Hickox v. Stover

• Decision Date: 28 July 1989
• Citation: 551 So.2d 259
• Parties: I.N. HICKOX, etc., et al. v. Ladson STOVER, et al. 87-652.
• Court: Alabama Supreme Court

Page 259

551 So.2d 259

I.N. HICKOX, etc., et al. v. Ladson STOVER, et al.

87-652.

Supreme Court of Alabama.

July 28, 1989.

Rehearing Denied Sept. 15, 1989.

G. Sage Lyons, J.P. Courtney, III and Charles L. Miller Jr. of Lyons, Pipes & Cook and Robert T. Cunningham, Jr. of Cunningham, Bounds, Yance, Crowder & Brown, Mobile, for appellants.

Fred W. Killion, III and William W. Watts of Reams, Vollmer, Philips, Killion, Brooks, Schell, P.C., Mobile, for appellees, Ins. Art, Inc. and Ladson Stover.

Vincent A. Noletto, Jr. and Thomas H. Nolan, Jr., of Brown, Hudgens, Richardson, Mobile, for appellee, Sosby & Associates, Inc.

PER CURIAM.

This is an appeal from a summary judgment in favor of the defendants, Ladson Stover; Sosby & Associates, Inc. ("Sosby"); and Insurance Art, Inc., in the plaintiffs' action for fraudulent misrepresentation and negligent and wanton failure to procure adequate insurance. ¹ At issue in this appeal is whether the claims are barred by the statute of limitations, and whether the plaintiffs presented sufficient evidence to withstand the summary judgment motions. We affirm in part and reverse in part.

The Citronelle Unit Operators' Committee ("Unit"), and the Unit Manager, I.N. Hickox, filed this action on October 31, 1984, after their insurer, the Insurance Company of North America ("INA"), refused to pay the replacement cost of oilfield equipment and inventory that was destroyed by a lightning fire in one of the tank batteries on June 12, 1984. INA paid only one third of the $300,000 loss, because of a co-insurance penalty in the policy. The complaint alleged that the defendants had fraudulently represented, with intent to deceive or with reckless disregard of the facts, that the Unit's coverage under the INA policy was equal to its previous coverage with The Travelers Indemnity Company ("Travelers"). The complaint alleged, in addition, that the defendants had negligently or wantonly failed to procure full, complete and adequate insurance for the plaintiffs.

In 1982, the chairman of the unit, Bart Chamberlain, ordered a review of the insurance policies carried by the Unit and of the premiums that it was paying. At that time, the Unit insured its oilfield equipment and inventory with Travelers through W.K.P. Wilson and Sons Agency in Mobile, Alabama. A friend of Chamberlain's recommended to him that Ladson Stover, an agent employed by Sosby and by Insurance Art, could provide the Unit with coverage at a lower premium. Chamberlain met with Stover, and then referred Stover to Hickox. There is evidence that Hickox provided Stover with access to the Unit's insurance records, including the Travelers policy, and that Stover reviewed these records.

The Unit produced the following evidence that Stover represented that he could provide insurance identical to the Unit's coverage under its policy with Travelers: On March 16, 1983, Stover sent a telex to Chamberlain's secretary, Peggy Bakewell, stating in pertinent part: "Coverage will be equal to the existing coverage as provided by The Travelers Indemnity Company." On March 17, 1983, Stover wrote to Chamberlain, stating: "This is to confirm our telex to Mrs. Peggy Bakewell, March 16, 1983, that the coverage we are offering through Central National is equal to the coverage provided by your existing carrier, The Travelers."

The Unit decided to buy insurance through Stover, and on March 31, 1983, Stover placed the Unit's coverage with Central National. The new policy went into effect on April 1, 1983, and the Unit's coverage with Travelers ceased that date. On July 20, 1983, the Central National policy was delivered to Hickox by mail. Because of the merger of Central National and INA, the Central National policy was replaced by an INA policy in April 1984. The INA policy continued the same coverage as the Central National policy.

There is evidence that the Central National and INA policies omitted a crucial endorsement found in the Travelers policy. The Unit contends that the Travelers policy contained two distinct endorsements specifying the basis upon which losses would be paid: a "Replacement Coverage Endorsement" and a "Replacement Coverage Agreed Amount Endorsement" ("Agreed Amount Endorsement"). The Central National and INA policies contained only the Replacement Coverage Endorsement, and not the Agreed Amount Endorsement. The absence of the Agreed Amount Endorsement was INA's basis for not paying the Unit full replacement cost for the loss.

The Replacement Coverage Endorsement is the insurer's agreement to cover the replacement cost of the property. This endorsement typically contains a co-insurance provision, which requires the insured to maintain coverage for at least 90% of the replacement cost of the entire property insured. To the extent that coverages falls below 90% of the replacement cost of all the property insured, the insured is a co-insurer of any loss sustained. For example, if the replacement cost of the insured property were $100,000, and the insured maintained Coverage for $45,000, then it would bear half the cost of any loss. The co-insurance clause discourages the insured from undervaluing the property. Without the clause, the insured might purchase less than full coverage, on the assumption that any loss suffered would not be a total loss.

The Travelers, Central National, and INA policies each contained a co-insurance provision in the Replacement Coverage Endorsement. There is evidence that the Travelers policy contained, in addition, an Agreed Amount Endorsement, which provided as follows:

"It is agreed that until [the end of the policy term] or, if this insurance expires prior to said date, until the expiration of this policy, that the amount of $5,166,920.00 stipulated under Item 1 of paragraph E of the Replacement Coverage Endorsement attached to this policy represents 90% of the value of the property covered thereunder for the purposes of the provisions of said endorsement."

This provision stipulates the replacement value of the insured property, and, essentially negates the effect of the co-insurance provision. If the Travelers policy contained the Agreed Amount Endorsement, then, under that policy, the Unit would not have been a co-insurer of the loss.

On April 4, 1983, Stover sent Hickox a letter advising him that the Central National policy contained a co-insurance provision requiring that the property be insured to 90% of its value. The letter provided in pertinent part:

"I think that you should look at your equipment values as the value of $5,166,922.00 is approximately the same as it has been for the last three years. The policy has a 90% co-insurance provision which means the values are to be 90% of replacement. Please have someone check these values so that there will not be a problem if there is a loss."

There is also evidence that Stover telephoned the Unit to inform it of the co-insurance provision in the policy. Hickox claims that he did not understand the meaning of the letter, and that, therefore, he did not follow up on Stover's suggestion in the letter.

The trial court granted the defendants' summary judgment motions on the fraud claim on the grounds that it was barred by the statute of limitations and that there was not sufficient evidence in support of the claim. The statutory period of limitations for fraud actions, when this action was commenced, was one year. Code 1975, § 6-2-39(a)(5) (now repealed). In addition, Code 1975, § 6-2-3, provided at that time:

"In actions seeking relief on the ground of fraud where the statute has created a bar, the claim must not be considered as having accrued until the discovery by the aggrieved party of the fact constituting the fraud, after which he must have one year within which to prosecute his action."

The defendants argue that, under § 6-2-3, we must affirm the summary judgment on the fraud claim, because this Court has interpreted that section to mean that the facts constituting fraud are deemed discovered when they should have been discovered. They contend that, as a matter of law, Hickox should have discovered the absence of the Agreed Amount Endorsement from the Central National policy when he received the April 4, 1983, letter from Stover. Hickox, on the other hand, argues that he did not understand the letter and did not appreciate the significance of the insurance endorsements, and that, therefore, he is excused from failing to discover the difference between the policies until the loss occurred.

A. Statute of Limitations: Fraud Claim

We have held that fraud is discovered as a matter of law for purposes of the statute of limitations when one receives documents that would put one on such notice that the fraud reasonably should be discovered. Nichols v. North American Equitable Life Assurance Co., 502 So.2d 375, 377 (Ala.1987); Retail, Wholesale & Department Store Employees Union, Local 453 v. McGriff, 398 So.2d 249 (Ala.1981).

Again, the pertinent sequence of events is: INA policy took effect April 1, 1983; policy sent to Hickox during the summer of 1983; loss sustained June 1984; and suit filed October 1984. The defendants argue that the April 4, 1983, letter and the policy itself constituted documents that should have led to the plaintiff's discovery of the fraud as a matter of law. We disagree.

The April 4 letter--"I think that you should look" and "have someone check"--is too vague to warrant a finding that the plaintiffs' discovery of the fraud was unreasonably late as a matter of law. Nor does the receipt of the policy on July 20, 1983, under these circumstances, warrant a finding that the fraud claim is barred as a matter of law. In Alabama Farm Bur. Mut. Cas. Ins. Co. v. Griffin, 493 So.2d 1379 (Ala.1986), a case involving circumstances similar to those involved in this case, we stated:

"The plaintiffs' evidence indicates they discussed with Mullen the coverage which they wanted, including full coverage on the horse...