Hellbaum v. Burwell and Morford

• Decision Date: 31 December 1969
• Docket Number: No. 55--40397--1,55--40397--1
• Citation: 463 P.2d 225,1 Wn.App. 694
• Parties: Donald HELLBAUM and Mary Etta Hellbaum, his wife, Plaintiffs-Respondents and Cross-Appellants, v. BURWELL AND MORFORD, a corporation, Defendant-Appellant and Cross-Respondent, and Gulf Insurance Company, a corporation, Defendant.
• Court: Washington Court of Appeals

Page 694

1 Wn.App. 694

463 P.2d 225

Donald HELLBAUM and Mary Etta Hellbaum, his wife Plaintiffs-Respondents and Cross-Appellants, v. BURWELL AND MORFORD, a corporation, Defendant-Appellant and Cross-Respondent and Gulf Insurance Company, a corporation, Defendant.

No. 55--40397--1.

Court of Appeals of Washington, Division 1, Panel Two.

Dec. 31, 1969.

Lycette, Diamond & Sylvester, Earle W. Zinn, Seattle, for appellant.

Reed, McClure & Moceri, Roy J. Moceri and William R. Hickman, Seattle, for respondent.

HOROWITZ, Acting Chief Judge.

Plaintiffs sued defendant corporation Burwell and Morford (Burwell), a mortgage broker and insurance agent, for damages caused by Burwell's failure to provide adequate fire insurance on plaintiffs' house. Defendant appeals from a judgment entered upon a jury verdict for the plaintiffs contending that the evidence is insufficient to warrant any such judgment and that alternatively defendant is entitled to a new trial.

We must assume the truth of the plaintiffs' evidence and all reasonable inferences therefrom and interpret the evidence below most strongly against the defendant in a light most favorable to the plaintiffs. Leach v. Ellensburg Hosp. Ass'n, 65 Wash.2d 925, 931, 932, 400 P.2d 611 (1965). Applying this rule, there was substantial evidence as follows:

Burwell conducts both a mortgage brokerage and insurance agency business. To help service its insurance agency business, Burwell had a blanket insurance contract with Gulf Insurance Company (Gulf) insuring Burwell and its designated owners against fire loss. Gulf's contract required Burwell to write insurance on the basis of 100% Of replacement cost. Extension of fire insurance coverage under this blanket policy was initiated by request from Burwell's mortgage department to its insurance department. The latter department then issued a certificate of insurance, a copy of which went to the mortgage department and another to Gulf. However, no copy was sent to the customer.

Prior to April 15, 1966, during the course of preliminary conversations, plaintiffs sought to obtain a mortgage loan of $27,000 through Burwell with which to help pay for the construction of thier new home. On April 15, 1966, they executed and delivered to Burwell various Burwell form instruments, including a mortgage loan application dated March 15, 1966, Instructions to Disburse Loan Proceeds, Contractor's Estimate and Bid executed by the contractor, and plans and specifications of plaintiffs' proposed home.

The mortgage application executed by the plaintiffs as proposed mortgagors provided that mortgagors would deliver fire insurance policies to Burwell in at least '$_ _ amount' and that during the continuance of the loan, mortgagors would notify Burwell as the policies expired to renew the same in companies of mortgagors' selection. The blank was not filled in. The Instructions to Disburse Loan Proceeds provided that upon completion and during continuance of the loan, Burwell would notify plaintiffs, as policies expired, to renew all fire insurance policies 'the amount carried to be not less than the balance due and owing.' The Contractor's Estimate and Bid form, in the space provided for the insertion of a specific bid amount, was filled in by the word 'open.' Furthermore, there was a notice on the form that the construction was on a 'cost plus--fixed fee' basis.

With reference to obtaining fire insurance coverage, plaintiff husband testified:

Q Was any statement made to you by either Jane Epps or Mr. McKown (Burwell's representatives) with reference to insurance under the construction?

A Yes.

Q What was the substance of what they said?

A Insurance should be taken out and that they would provide the insurance. It was called builder's risk.

Q Did you indicate to them that you would agree to have them take it out?

A Yes.

He also testified that 'At the time we made out our mortgage, we did say it would change' and that 'At the time of the loan, it was our understanding Burwell and Morford were going to be our insurance representatives.' Burwell's representative, Mr. McKown, testified that when Burwell made a mortgage loan on new construction, fire insurance thereon was important because 'we have an interest in the property * * * And also to protect' our 'customer's interest.' We also testified that Burwell advised the customer of required fire insurance called Builder's Risk; that if the borrower had no preference, Burwell would arrange the insurance, and that it so advised the borrower.

Burwell initially, through Mr. McKown, determined that the face amount of the policy should be $31,000 and placed the policy for that amount with Gulf. Later, about July 7, 1966, it sent plaintiffs' written notice of the insurance premium disbursement in the sum of $44.99. Mr. McKown determined the amount of fire insurance coverage based upon the original plans and specifications delivered on April 15, 1966. Plaintiffs informed Burwell that extensive changes were being made in the plans. Subsequently, a second and third set of plans were prepared showing substantial changes. At Mr. McKown's request the contractor brought the changed plans to Mr. McKown and discussed them with him. Mr. McKown made inspection trips to the plaintiffs' premises on May 2, June 3 and July 7, 1966. He testified that the changes under construction were of sufficient substance to be apparent upon reasonable inspection. Burwell at no time notified the plaintiffs of the amount of fire insurance coverage or of the necessity of increasing the initial amount to reflect the increased cost made necessary by the changes in construction; nor did plaintiffs tell Burwell what the amount of the fire insurance should be nor inquire of Burwell as to the amount of fire insurance placed even after receiving notice of the $44.99 premium disbursed by Burwell; nor did plaintiffs notify Burwell of the increased cost resulting from the changes in the plans, nor request Burwell to increase whatever amount of fire insurance coverage had been originally placed.

Plaintiff husband testified that based on conversations with Burwell's representative prior to plaintiffs' receipt of notice of the insurance premium disbursement by Burwell in the sum of $44.99 he 'understood builder's risk was an escalating type of policy * * * the amount of fire insurance would go up with the construction.' and he assumed he 'would be fully protected from the insurance.' Plaintiffs relied on Burwell to fulfill Burwell's promise to protect plaintiffs' interest by fire insurance. Accordingly, plaintiffs did not place any fire insurance or additional fire insurance with anyone else. There is no claim that fire insurance to protect the plaintiffs' interest in an amount equal to replacement cost of their home could not have been obtained from Gulf or other insurer.

Plaintiffs' house was totally destroyed by fire on July 25, 1966. When plaintiffs discovered that Burwell had provided insufficient fire insurance protection to cover their cost of construction, they sued Burwell and the insurer, Gulf. After trial commenced, Gulf paid the amount of fire insurance called for by its policy and the trial continued against Burwell. The parties stipulated at trial that the amount of the fire loss was $41,480.56. The jury returned a verdict for the plaintiffs in the sum of $11,667.24, this sum representing the difference between the stipulated amount of the loss and the policy proceeds paid by Gulf. Judgment was entered on the verdict, the trial court over plaintiffs' objection refusing to add interest on that amount from the date of fire loss.

Burwell contends that the trial court erred in denying Burwell's challenge to the sufficiency of the evidence, its motion for directed verdict for the defendant, and its motion after verdict for judgment notwithstanding the verdict. Plaintiffs contend that if there is substantial evidence supporting the judgment on any theory, the trial court should be sustained. We agree. Wick v. Irwin, 66 Wash.2d 9, 400 P.2d 786 (1965). We turn, therefore, to a consideration of the theories of liability relied on by the plaintiffs, namely, breach of contract, negligence and promissory estoppel.

There was substantial evidence that plaintiffs and Burwell entered into an oral agreement whereby Burwell undertook to obtain fire insurance to protect plaintiffs' interest in their home property. Defendant's failure so to do made defendant liable for damages for breach of contract. Graddon v. Knight, 138 Cal.App.2d 577, 292 P.2d 632 (1956); Painter v. Twinsburg Banking Co., 84 Ohio App. 418, 87 N.E.2d 502 (1949). ¹ Defendant contends, however, that there is no contract because the parties had not agreed upon the specific amount of the insurance to be carried. The contention must be rejected. It is true that the specific amount was not agreed upon but, in effect, a formula for determining that amount was agreed upon. The jury could have found from the evidence that Burwell promised to provide fire insurance coverage from Gulf or another insurer in an amount equal to the replacement cost of the plaintiffs' home in order to protect 'our customer's interest'. Such a promise is even more definite than a promise to provide 'adequate insurance' which was held sufficient in Graddon v. Knight, Supra. This is especially true in the case of an insurance agent under the duty to exercise reasonable care next discussed. See Nelson v. Smith, 140 Wash. 293, 248 P. 798 (1926).

There was substantial evidence that Burwell was liable for negligent failure to provide adequate insurance after undertaking so to do. An insurance agent is liable to its principal for negligent performance of a duty undertaken by the agent to obtain insurance. Elam v. Smithdeal Realty & Ins. Co., 182 N.C. 599, 109 S.E. 632 (1921), 18 A.L.R. 1210. This rule is but an application of the general rule rendering an agent liable to its principal for negligent...