G. T. S. Co., Inc. v. Russell, Gleason & Van Rooy, Inc.
| Decision Date | 07 September 1978 |
| Citation | 148 Cal.Rptr. 786,84 Cal.App.3d 626 |
| Court | California Court of Appeals Court of Appeals |
| Parties | G. T. S. CO., INC., a corporation and Gerald T. Sullivan dba G. T. S. Co., Plaintiffs and Respondents, v. RUSSELL, GLEASON & VAN ROOY, INC., a corporation, T. L. O'Loughlin and W. C.Van Rooy, Defendants and Appellants. Civ. 52019. |
Jones & Wilson and James T. Hudson, Jr., Los Angeles, for defendants and appellants.
Ball, Hunt, Hart, Brown & Baerwitz and Clarence S. Hunt, Long Beach, for plaintiffs and respondents.
Defendants Russell, Gleason & Van Rooy, Inc. ("RGV"), Thomas O'Loughlin ("O'Loughlin"), and W. C. Van Rooy ("Van Rooy") appeal from a judgment holding them liable for negligently handling the insurance account of plaintiff G.T.S. Co., Inc. ("G.T.S.").
Plaintiff G.T.S. is a Long Beach, California, corporation engaged in the business of constructing public works projects. Prior to its incorporation in 1970, the business of G.T.S. was conducted by its president, Gerald T. Sullivan, as a sole proprietorship. When Sullivan began his business in 1967, he asked defendant O'Loughlin then with the insurance agency of Walker & Co., to handle all of his bonding and insurance requirements. Thereafter, and continuously until the middle of 1973, O'Loughlin handled all such matters for Sullivan and G.T.S. In 1970, O'Loughlin became associated with defendant RGV, a Glendale, California, insurance agency.
RGV operated as both an insurance broker and an insurance agent. One of the several insurance companies from whom RGV was authorized to act as agent was The Hartford Fire Insurance Company (hereinafter "Hartford"); a "Notice of Appointment of Agent" indicating this relationship was on file with the insurance commissioner pursuant to Insurance Code section 1704. Sullivan was advised by O'Loughlin that RGV had an agency agreement with Hartford and he was aware of the fact that RGV employees could countersign insurance policies as agents for Hartford. Sullivan also knew, however, that RGV acted in an agency capacity for other insurance companies as well and his relationship with O'Loughlin and RGV did not depend upon their obtaining insurance from any particular company. But all else being equal, Sullivan preferred to be covered by Hartford.
Through O'Loughlin, RGV procured for G.T.S. a general and automobile liability policy, a workmen's compensation policy, and an inland-marine policy, all from Hartford or one of its affiliated companies; RGV also obtained for G.T.S. an umbrella policy from the Chicago Insurance Company.
The standard practice followed by Sullivan when he wanted to bid on a public construction project was to first give O'Loughlin certain information such as the name of the project, the type of work, estimated total contract price, and time of completion which would then enable O'Loughlin to obtain an appropriate "bid bond." If G.T.S. was the successful bidder, O'Loughlin would then obtain any required performance or labor and material bonds, as well as arrange for any insurance coverage called for by the contract. Sullivan was not an expert in insurance matters and therefore left it to O'Loughlin to obtain "complete coverage against all losses." O'Loughlin was kept informed of the progress of various jobs which G.T.S. had under contract through periodic financial and status reports, as well as through weekly meetings with Sullivan.
One of the types of insurance generally called for by the construction contracts was builder's risk coverage, also called course of construction coverage, which insured the project against fire and other loss until it was completed and accepted by the owners. According to Sullivan, O'Loughlin advised him from the very first time that builder's risk insurance was required on a job, and on other occasions, that, in order to take advantage of the best premium rates, policies of that type should be obtained for periods of one year and then cancelled if the particular project was completed in less time than that. At trial, O'Loughlin and defendant Van Rooy, a principal of RGV, denied that it was RGV's practice to write builder's risk policies for any particular term.
With respect to builder's risk policies, RGV had a "tickler" system of renewal to insure that coverage did not lapse before a project was completed. Under the system, a copy of the invoice for each policy would be placed into an expiration file and then pulled approximately 60 days before the policy's expiration date and referred to the agent responsible for the policy. About two weeks before expiration, the insured would be contacted to determine whether or not the particular job was completed, unless the responsible agent was already aware of the fact. If the job was finished, no further action was taken; if the job was uncompleted, the policy would be renewed.
RGV obtained three builder's risk policies for G.T.S. The first of these was for an Arizona construction project known as the Chinle School job, which was to commence on February 22, 1972 and be completed within six months. Gordon Schmidt, an employee of RGV who handled the mechanics of the issuance and renewal of policies, obtained a one-year builder's risk policy for the project. In the spring of 1973, RGV procured builder's risk insurance for G.T.S. to cover a project known as the Hollywood Bowl Tunnel Entrance, which job was to begin on March 26, 1973 and end on June 30, 1973. Schmidt initially attempted to obtain a one-year policy from Hartford, but Hartford declined the application. Schmidt then applied to the St. Paul Fire and Marine Insurance Company for a one-year policy; at the request of St. Paul, however, and with the permission of someone at G.T.S., Schmidt eventually agreed to a three-month policy from that company.
The third builder's risk policy obtained by RGV for G.T.S., and the subject matter of the instant litigation, was intended to supply coverage for another Arizona construction project, known as the Scottsdale-Vista del Camino job. The project, a one-story building for the City of Scottsdale, had an inception date of December 18, 1972 and was to be completed within 210 days. As was the practice, G.T.S. furnished O'Loughlin with the information necessary to obtain the appropriate bonds and insurance. O'Loughlin, however, never submitted any information to RGV's Schmidt concerning the project.
But on December 12, 1972, Schmidt received a phone call from Skip Johnson, an employee of G.T.S.'s Phoenix office, who informed him of the need for builder's risk insurance on the Scottsdale job. Schmidt's notes of the conversation reflect that the project was to be of six month's duration; 1 Johnson did not request any particular policy period, however. Following the phone call, Schmidt, on his own initiative, applied for a builder's risk policy from Hartford, requesting coverage from December 18, 1972 to June 18, 1973. Schmidt intended at that time to renew the policy if the project was not completed within six months.
The policy which was eventually issued by Hartford to cover the Scottsdale job described the period of coverage as follows:
12 18 72 06 18 73 1
----------------------- ------------------------ -----
Inception (Mo. Day Yr.) Expiration (Mo. Day Yr.) Years
When Schmidt reviewed the policy shortly after RGV received a copy on January 22, 1973, he noted that the figure "1" appeared over the line for "years," but felt that nothing was wrong since he knew it to be the practice of Hartford to so designate a policy whenever it was issued for a period of one year or less. All invoices for the policy indicated a coverage period of December 18, 1972 to June 18, 1973.
Copies of the builder's risk policy for the Scottsdale job were sent to both Sullivan and Skip Johnson, but neither examined it. Although O'Loughlin knew that Schmidt had received a call from Johnson concerning the need for coverage on the Scottsdale project, he disclaimed any knowledge as to the job period or the term of the policy which was eventually issued.
Schmidt received a copy of the invoice for the Scottsdale policy from the renewal file approximately 60 days prior to the policy's expiration date of June 18, 1973; he then diaried the invoice so that he would remember to determine approximately two weeks before that date whether the project had been completed. It appears that O'Loughlin was never informed that the policy was nearing expiration.
On May 25, 1973, the board of directors of G.T.S. decided to accept the bonding and insurance program presented by another agent, Mr. Friis, and so informed RGV by letter dated that same day. Thereafter, Mr. Friis began the process of replacing some of the policies which had been procured for G.T.S. by RGV.
On June 5 or June 6, 1973, defendant Van Rooy met with Sullivan in an attempt to convince him to leave at least the insurance portion of the program with RGV. Sullivan stated at the meeting that Mr. Friis had presented a very good insurance program and that G.T.S. had decided to go with him on it. Sullivan also instructed Van Rooy that existing policies were to run to expiration date, except for those which RGV was specifically told to cancel. At a second meeting held five or six days later, which this time included O'Loughlin, essentially the same discussion took place. At no time during the June meetings, however, was the subject of builder's risk policies discussed, and neither Sullivan, O'Loughlin, or Van Rooy was then aware that the policy on the Scottsdale project was to expire on June 18.
Following the first meeting with Sullivan, Van Rooy instructed Schmidt not to renew any G.T.S. policies. Schmidt thereupon wrote "Do not renew" on the renewal invoice for the Scottsdale builder's risk policy and no further action was taken on it.
On August 14, 1973, when the...
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