Admiral Insurance v. John Stromberg & Associates

WILNER, Judge. It is fair to say that no one is entirely satisfied with the disposition of this case in the Circuit Court for Baltimore City; everyone has appealed. The dispute arises out of a fire that occurred in the early morning hours of February 22, 1985, at 405 South Catón Avenue. The building was owned by the plaintiff Henry Housman III and was used principally as a tavern which Mr. Housman operated through a corporation known as ⁷²⁹ Black Hat Bar & Restaurant, Inc. 1 In addition to the tavern, there were six rooms located on the second and third floors of the building that Mr. Housman rented out on a weekly basis.

The damage to the building and its contents was appraised at over $136,700. The loss of rentals, by the time of trial, was estimated to be nearly $34,000. The controversy is not over the fire or the amount of damage; it is over who pays for the loss. (1) Underlying Facts Since 1981, Mr. Housman obtained insurance on the property through J. Donald Walters, an agent employed by John Stromberg & Associates.

The most recent policy procured by Walters was issued by Admiral Insurance Company. Walters actually procured the policy through a surplus lines broker known as All Risks, Ltd., which, in turn, obtained it through Admiral’s general agent, W.B. Richey & Company, Inc. The policy, by its terms, was in effect from February 6, 1984, through 12:01 a.m., February 6, 1985. It insured the building for $40,000 and the contents for $30,000. The annual premium was $1,250, which Mr. Housman paid in periodic installments through a premium financing arrangement.

Md.Ann. Code art. 48A, § 240A(a)(3) provides, in relevant part, that: “The insurer shall see that written notice of intention ... not to renew a policy issued in this State is sent to the insured not less than 45 days prior to the date of the ... expiration of the policy____ Notice given the insured by an insurance broker or agent on behalf of the insurer shall be deemed to have been given by the insurer for the purposes of this subsection; provided, however, that no such notice shall be required where the agent or broker has replaced the insurance.” ⁷³⁰ In May, 1984, Admiral informed Richey that, effective August 10, 1984, Richey’s authority to write policies for Admiral would terminate. With or without a view toward the requirements of § 240A(a)(3), Admiral agreed “not to send notices of nonrenewal on any of Mr. Richey’s business in return for which he agreed to replace that business at other markets of his choice.” Admiral’s restraint, according to its property underwriter, was as a courtesy to Richey —“so that the insureds would not be upset and thereby possibly go to another retail agent who did not have the same relationship with Mr. Richey.” As a consequence of its termination of Richey’s authority, Admiral would not have renewed Mr. Housman’s policy upon its expiration. Exactly what transpired between August, 1984, when Admiral made effective its decision not to renew Mr. Housman’s policy, and February 6, 1985, when the policy expired, is in some dispute. Bonnie Huber, an underwriter for All Risks, Ltd., testified that, beginning about 45 days prior to the expiration date, she tried to get a quotation from Richey on a renewal policy, but, despite two or more telephone calls, she received no response until January 30, 1985.

On that day, she received a telex message from Richey offering a policy containing the same coverage as the Admiral policy from Mt. Hawley Insurance Co. The premium on the Mt. Hawley policy, however, was substantially greater than that on the Admiral policy—$1,924 as opposed to $1,250. The brief telex message from Richey did not explain how the premium was calculated or why it was so much higher than the Admiral premium.

In her testimony, Ms. Huber attributed the increase to two causes—the fact that “the construction was frame instead of brick and there was cooking [on the premises] which is more of an exposure.” She did not indicate, nor does the record otherwise show, how much of the increase arose from either of those conditions. When Ms. Huber received the message from Richey, she called Mr. Walters and informed him of the quotation and then sent him a written “policy renewal notice” offering a ⁷³¹ renewal policy at the $1,924 premium. Ms. Huber claimed that the telephone call and delivery of the written notice occurred on January 30—the same day on which she got the message from Richey. Walters testified that he did not receive the call or the notice until February 4—one day before the policy was due to expire. 2 While these various messages were passing through the chain of brokers and agents, Mr. Housman remained in blissful ignorance of his impending predicament.

No one notified him that the Admiral policy was not going to be renewed until after Walters received the telephone call from Ms. Huber. Indeed, when Mr. Housman once inquired, in December, 1984, about when his next premium payment would come due, he was told by someone in Stromberg’s office, “don’t worry they will get in touch with you.” What happened next is also in some dispute. Walters claimed that he tried to reach Housman on February 4, 5, and 6, each time leaving a message with someone at the bar. He finally made contact on February 7, at which time he gave Housman the new figures and told him that, to obtain coverage, Housman would have to pay a 30% deposit on the premium and sign a premium finance agreement.

The next day, Housman informed Walters that he wanted to obtain a quotation from someone else—that he thought the premium was too high. Walters said that he called Housman three more times— on the 11th, the 14th, and the 19th—each time warning Housman that he was without insurance. Finally, on the afternoon of February 20, Mr. Housman came to Walters’ office and told him that he wanted to alter the insurance ⁷³² coverage from $40,000 on the building and $30,000 on the contents to $75,000 on the building and $15,000 on the contents. Walters called Ms. Huber the next day, got a quotation from her on that coverage, and relayed it promptly (about 10:30 a.m.) to Mr. Housman.

Housman said that he would come to Walters’ office by 3:00 that day, Walters explaining that he would not be in the office after 3:00. When Housman did not show up by 3:00, Walters left. The insurance was not obtained; the fire occurred that night. Mr. Housman told a somewhat different story, one that the jury obviously accepted.

He said that several months earlier Walters had told him that he was going to try to place the insurance with another company “and save you a lot of money.” He heard nothing more until February 10, when Walters called him at the bar, berated him for not returning earlier calls that Housman said he never received or knew about, and informed him that, instead of the premium going down, it would increase by several hundred dollars. When Housman protested, Walters replied: “[I] have lost four or five customers already. He says if you don’t believe me, he says shop around and see for yourself. I said Don shop around, I don’t have any time to shop around now.

You tell me I am without insurance. I don’t want to be without insurance. So he says, oh, well, he says you shop around, he says I can hold you for a few days.” Following this conversation, Housman contacted another agent, who suggested that he was underinsured on the building and overinsured on the contents and recommended, ultimately, increasing the one to $75,000 and decreasing the other to $15,000. After several days, the agent quoted a premium for such coverage that was considerably higher than the $1,924 offered by Walters.

Shortly thereafter, on February 20, Walters called again. According to Housman: “[I] told him about what I wanted, about the increase and he sit down there and he said I told you you should have more insurance on that building and all. I said I don’t remember you saying that. Anyhow, that is what I ⁷³³ wanted.

So I said to him can you give me a price on that. He said I will get back to you.” The next morning—the 21st—Walters called and gave Housman a price on the $75,000/$15,000 policy. Housman said he would stop by Walter’s office with the money between 3 and 4 o’clock; Walters said he would be there all day. When Housman went to the office, however, before 4:00, Walters was not there.

One of the employees told Housman that Walters left “early this morning. He hasn’t returned and he hasn’t called back all day.” Housman explained that he had come to drop off a deposit but didn’t know the exact amount due. Neither did the employee, who said that Walters had taken all the papers with him and that “there is nothing I can do.” Housman called back to Stromberg’s office later and was told that Walters had not returned. That, according to Housman, is why he had no insurance in effect when his building caught fire later that night.

(2) Proceedings In The Circuit Court Seeking recompense for his loss, Housman and his corporation sued Admiral, Stromberg, and Walters. The action against Admiral was based on the statutory requirements of art. 48A, §§ 240A(a)(3) and 240B. 3 Section 240A(a)(3), as noted earlier, requires an insurer opting not to renew an existing policy to see that written notice of its intention not to renew is sent to the insured at least 45 days prior to the expiration of the policy unless the insurer’s broker or agent has either given such notice itself or has replaced the insurance. Section 240B(a) provides a correlative duty on the part of an insurer to "provide each policyholder with a notice of renewal premium due at least 17 days in advance of the due ⁷³⁴ date, unless a notice of intention not to renew has been furnished in compliance with [§ 240A].” Subsection (b) of § 240B then states: “If there is a failure to discharge the duty set forth in subsection (a) of this section, and thereafter the policyholder fails to make timely payment of the renewal premium the insurer must: (1) Provide coverage for any claim which would have been covered under the policy, if it arises within 45 days after the date the insured discovers or should have discovered that his policy has not been renewed; and (2) Renew the policy upon tender of payment, provided the tender is made within 30 days after the policyholder discovers or should have discovered that his policy has not been renewed.” At some point following the fire—just when is not clear— Housman tendered payment of the premium to Stromberg, and it was refused. The theory of Housman’s action against Admiral, then, was that, by failing to provide the required 45-day notice of intention not to renew (or the 17-day notice of premium renewal), it remained liable for the loss notwithstanding the expiration of the policy. 4 The action against Walters and Stromberg was based on negligence and breach of contract.

In Count 3, Housman alleged a negligent failure to bind insurance on terms agreed to by Housman on February 21, 1985; Count 4 charged breach of an agreement to bind that insurance. Early in the proceeding, Admiral cross-claimed against Walters and Stromberg, asserting that, if Admiral was liable to Housman by reason of any of their acts or omis ⁷³⁵ sions, they would be liable to Admiral for either indemnity or contribution. Stromberg and Walters responded in kind with a cross-claim of their own, contending that, by failing to provide the statutorily required notice, Admiral was solely responsible for the loss suffered by Housman. They too thus sought indemnity and contribution.

There was never any serious question that Admiral failed to give the written notice required by § 240A. Indeed, no one gave Housman the required notice. Admiral’s principal defense was that, by procuring an offer from Mt. Hawley of a policy meeting the altered coverage sought by Housman, its agent Richey had effectively “replaced” the expiring Admiral policy and that the nonrenewal notice was therefore not required.

That issue, along with the questions implicit in Ho Osman’s actions against Walters and Stromberg, was submitted to the jury which, in special verdicts, found that (1) Admiral had not provided replacement coverage through Richey, (2) Walters and Stromberg had breached a contract with Housman, (3) they were also negligent in their dealings with Housman, and (4) Housman was not guilty of either contributory negligence or assumption of risk. The jury awarded damages of $90,000 against Admiral and $36,000 against Walters and Stromberg. The jury’s verdicts produced four post-judgment motions, three of which concerned Housman’s claim against Admiral, as set forth in Count 1 of his amended complaint. In that count, as noted, Housman asserted that, by failing to give him the written notice required by §§ 240A or 240B, Admiral was responsible to provide coverage “as provided in Section 240(B)(b)(l) [sic, the reference intended was § 240B(b)(l) ].” The relief prayed was that the court declare that Admiral “must provide coverage for any claims arising from the fire of February 22, 1985 which would have been covered under Admiral’s Special Multi-Peril Policy previously issued to [Housman].” ⁷³⁶ Both Housman and Admiral saw a defect in that part of the pleading; Housman sought to correct the defect, Admiral to take advantage of it.

In a motion for Judgment NOV, Admiral noted that no damages were sought in Count 1, only a declaration that it was liable on the expired policy, and it therefore argued that, as damages were not sought, they should not have been awarded. In a separate motion to revise the judgment, Admiral repeated that argument but claimed further that, as the policy it had issued had a coverage limit of $70,000 ($40,000 for the structure, $30,000 for the contents), and as its obligation under § 240B(b) was simply to provide coverage for any claim “which would have been, covered under the policy” or to “[rjenew the policy upon tender of payment,” its liability could not exceed $70,000. On that ground, it asked for a remittitur of $20,000. Housman sought to retain that extra $20,000.

In a motion for leave to amend his complaint “to conform to the evidence,” he urged that the section he really meant to plead was not § 240B(b) but rather § 240D. Section 240D states, in relevant part, that: “If an insurer fails to comply with any provision of §§ 240A, 240AA, 240B, or 240C, such insurer shall be liable to the applicant for the coverage which was requested, or which would have become effective except for the failure to comply with these sections, unless the person seeking coverage no longer wishes the coverage, has obtained other substantially equivalent coverage, or fails to tender or pay the premium after reasonable demand therefor has been made. Such liability is in addition to any other penalties applicable pursuant to law.” (Emphasis added.) In the belief that § 240D would make the imputed liability equivalent to the $90,000 of coverage ultimately requested by Housman, rather than the $70,000 actually provided in the expired policy, Housman asked in his post-judgment motion for leave to amend Count 1 to assert liability under ⁷³⁷ § 240D. In support of his motion, he pointed out that, in its instructions to the jury with respect to Count 1, the court used the standard and the language of § 240D, rather than that of § 240B(b), and thus argued that the jury’s verdict was therefore entirely consistent with the court’s instructions.

The fourth motion, also by Admiral, was for judgment on its cross-claim against Walters and Stromberg. Noting that the jury had found those two defendants guilty of both negligence and breach of contract for failing to bind the insurance tendered to Houseman on February 21, Admiral contended that that dereliction was the proximate cause of both Housman’s loss and Admiral’s statutory liability. Walters and Stromberg did not file a post-judgment motion, although, at the close of the evidence they had, without success, moved for judgment against Admiral on their cross-claim for contribution or indemnification. The court granted Admiral’s motion for remittitur but denied all other aspects of the post-judgment motions.

Judgment was thus entered for Housman in the amount of $70,000 against Admiral and $36,000 against Walters and Stromberg. (3) Appeals And Cross-Appeals As we observed, no one is entirely happy with that result. Admiral has appealed from both the $70,000 judgment entered against it and the denial of its cross-claim against Walters and Stromberg. Those defendants, on the other hand, have cross-appealed from the denial of their cross-claim against Admiral.

And, not to be left without a cause, Housman and his corporation have appealed from the denial of their motion to conform their pleading to the evidence, i.e., the loss of the $20,000. (4) Admiral vs. Housman Admiral’s defense to the claim by Housman hinges on the meaning of the word “replaced,” or, more appropriately, the words “has replaced,” as used in § 240A(a)(3). The obligation to see to it that written notice of an insurer’s ⁷³⁸ intention not to renew a policy is sent to an insured at least 45 days prior to expiration of the policy does not come into play if the agent or broker “has replaced the insurance.” Admiral views this language as not requiring the actual issuance of a new replacement policy but merely the offering of one, the undertaking to issue one. On that premise, it argues that, when, in response to All Risk’s request, Richey offered the policy from Mt.

Hawley on January 30, 1985, the insurance was “replaced” and Admiral was excused from any requirement to send, or see to the sending of, a notice of nonrenewal. We reject the premise, and thus the conclusion drawn from it. The word “replace,” especially in a legal context, “is generally defined to mean the ‘restoring to a former condition,’ or ‘the providing of an equivalent for.’ ” Piazza v. Clackamas Water District, 21 Or.App. 469 , 535 P.2d 554, 557 (1975), quoting from Black’s and Webster’s dictionaries. It means to “supplant with a substitute or equivalent,” Olenick v. Government Employees Insurance Co., 42 A.D.2d 760 , 346 N.Y.S.2d 320, 321 (1973), to “put something in the place of something else.” Wade v. Lewis, 561 F.Supp. 913, 937 (N.D.Ill.1983).

The word ordinarily connotes an event—the actual substitution or restoration—and not merely a proposal or offer to substitute or restore. That connotation, we think, is clearly appropriate in terms of § 240A. Section 240A has to be read not only in an historical context but in pari materia with related statutes. Such a reading makes clear that the Legislature did not intend for the section to be read as Admiral suggests.

The statute was first enacted in 1965. See