Title: Gordon v. Spectrum, Inc.

State: wyoming

Issuer: Wyoming Supreme Court

Document:

Gordon v. Spectrum, Inc.1999 WY 75981 P.2d 488Case Number: 97-308Decided: 05/28/1999Supreme Court of Wyoming
 
Ron 
GORDON and Nucor Drilling, Inc., a Wyoming corporation, Appellants 
(Plaintiffs),

v.

SPECTRUM, INC., a Wyoming 
corporation; Mary Flaharity and Ed McCaffety; James Thurston; and Ramsgate 
Managing Insurance of Wyoming, Inc., a Wyoming corporation, Appellees 
(Defendants).

 

Mel C. Orchard, 
III of Meyer and Williams, Jackson, WY, Representing Appellant. Argument 
by Mr. Orchard.

Kathleen J. 
Doyle and Peter J. Young of Schwartz, Bon, Walker & Studer, LLC, Casper, WY, 
Representing Appellees (Broker). Argument by Ms. 
Doyle.

Timothy W. 
Miller of Reeves & Miller, Casper, WY, Representing Appellees 
(Agent). Argument by Mr. Miller.

Before 
LEHMAN, C.J., and MACY, GOLDEN, and TAYLOR, * JJ., and VOIGT, 
D.J.

* Chief Justice at time of 
oral argument; retired November 2, 1998.

LEHMAN, Chief 
Justice.

[¶1]      The primary issue 
on appeal is whether an insurance agent or broker has a duty to inform a client 
of its insurer's insolvency even after the client's policy expired. The client 
sued its agent and broker claiming the agent and broker were negligent by 
failing to inform the client that its insurer was insolvent. The client also 
alleged that the agent and broker were negligent in procuring the insurance 
policy with the insurer. The district court granted summary judgment for the 
agent and broker, finding they had no duty to inform the client of the insurer's 
insolvency. Because we agree that there is no duty and that the client did not 
create an issue of material fact of whether the agent and broker were negligent 
in procuring the insurance policy with the insurer, we 
affirm.

ISSUES

[¶2]      Appellants Ron 
Gordon and Nucor Drilling, Inc. (Nucor) state the issues for review: 

1. Is an 
insurance agent or broker entitled to summary judgment where the agent or broker 
fails to inform a policyholder that an insurance company providing him coverage 
is insolvent[?]

2. Is an 
insurance agent or broker entitled to summary judgment where the agent or broker 
fails to inform a policyholder that the policyholder must file claims against 
his insurance company within a specified period[?]

3. Where an 
insurance broker or agent procures insurance from a company which is not 
admitted by the Wyoming Insurance Commission, and is unrated by standard 
insurance rating authorities, are the broker and agent entitled to summary 
judgment when there is evidence that a reasonable and prudent broker or agent 
would not have placed such insurance without the insured's informed consent to 
do so?

4. Are an 
insurance agent and broker entitled to summary judgment finding that Plaintiffs 
have no damage because Plaintiffs succeeded in negotiating a covenant not to 
execute against them as an alternative to financial ruin?

5. Is an 
insurance agent or broker entitled to summary judgment based upon matters 
considered by the trial court which were not pled or argued by the parties, and 
were factually incorrect?

Appellees Mary 
Flaharity, Ed McCaffety, and Ramsgate (hereinafter Broker) rephrase the 
issues:

1. Does an 
Insurance broker have a duty to inform a previous insured of the insolvency of 
its insurer nearly one year after the insured's policy expired and without any 
notice of a loss?

2. Does an 
insurance broker have a duty to inform a previous insured whose policy has 
expired of a deadline to file claims against its insolvent insurer, when the 
broker had no notice of a possible claim from the insured?

3. Is an 
insurance broker negligent for procuring insurance from a solvent surplus lines 
carrier in compliance with Wyoming Statute § 21-11-101, et. seq., which later 
became insolvent?

4. Does an 
insurance broker have a duty to indemnify an insured who has suffered no 
damages, when the insured voluntarily stipulated to 100% liability and agreed 
not to contest the amount of damages awarded against it, after failing to inform 
its agent, broker or insurer of an occurrence under its policy five years 
earlier?

5. Can a trial 
judge base his decision granting summary judgment to appellees on any proper 
legal basis even if the parties did not argue that issue?

Appellees Jim 
Thurston and Spectrum (hereinafter agent) advance these 
issues:

1. Whether 
appellants are exempt from the requirement of proving 
damages.

2. Whether an 
insurance agent can be held liable for obtaining coverage from a solvent 
insurer.

3. Whether an 
insurance agent who is without notice of any potential claim has a continuing 
duty to advise an insured of an insurer's receivership after a liability policy 
has expired.

FACTS

[¶3]      Nucor is a 
mineral exploration and extraction company. Because mineral exploration is a 
high risk business, Nucor's insurance agent had difficulty obtaining insurance 
for Nucor from a standard insurance carrier admitted in Wyoming. The agent 
worked with a broker who dealt primarily in excess and surplus line insurance to 
find insurance coverage for Nucor.1 The agent and broker found 
insurance coverage for Nucor with Indemnity Underwriters Insurance Company 
(Indemnity Insurance), a surplus line carrier not admitted in Wyoming. Nucor 
purchased liability insurance from Indemnity Insurance on October 11, 1989. 

[¶4]      When procuring 
the insurance policy for Nucor with Indemnity Insurance, the broker, pursuant to 
Wyo. Stat. Ann. § 26-11-105 (Michie 1997), filed an Affidavit of Surplus Line 
Broker, noting that "no authorized carrier, transacting this kind and class of 
business, can be found." 2 Nucor's policies with Indemnity 
Insurance were effective from October 1989 until October 1992. In 1992, Nucor 
did not renew its policy with Indemnity Insurance, but instead sought coverage 
with the Bituminous Insurance Company. Indemnity Insurance, solvent at the time 
of Nucor's last renewal, subsequently became insolvent and was placed in 
receivership in 1993.

[¶5]      James Smith 
(Smith) was injured while working as an independent contractor for Nucor in May 
1991. However, Smith did not act on his injury until 1995, when he brought a 
damage claim for his injuries against Nucor's employee Ron Gordon and Nucor. 
Nucor notified its insurance agent of Smith's lawsuit by sending copies of the 
Summons and Complaint on May 3, 1995, which the agent forwarded to the broker. 
The broker informed Nucor of Indemnity Insurance's insolvency on May 6, 1995. On 
May 22, 1995, Indemnity Insurance's receiver notified Nucor that it could not 
provide Nucor a defense in the Smith case. Nucor then contacted both its agent 
and broker asking to either be defended or indemnified. Both the agent and the 
broker denied Nucor's request, forcing Nucor to provide its own defense. Nucor 
settled the Smith case on April 29, 1996. The Settlement Agreement contained the 
following provisions: Gordon's admission of 100 percent fault for Smith's 
injuries; Nucor's acceptance of liability as Gordon's employer; Nucor's 
agreement not to contest damages; and a covenant from Smith not to execute 
against Gordon and Nucor. After the agreement, a hearing was held on the issue 
of damages, and the district court awarded Smith 
$1,323,560.

[¶6]      Nucor 
subsequently brought this suit, claiming its agent and broker: breached their 
duty by failing to inform Nucor that Indemnity Insurance was insolvent; failed 
to properly investigate the solvency of Indemnity Insurance before purchasing 
the policy; and breached their fiduciary duty. Nucor claims to have suffered 
three types of damages: attorney fees incurred while defending the Smith case; 
Gordon's mental distress; and the Smith judgment. Nucor also sought punitive 
damages. All of the parties moved for summary judgment. The trial court granted 
the agent's and broker's motion for summary judgment on September 3, 1997, 
stating that neither the agent nor the broker had a continuing duty to advise 
Nucor of Indemnity Insurance's insolvency and that Nucor had suffered no 
damages.

STANDARD OF 
REVIEW

[¶7]      In reviewing a 
trial court's entry of summary judgment, we examine the record in the light most 
favorable to the nonmoving party, giving that party all reasonable inferences 
that can be fairly drawn from the record. Shaw v. Smith, 964 P.2d 428, 433 (Wyo. 
1998). Summary judgment is proper only when no genuine issues of material fact 
exist and the prevailing party is entitled to judgment as a matter of law. 
Garcia v. Lawson, 928 P.2d 1164, 1166 (Wyo. 1996). A genuine issue of material 
fact is a disputed fact that, if proven, would establish or refute an essential 
element of a cause of action or a defense raised by the parties. Thunder Hawk By 
and Through Jensen v. Union Pacific R.R. Co., 844 P.2d 1045, 1047 (Wyo. 1992). 
For a summary judgment motion to be successful, the movant must make a prima 
facie showing that no genuine issue of material fact exists. Clark v. Industrial 
Co. of Steamboat Springs, Inc., 818 P.2d 626, 628 (Wyo. 1991) (quoting TZ Land 
& Cattle Co. v. Condict, 795 P.2d 1204, 1208 (Wyo. 1990)). The burden 
thereafter shifts to the opposing party to demonstrate the existence of a 
genuine issue of material fact. Weber v. McCoy, 950 P.2d 548, 551 (Wyo. 
1997).

DISCUSSION

Continuing 
Duty

[¶8]      Nucor claims that 
the district court erred when it granted the agent's and broker's summary 
judgment motion on its continuing-duty claim. It is well established that an 
essential element of a negligence claim is the breach of a duty owed to the 
plaintiff by the defendant. Turcq v. Shanahan, 950 P.2d 47, 51 (Wyo. 1997); 
Daily v. Bone, 906 P.2d 1039, 1043 (Wyo. 1995). "The existence of duty is a 
question of law, making an absence of duty the surest route to summary judgment 
in negligence actions." Id. at 1043 (citing Tidwell v. HOM, Inc., 896 P.2d 1322, 
1325 (Wyo. 1995)). Consequently, to prevail on its negligence claim, Nucor must 
show that its agent and broker had a duty to notify it of Indemnity Insurance's 
insolvency even after the policy expired.

[¶9]      Wyoming 
recognizes that insurance agents have a general duty to act reasonably toward 
their insureds. If an agent fails to use reasonable care, the agent may be 
liable for negligence and any resulting damages. Arrow construction Co., Inc. v. 
Camp, 827 P.2d 378, 381 (Wyo. 1992); Hursh Agency, Inc. v. Wigwam Homes, Inc, 
664 P.2d 27, 32 (Wyo. 1983). This court, however, has never addressed the issue 
of whether an agent or a broker has an ongoing duty to advise. Other 
jurisdictions have held that after an insurance agent or broker has secured 
insurance coverage for an insured, an agent or a broker has no continuing duty 
to advise, counsel, or direct the insured's coverage and generally has no 
affirmative duty to uncover or give advice regarding possible gaps in coverage. 
See Blonsky v. Allstate Ins. Co., 128 Misc.2d 981, 491 N YS.2d 895, 897-98 
(N.Y.1985); Gabrielson v. Warnemunde, 443 N.W.2d 540, 542 
(Minn.1989).

[¶10]   Despite that broad pronouncement, 
these courts recognize that an agent may have an increased duty to clients where 
a special relationship exists. Blonsky v. Allstate Ins. Co., 491 N.Y.S.2d  at 97; 
Gabrielson v. Warnermunde, 443 N.W.2d at 543-44; Louwagie v. State Farm Fire 
& Cas. Co., 397 N.W.2d 567, 569-70 (Minn App. 1986). No one set of factors 
has emerged from the courts on the elements of a special relationship, yet there 
is agreement that the ordinary agent-insured relationship is not sufficient to 
constitute a special relationship which raises the agent's duty to a higher 
level. Gabrielson v. Warnermunde, 443 N.W.2d  at 543, 545; Nelson v. Davidson, 
155 Wis.2d 674, 456 N.W.2d 343, 346-47 (1990). Nucor directs us to no evidence 
showing the existence of anything other than an ordinary agent-insured 
relationship with its agent. Absent a special relationship, Nucor has failed to 
show that a genuine issue of material fact exists.

[¶11]   Although courts are split on 
whether an agent or broker has a duty to inform a current client that its 
insurance company is insolvent, Cateora v. Britsh Atlantic Assurane, Ltd. of 
Nassau, Bahamas, 282 F. Supp. 167, 174 (1968) (holding an agent had a duty to 
inform a current client of the insurer's insolvency); Eastham v. Stumbo, 212 Ky. 
685, 279 S.W. 1109, 1110 (1926) (holding the agent not liable to the insured for 
failure to notify the client of the insurer's insolvency), the parties have 
referred us to no authority holding an insurance agent or broker liable to a 
former policyholder, where the company subsequently becomes insolvent and the 
agent fails to notify the former policyholder of the company's insolvency. We, 
likewise, find no authority suggesting such a duty extends to a former 
client.

[¶12]   Since Nucor purchased insurance 
coverage from a different agency in 1992 and Nucor's Indemnity Insurance policy 
had lapsed, Nucor was no longer a customer of its agent at the time Indemnity 
was placed into receivership. Therefore, when Indemnity Insurance became 
insolvent a year after Nucor discontinued its policy, neither Nucor's agent nor 
broker owed Nucor a duty to inform it of Indemnity Insurance's 
insolvency.

Duty to 
Investigate

[¶13]   An agent or broker is required to 
use reasonable care, skill, and judgment, but not act as a guarantor of the 
insurer's solvency or its financial condition. Higginbotham & Associates, 
Inc. v. Greer, 738 S.W.2d 45, 47 (Tex.App.1987); Williams-Berryman, Inc. Co. v. 
Morphis, 249 Ark. 786, 461 S.W.2d 577, 579-80 (1971).

No broker shall 
knowingly place surplus line insurance with an insurer that is unsound 
financially or that is ineligible under this section. The broker shall ascertain 
the financial condition of the unauthorized insurer, to the extent that the 
financial condition is shown by the insurer's recent financial statements filed 
with public authority or published, or as otherwise known to the broker, before 
placing insurance with that insurer.

Wyo. Stat. Ann. 
§ 26-11-107 (a) (Michie 1997). Generally, an agent or broker will not be liable 
to the insured because of the insurance company's resulting insolvency unless 
the insured can prove that the agent or broker acted negligently by knowingly 
placing the policy with an insolvent carrier. Sternoff Metals Corp. v. Vertecs 
Corp., 39 Wn. App. 333, 693 P.2d 175, 180 (1984); accord Beckman v. Edwards, 59 
Wn. 411, 110 P. 6, 6 (1910); Eastham v. Stumbo, 279 S.W.  at 1110; Master 
Plumbers Ltd. Mut. Liability Co. v. Cormany & Bird, Inc., 79 Wis.2d 308, 255 N.W.2d 533, 535 (1977); Couch on Insurance 2d § 25:48 
(Rev.1984).

[¶14]   Indemnity Insurance was solvent 
when Nucor's policy was issued and remained so until after Nucor's policy 
expired. From 1989 to 1992, the time Nucor's policy was in effect, Indemnity 
Insurance was qualified to do business in Texas, admitted in Oklahoma, and 
maintained sufficient capital and surplus to satisfy the statutory requirements 
of Wyo. Stat. Ann. § 26-11-107 (b).3 Nucor does not argue that Indemnity 
Insurance was insolvent at the time the policy was issued, and the record does 
not support the claim that either the agent or broker knew or should have known 
of Indemnity Insurance's financial problems when the insurance was procured, or 
that either had or should have had such knowledge until Indemnity Insurance was 
declared insolvent. Nucor has failed to present evidence that would establish a 
material issue of fact on its claim that the agent and broker were negligent in 
obtaining the policy from indemnity Insurance. Thus, the district court's grant 
of summary judgment on Nucor's duty-to-investigate claim was 
proper.

Other Issues 
Raised

[¶15]   Since the agent and broker owed no 
duty to notify Nucor of the insolvency, we need not address whether Nucor 
actually suffered damages or whether the trial court could base its decision to 
grant summary judgment on a legal basis not raised by the 
parties.

CONCLUSION

[¶16]   The agent and broker had no duty to 
notify Nucor of Indemnity Insurance's insolvency once Nucor's insurance policy 
terminated. Nucor presented no specific evidence from the record to create an 
issue of material fact whether the agent or broker acted negligently by 
knowingly procuring the policy with a financially unsound carrier. Because no 
genuine issues of material fact exist and the agent and broker are entitled to 
summary judgment as a matter of law, the district court properly granted their 
motion.

[¶17]   Affirmed.

Footnotes

1 The term 
surplus line insurance generally refers to insurance that cannot be procured 
from authorized insurers. Wyo. Stat. Ann. § 26-11-04 (a) (Michie 1997). Surplus 
line insurance typically involves high risk coverage preventing the insured from 
using an ordinary admitted insurer. Robertson v. California, 328 U.S. 440, 450, 
n. 10, 66 S. Ct. 1160, 1166, n. 10, 90 L. Ed. 1366 
(1946).

2 The purpose 
of the affidavit is to set forth facts to show that the insurance is eligible 
for export under Wyo. Stat. Ann. § 26-11-104 (Michie 1997). Export is permitted 
when insurance coverage cannot be obtained from an authorized insurer (i.e. 
"authorized" means an insurer authorized by an existing certificate of authority 
issued by the commissioner to transact insurance in Wyoming. Wyo. Stat. Ann. § 
2-1-102 (a)(v) (Michie 1997)) and must be procured from an unauthorized 
insurer.

3 Wyo. Stat. 
Ann. § 26-11-107 (b) (Michie 1997) states:

The 
broker shall insure only in an insurer which meets the following requirements: 
(i) Is authorized to transact insurance of the kind involved in at least one (1) 
state of the United States and has ummpaired capital or surplus, or both, or an 
effective trust fund amounting to at least three million five hundred thousand 
dollars ($3,500 000.00)[.]