Lazzara v. Howard A. Esser, Inc.

• Decision Date: 30 October 1986
• Docket Number: No. 85-2649,85-2649
• Citation: 802 F.2d 260
• Parties: Joseph LAZZARA, Plaintiff-Appellee, v. HOWARD A. ESSER, INC., Defendant and Third-Party Plaintiff-Appellant, v. AETNA CASUALTY & SURETY COMPANY OF ILLINOIS, INC. and Reliance Insurance Company of Illinois, Inc., Third-Party Defendants-Appellees.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 260

802 F.2d 260

6 Fed.R.Serv.3d 54

Joseph LAZZARA, Plaintiff-Appellee, v. HOWARD A. ESSER, INC., Defendant and Third-Party Plaintiff-Appellant, v. AETNA CASUALTY & SURETY COMPANY OF ILLINOIS, INC. and Reliance Insurance Company of Illinois, Inc.,

Third-Party Defendants-Appellees.

No. 85-2649.

United States Court of Appeals Seventh Circuit.

Argued April 7, 1986.

Decided Sept. 23, 1986.

Rehearings and Rehearing En Banc Denied Oct. 30, 1986.

Mitchell A. Orpett, Tribler & Marwedel, P.C., Chicago, Ill., for Howard A. Esser, Inc.

Richard J. O'Brien, Sidley & Austin, Chicago, Ill., for Lazzara.

Stephen R. Swofford, Hinshaw, Culbertson, Moelmann, Hoban & Fuller, Chicago, Ill., for Aetna Casualty & Surety Co. Kristine A. Karlin, Judge & Knight, Ltd., Park Ridge, Ill., for Reliance Ins. Co. of Illinois, Inc.

Before CUDAHY, POSNER, and EASTERBROOK, Circuit Judges.

CUDAHY, Circuit Judge.

Plaintiff, Joseph Lazzara, directed his insurance broker, Howard A. Esser, Inc. ("Esser"), to acquire and maintain $1,000,000 in automobile insurance coverage for him. Esser obtained such coverage by acquiring two policies and it periodically renewed these policies. At one point, when it sought renewal of one of the policies, a policy with different liability limits than the original policy was issued, creating a "gap" of $150,000 in Lazzara's coverage. Lazzara was subsequently sued and had judgment entered against him when his daughter was involved in an automobile accident. Lazzara sued Esser for breach of fiduciary obligation and breach of contract. Esser in turn seeks recovery from the insurers that issued the two policies, Aetna Casualty & Surety Company of Illinois ("Aetna") and Reliance Insurance Company of Illinois ("Reliance"). The district court granted summary judgment for Lazzara and dismissed the complaints against the third-party defendants, 604 F.Supp. 1205. We affirm in part and reverse in part.

I.

Howard A. Esser, Inc., an Illinois corporation with its principal place of business in Illinois, was engaged in the insurance brokerage business. Esser had agency agreements with several insurance companies, including Aetna and Reliance. These agreements authorized Esser to bind insurance coverage and entitled Esser to receive agency commissions for providing that insurance. For approximately twenty years prior to the time of the loss at issue, Esser had handled plaintiff's personal and business insurance needs by obtaining various insurance policies from various insurers.

In 1973 or 1974 Esser recommended that plaintiff increase his automobile coverage from $500,000 to $1,000,000. Plaintiff accepted Esser's recommendation and had Esser obtain the additional coverage. Esser was to renew coverage unless instructed otherwise. Plaintiff did not give Esser instructions as to how coverage was to be structured or with whom it was to be placed. Esser obtained the desired insurance by procuring primary coverage in the amount of $300,000 with Reliance and coverage in excess of $250,000 up to $1,000,000 from Aetna. The Aetna policy was renewed several times by Esser. On the date of the automobile accident the Aetna policy provided the same coverage as when it was first issued--one million dollars with minimum primary limits of $250,000 per person. The Reliance policy was also renewed several times by Esser. For the period of July 16, 1977, to January 16, 1978, Reliance issued through Esser a policy that insured plaintiff for split limits of $100,000 per person and $300,000 per occurrence. This policy, of course, differed from the policy initially purchased by Esser. The split-limit policy resulted in a $150,000 gap in coverage because it would cover only $100,000 per person and the Aetna policy did not provide protection for any amount below $250,000. Thus Lazzara was not protected for the full $1,000,000 he had requested. At no time prior to the accident did Esser advise the plaintiff of this gap in coverage or take steps to correct it. Esser renewed the split-limit Reliance policy several times. It was in effect at the time of the accident.

On August 13, 1979, an automobile listed on plaintiff's insurance policies struck and killed Anthony Bond. The automobile was being operated by Lazzara's daughter, Diana Lazzara. A lawsuit was filed by the estate of Anthony Bond and Donna Bond, the wife of the deceased, against plaintiff, Diana Lazzara and Reliance in a Florida court. After a trial judgment was entered against the defendants in the amount of $510,000. The first $250,000 of this judgment is recoverable from plaintiff and Diana, jointly and severally. Reliance has paid only $100,000 of this amount pursuant to its insurance policy, leaving $150,000 unpaid. Five thousand dollars of the judgment is recoverable from Diana alone. The remaining $255,000 is recoverable from plaintiff, Diana and Aetna. Aetna has paid this amount in full.

In January 1983 plaintiff filed a complaint against Esser with respect to the unpaid $150,000. Esser was subsequently granted leave to file a third-party complaint against Aetna and Reliance. In February 1984 the district court granted the motion of the third-party defendants to dismiss the complaint against them. Lazzara v. Esser, No. 83 C 185 (Feb. 21, 1984). In October 1984 the district court denied the plaintiff's motion for summary judgment. Lazzara v. Esser, No. 83 C 185 (Oct. 30, 1984). After the case was transferred to a different judge both plaintiff and Esser filed motions to reconsider. In March 1985 the district court granted summary judgment for plaintiff. Lazzara v. Esser, No. 83 C 185 (March 27, 1985). Plaintiff then timely filed a motion to amend judgment seeking an award of prejudgment and postjudgment interest, costs and attorney's fees. The district court denied the motion with respect to attorney's fees and granted the motion with respect to prejudgment and postjudgment interest. Lazzara v. Esser, 622 F.Supp. 382 (N.Dist.Ill.1985). Esser appeals.

II.

A. Esser's Relationship to Lazzara

The district court correctly held that, as a matter of law, Esser acted as an insurance broker for the purposes of acquiring and maintaining automobile insurance for Lazzara, rather than as an agent for the insurer. Thus Esser was acting as Lazzara's agent and had a duty to act in good faith and with reasonable care, skill and diligence in compliance with Lazzara's instructions.

Although the question whether an insurance broker is the agent of the insured or the insurer is generally one of fact, when the evidence clearly shows that the broker is the agent of the insured, it becomes a matter of law. See Davidson v. Comet Casualty Co., 89 Ill.App.3d 720, 723, 44 Ill.Dec. 943, 946, 412 N.E.2d 19, 22 (1980); Ross v. Thomas, 45 Ill.App.3d 705, 708, 4 Ill.Dec. 379, 381, 360 N.E.2d 126, 128 (1977); Galiher v. Spates, 129 Ill.App.2d 204, 207, 262 N.E.2d 626, 628 (1970).

The Illinois courts have defined an insurance broker as:

[O]ne who procures insurance and acts as middleman between the insured and the insurer, and solicits insurance business from the public under no employment from any special company, but, having secured an order, places the insurance with the company selected by the insured, or, in the absence of any selection by him, with the company selected by such broker.

Galiher, 129 Ill.App.2d at 206-07, 262 N.E.2d at 628; see, e.g., City of Chicago v. Barnett, 404 Ill. 136, 141-42, 88 N.E.2d 477, 481 (1949); Davidson, 89 Ill.App.3d at 722-23, 44 Ill.Dec. at 946, 412 N.E.2d at 22; Browder v. Hanley Dawson Cadillac Co., 62 Ill.App.3d 623, 628-29, 20 Ill.Dec. 138, 142, 379 N.E.2d 1206, 1210 (1978). An insurance agent, on the other hand, has a fixed and permanent relationship to an insurance company that the agent represents and has certain duties and allegiances to that company. See Roby v. Decatur Steel Erectors, Inc., 59 Ill.App.3d 720, 725, 17 Ill.Dec. 71, 75, 375 N.E.2d 1355, 1359 (1978); Galiher, 129 Ill.App.2d at 207, 262 N.E.2d at 628. Whether a person is an agent or a broker is determined by his or her acts. See City of Chicago v. Barnett, 404 Ill. at 141-42, 88 N.E.2d at 481 (1949); Browder, 62 Ill.App.3d at 629, 20 Ill.Dec. at 142, 379 N.E.2d at 1210; Galiher, 129 Ill.App.2d at 207, 262 N.E.2d at 628.

Some of the Illinois appellate courts have applied four criteria in determining whether an intermediary is an agent or a broker: (1) who called the intermediary into action; (2) who controls its actions; (3) who pays it; ¹ and (4) whose interests does it represent. See Browder, 62 Ill.App.3d at 629, 20 Ill.Dec. at 143, 379 N.E.2d at 1211; Roby, 59 Ill.App.3d at 725, 17 Ill.Dec. at 75, 375 N.E.2d at 1359.

The evidence clearly shows that Esser was acting as a broker for Lazzara. Esser had served as Lazzara's broker for many years. The evidence establishes that Esser acted to protect Lazzara's interest and that Lazzara controlled its actions. Lazzara called Esser into action by requesting that Esser procure additional automobile insurance. Lazzara did not direct Esser to obtain the insurance coverage from a specified insurer, but rather relied on Esser's judgment. Nor was Esser obliged to obtain the coverage from any particular insurer. Further, by prior agreement, Esser was to maintain the insurance coverage until otherwise notified. Esser in fact did maintain the coverage for a period of time by renewing the policies. Esser's actions thus belie its claim that its agency relationship with Lazzara ended once it procured the initial policies. ²

In light of such clear evidence showing that Esser was an agent for Lazzara for the purpose of procuring and maintaining automobile insurance, Esser's argument that its agency agreement with the insurance companies and the fact that the companies paid its commissions raise an issue of fact must fail. The agency agreement does not establish a "fixed or permanent" relationship between the insurers and Esser for the purpose of...