County Forest Prod. v. GREEN MT. AGENCY

• Decision Date: 17 August 2000
• Citation: 2000 ME 161,758 A.2d 59
• Parties: COUNTY FOREST PRODUCTS, INC. v. GREEN MOUNTAIN AGENCY, INC., et al.
• Court: Maine Supreme Court

758 A.2d 59

2000 ME 161

COUNTY FOREST PRODUCTS, INC. v. GREEN MOUNTAIN AGENCY, INC., et al.

Supreme Judicial Court of Maine.

Argued April 5, 2000.

Decided August 17, 2000.

Peter J. DeTroy, Esq., (orally), Russell B. Pierce Jr., Esq., Norman, Hanson & DeTroy, LLC, Portland, for plaintiff.

William W. Willard, Esq., (orally), Ronald W. Schneider Jr., Esq., Bernstein, Shur, Sawyer & Nelson, P.A., Portland, for Green Mountain Agency.

Phillip D. Buckley, Esq., (orally), Brett A. Singer, Esq., Rudman & Winchell, LLC, Bangor, Samuel K. Rudman, Esq., Lambert, Coffin, Rudman & Hochman, Portland, Carol A. Griffin, Esq., Morrison, Mahoney & Miller, LLP, Boston, MA, for Sphere Drake and Terra Nova.

Frederick J. Badger, Esq., (orally), Mary F. Kellogg, Esq., Richardson, Whitman, Large & Badger, P.C., Bangor, for F.A. Peabody Co.

Panel: WATHEN, C.J., and CLIFFORD, DANA, SAUFLEY, ALEXANDER, and CALKINS, JJ.

CALKINS, J.

[¶ 1] Green Mountain Agency, Inc., Sphere Drake Underwriting Management, Ltd., and Terra Nova Insurance Company, Ltd., appeal the judgment of the Superior Court (Aroostook County, Pierson, J.) in favor of County Forest Products, Inc., on its complaint and F.A. Peabody Company on its cross-claim. County Forest suffered a fire loss and filed this action against the insurance agencies and insurers alleging various claims arising from the nonpayment of the full amount of the fire insurance. Sphere Drake and Terra Nova, the insurers, appeal: (1) the court's conclusion that Green Mountain is their agent with apparent authority to act for them; (2) the court's reformation of the insurance contract; (3) the court's finding that the insurers and Green Mountain are estopped from denying increased coverage limits; (4) the award of consequential damages to County Forest; and (5) the summary judgment in favor of County Forest affirming an appraisal award. Green Mountain appeals: (1) the finding that it is secondarily liable for the amount owing under the insurance policy; and (2) the finding of joint and several liability for the consequential damages. Both the insurers and Green Mountain appeal: (1) the refusal of the court to reduce the judgment against them by the amount of the settlement between County Forest and Peabody; and (2) the award of damages to Peabody on Peabody's cross-claim. County Forest appeals the denial of its motion to add Galen Porter, Jr., its owner, as a plaintiff in the action. We affirm the judgment for County Forest in all respects except that we remand to the Superior Court to determine whether the judgment should be reduced by the amount of County Forest's settlement with Peabody. We vacate the judgment for Peabody on the cross-claim and remand the cross-claim to allow the Superior Court to resolve the apparent inconsistency arising from its judgment to Peabody on the cross-claim and its denial of Green Mountain's request to reduce the judgment to County Forest.

I. PARTIES

[¶ 2] The plaintiff is County Forest Products, Inc., a Maine corporation that operated a sawmill, a planing mill, and sold dimensional lumber at its place of business in Crystal. Galen Porter, Jr., is the president and sole owner of County Forest.

[¶ 3] F.A. Peabody Company, one of the defendants, is a Maine corporation with an office located in Houlton. It is in the business of selling and arranging for insurance. Peabody began obtaining insurance for Porter's businesses in the mid-1980s. Peabody obtained the fire insurance policy for County Forest at issue in this case. The insurance agent employed by Peabody who obtained the insurance for County Forest is Scott Austin.

[¶ 4] Another defendant is Green Mountain Agency, Inc., a surplus and excess lines agency, which means that it procures insurance for customers with specialized risks who might not otherwise be able to obtain coverage through standard insurers. Green Mountain has an office in Vermont. In late 1994 and early 1995, Peabody arranged for the issuance of a fire insurance policy for County Forest through Green Mountain. The underwriter at Green Mountain with whom Peabody had contact is Thomas Palumbo, the vice-president of Green Mountain. Joseph Palumbo is the president of Green Mountain.

[¶ 5] Green Mountain arranged to have two insurers, with whom it had contracts, issue the fire insurance policy for County Forest. The two insurance companies, Sphere Drake Underwriting Management, Ltd., and Terra Nova Insurance Company, Ltd., are defendants, and both are located in England. Green Mountain dealt with the two insurers through an intermediary, Warren, Exall & Darby, located in England, who is not a party to this action.

II. SUMMARY OF FINDINGS AND PROCEEDINGS

[¶ 6] County Forest sets forth two claims in its complaint against the insurers, Sphere Drake and Terra Nova. In count I it seeks reformation of the insurance contract, and in count II it claims that the insurers breached the insurance contract and the covenant of good faith and fair dealing. In count III County Forest claims that Green Mountain assumed a duty of obtaining an increase in the policy limits and breached that duty. In counts IV through VI the complaint alleges that Peabody breached its fiduciary duty as agent of County Forest; breached its contract with County Forest to procure insurance; and was negligent. The court allowed County Forest to add count VII, an unfair claims practice count, pursuant to 24-A M.R.S.A. § 2436 (1990), amended by P.L.1999, ch. 256, § I-1, against all defendants. In response, the insurers counterclaimed alleging that the appraisal award should be vacated because the appraisal process was invalid. Peabody filed a cross-claim against Green Mountain and the insurers alleging that Green Mountain was negligent or breached a contract in failing to procure increased insurance coverage, and that the insurers, as principals, were liable for Green Mountain's negligence and breach of contract.

[¶ 7] The matter was tried to the court without a jury. As is set forth below, County Forest settled with Peabody before trial, but Peabody remained in the case to pursue its cross-claim against the insurers and Green Mountain. The court disposed of the appraisal award issue on a summary judgment motion immediately before trial.

[¶ 8] The court filed a thorough decision with detailed findings. The findings begin with a statement that County Forest proved that both the insurers and Green Mountain were guilty of "delay, incompetence, obfuscation, gross negligence, more delay and deliberate deception." The findings end with the "inescapable conclusion that the conduct of the insurers and [Green Mountain] was egregious" and their "obfuscation and delay" were, in the end, "self-defeating."

[¶ 9] The facts, as found by the court, which led to the lawsuit are as follows. Peabody arranged with Green Mountain for fire insurance for County Forest's sawmill in Crystal. Green Mountain provided fire insurance coverage for County Forest for calendar year 1995 through two insurers, Sphere Drake and Terra Nova. In February 1995, soon after the insurance policy had been issued, County Forest requested Peabody to obtain an increase in the liability limits of the policy. The request was to raise the limit on the sawmill building from $300,000 to $510,000, and to increase the limit on the contents of the sawmill building from $320,000 to $720,000. Stephen Austin of Peabody requested the increased coverage to Green Mountain through both a telephone call and a faxed document, dated February 14, 1995. Austin spoke with Thomas Palumbo, who told Austin that there "should be no problem, should be fine."

[¶ 10] On June 21, 1995, the sawmill was damaged by a fire. Green Mountain was promptly notified of the fire loss. It denied that the insurance limits had been increased. The court found that after the fire, "Green Mountain began to work backwards." Thomas Palumbo testified that he had told Austin during the February telephone conversation that he did not have the authority to handle the increased limits and that only Joseph Palumbo, the president of Green Mountain, had that authority. Joseph Palumbo testified that he denied coverage and wrote notes to that effect on the February 14 fax from Austin. Other testimony indicated that such notes were not on the fax at the time that Green Mountain was notified of the fire. In spite of the testimony of Joseph Palumbo that the coverage was denied, Thomas Palumbo testified that he intended to pursue the request for increased limits, but he needed more information from Peabody and that he attempted to obtain it. The court found that Green Mountain never sent a notice to Peabody or County Forest refusing or declining the requested increase in the policy limits, nor did it contact Peabody for additional information, or communicate in any way with Peabody about the request. During the February telephone conversation, Austin and Thomas Palumbo discussed other changes to the policy that are not at issue in this case. Green Mountain made those other changes to the policy.

[¶ 11] The trial court concluded that the testimony of the Palumbos was not credible and that Green Mountain either waited until after the fire to deny the increased coverage, or it "was grossly negligent in not pursuing coverage or issuing a written notice of denial of the increased coverage." The court determined that Green Mountain breached its duty to procure the requested increase in the policy limits and was estopped from denying the increased coverage.

[¶ 12] The trial court found that Green Mountain was an agent of the insurers, Sphere Drake and Terra Nova, with the apparent authority to bind the insurers. It held that Sphere Drake and Terra Nova are bound by the actions of Green Mountain and that the insurers are estopped from denying the increased coverage.

[¶ 13] After the fire, Green Mountain contracted with Claims Services of America to adjust County Forest's fire loss claim,...