Twelve Knotts Ltd. Partnership v. Fireman's Fund Insurance

WILNER, Chief Judge. In a six-count Fourth Amended Complaint filed in the Circuit Court for Baltimore City, appellant sued two insurance companies (Fireman’s Fund Insurance Companies and The American Insurance Company), a corporate insurance broker (Commercial Lines Corporation), and an officer of the broker (Joseph Muehleisen). The gravamen of the complaint is that the defendants, directly or vicariously through their agents, represented that they would deliver to appellant a three-year policy of property and liability insurance at an annual premium payable in periodic installments ⁹¹ but guaranteed not to increase during the three-year period, that appellant procured the insurance from or through the defendants in reliance on that guarantee, that the policy actually delivered did not have the promised three-year premium protection, that the defendants knew that the policy lacked the guarantee but failed to disclose that to appellant, and that appellant suffered economic damage when the insurer was permitted to increase the premium after the end of the first year. The complaint alleged breach of contract (Count I), fraud (Count II), negligent misrepresentation (Count III), breach of fiduciary duty (Count IV), negligence (Count V), and, as to the two insurance companies, failure to use accepted actuarial standards in rerating the policy in violation of Md.Ann.Code art. 48A, § 234A(a) (Count VI).

Some of the claims embodied in these counts were disposed of adversely to appellant through pre-trial orders. The case proceeded to trial before a jury on Counts I, II, III, and V, but, at the end of appellant’s case, the court granted judgment to the defendants on all of those counts as well. 1 In this appeal, appellant urges that it produced sufficient evidence to withstand the motion as to Counts II, III, and V, and that part of Count I beyond the amount consented to by American Insurance Co. We shall affirm. FACTUAL BACKGROUND Appellant is a limited partnership composed of the 12 children of Henry J. Knott, each of whom apparently held interests in various pieces of real estate. The partnership was formed as a real estate holding company in order to consolidate the management of the real estate.

Operational control of the company was in the hands of an executive committee, consisting of four of the partners, and an execu ⁹² tive director, James Ulmer, employed by the partnership. In 1984, as appellant’s current fire, general liability, automobile, and workers’ compensation insurance policies were due to expire, the executive committee directed Mr. Ulmer to prepare a request for proposal to solicit replacement policies. That request, as approved by the executive committee, stated, among other things, that: “It is the intention to place all insurance for a period of not less than three (3) years. All policies, where permissible, should be quoted on such a three year basis with the premiums payable on annual installments or as flexible premium payment options as are available.” Attached to the request were specifications stating the kinds and amounts of coverage desired.

The request allowed respondents to offer quotations for broader or more limited coverage but required that any such deviations be specially indicated. A copy of the request was sent by Mr. Ulmer to Mr. Muehleisen, as president of Commercial Lines. On August 16, 1984, Mr. Muehleisen, on behalf of Commercial Lines, submitted a proposal involving policies from several companies. The property coverages, which are all that we are concerned with here, were to be written by Fireman’s Fund.

In the section entitled “Premium Summary,” the annual premium for the property coverages was stated to be $50,-432. Nothing was said in the written proposal about any three-year guarantee of that premium; the proposal did state, however, that the annual premium for the property insurance “may be paid in 12 equal payments without finance charge____” Four proposals were received in response to appellant’s request, which Mr. Ulmer summarized in a document prepared for the executive committee. That document showed the Commercial Lines proposal to be far superior to the other three; not only was the basic coverage on buildings offered by Commercial Lines more than $1,000,000 above that offered by the other companies but the premium was significantly lower. Commercial’s aggregate quotation for ⁹³ property, workers’ compensation, and automobile insurance was $57,000 less than the next lowest bid; the premium for property coverage alone was $48,000 less. 2 All four proposals were for a three-year policy, but only the Commercial Lines offering showed that the annual premium rate quoted was good for three years.

That notation was put on the document by Mr. Ulmer, but, notwithstanding that no mention was made of it in the written proposal submitted by Commercial Lines, there was evidence that Mr. Muehleisen had communicated that offer to him. A former secretary for Commercial Lines, Donna Sue Ruth, testified that she overheard Mr. Muehleisen tell another officer of the company, a Mr. Bartels, that he had promised Mr. Ulmer a three-year guarantee of the premium and that Mr. Bartels had expressed concern as to his ability to make good on that promise. The four proposals were considered by the executive committee on August 24, 1984. The minutes of its meeting state, in relevant part: “Four bids were received.

(A copy of the breakdowns is attached as Page Three of these minutes.) Three bids were roughly the same, while the fourth bid [that of Commercial Lines] was approximately 35% less expensive than the next lowest quotation. In addition, this insurer quoted a guaranteed rate for three years. After some discussion, it was resolved to place this insurance through Commercial Lines Corporation, with the insurance provided by Fireman’s Fund, P.M.A., and Chubb Group.” 3 ⁹⁴ One of the members of the executive committee elaborated a bit on what occurred. Patricia Knott Smyth testified: “We discussed the quality of the insurance company, we discussed the price, and then, of course, we had a three-year guarantee from Mr. Muehleisen’s bid that nobody else had offered.

We had not solicited the three-year guarantee rate but it was offered. And since it was like icing on the cake, we decided to take it because we know that or knew and still know that insurance rates fluctuate from year to year, and we recognized that this was a soft market, and we thought we should take advantage of it because we didn’t know what would happen in the next two years after that.” Commercial Lines was presumably notified immediately that it had won the bid, for, on the same day — August 24, 1984 — it issued a binder from Fireman’s Fund Insurance Company for the insurance. The binder showed the premium as $50,432, but said nothing, one way or the other, about whether that rate was guaranteed. The binder did state, however, that the insurance bound “is subject to the terms, conditions and limitations of the policy(ies) in current use by the Company.” When it actually ordered the permanent policy a month later Commercial Lines did ask for the three-year guarantee.

Its letter to Fireman’s Fund stated: “Please Issue Policy Per Attached App. Annual Prem. To Be 50,432 Payable 4210 1st And 11 x 4202. Rate For Bldg + Cts .08, Rents At .044. 3 Yr Rate Guarantee.” This request, with its abbreviations, indicated to the company that the $50,432 premium was (1) to be paid in monthly installments — one installment at $4,210 and eleven at $4,202 — and (2) to be guaranteed for the three-year period. The policy, which was issued on October 19, 1984, did not comport with those instructions, however.

The policy was ⁹⁵ actually issued by The American Insurance Company, which, according to the policy, is one of the constituent group of stock companies embodied within the Fireman’s Fund Insurance Companies. Its inception date was October 1, 1984. The first part of the policy, appearing immediately after the Declarations pages, contains the general policy conditions. Section 9 of that part, captioned “Premium,” states, in relevant part: “If this policy is issued for a period of three years and premium is not paid in advance, the premiums due for each annual period of this policy shall be computed in accordance with the Companies [sic] rules, rates, rating plans, premiums and minimum premium in effect (a) on the inception date of each annual period for annualized policies, or (b) on the inception date of the policy for non-annualized policies.” (Emphasis added.) 4 The policy also had an integration clause.

Paragraph 10 of the General Policy Conditions states, in relevant part: “By acceptance of this policy the Named Insured agrees ... that this policy embodies all agreements existing between himself and the Company or any of its agents relating to the insurance.” Under the first of these provisions, unless appellant paid the full premium for the entire three years in advance, the rate charged for the first year would not be guaranteed, and the premiums due for the second and third years would be based on the company’s rates in effect at the beginning of those respective years. There was evidence from Ms. Ruth that Mr. Muehleisen noticed the absence of the rate guarantee when the policy was delivered to him. For whatever reason, Muehleisen did not send the policy to ⁹⁶ appellant until December 20 — two months later. 5 In forwarding the policy to appellant, however, he failed to mention that omission. His covering letter simply noted the enclosed policy and told Mr. Ulmer that if he had any questions he should call.

Mr. Ulmer, for his part, never read the policy or referred it to any of the partners to read. He said that he looked at the cover letter and the initial page and then sent it to be filed. Appellant paid the first year’s premium on a monthly basis pursuant to invoices from Commercial Lines. At the end of the first policy year, the insurer became disenchanted and attempted to cancel the policy.

That action, of course, was inconsistent with the three-year term of the policy and, upon appellant’s complaint, the State Insurance Commissioner directed the insurer to continue the policy. Relying on the premium provision of the General Policy Conditions, quoted above, the insurer thereupon demanded the then-current rate for the coverage, which was substantially in excess of the $50,432 that appellant thought had been guaranteed. Unable to persuade the insurer to its point of view, appellant procured the insurance from other companies. The cost to it for the second and third years, over and above the $50,432 it believed payable under the American Insurance Co. policy, was, we are told, $223,087.

That extra cost formed the principal basis of its various claims against the defendants. ALLEGED ERRORS BY TRIAL COURT In a pre-trial ruling, the court granted a partial summary judgment on Count II, holding that appellant had failed to establish any fraud in the inducement of the policy. It held ⁹⁷ open for further adjudication the issue under that Count of whether, as the result of fraudulent conduct on the part of Muehleisen and Commercial Lines, appellant was prevented from obtaining a three-year guaranteed rate by prepaying the full three years premiums at the inception of the policy. The trial judge disposed of that issue and those arising from the other remaining tort-based counts at the end of appellant’s case by holding that: (1) The three-year guarantee was not material and was not relied upon by appellant; (2) The fact that the policy did not contain that guarantee (unless the full three-year premium was prepaid) was not concealed from appellant; and (3) With respect to the claim in Count V that Commercial Lines and Muehleisen breached a fiduciary duty to appellant, those defendants were not hired as experts to advise appellant and therefore owed no fiduciary duty to it.

The court also entered judgment on the breach of contract count brought against the insurance companies in part on the same grounds noted with respect to the tort-based counts and also on the ground that the policies in fact provided for a guaranteed rate, subject to a certain condition, that the companies never breached that provision, and that appellant failed to produce any evidence that it would have prepaid the three-year premium had it in fact been aware of the condition. Appellant challenges all of these holdings and conclusions, contending essentially that it did indeed present sufficient evidence to establish its various claims. Each of those contentions appears to be based, at least in part, on the premise that Commercial Lines and Muehleisen acted as its agents in procuring the insurance. DISCUSSION Fraud/Misrepresentation The precise nature of the fraud and negligent misrepresentation as pled in Counts II and III of the Fourth Amend ⁹⁸ ed Complaint is not well articulated.

The pleading asserts only that false representations were made “with regard to the minimum guaranteed duration of the policy and the fixed three year premium” (Count II), or “with regard to the guaranteed term and guaranteed premium payment to be paid ...” (Count III). As fleshed out later, this complaint seemed to have two parts: (1) the initial representation by Commercial Lines, through Muehleisen, that the premium for a Fireman’s Fund policy would be guaranteed for all three years without any mention that it would have to be prepaid in advance and indeed with knowledge that the request for proposals indicated that the premiums were to be paid on a periodic basis; and (2) concealment by them that the policy actually issued did not comport with that representation. The focus was on the conduct of Muehleisen; liability on the part of the other defendants was asserted to be vicarious in nature. As we indicated, the trial court disposed of the first aspect by concluding, as a matter of law, that the representation was not material in the first instance because it was not relied upon and, even if it had been, there was no evidence that appellant would have been willing to prepay the entire three-year premium in any event.

The concealment aspect was rejected on the ground that, as the actual policy provision was clearly stated, nothing was concealed from appellant. We have no doubt that, on the evidence presented, a jury could reasonably have found exactly as the court did on each of these points. But in a jury trial, the court does not act as a fact-finder in ruling on a motion pursuant to Md. Rule 2-519. It must consider the evidence, and all reasonable inferences from the evidence, in a light most favorable to the party against whom the motion is made.

Rule 2-519(b); Pahanish v. Western Trails, Inc., 69 Md.App. 342 , 517 A.2d 1122 (1986). In that regard, the minutes of the executive committee meeting and Ms. Smyth’s testimony constitute substantial evidence that the availability of the three-year premium guarantee was at least one factor ⁹⁹ weighing in favor of the Commercial Lines/Muehleisen proposal. It was especially noted in the minutes, and, although Ms. Smyth