Warnock v. Bonneville General Agency, Inc.

• Decision Date: 01 April 1975
• Parties: Larry Lynn WARNOCK, also known as Larry Lynn Jones, Appellant, v. BONNEVILLE GENERAL AGENCY, INC., an Oregon Corporation, Respondent.
• Court: Oregon Supreme Court

Page 333

533 P.2d 333

271 Or. 634

Larry Lynn WARNOCK, also known as Larry Lynn Jones, Appellant, v. BONNEVILLE GENERAL AGENCY, INC., an Oregon Corporation, Respondent.

Supreme Court of Oregon, In Banc.

Argued and Submitted March 5, 1975.

Decided April 1, 1975.

Richard K. Klosterman, and David C. Bond, Portland, argued the cause for appellant. On the brief were Richard K. Klosterman and Klosterman & Joachims, Portland.

Walter J. Cosgrave, Portland, argued the cause for respondent. On the brief were Frank H. Lagesen and Cosgrave & Kester, Portland.

TONGUE, Justice.

This is an action for damages against an insurance broker for the wrongful cancellation of an automobile insurance policy under which plaintiff was the named insured. The complaint alleges that as a result of the cancellation the insured lost the opportunity to settle a claim against him for the policy limit of $10,000 and instead suffered a judgment in the sum of $216,093 in favor of the driver of a car involved in a collision with plaintiff's car.

In a prior action by plaintiff against the insurance company which had issued the policy, the court found that the cancellation of the policy was invalid and awarded plaintiff judgment against the insurer for the policy limit of $10,000. Plaintiff brings this action to recover the difference between that amount and $216,093, the amount of the judgment taken against him.

Plaintiff appeals from a judgment for defendant, which was entered after the trial court had sustained a demurrer to plaintiff's complaint on the ground that any cause of action by the plaintiff against defendant was in tort for interference with the contract of insurance between plaintiff and the insurance company and therefore was barred by the two year statute of limitations.

Plaintiff contends, to the contrary, that he had a cause of action in contract against defendant for breach of defendant's fiduciary duty as plaintiff's agent and that this action was filed within the six year statute of limitations for actions for breach of contract.

The controlling facts, as alleged in the complaint, are as follows: On January 17, 1970, plaintiff employed defendant as his insurance broker and agent to procure for him a policy of automobile insurance for one year. On the same date and as a part of the same transaction, plaintiff entered into a premium finance agreement, under which defendant agreed to pay to the insurance company the entire premium for the policy and plaintiff agreed to repay defendant in eight monthly installments, the first of which was due on February 17, 1970. The defendant then paid the entire premium and the insurance policy was then issued by the insurance company.

On April 17, 1970, plaintiff failed to make the monthly installment payment to defendant as due on that date under the premium financing agreement. On April 24, 1970, defendant, purporting to act as agent for the insurance company, sent a notice to plaintiff, with a copy to the company, of cancellation of the insurance policy, effective May 6, 1970, for nonpayment of premium. That cancellation was wrongful because it was not initiated by the insurance company and defendant had no power of attorney from plaintiff authorizing cancellation of the policy for nonpayment of plaintiff's debt to defendant. Plaintiff's complaint alleges that by such conduct defendant 'breached its employment and financing contract with the plaintiff,' under which defendant had 'a continuing contractual duty to the plaintiff not to commit any act which would prevent performance of the policy of insurance it had been retained by plaintiff to procure for him.'

The complaint goes on to allege that on June 9, 1970, plaintiff was involved in an automobile accident, resulting in an action for damages against him; that an offer was made to settle that action for the amount of the insurance policy, but that the insurance company, believing its policy had been cancelled, refused to accept that offer; that a judgment in that action was then taken against plaintiff for $216,093; that plaintiff then filed an action against the insurance company to recover that amount, in which it was held that 'the attempted cancellation was invalid and ineffective;' and that there was coverage under the policy 'to the extent of the policy limit' of $10,000, and that a judgment for that amount was entered in favor of plaintiff against the insurance company.

Finally, the complaint alleges that the failure of the insurance company to accept the offer to settle the claim against plaintiff for $10,000 was caused by the wrongful cancellation of the insurance policy by defendant 'by reason of which' plaintiff has been damaged in the sum of $206,093, plus interest and costs.

Plaintiff contends that defendant was his agent to procure a policy of automobile insurance that would protect him from liability for a period of one year; that as an implied term of the contract of agency defendant owed a duty of loyalty to plaintiff; that, as a result, the defendant was under a duty not to commit any act that would prevent the performance of the policy of insurance it had been retained by plaintiff to procure for him; that this duty did not cease upon the procurement of the insurance policy even if the agency relationship terminated at that time; and that for breach of this duty plaintiff has a remedy for breach of the contract of agency.

Defendant contends, on the contrary, that upon the procurement of the insurance policy the agency relationship was terminated and that there was no continuing contractual duty under the facts pleaded by the complaint which could be the subject of an action for breach of contract.

The relationship between an insured and an insurance broker engaged by him to procure insurance has been described as a principal-agent relationship. See 3 Couch on Insurance 2d 282, § 25:1 (1960). Cf. Hamacher v. Tumy et al., 222 Or. 341, 347, 352 P.2d 493 (1960). The description of this relationship as one of agency has been criticized as misleading, however. See Keeton, Basic Text on Insurance Law 56, § 2.5(c) (1971).

Whether or not this relationship is one of principal and agent, an agreement by an insurance agent or broker to procure an insurance policy for an applicant is a contract and may give rise to an action for breach of contract in the event that the broker violates any duty imposed upon him by that contract. Rodgers Ins. v. Andersen Machinery, 211 Or. 459, 468, 316 P.2d 497 (1957).

It has been held that it is an implied provision in every contract that neither party will engage in any act that will 'have the effect of destroying or injuring the right of the other party to receive the fruits of the contract.' Perkins v. Standard Oil Co., 235 Or. 7, 16, 383 P.2d 107, 112, 383 P.2d 1002 (1963), quoting 3 Corbin on Contracts 278, § 561 (1960).

Thus, whether or not defendant was an agent of plaintiff so as to be under a continuing fiduciary duty of loyalty to the plaintiff as his principal, as contended by plaintiff, defendant was under a duty imposed by an implied provision of the contract with plaintiff not to frustrate or defeat the object of that contract. According to the allegations of the complaint, the object of the contract was 'to procure for plaintiff a public liability insurance policy for one year's duration on a 1967 Chevrolet Impala convertible belonging to the plaintiff.'

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