Bordelon v. Herculean Risks, Inc.

• Decision Date: 09 December 1970
• Docket Number: No. 3259,3259
• Parties: Whitney Paul BORDELON, Plaintiff-Appellee, v. HERCULEAN RISKS, INC., et al., Defendants-Appellants.
• Court: Court of Appeal of Louisiana — District of US

Page 766

241 So.2d 766

Whitney Paul BORDELON, Plaintiff-Appellee, v. HERCULEAN RISKS, INC., et al., Defendants-Appellants.

No. 3259.

Court of Appeal of Louisiana, Third Circuit.

Dec. 9, 1970.

Stafford, Pitts & Bolen by Grove Stafford, Jr., Alexandria, for defendants-appellants.

Gravel, Roy & Burnes by Chris J. Roy, Alexandria, for plaintiff-appellee.

Adams & Reese by Henry B. Alsobrook, Porteous & Johnson, Ralph E. Orpys, New Orleans, T. C. McLure, Jr., Alexandria, for defendant-appellee.

Before SAVOY, HOOD and CULPEPPER, JJ.

HOOD, Judge.

Whitney Paul Bordelon instituted this suit to recover from a surplus line insurance agent a loss which he sustained and which was not paid by the insurer that issued the policy. The defendants are: (1) Herculean Risks, Inc.; (2) F. C. Pendleton, Jr.; (3) F. C. Pendleton, Jr., Agency; and (4) Alexandria Insurance Underwriters (sometimes referred to as Alexandria Underwriters, Inc.). Plaintiff Bordelon died while the suit was pending, and his surviving widown, Mrs. Ina C. Bordelon, individually and as natural tutrix for her minor children, was substituted as plaintiff in lieu of the decedent .

Judgment was rendered by the trial court in favor of plaintiff and against 'Herculean Risks, Inc., and F. C. Pendleton, Jr., d/b/a F. C . Pendleton, Jr., Agency, individually, jointly and in solido,' for the sum of $100,000.00. The demands of plaintiff against Alexandria Insurance Underwriters were rejected.

F. C. Pendleton, Jr., F. C. Pendleton, Jr., Agency and Herculean Risks, Inc., have appealed. Plaintiff has answered the appeal demanding that the judgment of the district court be amended to increase the award by adding penalties and attorney's fees.

Since none of the parties seeks to change that part of the judgment which rejects plaintiff's demands against Alexandria Insurance Underwriters, the judgment in favor of that defendant will remain undisturbed. All parties agree that the judgment appealed from is correct insofar as it condemns Herculean Risks, Inc., to pay the sum of $10,000.00 to plaintiff. The principal question presented, therefore, is whether the trial court erred in holding that F. c. Pendleton, Jr., d/b/a F. C. Pendleton, Jr., Agency, is liable in solido with Herculean Risks, Inc., for the amount awarded to plaintiff.

Prior to his death, Bordelon was the owner of a night club in Avoyelles Parish known as The Pelican Club. In June, 1964, he contacted Don F. Musgrove, an insurance agent then doing business as Alexandria Insurance Underwriters, in Alexandria Louisiana, for the purpose of obtaining a fire insurance policy on the night club. Musgrove was unable to provide the requested insurance coverage through a regularly admitted compan, and he did not have a license to write 'surplus line' insurance, so he contacted F. C. Pendleton, Jr., an insurance agent in New Orleans, who Musgrove knew to be a licensed surplus line broker. Pendleton informed Musgrove that 'he could handle it.'

Pursuant to that understanding, a 'Certificate of Insurance' or binder, was issued by Pendleton, showing that Bordelon's night club building was insured against fire loss by Lloyds of London for $75,000.00, and that the contents were insured against fire loss by Reliance International Insurance Company for $10,000.00. This binder provided that the insurance was effective from June 11, 1964, to June 11, 1965. Another such binder was issued a few days later, certifying that additional insurance on the building was provided by Lloyds of London from July 1, 1964, to July 1, 1965. Each of these certificates was signed by 'F. C. Pendleton, Jr.,' and under his signature on each such document there appear the words:

'Authorized Broker

Herculean Risks, Inc.'

A fire insurance policy was then issued by Reliance International Insurance Company to 'Whitney Paul Bordelon & wife, Ina C. Bordelon, d/b/a Pelican Club,' insuring the contends of the Pelican Club against fire loss up to the sum of $10,000.00. This policy was countersigned on June 23, 1964, as follows:

'F. C. Pendleton, Jr., Agent

Herculean Risks, Inc.'

The evidence shows that 'F. C. Pendleton, Jr., d/b/a F. C. Pendleton, Jr., Agency' was duly licensed under the laws of the State of Louisiana to act as a surplus line insurance broker from April 1, 1964, to March 31, 1965. This license terminated and was not effective after March 31, 1965, but a similar license was issued to Herculean Risks, Inc., effective from and after April 1, 1965. These facts are significant, in that they show that F. C. Pendleton, Jr. was authorized to act as a surplus line broker when the Reliance policy was issued to Bordelon on June 11, 1964, whereas Herculean Risks, Inc., was not authorized to serve as a surplus line broker at that time.

Reliance International Insurance Company was a surplus line insurer, if it in fact existed as an insurance company at all. Its domicile was reported to be in Nassau, Bahamas. It was not qualified to do business in this state, and it had filed no bond with the Louisiana Commissioner of Insurance for the purpose of protecting its assureds.

Bordelon's insured night club, the Pelican Club, was destroyed by fire on June 7, 1965, while the above-described fire insurance policy was in effect. All of the contents were destroyed in that fire. Bordelon made demand upon Reliance for payment of the face amount of the policy, without avail. He then instituted suit against Reliance, that being an entirely separate action from the instant suit, and he recovered judgment against that defendant for the full amount of the policy, plus penalties and attorney's fees. Reliance, however, was nonexistent or completely insolvent, so the judgment obtained by Bordelon was uncolectable. Bordelon then instituted the instant suit to recover the full amount of the policy, plus penalties and attorney's fees, fees. Reliance, however, was nonexistent insurance coverage.

After the case was tried, the trial judge held initially that Herculean Risks, Inc., was negligent in having caused the issuance of the policy, in countersigning it and in failing to cancel it 'when later more ominous evidence appeared to confirm the obvious fly-by-night nature of Reliance.' He also concluded that Pendleton did not personally countersign the policy, that plaintiff had never relied on Pendleton's personal representations, and that Pendleton thus was not liable individually to plaintiff. Judgment was rendered originally, therefore, condemning only Herculean Risks to pay damages to plaintiff.

On an application for new trial filed by plaintiff, the trial judge later amended the judgment originally rendered to hold Pendleton liable, individually and in solido with Herculean, 'in order for plaintiff to have a judgment effective against the bond filed with the countersigner and designed to protect against the very risk involved in this matter.'

The law provides that if certain insurance coverages cannot be procured from authorized insurers, such coverages, designated as 'surplus lines,' may be procured from unauthorized insurers, subject to a number of conditions imposed by statute. One condition is that the insurance must be procured through a licensed surplus line broker, and a written request must be filed with that broker for the insurance desired, stating that after diligent effort such insurance has not been procurable from authorized insurers. LSA-R.S. 22:1257. Another condition is that every insurance contract procured as a surplus line coverage shall be countersigned in a specific manner by the surplus line broker. LSA-R.S. 22:1258. And a third condition is that a surplus line broker shall not knowingly place surplus line insurance with insurers unsound financially, and the broker is required to ascertain the financial condition of the unauthorized insurer before placing the insurance therewith. LSA-R.S. 22:1262.

In the instant suit a written request was never filed with Pendleton or Herculean Risks for the insurance required, stating that such insurance was not procurable from authorized insurers, all as required by LSA-R.S. 22:1257. The policy which was issued by Reliance was not countersigned in the manner specifically set out in LSA-R.S. 22:1258. And, the trial judge held that defendants had failed to adequately investigate the financial condition of Reliance before placing the insurance with it, as required by LSA-R.S. 22:1262.

We agree with the holding of the trial judge that defendants failed to exercise reasonable diligence in attempting to ascertain the financial condition of Reliance, as required by the last-cited section of the Revised Statutes, and we have decided to affirm the judgment appealed from on that ground.

The evidence shows that during the month of May, 1964, F. C. Pendleton, Jr., and Reliance International Insurance Company engaged in some correspondence which resulted in an agreement to the effect that Pendleton would act as agent for Reliance in issuing surplus line insurance policies in Louisiana. As already noted, Reliance was not qualified to do business in this state, and...