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Wednesday, August 25, 2004
Premium Cigars International et. al. v. Farmer-Butler-Leavitt Insurance Agency et. al.: Division One Holds That Negligence Claims Against An Insurance Company Are Not Assignable
Premium Cigars International (“Premium”) was insured by Farmer-Butler-Leavett Insurance Agency (“Insurance Agency”) and an excess insurer to provide, among other things, hired auto and non-owned automobile liability insurance (“HNO”) coverage. The excess insurer was obtained through an insurance broker. Although Premium claims Insurance Agency assured it that the HNO policy would be effective as of September 10, 1997, the Insurance Agency did not add the HNO coverage to Premium’s policy until September 18, 1997. Two days before that date, Charleston, a Premium employee, was involved in a car accident while taking Premium clients from the airport to the Premium office in his personal car. The accident victims sued Premium and Charleston. Insurance Agency denied defense and liability of the claims, asserting that the HNO coverage was not effective on the date of the accident. Premium hired a law firm to defend it and Charleston, and the dispute ended in a Settlement Agreement and Covenant Not to Execute. In the Settlement Agreement, Premium allowed default judgment to be entered against it in the amount of $3.825 million, and assigned Premium’s claims against the Insurance Agency and the insurance broker who obtained the excess coverage to the accident victims, who subsequently sued those parties for breach of contract and negligence in Premium’s name. Insurance Agency moved for summary judgment, asserting a statute of limitations defense, which was denied. Insurance Agency and the insurance broker then moved again for summary judgment, arguing that Premium’s claims were not assignable to third parties, which the trial court granted.
On appeal, Division One affirmed the trial court’s ruling that negligence claims against an insurance agent are not assignable. The Court analogized the duties arising out of the insurer-insured relationship to those between an attorney and client, and held that the public policy concerns that prevented the assignability of legal malpractice claims also applied to professional negligence claims against an insurer. As to the insurance broker, the Court of Appeals held that liability could attach only if the broker was Premium’s apparent agent. If an agency relationship did not exist, the broker owed Premium no duty. If an agency relationship did exist, then the only duties owed to the insured were those owed by the insurance company, which were not assignable. In either case, summary judgment was appropriate. The Court remanded to the trial court the issue of whether a valid breach of contract claim existed, noting that such a claim may be properly assigned to a third party if it is one based upon a contract implied-in-fact rather than one implied-in-law. The Court also remanded to the trial court the issue of when the cause of action for breach of contract arose, if it did at all. The Court also resolved certain evidentiary issues and denied the moving parties attorneys fees.
Judge Ehrlich authored the opinion; Judges Thompson and Lankford concurred.
Premium Cigars International (“Premium”) was insured by Farmer-Butler-Leavett Insurance Agency (“Insurance Agency”) and an excess insurer to provide, among other things, hired auto and non-owned automobile liability insurance (“HNO”) coverage. The excess insurer was obtained through an insurance broker. Although Premium claims Insurance Agency assured it that the HNO policy would be effective as of September 10, 1997, the Insurance Agency did not add the HNO coverage to Premium’s policy until September 18, 1997. Two days before that date, Charleston, a Premium employee, was involved in a car accident while taking Premium clients from the airport to the Premium office in his personal car. The accident victims sued Premium and Charleston. Insurance Agency denied defense and liability of the claims, asserting that the HNO coverage was not effective on the date of the accident. Premium hired a law firm to defend it and Charleston, and the dispute ended in a Settlement Agreement and Covenant Not to Execute. In the Settlement Agreement, Premium allowed default judgment to be entered against it in the amount of $3.825 million, and assigned Premium’s claims against the Insurance Agency and the insurance broker who obtained the excess coverage to the accident victims, who subsequently sued those parties for breach of contract and negligence in Premium’s name. Insurance Agency moved for summary judgment, asserting a statute of limitations defense, which was denied. Insurance Agency and the insurance broker then moved again for summary judgment, arguing that Premium’s claims were not assignable to third parties, which the trial court granted.
On appeal, Division One affirmed the trial court’s ruling that negligence claims against an insurance agent are not assignable. The Court analogized the duties arising out of the insurer-insured relationship to those between an attorney and client, and held that the public policy concerns that prevented the assignability of legal malpractice claims also applied to professional negligence claims against an insurer. As to the insurance broker, the Court of Appeals held that liability could attach only if the broker was Premium’s apparent agent. If an agency relationship did not exist, the broker owed Premium no duty. If an agency relationship did exist, then the only duties owed to the insured were those owed by the insurance company, which were not assignable. In either case, summary judgment was appropriate. The Court remanded to the trial court the issue of whether a valid breach of contract claim existed, noting that such a claim may be properly assigned to a third party if it is one based upon a contract implied-in-fact rather than one implied-in-law. The Court also remanded to the trial court the issue of when the cause of action for breach of contract arose, if it did at all. The Court also resolved certain evidentiary issues and denied the moving parties attorneys fees.
Judge Ehrlich authored the opinion; Judges Thompson and Lankford concurred.
Posted date: Wed, Aug 25, 2004
