A. I. D. Ins. Services v. Riley

• Decision Date: 28 October 1975
• Docket Number: CA-CIV,No. 2,2
• Citation: 541 P.2d 595,25 Ariz.App. 132
• Parties: A.I.D. INSURANCE SERVICES, a corporation, and Allied Mutual Insurance Company, a corporation, Appellants, v. David L. RILEY and Kathleen R. Riley, husband and wife, Insurance Companies Inspection Bureau, Inc., a Foreign Corporation, Appellees. 1858.
• Court: Arizona Court of Appeals

Page 595

541 P.2d 595

25 Ariz.App. 132

A.I.D. INSURANCE SERVICES, a corporation, and Allied Mutual Insurance Company, a corporation, Appellants, v. David L. RILEY and Kathleen R. Riley, husband and wife, Insurance Companies Inspection Bureau, Inc., a Foreign Corporation, Appellees.

No. 2 CA-CIV 1858.

Court of Appeals of Arizona, Division 2.

Oct. 28, 1975.

Rehearing Denied Dec. 5, 1975.

Review Denied Jan. 6, 1976.

Lesher, Kimble, Rucker & Lindamood, P.C. by Monte C. Clausen, Tucson, for appellants

Rabinovitz, Minker & Dix, P.C. by James S. Dix, Tucson, for appellees Riley.

Fish, Briney, Duffield & Miller, P.C. by Samuel D. Alfred, Tucson, for appellees Ins. Companies Inspection Bureau, Inc.

OPINION

HOWARD, Chief Judge.

This is an appeal by A.I.D. Insurance Services and Allied Mutual Insurance Company (hereinafter referred to as A.I.D.) from a judgment awarding David and Kathleen Riley $10,000 for their losses resulting from fire damage to the rear rental unit on their property. The trial court, by minute order, initially awarded damages against Brown and Saul Insurance Corporation only.

On May 20, 1974, the trial court granted a motion by the Rileys to amend the initial minute entry order to include A.I.D. as a party against whom judgment should be rendered. The written judgment, signed July 22, 1974, awarded the Rileys the sum of $10,000 in damages against A.I.D. plus costs. It further gave judgment in favor of A.I.D. against Brown and Saul Insurance Corporation for indemnification, plus their costs. Finally, it dismissed Brown and Saul Insurance Corporation's cross-claim against A.I.D. and A.I.D.'s third party complaint against Insurance Companies Inspection Bureau, Inc.

Appellants present the following questions for review:

'1. Was the trial Court correct in determining that A.I.D. was responsible for the acts of Brown?

2. Were the damages awarded by the trial Court justified under the law and evidence?

3. If the trial Court was correct in holding A.I.D. responsible for the acts of Brown, should A.I.D. have prevailed against inspection Bureau on its third-party complaint?'

A.I.D.'s RESPONSIBILITY FOR ACTS OF BROWN

The Rileys' complaint was in three counts: declaratory relief, breach of contract and tort. In its minute entry decision, the court based the judgment on negligence. Although appellants concede that the evidence showed Mr. Saul, (an employee of Brown & Saul) to be negligent, they claim that the evidence does not support the type of relationship between appellants and Saul upon which one can impose liability for tort.

Appellants' liability for Saul's tortious conduct depends upon whether appellants had the right to direct Saul in the details of his conduct at the time of the tort and whether Saul was acting within the scope of his actual or apparent authority or employment. American Savings Life Ins. Co. v. Riplinger, 249 Ky. 8, 60 S.W.2d 115 (1933); Bible v. First National Bank of Rawlins, 21 Ariz.App. 54, 515 P.2d 351 (1973); Couch on Insurance 2d, Vol. 4, Sec. 26:434 p. 417; Appleman, Insurance Law and Practice, Vol. 16, Sec. 8863 p. 561.

The evidence in this case discloses that Saul was the part owner of Brown & Saul Insurance Corporation which had an agency agreement with appellant A.I.D. He was supplied with the policies by the company which he would issue upon an order from a customer. The policy would be rated and typed in his office and a copy mailed to the company for its records. There was no evidence that A.I.D. had any right to control the details of Saul's work and therefore no evidence upon which to find appellants liable for his torts.

However, where the trial court is correct in its final ruling, the reviewing court is bound to affirm, even though the trial court may have stated the wrong reason for its judgment. Stewart v. Woodruff, 19 Ariz.App. 190, 505 P.2d 1081 (1973).

The property in question was purchased by the Rileys through the A. P. Brown Real Estate Company. During the course of the transaction, Brown & Saul Insurance Corporation was recommended to handle the insurance. At that time A. P. Brown owned 50% Of the stock in Brown & Saul Insurance Corporation and Mr. Saul owned the other 50%. Mr. Saul contacted the Rileys and took the information necessary to issue a homeowner's policy on the property. The Rileys testified that they explained to Saul that their property consisted of a duplex and a separate rental unit in the rear and that they informed him that they lived in one of the duplex units and rented the other two. The policy which was issued provided coverage of $15,000 for a three family dwelling and $1,500 for appurtenant structures. The policy specifically excluded from coverage all appurtenant structures which were rented.

Saul denied that the Rileys ever told him about the separate rental unit. He was under the impression that the property consisted of a 'three family dwelling'. He did testify, however, that he intended to insure whatever property the Rileys owned, provided he got the correct information, i.e., had he known about the separate rental unit he could have secured insurance for the Rileys which would have covered it for fire loss or damage. ¹

On more than one occasion, the Rileys expressed their concern to Mr. Saul that their property be adequately insured. Each time, Saul responded that the coverage was proper. On one occasion Saul visited the property and again reassured the Rileys that the policy was properly written. On April 7, 1972, the rear rental unit was gutted by fire. A.I.D. refused payment on the ground that the exclusion for rented appurtenant structures barred recovery under the policy.

Where a policy of insurance, which has been drawn up by the agent of the insurer and merely accepted by the insured, does not represent the intention of both parties, because of the fault or neglect of the agent, it may be reformed so as to express the contract it was intended should be made, Norem v. Iowa Implement Mutual Ins. Ass'n, 196 Iowa 983, 195 N.W. 725 (1923). Where the party applying for insurance states the facts to the agent and relies on him to write the policy which will protect his interests, and the agent so understands, but fails by mistake to so write the contract, the mistake is considered mutual and the insured is entitled to reformation. Artmar, Inc. v. United Fire & Casualty Co., 34 Wis.2d 181, 148 N.W.2d 641 (1967); Trible v. Tower Insurance Co., 43 Wis.2d 172, 168 N.W.2d 148 (1969); Appleman, Insurance Law and Practice, Vol. 13, Sec. 7609 p. 365.

Appellees Riley did not pray for reformation of the insurance contract. This is not, however, fatal to their recovery. Where the pleadings and evidence in an action upon an insurance policy are such as would warrant the court in reforming the policy, the court may give effect to the true contract and enforce the policy as if it were reformed, without making a formal decree of reformation. Trible v. Tower, supra; Lumbermen's...