Bellefonte Underwriters Ins. Co. v. Brown, C2924

• Decision Date: 08 December 1983
• Docket Number: No. C2924,C2924
• Parties: BELLEFONTE UNDERWRITERS INS. CO., et al., Appellants, v. Leon BROWN, et al., Appellees. (14th Dist.)
• Court: Texas Court of Appeals

Page 562

663 S.W.2d 562

BELLEFONTE UNDERWRITERS INS. CO., et al., Appellants, v. Leon BROWN, et al., Appellees.

No. C2924.

Court of Appeals of Texas,

Houston (14th Dist.).

Dec. 8, 1983.

Rehearing Denied Jan. 12, 1984.

Russell W. Schell, Thompson, Coe, Cousins & Irons, Dallas, Al Schulman, J. Edwin Smith, Houston, for appellants.

Guy C. Fisher, Fisher & Cook, Charles Blackley, Austin, Newton Schwartz, Houston, for appellees.

Before JUNELL, MURPHY and SEARS, JJ.

OPINION

SEARS, Justice.

This is an appeal from a judgment entered in favor of Appellee Leon Brown and Houston Wiper & Mill Supply Company and Appellant/Appellee Avrohm Wisenberg, et al.

In this suit, three major groups were involved: Leon Brown and his company, Houston Wiper & Mill Supply Company (hereafter referred to as "Brown"); the "Bellefonte defendants", composed of Bellefonte Underwriters Insurance Company, Armco, Inc., Armco Underwriters Agency, Armco Underwriters Agency of Texas, Inc., and James T. Gannon (hereafter referred to as "Bellefonte"); and the "Wisenberg defendants," composed of Avrohm Wisenberg, individually, and his several companies through which he represented Brown and Bellefonte: Delta Special Risks Agency, Wisenberg-Pozmantier & Co., d/b/a Sol L. Wisenberg Insurance Agency, and Delta General Agency Corporation.

Brown sued Bellefonte, alleging a cause of action on a fire insurance policy, tortious interference with contract, and deceptive trade practices. Wisenberg was joined as a defendant. Wisenberg then filed a cross-action against Bellefonte, alleging libel and deceptive trade practices. The jury returned a verdict in favor of Brown against Bellefonte for actual damages resulting from its breach of the fire insurance policy, punitive damages for tortious interference with contract and attorney's fees. The court rendered judgment in favor of Brown against all Bellefonte defendants for $1,372,464.00. The jury returned a verdict for Brown against Wisenberg for negligence in failing to include Replacement Cost Endorsement Form 164 in the Bellefonte fire insurance policy. On this finding, the court rendered judgment for Brown against Wisenberg in the amount of $34,992.00. The jury also returned a verdict for Wisenberg against Bellefonte for $50,000.00 actual damages for libel, plus attorney's fees. The court trebled the actual damages under TEX.INS.CODE ANN. art. 21.21 § 16 (Vernon 1981), and rendered judgment for Wisenberg against Bellefonte in the total amount of $226,500.00. We reverse the judgment against Armco, Inc., one of the Bellefonte defendants, and render judgment in its favor. We also reverse that part of the trial court's judgment which denied Wisenberg indemnity from Bellefonte, and we render judgment in favor of Wisenberg against Bellefonte for indemnity in the amount of $34,992.00. We affirm the trial court's judgment in all other respects.

Brown operated an industrial rag recycling business in metal buildings located in Jacinto City, Texas. The storage of tons of highly flammable cloth near twenty-five hot driers and space heaters inside the building made Brown's business a high fire insurance risk.

Brown had purchased fire insurance for his business exclusively through Wisenberg since 1955. In some years, all of Brown's coverage was placed with a single company. However, in other years, the economic condition of the insurance industry forced Brown to divide his risk among several companies. Wisenberg maintained various agency relationships in these dealings. In this case, since Bellefonte was not admitted to do business in Texas, it acted through its agent, Armco Underwriters Agency of Texas, Inc., to authorize Wisenberg to bind coverage for Brown. In so doing, Wisenberg served as Bellefonte's surplus lines agent, acting by and through his own Delta Special Risks Agency. Wisenberg maintained the same relationship with Market Insurance Company. However, when dealing with all other insurance companies which covered Brown, Wisenberg served as a local recording agent.

On January 16, 1978, Wisenberg contracted with Bellefonte for a $600,000.00 excess and surplus lines policy for Brown. This coverage, which was bound on January 17, 1978, allegedly included premium discounts for the presence of an automatic sprinkler system in the west building of Brown's business. Wisenberg contracted with six other insurance companies to secure complete fire insurance coverage for Brown.

On January 19, 1978, three days after Roy Shoultz of Armco Underwriters Agency of Texas, Inc. bound Brown's coverage through Bellefonte, Wisenberg sent a transmittal letter to Shoultz concerning some specifics of the policy. Enclosed with the letter was a policy order form and two engineering reports. The policy order form

listed the endorsements which Wisenberg requested be included in Brown's policy. Although Wisenberg intended to request a Replacement Cost Endorsement Form 164 in the Bellefonte policy, and, although Bellefonte collected premiums for the endorsement, the endorsement form was not included in the policy. One of the two engineering reports was made by White & White Engineers on January 27, 1977. It contained two recommendations with which Brown had complied. The other report was made by Schirmer Engineering Corporation on February 11, 1977, and contained fifteen recommended changes to be made by Brown. Along with the Schirmer report, Wisenberg sent to Shoultz a written reply by Marvin McDaniel, Maintenance Supervisor at Houston Wiper & Mill Supply Company, stating which of the recommendations had or had not been complied with and which of the recommendations would not be complied with "at this time." In so doing, Wisenberg clearly indicated that Brown would not convert his sprinkler system from a wet to a dry system ¹ "at this time." The Schirmer report also explicitly stated that Brown drained his sprinkler system when freezing weather was predicted. ²

Brown drained his system on February 20, 1978, because freezing weather was predicted. Early in the morning of February 21, 1978, a fire occurred in the building with the wet sprinkler system. No alarm sounded. That building was destroyed.

Initially, all seven of Brown's carriers agreed to accept proof of loss on his claim. However, Bellefonte changed its position in May 1978, after James T. Gannon, Property Department Manager of Armco Underwriters Agency of Texas, Inc., reviewed Shoultz's notes of a January 16, 1978, telephone conversation between Shoultz and Wisenberg concerning the question of outstanding engineering recommendations. Although Gannon and Shoultz worked in the same building and saw each other several times each week, Gannon never asked Shoultz what his notes ³ actually meant. Rather, Gannon interpreted the notes to mean that all of the Schirmer recommendations had been complied with and erroneously decided that Wisenberg had misrepresented the risk to Bellefonte. Thus, on May 25, 1978, Bellefonte revoked its acceptance of Brown's proof of loss and Gannon sent a telex to Lloyds of London, a co-insurer, stating Bellefonte's new position. A copy of this telex was sent to Market Insurance Company, another carrier on the Brown risk. This telex prompted Wisenberg's cross-action against Bellefonte for libel and Brown's claim of tortious interference with contract. The telex, with emphasis added, reads:

RE: HOUSTON WIPER AND MILL SUPPLY CLAIM FEB 21 CIRT NO 1165 EFF THRU DELTA SPECIAL RISK WE PARTICIPATE 200,000 P/O 650,000 BLDG WITH LLOYDS AND HAVE 150,000 P/O 700,000 M & E WITH FIVE COMPANIES INCLUDING MARKET WHICH HAS 250,000 STOP OUR COVER INCEPTED JAN 17, 1978 AND RISK PRESENTED TO US AS HEATED WITH WET SYSTEM MAIN BLDG DRY SYSTEM ON DOCKS AND UNHEATED WHSE STOP NOW INFORMED PROCESSING BLDG NOT HEATED SUFFICIENT TO PREVENT FREEZING AS [sic] AND INSURED ON SEVERAL OCCASIONS NOTIFIED WISENBERG HIS BROKER OF SHUT OFF AS SYSTEM BUT WISENBERG

NEVER NOTIFIED UNDERWRITERS STOP WISENBERG APPEARS TO BE AGENT FOR TWO OF SIX M & E COS BUT IS NOT AGENT FOR OTHERS INCLUDING BELLEFONTE UNDS AS NONADMITTED IN TEXAS STOP WE LEAN TO POSITION OF DECLINING CLAIM ON BASIS AS SYSTEM FACTS NOT AS PRESENTED PLUS WE WERE NEVER ADVISED OF SHUT DOWN AND THEREBY DENIED OPPORTUNITY TO REQUIRE ON PREMISES WATCHMAN BE POSTED WHICH WE WOULD HAVE DONE STOP MARKET INS CO SUPPORTS OUR CONTENTION AND WE EXPECT WE CAN GET GREAT SOUTHWEST AND NORTHEASTERN FIRE TO FOLLOW STOP WE SOLICIT YR CONCURRANCE [sic] WITH OUR POSITION AND REQUEST YOU DISCUSS WITH PAT HALL SYNDICATE WHICH WE UNDERSTAND IS LEADER

J.T. GANNON

9103614353

ARMCO UN A DAL

Despite Bellefonte's obvious suggestion that the insurance companies join together in order to exert group economic pressure against Brown, thus strengthening Bellefonte's bargaining position, each of the other six insurance carriers eventually paid their portion of Brown's claim.

Bellefonte, through its Claims Manager, Kenneth Weiland, denied the claim, alleging that Wisenberg misrepresented the risk of Brown's business by stating that all of the Schirmer Engineering Corporation recommendations had been complied with, that Brown violated the Automatic Sprinkler Clause ⁴ of the policy and that Brown affirmatively caused a material increase in the hazard which was within his knowledge and control.

WISENBERG'S APPEAL

In his first point of error, Wisenberg alleges the trial court erred in allowing Brown and Bellefonte to use the alleged misrepresentation by Wisenberg as a policy defense in violation of prohibitions contained in TEX.INS.CODE ANN. art. 21.35 (Vernon 1981). Wisenberg contends there was a collusive arrangement between Brown and Bellefonte calculated to recover treble damages from Wisenberg through the Texas Deceptive Trade Practices Act, TEX.BUS. & COM.CODE ANN. § 17.46 (Vernon Supp.1982-1983). However, the jury, in its answer to Special Issue seventeen, exonerated Wisenberg of any deceptive trade practice. The jury further found, in its...