Chicago Title Ins. Co. v. Amz Ins. Serv. Inc.

• Decision Date: 15 December 2010
• Docket Number: No. G041188.,G041188.
• Citation: 115 Cal.Rptr.3d 707,10 Cal. Daily Op. Serv. 11, 923,188 Cal.App.4th 401
• Court: California Court of Appeals Court of Appeals
• Parties: CHICAGO TITLE INSURANCE COMPANY, Plaintiff and Respondent, v. AMZ INSURANCE SERVICES, INC., Defendant, Cross-defendant and Respondent; Pacific Specialty Insurance Company et al., Defendants, Cross-complainants and Appellants.

188 Cal.App.4th 401

115 Cal.Rptr.3d 707

10 Cal. Daily Op. Serv. 11,923

2010 Daily Journal D.A.R. 14,367

CHICAGO TITLE INSURANCE COMPANY, Plaintiff and Respondent,

v. AMZ INSURANCE SERVICES, INC., Defendant, Cross-defendant and Respondent;Pacific Specialty Insurance Company et al., Defendants, Cross-complainants and Appellants.

No. G041188.

Court of Appeal, Fourth District, Division 3, California.

Sept. 9, 2010.

Review Denied Dec. 15, 2010.

**713 Wesierski & Zurek, Thomas W. Ely, Laura J. Barns, Irvine, and John E. Stobart for Defendants, Cross-complainants and Appellants.

Gilbert, Kelly, Crowley & Jennett, Timothy Kenna, Craig H. Bell, Los Angeles, and Allan E. Perry for Plaintiff and Respondent.

No appearance for Defendant, Cross defendant and Respondent.

*406 OPINION

FYBEL, J.

Introduction

A binder is a contract of insurance that provides coverage pending the issuance of **714 the insurance policy. ( Adams v. Explorer Ins. Co. (2003) 107 Cal.App.4th 438, 451, 132 Cal.Rptr.2d 24 ( Adams ).) The central issue in this case is whether a document entitled "Evidence of Property Insurance" (EOI) issued by AMZ Insurance Services, Inc. (AMZ), was an enforceable binder of homeowner's insurance extending coverage from appellant Pacific Specialty Insurance Company (PSIC) for a fire loss incurred by Cheryl Mustain.

After obtaining an assignment of rights, respondent Chicago Title Insurance Company (Chicago Title) brought this lawsuit asserting the EOI was an *407 enforceable binder and alleging PSIC and its owner, The McGraw Company doing business as McGraw Insurance Services (McGraw),¹ breached the terms of the EOI and engaged in bad faith by denying coverage for Cheryl Mustain's loss. The trial court determined the EOI was an insurance binder as a matter of law. The court so instructed the jury, subject to the jury's determinations whether AMZ had actual or ostensible authority to issue binders on behalf of PSIC and whether the EOI was lawfully cancelled before Cheryl Mustain's loss.

The jury found the EOI was not lawfully cancelled, AMZ had actual or ostensible authority to issue the EOI as an insurance binder, and PSIC acted in bad faith by failing to properly investigate the loss and pay proceeds under the policy. The court awarded Chicago Title a stipulated amount of recovery under the EOI and its attorney fees.

We affirm. The trial court did not err by instructing the jury the EOI was a binder of insurance and by denying PSIC and McGraw's motion for a judgment notwithstanding the verdict (JNOV), which asserted the EOI was not a binder as a matter of law. The EOI included all of the required elements for a binder under Insurance Code section 382.5, subdivision (a) and was issued by AMZ in accordance with procedures established by PSIC for binding coverage in escrow transactions. We also conclude substantial evidence supported the jury's findings of agency and bad faith, and the trial court did not err by denying PSIC and McGraw's motion based on the doctrine of superior equities or by denying PSIC and McGraw's motion for a judgment of indemnity against AMZ.

Facts

I.The Mustains Refinance Their Home Loan.

In August or September 2005, Thomas Mustain and Cheryl Mustain (the Mustains) contacted a mortgage broker, Security Mortgage Lenders (Security), to refinance their home. Security obtained a loan for them from New Century Mortgage (New Century) and contacted Chicago Title to open an escrow for the transaction. Kara Mrozek was the escrow officer at Chicago Title, who handled the Mustains' refinance escrow.

New Century conditioned the loan on the Mustains' obtaining a new policy of homeowner's insurance. New Century would not fund the loan, and escrow *408 could not close, without evidence the new insurance policy was in place and "[a]n acceptable policy, with endorsements," had been received in escrow. The initial premium would be paid through escrow, and it was the escrow officer's responsibility to make sure the premium was paid and evidence **715 of insurance was presented to New Century.

Thu Vu, a loan processor at Security, contacted Jorge Torres, an insurance agent at AMZ, and requested homeowner's insurance for the Mustains' home. AMZ is owned by Adel Zibara and had been writing homeowner's insurance with PSIC since 1997. After speaking with Torres, Vu sent him by facsimile a written request for insurance stating, "Need Evidence Insurance" and "Rush Please," along with a copy of the Mustains' loan application.

Torres selected PSIC, which represented 10 to 20 percent of AMZ's business, because its binding procedures were easier than those of other insurance companies. To bind coverage, Torres prepared the EOI, which is a computer-generated form, naming PSIC as the insurer and the Mustains as the insureds under a policy of homeowner's insurance. In escrow transactions for home mortgage refinance, using an EOI is the industry standard for providing proof of insurance.

II.PSIC Authorizes AMZ to Bind Coverage with EOI's.

AMZ was not an appointed agent of PSIC. Their relationship was governed by a producer's agreement between AMZ and McGraw, stating: "Only upon specific written instruction from McGraw, by which McGraw binds coverage on a risk, may the Producer furnish a written binder of coverage to an insured" and "Producer has no authority to issue certificates of insurance, identification cards, endorsements, or other evidences of insurance with insurers represented by McGraw without the express written consent of McGraw."

The 1997 personal lines producer's agreement between McGraw and AMZ stated AMZ "has no authority to act on behalf of, or to bind, [PSIC] ... other than the limited authority specifically provided on each application for insurance" and "[AMZ] shall always be deemed a representative of the insured and not an agent for the company unless an agency appointment has been made with the California Department of Insurance."

The application for the type of homeowner's insurance policy at issue in this case included procedures requiring four conditions be met for AMZ to bind coverage: "1. All underwriting rules are followed. [¶] 2. Application is *409 fully completed and signed by applicant and producer. [¶] 3. Disclosure form is fully completed and signed by applicant. [¶] 4. Items 2-3 above are mailed to [the insurer]. If paid in full, 15 days. If installment payment plan requested, 5 days." The final condition required PSIC to receive payment of the premium before issuing the policy. The application containing the binding procedures is an internal document available online to AMZ representatives.

Despite the producer's agreement and the conditions set forth in the application, AMZ had authorization from PSIC to bind coverage of homeowner's insurance for escrow transactions by issuing EOI's before receipt of the insurance premium payment and the signed application. Zibara testified that Jeff Jacob, PSIC's regional sales manager, had authorized him to issue EOI's as binders for escrow transactions. Before the EOI was issued in this case, AMZ had issued EOI's as binders on behalf of PSIC before receiving the premium payment on about 30 to 40 occasions. PSIC never objected to that practice.

Jacob had instructed AMZ representatives to use the producer code plus two random numbers as a temporary policy number on an EOI to use it as a binder. PSIC did not require AMZ to send it a copy of an EOI.

For escrow transactions, AMZ would obtain information from the escrow holder, issue and fax the EOI to the escrow, and **716 send the application to the insured. Once AMZ received the signed application from the insured and the premium payment from escrow, AMZ would forward them to PSIC. If a signed application and premium payment were sent to PSIC within 15 days of the date of the EOI, then PSIC would issue a permanent policy effective retroactively to the date of issuance of the EOI.

If, after the EOI was issued, the premium was not paid or a signed application was not received by PSIC within 15 days, AMZ was authorized by PSIC to attempt to cancel the EOI by following certain procedures. Jacob instructed AMZ representatives to cancel an EOI by stamping the word "void" on the EOI issued in PSIC's name when the premium payment was not received within 15 days of the date the EOI was issued.

III.AMZ Issues an EOI in Accordance with PSIC's Authorization and Instructions.

The Mustains' unsigned loan application provided all the information AMZ needed to bind coverage with PSIC. Torres prepared an EOI, using the producer code for AMZ plus two randomly selected numbers for the policy *410 number. By using the EOI to bind coverage before receiving the premium payment and the signed application, and in assigning a policy number using AMZ's producer code, Torres was following instructions given by Jacob of PSIC for binding coverage in escrow transactions.

The EOI stated, "[t]his is evidence that insurance as identified below has been issued, is in force, and conveys all the rights and privileges afforded under the policy." The EOI identified the insurer as PSIC, the insureds as the Mustains, the property insured by address, the nature and limits of coverage, the amount of the deductible, the name of the AMZ representative, the amount of the annual premium, and the effective date of coverage.

Torres sent the EOI with a premium invoice to Vu within a few hours of her request for insurance. Based on the EOI, Vu believed homeowner's insurance on the Mustains' home was in place. Although Torres testified he prepared an insurance application, dated it October 5, 2005, and mailed it to the Mustains with a note to sign and return the application as soon as possible, Cheryl Mustain testified the Mustains never received the insurance application or a premium invoice.

Vu sent a copy of the EOI to Mrozek at Chicago Title. Mrozek had seen EOI's issued by AMZ naming PSIC as the insurer five to 10 times and believed AMZ had authority to prepare and...