PREMIUM CIGARS INTERN. v. FARMER-BUTLER-LEAVITT INS.

• Decision Date: 19 August 2004
• Docket Number: No. 1 CA-CV 03-0310.,1 CA-CV 03-0310.
• Citation: 208 Ariz. 557,96 P.3d 555
• Parties: PREMIUM CIGARS INTERNATIONAL, LIMITED, an Arizona corporation; Peter G. Charleston and Jane Doe Charleston, husband and wife, Plaintiffs-Appellants, v. FARMER-BUTLER-LEAVITT INSURANCE AGENCY, an Arizona corporation; Michael J. Auditore and Susan Auditore, husband and wife; Cindy Herrera; Stewart Smith West of Arizona, Inc., an Arizona corporation; Donna Engler and John Doe Engler, wife and husband, Defendants-Appellees. Premium Cigars International, Limited, an Arizona corporation; Peter G. Charleston and Jane Doe Charleston, husband and wife, Plaintiffs/Cross-Appellees, v. Farmer-Butler-Leavitt Insurance Agency, an Arizona corporation; Michael J. Auditore and Susan Auditore, husband and wife; Cindy Herrera, Defendants/Cross-Appellants.
• Court: Arizona Court of Appeals

96 P.3d 555

208 Ariz. 557

PREMIUM CIGARS INTERNATIONAL, LIMITED, an Arizona corporation; Peter G. Charleston and Jane Doe Charleston, husband and wife, Plaintiffs-Appellants, v. FARMER-BUTLER-LEAVITT INSURANCE AGENCY, an Arizona corporation; Michael J. Auditore and Susan Auditore, husband and wife; Cindy Herrera; Stewart Smith West of Arizona, Inc., an Arizona corporation; Donna Engler and John Doe Engler, wife and husband, Defendants-Appellees.

Premium Cigars International, Limited, an Arizona corporation; Peter G. Charleston and Jane Doe Charleston, husband and wife, Plaintiffs/Cross-Appellees, v. Farmer-Butler-Leavitt Insurance Agency, an Arizona corporation; Michael J. Auditore and Susan Auditore, husband and wife; Cindy Herrera, Defendants/Cross-Appellants.

No. -0310.

Court of Appeals of Arizona, Division 1, Department D.

August 19, 2004.

Jennings, Haug & Cunningham, L.L.P., by Larry J. Crown, William F. Begley, Jorge Franco, Jr. and Plattner Verderame, P.C., by Leroy W. Hoffman, Phoenix, Attorneys for Plaintiffs-Appellants/Cross-Appellees.

Quarles & Brady Streich Lang L.L.P., by Lonnie J. Williams, Jr., Phoenix, Attorney for Defendants-Appellees Stewart Smith West of Arizona, Inc. and Donna Engler.

The Hassett Law Firm P.L.C., by Myles P. Hassett and Thomas E. McCauley, Jr., Phoenix, Attorneys for Defendants-Appellees/Cross-Appellants Farmer-Butler-Leavitt Insurance Agency, Michael J. Auditore, Susan Auditore and Cindy Herrera.

Paul G. Ulrich, P.C., by Paul G. Ulrich and Ellen B. Davis, Phoenix, Attorneys for Amicus Curiae Independent Insurance Agents and Brokers of Arizona.

OPINION

EHRLICH, Judge.

¶ 1 Premium Cigars International, Ltd., and Peter G. and Jane Doe Charleston (collectively "Premium") appeal from the trial court's summary judgment to Farmer-Butler-Leavitt Insurance Agency, Michael J. Auditore and his wife, and Cindy Herrera (collectively "Insurance Agency") and to Stewart Smith West of Arizona, Inc. and Donna and John Doe Engler (collectively "SSW"). The court concluded that a claim for professional negligence is not assignable to third-party claimants, and it dismissed Premium's negligence and breach-of-contract claims against Insurance Agency and Premium's negligence claim against SSW. Premium urges this court to reverse because it contends that both professional negligence claims and a breach-of-contract claim against an insurance agent (Insurance Agency) and a surplus insurance lines broker (SSW) are assignable.¹

¶ 2 Insurance Agency cross-appeals from the trial court's prior denial of summary judgment in which the court ruled that Premium's complaint against Insurance Agency for breach of contract or professional negligence was timely filed. Insurance Agency asserts that it was entitled to summary judgment because Premium's claim is only for professional negligence, a tort, and the complaint was not filed within the applicable two-year statute of limitations. Insurance Agency also asserts that Premium should not be permitted to support its breach-of-contract claim with deposition testimony of unrepresented parties to the instant lawsuit.

FACTS² AND PROCEDURAL HISTORY

¶ 3 In December 1996, Premium Cigars International, a tobacco wholesaler, obtained commercial general liability insurance through Auditore of the Insurance Agency. As part of an agreement with a distributor, Premium required a large tobacco liability policy. In order to obtain this amount of insurance, Auditore had to go to the excess and surplus lines market. He contacted SSW, an Arizona-licensed surplus lines broker.³ SSW obtained commercial general liability insurance through General Star Indemnity Company, the issuing insurer, and General Star Management Company, the underwriting agent for General Star Indemnity Company (collectively "General Star"),⁴ for the policy period December 29, 1996 to December 29, 1997.

¶ 4 On September 10, 1997, Karissa Nisted, Premium's Chief Financial Officer, met Auditore at the Insurance Agency offices to review Premium's insurance coverage. On that day, Auditore instructed Herrera, another Insurance Agency employee, to process the requested hired auto and non-owned automobile liability insurance ("HNO") coverage. Herrera contacted SSW, which, in turn, contacted General Star regarding the HNO coverage. SSW did not have contact with Premium but, rather, inquired about Premium through Insurance Agency. The requested and assured effective date of the HNO coverage is highly disputed, but there is no doubt that General Star added the HNO coverage to Premium's policy effective September 18, 1997.

¶ 5 On September 16, 1997, two days before the effective date of the HNO coverage, Charleston, a Premium employee, was involved in a car accident while taking Premium clients from the airport to the Premium Phoenix office in his personal car. General Star denied coverage to Premium for Charleston's accident because the HNO coverage was not effective on that date. Without that coverage, neither Premium nor Charleston was covered under Premium's commercial general liability policy for the claims of the accident victims.

¶ 6 Premium retained a law firm to defend itself and Charleston against the claims of the accident victims ("Claimants"). The Claimants, Premium, Charleston and Charleston's personal automobile insurer then entered a Settlement Agreement and Covenant Not To Execute. In consideration of the settlement payment in the amount of the limit of Charleston's personal coverage, the Claimants agreed not to execute against Premium for any past, present or future claims arising from the accident. The Claimants also agreed that they would "not seek further execution of collection on any judgment in this matter" from Premium, Charleston or Charleston's insurer. Additionally,

2.2 The Parties agree that Defendants, and each of them, may be named as Defendants in a prospective lawsuit to be brought by the [Claimants], or any of them. In any such lawsuit, Defendants will defend as appropriate. Defendants acknowledge their joint liability for the injuries and damages to [Claimants], which injuries and damages are the direct and proximate result of the negligence of Peter Charleston while acting in the course and scope of his employment with [Premium].

* * *

3.2 Defendants [Premium] and Charleston further agree and acknowledge that [Claimants], or any of them, and their counsel may prosecute any such action as is deemed appropriate against the insurance agents and brokers who were involved in the attempted procurement of automobile liability insurance coverage by [Premium]. [Premium] and Peter Charleston agree that any such action may be instituted in the names of [Premium] and/or Charleston, as plaintiffs, and that [Premium] and Charleston will cooperate and assist in all manner as is reasonably requested by [Claimants] in connection with the prosecution of such claims and/or litigation. Said claims may be brought in the name of [Premium] and/or Peter Charleston and will be prosecuted for the exclusive benefit of [Claimants], who shall be entitled to any sums collected on any judgment, settlement or other payment resulting from the resolution of said claims. The Parties further agree that the prosecution of such claims against the insurance agents and/or brokers shall be at the sole expense of those [Claimants] who choose to pursue such claims, and, who shall indemnify and hold Defendants harmless from any costs, expenses or attorney's fees incurred in connection with said claims and/or litigation.

¶ 7 The Claimants, with the exception of one accident victim, subsequently filed a complaint against Premium and Charleston for negligence and vicarious liability, seeking damages for their injuries from the accident. A default hearing was held during which the Claimants presented unopposed testimony. On June 23, 2000, a judgment of $3.825 million was awarded to the Claimants against Premium.

¶ 8 The Claimants then, in the name of Premium, filed a complaint against Insurance Agency, asserting, among other claims, breach of contract and negligence. The general factual basis of Premium's complaint was that Nisted had demanded and was subsequently assured by Auditore that the HNO coverage was effective September 10, 1997, and that, relying on the fact of coverage, she had allowed Charleston and other Premium employees to drive their own cars while conducting Premium business. Premium specifically alleged that Insurance Agency had breached a contract to purchase HNO coverage that would be effective September 10, 1997. Premium also specifically alleged that Insurance Agency was negligent and had breached its duty of care.⁵

¶ 9 Premium amended its complaint on June 22, 2001, claiming that SSW had been negligent. Premium contended that General Star had contracted with SSW to act and serve as General Star's agent and/or broker and was therefore responsible for processing insurance requests from General Star. Premium argued that SSW was hired specifically to serve as General Star's intermediary between it and potential insureds of General Star and that, as such, SSW was a dual agent acting both for General Star and for Premium. Because Insurance Agency was an intermediary, Premium contended, Insurance Agency was required to communicate directly and exclusively with SSW for the procurement of any insurance from General Star. Thus, Premium continued, as an intermediary between Insurance Agency and General Star, SSW was an agent or subagent that knowingly acted on its behalf and thereby owed Premium duties similar to those that Insurance Agency owed Premium.

¶ 10 Insurance Agency moved for summary judgment, claiming that Premium had failed to file its complaint within the two-year statute of limitations. Ariz.Rev.Stat. ("A.R.S.") § 12-542 (2003). Insurance Agency calculated that, since the instant suit involves damages in the form of attorneys' fees incurred in responding to the claims in the...