J.A.M. Associates of Baltimore v. Western World Ins. Co., Inc.

• Decision Date: 01 September 1992
• Docket Number: No. 1278,1278
• Citation: 95 Md.App. 695,622 A.2d 818
• Parties: J.A.M. ASSOCIATES OF BALTIMORE, et al. v. WESTERN WORLD INSURANCE COMPANY, INC., et al. ,
• Court: Court of Special Appeals of Maryland

Page 695

95 Md.App. 695

622 A.2d 818

J.A.M. ASSOCIATES OF BALTIMORE, et al. v. WESTERN WORLD INSURANCE COMPANY, INC., et al.

No. 1278, Sept. Term, 1992.

Court of Special Appeals of Maryland.

April 8, 1993.

Warren K. Kaplan (Pamela L. Sherman and Melrod, Redman & Gartlan, on the brief), Washington, DC, for appellants.

Howard J. Schulman, Baltimore, for appellees, Western World and All Risks, Ltd.

Stanley B. Rohd, Towson, for appellees, John Heller and Ins., Inc.

(Donald C. Allen and Allen Johnson, Alexander & Karp on the brief), Baltimore, for appellee Scottsdale.

Argued before WILNER, C.J., and BISHOP and GARRITY, JJ.

WILNER, Chief Judge.

Appellants, a group of related partnerships or joint ventures, own a considerable amount of property in and around Baltimore City. They relied on Insurance, Inc. and its principal, John Heller, to obtain insurance on those properties.

For the year September 26, 1983 through September 25, 1984, Insurance, Inc. procured that insurance from Western World Insurance Company (Western World), a surplus lines carrier, through Western World's general agent, All Risks Ltd. (All Risks). The 1983-84 policy covered over 1,000 properties, including 72 owned by Capitol Development Limited Partnership, one of the appellants. The policy had a general coverage limit of $300,000 per occurrence with a $500 per occurrence deductible. With respect to lead paint claims, however, it had a $5,000 per occurrence deductible. There was no other coverage limit; nor was there any exclusion for, or other limitation on, lead paint claims.

Insurance, Inc. obtained for appellants, from Western World through All Risks, a renewal policy for 1984-85. There were three relevant changes in that renewal policy, however, which led to this lawsuit. First, the renewal policy did not initially include the 72 properties owned by Capitol Development; second, it not only continued the $300,000 per occurrence limit but contained as well an aggregate $300,000 limit of liability; third, and most significant, it contained an endorsement excluding "all losses arising out of lead paint poisoning." Appellants contend that these changes were not brought to their attention and that they did not discover them until 1988, when several lead paint claims were made against them and Western World, relying on the exclusion, denied coverage.

Appellants then filed this action in the Circuit Court for Baltimore County against Insurance, Inc., Heller, Western World, and All Risks, seeking reformation of the policy and damages. The reformation they sought was to add the 72 properties of Capitol Development, delete the aggregate $300,000 limit, and remove the lead paint exclusion. The damage claims were based on breach of contract, negligence, negligent misrepresentation, and promissory estoppel. After a non-jury trial, the court entered an order reforming the policy to include the 72 additional properties and to remove the $300,000 aggregate limit. ¹ It denied all other significant relief, however, including damages and removal of the lead paint exclusion. When the court then denied appellants' post-judgment request for attorneys' fees, this appeal ensued. Appellants contend that the court erred (1) in refusing to reform the policy to delete the lead paint exclusion, and (2) in denying its request for attorneys' fees. No complaint is made about the disposition of the assorted damage claims. We shall affirm.

The Lead Paint Exclusion

As we observed, there was no exclusion for lead paint claims in the 1983-84 policy, although there was a considerably higher deductible for those claims. On July 20, 1984 Insurance, Inc. wrote to All Risks requesting a renewal of the policy at the same rates, but with the deletion of 102 properties not at issue here. All Risks did not have the authority, on its own, to renew the policy, and so it forwarded the request to Western World. Western World evaluated the request and approved a renewal provided that (1) the premium was increased substantially--from $21,000 to over $46,000, (2) the per occurrence deductible was increased from $500 to $1,000, and (3) lead paint claims were excluded. On September 11, 1984, Western World informed Deanna Deardorff, an employee of All Risks, of these conditions. Ms. Deardorff stated, with some equivocation, that she called Mr. Heller and informed him of the "renewal quote." ² That same day, she sent a Policy Renewal Notice to Mr. Heller's attention at Insurance, Inc.

The Notice showed the new premium, indicated that there would be a $1,000 deductible per claim, and stated "Lead Poisoning Warranty attached applies to renewal." Attached to the Notice was a proposed endorsement captioned "LEAD POISONING WARRANTY," and stating "This policy excludes claims arising out of the failure, on the part of the insured, to cover all lead based paints on premises insured hereunder." Ms. Deardorff testified that she enclosed that particular endorsement because she believed that it was the form currently used by Western World. In fact, the insurer, some months earlier, had changed its form from a warranty requiring the covering of lead paint to a flat exclusion for lead paint claims, whether the paint was covered or not.

Insurance, Inc. received this material the next day, but it appears that, while Mr. Heller was aware of the increase in the premium and the deductible, he either overlooked the lead paint endorsement or did not believe it to be significant. Heller stated that he did not see the renewal notice itself. On September 26, following a conversation with appellants' office manager, Leslie Ash, Heller wrote to appellants' principal, Max Berg, enclosing an invoice for the renewal at the quoted rate. He called specific attention to the $1,000 deductible but said nothing about the lead paint endorsement. In apparent reference to the much higher premium and deductible, he informed Mr. Berg that "[w]e have thoroughly marketed your renewal and found that most of the insurance carriers would not even provide a premium quotation because of the loss history." ³

Appellants accepted the offer of renewal, which Insurance, Inc. communicated to All Risks on September 26, 1984. That same day, appellants sent Insurance, Inc. a check for the premium. All Risks then prepared a renewal policy and sent it to Insurance, Inc. on October 4. That policy, as we noted earlier, excluded the 72 properties of Capitol Development, contained an aggregate limit of $300,000, and included, as Endorsement # 1 on a separate page attached to the back of the policy, a lead paint exclusion. That exclusion, captioned "LEAD POISONING EXCLUSION," was different than the "warranty" that had been included with the September 11 renewal notice; it excluded from coverage "any and all losses arising out of Lead Paint Poisoning." This policy was received by Insurance, Inc. on October 5.

For reasons not entirely clear to us, instead of simply forwarding this policy, which took effect as of September 26, 1984--the date the old policy expired--to appellants, Insurance, Inc. issued a binder to appellants on October 8, 1984. This binder, which stated that it would stand "cancelled when replaced by a policy," contained a limit of $300,000 per occurrence and said nothing about either an aggregate $300,000 limit or the lead paint exclusion. Although the binder showed Western World as the insurer, it is undisputed that Insurance, Inc. had no authority on its own to issue binders for Western World. Insurance, Inc. sent the original policy to appellants on October 19, along with a covering letter that made no mention of the lead paint exclusion.

The evidence indicates that Ms. Ash read through at least part of the policy, for on November 29, 1984, she wrote to Mr. Heller, informing him that some of the partnership names were incorrect. In June, 1985, certain properties were deleted from the policy; a month later, other properties (those of Capital Development) were added. It is evident that the policy had been physically handled by appellants' employees on a number of occasions; it had been unstapled and restapled several times, certain parts had been "whited-out," and the premium figure had been altered by interlineation. Nonetheless, appellants assert that they were unaware of the lead paint endorsement until they submitted some lead paint claims to Western World in 1988 and had them rejected based on the exclusion.

Except as noted in our discussion of their request for attorneys' fees, appellants have confined their complaint in this appeal to the trial court's unwillingness to delete the lead paint exclusion from the policy. They have abandoned their quest for damages from any of the defendants. Our discussion, therefore, will be similarly limited.

In its memorandum opinion, the circuit court, citing Higgins v. Barnes, 310 Md. 532, 530 A.2d 724 (1987), noted that reformation of a written contract constitutes extraordinary relief and that, to justify such relief, a heavy burden was placed on the plaintiffs to establish not only fraud, duress, or mutual mistake with respect to the existing contract but also the precise form that the parties intended the contract to take. It concluded from the evidence, which was largely undisputed in this regard, that appellants had failed to show any of those circumstances, and it was on that basis that the relief was denied. The court quickly dismissed any suggestion of fraud or duress, for there was no evidence at all of that; it then concluded that there was no mutual mistake because it was clear that Western World never intended to issue a renewal policy without a lead paint exclusion. The mistake, it held, was in appellants and their chosen agents, Insurance, Inc. and Heller, not reading the policy or the renewal notice, for had they done so they would have known that the new policy was very different from the old.

Appellants do not suggest that there was any fraud on the...