Moore v. Kluthe & Lane Ins. Agency, Inc.

• Decision Date: 03 October 1975
• Docket Number: No. 11377,11377
• Citation: 89 S.D. 419,234 N.W.2d 260
• Parties: David P. MOORE and Ada Moore, Plaintiffs and Respondents, v. KLUTHE & LANE INSURANCE AGENCY, INC., a South Dakota Corporation, Defendant and Appellant.
• Court: South Dakota Supreme Court

Page 260

234 N.W.2d 260

89 S.D. 419

David P. MOORE and Ada Moore, Plaintiffs and Respondents, v. KLUTHE & LANE INSURANCE AGENCY, INC., a South Dakota Corporation, Defendant and Appellant.

No. 11377.

Supreme Court of South Dakota.

Oct. 3, 1975.

Lynn, Jackson, Shultz, Ireland & Lebrun, Rapid City, for plaintiffs and respondents.

Costello, Porter, Hill, Banks & Nelson, Rapid City, for defendant and appellant.

COLER, Justice.

Plaintiffs, David and Ada Moore, were awarded by virtue of a jury verdict $9,000 for damages to their mobile home and $4,250 for damages to the contents of the mobile home occasioned by the June 9, 1972, Rapid City flood. The claim is based on the theory of negligent misrepresentation by an agent of the defendant as to the coverage of the policy in force as issued by Reserve Insurance Company of Chicago, Illinois. We affirm.

The numerous assignments of error relate essentially to the questions of whether: (1) a cause of action exists within this state for negligent misrepresentation and, if so, the propriety of the instructions under that theory; (2) the instructions given properly reflected the measure of damages to be applied; (3) the testimony of certain witnesses as to the value of the property was properly admitted, and whether the trial court erred; (4) in denying offers of proof of (a) receipts by plaintiffs from other sources under a claimed exception to the collateral source rule and (b) as to the liability of the agent to the defendant.

David Moore, a professor of foreign languages at the South Dakota School of Mines and Technology, and Ada, his German-born wife, bought the mobile home in May of 1970 for $8,250, which did not include certain appliances. Hugh Dougherty, an agent of Kluthe & Lane Insurance Agency, Inc., who lived in the same trailer court where the plaintiffs' mobile home was then parked, had sold an insurance policy on that mobile home to the previous owner and solicited from and sold to the Moores the same type policy on May 1, 1970.

On May 19, 1970, this coverage was increased from $8,000 to $10,000 on the mobile home and from $2,400 to $5,000 on the unscheduled personal property after plaintiffs had installed central air conditioning, replaced the appliances, added now skirting and added some furniture. Due to a number of factors, the plaintiffs found themselves compelled to move the mobile home in the fall of 1970 from the site on which it was placed when originally insured to a location in the proximity of Rapid Creek at a place aptly named 'Brookside Trailer Court.'

The testimony of both Mr. & Mrs. Moore, who had previously experienced flooding of their home in Omaha, reflects their recognition of the need for flood coverage on the mobile home and its contents at its new location. They doubted that they were afforded such coverage under the existing homeowners policy, which they acknowledged they had not read, and went to talk with Mr. Dougherty in the fall of 1970 in the offices of Kluthe & Lane Insurance Agency, Inc., Rapid City, South Dakota, to secure that coverage. It is the subject matter covered in that conversation, which admittedly took place, which was principal fact issue before the jury.

Mr. Moore's testimony, supported by that of his wife, was to the effect that Mr. Dougherty assured him that mobile home insurance coverage, being different from the regular homeowners policy on a home, had a comprehensive clause which afforded flood protection. Mr. Moore testified that Mr. Dougherty had shown him, in a company pamphlet, the language that governed which related to water damage. Mrs. Moore did not participate in the initial conversation; however, she testified that Mr. Dougherty, in her presence, did not deny the statement made by Mr. Moore that Mr. Dougherty had assured him that their present contract of insurance covered flood damage. If believed by the jury, the most damaging testimony was that of Mr. Moore regarding final assurance purportedly given by Mr. Dougherty that the coverage was afforded. ¹

Mr. Dougherty denied that any such statements were made by him and testified that the conversation dealt only with the explanation of the provisions of the plaintiffs' policy and that he went through the named perils but did not review the exclusions contained in later language of the policy.

The contract in force was not in evidence as it had been cancelled, following denial of the claim on flood damage, and returned to the company. However, the defendant placed in evidence pamphlets which contained the essentials of the two insurance contracts which Reserve Insurance Company issued on the mobile homes at the time. Apparently, Moores were issued what is called by that company its 'Preferred Mobile Homeowners Policy' which, in 23 pages of fine print, is not a comprehensive coverage but rather coverage of 19 named perils covering three and one-half pages. This list of perils contains no reference to flood damage. Certain perils are excluded from coverage under that policy if they result from flooding under later provisions of the policy. The other policy, with a slightly different coloration on the cover but substantially the same in design, is titled 'Standard Mobile Home Insurance Policy.' It is only 17 pages long and does, by virtue of a broad-form comprehensive protection, afford flood protection. The 'standard' policy, being more comprehensive, apparently carried with it a premium of approximately $155 more than the 'preferred' and if Mr. Dougherty had issued the 'standard' policy he would have realized an additional commission of $30. Mr. Dougherty, by his own admission, did not push the 'standard' policy with its comprehensive coverage. Because of the cost to the insured, he considered the 'preferred' as a better buy. It is on the foregoing controverted facts that the issue of whether a cause of action exists for negligent misrepresentation must be determined. The issue of whether a cause of action is stated by the plaintiffs' complaint must be resolved in relationship to the extent to which this court intended to make available a right of action based upon negligent misrepresentation within the framework of our statutes and the common law. This court, for more than 30 years, has recognized the existence of such a cause of action. Quoting from Shearman & Redfield on Negligence, Rev.Ed., § 30, the cause of action was recognized by our court in Boos v. Claude, 1943, 69 S.D. 254, 9 N.W.2d 262, but as therein stated:

'However, the rule is not without its limitations. As stated in the case of International Products Co. v. Erie R. Co., 244 N.Y. 331, 155 N.E. 662, 664, 56 A.L.R. 1377; '* * * there must be knowledge, or its equivalent, that the information is desired for a serious purpose; that he to whom it is given intends to rely and act upon it; that, if false or erroneous, he will because of it be injured in person or property. Finally, the relationship of the parties, arising out of contract or otherwise, must be such that in morals and good conscience the one has the right to rely upon the other for information, and the other giving the information owes a duty to give it with care.'"" 69 S.D. at 260, 9 N.W.2d at 264.

While Boos v. Claude, supra, was decided upon an orally made express warranty given in connection with the sale of a motor vehicle, it did recognize one of the earliest applications of that theory in tort law. See Prosser, Torts, 4th Ed., Ch. 18, § 107, p. 710. This court has not, since Boos v. Claude, supra, been called upon to reexamine the doctrine and its development. The plaintiffs would have us extend the application of negligent misrepresentation and the defendant would have us limit the application to warranty situations and require compliance with SDCL 20--10, entitled 'Liability For Deceit,' to cases such as the one under consideration.

SDCL 20--9--1 is declarative of our basic negligence law. It does not by its terms exclude the consideration of negligence in the written or spoken word which brings about 'injury to the person, property, or rights of another caused by his willful acts or caused by his want of ordinary care or skill, subject in the latter cases to the defense of contributory negligence.' SDCL 20--10 is declarative of common law rule. Waggoner v. Midwestern Development, Inc., 1967, 83 S.D. 57, 154 N.W.2d 803. Certainly, SDCL 20--9--1 grants a cause of action for willful acts as well as for ordinary negligence. The distinction between the causes of action are essentially in the degree of proof and in the damages that may be awarded, i.e., punitive or exemplary. SDCL 21--3--2; Kunz v. Johnson, 1953, 74 S.D. 577, 57 N.W.2d 116. We do not, contrary to the construction called for by the defendant, deem SDCL 20--9 and 20--10 as mutually exclusive but construe them as compatible. We do not construe SDCL 20--10 as exclusive in cases of misrepresentation since there are varying degrees which are the subject of different claims for damages. Neilson v. Edwards, 1914, 34 S.D. 399, 148 N.W. 844, quite properly pointed out that earlier decisions of this court improperly equated the provision of SDCL 53--4--5, governing fraud in contract law, with SDCL 20--10--1 and 20--10--2. This court found no cause for overruling Neilson v. Edwards, supra, in Boos v. Claude, supra, and we see no compelling reason to do so as this claim too is based on tort, not contract law.

The development of the law on negligent misrepresentation since the pronouncements in Boos v. Claude, supra, is traced in numerous writings on the subject. Prosser, Torts, 4th Ed., Ch. 18, § 107; Restatement, Torts, § 552; Francis Bohlen, Misrepresentation As Deceit, Negligence or Warranty, 42 Harv.L.Rev. 733. These writings reflect the diversity among jurisdictions in defining the rights accruing under this theory of negligence, as does the work of Shearman & Redfield on Negligence, supra. Both the right and corresponding limitations as ...