Arcon Corp. v. Liberty Mutual Insurance

ON THE MERITS

This action by the plaintiff Arcon Corporation, inter alia, is to recover of the defendants Liberty Mutual Insurance Company and Liberty Mutual Fire Insurance Company damages allegedly due it by reason of such insurers’ having failed to comply with their contract with the plaintiff to shift its loss from flooding of the contents in its business-house from the plaintiff to the defendants. Trial to the Court was on October 17-18, 1983.

Upon the stipulated and other evidentiary facts and reasonable inferences flowing therefrom, the Court makes the following

Findings-of-Fact

(indicated by arabic-numerals)

and arrives at the following

Conclusions-of-Law

(indicated by capitalized-letters).

I

Jurisdiction

1. The plaintiff is a Tennessee corporation, not incorporated by Massachusetts, with its principal place of business within Tennessee, and the defendants are Massachusetts corporations, not incorporated by Tennessee, with their respective principal places of business within Massachusetts. The sum or value of the matter presently in controversy, exclusive of interest and costs, exceeds the sum of $10,000, and the defendants are before the Court by due process of law.

A. This Court has jurisdiction of the subject-matter hereof, 28 U.S.C. §§ 1332 (a)(1), (c), and of all the parties.

B. The law of Tennessee, as applicable herein, is regarded as the rules of decision in this civil action. 28 U.S.C. § 1652 ; Erie Railroad Company v. Tompkins, 304 U.S. 64 , 58 S.Ct. 817 , 82 L.Ed.2d 1188 (1938).

II

Liability

2. In all transactions between the parties herein: the plaintiff acted by and through Mr. Charles Swift; the defendants acted by *20 and through Messrs. Matthew Ashwood and William Eugene Webb, Jr.; and each of such respective agents acted respectively within the apparent scope of the authority which had been granted him by the respective principals.

C. Where employees of corporations act thus within the apparent scope of their authority to act for such corporations, then their actions are those of, and bind, such corporations. Whitehaven Utility District of Shelby County v. Ramsey, 215 Tenn. 435 , 387 S.W.2d 351, 354 [4] (1964).

3. The defendants acted gratuitously as volunteers and contracted to provide the plaintiff at the most economical premium-cost with the same insurance-coverages it was carrying at the pertinent time and to advise it, for further discussion, of any additional insurance-coverages it was deemed by the defendants to lack and need.

D. (1) When one person is requested by another person to make a promise, and the first such person complies by his or her words or actions with such request, and there is a valuable consideration for the making of such promise, a complete contract is thereby created between that promisor and that promisee. Dark Tobacco Growers’ Co-Op. Ass’n v. Mason, 150 Tenn. 228 , 263 S.W. 60 , 67[5-7] (1924).

(2) “ * * * [T]he duty of a volunteer, who undertakes to act, * * * 'even though gratuitously, may thereby become subject to the duty of acting carefully, if he [or she] acts at all’* * *.” Nidiffer v. Clinchfield R. Co., 600 S.W.2d 242, 246 [9] (Tenn.App.1980), permis. app. den. by the Supreme Court of Tennessee (1980).

4. The defendants, as agreed and acting for the plaintiff, provided the plaintiff with the same insurance-coverages it was carrying at the pertinent time at a premium-cost approximately 20% less than the amount it had been paying therefor, but they breached such agreement by failing to advise it, for further discussion, of any additional insurance-coverage(s) they deemed the plaintiff needed and lacked and failed carelessly to discover the plaintiff’s need for flood-insurance, which it then lacked.

E. “ * * * [0]ne who contracts to [provide] insurance for a party is liable for a failure to do so on the theory that pro tanto he [or she] has become the broker or agent of the insured, and this even though he [or she] may be at the same time, for some purposes, the agent of * * * insurance companies]. * * * ” Glisson v. Stone, 4 Tenn.App. 71, 73 (Tenn.App.1926), cert. den. by the Supreme Court of Tennessee (1927); see also Nidiffer v. Clinchfield R. Co., supra.

5. (a) The plaintiff made no application to the defendants for insurance; the defendants furnished the plaintiff a written proposal-to-insure it against “ALL RISKS [as in orig.]” with 100% coinsurance for a stated premium-cost.

(b) The plaintiff accepted such proposal.

(c) As requested by the plaintiff, the Court notices judicially, Rule 201(b), F.R. Evid., that on January 4, 1979 within the Middle District of Tennessee, the words, all-risks, meant naturally and popularly each and every risk from each and every peril. Mr. Swift attributed to those words, supra, such natural and popular meaning; whereas, Mr. Ashwood attributed to them an esoteric significance intelligible to persons engaged in the selling or the buying extensively of insurance-coverage(s).

(d) Mr. Ashwood delivered to the plaintiff in April, 1979 the defendants’ policy of “all-risks” insurance no. KF2-551d070253049/8 on the contents of its business-house which said policy excepted specifically from coverage the plaintiff’s risk from and peril of flooding.

F. (1) The contract-to-insure of the parties must be enforced according to the ordinary meaning of the words, all-risks, which would have been derived therefrom by reasonable persons dealing in the same situation as were Messrs. Swift and Ashwood. Hardwick v. American Can Co., 113 Tenn. 657 , 88 S.W. 797 , 801 (1905).

(2) “ * * * Under Tennessee law, the terms used in a contract are to be given *21 their natural, popular meaning unless from the context it appears that the parties intended otherwise. * * * ” Rolane Sportswear, Inc. v. United States Fidelity & G. Co., 407 F.2d 1091 , 1097[12] (6th Cir.1969).

(3) (a) That Mr. Ashwood, acting for the defendants, may have conceived unilaterally a peculiar meaning of “ALL-RISKS”, unshared by Mr. Swift, “ * * * does not avail to disturb the plain and ordinary meaning of the words of the contract * * * ” of these parties. Moore v. Moore, 603 S.W.2d 736, 739 [6] (Tenn.App.1980), permis. app. den. by the Supreme Court of Tennessee (1980).

(b) “ * * * [IJnsurers who seek to impose upon words of common speech an esoteric significance intelligible only to their craft, must bear the burden of any resulting confusion. * * * ” Gaunt v. John Hancock Mut. Life Ins. Co., 160 F.2d 599, 602 [5] (2d Cir.1947), cert. den. 331 U.S. 849 , 67 S.Ct. 1736 , 91 L.Ed. 1858 (1947).

6. The defendants were granted a summary judgment, Rule 56(b), F.R.Civ.P., on the (untimely) claims of the plaintiff under the aforenumbered insurance-policy. See memoranda opinions, orders and directions herein of May 12, 1983.

G. (1) An insurance policy which insures against “all-risks” protects the insured against loss of or damage to the latter’s property except as to the perils and risks excepted specifically from coverage in the contract itself. Clay v. Sun Insurance Office Limited, 363 U.S. 207, 214 (dissenting opinion), 80 S.Ct. 1222, 1227 (dissenting opinion), 4 L.Ed.2d 1170 (1960). “* * * The primary elements of an insurance contract are the spreading and underwriting of a policyholder’s risks. ‘It is characteristic of insurance that a number of risks are accepted, some of which involve losses, and that such losses are spread over all the risks so as to enable the insurer[s] to accept each risk at a slight fraction of the possibility of liability upon it.’ * * * ” Group Life & Health Ins. v. Royal Drug Co., 440 U.S. 205, 211 , 99 S.Ct. 1067, 1073 [4], 59 L.Ed.2d 261 (1979). “ * * * The extent of the risk is the basis of all tabulated premium charges. * * * ” American Automobile Ins. Co. v. Jones, 163 Tenn. 605 , 45 S.W.2d 52, 53 (1932), quoted-from in Schultz v. Tennessee Farmers Mutual Insurance Co., 218 Tenn. 465 , 404 S.W.2d 480, 484 [4] (1966).

(2) “ * * * The insurer has a right to assume that the risks [it] assumes shall not be enlarged. * * * ” American Automobile Ins. Co. v. Jones, supra, 45 S.W.2d at 53 .

7. Mr. Ashwood and his employers were on notice that “ * * * floods are not the kind of risks which insurance companies undertake because they are usually catastrophic and affect many people. * * * ” Safeco Ins. Co. of America v. Guyton, 471 F.Supp. 1126, 1130 [2] (D.C.Cal.1979), rev’d. on other grds., 692 F.2d 551 (9th Cir.1982).

H. (1) Insurance companies contend “ * * * ‘the reason for the insertion of the exclusionary clause * * * in all risk insurance policies is to relieve the insurer from occasional major disasters which are almost impossible to predict and wreak damage to everyone in a large area rather than one individual policyholder. When such happens, the very basis upon which insurance companies operate is said to be destroyed. When damage is so widespread no longer can insurance companies spread the risk and offset a few of the average percentage of losses by many premiums.’ * * * ” Id., quoting-from Wyatt v. Northwestern Mutual Ins. Co., 304 F.Supp. 781, 783 (D.C.Minn.1969).

(2) The Congress found: “ * * * many factors have made it uneconomic for the private insurance industry alone to make flood insurance available on reasonable terms and conditions; but * * * a program of flood insurance with large-scale participation of the Federal Government and carried out to the maximum extent practicable by the private insurance industry is feasible and can be initiated * * National Flood Insurance Act of 1968, 42 U.S.C. §§ 4001 , et seq., at 42 U.S.C. § 4001 (b)(1), (2); see Tex. Landowners Rights Ass’n v. *22 Harris, 453 F.Supp. 1025 (D.C.D.C.1978), aff'd. 598 F.2d 311 (table) (D.C.Cir.1979), cert. den. 444 U.S. 927 , 100 S.Ct. 267 , 62 L.Ed.2d 184 (1979).

8. Under the pertinent program here, the defendants could have provided the plaintiff with flood-insurance coverage of a maximum of $100,000.

9. The insured-contents of the plaintiff were housed in a flood-plain.

10. The partially-insured contents of the plaintiffs business-house were completely lost because of flooding on May 3-4, 1979, such loss exceeding the value of $100,000.

11. The defendants undertook to do for the plaintiff that which they had promised to do, but they were misfeasant in doing it in such an improper manner as to cause damage to the plaintiff.

Proximate Causation

L (1) “ * * * ‘The question whether [loss] in a given case is proximate * * * is always to be determined on the facts of each case upon mixed consideration of logic, common sense, justice, policy, and precedent.’ * * * ” Lancaster v. Montesi, 216 Tenn. 50 , 390 S.W.2d 217, 220-221 (per curiam, 1965); accord: Wyatt v. Winnebago Industries, Inc., 566 S.W.2d 276, 281 [9] (Tenn.App., per Judge (now Justice) Dworota, 1977), cert. den. by the Supreme Court of Tennessee (1978).

(2) “ * * * [0]ne who promises to do something for another, even gratutiously, and who would not be responsible for a failure or refusal [to so act] because this would be a mere nonfeasance, yet is liable if he [or she] undertakes to do what he [or she] promises and does it in such improper manner as to cause damage to his [or her] promisee[,] for this is misfeasance. * * * ” Glisson v. Stone, supra, 4 Tenn.App. at 73 .

12. Mr. William E. Webb, Jr., the highest official of the defendants who testified at trial herein, conceded the impropriety in Mr. Ashwood’s undertaking to do what the defendants promised the plaintiff, as follows:

“Q. ‘ * * * [I]s there anything * * * that would cause you to say that Mr. Ashwood didn’t have some responsibility to tell Mr. Swift that there were exclusions and/or exceptions to the all-risk policy?’

“A. ‘Matt [Mr. Ashwood] should have explained to Mr. Swift that this is an all-risks policy “duplicating what you have, subject to the exclusions.” ’

“Q. ‘And he should have told him that there were some exclusions?’

“A. ‘Yes.’

“Q. '* * * [T]hey [the defendants’ sales-representatives] should advise a customer that an all-risk policy has certain exceptions and exclusions?’

“A. ‘Yes.’

“Q. ‘And, that was the policy of the company at least as early as 1978?’

“A. ‘Yes.’

“Q. ‘You train your agents to tell that to the prospective customers?’

“A. ‘Yes.’

* j}t * s}: * #

“Q. ‘[I]t would be advisable to put it [the same forewarning] in any written communication?’

“A. ‘Absolutely.’

* * * * * *

“Q. < * * * when y0u were in the process of delivering policies to customers, would you point-out to them that they should read the exclusions?’

“A. 'Yes, * * * because [sic: if] it is not excluded in the policy, it’s covered somewhere [else in it] generally.’

“Q. ‘And, do you consider that * * * a minimum of responsibility to a customer, to point-that-out to him?’

“A. ‘Yes.’

“Q. ‘ * * * I mean point-out the exclusions and call them to his attention and suggest that he read them?’

“A. ‘If he isn’t going to allow us the privilege of going-over them with him, then he should read them at his leisure.’

* # * # * *

*23 “Q. ‘Has Liberty Mutual made it a policy of instructing its sales-representatives to inform their clients of the availability of flood-insurance under this program [under the National Flood Insurance Act of 1968, 42 U.S.C. §§ 4001 , et seq. and related legislation]?’

“A. ‘Yes.’

“Q. ‘And, that is certainly something that should be done if the client has a risk or exposure to flood-loss?’

“A. ‘If there’s an obvious potential to flood, yes.’

“Q. ‘The way you[r] [agent] might determine if there is a potential loss as a result of flood is to make some inquiry of the customer?’

“A. ‘Make an inquiry of maybe the area.

“Q. ‘ * * * [A] reasonable amount of research would be in order on that point, at least in those situations * * * where the customer had come to the agent and said, “I need help with my insurance; I don’t know what I have; I don’t know what I need; give me a proposal and advise me of what I need”?’

“A. ‘ * * * [T]hat would be in order, if the prospective client suggested: “I don’t know what I need; advise me of the coverages that I need and the coverages that are available; and, at the same time, give me a cost of what that will i) i * * *

13. Such misfeasance of the defendants was a legal cause of such loss of the plaintiff, although not the sole cause.

J. “ * * * It is sufficient if such act was a substantial factor in causing the harm. * * * ” Lancaster v. Montesi, supra, 390 S.W.2d at 220-221 .

14. Having promised to provide the plaintiff with all the insurance it needed and call its attention to any eoverage(s) the plaintiff needed but lacked, the defendants caused such loss even if Mr. Ashwood did not foresee the exact manner of the occurrence sometime afterward of such loss.

K. (1) “ * * * The defendants] need not [have] be[en] able to foresee the exact manner of the [loss’] occurrence, but only its general nature. * * * ” Wyatt v. Winnebago Industries, Inc., supra, 566 S.W.2d at 281 .

(2) “ * * * [T]he mere lapse of time between the wrong and the [loss] does not prevent the wrong from being the legal cause of the injury. * * * ” Null v. Electric Power Board of City of Nashville, 30 Tenn.App. 696 , 210 S.W.2d 490, 495 (1948), cert. den. by the Supreme Court of Tennessee (1948).

15. The directors of the plaintiff-corporation intended to protect it with all the insurance it needed and instructed its president, who instructed Mr. Swift, to accomplish this at the minimum premium-cost; thus, upon all the evidence, it is probable that, had it not been for the misfesance of the defendants, Mr. Swift would have added insurance-coverage (in the maximum amount available) against the risk of flood. Logic and common sense suggest that this would have been the course of action taken by the plaintiff.

L. (1) As the finder-of-facts herein, the Court must decide in this instance what the probabilities were. Standard Oil Co. v. Van Etten, 107 U.S. 325, 333 , 1 S.Ct. 178, 184 , 27 L.Ed. 319 (1882).

(2) “ * * * The intended effect of the ‘preponderance of the evidence’ rule is that plaintiff’s burden is to convince [the faetfinder[s] ] upon all the evidence * * * that facts asserted by the plaintiff are more probably true than false. * * * ” Burch v. Reading Company, 240 F.2d 574, 578-579 [6] (3d Cir.1957), cert. den. 353 U.S. 965 , 77 S.Ct. 1049 , 1 L.Ed.2d 914 (1957).

Contributory Negligence

16. Mr. Swift was comptroller of the plaintiff. In April, 1979 he was engaged busily in the preparation of his employer’s year-end records for the first time since his employment; he gave priority of his time and attention to that effort and did not read the aforenumbered policy until after the aforesaid loss.

*24 M. (1) As stated, supra, this action is viewed as being based on contract; negligence is not a defense to an action based on contract. Dobson & Johnson, Inc. v. Von Weiland, 644 S.W.2d 394, 397 [4] (Tenn.1982).

(2) Furthermore: “ * * * considering that the defendants’] [sales-representative, Mr. Ashwood] was acting for [the plaintiff]; that [the plaintiff] relied on the defendants] who[se] [representative] had much more knowledge as to the matter in hand than [Mr. Swift]; the hurry and lack of opportunity for examination when [the policy] was [delivered] and the difficulty of an amateures] understanding such a [document] suddenly * * *, the court cannot be required to hold [the plaintiff] estopped and deny [it] relief on this ground. * * * ” Glisson v. Stone, supra, 4 Tenn.App. at 79 (headnote 3), quoted-from approvingly in Routh v. Sanders, 29 Tenn.App. 602 , 199 S.W.2d 461, 463 (1946), cert. den. by the Supreme Court of Tennessee (1947), reh. den. (1947).

17. The defendants are liable to the plaintiff.

Ill

Damages

N. (1) “ * * * The measure of damages * * * for the breach of a duty under a * * contract * * * to cover with insurance * * * ” is “ * * * the value of the property destroyed* * *.” Lancaster Mills v. Merchants’ Cotton-Press & S. Co., 89 Tenn. 1 , 14 S.W. 317, 330 (1890), cited in Routh v. Sanders, supra, 199 S.W.2d at 463 .

(2) But, the damages of the plaintiff herein, having been caused by the defendants’ breach of their executory contract with it, they are liable to the plaintiff “ * * * for the amount of insurance that would have been issued * * * ” to protect the plaintiff against the risk and peril of flooding of the contents of its business-house. Glisson v. Stone, supra, 4 Tenn. App. at 71 (headnote 1).

18. That amount, as noted, supra, was $100,000.

IV

It is the consequent

DECISION

of this Court, Rule 58(1), F.R.Civ.P., that the plaintiff Acron Corporation recover of the defendants Liberty Mutual Insurance Company and Liberty Mutual Fire Insurance Company damages of $100,000 and lawful interest thereon from May 4, 1979; 1 in all other aspects of its claims, the plaintiff hereby is denied all relief. 2

. The award of prejudgment interest is rendered under the Court’s discretionary power to so do. See Tyber v. Great Central Ins. Co., 572 F.2d 562, 564 [4] (6th Cir.1978); Farmers Chemical Ass'n v. Maryland Casualty Co., 421 F.2d 319 , 323[5] (6th Cir.1970); Johnson v. Tennessee Farmers Mut. Ins. Co., 556 S.W.2d 750, 752 [2] (Tenn.1977); Third Nat. Bank in Nashville v. Cotten, 536 S.W.2d 330, 331, 333 (Tenn.1976); Coke v. United Transp. Union, 631 S.W.2d 142, 146 [3] (Tenn.App.1982), permis. app. den. by the Supreme Court of Tennessee (1982).

. The Court considered the alternative theories of recovery advanced by the plaintiff and concluded that the plaintiff would not be entitled to recover under any such theory an amount in excess of $100,000 plus applicable interest. Accordingly, the Court pretermitted all findings-of-fact and conclusions-of-law relating to issues the decision of which was deemed unnecessary to the results reached herein. Immigration & Naturalization Serv. v. Bagamasbad, 429 U.S. 24, 26 , 97 S.Ct. 200, 201 [1], 50 L.Ed.2d 190 (1976).

The Court adhered to its trial-ruling that the plaintiff was not entitled to introduce into evidence portions of the deposition of Mr. Swift. Since Mr. Swift was available and actually testified at trial, the use of his deposition as evidence by the plaintiff was not permissible. Rule 32(a), F.R.Civ.P.; Salsman v. Witt, 466 F.2d 76, 79 [1] (10th Cir.1972); 8 Wright & Miller, Federal Practice and Procedure: Civil 449, § 2142. " * * * The deposition has always been, and still is, treated as a substitute a second-best, not to be used when the original is at hand. * * * ’’ Napier v. Bossard, 102 F.2d 467, 469 (2d Cir.1939) (per Learned Hand, J.).