International Surplus Lines Ins. Co. v. Marsh & McLennan, Inc.

• Decision Date: 01 February 1988
• Docket Number: No. 87-2572,87-2572
• Citation: 838 F.2d 124
• Parties: INTERNATIONAL SURPLUS LINES INSURANCE COMPANY, an Illinois Corporation, Plaintiff-Appellant, v. MARSH & McLENNAN, INCORPORATED, a Delaware Corporation, Defendant-Appellee. and MARSH & McLENNAN, INCORPORATED, a Virginia corporation, Defendant-Appellee, v. CITY OF RICHMOND, a municipal corporation, Third Party Defendant.
• Court: U.S. Court of Appeals — Fourth Circuit

Page 124

838 F.2d 124

INTERNATIONAL SURPLUS LINES INSURANCE COMPANY, an Illinois

Corporation, Plaintiff-Appellant, v. MARSH & McLENNAN, INCORPORATED, a Delaware Corporation,

Defendant-Appellee.

and

MARSH & McLENNAN, INCORPORATED, a Virginia corporation, Defendant-Appellee, v. CITY OF RICHMOND, a municipal corporation, Third Party Defendant.

No. 87-2572.

United States Court of Appeals Fourth Circuit.

Argued Nov. 3, 1987.

Decided Feb. 1, 1988.

Frank B. Miller, III (S. Vernon Priddy, III, John B. Catlett, Jr., Sands, Anderson Marks & Miller, Richmond, Va., on brief), for plaintiff-appellant.

William Beverly Poff (Thomas A. Leggette, Richard C. Maxwell, Frank K. Friedman, Elizabeth K. Hillman, Woods, Rogers & Hazelgrove, Roanoke, Va., on brief) for defendants-appellees.

Before CHAPMAN, and WILKINSON, Circuit Judges, and BOYLE, United States District Judge for the Eastern District of North Carolina.

CHAPMAN, Circuit Judge:

Plaintiff International Surplus Lines Insurance Company ("ISLIC") appeals the order of the district court granting summary judgment to defendants, Marsh & McLennan, Inc. and Marsh & McLennan, Incorporated ("Marsh & McLennan"). ISLIC sued Marsh & McLennan, an insurance broker, ¹ seeking indemnification for monies ISLIC paid to the City of Richmond on a disputed claim under a liability insurance policy. ISLIC alleges that Marsh & McLennan breached certain fiduciary duties it owed ISLIC in connection with the City's efforts to obtain increased liability coverage and, therefore, it should indemnify ISLIC for the increased amounts paid to the City in settlement of the claim. The district court held that ISLIC's claims were not properly brought as claims for indemnity and that the applicable contract and tort statutes of limitations bar ISLIC's claims for breach of fiduciary duties. We affirm.

I

In the Spring of 1980, the executive director of the Insurance Advisory Committee ("IAC") of the City of Richmond spoke with three different insurance brokers regarding the procurement of public officials' and employees' liability insurance coverage. Marsh & McLennan, a surplus lines broker, was one of these brokers. After unsuccessful contacts with various carriers licensed to do business in Virginia, Marsh & McLennan contacted unlicensed carriers, including ISLIC, which through its licensed managing general agent, L.W. Biegler, Inc., provided a quotation on a policy with ISLIC. Based on IAC's recommendations, the City authorized IAC to obtain coverage from ISLIC. Effective July 1, 1980, ISLIC issued the City a one-year public officials' and employees' liability policy with coverage of one million dollars.

ISLIC renewed the policy on July 1, 1981. In September or October of 1981, the City requested higher limits on the public officials' coverage. ISLIC requested a warranty letter from the City as to the existence of any claims against the City. The Acting City Attorney, William Hefty, forwarded such a letter to Marsh & McLennan. The "Hefty letter" stated, in pertinent part:

I have no knowledge, as of [October 29, 1981], of any claims or pending claims against the City of Richmond, its elected or appointed officials or other members of the City government....

The above does not apply to threats of litigation which may rise to the level of an actual claim or pending litigation at some point in the future.

Marsh & McLennan advised the City that the letter was vague and may raise some question about the possibility of claims. In response, the Acting City Risk Manager, James Dellaripa, forwarded the "Dellaripa letter," which authorized IAC to increase coverage of the 1981 policy to five million dollars and contained, in response to Marsh & McLennan's request, a postscript that stated he had "no knowledge of any claims or pending claims against the City of Richmond." Only the "Dellaripa letter" was forwarded to Biegler, ISLIC's agent. The increased coverage became effective October 29, 1981.

By August, 1981 the City was embroiled in a controversy with a group of developers who planned to construct a Hilton Hotel in downtown Richmond. Then Richmond Mayor Henry L. Marsh, III believed that the proposed Hilton would jeopardize the City's Downtown Redevelopment Area, Project One. On November 9, 1981, the Hilton developers filed an application for a building permit and their plan of development for the Hilton Hotel in the City. The City's Director of Planning, Charles T. Peters, Jr., met with the Hilton developers to review their plan of development, and on November 25, 1981, told the Hilton developers that he had disapproved their plan. On December 8, 1981, Peters issued a report denying the Hilton developers' plan.

On December 23, 1981, the Hilton developers filed suit against the City. The City transmitted notice of the Hilton lawsuit to Marsh & McLennan, which forwarded it to ISLIC. In July, 1983 the City reached a settlement with the Hilton developers. ² ISLIC contributed one million dollars, the amount of the initial policy limit, to the settlement.

On December 7, 1984, seventeen months after the settlement, the City filed suit against ISLIC in the Virginia state courts to recover under the four-million-dollar increased limits endorsement. ISLIC attempted to sue Marsh & McLennan in the state court proceeding, but the City objected and the state court refused to permit filing of the third party complaint. ISLIC settled with the City, paying an additional 1.75 million dollars.

II

ISLIC alleges Marsh & McLennan breached its fiduciary duties owed to ISLIC by withholding information material to ISLIC's decision whether to increase the limits on the City's public officials' and employees' liability policy from one million dollars to five million dollars. Specifically, by suppressing the "Hefty letter" and forwarding only the "Dellaripa letter," ISLIC alleges that Marsh & McLennan fraudulently misrepresented the status of claims against the City. ISLIC argues that it is entitled to indemnification from Marsh & McLennan for the amounts paid to the City beyond the original one million dollars of coverage on its policy.

While indemnification is usually appropriate in a situation when the duty discharged or breached (here, the obligation to pay the City) is owed by one (here, ISLIC), but which, as between that one and another (here, Marsh & McLennan), should have been discharged by the other, 41 Am.Jur.2d Indemnity Sec. 1 (1968), ISLIC urges this court to apply indemnity when the duty allegedly breached was owed only by Marsh & McLennan to ISLIC and not to a third party, the City.

As the Second Circuit recognized in Peoples' Democratic Republic of Yemen v. Goodpasture, Inc., 782 F.2d 346 (2d Cir.1986), "an action 'does not become an action for indemnity merely because the pleader has so denominated it.' (Citation omitted)." Goodpasture, 782 F.2d at 350. We must first determine whether ISLIC's causes of action are indeed indemnity claims, not time barred, or whether the claims are merely contract or tort claims and barred by the applicable statutory periods.

It is uncontroverted that there is no express indemnity agreement between ISLIC and Marsh & McLennan. Therefore, ISLIC relies on Goodpasture to support the argument that an implied right to indemnification arises under the facts of this case.

When, as here, there is no express agreement creating a right to indemnification, an implied right to indemnification can still be found in either of two sets of circumstances. (Citation omitted). In one, an implied right to indemnification may be based on the special nature of a contractual relationship between parties. See, e.g., Ryan Stevedoring Co. v. Pan-Atlantic S.S. Corp., 350 U.S. 124, 133-34, 76 S.Ct. 232, 237-38, 100 L.Ed. 133 (1956). This has been called an 'implied contract theory' of indemnity, (citation omitted), or an 'implied in fact' indemnity, (citation omitted). A second set of circumstances in which indemnity may be found has been called 'implied in law' indemnity. (Citation omitted). This is a tort-based right to indemnification found when there is a great disparity in the fault of two tortfeasors, and one of the tortfeasors has paid for a loss that was primarily the responsibility of the other. (citations omitted).

Goodpasture, 782 F.2d at 351. ISLIC does not challenge the district court's conclusions that there is no express indemnity agreement and that there is no tort-based indemnity between ISLIC and Marsh & McLennan. Therefore, we must only decide whether there is a special contractual relationship between the parties that gives rise to an implied right to indemnification.

As the district court noted, if an agency agreement existed between ISLIC and Marsh & McLennan, it was unwritten. What is clear, however, is that the City contacted Marsh & McLennan, which sought insurance carriers to provide quotations on a policy for the City. To this extent, Marsh & McLennan was acting as an agent for the City. During the time in question, Marsh & McLennan also acted as a conduit for information between the City and ISLIC.

The facts of Ryan Stevedoring Co. v. Pan-Atlantic S.S. Corp., 350 U.S. 124, 76 S.Ct. 232, 100 L.Ed. 133 (1956), the seminal case ³ involving an implied right of indemnification, stand in sharp contrast. There, a longshoreman employed by Ryan Stevedoring was injured in the course of his employment on shipboard when an improperly stowed cargo roll broke loose. He sued the shipowner, whose cargo officers had supervised the loading and had authority to reject unsafe stowage. The shipowner then impleaded the stevedoring company, whose longshoremen had loaded the ship. The Supreme Court held that the shipowner had an implied contractual right to indemnity for the damages paid to the injured longshoreman since the stevedoring company had agreed to perform all the shipowner's stevedoring operations. Ryan, 350 U.S. at 133, 76 S.Ct. at 237. Because of the non-delegable duties...