McAlvain v. General Ins. Co. of America, 11588

• Decision Date: 27 September 1976
• Docket Number: No. 11588,11588
• Citation: 97 Idaho 777,554 P.2d 955
• Parties: Douglas McALVAIN, Plaintiff-Respondent, v. GENERAL INSURANCE COMPANY OF AMERICA, a corporation, Defendant, and Adams County Abstract Company, a corporation, Defendant-Appellant.
• Court: Idaho Supreme Court

Page 955

554 P.2d 955

97 Idaho 777

Douglas McALVAIN, Plaintiff-Respondent, v. GENERAL INSURANCE COMPANY OF AMERICA, a corporation, Defendant and Adams County Abstract Company, a corporation, Defendant-Appellant.

No. 11588.

Supreme Court of Idaho.

Sept. 27, 1976.

Donald W. Lojek, of Moffatt, Thomas, Barrett & Blanton, Boise, for defendant-appellant.

George A. Greenfield, of McClenahan & Greenfield, Boise, James B. Donart, Ketchum, for plaintiff-respondent.

BAKES, Justice.

Adams County Abstract Company, a corporation, appeals from a judgment on a jury verdict finding it liable for its negligent failure to issue sufficient insurance to plaintiff Douglas McAlvain on the inventory at his retail store, the Council Electric Furniture and Appliance Store. It contends that it owed no duty to McAlvain which would subject it to liability in tort for its negligence. We affirm the judgment of the trial court.

In the summer of 1969, McAlvain purchased Council Electric as an ongoing business, entering into a real estate contract with the seller which required that the property involved be adequately insured. The purchase price was contingent on the results of a final inventory of the business which was to be taken in July, 1969; the inventory when completed disclosed that at the time of the sale the store contained $45,000.00 in inventory.

The Adams County Abstract Company acted as real estate agent in this transaction, through its president and principal real estate officer, Ferd Muller. Adams County Abstract Company is a small, closely-held corporation of which Muller is controlling shareholder, dealing in real estate and insurance business in the Council area. It is the local agent for General Insurance Company of America (SAFECO), which held the existing contract for insurance on the inventory at Council Electric at the time of sale. Thus, Adams County Abstract handled both the real estate transfer and the transfer of insurance to the plaintiff McAlvain in 1969. The existing policy had a $30,000.00 coverage on inventory. Shortly after taking over the business, McAlvain met with the principal insurance agent for Adams County Abstract, Rosemary Kilborn, to negotiate a package insurance plan for Council Electric. He requested sufficient insurance to fully cover the business, including the inventory. Although the results of the final inventory had been delivered to Adams County Abstract so that Muller could complete the paper work on the real estate transfer, thus giving Adams County Abstract the information that the inventory at Council Electric was valued at $45,000.00 at that time, the three year insurance policy written by Kilborn covered inventory only to the extent of $30,000.00.

In November, 1970, during the second year of the policy, McAlvain was in the Adams County Abstract office on an unrelated matter when he first became aware that his inventory was underinsured. He testified that he told Muller that the present level was grossly inadequate and that his inventory insurance should be around $50,000.00. Adams County Abstract did not immediately increase McAlvain's inventory coverage, and the reason for its failure to do so was a matter of dispute in this lawsuit. McAlvain claimed that as of that date Adams County Abstract had committed itself by an oral binder to insure his inventory to $50,000.00. Adams County Abstract countered that there was no agreement at that time, but that McAlvain would return at a later date to order increased coverage.

On December 10, 1970, the Council Electric store was gutted by fire, and the inventory almost totally destroyed. An inventory taken shortly thereafter based on invoices and the discernible remains of the furniture and appliances, etc., was $43,625.00, but as of the night of the fire the inventory at Council Electric was only insured to $30,000.00.

McAlvain sued both Adams County Abstract and the General Insurance Company on the following alternative theories. In his third cause of action McAlvain claimed that Adams County Abstract Company had been engligent in its initial failure, in August, 1969, to provide the plaintiff with adequate insurance coverage of the inventory at Council Electric and he claimed as damages the difference between $43,625.00 and $30,000.00, less $4,071.00 salvage (or $9,554.00). In his fourth cause of action, against General Insurance Company, he claimed that the conversation with Muller in early November, 1970, constituted an oral binder contract to insure for $50,000.00 which would be binding on General Insurance Company.

The jury found in favor of the plaintiff and against Adams County Abstract Company on McAlvain's third cause of action that the Adams County Abstract Company had acted negligently in failing to initially issue sufficient insurance to cover the full inventory of the Council Electric store. However, the jury found against the plaintiff on his claim against General Insurance Company that an oral binder to insure the inventory to $50,000.00 resulted from the conversation between McAlvain and Muller in November of 1970.

Adams County Abstract Company contends that it cannot be held liable in tort for its failure to issue sufficient insurance to McAlvain because the only duties it owed to McAlvain were contractual. It argues that the mere failure to carry out contractual duties does not give rise to an action in tort, Taylor v. Herbold, 94 Idaho 133, 483 P.2d 664 (1971), and that under our holding in Benner v. Farm Bureau Mutual Ins. Co. of Idaho, Inc., 96 Idaho 311, 528 P.2d 193 (1974), McAlvain cannot obtain a judgment against the insurance agent. We disagree.

The plaintiff urged two alternative theories of liability to the jury, each of which centered upon a separate incident in his dealings with Adams County Abstract Company. The third cause of action was based upon his claim against the insurance agency for its alleged negligence in 1969 when his insurance policy was originally written. The fourth cause of action was his claim that the agency had bound the insurer, General Insurance Company, by an oral contract to increase his insurance based upon McAlvain's conversations with Muller in November, 1970. The plaintiff phrased these claims in the alternative and the jury verdict forms instructed the jury, erroneously we believe, that if it found liability under plaintiff's tort theory, it could not reach the issue contained in plaintiff's fourth cause of action against General Insurance Company. The reason for this approach was apparently to avoid the possibility of a double recovery, although it is possible that the jury could have found in McAlvain's favor on both theories, i. e., that the insurance agency was negligent in August, 1969, and also that it had bound the insurer, General Insurance Company, in November, 1970. Nevertheless, because of the manner in which these issues were submitted to the jury, and the jury's finding against McAlvain on Count 4 from which he has not appealed, we do not consider issues of liability arising out of the November, 1970, incident. Our sole concern in this appeal is whether an insurance agency which is...