Safeco Ins. Co. of America v. Hamm

• Decision Date: 30 August 1989
• Docket Number: No. 86-341 C(5).,86-341 C(5).
• Citation: 718 F. Supp. 744
• Parties: SAFECO INSURANCE COMPANY OF AMERICA, Plaintiff, v. Kristine HAMM, Joseph L. Thomas, Michele R. Ritcher, Douglas Robinson, Shelly A. Jones, Todd Alan Shipp, Gary Hamm and Bill Powell and Patricia Powell, Individually and d/b/a K & B Quick Shop, Defendants.
• Court: U.S. District Court — Eastern District of Missouri

718 F. Supp. 744

SAFECO INSURANCE COMPANY OF AMERICA, Plaintiff, v. Kristine HAMM, Joseph L. Thomas, Michele R. Ritcher, Douglas Robinson, Shelly A. Jones, Todd Alan Shipp, Gary Hamm and Bill Powell and Patricia Powell, Individually and d/b/a K & B Quick Shop, Defendants.

No. 86-341 C(5).

United States District Court, E.D. Missouri, E.D.

August 30, 1989.

William F. James, Wuestling & James, St. Louis, Mo., for plaintiff.

Frank B. Green, St. Louis, Mo., for Bill and Patricia Powell.

Brian P. Seltzer, St. Louis, Mo., for Kristine and Gary Hamm.

MEMORANDUM

LIMBAUGH, District Judge.

By way of introduction, but otherwise unnecessary for the resolution of the issues in this case, the Court relays the following statement of facts. On November 1, 1985, Joseph L. Thomas purchased intoxicating beverages from K & B Quick Shop. Todd Alan Shipp thereafter consumed the intoxicating liquor that Thomas had purchased, and proceeded to operate an automobile in an intoxicated state. Shipp was operating the automobile while Thomas, Kristine Hamm, Michele Richter, Douglas Robinson and Shelly Jones were passengers in the car. The car was involved in a one-car collision on Old Jamestown Road in St. Louis County.

Gary Hamm is the father of Kristine Hamm, a minor. Miss Hamm apparently was pregnant at the time of the accident. As a result of the collision, Kristine Hamm sustained personal injuries, including the death of her fetus. Gary Hamm contends, on behalf of his daughter, that the death of the fetus was a direct and proximate result of the illegal sale of alcohol to Joseph Thomas, a minor, with such alcohol being subsequently consumed by Todd Shipp, thereby causing the accident due to Shipp's intoxicated state.

Apparently, each of the parties in the car has indicated an intention to seek damages for personal injuries from Bill Powell and Patricia Powell, the owners of the K & B Quick Shop. Plaintiff Safeco Insurance Company contends that it did not provide coverage to Bill and Patricia Powell for any cause of action based upon an illegal sale of alcohol. Plaintiff brings this action seeking declaratory judgment as to its responsibilities due and owing defendants Bill and Patricia Powell under the insurance policy plaintiff issued to them.

This suit was submitted to the Court on the pleadings, deposition testimony, documents and the stipulation of the parties. The Court, being fully advised in the premises, hereby makes the following findgs of fact and conclusions of law, as required by Federal Rule of Civil Procedure 52.

I. Findings of Fact.

Plaintiff Safeco Insurance Company is a lawfully organized corporation organized under the laws of the State of Washington, with its principal place of business therein. Plaintiff was authorized to do business in the State of Missouri, and generally engaged in the insurance business.

Defendants Bill Powell and Patricia Powell are citizens of Missouri, and do business as K & B Quick Shop. Defendant Todd Alan Shipp, as well as defendants Kristine Hamm, Joseph Thomas, Michele Richter, Douglas Robinson and Shelly Jones, are also citizens of the State of Missouri.

Defendants Powell have operated K & B Quick Shop since April 1982. The Powells called Agents Insurance to obtain coverage on their store. They dealt with an agent named Richard Ruff, who was gainfully employed as an insurance broker engaged in soliciting clients to place insurance with various carriers.

When Mr. Ruff and the Powells discussed business coverage, Powell indicated that he wanted full coverage. He was interested in having Ruff place full coverage in the business at the best possible rate. After talking with the Powells, Ruff returned to the office to discuss the application with the owner of the agency, who assisted Ruff in filling out the application. After that, Ruff took the application to Safeco and discussed it with their underwriter. Ruff chose Safeco as the carrier because it offered additional options covering glass, signs, greater coverage for employee dishonesty and money loss off premises.

There was nothing in the application form that Ruff prepared which indicated that the Powells engaged in or sold liquor. Ruff had advised the underwriter that liquor was sold and provided the underwriter with information as to what the percentage was between liquor and gross sales. Mr. Ruff never requested coverage for any liquor exposure, however, claiming that he was under the impression that it was automatically included in the policy.

When Ruff received the policy, he reviewed only the coverage sheet to make sure the monetary limits requested were present. When the policy was delivered to Powell, the only items discussed were the monetary limits and the amount of the deductible. The Powells never looked at the policy and never reviewed it, never read it, nor asked any questions about it.

Under the policy issued by plaintiff to the Powells, the initial policy period running from November 1982 to November 1983, liquor liability was specifically excluded from coverage under the policy. This was because at the time the policy was initially issued plaintiff did not write "liquor liability" in the State of Missouri.

The initial policy did contain a provision for optional "updating" which provided in essence that plaintiff herein may, by endorsement or by substitution of forms, offer to defendants Powell, for future policy periods, the same or similar coverage that plaintiff at that time might be offering to the public at large.

After the first year of coverage expired, policy renewals were automatically initiated by Safeco in that prior to expiration of a current policy period, Safeco prepared and sent the renewal on its own initiative and made automatic increases in the building and contents coverages based upon an automatic inflation factor without any specific request or instruction from the Powells. Safeco made two such automatic renewals of the policy for the periods November 1983 to 1984 and November 1984 to 1985. The Powells accepted the automatic renewals and paid any premium increases as billed, without questions or objection.

On May 16, 1983, while the Powells' first year of coverage was in effect, plaintiff did begin to offer in Missouri "liquor liability" coverage. The price charged for this endorsement was a fixed charge of $15.00. Safeco announced this to all of its "agents" in a "Safeplan News Letter" dated June 3, 1983. That news letter specifically indicated that if coverage was desired, to send plaintiff an endorsement request. No endorsement for the Powells was ever made, received or issued including liquor liability coverage. Mr. Ruff contends that he never saw the news letter.

Plaintiff's initial policy excluding liquor liability remained in the same form on November 1, 1985, the date of the accident, as it was on the date of its original issue in November 1982. Safeco unilaterally undertook to renew the Safeplan policy insuring the Powells for the two subsequent policy periods without offering to update its liability coverage to include its newly available liquor liability coverage. The Powells argue that plaintiff knew the Powells' business activity included the sale of packaged liquor goods, and consequently the omission of the liquor endorsement from the renewal policy was a mistake.

II. Conclusions of Law.

This Court has jurisdiction pursuant to 28 U.S.C. § 1332 because of the diversity of citizenship and an amount in controversy exceeding $10,000. Thus, the substantive law of Missouri applies under the circumstances of this case.

Under Missouri law, construction of insurance contracts is governed by the same general rules as are applied to the construction of other written contracts. Driskill v. American Family Ins. Co., 698 F.Supp. 789, 792 (E.D.Mo.1988); Jordan v. Equitable Life Ins. Co., 486 S.W.2d 664, 666 (Mo.App.1972). The insurance policy is simply a contract involving matters of basic contract law. The insurance company's liability is determined by the terms of the contract of insurance as contained in the policy. Levin v. State Farm Mut. Auto Ins. Co., 510 S.W.2d 455, 461 (Mo. banc 1974); Frisella v. Reserve Life Ins. Co. of Dallas, 583 S.W.2d 728, 733 (Mo.App.1979).

Whatever verbally transpired between the contracting parties is superseded and merged in a subsequent written policy issued by the insurer and accepted by the insured. Young v. Ray America, Inc., 673 S.W.2d 74, 79 (Mo.App.1984); Hartford Acc. & Indem. Co. v. Farmington Auction, Inc., 356 S.W.2d 512, 519 (Mo.App. 1962). An insured has a reasonable time to accept or reject the policy after it is delivered. If the insured keeps the policy for a reasonable length of time, he is deemed to have accepted it. Hartford, 356 S.W.2d at 519. When the insured keeps the contract, thereby accepting its terms, the insured is bound in law to have known the contents of the instrument whether he read it or not. U.S. v. Home Life Ins. Co., 508 F.Supp. 559, 564 (E.D.Mo.1980); Hartford, 356 S.W.2d at 519.

With automatic renewals of insurance policies, each renewal is a new contract. Renewal of the insurance policy constitutes a separate and distinct contract for the period of time covered by the renewal. Bell v. O'Leary, 577 F.Supp. 1361, 1366 (E.D.Mo.1983), affirmed, 744 F.2d 1370 (...