Westchester Specialty Ins. Services, Inc. v. U.S. Fire Ins. Co.

• Decision Date: 22 August 1997
• Docket Number: No. 95-9602,95-9602
• Parties: 47 Fed. R. Evid. Serv. 686, 11 Fla. L. Weekly Fed. C 360 WESTCHESTER SPECIALTY INSURANCE SERVICES, INC., Westchester Fire Insurance Company, Movants, Goodyear Tire & Rubber Company, Plaintiff-Appellant, v. U.S. FIRE INSURANCE COMPANY, Evanston Insurance Company, et al., Defendants, Alexander & Alexander, Inc., Alexander & Alexander of New York, Inc., Alexander Howden North America, Inc., Defendants-Appellees.
• Court: U.S. Court of Appeals — Eleventh Circuit

Page 1505

119 F.3d 1505

47 Fed. R. Evid. Serv. 686, 11 Fla. L. Weekly

Fed. C 360

WESTCHESTER SPECIALTY INSURANCE SERVICES, INC., Westchester Fire Insurance Company, Movants Goodyear Tire & Rubber Company, Plaintiff-Appellant, v. U.S. FIRE INSURANCE COMPANY, Evanston Insurance Company, et al., Defendants Alexander & Alexander, Inc., Alexander & Alexander of New York, Inc., Alexander Howden North America, Inc. Defendants-Appellees.

No. 95-9602.

United States Court of Appeals Eleventh Circuit.

Aug. 22, 1997.

Edward M. Newsom, Atlanta, GA, Daniel P. O'Keefe, Minneapolis, MN, Michael J. Wahoske, Dorsey & Whitney, Minneapolis, MN, for Movants.

Wayne R. Glaubinger, Diane P. Simon, Mound, Cotton, Wollan, New York City, Sidney R. Barrett, Jr., Atlanta, GA, for Defendants.

Appeal from the United States District Court for the Northern District of Georgia.

Before HATCHETT, Chief Judge, ANDERSON, Circuit Judge, and LAY ^*, Senior Circuit Judge.

ANDERSON, Circuit Judge:

This diversity case is governed by Georgia law ¹ and involves a dispute between an insured and its insurance broker. Appellant Goodyear Tire & Rubber Company appeals the district court's order granting partial summary judgment for the appellees. Goodyear also requests a new trial on the claim which was tried to a jury. We affirm in part, and reverse and remand in part.

I. FACTS

Appellant Goodyear Tire & Rubber Company manufactures and markets tires and other related products. Appellees Alexander & Alexander, Inc., Alexander & Alexander of New York, Inc., and Alexander Howden North America, Inc. (collectively "A&A") are insurance brokerage companies.

Goodyear hired A&A sometime prior to 1980 to assist Goodyear with various insurance matters. A&A provided insurance brokering, technical, and servicing support for Goodyear. The fee arrangement between Goodyear and A&A in 1980 was that A&A would be paid a fee of $108,000, and also a commission income of $240,000.

Goodyear asked A&A to procure products liability insurance coverage for Goodyear for 1980-1984. Prior to 1980, Goodyear had this coverage under a Travelers insurance policy. The Travelers policy included coverage of defense costs for products liability claims.

The parties differ regarding Goodyear's instructions to A&A. Goodyear contends that it told A&A to procure defense costs coverage for products liability claims that would be the same as or better than the Travelers coverage. A&A asserts that Goodyear told it to obtain a replacement policy containing the exact same language and coverage as the Travelers policy. ²

A&A negotiated with and secured products liability insurance coverage from U.S. Fire Insurance. ³ Goodyear received a copy of the 1980 U.S. Fire policy and the subsequent renewal policies.

Insuring Agreement II of the U.S. Fire policy provides in relevant part:

II. DEFENSE, SUPPLEMENTARY PAYMENTS: With respect to any claim or suit ... insurance for which is not afforded by self-insurance ... the Company shall:

(a) Defend, at the sole option of the Insured, any suit against the Insured ...

...

(d) pay all expenses incurred by the Company and reimburse the Insured for all reasonable expenses, ... including expenses necessarily incurred by the Insured ... in the defense of any lawsuits not defended by the Company.

Insuring Agreement IV of the U.S. Fire policy provides in pertinent part:

IV. LIMITS OF LIABILITY: With respect to any occurrence for which insurance is afforded hereunder, this Policy shall apply only to the amount of damages, defense and supplementary payments in excess of the retained limit [the deductible] and ... the Company's liability is limited as follows:

The total liability of the Company for all damages, defense and supplementary payments as the result of any one occurrence for all injury or damage shall not exceed $5,000,000 each occurrence.

The U.S. Fire policy also contained Endorsement No. 2, which has spawned the present litigation. ⁴ Endorsement No. 2 provides in relevant part:

Deductible Amount

1. $1,500,000 each occurrence as respects insurance provided by this policy which was also ... provided by [a former Travelers policy]. For the purposes of Insuring Agreement II the provisions of this paragraph shall be deemed self insurance and the Insured shall have the obligation to provide at his own expense adequate defense and investigation of any claim and to accept any reasonable offer of settlement within this Self-Insured Retention and in event of failure of the Insured to comply with this clause without the advance written consent of the Company, no loss, cost or expense shall be payable by the Company.

Goodyear's prior Travelers policy did not contain language like that in Endorsement No. 2.

Goodyear incurred defense costs and liability payments in several large products liability claims which arose during the U.S. Fire policy period. These costs and payments were in excess of Goodyear's $1,500,000 self-insured retention, or deductible. As a result, Goodyear sought, inter alia, reimbursement of defense costs from U.S. Fire and from Goodyear's excess insurers. U.S. Fire denied coverage, claiming that its policy provided coverage only for settlement and judgment payments, not for defense costs. In support of this interpretation of its policy, U.S. Fire cited the portion of Endorsement No. 2 which provides that "the Insured shall have the obligation to provide at his own expense adequate defense and investigation of any claim.... " The excess insurers, following form, also denied coverage based on the language in Endorsement No. 2 of the U.S. Fire policy.

This litigation ensued. Goodyear sued U.S. Fire and the excess insurers for, inter alia, their failure to reimburse Goodyear's defense costs. Goodyear argued that the U.S. Fire policy covers such costs. Goodyear and U.S. Fire settled. The district court denied Goodyear's motion for summary judgment against the excess insurers, and also denied in part the excess insurers' partial motion for summary judgment against Goodyear, explaining that the U.S. Fire policy language is ambiguous regarding defense costs coverage. ⁵ Goodyear subsequently settled its claims with the excess insurers.

Goodyear's suit also named A&A as a defendant. Goodyear's claim against A&A was a contingent one, the gist of which was as follows: if Goodyear could not recover its full defense costs from the insurance companies, then Goodyear claimed that A&A was liable therefor, because A&A negligently breached its duty to procure proper insurance coverage of defense costs. In addition, Goodyear claimed that A&A negligently failed to communicate to Goodyear an offer of pro rata coverage of defense costs from U.S. Fire. ⁶ The district court granted summary judgment for A&A on Goodyear's negligent procurement claim, but denied summary judgment for A&A on Goodyear's claim that A&A negligently failed to communicate the U.S. Fire offer to Goodyear. This latter claim was the subject of a jury trial in which the jury rendered a verdict for A&A, finding the following via interrogatories: A&A had no duty to disclose the offer to Goodyear; A&A did not negligently breach a duty to disclose the offer; and A&A's conduct was not the proximate cause of any damages Goodyear sustained.

In this appeal, Goodyear argues that the district court erred by granting summary judgment for A&A on Goodyear's negligent procurement claim. Goodyear also contends that the district court made several erroneous evidentiary rulings in the trial regarding Goodyear's claim that A&A negligently failed to disclose a U.S. Fire offer of coverage. Goodyear asserts that these erroneous rulings warrant a new trial on that claim.

II. STANDARDS OF REVIEW

We review the grant of summary judgment de novo, viewing the evidence and all inferences therefrom in the light most favorable to the non-movant. Local Union 48 Sheet Metal Workers v. S.L. Pappas & Co., Inc., 106 F.3d 970, 974 (11th Cir.1997). Summary judgment is appropriate if there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. Id. We review the district court's evidentiary rulings for an abuse of discretion and overturn the district court's evidentiary rulings only if a substantial right of the party alleging error was prejudiced. Judd v. Rodman, 105 F.3d 1339, 1341 (11th Cir.1997).

III. ANALYSIS

A. The Negligent Procurement Claim

Under Georgia law, an insurance agent who negligently fails to procure insurance coverage may be liable to the insured. Atlanta Women's Club, Inc. v. Washburne ("Atlanta Women's Club I "), 207 Ga.App. 3, 427 S.E.2d 18, 20 (1992). However, if the insured had a copy of the insurance policy in its possession and failed to read the policy so as to discover what risks are covered, the insurance agent is not liable because the insured is " 'charged with the knowledge of the terms and conditions of the policy.' " England v. Georgia-Florida Co., 198 Ga.App. 704, 402 S.E.2d 783, 785 (1991) (quoting S & A Corp. v. Berger Co., Inc., 111 Ga.App. 39, 140 S.E.2d 509, 511 (1965)). See also Atlanta Women's Club I, 427 S.E.2d at 20.

An exception to this general rule applies to cases in which the insurance agent acted as an expert in procuring coverage, and the insured relied on the agent's expertise. Wright Body Works, Inc. v. Columbus Interstate Ins. Agency, 233 Ga. 268, 210 S.E.2d 801, 803 (1974); Atlanta Women's Club I, 427 S.E.2d at 20. Under such circumstances, the insurance agent may be liable for negligent procurement even if the insured has a copy of the insurance policy. An insured who relies on an expert insurance agent is not required to "minutely examine" the policy for coverage defects. Atlanta Women's Club I, 427 S.E.2d at 20. However, if an examination of the policy by the insured would have made it " 'readily apparent' that the coverage requested was not issued," the agent who acted as an expert will escape liability. Jim...