Humiston Grain Co. v. Rowley Interstate Transp. Co., Inc.

Citation512 N.W.2d 573
Decision Date23 February 1994
Docket NumberNo. 92-1431,92-1431
PartiesHUMISTON GRAIN CO., Appellee, v. ROWLEY INTERSTATE TRANSPORTATION COMPANY, INC., Appellant. ROWLEY INTERSTATE TRANSPORTATION COMPANY, INC., Appellant, v. HUMISTON GRAIN CO., and Robert Greer, Appellees. HUMISTON GRAIN CO., Third-Party Appellee, v. James EARNEST d/b/a Earnest Insurance Agency, Third-Party Appellant.
CourtUnited States State Supreme Court of Iowa

Chris J. Scheldrup and Robert E. Konchar of Moyer & Bergman, Cedar Rapids, for appellant James Earnest d/b/a Earnest Ins. Agency.

James M. Heckman of Bauer & Heckman, P.C., Dubuque, for appellant Rowley Interstate Transp. Co., Inc.

Eric M. Knoernschild of Hintermeister & Knoernschild, Muscatine, for appellee.

Considered by HARRIS, P.J., and LAVORATO, NEUMAN, SNELL, and ANDREASEN, JJ.

NEUMAN, Justice.

This appeal is before us following remand in Humiston Grain Co. v. Rowley Interstate Transportation Co., 483 N.W.2d 832 (Iowa 1992) (Humiston I ). The case involves the continuing controversy over responsibility for damages sustained in a truck-train collision. This chapter centers on an insurance agent's alleged failure to procure coverage to protect against the loss, and a contractual claim for attorney fees.

The facts were detailed in Humiston I and will not be repeated here except to identify the parties and frame the disputed issues. Appellant Rowley Transportation Co. owned the damaged truck trailer which was operated under lease to appellee Humiston Grain Co. Humiston owned the semitractor that pulled the trailer and its cargo. The parties stipulated that Humiston's driver negligently caused the collision. They also stipulated to the amount of Rowley's damages less set-off for outstanding lease payments owed Humiston.

Complicating the picture was a statement made by a Rowley employee, prior to the accident, advising Humiston's insurance agent, third-party appellant James Earnest, that Rowley would carry physical damage (collision) insurance on the trailer and Humiston would be expected to carry liability insurance only. This statement by Rowley's employee became the focus of Humiston's defense in Rowley's subsequent suit against it on breach of contract and negligence theories, and Humiston's third-party action against Earnest.

In Humiston I, we affirmed the district court's finding that Rowley was estopped from recovering under the indemnification clause of the lease agreement because of its employee's representations regarding insurance coverages. Humiston, 483 N.W.2d at 834-35. We went on to hold, however, that Rowley was not thereby precluded from pursuing an action against Humiston for the negligence of Humiston's driver. Id. at 836. Because negligence and damages had been stipulated, we remanded for entry of judgment in favor of Rowley on its claim of negligence; for judgment in Humiston's favor on its claim for unpaid rental fees; and for further proceedings on Humiston's claim against Earnest for alleged negligence in failing to procure appropriate insurance coverage. Id.

On remand, the district court entered an $8000 judgment for Humiston based on Earnest's failure to thoroughly read the lease agreement and thereby educate himself on Humiston's insurance needs. Earnest's appeal claims--among other things--that the record is legally and factually insufficient to support such an award. Rowley has cross-appealed, claiming entitlement to attorney fees from Humiston under the lease agreement. We reverse on the appeal, and affirm on the cross-appeal.

I. Although Earnest advances a number of arguments for reversal, one issue is dispositive: Did the court err, as a matter of law, in permitting recovery on a claim of professional negligence without requiring expert testimony concerning the standard of care for insurance agents? For the reasons that follow, we believe the district court erred and must be reversed.

As a general proposition, Earnest--as Humiston's agent--was obliged to exercise reasonable care, diligence, and judgment in the performance of tasks undertaken on behalf of his principal. Collegiate Mfg. Co. v. McDowell's Agency, Inc., 200 N.W.2d 854, 857 (Iowa 1972). Persons engaged in the practice of a profession or trade are held to the standard of " 'the skill and knowledge normally possessed by members of that profession or trade in good standing in similar communities.' " Kastler v. Iowa Methodist Hosp., 193 N.W.2d 98, 101 (Iowa 1971) (quoting Restatement (Second) of Torts § 283 (1965)). The burden rested upon Humiston to prove Earnest's breach of this standard of care. See Devine v. Wilson, 373 N.W.2d 155, 157 (Iowa App.1985). Unless a professional's lack of care is so obvious as to be within the comprehension of a layperson, the standard of care and its breach must ordinarily be established through expert testimony. Perin v. Hayne, 210 N.W.2d 609, 613 (Iowa 1973); Devine, 373 N.W.2d at 157.

We have not previously addressed the question of whether, or under what circumstances, proof of an insurance agent's negligence must rest on expert testimony. Because insurance agents are professionally engaged in transactions ranging from simple to complex, the requirement of expert testimony varies from jurisdiction to jurisdiction depending on the nature of the alleged negligent act. Lori J. Henkel, Annotation, Necessity of Expert Testimony to Show Standard of Care in Negligence Action Against Insurance Agent or Broker, 52 A.L.R.4th 1232, 1234 (1987). At one end of the spectrum are those cases in which an agent negligently fails to procure requested coverage or permits coverage to lapse by failing to advance premiums due. Under these circumstances, commonly understood by laypersons, courts have held that expert testimony regarding the standard of care and its breach is not necessary. Clary Ins. Agency v. Doyle, 620 P.2d 194, 200 (Alaska 1980) (no expert testimony required where agent failed to submit insured's premium payment to carrier); Lowitt v. Pearsall Chem. Corp., 242 Md. 245, 255, 219 A.2d 67, 73 (1966) (despite payment of consideration, agent "failed to produce any policy whatsoever"); Dimarino v. Wishkin, 195 N.J.Super. 390, 394, 479 A.2d 444, 446 (1984) (no expert testimony needed to establish agent's utter failure to produce coverage or warn of lapse); Consolidated Sun Ray, Inc. v. Lea, 401 F.2d 650, 658 (3d Cir.1968) (agent's "efforts to fulfill contractual obligations palpably insufficient").

At the other end of the spectrum are cases involving the agent's alleged failure to discern coverage gaps or risks of exposure in more complex business transactions. In such case...

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