GAB Business Services, Inc. v. Syndicate 627

• Citation: 809 F.2d 755
• Decision Date: 12 February 1987
• Docket Number: No. 85-3879,85-3879
• Parties: 22 Fed. R. Evid. Serv. 884 GAB BUSINESS SERVICES, INC., Plaintiff-Appellant, Cross Appellee, v. SYNDICATE 627, James Neil, Eric Butcher, Defendants-Appellees, Cross Appellants.
• Court: United States Courts of Appeals. United States Court of Appeals (11th Circuit)

Page 755

809 F.2d 755

22 Fed. R. Evid. Serv. 884

GAB BUSINESS SERVICES, INC., Plaintiff-Appellant, Cross Appellee, v. SYNDICATE 627, James Neil, Eric Butcher Defendants-Appellees, Cross Appellants.

No. 85-3879.

United States Court of Appeals Eleventh Circuit.

Feb. 12, 1987.

John N. Bogdanoff, Haas, Boehm, Brown, Rigdon, Seacrest & Fischer, Daytona Beach, Fla., for plaintiff-appellant, cross appellee.

Francis E. Pierce, III, Gurney & Handley, Kathryn D. Mackinnon, Orlando, Fla., and James A. Ellis, Jr., Carrington, Coleman, Sloman & Blumenthal, Dallas, Tex., for defendants-appellees, cross appellants.

Appeals from the United States District Court for the Middle District of Florida.

Before HILL and VANCE, Circuit Judges, and BROWN, ^* Senior Circuit judge.

VANCE, Circuit Judge:

This case involves a dispute between an insurer, Syndicate 627, ¹ and its claims adjuster, GAB Business Services, over liability following the death under suspicious circumstances of an insured racehorse. A district court jury held for 627, both rejecting GAB's claim against 627 and finding for 627 on its counterclaim. We affirm the judgment against GAB's claim, reverse the judgment in favor of 627's counterclaim and remand for a new trial on the counterclaim.

I. Facts and Procedural History

The star of this litigation is a racehorse, now deceased, by the name of Paul F. Bar--75. The horse's owner, JDA Farms, held a mortality insurance policy on the horse, issued by Syndicate 627 in mid-1979. The policy covered only the actual value of the horse up to a maximum of $250,000. The horse may not have been worth nearly this amount.

In August 1979, upon learning that the horse had been injured, Syndicate 627 contracted with GAB's Miami office to investigate the injury and protect 627's interest in the horse. Because the horse was at a small rural racetrack in Michigan, GAB assigned the matter to Little, the manager of its Jackson, Michigan office. Little had never handled a matter involving an injured, highly insured horse.

There may be an insurance risk whenever an insured racehorse is injured, even if the injury is not life threatening. If a horse can no longer race, its owner may conclude that it is worth more dead than alive. ² Little, however, did not remove the horse from the racetrack. He asked the trainer at the racetrack to ship the horse to Michigan State University for an examination on September 6, but the shipment was not made. Little obtained another promise from the trainer to deliver the horse by September 10, but again the shipment was not made. Little did not obtain a medical exam until September 15. That examination, conducted at the track by a veterinarian from Michigan State, revealed that the injury to the horse's leg was serious and that, although the horse's life was not in danger, its prognosis for racing was limited. Despite the veterinarian's recommendation, Little did not arrange for the horse to be taken from the racetrack.

Finally, on September 18, Little informed the veterinarian that the animal would be shipped to Michigan State that day. Even though other horse transporters were available to make the shipment, Little relied on the trainer who had broken two promises to remove the animal from the track. The trainer again failed to deliver the animal.

The next day Little went to the track and found that the horse was dead. He arranged to have the carcass shipped to Michigan State for an autopsy, which revealed that the horse had ingested a poisonous substance. One veterinarian concluded from the autopsy results that the horse had been intentionally poisoned. Others were uncertain.

Apparently on the basis of the autopsy, 627 decided not to honor the insurance policy held by JDA Farms. JDA Farms filed suit in Florida state court against both 627 and GAB. GAB settled the action just before trial for $15,000 and agreed as part of the settlement to release to JDA Farms certain confidential reports GAB had prepared for 627. Shortly after GAB's settlement, 627 also settled with JDA Farms agreeing to pay the full $250,000 policy limit. ³

GAB then brought this suit in Florida state court seeking reimbursement from 627 for the expenses of its settlement with JDA Farms. The syndicate removed to the district court for the Middle District of Florida and filed a counterclaim, seeking to recover its own settlement expenses from GAB. A jury held against GAB on its claim and for 627 on the counterclaim. GAB appealed and 627 cross-appealed.

On appeal GAB contends that it was entitled to a directed verdict in favor of its claim and against 627's counterclaim. GAB also complains of the district court's evidentiary and discovery rulings. Syndicate 627 seeks to advance various contentions on cross-appeal, but as a prevailing party, it may only complain of the lower court's award of damages. We need not rule on the issue of damages because we reverse with respect to 627's counterclaim.

We hold that the district court correctly refused GAB's motion for directed verdict on its claim. We also hold that 627 failed to prove an essential element of its counterclaim and that the lower court erroneously refused GAB discovery into the evidentiary background of that same issue. To clarify our holding, however, we must set forth in some detail the principles of law governing the respective claims of the parties.

II. GAB's Claim

GAB claimed indemnity as 627's agent for the costs of its settlement with JDA Farms and argues that the district court erred in not directing a verdict against 627. A principal has a duty to indemnify its agent for the "expenses of defending actions by third persons brought because of the agent's authorized conduct." Restatement (Second) of Agency Sec. 439 (1958). There is, however, an exception to this general rule. A principal has no duty to indemnify an agent whose loss is "caused solely by the agent's negligence, whether or not the negligence constitutes a breach of duty to the principal." Restatement (Second) of Agency Sec. 440 comment b; see e.g., Brady v. Roosevelt Steamship Co., 317 U.S. 575, 580, 63 S.Ct. 425, 428, 87 L.Ed. 471 (1943) ("liability of an agent for his own negligence has long been embedded in the law"); cf. Occidental Fire and Casualty Co. of North Carolina v. Stevenson, 370 So.2d 1211, 1213 (Fla.Dist.Ct.App.1979). GAB contends that this exception does not apply because any negligence on the part of GAB could not have been the proximate cause of JDA Farms' suit and the resulting settlement. ⁴

The thrust of GAB's argument is that for its conduct to have caused the JDA Farms suit, the horse must have been intentionally poisoned. GAB contends that this criminal act is a superseding, intervening cause which breaks the chain of causation. See, e.g., Gulfstar, Inc. v. Advance Mortgage Corp., 376 So.2d 243, 246 (Fla.Dist.Ct.App.1979) (unauthorized sale of boat), cert. denied, 386 So.2d 633 (1980). According to Florida law, however, an event, including a criminal act, breaks the chain of proximate causation only if it is outside "the zone of risks that are reasonably foreseeable by the defendant." See Stevens v. Jefferson, 436 So.2d 33, 35 (Fla.1983) (quoting Crislip v. Holland, 401 So.2d 1115, 1117 (Fla.Dist.Ct.App.1981)) (where fights and "gunplay" in bar created foreseeable risk of harm to patrons, defendant bar owner was liable for gunshot death of patron caused by fellow patron). "[I]f reasonable men might differ, the determination of foreseeability should rest with the jury." Schwartz v. American Home Assurance Co., 360 So.2d 383, 385 (Fla.1978).

The jury could have found that GAB's negligence caused the death of the horse and that 627 had employed GAB to guard against this very risk. The evidence presented was of such "quality and weight that reasonable and fair-minded men in the exercise of impartial judgment might reach different conclusions" on whether GAB's conduct fell short of the appropriate standard of care and whether it proximately caused the resulting litigation. Boeing Co. v. Shipman, 411 F.2d 365, 374 (5th Cir.1969) (en banc). The argument that GAB was entitled to a directed verdict on its claim against 627 is clearly without merit.

III. 627's Counterclaim

The jury found that GAB's negligence resulted in a loss to Syndicate 627 of $200,000. 627 notes that this sum corresponds to its attorneys fees in the JDA Farms case and argues that the trial court erred in failing to award a full breach of contract measure of damages. ⁵ 627 argues that such an award should include its settlement with JDA Farms and the expense of GAB's investigation after the destruction of the carcass. 627 also disputes the lower court's decision to exclude evidence relating to 627's decision to pay JDA Farms the full $250,000 policy limits in settlement. 627 contends that the court should have admitted expert testimony regarding the strength of JDA Farms' case. On the other hand, GAB complains that the trial court improperly allowed 627 to cloak the substance of its settlement negotiations within the attorney-client privilege.

We begin by noting that there is no question but that 627 may seek indemnity from GAB for a liability accruing from GAB's negligent conduct as agent. United States v. Farr & Co., 342 F.2d 383, 385 (2d Cir.1965). GAB owed its principal a duty to act with care, diligence and skill. Twachtman v. Connelly, 106 F.2d 501, 507 (6th Cir.1939); Central National Insurance Co. of Omaha v. Devonshire Coverage Corp., 426 F.Supp. 7, 23 (D.Neb.1976) (citing Restatement (Second) of Agency Sec. 379 (1958)), aff'd in part, rev'd in part on other grounds, 565 F.2d 490 (8th Cir.1977). A breach of this duty subjects GAB as agent to liability for its principal's resulting loss. United States v. Farr & Co., 342 F.2d at 385 (citing Restatement (Second) of Agency Sec. 401); Irby Construction Co. v. Shipco, Inc., 548 F.Supp. 1023, 1028 (E.D.La.1982). When a paid agent acts negligently so...