Jam Inc. v. Nautilus Ins. Co.

• Decision Date: 23 March 2004
• Docket Number: No. WD 61603.,WD 61603.
• Citation: 128 S.W.3d 879
• Parties: JAM INC., et al., Respondent, v. NAUTILUS INSURANCE COMPANY, Appellant.
• Court: Missouri Court of Appeals

128 S.W.3d 879

JAM INC., et al., Respondent, v. NAUTILUS INSURANCE COMPANY, Appellant.

No. WD 61603.

Missouri Court of Appeals, Western District.

March 23, 2004.

Michael D. Hufft, Kansas City, MO, for appellant.

Gerald L. Thompson, Kansas City, MO, for respondent.

Before HARDWICK, P.J., BRECKENRIDGE and SPINDEN, JJ.

PATRICIA BRECKENRIDGE, Judge.

Nautilus Insurance Company appeals a jury verdict in favor of John Perrett on his claim for breach of an insurance contract and vexatious refusal to pay under the insurance contract for his loss due to an apartment building fire. Nautilus refused to pay under the insurance contract because, at the time of the fire, the apartment building was owned by JAM, Inc., but the insurance policy was in the name of Mr. Perrett, the president and a shareholder of JAM, Inc. Nautilus raises four points on appeal. In its first three points, Nautilus claims that the trial court erred in denying its motion for directed verdict and judgment notwithstanding the verdict, because Mr. Perrett did not make a submissible case that (1) he had an insurable interest in the apartment building; (2) he had a financial interest in the apartment building at the time of the fire; and (3) Nautilus' refusal to pay under the policy was willful and without reasonable cause such that it was liable for vexatious refusal to pay. In its fourth point, Nautilus asserts that the trial court erred in denying its motion for new trial because the damages awarded by the jury were excessive and not supported by the evidence. This court finds that Mr. Perrett had an insurable interest and a financial interest equal to the entire amount of coverage on the property because he agreed with the other shareholders to obtain insurance for the benefit of the corporation and his failure to obtain proper insurance rendered him susceptible to pecuniary harm in the event of a loss. Because the loss to the apartment building was only partial, however, Mr. Perrett's damages were limited to the difference between the fair market value of the building before and after the loss and could not be based on the cost to repair. This court further finds that Mr. Perrett made a submissible case for damages for vexatious refusal to pay. Accordingly, the actual damages award is reversed, in part, and remanded. The judgment is affirmed in all other respects.

Factual and Procedural Background

On review, this court views the evidence and any reasonable inferences therefrom in the light most favorable to the jury's verdict and disregards any contrary evidence. Massman Constr. Co. v. Mo. Highways & Transp. Comm'n, 31 S.W.3d 109, 112 (Mo.App.2000). The facts in that light are that Mr. Perrett, a resident of Salem, Utah, is employed by the State of Utah Social Services. In 1995, he and one of his co-workers, Ana Manent, attended a real estate purchasing seminar. The seminar's sponsor organized groups of people interested in investing in real estate and took the groups to different parts of the country to show them available properties. At that time, Ms. Manent had already taken one of these trips and had purchased an apartment building at 4057 Warwick in Kansas City for $60,000. Ms. Manent paid $12,000 as a down payment on the building, and the building's seller, Stephen Brock, carried back a mortgage for the remaining $48,000.

Mr. Perrett and Ms. Manent decided to become partners in owning this apartment building, so Mr. Perrett paid Ms. Manent $6,000 as his share of the down payment. The apartment building was uninhabitable at the time, so Mr. Perrett and Ms. Manent each contributed to the $8,000 in expenses and effort to bring the property to a condition that would enable them to rent the property. Ms. Manent hired Select Properties Ltd. to manage the apartment building. Select Properties' duties included collecting the rents, making repairs, paying the mortgage, and paying for insurance. At that time, the property was insured through Northwestern National Insurance Company in Mr. Perrett's and Ms. Manent's names.

A couple of months later, another of Mr. Perrett and Ms. Manent's co-workers, Mary Baldwin, decided that she, too, wanted to be involved in owning the apartment building. Ms. Baldwin paid $4,000 to join the group. On February 28, 1996, Mr. Perrett, Ms. Manent, and Ms. Baldwin incorporated in Utah as JAM, Inc. Each became a one-third owner of the corporation. Because Mr. Perrett had the most experience with rental property, the group decided that he would be JAM, Inc.'s president. Ms. Baldwin was appointed vice-president, and Ms. Manent was appointed secretary and treasurer of JAM, Inc. because, at that time, Ms. Manent was keeping track of the apartment building's income and expenses, disseminating information, and writing checks. Ms. Manent conveyed the apartment building to JAM, Inc. by quitclaim deed on May 15, 1996. The apartment building was the corporation's only asset. The corporation never issued stock certificates, nor did it have any savings or checking accounts.

In November 1996, Ms. Manent moved to Georgia, but continued to be involved in JAM, Inc. In January 1997, there was a fire in the apartment building. Northwestern National paid Mr. Perrett $5,000 for the partial loss to the building. Mr. Perrett deposited the $5,000 into his checking account and made arrangements with Select Properties to have the property repaired for that amount. Shortly after the fire, Ms. Manent decided that she no longer wanted the responsibility of dealing with Select Properties on behalf of the corporation, so she asked Mr. Perrett to take over her duties. Mr. Perrett agreed, and began receiving statements from Select Properties. Mr. Perrett became responsible for dealing with Select Properties, disseminating information about the property to Ms. Manent and Ms. Baldwin, distributing profits, and dividing expenses.

Sometime later in 1997, Northwestern National canceled the insurance policy on the property. Ms. Manent, Ms. Baldwin, and Mr. Perrett agreed it was Mr. Perrett's responsibility to obtain new insurance on the property for JAM, Inc. Mr Perrett told Ms. Manent and Ms. Baldwin that he would obtain insurance on the property for the benefit of the corporation. To fulfill this obligation, Mr. Perrett contacted Select Properties and instructed them to obtain a policy on the apartment building to insure it for its replacement value.

Select Properties faxed a request for a quote to insure the property to Sharon Javinsky of Encore Insurance Agency. In the request, Select Properties told Ms. Javinsky that it did not have any previous insurance information on the property, and that if Ms. Javinsky had any questions, to "contact the owner—John Parrot." After Ms. Javinsky faxed a list of questions concerning the building's age, composition, occupancy, and square footage back to Select Properties, Select Properties responded with answers to some of the questions and explained that the answers were "to the best of our ability— more details & you'll have to call the owner." Ms. Javinsky sent the information on to Glenda Dowell, who worked for Chris-Leef Insurance Agency as an underwriter. Chris-Leef Insurance Agency acted as Nautilus' agent, and underwrote policies for Nautilus. Ms. Dowell needed additional information about the property so, on December 24, 1997, Ms. Javinsky called Mr. Perrett, in Utah, two times. During one of those conversations, Ms. Javinsky asked Mr. Perrett who owned the building. Mr. Perrett told Ms. Javinsky that he did. Ms. Javinsky sent the information on to Ms. Dowell. Later that day, Ms. Dowell faxed a binder of insurance to Ms. Javinsky binding Nautilus to provide commercial property and general liability insurance on the apartment building. The binder of insurance listed Select Properties as the applicant. On January 8, 1998, Ms. Javinsky sent a fax to Select Properties advising that, effective December 24, 1997, Encore Agency had "bound building, rents and liability coverage on the subject location as a result of ... direct conversations and authorization of John Parrot."

Several months later, Encore Agency faxed a partially-completed commercial insurance application to Select Properties to review and sign. In the section entitled "Applicant Information," the application listed "Select Properties, Ltd.; John Parrot" and checked boxes marked "Partnership" and "Individual." In the section entitled "Nature of Business/Description of Operations by Premise(s)" the application listed "Ownership and management of (5) unit habitational building" "Select Properties, Ltd. ____ Management" and "John Parrot—Owner." In the space marked "Applicant's Signature," Select Properties signed it as "Select Properties agent for Parrot." Encore also faxed an invoice for the policy premium to Select Properties. Select Properties sent the invoice to Mr. Perrett, who paid the premium and sent copies of the invoice to Ms. Manent and Ms. Baldwin. On their copies, Mr. Perrett indicated what a third of the premium would be.

The commercial property insurance policy through Nautilus provided replacement coverage for the apartment building up to a limit of $100,000, and coverage for debris removal up to a limit of $5,000. The term of the initial policy was December 24, 1997, to December 24, 1998. In 1998, Mr. Perrett renewed the policy for another year, extending coverage to December 24, 1999.

Sometime in early 1999, Ms. Manent decided that she was "burnt out" with her investment in JAM, Inc. and the apartment building. She and Mr. Perrett discussed his buying her out of her interest in the corporation and the apartment building. In February 1999, Mr. Perrett entered into a contract to sell the apartment building to another party for $86,000. On May 1, 1999, JAM, Inc. was involuntarily dissolved. On May 22, 1999, there was a fire at the apartment building. The cost to repair the apartment building was $115,167.81, and the...