Stein, Hinkle, Dawe & Associates, Inc. v. Continental Cas. Co.

Decision Date20 October 1981
Docket NumberDocket No. 78-5270
Citation313 N.W.2d 299,110 Mich.App. 410
PartiesSTEIN, HINKLE, DAWE & ASSOCIATES, INC., Richard C. Frank and Morris H. Stein, Plaintiffs-Appellees, v. CONTINENTAL CASUALTY CO, Defendant-Appellant.
CourtCourt of Appeal of Michigan — District of US

Willingham, CotEe, Hanslovsky, Griffith & Foreman, P. C., East Lansing by John L. CotEe, John A. Yeager and Frederick M. Baker, Jr., East Lansing, for plaintiffs-appellees.

Reid, Reid, Mackay, Emery & DeVine, P. C., Lansing by Fred C. Newman, Lansing, for defendant-appellant.

Before KELLY, P. J., and BRONSON and DANIELS, * JJ.

KELLY, Presiding Judge.

Plaintiffs commenced this action seeking a judgment declaring that defendant was obligated under certain provisions of an architects and engineers professional liability insurance policy to defend a suit brought against plaintiffs by Bank of Lansing and to pay any judgment that might be rendered in favor of the Bank of Lansing. See Bank of Lansing v. Stein, Hinkle, Dawe & Associates Architects Inc., 100 Mich.App. 719, 300 N.W.2d 383 (1980). The defendant insurance company appeals as of right from a judgment and order entered in favor of plaintiffs.

In 1964, plaintiffs Richard Frank and Morris Stein began an architectural and engineering business. Between 1964 and 1969, plaintiffs contracted with the Mourer-Foster Insurance Agency for a "claims made" professional liability insurance policy with defendant Continental Casualty Company. Under a "claims made" policy, the insured party must maintain continuous coverage in order to have protection against liability for malpractice if the claim is not made in the same policy year in which the alleged negligent act occurred. Because of a lack of business between 1969 and 1971, plaintiffs did not continue their insurance policy. In 1971, they renewed their contract with the Maurer-Foster Agency for defendant's "claims made" professional liability insurance policy. According to Stein, plaintiffs were not informed of the consequences of cancelling their insurance in 1969, nor were they advised that a "prior acts" endorsement was available when they renewed their insurance in 1971.

While plaintiffs' 1967 and 1968 insurance policy was in effect, they contracted with Mr. Jim Duncan to perform professional services during Duncan's construction of the Normandy Meadows project including approval of requests for contractors draws from the lender, the Bank of Lansing. From December, 1967, through July, 1968, plaintiffs inspected the construction site on a monthly basis and signed certificates upon which the Bank of Lansing paid the contractor. On January 10, 1973, the Bank of Lansing filed a complaint against plaintiffs alleging fraud. The complaint was amended on April 26, 1973, adding a second count alleging breach of duty. When plaintiffs informed Continental about the suit, it refused to defend plaintiffs, claiming that plaintiffs' failure to continue the insurance policy in 1969 and 1970 released Continental from any duty to defend plaintiffs.

On May 2, 1973, plaintiffs commenced this action. On March 23, 1978, they filed their third amended complaint seeking in Count I a declaratory judgment that defendant was obliged to defend plaintiffs in the Bank of Lansing action, damages for defendant's refusal to defend, and exemplary damages for Frank and Stein. Count II of the complaint sought a declaratory judgment that certain provisions of defendant's insurance policy, including the continuous coverage provision, were illegal and contrary to public policy. Finally, in Count III, plaintiffs alleged that the continuous coverage provision of the policy was misleading and ambiguous and that defendant failed to advise them of the consequences of failing to maintain continuous coverage. Plaintiffs prayed for declaratory relief, actual damages and exemplary damages for Frank and Stein.

During trial, the court submitted proposed special findings of fact to the jury. With respect to the 1968 insurance policy, the jury found that plaintiffs were not warned by defendant's agent or the policy that cancellation of their insurance would lead to the loss of protection from their prior policies. The jury also found that plaintiffs would not have cancelled their policy if they had known the consequences. As to the 1971 policy, the jury found that Mourer-Foster, an authorized agent of defendant, did not inform plaintiffs of defendant's prior acts endorsement which was available and that plaintiffs would have purchased the endorsement if they had been aware of its availability. Finally, the jury found plaintiff Stein entitled to $55,000 and plaintiff Frank entitled to $40,000 for damages arising from mental anxiety.

On the declaratory relief requests, the court found that defendant had a duty to defend plaintiffs in the suit filed by Bank of Lansing. The court also found that the provisions of the insurance policy were not contrary to public policy and were not ambiguous. Furthermore, the court found defendants liable for the attorney fees expended by plaintiffs in defense of the Bank of Lansing action. The court retained jurisdiction so that it could determine if any future damages should be awarded. When defendant's motion for a new trial was denied, it brought this appeal, raising a number of issues.


On appeal, defendant argues that the trial court erred when it found that defendant had a duty to warn plaintiffs of the adverse consequences of cancelling their insurance policy. Defendant also contends that it did not have a duty to inform plaintiffs of the existence of a prior acts endorsement when plaintiffs reapplied for insurance in 1971. According to defendant, the trial court erred by reforming the insurance policy based upon defendant's alleged breach of duty. Plaintiffs counter by arguing that the court properly found defendant had a duty to warn plaintiffs and defendant's breach of this duty prevented defendant from claiming the coverage exclusion contained in the insurance policy.

An insurance agent does not generally have an affirmative duty to advise a client about the adequacy of a policy's coverage. Palmer v. Pacific Indemnity Co., 74 Mich.App. 259, 267, 254 N.W.2d 52 (1977); Hardt v. Brink, 192 F.Supp. 879, 880 (WD Wash., 1961). However, where a special relationship exists with the insured, an agent has the duty to advise the insured. Palmer, supra, 74 Mich.App. 267, 254 N.W.2d 52; Hardt, supra, 881. In Hardt, defendant insurance agent had procured all of plaintiff's insurance for 10 years. Plaintiff, a manufacturer, bought a fire insurance policy which excluded any buildings leased by plaintiff. When a building leased by plaintiff was damaged by fire, plaintiff was unable to recover under the insurance policy and brought an action against the agent. The court found that the agent had a duty to advise stating:

"Whether or not an additional duty is assumed will depend upon the particular relationship between the parties. Each case must be decided on its own peculiar facts. The law here involved is not particularly startling nor is it necessarily an extension over previous cases. This is an age of specialists and as more occupations divide into various specialties and strive towards 'professional' status the law requires an ever higher standard of care in the performance of their duties. Restatement (Second) Torts, § 299A (Tent. Draft No. 4, 1959)." Id., 881.

The existence of a special relationship is a question of fact. Palmer, supra, 74 Mich.App. 267, 254 N.W.2d 52. Where the duty to advise has been breached, the insurance agent is liable for any damages resulting from the breach. Hardt, supra, 882.

In the instant case, the evidence established that the Mourer-Foster Insurance Agency had handled all of plaintiffs' insurance needs, including their malpractice insurance, for ten years. The evidence also established that Mourer-Foster was an agent of defendant, Continental. From 1962 until 1969, plaintiffs bought their malpractice insurance from Continental through Mourer-Foster. When plaintiffs elected not to renew their malpractice insurance, Mourer-Foster failed to inform them of the consequences of their failure to renew. In 1971, plaintiffs decided to renew their malpractice insurance asking Mourer-Foster to obtain a policy which would cover them against all liabilities. Mourer-Foster insured plaintiffs with Continental but failed to inform plaintiffs of Continental's prior acts endorsement which would have protected them in the Bank of Lansing action. The trial court concluded that a special relationship existed between plaintiffs and defendant and that a question of fact was presented whether defendant, through its agent, Mourer-Foster, failed to properly advise plaintiffs. The jury found that plaintiffs were neither warned of the consequences of cancelling the 1969 policy nor informed of the availability of the prior acts endorsement in 1971.

GCR 1963, 517.1 provides that findings of fact made by a trial court shall not be set aside unless clearly erroneous. A finding of fact is clearly erroneous when, although there is evidence to support it, the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake has been made. Tuttle v. Dep't of State Highways, 397 Mich. 44, 46, 243 N.W.2d 244 (1976). In this case, the trial court's findings of fact were not clearly erroneous.

Defendant also argues that the trial court rewrote the insurance policy. Insurance policies, like contracts, are agreements between the parties which the courts interpret and enforce. Eghotz v. Creech, 365 Mich. 527, 530, 113 N.W.2d 815 (1962). Courts can neither make a new agreement for the parties nor, by addition, give it a meaning contrary to its express and unambiguous terms. Bonney v. Citizens' Mutual Automobile Ins. Co., 333 Mich. 435, 438-439, 53 N.W.2d 321 (1952); Britton v. John Hancock Life...

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