Markel American Insurance Company v. Bachmann

Filing 132

ORDER granting in part and denying in part 88 Motion for Summary Judgment. Plaintiff's motion to dismiss third-party defendant's cross-claim against plaintiff granted. Signed by District Judge Barbara B. Crabb on 6/2/10. (krj)

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IN THE UNITED STATES DISTRICT COURT FO R THE WESTERN DISTRICT OF WISCONSIN --------------------------------------------M A R K E L AMERICAN INSURANCE COMPANY, OPINION AND ORDER Plaintiff-Counterclaim Defendant, 09-cv-226-bbc v. FR ED BACHMANN, D e f e n d a n t - C o u n t e r c l a i m - P la i n t i f f , v. M U R PH Y INSURANCE SERVICES, INC., T hird Party Defendant. --------------------------------------------T his is an action for declaratory judgment growing out of an accident that effectively d estro yed a high performance boat owned by defendant Fred Bachmann. Defendant B achm an n filed a claim with the boat's insurer, plaintiff Markel American Insurance C om pan y, but the claim was denied after plaintiff determined that neither defendant nor his w ife was operating the boat at the time of the accident, in contravention of the Named O perato r endorsement attached to the policy. When defendant objected, plaintiff filed this 1 action, seeking an order from the court declaring that the insurance policy was suspended at the time of the accident because defendant was in violation of the terms of the policy. Jurisdiction is present under 28 U.S.C. § 1331(1) because the action is a suit for a declaration of rights under the terms of a policy of marine insurance. Continental Casualty C o. v. Anderson Excavating & Wrecking Co., 189 F.3d 512, 517 (7th Cir. 1999). Defendant has filed counterclaims against plaintiff, raising many different issues he categorizes as either justifying reformation of the insurance contract or amounting to breach of contract or bad faith. He has also sued third party defendant Murphy Insurance Services, Inc., alleging many of the same claims he asserts against plaintiff. The case is before the court on plaintiff's motion for summary judgment against both defendant Bachmann and third party defendant Murphy. Plaintiff contends that the un disputed facts support its position that defendant Bachmann knew about the Named O perato r condition in the endorsement, either because he received a copy of it or because th e insurance brokers acting as his agents were in possession of the documents and fully aw are of the condition, in which case their knowledge was imputed to defendant. Plaintiff contends that summary judgment is warranted against third party defendant Murphy because the only claim this defendant is asserting against plaintiff is for contribution. I conclude from the undisputed facts that plaintiff has shown that third party defendant Murphy was not its agent, but was defendant's agent and that because Murphy 2 received a copy of the 2005-06 policy and its endorsements, defendant Bachmann is charged w ith knowledge of the contents of these documents. Whether defendant is charged with kn ow ledge of the documents from the succeeding years (2006-08) remains disputed because p lain tiff has not shown that Murphy received those documents, that another broker acting as defendant's agent at the time received them or that defendant himself did. I conclude that because plaintiff has shown that third party defendant Murphy was not its agent, M u rp hy has no basis for any claim against plaintiff for contribution or indemnification. For the purpose of deciding the motion, I find that the following facts proposed by plaintiff are both material and undisputed. In finding undisputed certain proposed facts relating to the issue of agency, I did not place any weight on defendant's objections to those pro po sed facts that were based merely on his assertion that the issue was one of law. D efendant is correct that a determination of agency is a matter of law, but like all matters of law, it is based upon facts. To put the proposed fact into dispute, defendant had to propose facts that would tend to show why it was not true and correct. Asserting only that the overriding question is one of law does not do the trick. UNDISPUTED FACTS Plaintiff Markel American Insurance Company is an insurance company licensed to d o business in the state of Virginia, with its principal place of business in Wisconsin. 3 D efendant Fred Bachmann is a Wisconsin resident. Third-party defendant Murphy In su ran ce Services, Inc. is an insurance company authorized to do business in Wisconsin. T h e boat that is the subject of the litigation was purchased by defendant on May 6, 2000, for $151,920. In March 2005, defendant sought to obtain a new insurance policy for his boat. He called Murphy, which had provided insurance policies for his companies in the past. When defendan t asked Murphy to find insurance for his boat, defendant did not negotiate or agree to pay a fee to Murphy. Plaintiff made all of its requests of defendant through Murphy. A t all times, Murphy was a retail broker, having direct contact with defendant and seeking assistance from wholesale brokers such as Midwest General Agency. Although M urphy has contracts with at least 14 different insurance companies authorizing it to issue Personal Lines Boat or Watercraft Insurance Policies or both, it has never had such a co n tract with plaintiff or otherwise been authorized to bind plaintiff or act for it in any c a p a c i ty . M u rp hy's representative, Christen Nygren, sought out "surplus lines" insurance for defendant after finding out that no standard carrier was willing to insure defendant's boat both because of the size and speed of the boat and defendant's prior driving record. S om eon e from Murphy talked with Teri Goulet at Midwest General Agency about assistance in obtaining a quotation; Goulet talked to First Marine Underwriters, which obtained a 4 quo te that was passed on to Murphy. Midwest had no authority to take any act on behalf o f plaintiff other than to approach plaintiff's managing agent and seek a quote from it. Only the managing agent, First Marine, was authorized to bind plaintiff. The quote from First Marine was conditioned on the issuance of the policy under plaintiff's high performance boat program, with a named operator endorsement. The quote from First Marine read: "Also note that our HP program has a named operator clause." In addition , the words "NAMED OPERATOR ENDORSEMENT MAY APPLY" appeared next to the words "OPERATOR INFORMATION"on the front page of the application form signed by defendant on June 9, 2005. subm ission to First Marine. Persons wishing to insure their boats under plaintiff's high performance boat program m ust submit drivers' license information for named operators, so that plaintiff may investigate the driving records of the proposed operators, as well as details about prior boats ow ned and operated. The premiums for insurance will vary depending on the driving records and experience in the operation of high performance boats. In defendant's case, the Murphy submitted this form to Midwest for prem ium first quoted for the insurance was revised upward after discovery of his past traffic v i o l a t io n s . Plaintiff does not issue policies of marine insurance for high performance boats w i th ou t including an endorsement limiting coverage to incidents in which a named operator 5 is at the helm, solely in control and exclusively operating all aspects of steering and throttle of the insured boat. When defendant's policy, RP2006972, issued, it included a named o p erato r endorsement. Third party defendant Murphy received the declarations page and n am ed operator endorsement covering the time period from June 16, 2005 through June 16, 20 06 . On June 10, 2005, third party defendant Murphy paid Midwest $1,056 as an initial prem ium payment on defendant's policy. On June 13, 2005, defendant paid Murphy $1 ,05 6. Endorsement 5037-0405 for the year 2005-06 was in the possession of both Murphy an d Midwest. It provided that "The Named Operator(s) listed on the Declarations Page sh all be at the helm, solely in control, and exclusively operating all aspects of steering and throttle of the Insured Property. If you violate this restriction, the coverage shall be suspen ded until You are no longer in violation of this restriction. We shall not cover losses b ecau se You violated this restriction." The Declarations Page for the policy listed "Fred and Kiya Bachmann" as the named operators and it listed the applicable endorsements as including WC5037-0405. Defendant renewed the policy for the period June 16, 2006 through June 16, 2007 an d June 16, 2007 through June 16, 2008. Both policies contain Declarations Pages show ing the named operators as Fred and Kiya Bachmann and the applicable endorsements 6 as including WC5037-0405. These policies were in the possession of Midwest; Murphy denies ever having received copies of them. Starting with the first policy that plaintiff issued to defendant and continuing with each renewed policy, it was plaintiff's responsibility to send out to the wholesale broker that had sought the insurance from plaintiff's agent, First Marine, the Declarations Pages, the po licy language and any and all applicable endorsements, including any new or revised endorsem ents. It was the responsibility of the wholesale brokers to make sure that the m aterials were delivered to defendant and that he was made aware of the provisions of the p o li c y . Following the renewal of the policy in June 2007, responsibility for defendant's file w a s transferred from Midwest to a sister company, First Western Insurance, after the parent com pan y, R.W. Scobie Corporation, consolidated all personal lines policy handling at First W estern . However, the Declarations Page for defendant's policy, effective June 16, 2008, still identifies Midwest as the "Broker/Producer" of the policy. First Western views Murphy as a "subproducer" from which it solicits insurance business, seeking to place its clients with F irst Western's markets. Dep. of Tom Berry, dkt. #111, at 14. L ik e Midwest, First Western had no authority to act for or on behalf of First Marine or plaintiff. It could solicit a quote from plaintiff only through First Marine. First Western's file contains copies of the Declarations Page for the renewal of policy no. RP2006972 issued 7 to defendant for June 16, 2007-June 16, 2008 and for the period June 16, 2008-June 16, 20 09 . The Declarations Page of the 2008-09 policy listed the applicable endorsements, w h ich included WC5103-0207, setting forth the same terms as Endorsement WC503704 05 . It is not known when First Western received the copies of the Declarations Pages. On or about July 24, 2008, the insured boat was involved in an accident and rendered a total loss. Neither defendant nor his wife was operating the boat at the time of the accident. On October 16, 2008, plaintiff wrote to tell defendant that it was plaintiff's p o sitio n that the policy issued to defendant was not in effect at the time of the accident because the boat was being operated in violation of the named operator endorsement. OPINION In asking for summary judgment, plaintiff says that it is willing to concede that defendan t Bachmann did not receive any copy of the insurance policy and endorsements, m u c h as it disputes the truth of defendant's averment to that effect. Plaintiff rests its m otio n for summary judgment on its argument that, under Wisconsin law, the knowledge of the intermediate brokers, First Western, Midwest and third party defendant Murphy is im puted to defendant, so that if any of these entities knew of the applicable Named O perato r endorsement to defendant's policy, defendant would be held to have known of it a ls o . This argument can succeed only if plaintiff is correct about the way in which 8 W iscon sin law treats intermediate brokers. S in ce 1975, Wisconsin has defined "insurance marketing intermediaries" as any perso n who does any of the following (or assists others in doing the following): "(1) Solicits, n ego tiates or places insurance or annuities on behalf of an insurer or person seeking insuran ce or annuities; or (2) Advises other persons about insurance needs and coverages." W is. Stat. § 628.02 (1). The statute distinguishes among intermediaries. For instance, "[a]n in term ed iary is an insurance broker if the intermediary acts in the procuring of insurance on behalf of an applicant for insurance or an insured, and does not act on behalf of the insurer except by collecting premiums or performing other ministerial acts," § 628.02(3), whereas "[a]n intermediary is an insurance agent if the intermediary acts as an intermediary other than as a broker." § 628.02(4). In general, an insurance agent is the agent of an insurer; an insuran ce broker is the agent of an insured, although the terms vary in some states. According to Eric Mill Holmes, 7 Holmes' Appleman on Insurance 2d, § 44.2 (1998), the test of an agent (who acts for the insured) is whether he or she has the power to bind the insurer in at least one of the following ways: (1) to create rights and duties for an insurer through an insurance contract fo rm ed by the agent with an applicant for insurance, or (2 ) to issue insurance policies on the agent's own initiative, or (3) to accept insurable risks binding on the insurer. See also Brown v. Sandeen Agency, Inc., 316 Wis. 2d 253, 762 N.W.2d 850 (Ct. App. 9 2009 ) (holding that defendant agency did not act as agent for insurance company, where agency's employee prepared application to submit to pool of insurers and pool assigned in su ran ce company from list of participants and evidence did not show that employee or agency was employed by insurer); General Star Indemnity Co. v. Bankruptcy Estate of Lake G en eva Sugar Shack, Inc., 215 Wis. 2d 104, 130, 72 N.W.2d 881, 893 (Ct. App. 1997) (finding that entity was agent for insurer when insurer's agent gave entity authorization to bin d coverage for insurer). C ou rts in other states have reached similar conclusions under their state's law. E.g., E ssex Insurance Co. v. Zota, 985 So. 2d 1036 (Fla. 2008) (in determining that delivery of po licy to general lines insurance agent acting on behalf of construction company constituted delivery of policy to company, court relied on findings that insurance agent was acting as bro ker when it went to surplus lines market on company's behalf after it could not obtain com m ercial general lines policy and agent did not have contract or agreement with surplus lines insurer to market or sell its products); Dreiling v. Maciuszek, 780 F. Supp. 535 (N.D. Ill. 1991) (holding that independent insurance agent was acting as agent for insured and not fo r insurer; he was approached by insured and sought out three competitive bids from insuran ce companies; accordingly, information disclosed to him could not be attributed to insurer). D efendan ts have cited a number of cases for the opposite conclusion, but all of them 10 p red ate the 1975 enactment of § 628.02. In Gilbert v. U.S. Fire Insurance Co., 49 Wis. 2d 193, 181 N.W.2d 527 (1970), for example, the Wisconsin Supreme Court held that an indep enden t insurance broker's mistake was attributable to the insurer under Wis. Stat. § 209.047. In Trible v. Tower Ins. Co., 43 Wis. 2d 172, 168 N.W.2d 148 (1969), the same court held that once an insurance company accepts an insurance application from an indep enden t agent, it is not permitted to deny that the insurance company was acting as its agen t in taking the application. At the time these cases were decided, Wis. Stat. § 209.047 p ro vid ed that "[e]very person who solicits, negotiates or effects insurance of any kind . . . on behalf of any insurance company . . . or person desiring insurance, or transmits an applicatio n for a policy of insurance or an annuity contract, other than for himself . . . shall be held to be an agent of such insurer to all intents and purposes, unless it can be shown that he receives no compensation for his services." Under Wisconsin law and the undisputed facts, third party defendant Murphy cannot b e considered to have been plaintiff's agent during the negotiation for the insurance or for an y other purpose. Murphy was an independent broker representing defendant in trying to find an insurer for his high performance boat. Thus, its knowledge of the terms of the initial po licy (2005-06), its declarations and endorsements is imputed to defendant. Because third party defendant Murphy never acted as plaintiff's agent in connection w ith the insurance policy issued to defendant, I can imagine no set of circumstances in which 11 it could be held liable for plaintiff's acts or omissions. Therefore, I will motion to dismiss M urph y's cross-claim against plaintiff. Plaintiff is seeking complete summary judgment, but it has proved only that third party defendant Murphy was defendant's agent at the time defendant obtained its original policy, w hich Murphy received. The terms and conditions of the 2005-06 policy are therefore im p uted to defendant. As to the subsequent renewals of the policy, it is unclear whether any o n e was acting as defendant's agent. Even if Midwest is found to have been acting as d efen dan t's agent in 2008, the record does not show that it received a copy of the policy and endo rsem ents before the accident occurred. (It appears that it had the copy as of October 20 08 .) It is undisputed at this stage that third party defendant Murphy did not receive copies o f the renewal policies with their endorsements for the years 2006-07, 2007-.08 and 200809 and plaintiff has conceded for the purpose of this motion that defendant did not receive an y copies of the policies or the endorsements. Defendant paid premiums directly to p l a in tiff. Whether any other broker was acting as defendant's agent in those years is a question of fact, Holmes' Appleman on Insurance § 47.9, that cannot be answered on the present record. As a general rule, however, the authority of a broker employed to procure insuran ce ceases upon procuring the insurance and delivery of the policy. Id. This is not the only open issue. Defendant has alleged that the Named Operator 12 en do rsem en t is invalid as against him because plaintiff failed to obtain the approval of W isco n sin 's Office of the Commission of Insurance, as it must do under Wis. Stat. § 631.20. D e fen dan t never referred to this allegation in his brief in opposition to plaintiff's motion for sum m ary judgment, but I cannot assume that he has abandoned it. In its reply brief, plaintiff attempts to dispose of this issue by citing this court's ruling on September 18, 2009 to the effect that if plaintiff could prove that defendant had received the endorsements and declarations, it would be unnecessary to resolve the question of the a p p li ca bility of Wis. Stat. § 631.20. Order, dkt. #54, at 12. That ruling addressed a d ifferen t question. Section 631.13 provides that "[n]o insurance contract may contain any agreem en t or incorporate any provision not fully set forth in the policy or in an application or other document attached to and made a part of the policy at the time of its delivery," but b y operation of §§ 631.20(1) and 630.01(3), it does not apply to sellers of ocean marine insurance. Defendant had argued that plaintiff had never obtained the permission of the insuran ce commissioner to change its policy from inland marine to ocean marine. Plaintiff argues that approval was not necessary, when the policy was clearly one of ocean marine. T he parties did not supply enough information to allow a resolution of the dispute, but I no ted that no decision would be necessary if plaintiff could prove that defendant has in fact received the endorsements. It is possible that this ruling misled plaintiff into thinking not just that it could avoid 13 havin g to prove compliance with § 631.13, covering delivery of documents, but that it could also avoid proving compliance with § 631.20(1) as it related to the endorsements it added to defendant's policy. If so, I regret the misunderstanding. The issue will require further evidence and argument before it can be decided. The February 27, 2009 letter from the O ffice of the Commissioner of Insurance. Def.'s Ans., dkt. #2, exh. A, suggests that plaintiff has never submitted the declarations at issue for approval by the commissioner. If so, that o versigh t may be dispositive of defendant's claim for coverage of his loss. I express no op inio n on this point because the record is still undeveloped on that issue. ORDER IT IS ORDERED that plaintiff Markel American Insurance Company's motion for sum m ary judgment is GRANTED with respect to its claim that third-party Murphy In su ran ce Services, Inc. was not acting as its agent in connection with the purchase and servicin g of the insurance policy at issue in this case. FURTHER, IT IS ORDERED that plaintiff's motion to dismiss third-party defendant's cross-claim against plaintiff is 14 G R AN T ED . In all other respects, plaintiff's motion is DENIED. E n tered this 2d day of June, 2010. B Y THE COURT: /s/ B AR B AR A B. CRABB D istrict Judge 15

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