E & S Facilities, Inc. v. Precision Chipper Corp.

• Decision Date: 12 April 1990
• Citation: 565 So.2d 54
• Parties: E & S FACILITIES, INC., et al. v. PRECISION CHIPPER CORPORATION, et al. BATES INSURANCE AGENCY, INC. v. PRECISION CHIPPER CORPORATION, et al. 87-1356, 87-1366.
• Court: Alabama Supreme Court

Page 54

565 So.2d 54

E & S FACILITIES, INC., et al. v. PRECISION CHIPPER CORPORATION, et al.

BATES INSURANCE AGENCY, INC. v. PRECISION CHIPPER CORPORATION, et al.

87-1356, 87-1366.

Supreme Court of Alabama.

April 12, 1990.

Rehearing Denied June 22, 1990.

Robert L. Williams of Norman, Fitzpatrick, Wood, Wright & Williams, and De Martenson of Huie, Fernambucq & Stewart, Birmingham, for appellant E & S Facilities, Inc.

Walter R. Byars of Steiner, Crum & Baker, Montgomery, and James S. Lloyd and James C. Gray III of Smith & Taylor, and Tom Burgess of Clark & Scott, Birmingham, for appellant Bates Ins. Agency, Inc.

Hobart A. McWhorter, Jr., John M. Johnson and Michael R. Pennington of Bradley, Arant, Rose & White, Birmingham, for appellees.

ADAMS, Justice.

This action comes before this Court on consolidated appeals involving alleged fraud in the procurement of products liability insurance insuring the appellee Precision Chipper Corporation (hereinafter "Precision"). The jury returned separate verdicts against Bates Insurance Agency, Inc. (hereinafter "Bates"), in the amount of $875,000 and against E & S Facilities, Inc. (hereinafter "E & S"), in the amount of $875,000. We affirm.

In late 1981, Precision contacted Bates, a Birmingham independent insurance dealer with whom Precision had dealt for its insurance needs since 1964, seeking products liability insurance for its products. Precision wanted the best insurance possible, and coverage that would leave no gaps. Bates conceded that it understood that Precision wanted "occurrence basis" insurance that would cover liability from occurrences that occurred within the policy period. Bates, along with E & S, an insurance broker/wholesaler, informed Precision that there were no such policies available and that the best it could do would be a "claims made" policy available from Beacon Insurance Company (hereinafter "Beacon"), which would base coverage on the time the actual claims were made.

E & S was the managing general agent for Beacon and Safety Mutual Casualty Corporation (hereinafter "Safety Mutual") and did the actual writing of the policies. Charles Garrison, vice president of E & S, wrote the policy proposal. Garrison included a special claims-made restriction in the policy that would deny coverage if an accident occurred within the policy period but a claim based on that accident was not made until after the policy period had expired. Garrison also included an exclusion in the policy that would exclude from coverage all products made before January 1, 1982. The restriction and the exclusion amounted to a denial of coverage unless the particular product was made on or after January 1, 1982, and a claim was filed before the end of the policy period--December 31, 1982. The total premium paid by Precision for the 1982 coverage amounted to $90,860. An "umbrella" policy was issued by Safety Mutual that provided that same products liability coverage for any liability in excess of $500,000. This policy contained the same claims-made restrictions. It was undisputed that the 1982 policy was on a claims-made basis.

Late in 1982, Bates came to Precision in an attempt to renew the insurance policy. At this time it was again made clear that Precision desired occurrence-basis insurance coverage. Again Bates informed Precision that the only type policy that was available was the claims-made type policy and recommended renewal of the current policy. Although the evidence is not clear, it appeared that Precision tentatively agreed to the renewal of the policy.

In January 1983, Precision was approached by Trammell-Harper Associates (hereinafter "Trammell-Harper") with a proposal of occurrence-basis coverage for all machines, regardless of the date of manufacture. Precision presented the proposal to Bates and informed it that if its companies were unable to provide similar coverage, then Precision would move its insurance business to Trammell-Harper. Bates, in turn, presented this Trammell-Harper proposal to Garrison at E & S. Garrison conveyed to Bates that he would "match" the Trammell-Harper proposal, or said something in words to that effect. Bates informed Precision that they would provide the same occurrence-basis type coverage as Trammell-Harper offered. Precision agreed to allow Bates to keep the account and write the new policy.

The policy Bates actually received from Garrison was not an occurrence-basis policy based on the evaluations of Bates personnel and outside insurance brokers. The policy, while written on an occurrence form, contained substantial changes, endorsements, and restrictions that varied from normal occurrence coverage. The final policy Bates received after changes were made by Garrison still contained the claims-made restrictions, although the restriction on the date of products manufactured was deleted. The actual policy stated in several places that it was a claims-made policy. Garrison's final word on the policy was that he had done everything he could do.

Marshall Culifer, vice president of Bates, reviewed the policy and contacted Garrison. Garrison stated that he knew it was not an occurrence policy and that it could not be. Bates sent written notice to Precision that occurrence coverage was in place. Precision was also sent a written insurance binder which indicated that coverage was on an occurrence basis and that it was a temporary policy to be in effect until the final policy was issued. Precision, however, did not receive a copy of the 1983 policy until some time in 1984, when Beacon began to deny coverage on several claims. A similar umbrella policy was also issued for 1983. During this period, Bates contacted various other insurance companies to see if there was an occurrence-basis policy available on the market to provide Precision with the type of coverage it desired.

Precision was never told of the doubts Bates had as to the current 1983 policy, nor of the attempts to locate broader insurance. Bates purchased the still-available Trammell-Harper occurrence policy for Precision for the 1984 year. However, Bates failed to purchase "tail coverage" which would eliminate the gaps caused by the switch of carriers. Precision was not told of these gaps. The gaps would result where an accident occurred before the new occurrence-basis coverage took effect and a claim was not made until after the 1983 claims-made basis policy (represented as "occurrence-basis") had expired.

In 1984, several lawsuits were filed against Precision based on 1982 and 1983 occurrences. Beacon denied coverage on these claims, as they did not fall within the coverage period. One claim, for example, was based on a 1983 occurrence but was not filed until 1984. Beacon denied coverage, stating that the 1983 policy was a claims-made policy and the claim was not made until 1984, and, thus, was outside the coverage period. When Beacon denied coverage on these claims, it attached a copy of the 1983 policy to the denial. This was the first time Precision had seen the policy; it subsequently realized it was a claims-made policy rather than an occurrence-basis policy.

On November 20, 1984, Precision filed suit against Bates, E & S, Beacon, and National Union Fire Insurance Company ("National Union"), alleging breach of contract, bad faith, and fraud, and seeking reformation of the policy to reflect the true intention of the parties. Precision later filed an amended complaint dismissing National Union, as service had never been made, and adding Safety Mutual as a defendant. In its amended complaint, Precision further alleged wanton and negligent failure to procure insurance coverage. Safety Mutual filed a complaint in intervention and sought a declaratory judgment that its 1982 and 1983 umbrella policies provided no coverage for the suits filed against Precision. Before trial, the claims against Beacon and Safety Mutual were severed by the trial court and the case proceeded to trial against Bates and E & S.

At the close of all the evidence, Precision amended its complaint to allege only fraudulent misrepresentation, deceit, and concealment, and negligent failure to procure insurance. These issues were presented to the jury.

The trial court submitted four separate verdict forms to the jury at the close of the trial: one which would allow the jury to return a verdict on behalf of both defendants; one which would permit the jury to return a verdict against one defendant, but not the other; and two separate forms to return verdicts against each defendant. The four verdict forms were agreed upon as requested by the defendants during the charge conference.

The jury returned separate verdicts against each defendant, with one verdict assessing damages against Bates in the amount of $875,000 and the other assessing damages against E & S in the amount of $875,000. At the request of counsel, the court inquired of the foreman whether the jury intended to award a total of $875,000 or $875,000 against each defendant for a total of $1,750,000. The foreman indicated that the jury intended to award $875,000 against each defendant. The trial court entered the separate judgments against Bates and E & S.

The defendants timely filed motions for judgment notwithstanding the verdict, new trial, and remittitur. The defendants also filed motions to alter, amend, or vacate the judgment on the grounds that a court order signed by the trial judge after the verdicts were rendered described events that occurred off the record and failed to set out all the facts in a clear, fair, and impartial manner. All post-judgment motions were not ruled on by the trial court and were deemed overruled as a matter of law after 90 days, pursuant to Rule 59.1, A.R.Civ.P. After the defendants appealed to this Court, the case was remanded to the trial court for an order on the question of excessiveness of the jury verdict, pursuant to Hammond v. City of Gadsden, 493 So.2d 1374 (Ala.1986).

The parties raise...