Alexander & Alexander, Inc. v. B. Dixon Evander & Associates, Inc., 1920

Decision Date01 September 1990
Docket NumberNo. 1920,1920
CourtCourt of Special Appeals of Maryland

Benjamin R. Civiletti (Nell B. Strachan, Mitchell Y. Mirviss, Venable, Baetjer and Howard, William W. Cahill, Jr. and Weinberg and Green, on the brief), Baltimore, for appellants A & A and Scheeler.

Thomas J. Minton (Quinn, Ward and Kershaw, P.A., on the brief), Baltimore, for appellants Shand, Morahan & Co. and Mut. Fire.

George P. Bowie (Patrick A. O'Doherty, Amy J. Muffolett, O'Doherty, Nead & Hoffman, Edward J. Birrane, Jr. and Birrane, Harlan & Cooke, on the brief), Baltimore, for appellee.

Argued before WILNER, C.J., and ROSALYN B. BELL and HARRELL, JJ.

WILNER, Chief Judge.

B. Dixon Evander, through a corporation containing his name, operates a general insurance agency in Baltimore. For many years he was the procurer of medical malpractice insurance for the University of Maryland hospital and most of its medical staff. In 1985, the hospital entered into other arrangements to satisfy its insurance needs, thereby terminating its relationship with Evander. That decision by the hospital and the circumstances surrounding it led Evander to file suit in the Circuit Court for Baltimore City against (1) the hospital, 1 (2) Alexander & Alexander, Inc. (A & A), the insurance broker who replaced Evander, (3) Mary Scheeler, an A & A vice-president, (4) Mutual Fire, Marine & Inland Insurance Company (Mutual Fire), the insurance company that had been procured by Evander, and (5) Shand, Morahan and Company (Shand), the underwriting agent for Mutual Fire.

Evander's action against the hospital and certain of his claims against the other defendants were dismissed during the course of the litigation. Three claims set forth in Evander's third amended complaint were submitted to the jury: Count II, charging that A & A and Scheeler tortiously interfered with a contract between Evander, Shand, and Mutual Fire; Count VIII, charging Shand and Mutual Fire with breach of contract; and Count XIV, charging A & A, Scheeler, Mutual Fire, and Shand with civil conspiracy. The jury returned verdicts in favor of Evander as follows: against all defendants, $250,052 in compensatory damages; against Shand, $70,104 in punitive damages; and against A & A, $40 million in punitive damages.

In post-trial proceedings, the court, by remittitur, reduced the $40 million punitive damage award to $12.5 million, added an agreed amount to the compensatory award, but otherwise refused to interfere with the verdicts. These appeals ensued in which the defendants present a number of issues and sub-issues directed at each of the claims presented to the jury, at the punitive damage awards, and at the manner in which the case was tried. Evander has dismissed his claim for punitive damages against Shand, and so that is no longer an issue.


This case took three weeks to try. Much was in dispute. The evidence, viewed in a light most favorable to Evander, the prevailing party, showed the following.

Evander had obtained medical malpractice insurance for the hospital since 1962. In 1975, the insurer for the hospital and indeed for most of the medical community in Maryland, St. Paul Fire & Marine Insurance Company, decided to withdraw from the medical malpractice market in this State and not renew any of its existing policies. See St. Paul Fire & Mar. v. Ins. Comm'r, 275 Md. 130, 339 A.2d 291 (1975). In an effort to find replacement insurance, Evander did a great deal of research, telephoning, and travel, including at least one trip to London. He finally was able to negotiate a policy with Mutual Fire, through its underwriting agent, Shand. At that time and at all times relevant to this case, Shand was a subsidiary of A & A, subject to corporate control by it.

The Mutual Fire policy was written on a "claims made" basis, i.e., it covered only claims made while the policy was in force. The insured would therefore be at risk with respect to a claim made after the policy expired, even if the claim was based on conduct occurring during the period the policy was in force. See St. Paul Ins. Co. v. House, 73 Md.App. 118, 533 A.2d 301 (1987) aff'd, 315 Md. 328, 554 A.2d 404 (1989). In order to protect the hospital against that exposure, Evander negotiated the inclusion in the policy of an Optional Extension Provision (OEP) extending the claims reporting period beyond the expiration of the policy. The original policy had a three-tiered OEP: the claims period was automatically extended one year; the hospital had an option, for an additional premium, to extend it for two more years; and for a further premium, it had the option to extend the claims reporting period indefinitely.

This three-tiered system, according to Evander, was not a satisfactory arrangement for the hospital, but it was the best he could obtain at the time. Over the succeeding years, however, he pursued negotiations with Shand and, in 1981, was successful in obtaining a better deal. Beginning with the 1981 policy and in the all the renewals thereafter, the OEP (Endorsements 7 and 9) allowed the hospital to extend the claim reporting period indefinitely by paying a one-time premium, upon exercise of the option, equal to 155% of the annual premium for the final year of the policy. The option had to be exercised and the premium had to be paid within 30 days after cancellation or termination of the policy.

Contemporaneously with his obtention of the initial Mutual Fire policy, Evander entered into a producer's agreement with Shand that lies at the heart of this litigation. The agreement, signed in March, 1975, called for Mutual Fire, through Shand, to issue malpractice insurance to Maryland physicians through Evander and to pay Evander commissions of 12.5%, later amended to 8%. It set forth an exclusive arrangement for both Shand and Evander. Paragraph IX obligated Evander to submit all proposals for professional liability insurance for physicians practicing in Maryland exclusively to Shand and, unless the proposal was rejected by Shand, to no one else. In return, Shand agreed "not to accept proposals for professional liability insurance for physicians and surgeons practicing in the state of Maryland from insurance agents or brokers other than [Evander]." The agreement could be terminated by either party upon 90 days written notice but was to remain in effect until so terminated. It was never terminated by written notice.

In 1984, the hospital, which had recently become corporately independent from the University of Maryland, undertook a review of its insurance program and needs. To that end, through a committee created for the purpose, the hospital sent requests for proposals to a number of brokers. The parties appear to agree (although the record extract references cited by them do not support the proposition) that the request required the brokers to bid on a flat fee-for-service basis, rather than on a commission basis. The request also demanded consideration of self-insurance by the hospital.

Six brokers, including Evander and A & A, responded. After reviewing the proposals, the hospital selected A & A as its exclusive broker, confirmation of which came in the form of two letters. The first, dated January 31, 1985, announced "To Whom It May Concern" that, as of that date, A & A had been appointed exclusive broker of record "in all matters relating to property/casualty insurance, including medical malpractice." Its representatives were authorized to negotiate with any insurance company respecting changes in existing policies, including "all policies presently placed with [Mutual Fire] through [Shand]." This letter was intended to allow A & A to gather information and commence negotiations, but not to actually replace any existing policies; it did not provide for any payment to A & A.

The second letter, which was signed a few days later, confirmed A & A's appointment as broker of record but stated that the term of the appointment was to be for one year, commencing July 1, 1985. This letter set forth a broad range of duties for A & A, including the actual procurement of insurance. For these various services, A & A was to be paid a fee of $250,000. Paragraph 6 of the letter, added at the hospital's insistence, provided that: "The fees are intended to replace the commissions associated with procuring insurance. Therefore, all insurance quotations should be obtained net of commission fees. If this is not possible a credit will be granted in an amount equal to the commission." (Emphasis added.)

By virtue of this second letter, Evander would cease to have any relationship with the hospital as of July 1, 1985. Evander now accepts that decision and makes no complaint either as to the hospital's right to make it or to the process used by the hospital in arriving at it.

The decision by the hospital to place its insurance through A & A created a problem with respect to the policies issued by Mutual Fire, for, as noted, Shand had an exclusive arrangement with Evander and had agreed not to accept Maryland business through anyone else. At the time, renewal of the Mutual Fire policies was still a viable option under consideration by the hospital, and neither Shand nor Mutual Fire desired to lose the business. Nonetheless, although still a subsidiary of A & A, Shand, through Robert Liston, a vice-president responsible for the hospital's account, informed A & A and the hospital that it intended to honor its exclusive agreement with Evander and that it would not accept the hospital's business through any other broker.

The manner in which this dilemma was resolved was in some dispute. Evander produced evidence that, at a meeting then in progress in Scottsdale, Arizona, the top management of A & A, including its president, Michael White, prevailed upon the top management of Shand...

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