National Fire Insurance v. Tongue, Brooks & Co.

ADKINS, Judge. On April 14, 1980, a restaurant known as Dino’s Italian Cuisine was damaged by fire. Appellant National Fire Insurance Company of Hartford paid the loss. It then sued appellee Tongue, Brooks & Company, Inc. The gravamen of the action was that Tongue, Brooks had breached various contractual and fiduciary duties in connection with the issuance of a binder covering Dino’s.

After a lengthy trial, the lower court thought the issue before it was a narrow one — whether National Fire had sustained its burden of proving that no insurance policy was in force at the time of the fire. It found, in effect, that the evidence showed that the Dino’s risk had been accepted by the insurer. It entered judgment for Tongue, Brooks. This appeal followed.

National Fire poses four issues on appeal: 1. Was a one-year binder issued by Tongue, Brooks on March 31, 1980, void ab initio? ²²⁰ 2. Did Tongue, Brooks breach its fiduciary duty when it issued a restaurant risk binder without authority to do so? 3. Was the trial court clearly erroneous in finding that Tongue, Brooks reasonably believed the risk had been accepted by the insurer? 4.

Was there a binding contract of insurance when the identity of the insurer and the premiums to be paid were not specified? We think the third and fourth issues are dispositive of the appeal. We shall place them in their rather complex factual context, but first we shall identify some of the principal dramatis personnae. One of the principal actors is CNA Insurance Company.

It is an umbrella corporation covering (perhaps owning) eight “member” (or subsidiary) insurance companies, one of which is appellant National Fire Insurance Company of Hartford and another of which is Continental Casualty Company. CNA executes agency agreements with insurance agencies. At the times relevant to this appeal, there was a preferred agency agreement between CNA and appellee, Tongue, Brooks & Company, Inc., a Baltimore insurance agency. That agreement authorized Tongue, Brooks, among other things, to “bind, ■ execute and issue” certain types of insurance contracts for several CNA companies, including National Fire and Continental Casualty.

To conduct its business, CNA employs a number of underwriters, who are authorized to accept or reject applications for coverage. Those involved in this case were Gus Abato, Angela Bohne and Barbara Jackson 1 Tongue, Brooks also employs underwriters. These underwriters are responsible for finding insurance coverage for Tongue, Brooks’s ²²¹ clients. The one chiefly involved in this case was Camille Morton.

At the time critical to this case, Dino’s Italian Cuisine was the trade name of a restaurant operated by Park Liquors, Inc. Its principals were Alan Phillips, a client of Tongue, Brooks’s, and Leo Helms. Keeping in mind this cast of characters, we review the pertinent facts. On February 4, 1980, Alan Phillips telephoned Tongue, Brooks and asked it to act as his broker to obtain insurance for Dino’s, a restaurant that he and Leo Helms were in the process of purchasing. The task of locating a carrier who would accept the risk was assigned to Camille Morton.

She contacted CNA because CNA had a specialized program for restaurant risks and because Continental Casualty had written some prior coverage for Dino’s and for Phillips. Morton talked to CNA’s Gus Abato. They discussed building, contents, general liability, combined bodily injury and property damage, and workers’ compensation insurance. Abato wanted more information, especially financial information, about Dino’s and its principals, but orally approved a thirty-day binder for the risks.

Morton issued this binder on February 20. She also requested and on February 25 received Abato’s approval for an increase in the dollar value covered. On March 7 the original binder was about to expire. Morton again called Abato and requested a fifteen-day extension.

She informed him that financial information was being gathered and a formal application for a restaurant package was being prepared. Abato granted the extension and Morton issued a new binder for the period March 7 — March 23. Shortly after the March 7 conversation, Abato left the employ of CNA. Barbara Jackson was assigned CNA’s Tongue, Brooks account.

On March 12 she received from Morton applications for a restaurant package and workers’ compensation policies for Dino’s. ²²² By March 20, Morton had heard nothing further from CNA. She attempted to call Abato, but was referred to Jackson. She requested a further extension of the binder. Jackson, claiming lack of familiarity with the Dino’s matter, said she would have to obtain the approval of her supervisor, Angela Bohne.

When Morton called back on March 21, Jackson told her Bohne had approved an extension to March 28. During the March 21 conversation, Jackson also told Morton that she had been unable to locate the Dino’s applications. Apparently she had never attempted to do so. In any event, Morton forwarded duplicates.

The final telephone conversation between Morton and Jackson took place on March 27. The most recent binder was to expire the next day. Morton had heard nothing from CNA since March 21. She called Jackson to convey personal financial information about Leo Helms and to see if the requested coverage would be written.

Jackson, it appears, had continued to do nothing about Dino’s — she had neither attempted to locate the original applications nor had she reviewed the duplicates. During this conversation Jackson finally reviewed the applications. It appears she was satisfied on all counts except financial information. Morton read Helms’s financial statement over the phone.

According to Morton, Jackson said “everything looked in order” and “that CNA could write the risk” for one year effective February 5, 1980. Morton testified that Jackson approved the coverages. Jackson remembered the conversation differently. Although conceding that she told Morton “it looks good” she testified she did not approve the issuance of the policy, but instead would have to have corporate (as opposed to personal) financial information before a final underwriting decision could be made.

Since Phillips had just formed the company that had or was to purchase Dino’s, there was no corporate financial information. Thus, none was ever sent or communicated over the phone. ²²³ In any case, after the March 27 conversation Morton recalled (although she was not sure) that she told John Brooks, her superior at Tongue, Brooks that Jackson had approved coverage on behalf of Continental Casualty. She terminated efforts to secure coverage from other insurers. And she issued a one-year binder on Dino’s dating from February 5, 1980.

Like the previous binders, this one showed Continental Casualty as the insurer. Unlike the earlier ones, no copy was sent to CNA. Jackson testified that after the March 27 conversation, she never gave the matter another thought, even though she admitted receiving Helms’s financial statement on March 31, and even though she must have been aware that Dino’s last binder had expired on March 28. Despite her inattention to the matter, however, a workers’ compensation policy for Dino’s arrived at Tongue, Brooks on April 8.

No other policy was ever received. 2 On April 14, Dino’s was damaged by fire. The next day representatives of CNA and Tongue, Brooks met. CNA contended no long term coverage was ever authorized by Jackson and that all the approved binders had expired before the fire. Tongue, Brooks argued that the coverage had been approved by Jackson on March 27 and that it was in force on April 14.

Eventually, CNA’s branch manager decided that “to protect CNA’s name and reputation in the insurance industry” and because of concern about the doctrine of apparent authority, the Dino’s loss would be paid. Although all the binders had been issued in the name of Continental Casualty, CNA caused a policy to issue from National Fire. National Fire collected premiums for two and one-half months, paid the Dino’s loss of $203,014.88, and cancelled the policy. It then brought the instant suit.

As we have seen, it lost. ²²⁴ On appeal, National Fire expends much effort in asserting that the one-year binder issued by Morton was void ab initio as a matter of law. It also contends that Tongue, Brooks breached its fiduciary duty by unilaterally issuing a restaurant binder when, under the express terms of the Preferred Binding Authority Schedule between it and CNA, restaurant risks were excluded. Assuming, without deciding, that these arguments are correct, they are of little solace to National Fire if the trial judge was correct in his view, of the case. As he saw it, if CNA, through its employee, Jackson, agreed to issue a policy on Dino’s, the one-year binder was immaterial.

The rights of the parties would be governed by that contract, not by the binder. He explained his decision thus: [T]he basic question remains as to whether there was coverage extended on this risk by CNA. There has been a lot of discussion about whether the binders are good for x number of days or anything else, and the fact that they are supposed to be in writing on both sides, the home office and the agency are doing a lot of things by word of mouth that they are not supposed to do. But I think the final law of the case ... is that [counsel for National Fire] agreed that while it may not have been exactly in accordance with all of the written policies,