Reedon of Faribault, Inc. v. Fidelity & Guaranty Insurance Underwriters, Inc.

OPINION RANDALL, Judge. Fidelity and Guaranty Insurance Underwriters, Inc. (Fidelity), appeals from the trial court’s judgment in favor of respondent Reedon of Faribault, Inc. (Reedon), awarding Reedon damages incurred when Fidelity and its agents, Palmer and Cornell, negligently underinsured the Galaxy Motel owned by Reedon. Prior to trial, Palmer and Cornell executed a Pierringer release for claims arising in their individual capacity, not as Fidelity’s agent. After a trial the matter was submitted to the jury on a special verdict form. The jury found that Fidelity was negligent in providing fire insurance on the Galaxy. The jury found Palmer, as Fidelity’s agent, negligent. The jury found Reedon contrib-utorily negligent in procuring inadequate fire insurance on the Galaxy. The jury apportioned negligence as follows: Fidelity 45%; Palmer, as Fidelity’s agent, 45%; Reedon 10%; and Palmer and Cornell, acting in an individual capacity and not as Fidelity’s agent, not negligent. The trial court added the 45% negligence attributable to Fidelity to the 45% negligence attributed to Palmer as Fidelity’s agent, and entered judgment against Fidelity for 90% of the loss, or $44,680. The stipulated amount of Reedon’s loss was $49,643.83. Fidelity moved for judgment notwithstanding the verdict or a new trial, and for an order limiting recovery against Fidelity to 45% of the total amount of the loss. The trial court, by an order entered July 17, [443] 1986, denied Fidelity’s motions. We affirm. FACTS Reedon purchased fire insurance from Palmer and Cornell, Inc., in 1981 to cover the Galaxy Motel. The policy was written through Fidelity. The Fidelity policy was written on the same terms, with the same coverage limits, as a previous policy written through South Carolina Insurance Company. South Carolina had insured the Galaxy as two separate buildings with $486,-000 on building one and $324,000 on building two. Shortly after the policy was written, Fidelity’s engineering department inspected the Galaxy. In 1982 the Galaxy expanded by adding additional motel units as well as a conference room which joined together the two separate buildings. Coverage on building one was increased to $586,000 to cover the additions. The coverage was added to building one because a fire door separated the conference room from building two. Coverage on building two remained the same. In spring, 1982, the Galaxy installed a sprinkler system in order to obtain a rate reduction. After installation of the sprinkler system was complete, Fidelity ordered a second inspection. An Independent Service Organization (ISO) representative inspected the Galaxy for Fidelity to determine whether the Galaxy qualified for a rate reduction. The ISO inspector determined that the Galaxy should be rated as one building divided in two sections, rather than as two separate buildings because the two sections were not separated by a fire door. Fidelity denied Reedon’s request for a premium reduction and notified Palmer and Cornell that the Galaxy’s rates would increase six-fold due to the lack of a fire door. Ralph Palmer orally informed Reedon that the building was not ratable as two buildings and would be rated as one building with $910,000 of coverage. Reedon immediately ordered the fire door. While Reedon was waiting for the fire door to arrive, a fire originated in Galaxy’s sauna destroying what had been designated as building two and causing $373,643.83 in damages. Fidelity paid its policy limits for building two, $324,000. The Galaxy sustained $49,643.83 in stipulated, uncovered losses. Fidelity claimed, and the jury found, that the policy had not been modified to cover the Galaxy as one building. This was the basis for the jury’s finding of negligence against Fidelity. Prior to trial Reedon signed a Pierringer release. The release specifically referred to claims arising from Palmer and Cornell’s individual negligence, not its negligence as Fidelity’s agent. The jury found Fidelity 45% negligent; Palmer, as Fidelity’s agent, 45% negligent; Reedon 10% negligent; and Palmer, acting in an individual capacity and not as Fidelity’s agent, not negligent. The trial judge imputed Palmer’s negligence to Fidelity, and after reducing the loss by Reedon’s percentage of negligence, entered judgment for $44,680 against Fidelity. ISSUES 1. Was the evidence sufficient to support the jury’s finding of independent negligence on the part of Fidelity? 2. Did the Pierringer release signed by Palmer and Cornell release Fidelity as well? ANALYSIS I. Fidelity’s Liability This is a case involving the respective liability of multiple defendants. Fidelity argues that the jury’s verdict as to Fidelity’s independent or individual negligence is unsupported by the evidence. Fidelity claims that its only liability is vicarious, arising from its reliance on Palmer’s computations and descriptions of the property, and that it exercised reasonable care by providing a policy that met the specifications supplied by Palmer and Ree444 don. Reedon argues that once Fidelity undertook inspections of the Galaxy on two separate occasions, it assumed a duty to provide adequate insurance. The special verdict contained the following interrogatories: 5. Was defendant USF & G Insurance Underwriters, Incorporated negligent in providing fire insurance to plaintiff? Yes _X_ No_ ****** 9. Was plaintiff Reedon of Faribault, Incorporated, negligent in procuring inadequate fire insurance? Yes _X_ No_ ****** 11. Was defendant Ralph Palmer, as an agent of USF & G Insurance Underwriters, Incorporated, negligent in providing inadequate fire insurance to plaintiff Reedon of Faribault, Incorporated? Yes _X_ No_ ****** 13. Was defendant Ralph Palmer while acting in an individual capacity— other than an agent of USF & G — negligent in providing inadequate fire insurance to plaintiff Reedon of Faribault, Incorporated? Yes_ No X ****** Taking all the negligence that contributed as a direct cause to the plaintiffs loss to be 100%, what percent or proportion thereof do you attribute to: (a) United States Fidelity and Guaranty Insurance, Inc. 45% (b) Palmer and Cornell Inc. (individual capacity) 0% (c) Ralph Palmer, as agent of USF & G Inc. _45% (d) Reedon of Faribault, Inc. 10% TOTAL 100% Examining the special verdict form, we conclude that Palmer’s individual negligence, not his negligence as Fidelity’s agent, was submitted to the jury in interrogatory no. 13. We hold that the trial court’s submission of the interrogatories in this manner was proper. We note that Palmer and Cornell were independent insurance brokers. After being contacted by Reedon (Reedon had contacted other agencies with the same request) Ralph Palmer contacted various insurance companies on his own explaining Reedon’s needs and soliciting bids. Palmer was acting as an independent agent and not as an agent for any of the companies he had contacted. After Reedon selected Fidelity’s bid through Palmer, the agency relationship between Palmer and Fidelity was established. Fidelity does not dispute this. Fidelity’s individual negligence was submitted to the jury in interrogatory no. 5. Palmer’s liability as Fidelity’s agent was submitted to the jury in interrogatory no. 11. The trial court interpreted these answers by imputing Palmer’s liability, as an agent of Fidelity, as a matter of law. Fidelity argues that evidence does not support the trial court’s imputing Palmer’s agency negligence to it. We affirm the trial court on this issue. Under settled principles of law, Fidelity, as principal, was liable for its agent’s negligent acts. “[I]t is generally the rule that an insurance company is liable for the torts of its agents when they were acting within the scope of their employment.” Eddy v. Republican National Life Insurance Co., 290 N.W.2d 174, 176 (Minn.1980). The court properly interpreted the answers to the special verdict interrogatories, under Eddy, by imputing Palmer’s liability as Fidelity’s agent to Fidelity. Fidelity concedes that, once their bid was accepted by Reedon after having been submitted by Palmer and Cornell, thereafter, Palmer was its agent and he acted within the scope of his agency. Fidelity does not dispute the finding that Palmer, as Fidelity’s agent, acted negligently. Under these circumstances, the trial judge properly combined the percentages of negligence apportioned to Fidelity and to Palmer, acting as Fidelity’s agent, by interpreting the special verdict answers to require Fidelity to pay 90% of the damages. [445] The issue of Fidelity’s individual negligence went to the jury on the following instructions: Ladies and gentlemen of the jury, there will be two changes. I am also instructing you that USF & G Incorporated may be liable by its own actions, independently of any actions of Mr. Ralph Palmer if you so find from the facts. This instruction relates to special verdict interrogatory no. 5. We hold the jury’s finding of Fidelity’s independent negligence is supported by the evidence. Fidelity conducted two inspections of the Galaxy and knew, or should have known, that the coverage was inadequate. Fidelity argues that it had no statutory duty to inspect. We affirm the jury’s finding that once Fidelity undertook to inspect the Galaxy, it assumed a duty to exercise reasonable care in drafting the Galaxy’s coverage. II. Pierringer Release When Palmer and Cornell executed the Pierringer release with Reedon, the only liability that Reedon intended to release was that for negligent acts by Palmer and Cornell as individuals separate from those committed by Fidelity. The release stated, in pertinent part: Reedon * * * does hereby release and forever discharge Palmer and Cornell, Inc., its agents, heirs and assigns, of and from any claims * * * arising from or to arise from, the fire which occurred on or about September 25, 1982. * * # ⅜ * 4c The undersigned expressly reserves all its rights to the balance of the whole cause of action arising out of the above event, which it may have against Fidelity and Guaranty Insurance Underwriters, Inc. Fidelity claims that by executing the Pierringer release, Palmer and Cornell released Fidelity as well. Fidelity bases its argument on Serr v. Biwabik Concrete Aggregate Co., 202 Minn. 165, 278 N.W. 355 (Minn.1938) which holds that the release of one joint tortfeasor releases all tortfeasors. Since we have held that the release signed by Palmer and Cornell referred only to their liability for acting individually, it follows that the release did not apply to Palmer’s liability as Fidelity’s agent. While appellant cites the general rule of Serr, Frey v. Snelgrove, 269 N.W.2d 918 (Minn.1978), approved the use of the Pierringer releases in Minnesota and created a specific exception to the Serr rule. Reedon, in executing a Pierringer release, expressly reserved its right to proceed against Fidelity. The Pierringer release, which released only those claims against Palmer and Cornell, in their individual capacity, did not absolve Fidelity of vicarious liability for negligent acts of Palmer and Cornell as Fidelity’s agents. We will not disturb the trial court’s decision to require Fidelity to pay 90% of the loss. We hold that Palmer and Cornell’s execution of the Pierringer release did not release Fidelity. Palmer and Cornell’s payment of $15,000 constituted only a full and final settlement of any negligence attributable to them in their individual capacity. The jury found Palmer and Cornell’s negligence, in their individual capacity, to be zero. Had Palmer and Cornell proceeded through trial, they would not have had to pay anything in their individual capacity. The $15,000 respondent received upon signing the Pierringer release does not serve as a credit to Fidelity. This represents a case where, among multiple defendants, one defendant settled by Pierringer release, avoiding risk of trial, but giving up the chance to exonerate himself at trial. The nonsettling defendants go to trial assured that the negligence apportioned to the settling defendant will not be paid by them. In this case the jury apportioned no negligence to the settling defendant. Fidelity, through individual negligence and vicarious liability, bears the loss, less only the 10% negligence attributed to respondent. [446] DECISION The trial court did not err in upholding the jury’s finding of Fidelity’s vicarious and individual liability. The Pierringer release signed by Palmer and Cornell, as individuals, did not relieve Fidelity of liability on the judgment for the percentage of negligence attributable to Palmer, acting not as an individual but as an agent for defendant USF & G. Affirmed. FOLEY, J., dissents.