Bayly, Martin & Fay, Inc. v. Pete's Satire, Inc.

• Decision Date: 22 June 1987
• Citation: 739 P.2d 239
• Docket Number: 85SC164
• Parties: BAYLY, MARTIN & FAY, INC., a Colorado corporation, and Norman Sterling, Jr., individually, Petitioners, v. PETE'S SATIRE, INC., a Colorado corporation, d/b/a the Satire Lounge, and Pete Contos, individually, Respondents.
• Court: Colorado Supreme Court

Page 239

739 P.2d 239

56 USLW 2037

BAYLY, MARTIN & FAY, INC., a Colorado corporation, and Norman Sterling, Jr., individually, Petitioners, v.PETE'S SATIRE, INC., a Colorado corporation, d/b/a the Satire Lounge, and Pete Contos, individually, Respondents.

No. 85SC164.

Supreme Court of Colorado En Banc.

June 22, 1987.

As Modified on Denial of Rehearing

July 13, 1987.

Renner & Rodman, John R. Rodman, Denver, for petitioners.

Robert E. Goodwin, Denver, for respondents.

QUINN, Chief Justice.

In Pete's Satire, Inc. v. Commercial Union Insurance Co., 698 P.2d 1388(Colo.App.1985), the court of appeals affirmed a declaratory judgment in favor of a bar and restaurant owner against an insurance brokerage firm and its representative for negligently failing to procure insurance coverage which included protection against risks relating to the consumption of alcoholic beverages on the premises by customers.The court of appeals acknowledged that a plaintiff-owner has the burden of proving by a preponderance of the evidence that insurance for the specific risk could have been obtained and held that in this casethe plaintiffs had satisfied the appropriate burden of proof.We granted certiorari to consider whether the court of appeals properly resolved the issue relating to the burden of proof on the availability or unavailability of insurance to cover the risk against which a person seeks insurance protection.We affirm the judgment of the court of appeals.

I.

Pete Contos is the principal shareholder of Pete's Satire, Inc., a Colorado corporation doing business as a bar and restaurant under the name of The Satire Lounge, located in Denver.Contos also owns and operates another Denver bar and restaurant, the Olympic Flame.In 1980 Contos and Pete's Satire, Inc. commenced this declaratory action against the following defendants: Norman Sterling, Jr.(Sterling), a licensed insurance agent and vice president and representative of Bayly, Martin & Fay, Inc.(Bayly), an insurance brokerage firm authorized to sell policies for various insurance companies; Bayly, the insurance brokerage firm which Sterling represented; and Commercial Union Insurance Company(Commercial Union), the company from which Sterling procured a multi-peril policy for Contos' Satire Lounge.Contos and Pete's Satire, Inc., sought a judicial declaration (1) that Sterling and Bayly were liable in negligence for failure to provide liquor liability insurance--that is, liability insurance for selling or serving alcoholic beverages at the Satire Lounge, as requested by Contos, and were also responsible for expenses incurred by Contos and Pete's Satire, Inc. in successfully defending a lawsuit based on the alleged negligence of Pete's Satire, Inc. in serving alcoholic beverages to a patron of the Satire Lounge on March 7, 1979, and (2) that Commercial Union was liable as principal for the negligence of its agents, Sterling and Bayly, in failing to provide the coverage requested by Contos.In their answer Sterling and Bayly claimed that Contos was given an opportunity to obtain liquor liability coverage but requested that such coverage not be provided.Commercial Union raised the defense that the multi-peril policy issued to Contos expressly excluded coverage for bodily injury or property damage for which the insured may be held liable as a person or organization engaged in the business of selling or serving alcoholic beverages.

The case was tried to the court.The record, when viewed in a light most favorable to the trial court's findings, established the following facts.In 1975 Contos negotiated with Sterling, with whom he had a long-standing friendship, for the purchase of a multi-peril insurance policy for the Satire Lounge.According to Contos' testimony, he specifically sought liquor liability insurance and Sterling assured him that he(Sterling) would obtain comprehensive coverage for the Satire Lounge at a fair price.Sterling procured a multi-peril policy from Commercial Union, which policy, unknown to Contos, did not provide liquor liability coverage.On July 3, 1978, Sterling obtained a renewal policy from Commercial Union for a three-year period.The renewal policy contained the same liability coverage as the former policy.At various times during the effective period of Commercial Union's coverage, Sterling assured Contos that he was "fully covered."In fact, Contos specifically questioned Sterling in 1977 on the issue of liquor liability coverage and was told, "Don't worry about it, you are covered."

In 1980 Pete's Satire, Inc. was sued for negligence by John C. Thomas.The Thomas lawsuit alleged that Pete's Satire, Inc. negligently served alcoholic beverages to a customer, Richard Duane Wold, who was visibly intoxicated, and that Wold subsequently left the premises and operated a motor vehicle in a manner that caused injury to Thomas, who was his passenger.When Nancy McFarland, the manager of the Satire Lounge, contacted Sterling about the lawsuit, Sterling informed her that the claim was covered under the Commercial Union policy.Commercial Union, however, refused to defend Pete's Satire, Inc., concluding that the policy provisions explicitly excluded coverage for such a claim.Contos hired independent counsel to handle the lawsuit and incurred various legal expenses in the process.Pete's Satire, Inc. eventually prevailed in that litigation.Thomas v. Pete's Satire, Inc., 717 P.2d 509(Colo.App.1985).

Contos presented testimony showing that in 1977 or 1978 Sterling procured liquor liability coverage for Contos' other establishment, the Olympic Flame.Sterling included liquor liability coverage in that policy, which apparently was written by a company other than Commercial Union, but did not mention that provision to Contos and did not advise Contos that the Satire Lounge policy should be reviewed and changed.Sterling admitted on cross-examination by Contos that liquor liability insurance was available in the insurance industry on July 3, 1978, when the multi-peril policy was issued to Contos, that he had procured such insurance for establishments similar to the Satire Lounge, that such insurance was usually written by companies covering substandard risks, and that Bayly could arrange for such coverage with those companies.There was further testimony by Pete Kappos, a licensed Colorado insurance agent, that to his knowledge liquor liability coverage had been written for bars and restaurants for a substantial period prior to 1978 and was certainly available when the multi-peril policy was written on the Satire Lounge.¹

At the conclusion of the plaintiffs' case and again at the conclusion of all the evidence, Sterling and Bayly moved for a judgment of dismissal on the basis that the plaintiffs had failed to show that liquor liability insurance was available to the Satire Lounge on July 3, 1978, when Commercial Union's renewed policy was issued to Contos.The trial court denied the motions and made extensive findings of fact including, as applicable here, a finding that "at the time of the negotiations for the insurance contract on Pete's Satire Lounge in 1975 and specifically in 1978, there was available in the insurance industry 'liquor liability coverage' for businesses engaged in the selling of alcoholic beverages to the general public and that said coverage had been available for approximately twenty (20) years."The court concluded that Sterling and Bayly were negligent in failing to obtain the necessary coverage and hence were responsible for all expenses incurred by Pete's Satire, Inc. in the Thomas litigation and that Commercial Union was similarly liable as principal for the negligence of its agents, Sterling and Bayly.

Sterling, Bayly and Commercial Union appealed to the court of appeals.In rejecting the claim that Contos and Pete's Satire, Inc., had failed to establish by a preponderance of the evidence that other insurance could have been obtained, the court of appeals stated:

Here, the Lounge and Contos proved: (1) that the type of insurance covering this type of loss was available in the industry at the time of the occurrence; (2) that Contos had purchased this type of coverage through Sterling and Bayly for the Olympic Flame; and (3) that, although Commercial Union put on evidence that the coverage might not have been available to Contos or the Lounge through it, there was no evidence that the coverage was not available through other carriers.Under these facts, the Lounge and Contos sufficiently carry their burden on this issue.

698 P.2d at 1390.The court of appeals reversed the judgment against Commercial Union.Noting that the policy expressly excluded the risk at issue in this case and that Contos and Pete's Satire, Inc. were "charged with knowledge of the restrictions in the policy," it concluded that any contrary oral representations by Sterling and Bayly could not "impose liability on an insurer where [those representations] contradict the terms of the insurance contract."698 P.2d at 1391.²

Sterling and Bayly filed a petition for certiorari on whether the court of appeals correctly held that Contos and Pete's Satire, Inc., satisfied the appropriate burden of proof with respect to the availability of liquor liability insurance.

II.

Basic principles of tort law provide the framework for determining the burden of proof in a negligence action predicated on the failure of an insurance broker or agent servicing the insurance needs of the plaintiff to procure a particular type of insurance coverage sought by the plaintiff.A cause of action founded on negligence requires proof of the following elements: (1) a duty or obligation, recognized by law, requiring the defendant to conform to a certain standard of conduct for the protection of others against unreasonable risks; (2) a failure or breach of duty by the defendant to conform to the standard required by law; (3) a sufficient causal connection between the...