeoVera’s underwriting guidelines so that the risk to be insured fell within the
acceptable underwriting guidelines.’” Id. at 449-450.
After remand, the Court granted summary judgment in GeoVera’s favor. The case is now
before the Court on GeoVera Services’ motion for summary judgment as to Graham’s thirdparty complaint for indemnification. Also before the Court is Graham’s related motion for
clarification and discovery.
II. Graham’s Motion for Summary Judgment3
In its third-party complaint against GeoVera Services, Graham seeks indemnity based on
the Service Agreement. In support of its motion for summary judgment, GeoVera Services
asserts that the uncontroverted evidence precludes Graham’s claim. GeoVera contends that
Graham’s claim is based solely on Reeves’s testimony that a GeoVera Services’ employee
named “Thea” instructed him to rewrite the Balentines’ application “as it was.”4

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Summary judgment is appropriate when “the pleadings, the discovery and disclosure
materials on file, and any affidavits show that there is no genuine issue as to any material fact
and that the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(c). As a
prerequisite to summary judgment, a moving party must demonstrate “an absence of evidence to
support the non-moving party’s case.” Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986).
Once the moving party has properly supported its motion for summary judgment, the nonmoving party must “do more than simply show there is some metaphysical doubt as to the
material facts.” Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986).
The non-moving party may not rest on mere allegations or denials of his pleading but
must “come forward with ‘specific facts showing a genuine issue for trial.’” Id. at 587 (quoting
Fed. R. Civ. P. 56(e)). “[A] genuine issue of material fact exists if: (1) there is a dispute of fact;
(2) the disputed fact is material to the outcome of the case; and (3) the dispute is genuine, that is,
a reasonable jury could return a verdict for either party.” RSBI Aerospace, Inc. v. Affiliated FM
Ins. Co., 49 F.3d 399, 401 (8th Cir. 1995).
4

Previously, Graham moved for summary judgment as to its breach of contract claim
against GeoVera and presented Reeves’s testimony as evidence that GeoVera had waived any
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Graham asserts that the Service Agreement alone “is a sufficient item to present a factual
question to the jury.” Docket entry #205 at 2. According to Graham, “what [the agreement]
means and to what extent it impacts how Reeves handled the Balentine transaction is a question
that can only be resolved by the jury after considering all the evidence. There is nothing in the
rulings to date in this case that resolves [or] moots that issue.” Docket entry #205, at 3.
The meaning of an unambiguous contract presents a question of law appropriate for
summary judgment, but the interpretation of an ambiguous contract term presents a question of
fact, thereby precluding summary judgment. See McCormack v. Citibank, N.A., 100 F.3d 532,
538 (8th Cir. 1996)(citation omitted); see also Pickens–Bond Const. Co. v. NLR Electric Co., 249
Ark. 389, 392, 459 S.W.2d 549, 552 (1970)(noting that a contract of indemnity is to be construed
in accordance with the rules for the construction of contract generally). A court must construe a
contract in accordance with the plain meaning of the language employed, and if there is no
ambiguity in the language of the contract, then there is no need to resort to rules of construction.
See Pickens-Bond, 249 Ark. at 393, 459 S.W.2d at 552.
Under the heading “Services to be Provided,” the Service Agreement states:

right it may have against Graham and that Graham’s obligations to GeoVera were assumed by
GeoVera Services. See docket entry #166, at 8. Regarding Graham’s waiver argument, the
Court found that Reeves’s vague testimony regarding a phone call he received from a person
named Thea, who apparently worked for GeoVera Services, failed provide evidence that
GeoVera had waived its right to have Graham apply GeoVera’s underwriting guidelines to all
applications for insurance submitted under the terms of the Surplus Lines Agreement. As for
the argument that GeoVera Services assumed Graham’s duty to apply the underwriting
guidelines, the Court found no evidence that GeoVera intended or agreed that GeoVera Services
would assume Graham’s obligations under the Agreement. The Court further found that the
Service Agreement did not relieve Graham of its contractual obligation to GeoVera. See
Restatement (Second) of Contracts § 318 (1981)(“Unless the obligee agrees otherwise, neither
delegation of performance nor a contract to assume the duty made with the obligor by the person
delegated discharges any duty or liability of the delegating obligor.”).
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[GeoVera Services] shall issue and mail all policies, binders, endorsements,
renewals, notices of cancellation or nonrenewal, and any other policy holder
notices, complying with any and all statutory and regulatory requirements related
to the policyholders; (ii) perform premium and accounting functions on behalf of
[Graham], as more fully described in Article II of this Agreement; (iii) respond to all
questions from retail producers concerning policy issuance, premium and
underwriting guidelines; and (iv) maintain a retail producer database.
Docket entry #57, Ex. F. Article II of the Agreement further describes GeoVera Services’
responsibilities regarding premium and accounting functions and provides that GeoVera Services
will prepare and mail premium bills and notices, receive premium payments and wire the same
to Graham’s bank account, pay retail producers commissions, and keep current records of all
transactions and correspondence. See id.
Under the heading “Indemnification,” the Service Agreement provides:
[GeoVera Services] will defend, indemnify and hold [Graham] harmless from and
against any and all claims, suits, actions, liabilities, losses, expenses or damage now
existing or which may arise which the BROKER may incur directly or indirectly as
a result of:
1. Any loss caused solely by the errors of [GeoVera Services] in performing
services under this Agreement; or
2. Any loss cause solely by the improper act or omissions of [GeoVera Services] in
the payment of commissions or return of premiums on behalf of [Graham].
Id. (emphasis added).
Graham contends that “each of the relevant obligations that the Eighth Circuit found to
be imposed on Graham by the Surplus Lines Broker Agreement was assumed by [GeoVera]
Services pursuant to the Service Agreement.” Docket entry #205. The Eighth Circuit held that
the Surplus Lines Broker Agreement “requires that Graham apply GeoVera’s underwriting
guidelines to all applications for insurance submitted under the terms of the Agreement,
including those applications submitted by Graham’s network of retailers, and deliver policies
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only when the risk falls within the acceptable underwriting criteria.”5 GeoVera Specialty Ins. Co.
v. Graham Rogers, Inc. 636 F.3d 445, 449 (8th Cir. 2011). The Service Agreement, however, is
void of any language imposing the same duties upon GeoVera Services. The Service Agreement
provides that GeoVera Services shall respond to all questions from retail producers concerning
policy issuance and underwriting guidelines, but it does not charge GeoVera Services the tasks
of supervising retail producers and ensuring the accuracy of information contained on policy
applications submitted by retail producers.
In an effort to show that the Service Agreement relieved Graham of its duty to apply
GeoVera’s underwriting guidelines to all applications submitted under the Surplus Lines
Agreement, Graham cites the deposition testimony of the company’s CEO, Jerry Lesch. Lesch
testified that it was his understanding that the Service Agreement--specifically, GeoVera
Services’ duty to respond to questions from retail producers--“takes away” Graham’s
responsibility to apply underwriting rules and rating guideline to applications submitted by retail
producers. See docket entry #57, at 15-16.

When asked to explain how the Service Agreement

“takes away” Graham’s duty to apply GeoVera’s underwriting guidelines, Lesch responded:
“Well, that’s why we’re paying them two percent. That makes it so that all’s we do is market.”
Id., at 16.
The Court finds that Lesch’s conclusory testimony fails to create an issue for trial. The
Service Agreement lists GeoVera Services’ duties in clear and unambiguous language, and the

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The Court of Appeals noted that Graham could have insisted that its retailers send an
application for insurance to it for review and approval before submitting the application to
GeoVera and could have worked with its retailers to verify that the risk to be insured fell within
GeoVera's underwriting criteria before the policy was issued. GeoVera Specialty Ins. Co. v.
Graham Rogers, Inc. 636 F.3d 445, 450 (8th Cir. 2011).
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duties listed do not include an obligation to ensure that retail producers apply GeoVera’s
underwriting guidelines. The Court finds no issues for trial regarding the meaning of the
Service Agreement.
The indemnity clause included in the Service Agreement provides that GeoVera Services
will indemnify Graham for losses caused solely by errors of GeoVera Services in performing
under the Agreement. At best, Reeves’s testimony establishes that a GeoVera Services’
employee named Thea informed him that GeoVera would not renew the Balentines’ cancelled
policy, and she instructed him to rewrite and submit the Balentines’ policy application.
Although Reeves testifies that Thea told him to rewrite the application “as it was,” he does not
claim that Thea knew that the application would contain false information. The record is void
of any evidence that the loss in this case was caused by errors committed by GeoVera Specialty
in performing services under the Service Agreement. Furthermore, GeoVera Services has come
forward with evidence that it has never employed a person named “Thea.” Docket entry #201,
Ex. A (Bosman Aff.). The Court finds no issues for trial regarding Graham’s indemnity claim
against GeoVera Services. Accordingly, GeoVera Services is entitled to summary judgment on
the third-party complaint.
III. Graham’s Motion for Clarification
After the Eighth Circuit’s remand, the Court entered a final scheduling order, setting this
case for a trial and imposing a discovery deadline. Subsequently, the parties filed cross motions
for summary judgment as to GeoVera’s breach of contract claim and a joint motion to continue
the trial date. In the motion to continue, the parties stated that Graham had noticed depositions
for representatives of GeoVera and GeoVera Specialties, but the parties wanted to delay those

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depositions until after the Court ruled on the cross motions for summary judgment. See docket
entry #179. After the Court granted summary judgment in GeoVera’s favor, and ruled on
Graham’s motion for reconsideration, the Court entered an amended scheduling order setting the
remaining claims for trial to begin January 22, 2013. Through unintended oversight, the Court
failed to include a new discovery deadline in the amended scheduling order.
Along with its response in opposition to GeoVera Services’ motion for summary
judgment, Graham filed a motion for clarification of the scheduling order and for leave to
conduct discovery “on [GeoVera Services]”. Docket entry #208. Graham asserts that its thirdparty claim against GeoVera Services did not ripen until the Court granted summary judgment in
GeoVera’s favor and that “questions of fact abound . . . making the reopening of discovery
essential and the consideration of judgment as a matter of law inappropriate.” Docket entry
#208, ¶ 6.
Under Rule 56 of the Federal Rules of Civil Procedure, a party may move for summary
judgment at any time, and a trial court is not required to allow discovery before entering
summary judgment. See Fed. R. Civ. P. 56(b); see also United States v. Light, 766 F.2d 394, 397
(8th Cir. 1985). Graham states that it is not requesting that the Court delay a ruling on the
pending motion for summary judgment6 but merely seeks additional discovery to allow it to

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A party faced with a motion for summary judgment before it has conducted discovery
may, under Rule 56(d), request that the court postpone a ruling on the motion. Under Rule
56(d), formerly Rule 56(f), “[i]f a nonmovant shows by affidavit or declaration that, for specified
reasons, it cannot present facts essential to justify its opposition [to summary judgment], the
court may . . . defer considering the motion or deny it; . . . or issue any other appropriate order.”
Fed. Rule Civ. P. 56(d).
Rule 56(d), however, “is not a shield that can be raised to block a motion for summary
judgment without even the slightest showing by the opposing party that his opposition is
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develop its claim for trial. For reasons previously explained, the Court finds that Graham has
failed to come forward with specific facts showing a genuine issue for trial as to the third-party
claim against GeoVera Specialty. Accordingly, the Court finds that Graham’s request for
clarification and for leave to conduct discovery is moot.
IV.
IT IS THEREFORE ORDERED that Third-Party Defendant GeoVera Specialty
Insurance Services, Inc.’s motion for summary judgment (docket entry #201) is GRANTED.
IT IS FURTHER ORDERED that Defendant Graham Rogers, Inc.’s motion for
clarification and discovery (docket entry #208) is DENIED AS MOOT.
IT IS FURTHER ORDERED THAT Defendant Graham Rogers, Inc. Is directed to file a
status report within ten (10) days from the entry date of this order stating the status of its crossclaims against East Central Arkansas Insurance, Inc. and Jerry Reeves.
IT IS SO ORDERED THIS 6TH DAY OF SEPTEMBER, 2012.

/s/Susan Webber Wright
UNITED STATES DISTRICT JUDGE

meritorious.” Duffy v. Wolle, 123 F.3d 1026, 1040 (8th Cir. 1997); see also Gardner v. Howard,
109 F.3d 427, 431 (8th Cir. 1997)(“Rule 56(f) does not condone a fishing expedition.”). A
nonmovant seeking relief under Rule 56(d) must do more than speculate that it may discover
additional facts that would overcome a motion for summary judgment, see Stanback v. Best
Diversified Prods., 180 F.3d 903, 911 (8th Cir.1999), and must submit an affidavit showing
showing “‘what specific facts further discovery might unveil.’” Id. (quoting Dulany v Carnahan,
132 F.3d 1234, 1238 (8th Cir. 1997))
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