Hartford Nat. Bank and Trust Co. v. United Truck Leasing Corp.

• Citation: 511 N.E.2d 637,24 Mass.App.Ct. 626
• Parties: HARTFORD NATIONAL BANK AND TRUST COMPANY v. UNITED TRUCK LEASING CORPORATION, Abrahms Agency, Inc., et al., 1 Third- Party Defendants.
• Decision Date: 01 October 1987
• Court: Appeals Court of Massachusetts

Page 637

511 N.E.2d 637

24 Mass.App.Ct. 626

HARTFORD NATIONAL BANK AND TRUST COMPANY v. UNITED TRUCK LEASING CORPORATION, Abrahms Agency, Inc., et

al., ¹ Third- Party Defendants.

Appeals Court of Massachusetts,

Norfolk.

Argued April 23, 1987.

Decided Aug. 21, 1987.

Further Appellate Review Denied Oct. 1, 1987.

Harold Meizler (Saul L. Benowitz, Boston, with him), for United Truck Leasing Corp.

Michael G. West, Boston, for Hartford Nat. Bank and Trust Co.

Before GREANEY, C.J., and CUTTER and KASS, JJ.

KASS, Justice.

In a purely technical sense this is an action on a promissory note, but the underlying quarrel concerns the right of an insurer to increase the premium charged in a binder and the obligations of an insurance broker to its customer. We sketch the pertinent facts, drawn from findings made by the trial judge, who sat without a jury, and fleshed out from the record before us.

United Truck Leasing Corporation (United), which operates out of Braintree, in 1979 had approximately 500 to 600 ² trucks under lease and on the road. Lessees insured about 300 or 400 of the trucks and United bought insurance for approximately 200 trucks. From 1970 to 1979, United insured with Aetna Casualty & Surety Company (Aetna) through a broker in West Hartford, Connecticut, Abrahms Agency, Inc. (the broker). Each January, Aetna issued a written binder with a provisional premium, i.e., the premium was subject to revision, the direction of which was always up. For 1979, United received the customary binder early in January of that year. The document bore the title "Premium Bearing Binder" and called for an "advance provisional premium" of $150,000. The document provided: "The premium for this binder will be credited against the deposit or Advance Policy Premium. If the premium for the policy exceeds the premium paid for this Binder the Named Insured shall pay the excess to the Company; if less the Company shall return the overpayment to such Named Insured."

Insurance matters were handled for United by Theresa Pelletier, its comptroller, office manager, and a stockholder. She understood that the advance provisional premium stated in the binder was invariably adjusted upward in the light of more complete data, such as the size of the fleet and the approval of new rates by the Massachusetts Commissioner of Insurance. On January 30th, 1979, United received and signed a "Premium Finance Agreement" under which it agreed to pay the $150,000 premium, plus finance charges of $7,313. That paper, prepared by Hartford National Bank and Trust Company (the bank), referred to the broker as the original creditor but was by its terms assigned to the bank and contained a promise of United to pay the indebtedness to the bank in ten equal installments of $15,731.31. ³

Upward adjustment euphemistically describes the 1979 premium ultimately charged by Aetna to United: $340,501. ⁴ Those ill tidings the broker passed on to United at a meeting with Pelletier and United's president on May 23, 1979. It was not the only bad news. In view of insurance losses in 1979 arising out of its coverage of United, Aetna had notified the broker that it would not renew United's coverage in 1980. The broker was made aware of this unwelcome information in March but delayed facing the music with its customer until May 23rd. During the interim the broker attempted to obtain insurance from some fifteen sources with which it had agency or brokerage arrangements. The broker did not try to place the insurance with a company that dealt directly with the customer and did not pay commissions, nor did the broker suggest any source with which United might deal directly.

What was to be done? The broker was able only to suggest paying Aetna's additional premium through execution of a supplementary premium finance agreement. If the full premium was not paid, Aetna would cancel the policy and United's uninsured vehicles would have to be off the road--an unpalatable prospect. United consulted with another insurance broker, Alexander & Alexander; it also consulted with its lawyer. The upshot was that United signed the additional premium finance agreement, as of May 23, 1979, promising to pay $181,383.05 in ten equal installments of $18,138.30. That is the second instrument upon which the Bank has sued.

By reason of the various counts in the main case, the counterclaims and the third-party action, twelve separate judgments were entered. The result was to require United to pay the bank $105,974.23, plus interest, on account of United's unpaid debt to the bank and $38,313.15 on account of the bank's legal fees, which paragraph 11 of the premium finance agreements hung on United as the purchaser of the insurance. United's various counterclaims and its third-party complaint were dismissed. Motions by United for a new trial and to amend pleadings to conform to the evidence were denied after hearing.

1. How binding the binder? United argues on appeal that Aetna was bound to insure United's truck fleet for a $150,000 premium, subject to adjustment only for facts not available to Aetna when the binder was prepared. ⁵ United was not an unsophisticated buyer of insurance. Apart from being represented by a broker, its comptroller and office manager, Pelletier, was experienced in buying insurance. United, therefore, was aware that "rates chargeable for motor vehicle policies in Massachusetts are subject to the vicissitudes of legislative and administrative regulation." Allston Fin. Co. v. Hanover Ins. Co., 18 Mass.App.Ct. 96, 98, 463 N.E.2d 562 (1984). ⁶ The Allston Finance case spoke to the duty of an insurance agent "to state the premium accurately within the limits of knowledge then available," ibid, and a similar duty, probably, rests with the insurer.

In Allston Finance, however, an actual insurance policy had issued. Here only a binder had issued and the binder expressly spoke of a provisional premium and the expectation that the policy would call for a different premium. The binder contract, a commercial document, is to be read in accordance with its terms and not in accordance with unexpressed terms which a party later wishes had been written into it. The purpose of a binder is to provide temporary insurance. 2 Couch, Insurance § 14.26 (2d ed. 1984). Aetna, under the binder, was liable, in consideration of the provisional premium, to insure United until Aetna issued a policy or refused coverage. It was not bound to what, by express terms and several years of usage with this customer, was a provisional premium. There was no evidence that Aetna took a particularly long time in determining its final premium or that it calculated that premium by other than standard criteria. ⁷

2. Whether the broker fulfilled its duty to its customer. In two respects, United claims, the broker did not exercise the reasonable skill and ordinary diligence which a customer may expect from an insurance broker. See Bicknell, Inc. v. Havlin, 9 Mass.App.Ct. 497, 500, 402 N.E.2d 116 (1980); 3 Couch, Insurance § 25.37 (2d ed. 1984). ⁸ First, United says, the broker failed to shop the market exhaustively enough; second, it delayed too long in informing United that Aetna would not provide insurance for 1980. The efforts by the broker to place United's insurance with fifteen other potential insurers in a tight market (leased vehicles were regarded as a high risk by the insurance industry) warranted the trial judge's conclusion that the broker had adequately explored alternative sources of insurance. The duty of making a diligent market search may be fulfilled if the agent tries to place the risk with one of the insurers for which the agent customarily acts. Rayden Engr. Corp. v. Church, 337 Mass. 652, 663, 151 N.E.2d 57 (1958). See also Beacon Indus., Inc. v. Walter Kaye Associates, Inc., 789 F.2d 172, 174 (2d Cir.1986).

Especially in view of Pelletier's relatively sophisticated knowledge of the insurance market, the broker was not obliged to advise United from what sources United might buy insurance directly, i.e., without intervention of a broker. See Rayden Engr. Corp., supra 337 Mass. at 663, 151 N.E.2d 57. Significantly, on its own initiative, United consulted with another broker, Alexander & Alexander, about alternatives to insuring with Aetna in 1979. One may infer from United's decision to pay Aetna's premium for 1979 that alternative sources of insurance were hard to come by.

As to the two-month delay (while the broker explored the market) in notifying United of Aetna's refusal to insure in 1980, it is sufficient to observe that no damage flowed from the delay. United obtained insurance from a direct source and, it appears, for a price lower than Aetna's.

3. The bank's status as a holder in due course. There is nothing to the argument that, merely because the broker used a premium financing form prepared and printed by the bank, the broker thereby became the bank's agent. The broker did not discuss premiums or any details of the transaction with the bank. Manifestly, the bank was acting as a money source--as banks do. It took the premium financing instruments for value, in good faith, and without notice of any defense; it was a holder in due course. See §§ 3-302 through 3-305 of the Uniform Commercial Code, as appearing in Conn.Gen.Stat. §§ 42a-3-302 through 305 (1981); Waterbury Sav. Bank v. Jaroszewski, 4 Conn.Cir. 620, 623-624, 238 A.2d 446 (1967).

4. The trial judge's findings. The findings are not a model of logical order, clarity, or detail. Wholesale reference by number to answers by Aetna and the broker to requests for admissions require much flipping back and forth in the record. When that exercise is completed, however, we are satisfied that the judge dealt...