Asael Farr & Sons Co. v. Truck Ins.

• Decision Date: 28 August 2008
• Docket Number: No. 20070518-CA.,20070518-CA.
• Court: Utah Court of Appeals
• Parties: ASAEL FARR & SONS COMPANY, a corporation, Plaintiff and Appellant, v. TRUCK INSURANCE EXCHANGE, a Reciprocal or Inter-Insurance Exchange; Andrew L. Reed; Trustco, Inc., a corporation; Safeco Insurance Company, a corporation; American States Insurance Co., a corporation; Hartford Steam Boiler Inspection and Insurance Co., a corporation; Stephen D. Kirchen; Central Bonds & Insurance Agency, Inc.; Central Bonds and Insurance Company Incorporated, a corporation; Auto-Owners Insurance Company, a corporation; Blackburn Jones Company, a corporation; E. Kent Jones; Trinity Universal Insurance Company of Kansas, Inc., a corporation; Trinity Universal Insurance Co., a corporation; and Unitrin Property & Casualty Insurance Group, a corporation or common enterprise, Defendants and Appellees.

193 P.3d 650

2008 UT App 315

ASAEL FARR & SONS COMPANY, a corporation, Plaintiff and Appellant, v. TRUCK INSURANCE EXCHANGE, a Reciprocal or Inter-Insurance Exchange; Andrew L. Reed; Trustco, Inc., a corporation; Safeco Insurance Company, a corporation; American States Insurance Co., a corporation; Hartford Steam Boiler Inspection and Insurance Co., a corporation; Stephen D. Kirchen; Central Bonds & Insurance Agency, Inc.; Central Bonds and Insurance Company Incorporated, a corporation; Auto-Owners Insurance Company, a corporation; Blackburn Jones Company, a corporation; E. Kent Jones; Trinity Universal Insurance Company of Kansas, Inc., a corporation; Trinity Universal Insurance Co., a corporation; and Unitrin Property & Casualty Insurance Group, a corporation or common enterprise, Defendants and Appellees.

No. 20070518-CA.

Court of Appeals of Utah.

August 28, 2008.

Brett D. Cragun, Anthony R. Martineau, and Ray G. Martineau, Salt Lake City, for Appellant.

Aaron Alma Nelson, Clifford J. Payne, and Michael D. Lichfield, Salt Lake City, for Appellees Truck Insurance Exchange and Andrew L. Reed.

Michael F. Skolnick and Gary T. Wight, Salt Lake City, for Appellee Trustco, Inc.

Jonathan Hawkins, Salt Lake City, for Appellees Safeco Insurance Company and American States Insurance Co.

Scott G. Johnson and Emily P. Hennen, Minneapolis, Minnesota, for Appellee Hartford Steam Boiler Inspection and Insurance Co.

Craig R. Mariger and Bruce Wycoff, Salt Lake City, for Appellees Stephen D. Kirchen, Central Bonds & Insurance Agency, Inc., and Central Bonds and Insurance Company Incorporated.

Lowell V. Smith and Eric K. Davenport, Sandy, for Appellee Auto-Owners Insurance Company.

Kevin S. Gardner, Salt Lake City, for Appellee Blackburn Jones Company.

Trent J. Waddoups, Salt Lake City, for Appellees Trinity Universal Insurance Company of Kansas, Inc., Trinity Universal Insurance Co., and Unitrin Property & Casualty Insurance Group.

Before THORNE, Associate P.J., DAVIS, and McHUGH, JJ.

OPINION

McHUGH, Judge:

¶ 1 Appellant Asael Farr & Sons Company (Farr) appeals the trial court's denial of Farr's motion for partial summary judgment against Safeco Insurance Co. (Safeco), American States Insurance Co. (American States), Hartford Steam Boiler Inspection and Insurance Co. (Hartford), Trustco, Inc. (Trustco), and Andrew L. Reed; and the court's grant of summary judgment in favor of Appellees Reed, Trustco, Safeco, Hartford, Stephen D. Kirchen, Central Bonds & Insurance Agency, Inc. (Central Bonds),¹ and Auto-Owners Insurance Co. (Auto-Owners). We affirm.

BACKGROUND

¶ 2 Formed in 1920, Farr is a closely held corporation engaged in the production, retail, and distribution of ice cream products. This case arises out of a dispute over the insurance coverage for inventory spoiled by an ammonia release caused by an equipment breakdown at Farr's cold storage facility. Farr claims losses of over $1.5 million, an amount greatly exceeding the $25,000 recovery limit contained in a policy that was issued by American States/Safeco shortly after the loss.² Farr brought this action against various insurers, reinsurers, and insurance agents to recover the losses for which it has not yet been compensated.³

¶ 3 During the year prior to the spoilage incident, Trinity Universal Insurance Company of Kansas, Inc. and Trinity Universal Insurance Co. (collectively, Trinity), a subsidiary of Unitrin Property & Casualty Insurance Group (Unitrin), provided commercial insurance to Farr.⁴ According to Farr, Trinity's policy (the Trinity policy) included, among other things, property and liability coverage. On March 31, 2003, Trinity notified Farr of its decision not to renew the policy, which would expire on May 13, 2003. Dexter Duane Farr (Dexter Farr), Farr's general manager and chairman of the board, has been responsible for Farr's insurance coverage for twenty-five to thirty years. In connection with his efforts to obtain replacement insurance coverage, Dexter Farr met with Reed, a licensed insurance agent who was already providing workers' compensation coverage for Farr. Reed hoped to secure all of Farr's insurance-related business.

¶ 4 Reed was a captive agent of Truckers Insurance Exchange (TIE), also referred to by the parties as Farmers Insurance Group (Farmers).⁵ As a captive agent, Reed was first required to offer any insurance opportunities to TIE/Farmers. If TIE/Farmers wrote the policy, Reed would be entitled to a commission fee. In contrast, if TIE/Farmers declined coverage, Reed was free to seek coverage from another insurer. TIE/Farmers declined to issue a bid for Farr's property and general liability coverage but did agree to provide automobile and workers' compensation insurance. Consequently, Reed continued his efforts to find replacement property and general liability insurance before the May 13, 2003 expiration of Farr's policy with Trinity.

¶ 5 In early to mid-March 2003, Reed first contacted Kirchen, an insurance agent licensed by the State of Utah to sell property, casualty, and life insurance. Kirchen was employed as an agent for Central Bonds. As part of his efforts to find property and liability coverage for Farr, Kirchen used an automated rating system at Central Bonds' office that allowed him to input data and obtain pricing information for Auto-Owners' policies. Neither Central Bonds nor Kirchen had the authority to bind an Auto-Owners policy.⁶ Although the Auto-Owners regional underwriter was "comfortable" with the pricing generated by the in-house rating system for Farr, he indicated that coverage "was subject to receiving [Kirchen's] quote, [Kirchen's] applications, the loss history ..., property valuation and [Auto-Owners'] home office approval." (Emphasis added.) Obtaining a policy from Auto-Owners was further complicated by the fact that it could not quote spoilage or equipment coverage for Farr because of a pre-existing reinsurance agreement with Travelers Indemnity Company/Travelers Boiler Express (Travelers).⁷ Therefore, Kirchen requested a separate quotation⁸ for the spoilage coverage from Travelers.⁹ Kirchen did not receive a decision from Auto-Owners' home office prior to the submission of quotes to Farr.

¶ 6 Simultaneous with the expiration of the Trinity policy on May 13, 2003, Farr received bids for its property and liability insurance from several agents, including a bid from Auto-Owners that was prepared by Kirchen/Central Bonds. One day later, Farr also received an oral bid from Blackburn-Jones for a policy to be underwritten by Safeco. Ultimately, Dexter Farr selected the Auto-Owners quote, and on May 14, 2003, Farr delivered a check payable to Auto-Owners to Reed. Several days after the May 13 deadline, Kirchen learned that Auto-Owners' home office had declined coverage. Kirchen immediately relayed that information to Reed and returned Farr's uncashed check.

¶ 7 When Auto-Owners declined coverage, Kirchen and Reed discussed the possibility of having a friendly agent resubmit the Safeco bid that had been presented orally on May 14 by Blackburn-Jones. Kirchen and Central Bonds did not represent Safeco and therefore could not present the quote to Farr. As a courtesy, Kirchen contacted Troy Granger, one of the principals of Trustco, to see if he was interested in presenting the Safeco bid. Granger understood that because the entire account had been previously quoted with Safeco, all that was required was to obtain a letter from Farr appointing Trustco as its broker of record (BOR). Granger believed that the main emphasis was to get coverage bound that day—May 23, 2003. Granger faxed the BOR letter signed by Dexter Farr to American States/Safeco's underwriter, and Trustco was appointed the agent for the quotes previously presented by Blackburn-Jones. Granger's notes of the May 23, 2003 conversation state, in part:

We did [a] BOR letter & I talked to Chatrice[, American States/Safeco's underwriter]. She confirmed she got it. I asked her about coverage being bound & she said it was. I told her to go with all coverages except auto as they had gone to Farmers w/auto. There was also a little hesitation on her part when I inquired about the waiving of the 10 days notice to [the] other agent[, Blackburn-Jones]. She said she was not sure. I [pleaded] my case but did not get a firm answer.

It was Granger's understanding that the Blackburn-Jones quote was complete.¹⁰

¶ 8 Several days later, on May 27, 2003, American States/Safeco notified Granger that the Blackburn-Jones quote was not complete and that Trustco would have to submit an application for the coverages desired for Farr.¹¹ Granger faxed that application to Terry Dalton of American States/Safeco on May 28, 2003, but he indicated, "I am working on [the] umbrella & equip breakdown apps & will get them to you A.S.A.P.!" American States/Safeco had a reinsurance treaty with Hartford, whereby Hartford provided the spoilage coverage for American States/Safeco policies. During business hours on May 29, 2003, Granger faxed American States/Safeco the umbrella and equipment breakdown applications, which included a limit of $25,000 for spoilage.¹² Sometime that same night, there was an ammonia leak at Farr's Salt Lake cold storage facility, resulting in the spoilage of inventory and the losses Farr seeks to recover in this action. The American States/Safeco policy was prepared on June 4, 2003, and delivered to Farr on June 20, 2003. That policy contains a $25,000 limit for spoilage. According to Dexter Farr, it was not until one or two weeks after the incident—or possibly when he received the American States/Safeco policy almost a month after the incident—that he learned of that policy's $25,000 limit for inventory loss due to spoilage.

¶ 9 In this lawsuit, Farr has amended its original complaint three times. Farr's third amended complaint named Reed, as well as TIE, Trustco, Safeco, American States, Hartford, Kirchen, Central Bonds, and...