Gabrielson v. Warnemunde

• Citation: 443 N.W.2d 540
• Decision Date: 04 August 1989
• Docket Number: No. C6-88-1011,C6-88-1011
• Parties: Timothy D. GABRIELSON, et al., Respondents, v. James L. WARNEMUNDE, d/b/a Warnemunde Insurance Agency, Petitioner, Appellant.
• Court: Supreme Court of Minnesota (US)

Page 540

443 N.W.2d 540

88 A.L.R.4th 237

Timothy D. GABRIELSON, et al., Respondents, v. James L. WARNEMUNDE, d/b/a Warnemunde Insurance Agency Petitioner, Appellant.

No. C6-88-1011.

Supreme Court of Minnesota.

Aug. 4, 1989.

Syllabus by the Court

An insurance agent owed no duty of care to the insured, at the time a homeowner's policy was renewed, to inquire into whether the insured had acquired new property which would not be covered. No special circumstances exist in this case which would give rise to a duty of care to make inquiries or update the insurance policy at the time it was renewed.

Fred Jacobberger, James Fleming, Gilsdorf & Jacobberger, St. Paul, for petitioner, appellant.

Terence Meany, Leighton, Meany, Cotler, Enger & Seibel, Ltd., Austin, of counsel John Hagen, Minneapolis, for respondents.

Heard, considered and decided by the court en banc.

KEITH, Justice.

This case presents the issue of whether an insurance agent is under an affirmative duty to update an insurance policy at the time it is renewed or to inquire whether any changes have occurred to the insured's property which would affect coverage. We hold as a general matter that, absent special circumstances in the relationship with the insured, an insurance agent is not under such a legal duty. Because no special circumstances exist in the present case, we reverse the court of appeals and reinstate the trial court's grant of summary judgment in favor of the insurance agent.

Appellant, Timothy Gabrielson, was injured in an accident in 1982 involving a boat owned by Raymond LaCanne. Gabrielson first brought a personal injury action against LaCanne. LaCanne's homeowner's insurance policy did not cover the claim, and the parties settled the suit. LaCanne assigned to Gabrielson any claims which LaCanne might have against his insurance agent, James Warnemunde. In the present action Gabrielson claims that Warnemunde was negligent in servicing LaCanne's insurance policy.

The homeowner's insurance policy at issue was sold by Warnemunde to LaCanne in May 1978. These men had known each other since their school days but were not close friends. In 1975, Warnemunde purchased a small insurance agency and began selling insurance. LaCanne had previously used two other agents to place his homeowner's insurance, but he switched in 1978 because he wanted to help Warnemunde in his new business, and because Warnemunde could reduce the cost of his insurance. LaCanne continued to purchase his auto insurance through another agent. In the application for insurance, LaCanne indicated that the policy was not to apply to watercraft. At the time, LaCanne did not own a boat. The policy issued to LaCanne contained an exclusion of coverage of watercraft powered by motors exceeding 25 horsepower. LaCanne did not read the policy, and Warnemunde did not specifically advise him of the watercraft exclusion.

The homeowner's policy was renewed in successive years. Warnemunde in his deposition said that his practice was to visit insureds at the time of renewal to discuss the policy and make changes, if necessary. He said that part of his responsibility at the time a policy was renewed was to see if there were any changes to the insured's property. He also said that he would often inquire whether the insureds had acquired snowmobiles, which would require a special endorsement. It was his experience that insureds do not know what is in their policies.

In April 1982, LaCanne purchased a boat with a 60 horsepower motor. LaCanne never told Warnemunde about the boat and he later stated that Warnemunde had no reason to know that he had acquired a boat. LaCanne never inquired about insurance, assuming that the boat would already be covered by his homeowner's policy. One month after he purchased the boat, in May 1982, the policy was renewed. At that time Warnemunde did not ask LaCanne if he had obtained a boat. Warnemunde claims that he would have recommended insurance coverage for the boat if had he known of its existence.

In August 1982, the boating accident occurred which severely injured Gabrielson. In the present action, Gabrielson alleged that Warnemunde owed a legal duty to LaCanne "to review his policy coverage at the time of renewal to determine whether or not the policy covered those items of property owned by LaCanne; including watercraft with motors in excess of 25 hp." The complaint alleged that Warnemunde was negligent because he "failed to make inquiry as to any additions or changes in the ownership of property" by LaCanne.

The trial court granted summary judgment in favor of Warnemunde, ruling that he owed no legal duty to LaCanne to make periodic inquiries into whether his personal circumstances and insurance needs had changed. The court of appeals reversed, holding that summary judgment was inappropriate because under the undisputed facts of the case, "a jury could find Warnemunde breached his duty of care in servicing LaCanne's policy." Gabrielson v. Warnemunde, 430 N.W.2d 866, 870 (Minn.App.1988). We now reverse.

On appeal from a grant of summary judgment, the role of the court is to review whether genuine issues of material fact exist, and whether the trial court erred in its application of the law. Hunt v. IBM Mid Am. Employees Fed. Credit Union, 384 N.W.2d 853, 855 (Minn.1986). The only factual dispute in this case is whether Warnemunde made annual visits to LaCanne's home at the time the policy was renewed to see if any changes had occurred. For the purposes of the motion for summary judgment, Warnemunde accepted LaCanne's version of the facts and agreed that he did not make annual visits, but simply renewed the insurance policy in a perfunctory way. In the absence of any other material factual disputes, the trial court properly ruled that summary judgment was appropriate. ¹ We review the trial court's grant of summary judgment solely for errors of law.

The negligence in this case was alleged to have occurred in May 1982, when the insurance policy was renewed shortly after LaCanne purchased the boat. ² The precise question is whether an insurance agent has a legal duty to inquire about changed circumstances of his client and update the homeowner's policy at the time it is renewed.

The legal duty imposed on insurance agents is to exercise the skill and care which a "reasonably prudent person engaged in the insurance business [would] use under similar circumstances." Johnson v. Farmers & Merchants State Bank of Balaton, 320 N.W.2d 892, 898 (Minn.1982). An insurance agent's duty is ordinarily limited to the duties imposed in any agency relationship, to act in good faith and follow instructions. 16A J. Appleman, Insurance Law and Practice Sec. 8836, at 64 (1981). Absent an agreement to the contrary, an agent has no duty beyond what he or she has specifically undertaken to perform for the client. Farmers & Merchants, 320 N.W.2d at 898. Thus, the agent is under no affirmative duty to take other actions on behalf of the client if the typical principal-agent relationship exists. See Urie, 405 N.W.2d at 891; see also Appleman, supra, Sec. 8836, at 64-66 (no duty exists to advise the insured unless the agent has held himself out as a consultant or counsellor.) However, if "special circumstances" are present in the agency relationship, the insurance agent may possibly be under a duty to take some sort of affirmative action, rather than just follow the instructions of the client. See Urie, 405 N.W.2d at 889, 890 (a duty to "offer, advise or furnish insurance coverage" may arise from the "circumstances of the transaction and the relationship of the agent vis-a-vis the insured."); see also Osendorf v. American Family Ins. Co., 318 N.W.2d 237, 238 (Minn.1982) (admitted obligation to update insurance contract supported finding of negligence); Atwater Creamery Co. v. Western Nat'l Mut. Ins. Co., 366 N.W.2d 271 (Minn.1985) (facts may give rise to a duty to offer additional coverage).

Once a policy has been issued, the insurance agent has only a limited duty to update the insurance policy. The agent has no "ongoing duty of surveillance" or obligation "to ferret out at regular intervals information which brings policyholders within the provisions of an exclusion." Kashmark v. Western Ins. Cos., 344 N.W.2d 844, 847 (Minn.1984); Tollefson v. American Family Ins. Co., 302 Minn. 1, 5, 226 N.W.2d 280, 283 (1974). The insured bears the responsibility to inform the agent of changed circumstances which might affect the coverage of the insurance policy, because the insured is in a better position to communicate those changes than the agent could be expected to discover on his or her own initiative. See Tollefson, 302 Minn. at 6-7, 226 N.W.2d at 284.

The question of whether Warnemunde had a duty to inquire into possible changed circumstances of the insured is controlled by the Tollefson and Kashmark cases. Warnemunde received no information to put him on notice that...